The deal involves up to 1.87 billion shares of FLI, or 7.7 percent of the property development giant’s outstanding shares, a stock exchange filing on Wednesday showed.
Participating investors will get 1 FILRT share for every 3.11 shares of FLI that they tender.
The sweetener is the attractive price: FLI shares were valued at P1 each, which is a 56-percent premium to its recent trading average, the company said.
The announcement caused FLI’s shares to surge over 22 percent to P0.83 per share, while FILRT rose 1.63 percent to P3.11 each.
Why is FLI doing this?
FLI needs to reduce its stake in FILRT to maintain the real estate investment trust’s (REIT) diversified public ownership before making any asset injections, explained Alfred Benjamin R. Garcia, head of research at AP Securities.
FLI said the share swap is expected to raise FILRT’s public ownership to 46.75 percent, exceeding the 33.33 percent minimum required by the exchange.
Other REIT owners typically address this issue by selling shares in their subsidiary to external funds. However, these deals often lead to shareholder dilution at the REIT, as more shares are issued, increasing the total number of stocks in circulation.
This won’t be the case in this transaction, as FLI will use existing shares for the swap, meaning no new shares will be issued.
Management’s view
Tristan Las Marias, FLI president and CEO, said the tender and share swap “allows existing FLI shareholders to unlock value.”
“Despite current share price challenges, we continue to believe in the intrinsic value of Filinvest Land, as we enter a more positive macroeconomic environment that favors our business,” he said.
Filinvest REIT vs FLI
Filinvest REIT, which trades under the stock symbol FILRT, is the real estate investment trust arm of FLI.
While the stock is trading more than 55 percent below its P7 per share initial public offering price, Las Marias said investors can benefit from “higher-yielding FILRT shares in return.”
“With this share swap, we are also able to create room for a potential dividend-accretive asset infusion by FLI into FILRT. With this offering, we intend to safeguard our investors from market volatility to allow them to maximize value from our shares,” Las Marias said.
Better yields
In its statement, the company said FLI declared dividends totaling ₱1.212 billion, offering a 5 percent dividend yield.
On the other hand, FILRT declared ₱1.213 billion in dividends this August. When annualized, this was equivalent to 8 percent.
What happens next?
FLI has yet to detail the next steps, including the timetable for the offer and swap.
Garcia said all FLI shareholders would be given the option to voluntarily tender their shares.
“In the event that the tender shares exceed the limit set by FLI, everyone who tendered will have their tenders reduced by the same amount,” he said.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
