Ayala Land to use AREIT proceeds on BPI HQ redevelopment

Merkado Barkada

September 25, 2024 | 8:10am

Ayala Land [ALI 38.30, up 3.0%; 273% avgVol] [link] disclosed that it plans to use the P2.7 billion it earned through the block sale of AREIT [AREIT 37.00, down 0.1%; 74% avgVol] shares on three projects: the BPI HQ redevelopment, Arbor Lanes, and the Mandarin Oriental. ALI said that the purpose of the block sale was to ready AREIT “in anticipation of potential infusions that Ayala Land Inc. may make, in line with its commitment to grow AREIT’s portfolio and in accordance with AREIT’s three-year growth plan.”

MB bottom-line:  Just remember that the REIT Law doesn’t require the proceeds to be used on anything directly or indirectly related to AREIT. I’ve seen a few comments around the forums speculating about how these projects might fit into AREIT’s future portfolio, but that’s the wrong way to think about this part of the block sale transaction. It is a little confusing, though, to see both ALI and AREIT putting out “Reinvestment Plan” disclosures on the proceeds, and I get how some could take this to imply that there’s some obligation on ALI’s part to use the proceeds to benefit AREIT in some way, but that’s simply not the case. All the law requires is that ALI use the proceeds within the year on any real estate, infrastructure projects, or redevelopment. That allocation is what the Reinvestment Plan disclosure outlines. I’m not sure why the rules require AREIT to file a copycat disclosure on behalf of its own parent company, relating to capital allocations that it should (in theory) have no authority over. Either way, this lack of obligation is actually what helps separate the contenders from the pretenders in the REIT space. The REITs that effectively signal how they plan to grow and execute on that plan year after year are the ones that (I feel) are the best opportunities in this space.

Merkado Barkada is a free daily newsletter on the PSE, investing and business in the Philippines. You can subscribe to the newsletter or follow on Twitter to receive the full daily updates.