Ayala firm listing to boost REITs

International property consulting firm Colliers sees greater interest in the implementation of the Real Estate Investment Trust or REIT law following the signing of the measure’s amended implementing rules and regulations (IRR) and after one of the country’s leading real estate companies became the first firm to file for REIT with the Securities and Exchange Commission (SEC).

Publicly listed Ayala Land Inc. (ALI) filed for REIT last week as it sought to raise as much as P15.1 billion by selling 49 percent of the company. ALI’s subsidiary Areit Inc. will offer up to 502.57 million common shares at P30.05 per share. Net proceeds will be allocated for future investments in real estate properties in Metro Manila and other key regions.

Areit’s portfolio includes three commercial buildings in Metro Manila, namely, Solaris One, Ayala North Exchange, and McKinley Exchange which have a combined gross leasable area of 153,000 square meters which according to Colliers are Grade A office towers that also house retail and hotel components.

Colliers report said that the offices have Philippine Economic Zone Authority (PEZA) accreditation that enable occupiers to enjoy both tax and non-tax incentives. These buildings have an average occupancy of 98.2 percent. Among their occupants are large outsourcing and shared service firms such as Telus International Philippines, Shell Shared Services and Concentrix.

ALI has announced that part of the proceeds will be used to acquire an office building in Cebu.

The report noted that ALI’s plan indicates the viability of office as a REIT asset class. In 2019, Makati CBD office lease rates grew by an average of eight percent, higher than the metro-wide growth of seven percent.

According to Colliers, ALI’s move will be a catalyst in enticing Philippine developers to utilize REITs as an alternative source of fresh capital, even as the consulting firm expects national and provincial players to follow suit.

In a recently released report, Colliers explained that while the Philippine government enacted the REIT law in 2009 with the goal of democratizing wealth and attracting more foreign investments into the property sector, the launch of REITs was initially stalled by several regulatory roadblocks, including taxation issues and a high minimum public ownership (MPO) requirement.

Colliers said that REITs are now likely to be implemented as the government has agreed to relax the law’s restrictive rules. For instance, the SEC has relaxed the minimum public ownership requirement to 33 percent from the previous 40 percent. The report noted that most Asian economies have minimal MPO requirements, including Japan, Singapore, and Malaysia having MPOs of between 20 and 30 percent.

In its report, Colliers noted that the full implementation of REITs places the Philippines at par with other Asian economies that have well developed and integrated capital and real estate markets.

It added that REIT implementation in the Philippines will likely result in the further differentiation and innovation of domestic property development projects which should eventually benefit Filipino investors and end-users.

It recommended that developers use REITs to access a cheaper source of capital and renovate and reposition assets such as offices, malls, and warehouses. The report also pointed out that given the dearth of developable land and surging land values in Metro Manila, firms may also use REIT proceeds to develop integrated communities in key cities outside the country’s capital such as Cebu, Davao, Iloilo, Bacolod and Pampanga.

The report noted that the Philippines’ office market, for instance, is one of the most active in the region, with about a million square meters being completed every year and an annual take-up of more than 900,000 square meters. It projects the Metro Manila office lease rates to be among the fastest-growing in Asia from 2020 to 2022.

Aside from traditional asset classes such as office, retail, warehouses, and hotels, Colliers believes that other segments of the economy are likely to benefit from the launch of REITs in the Philippines. With the government being more active in attracting private sector investment, property firms should also explore possible public-private partnership (PPP) projects that cover hospitals, schools, and toll roads as these assets meet the requirement to generate recurring income.

With ALI filing their application to launch a REIT, Colliers said it is a keeping a close eye on the market to see which developers follow suit. The Philippine REIT landscape can now truly develop, which should entice homegrown developers such as those in Cebu and Davao to participate in this new capital fund-raising option, it added.

Colliers also highlighted the fact that REITs can be a viable investment, with average dividend yield of prime Asian REIT markets such as Hongkong, Singapore, Malaysia, and Taiwan, Japan and South Korea at 4.8 percent.

Change may be ill-timed

The business community is keenly observing what’s going in the House of Representatives, especially with a number of key proposed pieces of legislation still pending.

This is following reports that Marinduque Rep. Lord Allan Jay Velasco is mounting an attempt to unseat Taguig Rep. Alan Peter Cayetano as House Speaker.

It has been reported that Velasco has offered juicy committee chairmanships to select congressmen to get them to support his bid to oust Cayetano.

It will be recalled that the original plan was for Cayetano and Velasco to share the term as House Speaker. But President Duterte has said that he would not meddle in the term-sharing arrangement between the two and it is up for the parties if they would like to honor it or not. 

According to these reports, as early as last year, Velasco’s allies have attempted to seek support for Velasco by offering additional project allocations to House members under the proposed  2020 national budget, even if it means such realignments will not conform with the priorities set by President Duterte in his budget message.

Velasco has also reportedly dispatched his allies, in particular Deputy Speakers Aurelio Gonzales and Mikee Romero, along with Rep. Eric Pineda, to launch a signature campaign favoring the renewal of ABS-CBN’s legislative franchise. This is because if Velasco could pressure the House committee on legislative franchises to get the review for the franchise renewal heard and approved, then this would mean he has the clout to turn the tide in his favor.  

Unfortunately, many of those who signed in favor of ABS-CBN’s franchise renewal want their signatures withdrawn.  

Davao City Rep. Isidro Ungas was also reportedly told he would get to retain his chairmanship of the powerful House appropriations committee if he  could convince Rep. Paolo Duterte and the rest of the Mindanao bloc to back Velasco’s power grab.

Under the term-sharing agreement, Cayetano would serve the first 15 months as Speaker, and Velasco would replace him later to serve the remaining 21 months.

Unfortunately, there are those who believe that a change is ill-timed because Congress is now entering a  crucial period when the President needs to get his priority legislative measures passed.  The chances of getting the President’s legislative agenda moving in Congress would be practically nil by 2021, the year prior to the next national elections.   The President needs a steady hand at this time  to get the House to pass his legislative proposals this year. 

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