FLI sees valuation boost with REIT offer

Published June 14, 2021, 4:45 PM

by Bloomberg

Filinvest Land Inc., the cheapest among the biggest builders in the Philippines, expects a valuation boost when its real estate investment trust venture goes public later this year.

The planned third-quarter float of 17 office buildings in a real estate investment trust should also help Filinvest Land finance projects and return to pre-pandemic-level earnings within three years, Chief Executive Officer Josephine Gotianun-Yap said in an interview.

“We have always said Filinvest Land is undervalued,” Gotianun-Yap said of the diversified developer, which also builds homes and leases malls. “The market sometimes does not understand or appreciate when you mix a development and investment portfolio. This will give transparency to the real value of

Filinvest Land.”

Listing candidate Filinvest REIT Corp., whose office buildings are largely leased to outsourcing companies that stayed open during the pandemic, could be worth as much as P40.6 billion ($849 million) at the top end of the IPO range of P8.30 a share.

In contrast, parent Filinvest Land, the country’s sixth-largest listed property company by sales, has a market value of just P26.67 billion, trailing builders with less revenue such as DoubleDragon Properties Corp. and 8990 Holdings Inc. Its stock trades at just 5.3 times 12-month estimated earnings, making it among the cheapest members of the Philippine Stock Exchange Property Index.

“It’s a very undervalued stock,” said Rachelle Cruz, an analyst at AP Securities Inc. “The REIT alone exceeds the market value of Filinvest Land,” and the IPO “would unlock the value of its office asset, which is now the most attractive and resilient segment.”

At the top end of the price range, selling 33% of the REIT — the minimum required by law — will raise P13.6 billion for Filinvest Land, Gotianun-Yap said. Proceeds will fund office, mall and warehouse projects as well as land purchases. The stock closed 0.9% higher at 1.10 pesos on Monday.

The office buildings in the REIT were the least hurt among Filinvest Land’s assets during the pandemic because business process outsourcing clients such as Accenture Plc and Concentrix Corp. kept offices open, she said. Still, the builder’s net income fell 41% to 3.73 billion pesos last year, the lowest since 2012.

It will take Filinvest Land between two and three years to see profit back to 2019 levels as new projects will take time to come to fruition and the Philippine economy has yet to fully reopen after large swaths were closed during the pandemic, Gotianun-Yap said.

Filinvest Land has 44 office buildings including those under construction, with a gross leasable space of 524,000 square meters (5.6 million square feet) — of which nearly 300,000 square meters are with the REIT unit, she said. There are another 315,000 square meters in the pipeline in the next five years, and not included in the REIT yet, she said. Filinvest Land’s return on common equity slumped to 5.12% in 2020, a 12-year low, while its return on assets sank to 2.11%, the lowest in 18 years, as the pandemic hammered its earnings and most companies. The stock is down 1.8% this year after slumping more than 25% in 2020.