Central bank moves, speculation over timing of REIT listing propel Ayala Land stock movements

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Outlier

By Mark T. Amoguis
Senior Researcher

AYALA LAND, Inc. (ALI) was one of the most actively traded stocks last week following the easing in monetary policy as well as traders speculating on the timing of the company’s plans to conduct a real estate investment trust (REIT) listing on the stock exchange this year.

A total of P2.577 billion worth of 54.539 million Ayala Land shares were traded during the May 14-17 period, data from the Philippine Stock Exchange (PSE) showed.

Shares in the real estate arm of the Ayala group closed P46.75 apiece last Friday, shedding 0.5% from the P47 finish on May 10.

Since the start of the year, ALI’s share price went up by 13.2%.




“For me, the main factor that affected [ALI’s] stock performance is the 25-bps (basis point) interest rate cut. This is a positive catalyst for the company and for the property sector in general as this would induce more consumer loans which would consequently flow to property investments,” Wendy Estacio, research head at Unicapital Securities, Inc., said in an e-mail interview.

In a phone interview, AP Securities, Inc. Research Analyst Rachelle C. Cruz said that the investors remained “positive” on ALI following its first-quarter earnings report.

She added that the reserve requirement ratio cut on the big banks “seems to be positive on the property developers like Ayala Land because reserve requirement cut will pave way for lower interest rates, which could increase the appetite of property buyers on the local side.”

“Fundamental-wise, Ayala Land is still okay,” AP Securities’ Ms. Cruz said.

In its third policy review this year on May 9, Bangko Sentral ng Pilipinas’ (BSP) Monetary Board slashed benchmark interest rates by 25 bps to a range of four percent to five percent amid easing inflation. This partially dialed back a cumulative 175-bps hike to benchmark rates last year as monetary authorities scrambled to put a lid on accelerating inflation.

A week later, BSP Governor Benjamin E. Diokno told reporters that the central bank plans to slash the big banks’ reserve requirement ratio (RRR) by 200 bps in three stages: 100 bps by May 31, 50 bps by June 28, and 50 bps by July 26. This would bring the RRR down to 16% from the current 18%.

Aside from the monetary policy easing, analysts said that investors may have also speculated on the timing of ALI to tap the REIT market that could turn out to be the country’s first.

Jeffrey Lucero, equity analyst at RCBC Securities, Inc., said that ALI’s plan to do a REIT offering may have continued to generate interest from investors.

“We generally see ‘REIT-ing’ as net asset value accretive, particularly with REIT’s tax benefits. The capital that will be raised… will also help fund [ALI’s] expansion plans,” he said in an e-mail.

For her part, AP Securities’ Ms. Cruz noted the current REIT’s implementing rules and regulations (IRR) that was released in 2010 following the REIT law’s passage the previous year as “very disadvantageous” to property developers like ALI.

Ms. Cruz said that developers are hesitant to tap the REIT market, citing one of the provisions such as the high minimum public float required by the existing IRR.

“So, if Ayala Land will push through with that without changes to REIT IRR, it could be a risk to them,” she said.

ALI announced last April its plans into offering REIT — eyeing to raise P25-26 billion — after filing to rename One dela Rosa Development, Inc. into Ayala Land REIT, Inc. that will serve as the vehicle for the REIT listing. Once further clearances are secured from the Securities and Exchange Commission (SEC) and PSE, it will use Ayala Land’s office buildings located in the Makati Central Business District for the REIT.

Ayala Land plans to push through with the listing regardless of whether or not the SEC will revise the REIT IRR.

Passed into law in 2009, Republic Act (RA) No. 9856 — or the REIT Law — allows creating corporations that will pool investor funds and manage real estate assets.

Property companies were interested at first but expressed objections on stringent rules via REIT law’s IRR such as the 12% value-added tax slapped on the initial transfer of real properties into the REIT company as well as the high minimum public float requirement of 40% upon listing the company at the local bourse, then raising it to 67% within three years.

Since then, the SEC has favored a lower public float of 33%, while the 12% value-added tax on the transfer of real properties has been removed under RA 10963 or the Tax Reform for Acceleration and Inclusion law. However, the SEC has yet to release a revised IRR governing REITs as the Finance department wanted assurance that the funds generated via REITs will not be spent outside the country.

Earlier news reports noted the new REIT rules are targeted to be out within the first half this year.

Meanwhile, analysts were bullish that ALI will meet its P40-billion profit target by 2020 as they project above 10% growth this year. For the company to achieve this target, it needs to grow by at least 17% this year.

The company’s net income attributable to equity holders of the parent company rose 12.4% to P7.32 billion in the first quarter from P6.52 billion in the same period in 2018.

“Although [the first-quarter result] was slightly below our full-year forecast, we believe [Ayala Land] would be able to hit our net income target of P36.9 billion in 2019 (or an 11% growth from 2018), mainly driven by the residential and office segments. Also, it has P142-billion unbooked revenues that could further boost our forecasts,” Unicapital’s Ms. Estacio said.

RCBC Securities’ Mr. Lucero penciled in a 14% annual increase to Ayala Land’s core net income to P33.3 billion by yearend.

“Both the rental businesses and real estate sales will drive growth for the full year. While in the [first quarter], real estate sales wasn’t as stellar, I expect it to pick up in the coming quarters since the reason for the lower-than-expected real estate sales in the 1Q was only revenue recognition timing,” Mr. Lucero said.

For this week, Ms. Cruz of AP Securities expects Ayala Land to trade with a support price at P46 and resistance price at P48, while Unicapital’s Ms. Estacio pegs the company’s support and resistance prices at P46 and P47.70, respectively.

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