AREIT cuts office reliance with P17.3-B swap

AREIT Inc. is cutting its reliance on offices as a P17.3-billion asset infusion from sponsor Ayala Land Inc. (ALI) pushes retail and hospitality to their biggest share yet of the real estate investment trust’s portfolio.

Shareholders on Thursday approved the infusion of four malls and two hotels, a transaction that will lift AREIT’s assets under management (AUM) to P177 billion from P159 billion once regulatory approvals are secured.

The deal will bring retail and hospitality to a combined 41 percent of AREIT’s post-swap portfolio, broadening its income base beyond the office properties that have anchored its growth.

Offices will account for 55 percent of AUM following the transaction, while retail will comprise 33 percent, hotels 8 percent, and land 4 percent.

Under the property-for-share swap, ALI and subsidiaries Capitol Central Commercial Ventures Corp., Makati Cornerstone Leasing Corp., Bay City Commercial Ventures Corp. and North Triangle Hotel Ventures Inc. will subscribe to 462.48 million new AREIT common shares at P37.48 apiece.

The exchange price is at a premium to AREIT’s 30-day volume-weighted average price as of the board’s approval on Aug. 10.

The assets include Glorietta 4 and Ayala Malls Circuit in Makati City; Ayala Malls Capitol Central in Bacolod; Ayala Malls Cloverleaf in Quezon City; and the 578-room New World Makati Hotel and the 438-room Seda Vertis North in Quezon City.

The infusion also gives AREIT greater exposure to its properties' operating performance.

The four malls will be held under direct leases, while the two hotels will use hybrid master leases combining fixed base rent with a variable component linked to hotel revenues.

“These infusions strengthen AREIT’s scale and diversify our portfolio across offices, retail and hospitality, while introducing lease structures that allow us to participate more directly in the operating performance of these assets,” AREIT President and Chief Executive Officer Alberto M. de Larrazabal said.

“This gives AREIT additional avenues for sustainable growth while strengthening the quality and recurring income base of the portfolio.”

AREIT expects the infusion to be accretive to distributable income and support dividend growth.

The properties were independently appraised by Asian Appraisal, while FTI Consulting provided a third-party fairness opinion supporting the transaction valuation and exchange price.

With shareholder approval secured, the transaction will next require the approval of the Securities and Exchange Commission.

Income from the six properties will begin accruing to AREIT and the corresponding shares will be issued to ALI and its subsidiaries once SEC approval is obtained.

The transaction comes as AREIT continues to grow its earnings base. First-half revenues jumped 30 percent year on year to P7.7 billion, while EBITDA increased 34 percent to P5.8 billion.

Net income excluding fair-value changes in investment properties rose 36 percent to P5.8 billion.