Financial Adviser: 5 of the Highest Yielding REITs in 2022 and How to Profit from Them

The Philippine Statistics Authority (PSA) recently reported that the national inflation rate has accelerated to 8.0 percent in November, the highest in 14 years.

Inflation rate began to pick up early this year when it increased from 3.0 percent in February to 4.0 in March percent due to rising prices of oil and commodities overseas.

Since then, inflation has been rising to record highs as demand and prices of input remain elevated.

This latest inflation result turned out to be higher than what the market expected, prompting investors to speculate that prices may continue to rise amidst growing aggregate demand in the economy.

Rising inflation means higher interest rates, which may hurt the stock market as investors shift their funds to less risky, fixed income securities.

The current weakness in the market, however, also offers a good opportunity to lock-in higher dividend rates from dividend paying stocks, especially Real Estate Investment Trusts or REITs, which have an average yield of 7.2 percent.

Unlike regular stocks, REITs tend to move in the same direction as inflation over the long-term, because REITs adjust their rental rates upwards by 5.0 to 10.0 percent every year.

The higher earnings resulting from annual rental adjustments enable REITs to grow their distributable income stream that support higher yield and stronger price appreciation in the long-term.

There are only seven listed REITs in the market with Ayala REIT (PSE: AREIT) and Vista Land REIT (PSE: VREIT) dominating the bottom of the yield ranking.

AREIT, which has a year-to-date loss of 27.6 percent, currently has a dividend yield of 5.5 percent based on its 12-monthly trailing cash dividends, while VREIT, which listed only this June and has lost 9.14 percent from its IPO Price, has a dividend yield of 5.3 percent.

VREIT has paid only P0.021 per share cash dividend last August and is expected to pay another dividend for the fourth quarter by January.

If we assume the same cash dividend P0.021 in the next three quarters, VREIT will have prospective dividends of P0.084, lower than what it projected in its IPO prospectus.

Similar to investing in real estate assets, it is always good to know the fundamentals of REITs so you will have a better handle of the risk and return you can expect from investing in them.

Here are the five highest yielding REITs you can consider to buy for 2023:

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1| DoubleDragon Properties REIT

Dividend Yield: 8.7 percent

DoubleDragon Properites REIT (PSE: DDMPR) has a property portfolio consisting of three income-generating commercial buildings located inside the 4.75 hectare-mixed use development DD Meridian Park in the Bay Area, Manila.

The three income-generating properties, which have a total gross leasable area (GLA) of 172,252 square meters, have an average occupancy rate of over 95 percent.

DDMPR is 70-percent owned and controlled by DoubleDragon Properties (PSE: DD) of business tycoon Edgar “Injap” Sia and 30 percent owned by the Yujuico family. It is the only REIT company in the market that also owns the land where its buildings are located. The land value of DDMPR is expected to surpass the value of its buildings in the future.

DDMPR has remained debt-free to date with book value per share of P2.32 per share, which offers 45.3-percent discount to its current share price. It expects to acquire the recently completed DoubleDragon Tower once it starts its turnover to clients next year, which should increase its rental revenues significantly.

DDMPR’s share price has fallen 47 percent from its high of P2.40 during its IPO in 2021 to its current share price of P1.27 per share.

Based on DDMPR’s dividend payments for the past four quarters at P0.11 per share, current dividend yield of the stock stands at 8.7 percent.

2| Megaworld REIT

Dividend Yield: 8.1 percent

MREIT, Inc (PSE: MREIT) has a portfolio of 14 PEZA-registered commercial properties with a collective GLA of 280,000 sqm located in Metro Manila area and Iloilo City. Its building portfolio has an average overall occupancy rate of 93.2 percent and average lease of 4.7 years.

A bulk of MREIT’s tenants comes from the BPO and the traditional office sector, which occupies 89.9 percent of its total GLA. The balance of 10.1 percent comes from retail and hotel tenants.

MREIT, which is majority-owned and controlled by Megaworld Corporation of property magnate Andrew Tan is looking to acquire more assets this year with additional GLA of 44,300 square meters.

MREIT share price has fallen 25.5 percent from its IPO price of P23.4 per share and is now trading at 39 percent discount to its net asset value of P19.92 per share.

MREIT is also the worst performing REIT stock this year with a year-to-date loss of 39.2 percent against sector average loss of 24.4 percent.

At current share price of P11.98 per share against trailing dividends of P0.9741 per share, MREIT’s dividend yield stands at 8.1 percent.

3| Citicore Energy REIT  

Dividend Yield: 7.5 percent

Citicore Energy REIT (PSE: CREIT) is the first renewable energy REIT in the market, which leases out five properties to operating solar power plants owned by its sponsor, Citicore Renewable Energy Corp (CREC).

CREC is the third largest power generator in the Philippines and majority owned and controlled by construction magnate Edgar Saavedra of Megawide Construction Corporation (PSE: MWIDE).

CREIT has acquired two more properties in Bulacan and South Cotobato after it completed its initial public offering last February. The addition of the two properties will comprise about 22 percent of CREIT’s total rental revenues, which should support its target dividends of P1.1 billion this year.

CREIT enjoys a strong balance sheet with zero debt. Its post-IPO stockholders’ equity of about P4.3 billion should allow it to have a potential credit line of P6 billion, assuming debt-to-equity of 1.5 times, to help it expand its portfolio in the future.

CREIT share price has fallen by 12.55 percent since its IPO to P2.23 today. At a 12-month trailing dividend of P0.167 per share, CREIT’s dividend yield stands at 7.5 percent.

4| Filinvest REIT Corp

Dividend Yield: 7.2 percent

Filinvest REIT Corp (PSE: FILRT) has a portfolio of 17 highly occupied office buildings inside Northgate Cyberzone IT Park in Filinvest City, Alabang.

FILRT’s 17 fully operational, Grade A office buildings have an aggregate size of 299,159 sqm GLA and 2,204 sqm of retail area with an overall occupancy rate of 90.3 percent.

FILRT is majority-owned and controlled by Filinvest Land (PSE: FLI) of the Gotianun Family, one of the leading property developers in the country. It enjoys a relatively strong balance sheet with debt-to-equity ratio of roughly one is to one by end of September 2022.

The share price of FILRT has fallen by 20 percent from its IPO price of P7.00. It is currently trading at 38 percent discount to its net asset value of P9.02 per share.

Based on FILRT’s total dividend payments from the past four quarters of P0.404 per share, its current share price offers a dividend yield of 7.2 percent.

5| Robinsons Land REIT

Dividend Yield: 6.6 percent

RL Commercial REIT, Inc (PSE: RCR) has a portfolio of 14 commercial properties with a total collective GLA of 425,315 square meters, the largest office building REIT company in the sector.

About 70 percent of RCR’s commercial properties are located in Metro Manila, while the balance of 30 percent is located in Cebu and Naga Cities.

RCR’s building portfolio has an impressive overall occupancy rate of 99 percent and an average lease of five years.

A bulk of RCR’s tenants comes from the BPO sector, which occupies 68.9 percent of its total GLA. Its second-largest tenant group, the traditional office sector, takes up about 19.4 percent for a total of 88.3 percent.

RCR, which is majority-owned and controlled by Robinsons Land Corporation (PSE: RLC) of the Gokongwei family, enjoys a strong balance sheet with zero debt ratio.

RCR has acquired one property from its sponsor RLC this year, Cybergate Bacolod for P803 million.

The acquisition is expected to increase RCR’s total asset size, which should help boost the company’s earnings and distributable income this year.

RCR is currently trading roughly at par to its net asset value of P5.89 per share. Its share price has fallen 9.9 percent from its IPO price of P6.45 per share. At its current share price of P5.81 per share against its 12-month trailing cash dividend of 0.3831, the stock’s dividend yield stands at 6.6 percent.

This yield is lower than the current 10-year Philippine bond yield of 6.8 percent, but given the market volatility in the coming weeks, a fall by the stock to its recent low at P4.95 per share should offer good opportunity to accumulate it as its dividend yield rises to 7.7 percent.

Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice [email protected] or follow him on Twitter @henryong888