Stock Commentary: How Does Your REIT “Buying Power” Metric Work?

I had a few questions about it, and I think I didn’t do a great job of explaining what it is. Give me that second chance!

The purchasing power measure is intended to quickly (and roughly) estimate the maximum value a REIT might be able to purchase, using all of its available debt and equity resources, without exceeding the ceiling of the debt or fall below the minimum public ownership requirement of 33.33%. .

To help illustrate this, let me compare AREIT [AREIT 37.60 2.73%] and RL Commercial REIT [RCR 6.49 0.93%].

The MB REIT Tracker has AREIT with a purchasing power of about 28 billion pesos, while RCR has a purchasing power of about 40 billion pesos. But what explains the big difference?

On the debt side of the purchasing power measure, AREIT and RCR can borrow up to 70% of the value of their deposited properties (these are the only two REITs able to exceed the default cap of 35% due to of their PRS Aaa debt rating), but AREIT already has 7.8 billion pesos in liabilities against 50 billion pesos in deposited assets, while RCR only has 1.5 billion pesos in liabilities against 59 billion pesos in deposited property.

This difference represents a huge difference in purchasing power. Using the debt, AREIT could use about 27 billion pesos to buy properties, while RCR can use more than 40 billion pesos.

On the equity side, AREIT has 33.64% of its outstanding shares in public hands, giving it the ability to issue only about 29 million “new” shares in a stock exchange. property for stock before he needs to do some kind of further stock sale to the public. This amount is worth about 1 billion pesos.

RCR has a 36.51% public stake, so it could issue 1,058 million shares, worth around 6.1 billion pesos to buy properties before being forced into a similar sale shares to the public.

Put that amount of debt with the amount of equity, and you have AREIT being able to “spend” around 28 billion pesos, and RCR being able to “spend” around 46 billion pesos.

MB RESULTS

The imminent acquisition by RCR of the Cyberscape Gamma building in Land of the Robinsons [RLC 17.28 2.61%]that he will buy using new shares, is an excellent example of the usefulness of measuring purchasing power.

Upon completion of the transaction, the 777,807,133 shares to be issued to RLC will reduce RCR’s public ownership to 33.86% and reduce RCR’s equity share of purchasing power from approximately 6 billion pesos to one just under 1 billion pesos.

The addition of the Cyberscape Gamma building will add an additional 6 billion pesos to the value of RCR’s deposited properties, which should also give it access to an additional 4 billion pesos in debt under its 70% limit.

The net result of the transaction would see RCR’s purchasing power increase from 40 billion pesos to 39 billion pesos (minus 5 billion pesos of equity purchasing power, plus 4 billion pesos of purchasing power of debts). I don’t know if these kinds of statistics are used in other jurisdictions.

I made it up myself, to give a better perspective on the capabilities of each of the REITs, but I’m very open to feedback on ways to improve or make this stat more accurate. Hope this can help!

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Merkado Barkada’s opinions are provided for informational purposes only and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor should do their own due diligence before trading, as the facts and figures in each particular article may have changed.

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