The Philippines' Biggest Landlord Prepares for the Country's Biggest REIT IPO!

 

Megaworld Corp. is looking to generate as much as 27.3 billion pesos ($568 million) from its office unit's initial public offering, which would be the Philippines' largest for a real estate investment trust.

According to Kevin Tan, chief strategy officer of the Manila-based builder and president of the REIT, the country's largest office landlord will sell up to 1.24 billion MREIT Inc. shares at up to 22 pesos each. Properties for sale in Doha

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Veejay Villafranca/Bloomberg Photographer: Kevin Tan

Megaworld's resilience against the pandemic is reflected in the share sale, with MREIT aiming to become Southeast Asia's largest office REIT. Tan stated that the parent intends to invest more assets in the business over time. Megaworld has properties to add to MREIT's initial value of 55.6 billion pesos, with over 1.4 million square meters in 70 office buildings.

“Our goal isn't merely to be the Philippines' largest REIT by portfolio size,” Tan explains. “We want to be Southeast Asia's largest REIT by portfolio. We aim to make a significant contribution.”

MREIT's ten offices contribute for half of Megaworld's total market value.

MREIT's stock offering would follow Filinvest REIT Corp.'s planned IPO in the third quarter, which could raise up to 14.9 billion pesos. After the government relaxed public ownership and tax regulations in January 2020 to lure its first issuer since a law was created more than a decade ago, MREIT will be the fourth Philippine REIT.

Megaworld's stock remained flat in Manila trading on Wednesday. They've increased by 26% since a recent low in May. Megaworld plans to utilize the revenues from the REIT sale to fund 16 projects across the country, including offices, malls, hotels, and dormitories, according to Tan.

MREIT has a 49 percent ownership in the maximum number of shares, which includes over allotment. He estimates that the IPO will raise 23.7 billion pesos, less than the 15% allotment allocation.

Megaworld's office leases have held up well as BPO businesses, which account for more than 90% of the building's tenants, continue to hire despite the pandemic because working from home isn't acceptable for everyone, according to Tan. This year, he expects the BPO sector to increase 10% to 15%, according to him.

Megaworld aims to speed construction starting in 2022 and will add four new office buildings to the REIT in the next two years, down from an average yearly growth of 100,000 square meters in 2020. According to Tan, the first ten buildings contribute for roughly 20% of Megaworld's office leasing revenue, which totaled 10.4 billion pesos last year.

For its assets and estimated profits, MREIT's dividend yield would be 4.1 percent for the year ended June 2022 and 4.5 percent for the year ending June 2023 at the maximum price. Dividend yields for 2022 and 2023 would be 4.6 percent and 5%, respectively, at 20 pesos per share.

MREIT's first ten properties are spread among three of Megaworld's 26 integrated office, residential, and commercial developments, including Eastwood City, the company's first township.

MREIT's ten buildings are largely occupied by BPO tenants, with an average lease term of five to ten years.

Megaworld has attracted more than 200 BPO and multinational enterprises as tenants since its inception in Eastwood in 1999.