Filinvest REIT Corp.FILRT

Property-for-share Swap between Filinvest REIT Corp. (“FILRT”) and Filinvest Land, Inc. (“FLI”).

FILRT and FLI will enter into a property-for-share swap whereby FILRT will issue One Billion Six Hundred Twenty-Six Million Three Thousand Three Hundred Sixteen (1,626,003,316) primary common shares (the “Shares”) in exchange for the ‘Festival Mall-Main Mall’, a building owned by FLI (the “Property”), at an issue price of Three and 85/100 Pesos (Php3.85) per share (the “Transaction”). The Shares will be issued at a total value of Six Billion Two Hundred Sixty Million One Hundred Twelve Thousand Seven Hundred Sixty-Six and 60/100 Pesos (Php6,260,112,766.60) (the “Transaction Price”) which price consists of a thirty percent (30%) premium over the thirty (30)-day volume weighted average price (“VWAP”) of Two and 94/100 Pesos (Php2.94) per share.

The Transaction involves a property-for-share swap between FILRT and its Sponsor, FLI, through the execution of a Deed of Exchange. Under the Transaction, FILRT will issue One Billion Six Hundred Twenty-Six Million Three Thousand Three Hundred Sixteen (1,626,003,316) primary common shares to FLI in exchange for the Property, subject to the approval of the Securities and Exchange Commission (“SEC”). Appraisal report for the Property was prepared by Leechiu Property Consultants, Inc. (“Leechiu”), and the third-party fairness opinion was issued by FTI Consulting Philippines, Inc. (“FTI Consulting”). The Shares to be issued will be sourced from FILRT's unissued shares. Thus, no increase in FILRT’s authorized capital stock is required.

The Transaction will qualify as a tax-free exchange under Section 40(C)(2) of the National Internal Revenue Code, as amended by Republic Act No. 11534, or the Corporate Recovery and Tax Incentives for Enterprises Act, which provides:

“Section 40. Determination of Amount and Recognition of Gain or Loss –
(C) Exchange of Property –

x x x

(2) Exception. –

x x x

No gain or loss shall also be recognized if property is transferred to a corporation by a person alone or together with others, not exceeding four (4) persons, in exchange for stock or unit of participation in such a corporation of which as a result of such exchange the transferor or transferors, collectively, gains or maintains control of said corporation: Provided, That stocks issued for services shall not be considered as issued in return for property.”

The relevant party will file the following applications with the proper regulatory agencies:

1. An Application for Confirmation of Valuation with the SEC, which is deemed to include an application for confirmation that the Shares to be issued in exchange for the Property are exempt from registration requirements with the SEC, pursuant to Section 10.1.5.3 of the implementing rules and regulations of the Securities Regulation Code;

2. A Letter of Non-Coverage from compulsory notification with the Philippine Competition Commission (“PCC”), as the Transaction is classified as internal restructuring covered by PCC Clarificatory Note No. 16-002;

3. An application for Certificate Authorizing Registration (“CAR”) with the Bureau of Internal Revenue (“BIR”) confirming the tax-free nature of the Transaction;

4. An application for the additional listing of the Shares with The Philippine Stock Exchange, Inc. (“PSE”). The shares will be issued at Three and 85/100 Pesos (Php3.85) per share, representing a thirty percent (30%) premium over the thirty (30)-day VWAP of Two and 94/100 Pesos (Php2.94) per share. As the shares will be issued at a premium over VWAP, the transaction qualifies as an exception to the rights or public offering requirement under Section 3, Part A, Article V of the Consolidated Listing and Disclosure Rules of the PSE.

The Transaction will be completed upon securing regulatory approvals and the listing of the shares with the PSE.

The acquisition of the Property will expand FILRT’s portfolio by an additional One Hundred Twenty-One Thousand Eight Hundred Sixty-Two (121,862) square meters (sq.m.), thereby increasing the gross leasable area (“GLA”) of FILRT by 37%. This likewise will improve occupancy from 83% to 88% and extend the weighted average lease expiry (WALE) from 7.3 to 14.6 years. This will also increase FLI equity in FILRT from 51.06% to 63.27%.

This Transaction is designed to achieve the following objectives:

a. Upon successful completion of the Transaction, the GLA of FILRT will increase by 37% from Three Hundred Thirty Thousand Four Hundred Forty-Eight (330,448) sq. m. to Four Hundred Fifty-Two Thousand Three Hundred Ten (452,310) sq. m.

b. The Transaction will allow FILRT to diversify its income sources by integrating retail mall properties into its portfolio. Prior to the infusion, 91% of the GLA of FILRT are office buildings. Post infusion, the portfolio mix of FILRT will be 67% offices, 6% hospitality (Crimson Boracay lot) and 27% retail (Festival Mall-Main Mall).

c. The infusion of income-generating retail mall assets is expected to result in an increase in FILRT's distributable income. The mall can potentially increase the EBITDA of FILRT by at least 30% per quarter vs the 3rd quarter 2024 EBITDA as disclosed. This, in turn, translates to higher dividends per share (“DPS”) for FILRT shareholders with DPS growth of 5.65%.

d. With the anticipated growth in income and dividends, the Transaction creates opportunities for share price improvement.

The Transaction Price is approximately Six Billion Two Hundred Sixty Million One Hundred Twelve Thousand Seven Hundred Sixty-Six and 60/100 Pesos (Php6,260,112,766.60) equivalent to One Billion Six Hundred Twenty-Six Million Three Thousand Three Hundred Sixteen (1,626,003,316) primary common shares of FILRT at an issue price of Three and 85/100 Pesos (Php3.85) per share. The Transaction Price was set at a thirty percent (30%) premium over FILRT’s 30-day VWAP of Two and 94/100 Pesos (Php2.94) per share, which Transaction Price is within the range of fair values provided for in FTI Consulting’s Fairness Opinion.

The Property was appraised by Leechiu and a fairness opinion was provided by FTI Consulting.

For the valuation of the Property, discounted cashflows (“DCF”) approach was used as the primary method to determine the value of the Property. Under the DCF approach, the future cashflows of the Property was discounted using a weighted average cost of capital (“WACC”). The WACC was determined using a capital asset pricing model. A direct capitalization approach was also used as secondary reference for the valuation of the Property.

For the valuation of the Shares, FTI Consulting used various methodologies such as the DCF approach, a dividend discount model, and comparable public companies’ method, to arrive at a range of values of the fair value of the Shares.

This transaction is property-for share swap and as such has no cash proceeds.

FLI and FILRT intends to execute the Deed of Exchange on March 2025 and submit the Application for Confirmation of Valuation with the SEC on March 2025. The SEC’s approval of the Transaction is anticipated to be issued by May 2025, while the issuance of the Certificates Authorizing Registration (“CAR”) by the relevant Revenue District Office of the Bureau of Internal Revenue (“BIR”) is targeted within the third quarter of 2025. Additionally, the Company intends to apply for the additional listing of shares with the PSE by the fourth quarter of 2025.

N/A

Except for ownership of shares in both FILRT and FLI, the directors of FILRT and FLI have no personal interest in the Transaction.

FILRT has three (3) independent directors who shall safeguard the interests of shareholders, including minority and independent shareholders of FILRT. The Related-Party Transaction Committee of FILRT, which is composed of said three (3) Independent Directors unanimously approved the Transaction. Further, all the members of the Board of Directors, including all three (3) independent directors of FILRT unanimously approved the Transaction, in compliance with the requirements under Section 7(a), Part A, Article V of the Consolidated Listing and Disclosure Rules of PSE. The Board of FILRT’s Fund Manager also unanimously approved to endorse and recommend to FILRT the foregoing Transaction.

The issuance of the 1,626,003,316 Shares to FLI will also be discussed and taken up in FILRT’s Stockholders' Meeting on March 4, 2025.

Since the Shares will be issued at a premium over VWAP, the Transaction would fall under one of the exceptions to the rights or public offering requirement provided under Section 3, Part A, Article V of the Consolidated Listing and Disclosure Rules of PSE.

Subject to corporate and regulatory approvals. The Transaction was approved by FILRT’s Board of directors on January 24, 2025 and will be submitted for approval by the stockholders in a meeting duly called for the purpose to be held on March 4, 2025. Thereafter, the Transaction will be subject to the approval of the SEC and the securing of the CAR with the BIR for the transfer of the Property to FILRT which shall confirm that the Transaction qualifies as a tax-free exchange transaction under Section 40(C)(2) of the Tax Code. The Transaction will close upon the listing of the Shares with the PSE.

There will be no changes in the composition of the Board of Directors and the Management of FILRT.

Please see attached.