AREIT, Inc.AREIT

Property-for-Share Swap between AREIT, Inc. and Ayala Land, Inc. ("ALI")

The Board of Directors of AREIT, Inc. (AREIT), at its special meeting held last March 7 2023, approved the subscription of Ayala Land, Inc (ALI), and its subsidiaries, Ayalaland Malls, Inc. (ALMI), and Northbeacon Commercial Corporation (NBCC) to 607,559,380 AREIT primary common shares, in Exchange for flagship offices and malls with an aggregate value of P22,479,697,060, as validated by a third-party fairness opinion.

Definitive agreements on the Transaction (as defined below) will be duly disclosed to the Exchange and the Securities and Exchange Commission (“SEC”) upon execution.

The Company and ALI, ALMI, and NBCC will execute a property-for-share swap transaction whereby the Company will issue the Shares to ALI, ALMI, and NBCC in exchange for the following identified properties valued at P22,479,697,060.00 (the "Transaction"), at an issue price of P37.00 per share ("Transaction Price"), set at a 3% premium over the 30-day VWAP of P35.83 or the Market Price.

The Properties will be used as ALI's, ALMI's, and NBCC's payment for the Shares. The Transaction will be implemented as a tax-free exchange, subject to a fairness opinion on the valuation of the Shares and of the Properties prepared and issued by FTI Consulting Philippines, Inc. ("FTI Consulting"), an independent fairness opinion provider accredited by both the SEC and the Philippine Stock Exchange ("PSE"). The Properties have been evaluated by AREIT Fund Managers, Inc. ("AFMI") and have been appraised by the Company's property appraiser, Cuervo Appraisers, Inc. ("Cuervo").

The infusion of the Properties into AREIT is in line with the objective of AREIT and its Sponsor, ALI, to grow the asset base of AREIT through the infusion of several high-quality assets to maximize value accretion for AREIT's shareholders.

The Transaction is subject to the approval of AREIT stockholders at the Company's annual meeting to be held on 26 April 2023.

AREIT will apply for the additional listing of the shares resulting from the Transaction. The final Transaction Price is set at a 3% premium over the 30-day VWAP of P35.83 or the Market Price. In accordance with the PSE's Consolidated Listing and Disclosure Rules ("PSE Rules"), Article V, Section 9, paragraph (a), "Market Price" means the volume weighted average of the closing prices for a period of thirty (30) Trading Days prior to the transaction or the date of the approval of the Board of Directors. As such, the Transaction falls within the Exceptions to the conduct of a rights or public offering requirement of the PSE Rules.

SECTION 9. Exceptions to the Rule – The Exchange shall grant an exception to the rights or public offering requirement in the following cases:

(a) The transaction price for the shares subscribed is set at a premium over the prevailing market price. Market Price shall mean the weighted average of the closing prices for a period of thirty (30) Trading Days prior to the transaction;

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The exchange of the Shares for the Properties will qualify as a tax-free exchange under Section 40(C)(2) of the Tax Code, as amended.

Section 40 (C) (2) of the Tax Code, as amended, has been interpreted by the Supreme Court in the case of Commissioner of Internal Revenue vs. Filinvest Development Corporation (G.R. No. 167689, 9 July 2011), to mean that a tax-free exchange applies when the controlling person gains "further control" or transfers where the exchanger already has control of the corporation at the time of the exchange.

The Company expects to execute the Deed of Exchange and file the application for approval of the original issuance of shares with the SEC within May 2023, and the issuance of the Certificates Authorizing Registration ("CAR") with the relevant Revenue District Office of the Bureau of Internal Revenue ("BIR") within the first quarter of 2024. The SEC's approval of the Transaction is expected to be issued within the year, and the BIR's CAR issuance is expected to be issued within the first quarter of 2024. The Company shall likewise apply for the additional listing of shares with the Exchange by the first quarter of 2024. The indicative timetable for implementation of the Transaction is shown in Table 3 of the attached letter.

As the first Philippine Real Estate Investment Trust ("REIT") successfully listed amidst the COVID-19 pandemic, and true to its commitment to diversify and expand its portfolio through constant, accretive asset infusions, AREIT aspires to further grow its leasing portfolio with prime and stable assets. Since its IPO, AREIT delivered on its growth plan, resulting in a 52% total shareholder return from dividend yield and price appreciation, based on the closing price of P35.85 on 06 March 2023.

AREIT started with 153 thousand square meters equivalent to P30 billion of Assets Under Management ("AUM") in 2020. By December 2021, this has grown to 549 thousand square meters, equivalent to P53 billion in AUM. At the close of 2022, AREIT has grown to 673 thousand square meters, equivalent to P64 billion in AUM. With this new asset infusion, AREIT will grow further and reach 863 thousand square meters or around P87 billion in AUM in 2023 nearly triple its size. This growth exceeds its target to double in size within two years from its IPO. The new asset infusion will likewise diversify AREIT's asset base with the infusion of ALI's flagship offices and malls.

The properties are expected to contribute further to its operating cashflows, boosting dividends per share. At 6.625% capitalization rate, the Properties were valued based on a stable level of operating income and the expected yield of the property after considering a long-term sustainable growth of 3%. AREIT's 2023 yield is approximately 5.7% from its existing assets at the prevailing market price. Hence, the asset-for-share swap would be accretive and potentially increase the overall yield to approximately 6.2% after the new assets are infused. Estimated yields and total shareholder return are subject to actual operating performance and market conditions.

The Properties transferred to AREIT, including the gross leasable area, location, occupancy, and average rent, are in Annex C of the attached letter.

The Properties are valued at approximately P22.5 Billion by FTI Consulting and the Appraisal Reports issued by Cuervo (Annex B of the attached letter). The Transaction Price of P37.00 per share was set at a premium over the 30-day VWAP of P35.83 or Market Price, and falls within the range of values provided in the Fairness Opinion (Annex A of the attached letter).

Subject to regulatory approvals (including BIR's CAR issuance allowing the transfer of properties to AREIT as a tax-free exchange transaction under the Tax Code, as amended, and SEC's approval of the Company's increase in authorized capital stock from where the Shares will be issued, and approval of the original issuance of shares to ALI, ALMI, and NBCC), the Transaction will close upon the listing of the Shares with the PSE.

The Discounted Cashflows ("DCF") Approach was used as the primary method to estimate the fair value of the AREIT shares and Properties. Under the DCF approach, FTI Consulting discounted the cashflows of AREIT and the Properties based on a weighted average cost of capital ("WACC") using the Capital Asset Pricing Model. The Comparable Companies Approach and Precedent Transactions Approach were used as secondary methods to cross-check the value of the AREIT shares. The Direct Capitalization Approach was used to cross-check the value of the Properties.

The Company expects to execute the Deed of Exchange and file the application for approval of the original issuance of shares with the SEC within May 2023, and the issuance of the Certificates Authorizing Registration ("CAR") with the relevant Revenue District Office of the Bureau of Internal Revenue ("BIR") within the first quarter of 2024. The SEC's approval of the Transaction is expected to be issued within the year, and the BIR's CAR issuance is expected to be issued within the first quarter of 2024. The Company shall likewise apply for the additional listing of shares with the Exchange by the first quarter of 2024. The indicative timetable for implementation of the Transaction is on Table 3 of the attached letter.

The Subscriber, ALI, was registered with the SEC on 20 June 1988. It is the largest property developer in the country with a solid track record in developing large-scale, integrated, mixed-use, and sustainable estates that are now thriving economic centers. ALMI and NBCC are wholly-owned subsidiaries of ALI engaged in the business of leasing office and retail spaces. Additional information on ALI, ALMI, and NBCC are discussed in the attached letter.

Aside from their ownership of shares in the Company and ALI the directors of the parties do not have interest in the proposed Transaction.

The matter of the increase in the Company's authorized capital stock, and the issuance of the 607,559,380 primary common shares to ALI, ALMI, and NBCC will be discussed and taken up in the next Annual Stockholders' Meeting of the Company on 26 April 2023. The final Transaction Price is set at a 3% premium over the 30-day VWAP of P35.83 . In accordance with the PSE's Consolidated Listing and Disclosure Rules, Article V, Section 9, paragraph (a), "Market Price" means the volume weighted average of the closing prices for a period of thirty (30) Trading Days prior to the transaction or the date of the approval of the Board of Directors. As such, the Transaction falls within the Exceptions to the conduct of a rights or public offering requirement of the Additional Listing Rules of the PSE.


The Company's Fund Manager on 6 March 2023 has endorsed the Transaction to the Company. The Company's Risk Management and Related Party Transactions Review Committee and the Board of Directors have reviewed FTI Consulting's fairness opinion on the Shares and the Properties, as well as the appraisal reports issued by Cuervo. Cuervo and FTI Consulting have issued appraisal Reports and a Fairness Opinion to establish the fairness of the valuation of the Shares and the Properties used in this Transaction.

Pertinent details are provided in the supporting Annexes submitted together with this document.

Subject to regulatory approvals (including BIR’s CAR issuance confirming that the Transaction is a tax-free exchange under the Tax Code, as amended, and SEC’s approval of the original issuance of shares), the Transaction will close upon the listing of the Shares with the PSE.

There are no changes in the composition of the Board of Directors and Management.

In relation to ALI's ownership post-transaction, The Company will ensure that ALI sells some of its shareholdings in the Company prior to the property-for-shares swap in order to ensure compliance with the minimum public ownership requirements imposed upon the Company. The relevant disclosures on the sale of shareholdings will be made in due course.

In relation to the listed shares post transaction, The number of listed shares post-transaction is inclusive of the 252M shares subject of the property-for-share swap between ALI and AREIT approved by the SEC last December 29, 2022, which shares will be applied for listing this Q2 2023.