{"id":324794,"date":"2023-09-07T12:49:07","date_gmt":"2023-09-07T04:49:07","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=324794"},"modified":"2023-09-07T12:49:09","modified_gmt":"2023-09-07T04:49:09","slug":"stock-in-focus-areit-inc-areit-7-sept-2023-by-rcbc-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-areit-inc-areit-7-sept-2023-by-rcbc-securities\/","title":{"rendered":"Stock in Focus: AREIT Inc. (AREIT) – 7 Sept 2023 by RCBC Securities"},"content":{"rendered":"\n

Summary of Broker’s Recommendation<\/h2>\n\n\n\n
Stock Code<\/strong><\/td>AREIT<\/td><\/tr>
Company Name<\/strong><\/td>AREIT Inc.<\/td><\/tr>
Broker<\/strong><\/td>RCBC Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>7 Sept 2023<\/td><\/tr>
Recommendation<\/strong><\/td>Buy<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 42.10<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

We reiterate our BUY rating on AREIT with a target price (TP) of Php42.10. At fair value, the stock offers a share price upside of 28.2% and a 12-month forward dividend yield of 6.5%. Our Target Price is based on a 5-year dividend CAGR of ~9% driven by disclosed portfolio expansion and 3-5% rental escalations, terminal
growth rate of 3%, and cost of equity of 9.1%.<\/p>\n\n\n\n

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Analysis and Opinion<\/h2>\n\n\n\n

Strong track record of DPS-accretive asset infusion<\/strong><\/p>\n\n\n\n

AREIT has a track record of dividend per share (DPS) accretive asset infusions, which brought its DPS to grow a cumulative of 89% since its IPO (or an average of ~5% q\/q growth). Its assets-under-management (AUM) has grown to Php87 billion, which has grown 190% since IPO; and we believe that AREIT is on-track to exceed its 3-year investment plan of reaching Php97 billion in AUM by 2025. Based on our estimates, its sponsor Ayala Land, Inc. (ALI) has 1.9mn sqms of mall GLA, 775k sqms of office GLA, and 309k sqms of industrial GLA that are ready-for-infusion. This should support AREIT\u2019s plan to add 100k sqms of GLA annually until 2025.<\/p>\n\n\n\n

Upcoming Php22.5 billion infusion is also DPS-accretive<\/strong><\/p>\n\n\n\n

We estimate that the Php22.5 billion asset-for-share swap (in exchange for 608 million primary shares) should be DPS accretive by +1%, with further dividend upside if the infused mall portfolios generate better-than-expected income. Under the deal, ALI will transfer One Ayala Avenue East (31k sqms), West BPO Towers (31k sqms), Glorietta 1 and 2 mall wings (36k sqms) and BPO buildings at Ayala Center (42k sqms), alongside MarQuee mall (41k sqms), all of which have an aggregate GLA of 190k sqms, occupancy rate of 99%, and weighted average lease expiry (WALE) of 14.5 years.<\/p>\n\n\n\n

Improved portfolio fundamentals<\/strong><\/p>\n\n\n\n

The infusion will raise AREIT\u2019s exposure to mall sector to 21% of GLA (vs. 14%
current) and increase its geographical exposure to prime Makati CBD to 50% of GLA (vs. 34% current). AREIT\u2019s overall occupancy should remain stable at 98%, while its blended WALE should rise to 9.2 years (vs. 7.7 years current).<\/p>\n\n\n\n

2024 dividend yield at 6.6%<\/strong><\/p>\n\n\n\n

Factoring in the upcoming asset infusion 2023\/2024 DPS accretion of +1%, we expect 2022-2024 DPS CAGR of 4%. This brings 2024 dividend yield at 6.6%, which is 20bps above the 10Y government bond yield.<\/p>\n\n\n\n

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Check how many brokers recommend this stock<\/h2>\n\n\n\n
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All Stock Rankings<\/a><\/blockquote>