Make room for another REIT

Robinsons Land (RLC) lists its real estate investment fund (REIT) RL Commercial REIT or RCR on the Philippine Stock Exchange (PSE) in September.

Despite being the fourth REIT to debut in the local stock market, there are compelling reasons why RCR deserves a place in investors’ portfolios.

RCR will be the largest and most diversified REIT in the country.

It owns 14 office projects with a total gross leaseable area (GLA) of about 425,000 square meters (sqm). At listing, RCR will have a market value of around P64 billion, which is almost 70% above the market value of the next largest REIT AREIT.

RCR’s large size is an advantage, as REIT is expected to be more liquid, making it attractive to a larger group of investors, including foreign funds.

In addition, RCR is the most diversified REIT. Unlike other REITs, which have concentrated exposure in specific locations, RCR’s assets are spread across the country – in Metro Manila, Cebu, Davao, Tarlac and Naga. Although the majority of its projects are in Metro Manila, its projects in the National Capital Region are spread over five key business areas, namely Pasig, Quezon City, Mandaluyong, Makati and Taguig.

RCR also boasts other qualities that make it an attractive REIT. In 2020, its projects had an average occupancy rate of 98.8%. Companies in the BPO sector also account for the majority of its occupied area of ​​75.4 percent, while traditional companies occupy 15.8%. Although RCR has POGO tenants considered more risky, the exposure is minimal at only 3.1%. Even if its POGO tenants leave, RCR’s buildings are all PEZA approved, reducing the risk of not finding new tenants.

Finally, RCR has a strong growth potential. RCR’s sponsor RLC has a healthy inventory and pipeline of office projects that it intends to slowly inject into REIT. Outside REIT, RLC still has 10 office buildings with a GLA of around 188,000 sqm. It also has five office buildings in the cast with a total GLA of 108,000 sqm. Note that the combined GLA for these fifteen office buildings is nearly 70 percent of RCR’s current portfolio.

RCR also has no debt and can borrow up to DKK 20.7 billion. Php to fund future acquisitions if opportunities arise.

Like most other REITs, RCR does not own land. However, the land on which its offices are built is on a long-term lease of 98-99 years with its sponsor RLC. Although the Bases Conversion and Development Authority (BCDA) owns the land on which Cyber ​​Sigma in Taguig is built, RCR has a 25-year lease on the property that can be extended for another 25 years. These long-term leases reduce the sustainability risk that comes with projects built on land owned by other parties.

For its IPO of P6.45 per. The stock is RCR’s implicit 2022 dividend yield of 5.7 percent. The mentioned yield is lower compared to DDMP REIT and Filinvest REIT (6.3 percent). Given RCR’s much larger size, more diversified portfolio of office properties and a strong growth potential, the lower dividend is, in my opinion, well deserved. In addition, RCR’s dividend yield is 5.7 percent higher than for AREIT (5.2 percent), which currently has a smaller market value.

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