THERE remains a healthy anticipation among investors for Megaworld REIT Inc. (MREIT), touted as the Philippines' most premium real estate investment trust (REIT), after the institutional tranche of its initial public offering (IPO) turned out to be nearly twice oversubscribed.
"For any REIT to be successful, it has to continuously expand and grow. Investors are attracted to the outlook for MREIT on this front because of the quality of assets that its sponsor, Megaworld, has put into its portfolio," says Eduardo Francisco, president, BDO Capital and Investment Corp.
Francisco shared that investors also consider the size and quality of a REIT's available assets. Hence, as MREIT gets bigger - which it can easily do with its assets only accounting for 16 percent of Megaworld's total office portfolio - it will only become more attractive to both local and foreign investors.
"There's a variety of factors involved, which led to the oversubscription. For one, investors are aware of the fact that MREIT has a clear path to being the biggest portfolio in terms of total gross leasable space. Megaworld has so many more buildings it can inject into MREIT in the future, and investors recognize them for being the largest office landlord in the country," Francisco adds.
Unmatched track record
The fact that MREIT also chose to build a purely office REIT also accounts for the huge potential that convinced investors to go all-in.
"They know that MREIT assets are all prime offices with quality BPO (business process outsourcing) tenants. There's no presence of POGOs (Philippine Offshore Gaming Operators), and these buildings also have the longest tenant leases compared to earlier REITs," Francisco shares.
The sponsor's unparalleled track record and reputation also played a critical role in convincing investors about the caliber of MREIT's portfolio.
"They have seen how the group master plans and executes. They know the history and success of the Megaworld portfolio, particularly when it comes to building townships where these office REITs are among the major components. Additionally, they also recognize that Megaworld is very big when it comes to developing areas in the provinces and major cities outside Metro Manila, which only highlights the massive growth potential they see for MREIT," Francisco explains.
Investors also recognize the long-term commitment of Megaworld in helping MREIT succeed.
"It also helps a lot when Kevin Tan himself presents to investors because it shows how committed the company and the Tan family are to the future of MREIT," Francisco cited.
Access to top-notch assets
The flagship REIT of the Philippines' biggest office developer and landlord was priced at P16.10 per share last week. Beyond the pricing, however, there's significant excitement surrounding MREIT as investors now formally enjoy direct access to the most sought-after office buildings, located in three of Megaworld's most vibrant, well-known townships.
"The company has decided to price the deal at an attractive level to provide more upside to IPO investors, who will be its long-term partners in this new journey. At this IPO price, MREIT will be offering investors an attractive dividend yield of 5.65 percent to be distributed quarterly, and at the same time, we will be giving them exposure to [a] high-quality, fast-growing portfolio of assets," says Kevin L. Tan, president and chief executive officer, MREIT.
Big-ticket projects to beef up MREIT portfolio
Following the IPO, Megaworld has retained a 62.5 percent stake at MREIT to capture more near-term and long-term valuation upsides for its shareholders as MREIT pursues to grow its current portfolio in the near future.
"MREIT is being structured to deliver fast growth and strong aftermarket performance. We expect both its market cap and float to grow over time as MREIT successfully executes its aggressive growth trajectory," Tan adds.
Additionally, Megaworld will be receiving more proceeds once it completes the impending cash injection of three buildings into MREIT, which is slated to be completed by early 2022.
"The resulting total proceeds is what Megaworld intended to raise to fund our 21 projects all over the country in the next 12 months," Tan explains.
These projects are all big-ticket projects that Megaworld will be pursuing as it continues to help in the full recovery of the Philippine economy and promote growing consumer confidence.
"All of these new developments will spruce up our new townships and at the same time, further expand our rental income portfolio. More than 70 percent of these new projects are office developments," shares Tan.
All of MREIT's current assets are located in three of Megaworld's most mature and award-winning townships - Eastwood City in Quezon City, McKinley Hill in Taguig and Iloilo Business park in Mandurriao, Iloilo. These locations are touted as the most sought-after destinations for BPO companies today.
The 10 MREIT buildings include 1800 Eastwood Avenue, 1880 Eastwood Avenue and E-Commerce Plaza in Eastwood City; One World Square, Two World Square, Three World Square, 8/10 Upper McKinley and 18/20 Upper McKinley all in McKinley Hill; and One Techno Place, Richmonde Tower and Richmonde Hotel Iloilo in Iloilo Business Park.
In addition, MREIT's assets are the only properties located in Fort Bonifacio among all the available REITs in the market today,
"Our assets are all office REITS and are very focused on BPOs and multinational companies, which make up more than 90 percent of the portfolio. Additionally, all our assets are 100 percent in there, and we are not putting in just parts of any of our buildings," Tan explains.
Among the projects eyed to benefit from the MREIT proceeds include 15 office developments, particularly in Uptown Bonifacio and McKinley West in Taguig City, Arcovia City in Pasig City, Iloilo Business Park in Iloilo City, The Upper East in Bacolod City, Capital Town in Pampanga, The Mactan Newtown in Cebu and Davao Park District in Davao City; five lifestyle malls in The Upper East and Northill Gateway in Bacolod, Capital Town in Pampanga, Maple Grove in Cavite and Highland City in Rizal; and one hotel at The Mactan Newtown.