AREIT drops 6% after ALI sells P3.5B worth of the REIT at a discount

Merkado Barkada

April 28, 2022 | 9:00am

Ayala Land [ALI 34.00 3.41%] [link] disclosed yesterday that it sold 87,370,000 AREIT shares at P39.70/share, which was at a 7% discount to AREIT’s previous day close of P42.70/share, and at a 24% discount to AREIT’s P52.35 all-time high set just two months ago in late February.

The transaction was conducted off the exchange through a private block sale to both domestic and American buyers. Since the proceeds of the sale of AREIT shares fall under the REIT Law, ALI will need to incorporate the P3.5 billion raised in its upcoming Reinvestment Plan.

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Monkey see, monkey do? Looks like the market is following in ALI’s footsteps in terms of AREIT’s valuation. We can’t get into the heads of the Ayala Family members to figure out exactly what they’re doing and why they’re selling that stake at this time, but in many ways, “the market” doesn’t really care.

If the Ayalas could get more for the shares, they’d have sold the block share sale for more, so the implication here is that the “real” market value of AREIT is probably pretty close to the block sale price.

As for why the “real” market value of AREIT might be so low relative to its previous close and its all-time high, well that’s a more interesting question.

I saw some analysis yesterday that speculated that REITs might suffer as interest rates rise in accordance with the BSP’s recent signaling that it will raise rates starting in June, and that this will make REIT yields less attractive relative to other fixed-income investment products.

The thinking goes that in order for a REIT investor to reallocate their funds to different fixed-income investments, they’d have to sell their REIT shares to do it, and the selling pressure would drop the price.

The trick, though, is that as a REIT’s share price drops, its yield will rise, and at some point, that yield begins to look attractive relative to those other fixed-income investment products.

REITs may be looking for a new equilibrium.

It’s worth watching to see if this will just be a temporary blip for AREIT, or if this is a sign of things to come for the rest of the REIT sector as inflation, and the rate increases are designed to control it, become a hotter topic of conversation.

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https://www.philstar.com/business/stock-commentary/2022/04/28/2177374/areit-drops-6-after-ali-sells-p35b-worth-reit-discount