FREE Market Commentary: ALI Plans to Raise PHP 25-26 Billion from REIT Offering

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Market Issue or Event

The Philippine property market is well-prepared for the introduction of Real Estate Investment Trust (REIT), as demand for more office spaces, residential projects, and commercial centers complements regulatory authorities’ willingness to amend rules that initially hampered its implementation.

 

Our Partner Broker’s View and Commentary

So far, ALI is the only property firm that has expressed interest in conducting a Real Estate Investment Trust (REIT) offering, as it looks to raise about PHP 25-26 Billion from it. Considering the sustained demand for leasable spaces in the country, a positive turn up for REITs would be highly possible once implemented.

We believe companies are just waiting for the final rules to be issued by the SEC before they express their interests in conducting a REIT offering. The SEC has said that it can release guidelines on issuance of REITs by July, without the change, though, on the minimum public ownership requirement (MPO). Previously, two major issues on REITs are the transfer taxes and the MPO rule.

The TRAIN law already addressed the issue on VAT and the only hurdle now is the 40-67% MPO requirement which is proposed to be reduced to around 33%. ALI expressed that they will go through with the REIT offering even with the current IRR, but we think the other major developers with large REITable assets (SMPH, RLC, MEG) will likely wait for the MPO to be lowered first or if ALI’s REIT venture will be successful.

Other developers that also expressed interest in REITs are DD and ROCK. Overall, tailwind from low interest rates as well as upside risk from approval of REITs should continue to support the sector.

Given this, RLC and MEG remain to be our current top picks for the property sector.

 

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AP Securities (formerly Angping & Associates Securities)
AP Securities (formerly Angping & Associates Securities)

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