‘Greenest’ REIT braves PH stock market

Maricel Lirio

When a big American e-payments firm first came to Northgate Cyberzone in Filinvest City Alabang three years ago when it was looking to set up shop in the country, the first thing its representatives asked was what were the sustainability features of the office properties up for leasing.

Fortunately, Maricel Brion-Lirio, president of Filinvest REIT Corp. (then known as Cyberzone Properties Inc.), had a lot of green features to share with them. Filinvest City, after all, is the first central business district (CBD) in the country to secure the Leadership in Energy and Environmental Design LEEDv4 gold for neighborhood development certification.  Lirio also toured them around to see for themselves the massive district cooling system (DCS) plant in Northgate Cyberzone—the biggest of this kind in the country. This P1.5-billion facility has a refrigeration capacity of 12,000 tons, which can cool as many as 20 buildings at once.

It’s like a big factory except that it produces and distributes through an underground piping network cooling energy in the form of chilled water, centralizing cooling systems and consuming much less energy than if each and every building were to install its own cooling system.

“Amazed” by such features, Lirio said this US firm decided to set up its first headquarters in this area, leasing 14,000 square meters (sq m) of office space in 2018. At the height of the pandemic, this firm even expanded its footprint to 16,000 sq m.

Stock debut

Gotianun-led Filinvest Land Inc. (FLI) recently carved out 16 Philippine Economic Zone Authority (Peza)-registered office towers in Northgate Cyberzone—plus one office property in Cebu—to infuse into Filinvest REIT (FILRT), forming a 301,000-sq m business process outsourcing (BPO)-dominated office portfolio. FILRT, the leading office space provider in Alabang with a market share of close to 50 percent, recently concluded a P12.6-billion initial public offering. Despite the reimposition of enhanced community quarantine in Metro Manila and other key regions, all is set for FILRT’s listing on the Philippine Stock Exchange this Aug. 12.This is the third real estate investment trust (REIT) to come to the local market since this new asset class was catalyzed by favorable tax and listing regulations last year.

Cited as a key differentiator is that it’s the “greenest” REIT in town, based on various green building certifications of assets in the portfolio, the DCS, and other features supporting the sustainability theme. At the parent conglomerate level, the Filinvest group capitalizes on its partnership with Engie Philippines to provide technically robust and commercially sound green solutions in the real estate ecosystem. At the IPO price of P7 per share, Filinvest REIT is the highest dividend-yielding REIT so far with a projected dividend yield of 6.3 percent for this year and 6.6 percent for next year, assuming earnings assumptions set forth in its REIT plan are met.

“The yield is significantly higher than the 10-year government bond yield of 3.8 percent, making FILRT a good yield-enhancing play. With 88 percent of rental revenue projections based on existing contracts, the risk of not meeting its projected payout is minimal,” COL Financial said in a research note.

FILRT is hoping that the sustainability theme will resonate among investors once the REIT becomes tradable on the stock market, especially as more and more young people are discovering equities as a worthwhile asset class amid a record-low interest rate environment.

Global BPO tenants

From the beginning, the main focus of FILRT is the global BPO sector. The 17 buildings in its portfolio have been handpicked based on the quality and diversity of tenant mix. Of the gross leasable area, 88.4 percent is occupied by prime multinational BPO companies. This is the highest ratio of BPO takeup among the REITs that have so far come to market, Lirio noted.

Another 8.8 percent of FILRT’s portfolio is occupied by traditional and retail tenants, while Philippine offshore gaming operator (Pogo) tenants account for just under 2.8 percent. In the years ahead, Lirio said the assumption was that whatever is left of its Pogo tenants will disappear as lease terms expire or as other fold up local operations. A backdrop of tightening regulations in both the Philippines and mainland China is making it more challenging for Pogos to operate onshore.

Positive outlook Based on the latest report of the IT & Business Process Association of the Philippines (IBPAP), the IT-BPO sector grew by almost 2 percent in 2020 despite the prolonged pandemic. The sector’s revenues and manpower are projected to further grow by 5.5 percent and 5 percent, respectively, in 2021 to 2022.

“Moreover, based on our discussions on the ground, as well as industry research, the outlook for grade A office targeted at the BPO industry remains positive,” she said.

Apart from some existing BPO locators taking up additional space, in full year 2020, FILRT was able to renew 99 percent of expiring leases at rates higher than previous escalation rates.

“Just recently, we have signed a letter of intent for a global multinational European BPO company, which is their third expansion with us. We are also in final talks with a global top logistics company and two other global BPO firms,” she said.

Dealing with WFH

“While WFH is an option, our tenants have shared with us that work from home (WFH) is not for everyone, especially for the multinational BPO companies in FILRT, which are amongst the top 10 BPO companies in the world,” Lirio said.

Lirio said these companies still prefer the work setup from the office due to concerns on security data breach, poor internet connectivity at home, lack of in-person interaction with the employees and lower productivity under such setup.

“We don’t think multinational firms will risk disrupting their business operations by [completely] shifting to a WFH setup. Therefore, we are confident there will be continued demand for office space,” she said.