The workings of the market has always intrigued me and this is one of those. At its current price, buyers of VREIT will sit on more than 10% dividend yield. That means the market is discounting this REIT, by a lot. But why?

Let’s look at its rental assets: It has 256,000 sqm of GLA made up of 10 community malls and 2 office buildings. It has 97% occupancy rate and has managed to increase its dividends every year since its IPO in 2022. Although no further asset infusions have happened or plans announced, VREIT only has 20% of sponsor Vista Land’s commercial leasing portfolio of 1.6 million sqm so the potential is there.

If its not the dividends, nor the occupancy rate, nor the growth runway, why then does the market think that VREIT is riskier than the other REITs. Am I missing something?

A likely explanation is that VREIT is part of the Villar Group and stock market investors have been burnt in previous IPOs. Villar’s HOME, ALLDY, MEDIC have flopped and investors assume that VREIT will do the same. A bit unfair to VREIT but market sentiment will affect a stock’s price. I do need to point out that AllHome, AllDay Supermarkets and other related entities like Coffee Project are anchor tenants of VREIT’s malls and their ability to pay rent in the future will obviously affect its rental income. This is a legitimate concentration risk.

Compared to other REITs, the mall assets of VREIT also appear old, dull and boring and they are not found in CBDs but rather close to residential communities. However, the focus on community malls serve as a differentiation to other REITs. Check these videos of SOMO, in Bacoor, Cavite; Starmall, in Talisay, Cebu and Vistamall Antipolo in Rizal:

Reading its recent annual report, I highlight the ff:

*Rental income increased by 2.1% from ₱2,411 million for the year ended December 31, 2023 to ₱2,463
million for the year ended December 31, 2024. The increase was due to the escalation rates for the
year. As of December 31, 2024, the occupancy rate is at 97%.
*Parking fees increased by 6.5% to ₱43 million for the year ended December 31, 2024 from ₱41
million for the year ended December 31, 2023 primarily driven by the increase in numbers of
vehicles parked in the malls and increase in parking rate.

This goes to show that VREIT can deliver increasing dividends even without asset infusions but purely from rental escalations, increased fees and share in tenants’ earnings via variable lease payments. Their 2024 dividend is +12% higher than 2023.

VREIT is priced at a discount and the market wants to be compensated with a high yield for investing in a riskier REIT. Will VREIT end up being a value trap or is it just an overreaction considering its fundamentals.  Are these community malls really more at risk of being vacant compared to, let’s say, office buildings? One only needs to look at FILRT and DDMPR’s office occupancy problems and resulting dividend cut over the past few years. With the exception of the VistaHub BGC property, VREIT properties are not built to impress – it’s certainly no Ayala or Robinsons or Megaworld. But if it earns rent and pays dividends at 10% yield, should REIT investors care? Would you like to include some community malls in your portfolio at a bargain price?

As a final note, I do question Vista Land’s stated commitment to growing VREIT’s GLA. They are in the same boat as PREIT and DDMPR with no asset infusions since IPO. As a long term investor, I do find this worrying.