Is it a good time to invest in Real Estate Investment Trusts (REITs) amidst the COVID-19 pandemic? In the Philippines, AREIT Inc. or Ayala REIT is the first company to venture into this new asset class. Read on to explore the investment potential of this exciting opportunity.
AREIT's stock price has seen fluctuations since its IPO, but it presents an intriguing investment opportunity.
What is a REIT?
REIT, or Real Estate Investment Trust, is a collective investment scheme that pools money from investors to acquire, manage, and sell real estate properties. It offers the potential for capital gains and defined returns through dividends. In the Philippines, REITs are required by law to distribute at least 90% of distributable income to shareholders.
The Benefits of Investing in REIT
Investing in REIT offers three primary benefits:
1. Current Cash Flow Yield
REITs in the Philippines are obligated to distribute at least 90% of their distributable income as dividends to shareholders annually. The dividends are subject to board approval, ensuring the protection of minority investors.
2. Liquidity
Compared to physical real estate, REITs are more liquid because they are traded on the Philippine Stock Exchange (PSE). This means you can easily buy and sell REITs at any time, similar to stocks.
3. Investment Diversification
REITs provide a brand-new asset class in the Philippines, allowing investors to diversify their portfolios. By including REITs alongside stocks, bonds, mutual funds, UITFs, and real estate, investors can achieve a well-rounded investment strategy.
Properties Owned by AREIT
AREIT Inc. currently owns three commercial buildings transferred from its parent company, Ayala Land Inc. These properties include Solaris One, Ayala North Exchange, and McKinley Exchange, all located in the Makati Central Business District. The combined gross leasable area of these properties is almost 153,000 sq. m. After the IPO, AREIT plans to acquire Teleperformance Cebu, further expanding its portfolio.
Among these properties, Ayala North Exchange stands out as the largest, with two office towers and a three-story retail center. It boasts a 100% occupancy rate and is a PEZA-accredited building. Solaris One, another PEZA-accredited building, has fully utilized space catering to the BPO industry. McKinley Exchange Corporate Center, located along EDSA highway, houses Telus International's BPO customer support operations and has a 98.4% occupancy rate.
Analyst Recommendations and Financial Performance
Given the impact of COVID-19 on the real estate market, stock brokerage firms and property consulting companies in the Philippines have shared their analysis and recommendations regarding investing in AREIT.
According to stock brokerage AP Securities, the BPO sector, which occupies 63% of AREIT's gross leasable area, remains resilient despite the health crisis. However, lower office rents and potential risks to the BPO sector may affect AREIT's performance. Unicapital Securities commends the quality of AREIT's properties and their prime location in Makati CBD, with a combined occupancy rate of 99.9%. Santos Knight Frank believes that REITs will unlock opportunities in the property market and drive long-term growth for the Philippine economy. Regina Capital Development Corp. views the launch of REITs in the Philippines as timely and beneficial for developers.
Ayala Land Inc., AREIT's parent company, reported a decline in earnings and revenues in the first quarter of 2020 due to the pandemic. However, analysts expect a bigger decline in the second quarter due to the ongoing quarantine measures. Despite the challenging circumstances, ALI remains committed to launching AREIT as the first REIT in the country.
Disclaimer: This article is for informational purposes only and should not be taken as financial advice. Before making any investment decisions, please conduct thorough research and consult with a professional financial advisor.
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