AREIT, Inc. saw its shares go down last week despite reporting strong third-quarter revenues as investors remained wary amid high borrowing costs.
Based on data from the Philippine Stock Exchange, up to 32.845 million AREIT shares worth P985.603 million were traded from Nov. 20 to 24, making it the fourth most actively traded stock last week.
AREIT shares closed at P29.20 apiece last Friday, dropping by 8.8% from P32 per share last Nov. 17. Since the Dec. 29, 2022 finish, the stock has fallen by 17.5%.
“Despite the positive news of increased net income, investors are carefully considering the various negative factors impacting the stock,” Globalinks Securities and Stocks, Inc. Head of Electronic Trading Mark Crismon V. Santarina said in a Viber message. “Presently, the stock is following a downtrend, and this trend might persist into the upcoming week.”
He said hefty rate hikes from the Bangko Sentral ng Pilipinas (BSP) to tame inflation had dampened the bottom lines of real estate investment trusts like AREIT.
“Borrowing costs for REITs have risen, creating a downward impact on their profits,” Mr. Santarina said.
AREIT’s net income rose by 51.3% to P1.23 billion in the third quarter from P814.21 million in the July-to-September period last year, its latest disclosure to the local bourse showed.
This brought the January-to-September bottom line to P3.27 billion, rising by 34% from P2.44 billion in the same nine-month period a year ago.
Since May 2022, the borrowing cost has become more expensive as the BSP hiked interest rates by 450 basis points.
The key rate — now at a 16-year high of 6.5% — was maintained as of the policy meeting in November
“Uncertainties in the economic conditions with inflation still going up continue to influence AREIT stocks to a downward trend,” Diversified Securities, Inc. Equity Trader Aniceto K. Pangan said in a mobile phone call interview.
Capital appreciation of AREIT rests on its investment portfolio, which drives its dividend growth.
As borrowing costs rise, debt financing for AREIT’s real estate acquisition becomes challenging.
Meanwhile, the P6.8-billion property-for-share swap of AREIT and ACEN Corp. was approved on Nov. 17.
In exchange for 199.11 million primary common shares, AREIT added 2.76 million square meters (sq.m.) of ACEN land in Zambales to its portfolio under a 25-year lease.
Mr. Pangan said the move caused a stock decline as “short-term investors see dividends to go down with the increase of the shares to be issued to ACEN.”
However, in the long term, Mr. Santarina sees the move to be strategic as “diversification reduces exposure to office and retail sectors, making AREIT more resilient to economic downturns.”
Both analysts agree that the stock movement of AREIT is bound to spiral down in the coming weeks.
Mr. Santarina expects AREIT to post a net loss of P989 million in the fourth quarter, saying the slow economic growth will negatively impact the real estate industry and reduce occupancy rates and rental income for the company.
The office sector in the third quarter saw an 18.7% rise in vacancy with a cumulative 2.2 million square feet of new lease terminations and office space completion, according to the third-quarter office market report of Colliers.
The country has just begun to stabilize in occupancy level as office transactions slowly rise by 2% year on year to 501,000 sq.m. from 493,000 sq.m. last year.
Collier predicts that overall rents will fall by another 2% by the end of the year.
Mr. Santarina placed AREIT’s support and resistance levels at P29 and P31, respectively, this week.
Meanwhile, Diversified Securities’ Mr. Pangan placed the stock’s support and resistance at P29 and P33, respectively.
“The property’s strategic location in a growing industrial corridor is expected to yield attractive rental returns, boosting earnings and dividends,” Mr. Santarina added.
He sees AREIT’s full-year net income to reach P4.4 billion. — Andrea C. Abestano
