ALI (Ayala Land) unloads Ortigas mall to AREIT for 5.1 Billion Pesos, transaction may bode well for ALI holders but not so for AREIT

AREIT just announced that it is buying The 30th from its sponsor, Ayala Land (ALI) for 5.1 Billion Pesos.  The 30th is a shopping mall built and managed by Ayala Malls. It is the first Ayala Mall in Ortigas Center as well as in Pasig City. The mall was named “The 30th” as it is located at 30 Meralco Avenue.   The four-level mall sits in a 2-hectare property located across The Renaissance and The Alexandra residential condominiums and the head office of the Department of Education. It features four levels with approximately 184 shops, restaurants, and services (under Service Avenue). Rustan’s Supermarket serves as its anchor supermarket. A two-level open space / garden called Corte, located outside the mall, will soon be a haven for events. The mall has three levels of basement parking.  The mall features entertainment options such as four cinemas (including two cinemas with reclining seats), a Timezone arcade and Mystery Manila, an escape room installation.

AREIT will be borrowing money for this acquisition as its 1.3 Billion proceeds of the initial public offering were already used for the acquisition of Teleperformance Cebu, an office building in Cebu City.  Most of the shares offered during the IPO were shares owned by Ayala Land so the proceeds of those shares accrued to Ayala Land.

Ayala Land (ALI)as of the end 1H20 is facing short-term and current debt repayments of 54 Billion Pesos. ALI to address its indebtedness has been very active in raising funds.  The AREIT public offering including the sale of Teleperformance Cebu to AREIT raised around 13.6 Billion Pesos to ALI.  ALI also raised 6.25 Billion Pesos issuing bonds.

The sale of the The 30th to AREIT will raise ALI around 5.1 Billion Pesos.  The additional cash is a boost to the liquidity of ALI as it addresses short-term and current debt repayment.  AREIT has been useful for ALI in extracting value out of its asset portfolio to raise funds.  This development is great news to ALI holders.

But to AREIT holders, it may not be so.  AREIT will be issuing bonds and creating indebtedness to fund the acquisition.  The costs of the new funds may eat up the yields of the assets.  There is no data yet on how The 30th is doing under the present circumstances.  If we go by the general observation, mall traffic has significantly gone down.  The 30th may not be an exception.  Yield from the mall may be smaller than the cost of the fund, thus, the costs of funds for the mall acquisition eats into the overall yield.

Market may react negatively to AREIT, investors should be cautious.

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Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent viewpoint.  Accuretti Systems Inc. in day to day trading may have owned, or is considering buying or disposing, the shares of the companies mentioned in this commentary.

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