FREE Stock in Focus: Filinvest REIT Corp. (FILRT) – 6 Feb 2025 by AP Securities

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Summary of Broker’s Recommendation

We are re-rating FILRT to a BUY from our previous HOLD recommendation on the back of all-around improvements in the company’s key metrics coupled with the current risk-averse investing environment which makes allocating capital to dividend paying stocks all the more appropriate. FILRT currently has a dividend yield estimate of 8.05% based on its last traded price of P3.08.

Analysis and Opinion

Another REIT gets exposure to retail

FILRT’s and FLI’s Board of Directors recently approved a proposed property-for-share swap involving the transfer of ownership of Festival Mall’s main building from FLI to FILRT in exchange for newly subscribed primary shares of the latter. The transaction will be executed through the issuance of 1.63-Billion shares of FILRT at P3.85/share which translates to a transaction price of P6.26-Billion. This was set at a 30% premium over FILRT’s 30-day VWAP of P2.94/share.

The right kind of portfolio expansion

The completion of the transaction will result to a 37% increase in FILRT’s overall portfolio from 330,448 sqm to 452,310 sqm alongside substantially improving the company’s lackluster occupancy by 5 ppts to 88% from 83%. Lastly, the press release also stated that Weighted Average Lease Expiry (WALE) will essentially double, from 7.3 years to 14.6 years, implying that the mall has a significantly longer lease term vs the REITs existing portfolio mix of offices and hotel.

A more appealing portfolio mix

Looking at the ending portfolio mix, the split will be 67% offices, 6% hospitality, and 27% retail. We have repeatedly mentioned our bullishness for malls vs offices, as we expect a pick-up in consumer demand brought by benign inflation and continued wage hikes, essentially resulting to a boost in earnings for the retail segment. Overall, we see this dividend-accretive infusion as a step in the right direction.

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