REITs continue to thrive despite office vacancies

The country’s real estate investment trust (REIT) listings continue to prosper despite the higher than usual office vacancy levels, driven by their Information Technology – Business Process Management (IT-BPM)-heavy portfolios.

Leechiu Property Consultants (LPC) pointed out that the majority of the country’s REITs have registered price appreciation since their launch.

This is led by the Ayala Group’s AREIT with a 67 percent price appreciation to P45 per share as of closing of November 12, compared to its initial public offering (IPO) price of P27 per share.

Similarly, Megaworld Corp.’s MREIT also registered a 12 percent rise to P18.02 per share from its IPO price of P16.1 per share.

RL Commercial REIT of Robinsons Land Corp. also posted an 11 percent price appreciation to P7.17 per share from P6.45 per share, while the Filinvest Group’s FILRT recorded a 10 percent price increase to P7.68 per share from P7 per share.

In contrast, DDMP REIT of DoubleDragon Properties posted a 20 percent decline in its price to P1.79 per share, compared to its IPO price of P2.25 per share.

LPC research and consultancy director Roy Golez said the price appreciation has compelled investors to seriously consider REITs as an alternative investment option.

“It is to the credit of the REIT sponsors that they put together resilient IT-BPM-heavy office portfolios that squarely addressed market jitters,” Golez said.

He added that collective performance of the REITs is anchored on superior quality office stock likely to retain high occupancies, citing studies that occupancies of the five REITs range from 90 percent and above.

LPC director for commercial leasing Mikko Barranda said that IT-BPM is seen to continue taking up office space since outsourcing jobs to the Philippines and India remain a viable solution for businesses in recovering economies in the West.

He added that there are 129,000 square meters (sqm) of live office requirements from BPOs out of 228,000 sqm seeking to be concluded in the next six months.

Barranda emphasized that the average rate of contractions or lease terminations has drastically dropped by 69 percent from a high of 253,000 sqm in the fourth quarter of 2020 to 42,000 sqm in the third quarter of 2021, which indicates that the bleeding has stopped for the Philippine office segment and is now paving the way for stronger growth.

“Our numbers indicate that IT-BPMs continue to be expanding in the Philippines although at a slower rate than in 2019 and earlier. Some observers contend that more contractions will drive down REIT share prices but that is not supported by the data we have presented,” Barranda said.

From a capital valuation perspective, LPC said that approximately 80 percent of the REIT assets is located in Central Business Districts that enjoyed double-digit CAGRs (11 percent to as high as 21 percent) in the last five years.

LPC director for investment sales Tam Angel said that this uptrend in capital values is expected to continue post-COVID-19 and should have a positive impact on REIT valuations and share price.

“For long-term investors, this is an opportune time to build a REIT investment base before post-COVID-19 recovery speeds up capital value appreciation once again, similar to the hypergrowth in 2010, 2011 and 2012, the years following the Global Financial Crisis which directly affected the Philippines in 2008-2009,” LPC said.