On August 12, barely a week after the National Capital Region and neighboring provinces were placed under an Enhanced Community Quarantine (ECQ), a strict lockdown classification in the National Capital Region and nearby provinces, Filinvest REIT Corp. (FILRT) made a successful debut on the Philippine Stock Exchange (PSE).

The company’s initial public offering (IPO) managed to buck the stock market’s downtrend. While the PSE index fell by 1.67% and the property index declined by 3.14% on the same day, FILRT closed above its IPO price of P7.00 per share. Its shares reached a high of P7.14 before closing at P7.02 on its first trading day. Its share price closed at P7.20 on Sept. 27 — 3% above its IPO price. Its closing price reached an all-time-high of P7.40 on Aug. 16 (its mid-day price breached P7.58) and Aug. 17.

Filinvest Land, Inc. (FLI) president and CEO and FILRT chairperson Josephine Gotianun-Yap called it “the bravest IPO,” having made history as the first REIT IPO to be listed during an ECQ. “It is a vote of confidence not only in our company and this new asset class, but also in our country and in what has proven to be a most resilient industry in our economy: the BPO sector,” she  said in her speech during the IPO listing ceremony, held virtually for the first time by the PSE.

A deeper look at FILRT’s IPO offers valuable insights for issuers planning to tread today’s treacherous waters in the local market.

1. Quality trumps quantity. “While the reception was mixed, there were investors who responded favorably to the REIT as they focused more on the quality of FILRT’s assets and the high yield of the stock based on its IPO price,” said April Lee Tan, chief equity strategist at leading stockbroker COL Financial Group. The “strong enough demand” for FILRT comes from its good assets and attractive valuation, she added.

FILRT’s portfolio consists of 17 Grade A office buildings totaling over 300,000 square meters of gross leasable area (GLA). Of these, 16 of the 17 buildings are in Northgate Cyberzone in Filinvest City in Alabang, a PEZA Special Economic Zone and IT park while another building is located in the gateway of Cebu IT park in Lahug, Cebu City. The assets were valued by an independent appraisal company at ₱48.5 billion.

Based on the IPO listing price of ₱7.00 per share, FILRT projected a dividend yield of 6.3% for 2021 and 6.6% for 2022 — higher than the yields of the first two publicly listed REITs. Less than a month since its successful maiden share offering, FILRT already declared a cash dividend of P0.112 per outstanding common share to shareholders as of record date Sept. 15, 2021. The amount is equivalent to a quarterly yield of 1.6% or an annualized yield of 6.4% — slightly higher than its projected dividend yield for the year.

2. Green is in. FILRT differentiated itself as a “green” or sustainability-themed REIT as its portfolio includes two LEED Gold-certified office buildings and 16 buildings are in Northgate Cyberzone in Filinvest City in Alabang, the first central business district in the country and the largest in Southeast Asia to receive Gold Certification from LEED® v4 for Neighborhood Development Plan. The buildings are cooled by the country’s largest district cooling system that reduces carbon emissions and energy consumption, the result of Filinvest’s partnership with Engie, a world leader in developing sustainable technology solutions. These sustainability features resonated well with investors, particularly those adhering to Environmental, Social, and Governance (ESG) principles  of investing, said Maricel Brion-Lirio, president of FILRT.

3. Investing for the long haul. The highest share of demand for the FILRT offering came from so-called “long-hold investors” attracted by the yield and growth prospects of the REIT. In particular, Mrs. Gotianun-Yap said there was strong domestic demand from qualified institutional buyers (QIBs), especially among insurance and  bank trust accounts who are “considered more sophisticated investors who look at the long-term potential of an offer.”

Some of these long-term considerations are Filinvest’s established relationship with its tenants, as well as the growing importance of Alabang as a market, added Ms. Tan.

4. Retail investors as the market’s saving grace. While FILRT’s offering mostly drew institutional investors, it was also well-received by more than 8,000 retail investors, one of the highest among REIT and IPO listings since 2020. According to the recently released Stock Market Investor Profile report of the PSE, retail investors now account for 98% of the nearly 1.5 million accounts in the stock market while institutional investors owned 2%. 

“Compared to 10 years ago, there are now a lot more sophisticated Filipino investors who know how to distinguish good-quality companies and who invest for the long-term,” said Ms. Tan of COL. However, she said there is still “a lot of room for improvement” as less than 2% of the population are currently investing in the stock market and taking advantage of attractive investment opportunities.

5. Relationships matter. FILRT relied on reputable investment bankers, both local and foreign, to make its IPO successful. BPI Capital Corporation and UBS AG Singapore Branch served as the Joint Global Coordinators and Bookrunners for the offer (with BPI Capital also acting as the Sole Local Coordinator and Local Lead Underwriter), UBS AG Singapore Branch was the International Bookrunner, China Bank Capital Corporation as Local Lead Underwriter, while First Metro Investment Corporation and SB Capital Investment Corporation were Local Co-lead Underwriters. “We were thrilled to have assisted our long-time client Filinvest in the historic listing of FILRT. The high demand from both domestic and international investors during this time of volatility in the international equity markets speaks to the consumer and investor confidence in Filinvest’s properties as well as the attractiveness of sustainable investments in the Philippines,” said James Grandolfo, Global Capital Markets Group partner of the Hong Kong-based Milbank team which advised FILRT on the offer.

“Our IPO was the culmination of months of hard work, but it’s just the beginning of our journey,” said FILRT president and CEO Maricel Brion-Lirio. “After this experience, we can now collectively write a book on ‘How to Do an IPO in the Time of a Pandemic’.”