AREIT, Inc. stellar results, fueled by property expansion

AREIT, Inc. released its Q1 25 results on May 13, 2025, posting impressive growth in both revenue and profits, driven by contributions from newly acquired properties in July 2024. Revenue surged by 38% y/y to PHP2.9bn. Operating income rose 42%, reaching PHP2.1bn, with margins improving by 136bp to 73.3%. Consequently, net profit grew by 43% y/y to PHP2.1bn.

AREIT, Inc. was incorporated in 2006 and is headquartered in Metro Manila, Philippines. The Company specializes in leasing commercial retail and office spaces in the Philippines. It owns and invests in a diverse portfolio, including office buildings, retail spaces, and hotels. Catering to both retail and office tenants, the Company's investment properties comprise seven standalone buildings, three mixed-use properties, nine condominium office units, and four land parcels.

Moreover, these properties are strategically located in various cities such as Makati City, Cebu City, Bacolod City, Quezon City, Ayala Avenue, Gil Puyat Avenue, and Muntinlupa City. AREIT Fund Managers, Inc. serves as the fund manager, overseeing the Company's investments and ensuring optimal management of its commercial real estate assets.

Portfolio growth

The Company has strategically enhanced its portfolio by increasing retail exposure due to strong consumer spending, ensuring a resilient income stream through fixed master leases with ALI for retail and hotel assets. With quality assets in key provincial locations, the Company aims to further diversify into more provincial city centers and grow its AUM by PHP15-20bn annually, expanding across various asset types and geographies.

Office occupancy rates improved to 96% in Q1 25 from 95% in Q4 24, driven by higher occupancy in Ayala North Exchange. Only 4.2% of leases are expiring in 2025, with 46% already renewed and 49% under negotiation. AREIT's portfolio now includes 3.9m sqm of gross leasable area (GLA), with AUM rising to PHP117bn in FY 24 from PHP87bn in FY 23.

Improved gearing ratio

AREIT, Inc. posted an impressive revenue CAGR of 45.7% over FY 21-24 to reach PHP10.3bn. Operating income outpaced revenue growth, posting a CAGR of 46.3% to PHP7.5bn in FY 24, with margins expanding by a solid 16.2% to 73.4%. Net income therefore surged at a CAGR of 44.3% to PHP7.3bn in FY 24.

The company’s strong earnings trajectory led to positive FCF over FY 21-24, reaching PHP5.2bn in FY 24, up from PHP3.2bn in FY 21. Total debt decreased from PHP5.1bn to PHP3.4bn in FY 24. As a result, total debt-to-equity improved from 10.4% to 3% over the same period.

In comparison, its local peer MREIT, Inc., grew with a revenue CAGR of 13.1%, reaching PHP3.5bn in FY 24. Operating income rose at a CAGR of 11.9% to PHP3.4bn. Net income declined, with a CAGR of minus 0.5% to PHP4bn.

Encouraging analyst opinions

Over the past 12 months, the company's stock has delivered impressive returns of approximately 18%. In comparison, MREIT, Inc.’s stock has delivered returns of about 7.2% over the same period. In addition, the company paid an annual dividend of PHP2.3 in FY 24, resulting in an impressive dividend yield of 6%. Moreover, analysts expect an average dividend yield of 7% over the next three years.

The company is trading lower than its historical average. AREIT, Inc. is currently trading at a P/E of 13.8x, based on the FY 25 estimated EPS of PHP2.9, which is lower than its 3-year historical average of 15.3x but higher than that of MREIT, Inc. (12.1x).

Likewise, the company is currently trading at an EV/EBITDA multiple of 14x, based on FY 25e EBITDA of PHP9.3bn, which is lower than its 3-year historical average of 16x. However, it is trading higher than MREIT, Inc.’s valuation of 12.4x.

AREIT, Inc. is generally liked by five analysts, with three having ‘Buy’ ratings, one having ‘Outperform’ rating and one having ‘Hold’ rating for an average target price of PHP44.6, implying 11.8% upside potential from the current price.

Their views are further supported by an anticipated revenue CAGR of 13.9% over FY 24-27, reaching PHP15.2bn, with an Operating income CAGR of 16.1% to PHP11.8bn, with margins expanding from 73.2% to 77.5% in FY 27. EPS expected to increase to PHP3.6 in FY 27 from PHP2.6 in FY 24. Likewise, analysts estimate revenue CAGR of 14% for MREIT, Inc.

Overall, AREIT, Inc. has posted strong growth and strategic portfolio enhancement, driven by contributions from newly acquired properties. The company has improved its office occupancy rates and expanded its assets under management, showcasing resilience and diversification. With a positive earnings trajectory, reduced debt, and favorable analyst opinions, AREIT, Inc. is well-positioned for continued success.

However, AREIT, Inc. faces several risks, including economic disruptions that could impact occupancy rates and rental income, sensitivity to rising interest rates affecting stock prices, and regulatory changes posing operational challenges. In addition, concentration in office spaces, operational risks, and market competition could lead to revenue shortfalls and lower profit margins.