Real Estate Investment Trusts (REIT) may be relatively new in the Philippines but they have been fast gaining popularity among people looking for a steady stream of passive income or for ways to grow their wealth. Many look at it as an easier and less expensive way to invest in properties.
This asset class provides attractive yields that are oftentimes better than what other fixed-income investment options offer, given that the law governing it requires REITs to distribute 90 percent of their net incomes to investors.
But beyond the upfront yields, investors also get to participate in the long-term capital appreciation of the REIT. This capital appreciation reflects the growth in the value of the underlying portfolio of the REIT which, in turn, is a function of three things: organic growth in rental revenues, capitalization rates or yield compression as a result of asset enhancement or improving market outlook, and value-enhancing acquisitions.
Properties in a REIT portfolio are carefully picked based on their track record, income-generating capability and growth prospects. REIT companies have professional fund managers and property managers taking care of them for the investors.
Hypergrowth
One of the best performing REITs in the Philippines to date is AREIT, which in August 2020 became the first in this asset class to list on the stock exchange. On its first year, AREIT investors got a more than 5-percent dividend yield. Also, its share price has appreciated by more than 40 percent since its listing, bringing total returns to more than 45 percent.
It wasn’t a smooth start for AREIT, though, as its share price dropped by about 8 percent upon listing on the Philippine Stock Exchange (PSE) and remained below its Initial Public Offering (IPO) price for a few months. But it bounced back and has, to this day, remained strong and stable. This was as AREIT started to make yield-accretive acquisitions, adding to its portfolio two more properties with total gross leasable area (GLA) of 173,000 square meters (sq m). Analysts see AREIT’s yield to be at least 5.2 percent in 2022.
Similarly, one of the most successful REITs in the region was CapitalMall Trust of Singapore which held an IPO and was listed in July 2002. For the first three years after listing, total returns to investors hit 185 percent —24 percent from dividends and 160 percent from capital appreciation. The big jump in capital appreciation was attributed to the acquisitions made by CapitalMall that expanded by 170 percent its net leasable area during the period.
MREIT listing
Megaworld Corp.-sponsored MREIT Inc., which is scheduled to list on the PSE on Sept. 30, promises to deliver the same hypergrowth to investors on top of an already attractive dividend yield of 5.65 percent in 2022.
At MREIT’s IPO price of P16.10 per share, dividend yield is seen further rising to 6.1 percent in 2023.
MREIT will offer 844.3 million common shares to the public, with an option to upsize by another 105.54 million shares. Offering will run from Sept. 14 to 20.
Analysts, according to reports, find the offering attractive given a yield that is higher than those of other REITs.
“MREIT, being Megaworld’s flagship REIT, is being structured to deliver fast growth and strong aftermarket performance. At the current issue size, the institutional tranche was close to two times oversubscribed, which bodes well for aftermarket performance,” reports quoted MREIT president Kevin Tan as saying.
“MREIT expects both its market cap and float to grow overtime as it successfully executes its aggressive growth trajectory,” he added.
The undisputed leader in the Philippine office space, Megaworld has injected into MREIT 16 percent of its completed office and commercial space portfolio. Ten prime office properties with total GLA of 224,430 sq m in three of Megaworld’s most vibrant townships make up for MREIT’s current portfolio. These Grade A properties form part of Eastwood City in Quezon City, McKinley Hill in Fort Bonifacio and Iloilo Business Park in Iloilo City.
Even after taking out these 10 Grade A properties, Megaworld still has in its fold 1.2 million sq m of completed office space that can eventually be infused into MREIT in the future. In fact, prior to its listing on Sept. 30, MREIT has signed a memorandum of understanding with Megaworld for the acquisition of three more buildings that will enhance the value of its portfolio and boost 2022 dividend yield.
According to reports, another 100,000 sq m in gross leasable space will be infused into MREIT in 2022. INQ