The 67-percent price appreciation to date since the launching of AREIT shares and four subsequent Real Estate Investment Trust (REIT) listings by the largest national developers have compelled savvy investors to seriously consider this alternative investment option, according to Roy Golez, research and consultancy director of Leechiu Property Consultants (LPC).
Consequently, the 5 REITs attracted a sizable following despite pandemic-related uncertainties and now have a combined market capitalization of P260 billion.
“It is to the credit of the REIT sponsors that they put together resilient IT-BPM heavy office portfolios that squarely addressed market jitters,” observed Golez.
Amid higher than usual office vacancies in 2021 due to the pandemic, the top REIT portfolios are thriving with both RCR and MREIT posting price appreciations as of mid-November of 11% and 12% respectively since they were launched around three months ago. The collective performance of these REITs is anchored on superior quality office stock likely to retain high occupancies. Occupancies of the 5 REITs range from 90 percent and higher, according to studies.
The Gross Leasable Areas (GLAs) of the top portfolios are likewise 100 percent accredited by the Philippine Economic Zone Authority (Peza). The limited supply of Peza spaces up to 2025 also ensure that these portfolios will remain highly viable for the next few years, according to Mikko Barranda, LPC director for commercial leasing.
In addition, the Weighted Average Leasing Expiry (WALEs) of these portfolios range from a healthy 3.9 to 5.8 years. Annual escalation clauses are further locked into the lease contracts which translates to increasing annual rental income for the REIT portfolios and steady stable yields for investors.
Barranda observes that even at the height of the lockdowns in 2020, IT-BPMs took up office space and will continue to do so since outsourcing jobs to the Philippines and India remains a viable solution for businesses in recovering economies in the West. Moving forward, there are 129k sq m of live office requirements from BPOs out of 228k sq m seeking to be concluded in the next six months.
Moreover, the average rate of contractions or lease terminations have drastically dropped by 69 percent from a high of 253k sq m in 4Q 2020, slowing to 135k sq m in 2Q 2021 and down to 42k sq m in 3Q 2021 indicating “the bleeding has stopped for the Philippine office segment now paving the way for stronger growth.”
“Our numbers indicate that IT-BPMs continue to be expanding in the Philippines although at a slower rate than in 2019 and earlier. Some observers contend that more contractions will drive down REIT share prices but that is not supported by the data we have presented,” Barranda assured.
From a capital valuation perspective, approximately 80 percent of these REIT assets are located in Central Business Districts that enjoyed double digit CAGRs (11 percent to as high as 21 percent) in the last five years. This is despite the fact that two out of those five were pandemic years. According to Tam Angel, LPC director for investment sales, this uptrend in capital values is expected to continue post-Covid-19 and should have a positive impact on REIT valuations and share price.
Majority of the REITs have outperformed the PSEi year to date with AREIT leading the charge at 53.8 percent as of mid-November. For long-term investors, this is an opportune time to build a REIT investment base before post-Covid-19 recovery speeds up capital value appreciation once again similar to the hypergrowth in 2010, 2011 and 2012, the years following the Global Financial Crisis which directly affected the Philippines in 2008-2009.
Image courtesy of Jo Abellanosa
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