The Social Security System (SSS) tripled its REIT investments in 2024 and is looking to purchase more shares, joining sister pension fund, the Government Service Insurance System (GSIS), in moves that have energized an otherwise sluggish market ahead of a potential interest rate cut.
The SSS revealed its REIT exposure at P6 billion, mostly through purchases made this year. It started 2024 with P1.9 billion in seven REITs before driving up the portfolio size to P2.78 billion by the end of March, thanks to the purchase of shares in Ayala Land’s AREIT Inc.
This also suggests that the pension fund significantly increased its holdings during the second quarter of 2024.
SSS investment sector acting head Ernesto D. Francisco Jr. is bullish on REITs, stating that these dividend-focused stocks are expected to be “among the top contributors to this year’s investment income” due to attractive yields of about 8 percent.
REIT whales
The SSS is not alone in making large REIT purchases, especially when its holdings are pitted against those of GSIS.
GSIS ended the first quarter with P12.4 billion invested across six REITs. Its largest positions are in AREIT, where it owns a 9.4 percent stake worth around P7.8 billion at the end of March, and tycoon Andrew Tan’s MREIT, where it owns 9.8 percent that were worth P3.6 billion.
In April, GSIS announced the P4.35 billion purchase of 790.22 million shares in RL Commercial REIT (RCR), raising its holdings to 8.2 percent of the Gokongwei-led firm.
Big picture
Large institutions are crucial in supporting the market while jittery investors stay on the sidelines.
These investments are mainly driven by expectations that interest rates have peaked and could start coming down by the end of 2024, lifting the stock market from its present downtrend.
The bottomline
REITs have generally outperformed the PSEi, which is currently flat compared to its yearly close in 2023.
Active purchases by pension funds also appeared to have a modest impact on share price gains, but this is likely due to the fact that these REITs are relatively much larger in terms of market value.
The best performing REIT in 2024 is tycoon Manuel Villar Jr.’s Premiere Island Power REIT.
It has gained about 25 percent and has the lowest projected yield at 6.86 percent, according to data compiled by the Merkado Barkada financial newsletter.
Analyst’s view
COL Financial Group chief equity strategist April Lynn Tan said pension funds are locking in yields, anticipating that rates will eventually come down.
“The problem with some REITs is heavy exposure to offices because offices still have high vacancy but they are cyclical and eventually, they will recover [occupancy rates],” she told InsiderPH.
Tan is positive on AREIT and tycoon Edgar Saavedra’s Citicore Energy REIT (CREIT).
She said AREIT’s large size makes it a potential candidate for inclusion in the Philippine benchmark index, or PSEi, while CREIT, whose investors include the Sy family-led SM Group, is more resilient to downturns due to its renewable energy focus.
REITs on expansion mode
Originally envisioned as a capital recycling mechanism for their sponsor parent firms, the industry has grown and matured to provide value to dividends-focused investors, both large and small.
AREIT, the largest in terms of footprint, is in the process of completing a major asset infusion that will increase the value of its portfolio to P117 billion.
RCR also announced the planned infusion of P33.9 billion worth of shopping centers and offices, making it the largest mall REIT in the country.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
