DESPITE concerns over the Delta variant of the coronavirus disease 2019 (COVID-19), analysts said real estate investment trusts (REITs) remain attractive because of their guaranteed dividend.
Measures taken up by the government, such as implementing lockdowns and continuing its vaccination drive will help drive market interest.
Last week, Del Monte Pacific Ltd. announced the deferment of the P44-billion initial public offering (IPO) of subsidiary Del Monte Philippines, Inc. (DMPI) due to “volatile market conditions” brought by the recent surge in COVID-19 infections.
“The postponement of DMPI’s listing definitely has to do with investor appetite. We have seen mammoth IPOs one after the other and liquidity may be tapped out as of the moment,” AAA Southeast Equities, Inc. Research Head Christopher John Mangun said in an e-mail on Friday.
DMPI’s IPO plan in 2018 was also shelved due to market conditions.
“DMPI has been patient as it wants to get the best valuation, which is understandable,” Mr. Mangun said.
The company’s decision to temporarily stay on the sidelines and delay its listing on the Philippine Stock Exchange (PSE) could make REIT firms reassess their listing schedules, analysts said. However, the guaranteed dividend yield of REITs will still make its offers attractive to investors, they added.
Filinvest Land, Inc.’s unit Filinvest REIT Corp. (FILREIT) is slated to make its debut at the PSE on Thursday, Aug. 12. The company is expecting to raise up to P12.6 billion from the offer.
FILREIT’s initial portfolio has 17 building, 16 of which are located in Filinvest City in Alabang and one Cebu-based office tower with a retail component. The company said around 88% of its tenants are business process outsourcing (BPO) firms. It is banking on “millennial and retail investors” as well as “investors tracking sustainability initiatives” for the success of its listing.
Meanwhile, two more REIT companies separately sponsored by Megaworld Corp. and Robinsons Land Corp. are also preparing to conduct their respective IPOs later this month.
Megaworld’s MREIT, Inc. plans to list at the PSE on Sept. 6, with an offer period for its P27.3-billion IPO expected to run from Aug. 23 to 27. It has 10 office, retail, and hotel assets in its initial REIT portfolio, most of which are also occupied by BPO companies.
Robinsons Land’s RL Commercial REIT, Inc. (RCR), on the other hand, is targeting a PSE debut on Sept. 20. It plans to conduct its P26.7-billion IPO from Aug. 31 to Sept. 8. RCR’s initial portfolio includes 14 real estate assets, with the BPO industry also “the core of RCR’s tenant base.”
“As long as their offer quality and yield [are] good, I think the market may want to take a look and a test,” COL Financial Group, Inc. Chief Technical Analyst Juanis G. Barredo said in a separate Viber message on Friday.
“If their offer is just at par with the rest or lower, the market may opt to stay defensive and not take the chance on heavy involvement,” he added.
With the reimposition of lockdown restrictions, the demand for office spaces is also expected to slow down.
“The immediate term may see some real estate commitments deferred later this year or early next year which would keep vacancy levels elevated in Metro Manila,” JLL Philippines Head of Research and Consultancy Janlo de los Reyes said in an e-mail on Friday, adding that the vacancy level in the first half of the year stood at 16%.
Mr. de los Reyes added that there might be changes in headline rental income in some offices with high vacancies as well as changes in terms granted by landlords to tenants.
“The REIT market is not exempt from downside risks from the pandemic, but this is mitigated by secured long-term leases to protect rental stream, profile of tenants where flight and exit risk is minimized, and portfolio diversification where we’re seeing the introduction of industrial assets under existing and planned REIT vehicles,” he added.
For the country’s pioneer REIT firm, AREIT, Inc., the company said it is not expecting to be impacted by the lockdown as it expects its business locators to keep operating.
It noted that while an industry-wide vacancy is expected to increase by 12% to 15% by the end of the year due to closures of Philippine offshore gaming operators (POGO), AREIT will not be affected.
“We don’t expect AREIT to be directly impacted because AREIT has no POGO tenants,” AREIT, Inc. President and Chief Executive Officer Carol T. Mills said in an e-mail on Friday. “AREIT buildings are also 99% leased on a long-term basis and we do not have major expirations in the next two to three years.”
“Delta variant spread and resulting lockdown are dampeners to sentiment, but the fact that foreign buying was evident when the PSEi (Philippine Stock Exchange index) touched the 6,100-6,200 areas indicates that valuation is a key attraction to funds wanting to diversify away from the more expensive markets like the US,” First Metro Investment Corp. Head of Research Cristina S. Ulang said in a Viber message on Friday.
Analysts said investors should still look at these “short-term bursts of weakness” as an opportunity to collect stocks at a discount.
“When we went into the first lockdown in March 2020, the market did go up quite a bit after acclimatizing with the realities of COVID-19 — something we may have to build into our lives as it becomes endemic,” COL Financial’s Mr. Barredo said. — Keren Concepcion G. Valmonte