No mega-REIT IPOs this year?

Based on information from two separate sources, the STAR reported that the COSCO Capital [COSCO 5.30 unch] [link] REIT has been “shelved already”, and the SM Prime [SMPH 21.85, down 5.0%] REIT is “not likely to happen this year.” COSCO’s owner, Lucio Co, has been teasing the COSCO REIT since 2023, with a theoretical size of between P15 billion and P30 billion. While the SMPH REIT would likely be much larger at around P58 billion, SMPH itself has been careful to stomp on any hype that might develop by pointing out that a sale makes little sense for the company when it has ample access to capital from other sources. The article quotes Juan Paolo Colet of China Bank Capital Corp [CBC 86.50, down 0.3%] as saying, “REIT IPOs are on hold due to a combination of factors, particularly high market interest rates and generally weak equity market conditions. This backdrop makes it challenging for potential REIT sponsors to get the best valuation for their offer shares.”

MB BOTTOM-LINE: If you think about it, this elongated period of high interest rates makes for terrible “REIT-making” music. The higher the interest rate, the higher the risk-free rate of return, and the higher the risk-free rate of return, the higher the yield that a REIT must provide in order to remain competitive as a money-making product. The only way for a REIT’s yield to increase is for its per-share price to drop, so for COSCO, SMPH, or any other would-be REIT sponsor thinking about birthing a REIT in this environment, the prospect of selling shares at a depressed valuation probably shakes them out of the mood to "REITproduce". The more the merrier, but I don’t think we as investors are harmed by the lack of these REITs, and both COSCO and SMPH seem to be doing just fine without us, so good for them. The only person who this probably hurts is Ramon Monzon, the President of the PSE, who seems desperate to generate some IPO activity on the exchange. Maybe it’s time to allow startups and other companies without a long-term history of profitability to list? Remember the interest in SPNEC? Take one look at the Philippines’ participation in the crypto space and you’ll see the rabid fever to place bets on anything that moves that offers price discovery with some upside, even if that upside is low-probability and brief.       

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