REITs seen saddled by hybrid work, POGO exit
By Justine Irish D. Tabile, Reporter
REAL estate investment trusts (REITs) are expected to benefit from the further reopening of the economy, but their growth could be tempered by flexible work arrangements and the departure of Philippine offshore gaming operators (POGO), analysts said.
“The economic reopening narrative would still be the important consideration for the business and sales and overall valuations of REITs,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
“This would be counterbalanced though by the continued work-from-home or hybrid arrangements for some BPOs (business process outsourcing) and some reduction in POGO business since the pandemic started and also amid tighter regulations on POGOs in recent months,” Mr. Ricafort added.
The continuing hybrid work comes as the Fiscal Incentives Registration Board (FIRB), an interagency government body that grants tax incentives to registered business enterprises (RBEs), extended the validity of Resolution No. 026-22 until Jan. 31.
Before the extension, the FIRB noted that only about 40% of the affected RBEs in the information technology and business process management (IT-BPM) industry have submitted their transfer requirements on time or on the previous deadline of Dec. 31, 2022, with 640 RBEs not being able to submit.
With its extension, Resolution No. 026-22 will allow existing RBEs to transfer their registration from the investment promotion agency administering economic zones to the Board of Investments until Jan. 31, which will allow them to adopt up to 100% work-from-home arrangement without the loss of incentives.
Meanwhile, China Bank Securities Corp. Research Director Rastine Mackie D. Mercado said that continued growth in economic activity could help buoy occupancy and rental rates of office and retail REITs.
“Apart from this, revenue growth could also be supported by annual rental escalation, and incremental revenues from asset infusions,” Mr. Mercado added.
Many REITs have posted three-year investment strategies in which they have expressed a positive outlook for the coming years. Philippine Stock Exchange, Inc. said it expects more REITs to list in 2023.
According to the bourse operator, it expects 14 maiden listings this year, 11 of which will be composed of companies and REITs that will list on the main board.
In its three-year investment strategy, DDMP REIT, Inc. (DDMPR) said it is looking to diversify its tenant mix to include financial services, government agencies, and service sectors, banking on its properties’ prime location and government property locators.
Meanwhile, MREIT, Inc. said it is on track to increase its gross leasable area (GLA) to 500,000 square meters (sq.m.) by the end of 2024, while Ayala Land, Inc.-sponsored AREIT, Inc. is planning to grow its assets at an average of 100,000 sq.m. of GLA annually from 2023 to 2025.
Premiere Island Power REIT Corp. (PREIT) said it is working to grow and diversify its portfolio on power generation as it expects to maximize annual total investor return through new acquisitions.
However, most shares of REITs closed lower by end-2022 versus their offer prices with some continually declining as of Jan. 6.
In the REIT prices summary compiled by Philstocks Financial, Inc., AREIT and PREIT were the sole gainers over their offer prices.
AREIT shares closed five centavos or 0.14% higher on Friday to P35.20 apiece, while PREIT shares added a centavo or 0.63% to P1.50 each.
Meanwhile, Citicore Energy REIT Corp. lost one centavo or 0.44% on Friday to P2.28 apiece; MREIT shares went down by 30 centavos or 2.14% to P13.70 each.
RL Commercial REIT, Inc. also declined by 19 centavos or 3.2% on Friday to P5.75 apiece, which was what also happened with VistaREIT, Inc., which lost one centavo or 0.6% to P1.65 each.
Although DDMPR added a centavo on Friday, its closing price of P1.30 is still lower than its offer price of P2.25, while Filinvest REIT Corp. closed unchanged at P5.50 each, also lower than its offer price of P7.
Despite the decline, Mr. Ricafort said that REITs remain to be an integral part of the capital market as they help in diversifying fund sources and investment prospects related to real estate.
“More REITs that are looking to be a part of capital market development allow real estate or property companies to have more options in raising funds while giving more alternatives to the investing public to participate in the various REITs as alternatives to actual real estate or properties with rental income being managed outright,” Mr. Ricafort said.
Meanwhile, Mr. Mercado expects less downward pressure on REIT prices this year as policy rate hikes level off.
“Note that REIT prices typically have an inverse relationship with interest rates and benchmark yields. Prospective infusions could also serve as catalysts for positive price action,” Mr. Mercado said.