AREIT board approved P21B property-for-share swap

AREIT [AREIT 39.05 ?1.1%; 13% avgVol] [link] disclosed that its board voted to approve a property-for-share swap with its parent company, Ayala Land [ALI 22.80 ?8.1%; 206% avgVol], that would see P20.99 billion worth of commercial properties injected into AREIT in exchange for 505,890,177 primary common shares at a price of P41.50/share. According to an InsiderPH article, the transaction would push AREIT’s public float down to 33.07%, which is slightly below the REIT Law minimum public float level of 33.33%. AREIT coincidentally declared its Q4 dividend today of P0.58/share, payable on March 21 to shareholders of record as of March 5. The dividend is 99.5% of AREIT’s distributable income for the quarter.   

MB BOTTOM-LINE:  The amount of AREIT shares ALI would need to sell in order to meet the minimum float requirement is around 9.66 million, or P400 million worth at the transaction price. If ALI did a private placement sale today, based on our experience, we’d expect it to cross at around a 5% discount to market, which would mean the price per share might be closer to P37.25. This really isn’t a big deal. What is a bigger deal (to me) is the large drop in distributable income between Q3, which saw AREIT earn P2.069 billion, and Q4, which saw it take in (“only”) P1.87 billion. Presumably, AREIT wanted to maintain its streak of “greater than or equal to” dividend declarations, so in order to match the P0.58/share div it declared in Q3, it needed to distribute 99.5% of all its distributable income in the quarter. I think (based on my research) that’s the largest distribution ratio for a regular dividend in AREIT’s history. They finish FY24 with a cumulative distribution ratio of 93.2%, but if Q4 is a signal for what might be in store this FY25, maybe AREIT is going to have to work a little harder to maintain that streak. Checkout Financial Freedom by Mokongboy's great visualization of how this dividend fits into the historical record for AREIT below.