SCUTTLEBUTT

MREIT’s L Day shield up

US President Donald Trump’s recent implementation of a 17 percent Liberation Day tariff on the Philippines sparked market concerns of an economic slowdown in terms of a fall in consumer spending and business activities, which could result in reduced demand for office spaces.

Similarly, the public infrastructure ban prior to elections also resulted in risks for the property sector.

Megaworld Real Estate Investment Trust Inc.’s (MREIT) operations, which are centered around private leasing activities, gave it an immunization boost against detrimental factors.

The Bangko Sentral ng Pilipinas (BSP) recently cut rates by 25 basis points (bps) to 5.5 percent, as the central bank’s latest inflation forecasts declined from the previous meeting in February.

Reduced borrowing costs may stimulate recovery in the property market in terms of affordable loans and increased real estate demand and may also support higher dividend payouts for REITs.

MREIT closed 2024 with a significant surge in profit by more than twentyfold to P3.97 billion, on the back of acquisition and start of revenue inflow in the fourth quarter of 6 Philippine Economic Zone Authority (PEZA)-accredited office properties, which were valued at P13.15 billion.

The acquisition expanded MREIT’s portfolio by over 156,000 square meters (sqm), pushing its total gross leasable area (GLA) higher by 48 percent from a year ago to 482,000 sqm. Likewise, revenues climbed by 8.4 percent year-on-year to P4.51 billion, driven by strong rental income growth.

Regina Capital Development Corp. believes MREIT’s third wave of asset infusions, as well as strategic asset additions in areas such as McKinley West, Davao Park District and Iloilo Business Park, enabled the firm to accumulate a GLA of 482,000 sqm as of end-2024. The target is to achieve around 1 million GLA sqm by 2027 to 2030.

The headwinds that don’t impact MREIT are reflected in its current occupancy levels, which remain steadfast at 91 percent, above the Metro Manila office industry average.

The REIT continues to feature a stable tenant mix, with 80 percent of the tenants being BPO firms and 16 percent being traditional corporate tenants.

Both occupancy levels and WALE are estimated to improve as the firm signed new leases in the first quarter of 2025, indicating consistent leasing momentum.

Doves dominate hawks at BSP

The tone of Bangko Sentral ng Pilipinas (BSP) remained dovish, citing that a “more manageable inflation outlook and risks to growth” has allowed a shift toward a more accommodative monetary policy tack.

We note past rate cuts have led to the outperformance of Property and Banks. While the former may still be dragged by sector-specific risks (i.e., oversupply in residential and office), AB Capital Securities thinks banks, specifically mid-sized ones, could see potential upside on net interest margins driven by downward repricing on expensive wholesale funds.

According to AB Capital, the top property pick remains Ayala Land Inc., while the pecking order for Banks remains BDO, Metrobank and Security Bank.

The outlook remains positive as the 90-day tariff pause could lead to amicable negotiations, which is enough for the US Federal Reserve to formalize a rate cut path for 2025, factoring in the risk of a US recession and elevated inflation.

BSP’s new inflation forecasts are even lower than the downgraded outlook at 2.5 percent for this year and three percent for 2026.