AREIT holders may have missed the difference between MM and AREIT, AREIT may have to sink further until it finds the yield.

MM and AREIT are two different public offerings, thus, the difference in results. Holders of AREIT may have missed the difference of the two public offerings.

MM is a pure initial public offering. It means shares offered to the public comes from the unissued shares of MM or the so called “primary shares.” All the proceeds of the MM initial public offering went into the coffers of MM. The proceeds of the public offering more than doubled the size of MM’s balance sheet. From 0.9 Billion prior to the IPO to around 2.4 Billion post-IPO.

Because the proceeds of MM’s IPO went to its coffers, MM will be able to utilize the proceeds of its IPO to grow the business and create more value to its shareholders including those who participated in the IPO. The more value a company creates the more the market rewards, thus, the rise in value of the company’s shares.

In AREIT, the total proceeds of around 13.5 Billion Pesos of the public offering went to Ayala Land, Inc. (ALI). That was so because 90.5% of the shares offered to the public were secondary shares owned by Ayala Land, Inc. (ALI). ALI was selling its AREIT shares to the public. Only 9.5% or 47,864,000 shares of the total shares in the public offering were primary shares. The proceeds of the sale of the primary shares were also used to acquire an office building from ALI. So in all the entire proceeds of the AREIT offering went to ALI.

The impact would have been different if the IPO were all primary shares. In AREIT if the IPO were all primary shares then its balance sheet would have also doubled and AREIT will have 13.5 Billion of new capital to grow the business. If that was the case the shares would have skyrocketed because AREIT with 13.5 Billion Pesos of new capital could grow tremendously. But that was not the case.

In advance markets REITs are known for their yield and their shares moves up and down chasing the yield. This is so because REITs are typically mandated to distribute at least 90% of its distributable net income to it shareholder and their assets are restricted to mostly income producing real estate. REITs are designed to own income producing real estate and the income from those assets are mandated to be distributed to shareholders. That is why they are known for their yield and the yield typically guides a REIT’s share price.

In the case of AREIT, all the talks about its yield are all based on speculations. There are so many talks that the yield is like this and that but those are all speculations from brokers, analyst, and commenters. AREIT’s yield is zero for now considering that no dividend has yet been declared by AREIT.

AREIT has been very clear in its final REIT plan that the property yield on real estate held by AREIT is not equivalent to distribution yield on the shares and that AREIT may not be able to make distributions.

There is no yield for AREIT until AREIT makes that dividend declaration. For now AREIT’s share price maybe guided by the no yield yet and its shares maybe heading towards the no yield yet territory. That could be so until a distribution is declared and when a distribution is declared its share price will move towards the yield the market desires.

Disclaimer: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent perspective.  Accuretti Systems Inc. does not hold any shares of Merry Mart, AREIT and Ayala Land, Inc..