RCR: Robinsons; REIT time
RL Commercial REIT, Inc. (RCR) is the REIT vehicle of RLC. As of end-June 2021, its portfolio had a total GLA of 425,316 sqm. It is arguably more diversified than the listed REITs (FILRT, DDMPR, AREIT) in terms of location since its properties include office buildings located in Cebu, Davao, and Tarlac as well (NCR: 90.72% of the total, ex-NCR: 9.28%). Note, however, that RCR doesn’t own all of the buildings in its portfolio. It also owns none of the land and only leases them from RLC.
Based on RCR’s carved out financial statements found in its prospectus, rental income was relatively stable despite the pandemic. In 1H21, RCR’s rental income increased by +6.9% y/y to P1.58bn on the back of its successful leasing activities and rental escalations in existing office buildings. This led to net income spiking +31.5% y/y to P1.18bn during the semester.
Possible acquisitions post-listing include Cyberscape Gamma (44,797 sqm) in Pasig City and Robinsons Cybergate Center 1 (27,303 sqm) in Mandaluyong City.
RCR’s net asset value post-IPO is estimated to be P59.17bn, meaning NAV/sh would be P5.95. Note that the offer price of P6.45 apiece is at a significant premium to this.
At the offer price, RCR’s projected annualized dividend yield this year assuming it distributes 100% of its AFFO would be 5.57%. For 2022E, the projected dividend yield could reach 5.96%.
Breaking down RCR
RCR is arguably more diversified than the listed REITs (FILRT, DDMPR, AREIT) in terms of location. Its total GLA as of end-June 2021 stood at 425,316 sqm with an average committed occupancy rate of 99%. All of its buildings are registered with PEZA.
About 90.72% of RCR’s property portfolio is located in NCR. This accounts for 9 buildings in Quezon City, Pasig City, Makati City, Taguig City, and Mandaluyong City. The other 5 buildings are in Cebu City, Naga City, Tarlac City, and Davao City, making up 9.28% of the firm’s portfolio.
RCR doesn’t own all of the buildings in its portfolio. In some of the projects, RCR owns only a couple of floors (5th to 7th floors of Robinsons Cybergate Cebu; 3rd to 4th floors of Galleria Cebu; 3rd to 5th floors of Cybergate Naga) or just a certain percentage of total office units (96 out of 353 units of Robinsons Equitable Tower; 31 out of 32 units of Robinsons Summit Center).
In addition, RCR leases 2 buildings or 20.8% of its portfolio from RLC. For the rest of the properties, RCR leases the underlying land.
Latest earnings figures; profitability amid the pandemic.
In 1H21, RCR’s rental income increased by +6.9% y/y to P1.58bn on the back of its successful leasing activities and rental escalations in existing office buildings. This led to net income spiking +31.5% y/y to P1.18bn during the semester. It seems the firm was also stable amid the pandemic. Rental income for 2020 was up by +8.4% y/y to P2.95bn, with NI increasing by +10% y/y to P1.77bn.
As of end-June 2021, RCR’s portfolio’s WALE is 4.3 years. About 49.8% of the leases are expiring in 2025 and beyond. In its prospectus, RCR said it had successfully renewed and replaced 100% of all expiring GLA in 2019 and 2020.
Stable tenant profile
RCR’s tenant profile is predominantly BPO (68.90%). About 19.40% of its total GLA is occupied by Traditional offices. POGO exposure is minimal at 2.80%, and there also seemed to be no POGO cancellations YTD.
Post-listing, RCR said it plans to expand its portfolio through the acquisition of stabilized properties for lease that are dividend accretive. Possible acquisitions include office buildings as well as BPO-occupied mall spaces from RLC. RCR entered into an MOU with RLC for the potential future acquisition of Cyberscape Gamma (44,797 sqm) in Pasig City and Robinsons Cybergate Center 1 (27,303 sqm) in Mandaluyong City.
- RCR’s profitability improved in 2020 despite the pandemic. Should it follow this trend, we expect increasing ROE at least until 2022E on the back of sustained growth in rental income and stable occupancy despite the pandemic. Based on RCR’s projections, EPS could spike and hit 0.30 by this year following the approval of its property-for-share swap. Note that these profitability projections do not take into account additional acquisitions that can be made post-IPO.
- If we use the carved out financial statements, RCR’s profit margins read significantly higher than the industry average.
- Likewise, asset turnover is seen to continue improving. Downside risk to RCR’s efficiency ratios include a protracted pandemic which could dampen the office demand from BPOs.
- At the offer price of P6.45/sh, RCR’s PER would be roughly 25.25x. This is relatively at par with FILRT’s, but is higher than AREIT’s. By our estimates, RCR will be trading at around 8x its book value.
- RCR’s projected annualized dividend yield this year assuming it distributes 100% of its AFFO would be 5.57%. For 2022E, the projected dividend yield could reach 5.96%.