Megaworld mulls IPO for office Real Estate Investment Trust

MANILA, Philippines - Megaworld Corp., acknowledged as the country’s largest office landlord, may launch an initial public offering (IPO) for an office REIT (Real Estate Investment Trust) next year, according to a top company official.

Kingson Sian, senior vice-president and executive director of Megaworld, said the company is awaiting the REIT listings of bigger property developers to serve as a gauge on whether or not it should go ahead with its plan.

Real estate giant Ayala Land Inc. and shopping mall giant SM Prime Holdings Inc. are aiming to raise $300 million and $600 million, respectively, from a REIT offering possibly in the second half of the year.

“We’re awaiting developments on this side. There are bigger guys with larger portfolio. We want to see how they perform and what valuations they can get. If it makes sense, then we will do it,” said Sian.

Sian said Megaworld is planning to infuse 450,000 square meters of office space into a REIT company.  The company, which currently has 380,000 sq.m. of office space at Eastwood and in Fort Bonifacio, expects to end the year with a total of 450,000 sq.m.

He said the company’s new developments in Bonifacio Global City would allow Megaworld to build around one million square meters of a new generation of BPO office space that will spur new jobs.

Office REITs earn revenue by leasing properties to office tenants. Like all REITs, office REITs are required to pay out 90 percent of their taxable income in dividends. This increases shareholder return, but it also means that most office REITs are unable to finance expansion from operating income.

The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks. To continue to grow and acquire new properties, REITs have to issue equity or raise debt in the capital markets.

With a minimum capitalization of P300 million, a REIT company may apply for registration of its securities with the Securities and Exchange Commission (SEC) and avail of incentives as provided for by the law, such as favorable tax rates and lowered fees.

Megaworld has earmarked P17 billion this year for the development of new projects including Palm Bay in Manila, Maple Park Villas at McKinley Hill in Fort Bonifacio, Two Central West Tower in the Makati CBD and 81 Newport Boulevard at Newport City in Pasay City.