LISTED property firm Filinvest REIT Corp. (FILRT) will likely see modest income growth this year, with its occupancy rate expected to remain flat amid high industry vacancy rates, Maybank Investment Banking Group said.
The Filinvest Group's real estate investment trust will likely deliver a 3.0 percent year-on-year increase in net income for fiscal year 2024 as it continues to be "significantly impacted by an elevated industry vacancy rate of 19 percent," Maybank said in a report.
The Gotianun-led REIT's occupancy rate in the first nine months of 2023 had stayed flat at 84 percent, mainly pulled down by the 80 percent rate for properties in Alabang.
Coupled with an 8-percent drop in rental revenues, this resulted in a 34.5-percent decline in its nine-month net income to P721 million from P1.1 billion a year earlier.
For 2024, Maybank said FILRT's overall occupancy rate was likely to stay flat while rental rates could move by an estimated 2.0 percent year-over-year.
"We expect this to continue to weigh on FILRT's rental rates, leading to a 14 percent year-on-year drop in FY23E (fiscal year 2023 estimate) earnings," Maybank said.
The company's weighted average lease expiry of seven years as well as its tenant mix — consisting mainly of the business process outsourcing (BPO) sector — could, however, help reduce further significant decreases in occupancy rates.
"FILRT's sponsor, [Filinvest Land Inc.], has a total of 524,000 square meters (sqm) of office gross leasable area (GLA) and 257,000 sqm of mall GLA in its portfolio, providing plenty of room for potential asset infusions into FILRT in the short and long term," Maybank added.
Upside factors include a ramp-up in occupancy rates for properties driven by BPOs, greater-than-expected lease escalation rates, and value-accretive acquisitions through Filinvest Land.
On the other hand, profit could be tempered by high vacancy rates, a greater-than-expected degree of non-renewals and pre-terminations, and lower lease escalation rates, Maybank noted.
In December, FILRT announced plans to invest in ventures that would boost occupancy levels and GLA starting this year until 2026, with the goal of improving its occupancy rate to 95 percent.
"To address occupancy and in anticipation of the potential effects of artificial intelligence on the BPO sector, the company will drive tenant diversification to include more traditional offices and nontraditional offices," the firm told the stock exchange.
"It has been repositioning and retooling its sales organization, including its channel marketing efforts, to enable the shift in tenant mix," it said.
FILRT added it was also planning to strengthen its commitment to sustainability, aiming to achieve 100 percent renewable electricity for its tenants.
The company's shares closed up by 2.59 percent to P3.17 each on Monday amid a 0.56 percent rise in the benchmark Philippine Stock Exchange index.
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