MREIT: RENTING OUT OFFICE SPACES IN A PANDEMIC? REVIEWING THE MEGAWORLD MREIT IPO!
Channel: ZIGGING by Mark Sigg
Date: 2021-09-14

Megaworld, the largest developer of office spaces in the country is going into an IPO of MREIT. With WFH (Work From Home) forever altering the work environment brought about by the pandemic, should you invest in a company that is renting out office spaces?

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More than a decade ago, the Real Estate Investment Trust Act of 2009 was enacted into law. This enabled real estate companies to offer investors in the Philippine Stock Market, a unique investment vehicle that would trade similarly to other publicly traded stocks, except that the REIT company is required by law to declare 90% of profits as dividends to its shareholders. Thus, REITs are designed to yield higher returns via dividends through the long term investment perspective, with the perk of owning highly valued real estate by small retail investors. 


In September 2021, Megaworld has been set to debut with MREIT at the IPO price of P16.10. MREIT is composed of 10 properties: One World Square, Two World Square, Three World Square, 8/10 Upper McKinley Building,  and18/20 Upper McKinley Building at the Mckinley Hill Township in Taguig; 1800 Eastwood Avenue, 1880 Eastwood Avenue, and E-Commerce Plaza in Eastwood City at Quezon City; and One Technology Place and Richmonde Tower/Hotel at the Iloilo Business Park. The properties are appraised at a value just shy of P50B with annual gross revenues of P2B and net profit of over P1.1B since 2017 mostly through its leasing of corporate office spaces.

MREIT looks great on paper --- but what are the prospects of leasing out office spaces in a pandemic world that has caused the shift from working in offices to WFH (working from home)? Does the world still need office spaces? Moreso, with you as a prospective investor in MREIT, how does WFH impact this company with its core business as leasing out office spaces?

Reviewing the MREIT investment prospectus, there are points to consider in helping you make your investment. What's encouraging to note is that currently, MREIT has an occupancy rate of 92.3%. MREIT's tenants have an average lease contract of 5-6 years with only a portion of expiring contracts in the next few years. Are the tenants thus just completing their contracts and put simply, stuck? Fortunately, Megaworld has advised the general public that the pandemic has not hampered its office leasing business. Since the pandemic started, the Megaworld group has leased out over 400,000 sqm of offie spaces. In addition, for newly signed contracts, 60% have actually been renewals while the rest have even been new tenants. Why is this the case? Is the business of MREIT pandemic-proof? While not entirely pandemic-proof, MREIT has stayed resilient because its tenants are mostly BPO (Business Process Outsourcing) Companies. As these companies require streamlined functions requiring high internet bandwidth, BPOs have not been subject to the migration to the WFH norm. While many traditional offices have found a way to adapt to the WFH set-up, this has not been the case for BPOs as its operations and employees are in need of the facilities that the offices provide. With this, the business of MREIT looks secure and outright attractive. As long as BPOs are here to stay, these provide a rosy outlook for investors as well.

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While all encouraging, there are a few points that you might want to consider as well before investing in MREIT. First, while all buildings are PEZA accredited and affording tax benefits for the company itself and its tenants, PEZA accreditation is something that can be lost for one reason or another. Also, the enacted TRAIN Law of 2017 continues to increase Corporate Income Tax for the company and its tenants so there may be unforeseen impacts on the bottomline as well. Second, it must be clear that buying into the REIT is only a purchase of the building and its operations. The land on which the buildings stand is NOT included as these remain with Megaworld. MREIT is only a tenant of Megaworld. Lastly, the 10 properties included in the MREIT IPO is only the beginning portfolio --- properties may be added on to this list or rebalanced so the portfolio will always be subject to changes.

What do you think? Is MREIT worth your money?

#REIT
#MREIT
#MEGAWORLD
#WFH

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