Make room for another REIT



Robinsons Land (RLC) will list its Real Estate Investment Trust (REIT) RL Commercial REIT or RCR on the Philippine Stock Exchange (PSE) in September.

Although this is the fourth REIT to debut on the local exchange, there are compelling reasons why RCR deserves a place in investor portfolios.

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

It has 14 office projects with a total gross leasable area (GLA) of approximately 425,000 square meters (m²). Upon listing, RCR will have a market capitalization of approximately 64 billion pesos, which is almost 70% above the market capitalization of the next largest AREIT REIT.

The large size of RCR is an advantage, as the REIT is expected to be more liquid, which makes it attractive to a larger group of investors, including foreign funds.

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

RCR also has other qualities that make it an attractive REIT. In 2020, its projects have an average occupancy rate of 98.8%. BPO sector companies also account for the bulk of its occupied space at 75.4% while traditional companies occupy 15.8%. Although RCR has POGO tenants who are considered riskier, its exposure is minimal at just 3.1%. In addition, even if its POGO tenants leave, RCR’s buildings are all PEZA labeled, thus reducing the risk of not finding new tenants.

Finally, RCR has strong growth potential. RCR’s sponsor, RLC, has a healthy inventory and pipeline of office projects that it intends to gradually inject into the REIT. Apart from the REIT, RLC still owns 10 office buildings with an SLB of approximately 188,000 m². It also has five office buildings planned for a total GLA of 108,000 m². Note that the combined GLA of these fifteen office buildings represents almost 70 percent of RCR’s current portfolio.

RCR is also debt-free and can borrow up to 20.7 billion pesos to finance future acquisitions if opportunities arise.

Like most other REITs, RCR does not own any land. However, the land on which its offices are built are subject to a 98-99 year long lease 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, renewable for 25 years. These long-term leases reduce the sustainability risk associated with projects built on land owned by other parties.

At its IPO price of 6.45 P per share, RCR’s implied dividend yield in 2022 is 5.7%. This return is lower than that of DDMP REIT and Filinvest REIT (6.3%). However, given RCR’s much larger size, more diversified office property portfolio and strong growth potential, the drop in performance is in my opinion well deserved. In addition, at 5.7%, RCR’s dividend yield is higher than that of AREIT (5.2%) which currently has a smaller market capitalization.

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