1 month ago
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Richmond Mercurio - The Philippine Star
February 17, 2025 | 12:00am
MANILA, Philippines — Real estate investment trust (REIT) listings from Lucio Co’s Cosco Capital and the Sy family’s SM Prime Holdings are not likely to take place this year.
The STAR learned from a source that Cosco’s REIT listing, which was earlier seen to be worth from P15 billion to P30 billion, has been “shelved already.”
Cosco’s planned REIT offering was made public in 2023, with Philippine Stock Exchange president Ramon Monzon saying they had been informed by the listed holding company of its intent to file an application.
Cosco previously said it was indeed studying a possible REIT offering.
Another source, meanwhile, told The STAR that SM Prime’s REIT listing is also not likely to happen this year.
The company decided to postpone the initial public offering (IPO) last year given the interest rate environment and market volatility.
SM Prime president Jeffrey Lim said last year that the company would revisit its planned $1 billion REIT listing this year, but noted that pushing through with the offering would also depend on the company’s need to raise funds.
“REIT IPOs are on hold due to a combination of factors, particularly high market interest rates and generally weak equity market conditions,” China Bank Capital Corp. managing director Juan Paolo Colet told The STAR.
“This backdrop makes it challenging for potential REIT sponsors to get the best valuation for their offer shares,” he said.
Colet said that major REIT sponsors are also not pressed for liquidity since they have access to other sources of funding for their operations and projects.
“Since financing is not an issue, those sponsors can be patient in waiting for REIT valuations and market conditions to improve before doing an IPO,” Colet said.
“For example, SM Prime generates a lot of cash and can easily tap the domestic and offshore debt markets for funding, so they do not need to rush a REIT IPO,” he said.
Colet expects a revival in REIT IPO sentiment once the 10-year benchmark interest rate is seen below 5.50 percent and the Philippine Stock Exchange index is above 7,500.
AP Securities research head Alfred Benjamin Garcia shared the same opinion with regard to SM Prime’s REIT, saying that the current market liquidity and sentiment are not conducive for the company to get its desired valuation.
“They also said that they have no urgent need for funds, so there’s no rush to conduct an IPO. More broadly speaking, the slower pace of rate cuts moving forward means that interest rates will remain elevated for longer so REITs will have to offer higher yields to attract investors,” Garcia said.
“Unless the company has immediate need for funds, they will most likely defer until benchmark rates are lower,” he said.
But while REIT IPOs are on a pause, Unicapital Securities said that it sees the REIT sector as something that is worth considering given attractive yield spreads, particularly as interest rates decline to more reasonable level.
“This outlook is supported by healthy occupancy rates and strong balance sheet, which will aid their growth targets over the next three years,” Unicapital said in its recent report.
“Currently, REITs under our coverage trade at an average one-year forward yield of 7.7 percent, which is 140ps higher than the one-year government bond yield of 6.2 percent,” it said.
As of end-2024, Unicapital said that REIT companies are on track to meet their growth targets for 2025.
Unicapital cited the Ayala Group’s AREIT as one of the fastest growing in terms of portfolio gross leasable area (GLA) and remains the largest REIT based on deposited property value.
“By the end of 2025, we expect AREIT to reach 1.1 million square meters of GLA, with a total value of P118 billion. This is followed by RL Commercial REIT, with 828,000 square meters and a total value of P112 billion. Meanwhile, MREIT aims to close 2024 with up to 500,000 square meters of GLA, with plans to expand further to one million square meters by the end of 2030,” it said.
According to Unicapital, more REITs are currently seeking to diversify their portfolios into other asset classes with stable, recurring income beyond office and retail, such as warehousing and hotels.
“in our view, the mentioned RElTs still have ample room for leverage, as their debt levels remain low, with an average D/E ratio of 0.36x. We believe this provides REITs with the flexibility to execute their expansion plans,” it said.
