FY21 net income of P2.4 billion, down 61% from FY20 profit of P6.3 billion. As AREIT points out in the first paragraph of its Management’s Discussion and Analysis section, the company adjusted its accounting policy for investment properties in 2021, from “cost model” to “fair market value model”, and the audited comprehensive income statements for 2021, 2020, and 2019 were all restated to accommodate the change.
The adjustment in value in 2020 makes it look like 2021 is a huge step backward in AREIT’s profitability, but as AREIT explains, from an operations perspective, before taxes and the one-off accounting change, the company’s net income actually increased 56% from 2020 to 2021.
Revenues were up 63% and rental income was up 68%, thanks largely to the addition of all the properties in January 2021 and October 2021.
The injected properties didn’t come without their costs, as direct operating expenses increased by 84%; mostly due to a P169 million management fee to AREIT Fund Managers Inc., but also to the taxes, repairs, and maintenance costs that came along with administering the many new injected assets.
MB BOTTOM-LINE
For such a quiet and sketchy start (remember how AREIT lost 7.8% on its IPO day?), the Ayala Family’s REIT has consistently grown its portfolio under management through injections from its parent/sponsor, Ayala Land [ALI 35.25 2.08%].
While it’s safe to assume that a REIT is created by its sponsor to grow, that isn’t automatically the case (DDMP [DDMPR 1.61 0.63%] has left the chat).
Yet, even after adding billions in asset value through share swaps and other means, AREIT has made these acquisitions into dividend boosting (the technical term is “yield accretive”) additions that have increased AREIT’s yield relative to its IPO price.
Despite the potential dilution through share swaps, the amount each shareholder receives relative to what they paid for the shares at IPO has grown. Annualized, AREIT’s last dividend represents nearly a 7% yield relative to its P27/share IPO price.
The underlying stock price has done even better, climbing 70% since its IPO during the pandemic lockdown in 2020.
With a current annualized yield of 4.1%, it’s clear that the market considers AREIT to be the gold standard in safe returns.
Only RL Commercial REIT [RCR 7.41 0.27%] is even trading with yield in the 4s, and it’s currently sitting at 4.96%.
Still, for as “safe” as AREIT has shown to be over the past year or so, its price dropped significantly during the uncertain times following Russia’s invasion of Ukraine. AREIT was trading at/around P52/share at that time, and has dropped (along with the rest of the REIT sector) around 10-12% in that time.
Granted, many non-commodity stocks fared far worse than AREIT and its peers, but perhaps the continued work-from-home controversy and the associated risk to BPO rental income streams have played a role in that price slide as well. All eyes will be on the Q1/22 dividend!
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