The Villar Family’s announcement of their plan to IPO VistaREIT [VREIT 2.50 pre-SEC] prompted an unusually large number of questions from Barkadans that I’d like to address all in one “megathread”. To recap the basics: Vista Land & Lifescapes [VLL 2.57 0.77%] is selling 3.66 billion secondary common shares in VREIT for up to P2.50/share, to raise P9.18 billion in proceeds from the sale. Now, to the questions:
How do I buy IPO shares? There are two basic ways to buy shares: through PSE EASy, the PSE’s platform for local small investors to participate in IPOs, or through a broker like COL Financial [COL 3.81 2.31%], FMS, AAA Equities, or Abacus. There are literally over a hundred brokers, but if you don’t already have a brokerage account, the brokers that I’ve listed appear to be the ones that have optimized for encouraging participation in the IPO process. That’s not to say that you’re likely to get any kind of allocation with COL or FMS (COL is particularly atrocious at having enough IPO juice to go around), but these platforms make it easy (well, “easier”) to fund an account, make an IPO purchase, and receive an IPO refund (if any is required).
Can OFWs buy shares? Yes! And there’s even a special tax incentive built specifically to encourage OFWs to buy REIT stocks: OFWs are exempted from income tax and withholding tax on REIT stock dividend income until 2027. (I’m not a tax guy, so this isn’t tax/accounting advice; always do your own due diligence.) OFWs can buy IPO shares through Philippines-based brokerages. I’m not sure how hard/easy it is for an OFW to go through the account creation process, but I do know that OFWs that have already set up a COL account are able to fund that account remotely and make IPO stock purchases through that account.
Is it sketchy if the deal is 100% secondary? No, I like how you're thinking, but let me explain. First, a quick refresher on primary/secondary: primary shares are those that are issued by the IPOing company, and the IPOing company gets to use that money for its own development; secondary shares are sold by existing shareholders, and the existing/selling shareholders get to use that money, not the IPOing company.
We also have to make a distinction between a REIT IPO and a “normal” IPO. In a normal IPO, I think there is a problem if the percentage of the shares on sale that are secondary shares is really high. Questions come up, like “Why are the owners selling if the opportunity is so good?”, or “Where is the growth going to come from if all of the proceeds from the IPO flow out to the selling shareholders and not the company?” These are all valid questions, but they don’t apply as cleanly to the REIT IPO, and here’s why: the REIT structure is intended for capital to flow back up to the sponsor. REITs are not scrappy growth stage companies just looking for an infusion of capital to fund some important plant upgrades or massive capex push; they’re a portfolio of mature income-generating assets, all owned by the same ownership group, where that ownership group has been given some nice little tax incentives to bundle up those properties into a REIT, and then sell shares in that REIT to the public.
The point of the REIT Law is to give real estate developers and infrastructure companies the ability to sell chunks of fully-developed projects through the REIT structure, and the side benefit that we get is the ability to participate in the fractional ownership of stable, income-generating assets. VREIT is going to sell 100% secondary shares and be born with 10 malls and 2 office buildings, and it will generate cash from rents, and it will distribute at least 90% of its net distributable income to shareholders through dividends. If VREIT was instead going to sell 75% secondary shares and 25% primary shares, it would be born with like 10 malls... and then still buy the 2 office buildings from Vista Land & Lifescapes [VLL 2.57 0.77%], its parent company. In either example, the cash flows up to the parent.
The AREIT [AREIT 45.80 2.14%] IPO was similar: there was a modest portion of primary shares, and AREIT used the proceeds from the primary shares sale to immediately buy a building from Ayala Land [ALI 36.00 unch] after its IPO.
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The usual disclaimers go here about how REITs are just one type of investment, that they may not be appropriate for every portfolio, and that even if a REIT investment was exactly what was missing from your portfolio, it’s not necessarily true that VREIT is the particular REIT that would fit your needs. The above questions might have been prompted by the VREIT announcement, but the answers are just as applicable to the VREIT IPO as they are to our entire REIT sector and any subsequent REIT IPO, so I felt it was important to address these questions directly.
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