Philippine Tycoon Andrew Tan’s Megaworld Cuts MREIT IPO Price, Size As Investors Seek…

Megaworld—controlled by billionaire Andrew Tan—has lowered the initial public offering price and size of its office real estate investment trust, reducing IPO proceeds to 15.3 billion pesos ($307 million) as investors seek higher yields.

MREIT will sell up to 949.8 million shares, including an overallotment option, at 16.10 pesos a piece, Megaworld said Friday in a statement to the Philippine Stock Exchange. When Megaworld announced the IPO in June, the company said it plans to raise a maximum of 27.3 billion pesos from the maiden share sale of up to 1.24 billion shares for as much as 22 pesos each.

“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,” MREIT President and CEO Kevin Tan said in a statement. Kevin—the eldest son of Megaworld founder and chairman Andrew Tan—is also the chief strategy officer of Megaworld.

MREIT’s yield would have been at the 4% level if the company priced the IPO at the original indicative price, said Noel Reyes, chief investment officer at Security Bank’s trust and asset management group. “That’s way too low to attract investors,” he said by email.

With the lower price, MREIT said it is offering investors an attractive yield of 5.65% for the year ending June 30, 2022. That compares with 5.7% for RL Commercial REIT, which is listing next Tuesday, and about 6.1% for Filinvest REIT, which listed last month and declared its first dividend of 0.112 pesos per share last week.  

Tan said they structured MREIT to deliver fast growth and strong aftermarket performance. “At the current issue size, the institutional tranche was close to two times oversubscribed, which bodes well for aftermarket performance.”

Apart from its attractive dividend yield, Tan said MREIT will provide investors exposure to high quality and fast-growing portfolio of assets.

Megaworld injected a portfolio of ten office, retail and hotel assets with an aggregate gross leasable area of 224,430 square meters into MREIT. These properties—located in Megaworld’s townships near the Makati central business district, suburban Quezon City and Iloilo City in central Philippines—are primarily leased to business process outsourcing, or call center companies, according to MREIT.

Megaworld, which will retain a 62.5% stake in MREIT, plans to inject five additional office towers with a combined gross floor area of 94,000 square meters into MREIT next year, Tan said at a virtual media briefing on Tuesday as the book building process for MREIT’s IPO started. By 2030, Tan expects MREIT to have a total gross floor area of 1 million square meters.

With Megaworld adding more office towers into MREIT, Reyes said MREIT’s yield will rise to the 6% levels by 2023. The growth of MREIT looks achievable considering the pipeline of additional properties Megaworld can inject into and the weighted average lease expiry of these assets at 4.7 years, the highest among existing REITs, he added.

MREIT will start trading on the Philippine bourse on September 30. It will be the fifth REIT to list in the country since Ayala Land’s AREIT made its market debut as the nation’s first REIT in August 2020.

Megaworld, which was founded by Tan over 30 years ago, has been developing townships in the past two decades and claims to be the largest office landlord in the country, with around 1.4 million square meters of office properties across 10 major cities in the country.

Tan, 69, was ranked the eighth-richest Filipino with a net worth of $2.6 billion when the ranking of the Philippines’ 50 richest people was published this week. The son of a factory worker, Tan built his fortune developing large apartment complexes around Manila and now has a business empire that spans food, beverage, gaming and real estate.