ALI is a highly leverage real estate company. As of 30 September 2021, total liabilities are 1.8 times total equity. With the pandemic slowing down real estate sales and rental revenues, leverage real estate developers like ALI must be creative in raising the necessary funds to pay off debts and fund developments.
Investment properties of real estate developers are hard and illiquid assets. In a slowing economy they must be able to realize the value of these hard and illiquid assets. This is where REIT comes in. REIT transforms the hard assets into liquid tradeable shares.
Through the AREIT public offering, ALI was able to raise 14 Billion from some of its investment properties without losing control of those underlying properties. The 14 Billion boosted the finances of ALI. It was like ALI selling to the public fractional ownership of the assets at high valuations.
On 24 March 2021, ALI announced that another round of leasable properties located at ALI’s prime estates in the country worth 15 Billion Pesos will be swap for primary AREIT shares valued at 32 Pesos a share. According to ALI it will increase the yield of AREIT to around 5.7%.
Yes, that could be true. The new round of asset infusion into AREIT will increase the yield of AREIT. It is really the intention of ALI to boost the yield of AREIT. Why? ALI is not swapping its investment properties for AREIT shares for nothing. With AREIT shares high yielding, it will be easy for ALI to place/sell the AREIT shares to yield-hungry institutional investors. With interest rates seen to remain low, there is a ton of yield-hungry institutional investors out there. ALI is seen to flip those AREIT shares at higher prices later to institutional investors.
The proceeds of the AREIT shares placement could strengthen the financials of ALI. So, if you want yield go for AREIT and if you are for capital gains go for ALI. The exercise showed that ALI has the right tool kit in place to adopting well to the present environment and to take advantage of a recovering economy.
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