Market Commentary: RCR’s High PRS Credit Rating Allows It To Double Its Leverage

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Merkado Barkada

September 17, 2021 | 8:45 am

In a statement issued an hour after the market closed yesterday (with a [Emergency] label), Commercial REIT RL [RCR 6.46 0.31%] announced that it had received a “PRS Aaa (corp.)” credit rating from PhilRatings, our national credit rating agency. This rating is the highest rating PhilRatings can give and, in the words of PhilRatings, represents a company with a “VERY STRONG ability to meet financial commitments compared to other Philippine companies”.

In its press release, RCR said that the rating gives RCR the option under REIT law to increase its leverage limit from 35% to 70% of the value of its deposited assets. . RCR says this will give it “greater financial flexibility to support its organic and inorganic growth for long-term sustainability.”

MB RESULT

Not so sure this ad warrants the “Emergency” tag, but I’m willing to give the newbie a break in their first week of life. It is true that RCR received the highest possible PhilRatings score, but the press release is written to give the impression that RCR is the only REIT to achieve this score, when in reality AREIT [AREIT 37.95 2.02%] got the same score after its IPO last year. (I tried to research other REITs, but the PhilRatings website is still stuck in the 90s and considers a list of PDF files that has not been updated for over a year as a “base of data”.)

Enough messing around, though. Getting to the heart of the matter, the “leverage” that RCR is talking about here is really just a fancy word for debt. You’ll also hear this in REIT circles (and real estate development circles more generally) as the “gear ratio”, and it’s basically “total debt / total assets”. It is a measure intended to communicate the percentage of a company’s assets that are financed by debt.

In this case, the PhilRatings score allows RCR, by law, to borrow up to 70% of the value of its assets, which were independently valued at 73.9 billion pesos before the IPO. This means that RCR now has access to an additional 25.8 billion pesos of debt financing that it can use to acquire additional assets from (in all likelihood) its parent company, Land of the Robinsons [RLC 15.96 1.60%].

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Merkado Barkada’s opinions are provided for informational purposes only and should not be taken as a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so every investor should do their due diligence before trading, as the facts and figures in each particular article may have changed.


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