I really enjoyed watching this interview and Marvin Germo certainly asked the right questions. The videos are from 2021 but Kevin Tan’s insights remain applicable today and into the future. I’ll identify the salient points but strongly suggest that you watch the full interview if you are interested in MREIT.

What struck me first is MREIT’s goal to be the number one office REIT in Southeast Asia. Megaworld already has 1.4 million sqm of existing office space and continues to build more every year so this is definitely achievable for MREIT. Size matters when it comes to REITs because bigger ones will have more capacity to borrow for expansion. Larger REITs also attract institutional investors and are more likely to be included in global indexes, attracting passive index funds and ETFs.

Kevin emphasized that MREIT is mostly an office REIT which caters to the business process outsourcing (BPO) industry. You could say there is an element of risk there but I think the Philippine BPO industry will continue to thrive and grow. Global corporations will always seek to reduce cost and having some of their operations in a lower cost country will continue in the foreseeable future. Filipinos also have a competitive edge in this industry with our service oriented attitude, English proficiency and, as Kevin pointed out when he spoke of Iloilo Business Park, a large pool of young college graduates. Work from home arrangements could affect tenancies but productivity loss from such arrangements will probably compel employers to demand that workers return to the office.

Kevin also highlighted that MREIT is basically a township REIT in the sense that the buildings are all located in Megaworld townships. This location premium attracts quality tenants to their buildings. Particularly in the Philippines, having a safe enclave where workers can live, work, play will certainly contribute to high occupancy rates. Eastwood Cyberpark in Quezon City is one of the country’s first and Kevin mentioned that some tenants have remained there since the 90s and even sign ten year leases.

My biggest takeaway from the interview is when he said that MREIT is capable of an accretive growth cycle. I don’t agree with his claims that Megaworld is the only one capable of this because this is exactly what I see in AREIT from Ayala Land as well. Accretive growth means that Megaworld (and Ayala Land in my opinion) already have an existing pool of income generating buildings, located in the best locations, that they can transfer to the REIT. The REIT will pass on the income to investors in the form of quarterly dividends. A stable dividend will attract more investors and allow the REIT to sell more shares. The money that the sponsor (Megaworld / Ayala Land) receives will be used to expand their land bank or build more office towers. When these properties mature and earn a stable rental income, they will be transferred to the REIT -perpetuating the growth cycle. If the managers are good, it will be accretive to REIT shareholders and result in a growing stream of quarterly dividends.