Make room for another REIT

Robinsons Land (RLC) will be listing its real estate investment trust (REIT) RL Commercial REIT or RCR on the Philippine Stock Exchange (PSE) in September.

Despite being the fourth REIT to debut in the local bourse, there are compelling reasons why RCR deserves a spot in investors’ portfolios.

RCR will be the biggest and most diversified REIT in the country.

It owns 14 office projects with total gross leaseable area (GLA) of about 425,000 square meters (sq m). Upon listing, RCR will have a market capitalization of around P64 billion, which is almost 70% above the market capitalization of the next biggest REIT AREIT.

RCR’s large size is an advantage as the REIT is expected to be more liquid, making it attractive to a larger group of investors including foreign funds.

Moreover, RCR is the most diversified REIT. Unlike other REITs that have concentrated exposure in certain locations, RCR’s assets are spread across the country- in Metro Manila, Cebu, Davao, Tarlac and Naga. Although bulk of its projects are in Metro Manila, its projects in the national capital region are spread across five key business districts namely Pasig, Quezon City, Mandaluyong, Makati, and Taguig.

RCR also boasts of other qualities that make it an attractive REIT. In 2020, its projects had an average occupancy rate of 98.8%. Companies in the BPO sector also account for bulk of its occupied space at 75.4 percent while traditional companies occupy 15.8%. Although RCR has POGO tenants which are considered riskier, its exposure is minimal at only 3.1%. Moreover, even if its POGO tenants leave, RCR’s buildings are all PEZA accredited, reducing the risk that it cannot find new tenants.

Finally, RCR has a strong potential for growth. RCR’s sponsor RLC has a healthy inventory and pipeline of office projects that it intends to slowly inject into the REIT. Outside of the REIT, RLC still has 10 office buildings with a GLA of around 188,000sqm. It also has five office buildings in the pipeline with a total GLA of 108,000sqm. Note that the combined GLA of these fifteen office buildings is almost 70 percent of RCR’s current portfolio.

RCR also has no debts and can borrow up to Php20.7 billion to fund future acquisitions if opportunities arise.

Like most other REITs, RCR does not own land. However, the land on which its offices are built on are on a long-term lease of 98-99 years with its sponsor RLC. Although the Bases Conversion and Development Authority (BCDA) owns the land where Cyber Sigma in Taguig is built, RCR has a 25-year lease on the property, renewable for another 25 years. These long-term leases reduce the sustainability risk that comes with projects that are built on land that is owned by other parties.

At its IPO price of P6.45 per share, RCR’s implied 2022 dividend yield is 5.7 percent. The said yield is lower compared to those of DDMP REIT and Filinvest REIT (6.3 percent). However, given RCR’s much larger size, more diversified portfolio of office properties, and strong potential for growth, the lower yield is well deserved in my opinion. Moreover, at 5.7 percent, RCR’s dividend yield is higher than that of AREIT (5.2 percent) which currently has a smaller market capitalization.