The Villar Family announced yesterday that it was dropping the IPO offer price for VistaREIT [VREIT 1.75 pre-IPO] [link] down to P1.75/share, which is a 30% discount from the original P2.50/share maximum price listed in VREIT’s preliminary prospectus.
In addition, the announcement included a drastic change in the number of shares that will be sold, from 3.66 billion shares between the firm offer and over-allotment option (worth a total of P9.15 billion), to just 2.75 billion shares (worth a total of P4.8 billion).
Post-transaction, and assuming full exercise/sale of the over-allotment option, the public will own 36.6% of VREIT, instead of the 48.8% that we would have expected under the original configuration.
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These changes effectively cut the size and value of the deal in half. The size of the discount is also pretty shocking, but it's not without precedent, and it wasn’t completely unexpected.
MREIT [MREIT 16.78 0.59%] dropped its IPO offer price by a similar amount (275) ahead of its IPO, to give investors some “upside”, and a few REITs have had to trim their final price to make their annualized yield look more attractive than their preliminary price did.
Remember how yields are calculated? You take the estimated dividends per share over the course of a year, and you divide that by the stock price.
Assuming that the portfolio composition of VREIT hasn’t changed, and that VREIT’s assumptions for how much income it will make from those properties and its intentions about how much of that income it will dividend to investors hasn’t changed, the only way for VREIT to bump up its initial yield to make it more attractive is to drop the price. Yield = dividends per share / price.
Assuming dividends are the same, yield rises as the price drops. Based on its original price of P2.50/share, VREIT estimated that it would have a 2022 yield of 5.77% and a 2023 yield of 6.29%.
Now, with this price change, and assuming (again) that nothing has changed in the portfolio or in VREIT’s income assumptions, we would expect VREIT’s 2022 yield to be 8.24% and its 2023 yield to be 8.99%.
That absolutely blows the doors off of anything in the REIT market right now.
The highest estimated yield on the market right now comes from Citicore Energy REIT [CREIT 2.55 1.16%], and it’s “only” paying a nice yield of 6.9%.
For VREIT to match the PSE’s highest REIT yield, its share price would have to rise 19% to P2.08/share. There are lots of moving pieces here, but from this initial glance (and again, assuming all those assumptions), it looks like there’s some upside.
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