Filinvest REIT Q3 profit: P160-M

Filinvest REIT [FILRT 2.95, down 0.7%; 272% avgVol] [link] reported a Q3 net income of P160 million (-54% y/y) and a 9M net income of P721 million (-31% y/y). FILRT explained that it suffered a 10.8% drop in 9M total revenue because of lower rental income, which itself is due to lower occupancy. The drop was partially offset by the inclusion of income from the Boracay property and rent escalations negotiated during lease renewals. FILRT reported that 7 of its 17 office towers had occupancy rates that were significantly below the Colliers industry average (~82%).

MB BOTTOM-LINE: I think the inclusion of the Boracay property is hiding the degradation of FILRT’s already terrible occupancy rate. The lot is leased to a subsidiary of Filinvest Development [FDC 5.07 up 0.2%; 200% avgVol], Boracay Seascapes, which is the owner of the Crimson Resort & Spa Boracay facility located on the lot. FDC transferred its interest in the property to FILRT by way of a lease, so now FILRT stands in FDC’s shoes in collecting rent from Boracay Seascapes by way of a singular lease payment. This configuration allows FILRT to consider the property 100% occupied, as it recovers 100% of the lease owed to it for the entire gross leasable area of the lot. Excluding this lot, FILRT’s Q3 occupancy for its office towers was 82.3%. Including the Boracay lot, the Q3 blended occupancy of its office towers and resort lot lease was 83.9%. It’s this second blended figure (rounded up) that FILRT reports now as its overall occupancy. If we only looked at that number, we’d think that things were pretty stable. But I think you can see now how the Boracay property’s inclusion is obscuring the truth about the health of FILRT’s office leasing business. FILRT is losing tenants, earning less income, and distributing far less than it anticipated in terms of dividends to its shareholders. It astounds me how little time the FILRT team devotes to addressing this with its shareholders. FILRT is the worst-performing of the PSE’s Philippine REITs in terms of stock price and total dividend income relative to IPO price, and it’s the only one of the PSE’s eight REITs that has experienced a significant drop in its distributable income. Crickets from FILRT’s management team. 

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