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REITs expected to do better in 2024

THE OUTLOOK for real estate investment trusts (REITs) is more positive this year on the back of rate cut prospects and attractive dividend yields, analysts said.

“REITs are expected to do better in 2024 as interest rates start to decline on the back of a dovish pivot in monetary policy,” Juan Paolo C. Colet, managing director of China Bank Capital Corp., said in a Viber message.

Mr. Colet said a much better interest rate environment and a “more buoyant” stock market could open the door to more REIT initial public offerings (IPOs).

The Bangko Sentral ng Pilipinas (BSP) has kept the policy rate at a 16-year high of 6.5% at its last meeting in December as inflation remains elevated. From May 2022 to October 2023, the Monetary Board raised borrowing costs by a cumulative 450 basis points to tame inflation.

However, the market anticipates the BSP will loosen monetary policy once the US Federal Reserve begins its easing cycle.

Toby Allan C. Arce, head of sales of Globalinks Securities and Stocks, Inc., said the outlook for REIT listings “appears more promising” this year.

“REITs possess hybrid characteristics combining equity and fixed-income features, making them more attractive to investors amid the prevailing uncertainties,” Mr. Arce said in a Viber message.

China Bank Securities Corp. Research Associate Lance U. Soledad likewise said in a Viber message that they are bullish on the REIT sector due to its relatively attractive dividend yields compared to prevailing benchmark rates.

However, Mr. Soledad said another spike in inflation and “persistent weakness” in the office sector may hurt the outlook for REITs.

The REIT sector’s performance was weak in 2023 due to elevated interest rates and declining occupancy rates.

“This [2023] was a lackluster year for REITs in terms of price performance, with most of them trading below their IPO prices and even below where they were at the end of 2022,” Mr. Colet said.

Mr. Soledad noted that challenges in the office segment have affected the REITs’ price performance in 2022, as most REITs are exposed to office assets.

“Investor sentiment may have also been affected by negative reports concerning vacant downtown office spaces, a consequence of the widespread adoption of remote work,” Mr. Arce said.

The Philippine REIT market has grown since Ayala-led AREIT, Inc. listed on the Philippine Stock Exchange in August 2020.

There are currently eight REITs in the country, namely AREIT, DDMP REIT, Inc., Filinvest REIT Corp., RL Commercial REIT, Inc., MREIT, Inc., VistaREIT, Inc., Citicore Energy REIT Corp., and Premier Island Power REIT Corp. The REITs’ portfolio includes office buildings, hotels, malls, land, renewable energy and infrastructure.

Data collated by Colliers Philippines showed that six out of the eight REITs had prices that are lower than their IPO prices as of Nov. 28.

“In our view, the Philippine REIT market is primed for further diversification and developers should be on the lookout for other assets that can be divested into their REIT companies,” Colliers said in a report.

Sy-led SM Investments Corp. last year deferred the record $1-billion REIT IPO of its real estate unit SM Prime due to unfavorable market conditions.

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The article was originally published in Business World and written by Sheldeen Joy Talavera.

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