What is your “buying power” metric for REITs all about?
Thanks to Jack Plumber for this question! The Buying Power metric is something that I just made up to show my estimate of how much a REIT could conceivably spend, in a combination of debt and equity, without breaching its debt limit or the PSE’s minimum public ownership threshold for REITs.
The metric is specific to the PSE, since it relies on the PH-based REIT Law for the debt limit (35% to 70%), and it relies on the PSE’s minimum public ownership threshold for REITs (33%).
The Buying Power metric is then represented as a percentage of the REIT’s marketcap.
Buying Power doesn’t take a REIT’s authorized capital stock level into account, only how much “value” it could monetize through the issuance of primary shares from where it is today down to that minimum public ownership limit.
Buying Power is meant to give readers a quick way to compare REITs in terms of the deals that they could make with their capitalization and current financial situation.
A low Buying Power score would mean that the REIT would probably need to conduct a follow-on offering or stock rights offering to conduct any additional transactions.
A high Buying Power score implies (but doesn’t mean) that the REIT could probably undertake additional growth by borrowing against its existing assets and issuing shares without the need to conduct an offering.
MB BOTTOM-LINE
Two great examples here are RL Commercial REIT [RCR 5.63 0.5%] and VistaREIT [VREIT 1.69 0.6%]. RCR has a Buying Power stat of “P46-B / 82%”, meaning that it has around P46 billion that it could spend in debt and equity, and that amount is 82% of its current marketcap.
VREIT has a Buying Power of “P1.2-B / 10%”, meaning that it has around P1.2 billion that it could spend, and that this amount is only about 10% of VREIT’s marketcap.
At a glance, this shows that RCR has plenty of debt and equity that it can throw around to grow its dividend; it can nearly double the value of RCR with the resources it has access to today.
It also shows that VREIT was “born” with very little in terms of financial resources to play with.
If the Villars wanted to inject something significant into VREIT, they would definitely need to do some kind of equity raise to do it.
The point here isn’t to vilify equity raising, but just to provide additional context. My goal for next quarter is to improve this stat by taking cash and authorized capital stock into account.
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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 must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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