菲律宾房地产业：欢迎来到REIT的世界

1、Global Research18 February 2019EquitiesPhilippinesReal EstatePhilippines Property SectorWelcome to the REIT worldValuation framework for potential Philippine REITsWe believe Philippine real estate investment trusts (PH-REITs) will finally have scope to be listed in the near term, as the government h

2、as cleared major hurdles recently HYPERLINK /shared/d2T6jGp9Kf7F9z (link). We look at “REIT-able” (stable, with over five-year re-contracting periods) rental assets of top landlords we cover to provide a valuation framework for potential PH-REITs. We believe ultimately PH-REITs could allow property

3、companies to unlock value and re- equip for further growth, while providing high-dividend opportunities for investors. The Philippine property sector trades at a 32% discount to RNAV (at long-term mean). We think valuation has not fully priced in the positive development and PH-REIT potential.Unlock

4、ing value; exposure to stable income growthOur analysis leads to the following estimates. 1) The top four (both in terms of market cap and gross floor area) property developersSM Prime (SMPH), Ayala Land (ALI), Megaworld (MEG) and Robinsons Land (RLC)combined could spin off US$6-24bn of malls and of

5、fice assets into PH-REITs (10-40% of current market cap of all listed property developers), raising US$2.3-8bn in capital for reinvestment. 2) We estimate PH-REITs could provide dividend yields of 3.1-6.4% from malls and 2.2-6.5% from offices. On average, Philippine companies provide dividend yields

6、 of just 2-2.5%, with the highest yields coming from utilities and telecoms (4.5-5%). 3) We estimate PH-REITs could match hurdle rates of 7.1-10.4% for malls, and 6.2-10.5% for offices.Are Philippine malls and offices attractive as REIT assets?At landlords we cover, office and mall occupancy levels

7、are at about 95%, and rents increase by 4% per annum on average. EBITDA margins for offices and malls are 88% and 70%, respectively, with a payback period of around seven years. We believe the potential opportunity to have direct exposure to these assets, which pay at least 90% of income as dividend

8、s (as REITs), is attractive.How to invest in this theme? Buy Megaworld and SM PrimeWe believe MEGs most profitable, REIT-able assets are in the office segment, while SMPH has the most attractive mall portfolio among peers. MEG trades at a wide 54% discount to RNAV and should benefit the most if PH-R

9、EIT listing becomes possible in the near term. As a whole, we expect the Philippine property sector to trade at a narrower discount to RNAV (towards 20%) as PH-REITs are listed, joining their peers in Singapore, Thailand, Malaysia and Indonesia.PH-REITs in perspectiveAs of 2018E (P)OfficeRetailEffec

10、tive revenue per sqm (annual)7,37610,790Occupancy level98%95%EBITDA margin88%70%Initial yield on cost5-6%6-8%Yield on cost (mature)20-25%18-20%Capital value per sqm*140,000220,000Yield on capital value*8.6%8.9%Pro-forma PH-REITs (2020E) top 4 landlordsOfficeRetailSize - GLA (sqm)1.3-2m2.2-6.8mPotent

11、ial EV size (US$ bn)1.9-4.73.7-19.7Dividend yield range2.2-6.5%3.1-6.4%Best-in-classMegaworldSM Prime* From Jones Lang LaSalle. Source: Company data, Jones Lang LaSalle, UBS estimates HYPERLINK /investmentresearch /investmentresearchRJ AguirreAnalyst HYPERLINK mailto:rj.aguirre rj.aguirre+632-784 88

12、17This report has been prepared by UBS Securities Philippines Inc. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 31. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest t

13、hat could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.keContentsPIVOTAL QUESTIONS4 HYPERLINK l _TOC_250007 Q: Are rental (office and retail) assets profitable enough to become PH- REITs?4 HYPERLINK l _TOC_25

14、0006 Global REITs in context4 HYPERLINK l _TOC_250005 Real estate in the Philippinesfunding need 5 HYPERLINK l _TOC_250004 History of REITs in the Philippines7 HYPERLINK l _TOC_250003 Rental assetsattractive enough for REITs? 8 HYPERLINK l _TOC_250002 REITs as growth + dividend plays11 HYPERLINK l _

15、TOC_250001 Conclusions13 HYPERLINK l _TOC_250000 WHATS PRICED IN?14GLOBAL REIT STRUCTURES AND TAX TREATMENT16Company pages19Megaworld Corporation20SM Prime Holdings27RJ AguirreAnalyst HYPERLINK mailto:rj.aguirre rj.aguirre+632-784 8817Philippines Property SectorUBS Research THESIS MAP a guide to our

16、 thinking and whats where in this reportMOST FAVOREDLEAST FAVOREDMegaworld, SM PrimeRobinsons LandPIVOTAL QUESTIONSQ: Are rental (office and retail) assets profitable enough to become PH-REITs?Yes. We believe property companies REIT-able assets could provide high-yielding returns to investors seekin

17、g growth, as well as stable income. REIT listing could also provide an opportunity for property companies to unlock value of their assets to further fund their growth. HYPERLINK l _bookmark1 moreQ: How will improved China-Philippines relations affect residential property?Positively. In the medium te

18、rm, we expect Chinese-led demand for residential (and, to an extent, office and retail) property to give a boost to the overall property sector. We believe developers are taking advantage by launching more projects as the outlook for both volume and prices is improving. HYPERLINK /shared/d2dgm3Di2Gh

19、UIHp Chinese buying residential: boom or bust? 9/2/2018Q: Can the property sector outperform despite rate hikes?Yes. We believe rate hikes have not affected affordability, which has been supported by developers, leading to sustainable property demand. The property sector should benefit from improvin

20、g consumer sentiment this year as well. HYPERLINK /shared/d2WitWDw8zIK Pushing the envelope 11/20/2018UBS VIEWWe expect the sector to maintain strong earnings growth, with improving returns and an opportunity to unlock value through listing REITs. Increasing interest from Chinese buyers in addition

21、to strong local demand provide key drivers for Philippine residential property, in our view. We are also encouraged by government policy to reaccelerate the promotion of PH-REITs as they could provide an opportunity for landlords to unlock value of their highly profitable rental assets to fund furth

22、er growth.EVIDENCEHigh-return rental assets could provide the next leg of growth. The residential market was healthy in 2018, with 15-18% annualised presales growth. Mature, REIT-able rental assets could provide higher returns for investors. These office and mall assets carry investment yields of ab

23、out 20%, and PH-REITs could provide investors an inflation hedge and dividend yields of up to 6% (our estimate).WHATS PRICED IN?A re-rating waiting to happen. It may not be as obvious to SMPH and ALI, which have recovered in recent months, but we believe another round of re-rating could happen, espe

24、cially for MEG, as it is trading at a wide discount to RNAV despite having the most profitable, REIT-able assets among landlords we cover. REIT listings could also further buoy interest in property names, extending its 3% outperformance versus the market YTD, with the discount to RNAV narrowing to 2

25、0% from the current 32%. We think the possibility of PH-REIT listings is still underestimated by the market. HYPERLINK l _bookmark2 moreRental revenue provides stable income even in a high-inflation environment6.0%5.0%4.0%3.0%2.0%1.0%20130.0%20.0%18.0%16.0%14.0%12.0%10.0%8.0%6.0%4.0%2.0%20182019E202

26、0E0.0%2014201520162017Inflation (% YoY) - LHSRental EBITDA growth (%YoY) - RHSSource: Bangko Sentral ng Pilipinas (BSP), company data, UBS estimatesPhilippine Property SectorUBS ResearchPIVOTAL QUESTIONS HYPERLINK l _bookmark0 return 2BQ: Are rental (office and retail) assets profitable enough to be

27、come PH-REITs?UBS VIEWYes. We believe property companies REIT-able assets could provide high- yielding returns to investors seeking growth, as well as stable income. REIT listing could also provide an opportunity for property companies to unlock value of their assets to further fund their growth.EVI

28、DENCEAt landlords we cover, office and mall occupancy levels are at about 95%, and rents increase by 4% per annum on average. EBITDA margins for offices and malls are 88% and 70%, respectively, with a payback period of around seven years. Our analysis suggests PH-REITs could deliver dividend yields

29、of 3.1-6.4% from malls and 2.2-6.5% from offices. On average, Philippine companies have dividend yields of 2-2.5%, with the highest yields coming from utilities and telecom companies.WHATS PRICED IN?Philippine property stocks are trading at a 32% discount to RNAV, the historical mean discount to RNA

30、V, although the sector has outperformed the broader market by 3% YTD. We think investors are still underestimating the potential impact of PH-REITs, especially to property landlords like MEG.Global REITs in contextREITs are companies established principally to own income-producing real estate assets

31、 such as (but are not limited to) offices, retail space (or shopping centres), hotels and industrial estates. What started in the US in the 1960s ultimately spread globally to a total of 37 countries to date. Asia Pacific has a combined US$10trn stock market. For detailed information on the evolutio

32、n of global REITs, read our Global Real Estate Analyser report in 2017 HYPERLINK /shared/d2rbjcMin0OH (link, page 132).Global listed real estate companies are worth US$3.1trn, half of which are REITsFigure 1: Global listed real estateNo. ofTotal realestate (US$ bn)Total listedreal estate (US$ bn)com

33、panies (REITs +non-REITs)REITsmarket cap (US$ bn)No. of REITsNon-REITsmarket cap (US$ bn)No. of non-REITsStockmarket size (US$ bn)Listed RE vstotal REListed RE vsstock marketChina3,468.80561.0425211.208549.842445,377.2416.17%10.43%India434.0516.53103-16.531032,076.143.81%0.80%Indonesia219.2320.90610

34、.95219.9559483.259.53%4.32%Malaysia97.1827.08966.681720.4179393.3727.87%6.88%Philippines64.5159.8546-59.8546253.9392.78%23.57%Taiwan233.1715.31372.51612.80311,064.036.57%1.44%Thailand117.8943.2411311.575931.6754478.4336.68%9.04%Total Asia Pacific4,683.24744.1771233.193711.0861910,181.9815.89%7.31%To

35、tal emerging markets7,389.16876.1896878.18196798.0077213,549.2111.86%6.47%Singapore283.0191.096655.663535.4331486.0332.19%18.74%Total developed markets21,312.322,258.281,3041,534.02598724.2570655,036.7610.60%4.10%Total global markets28,701.483,134.462,2721,612.207941,522.251,47868,585.9710.92%4.57%N

36、ote: As of end-2018. Source: European Public Real Estate Association (EPRA)In the past decade, the value of global listed real estate has more than tripled, mostly due to the introduction of REITs in more markets.Figure 2: Growth of global REIT markets(US$bn)1,8001,6001,4001,2001,0008006004002001990

37、1991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018E0REITNon-REITNote: As of end-2018. Source: FTSE EPRA NAREIT Developed Index, Bloomberg, EPRA, UBS estimatesContinued growth in real estate markets were highlighted by active equity and de

38、bt issuances, the latter of which remain the predominant option in Asia Pacific. In our view, this is perhaps because lending rates have become more attractive, and most Asian property companies started as family-owned businesses and are still controlled by the founding families.Figure 3: Real estat

39、e equity issuance by value (US$ m)Figure 4: Real estate debt issuance by value (US$ m)140,000.00350,000120,000.00300,000100,000.00250,00080,000.00200,00060,000.00150,00040,000.00100,00020,000.0050,0002000200120022003200420052006200720082009201020112012201320142015201620172018200020012002200320042005

40、20062007200820092010201120122013201420152016201720180.000Asia PacificAmericasEMEAAsia PacificAmericasEMEASource: DealogicSource: DealogicReal estate in the Philippinesfunding needIn the Philippines, listed real estate accounted for 24% of total market value at US$60bn as of 2018 (and the four bigges

41、t companiesSMPH, ALI, MEG and RLCrepresent about 20% of the PCOMP Index), up from 18% 10 years ago. But despite that growth, Philippine property companies are still tightly held by principal shareholders as total real estate equity issuances since 2010 only amounted to US$2.9bn, versus total market

42、equity issuances of US$25.1bn in the same period. Same goes for debt, where Philippine property companies raised just a combined US$8.9bn, versus US$234.5bn for the market since 2010.Property is one of the biggest sectors in the Philippines, representing 24% of total (listed equity) market valueFigu

43、re 5: Philippinesequity issuance by value (US$ m)Figure 6: Philippinesdebt issuance by value (US$ m)7,000.006,000.005,000.004,000.003,000.002,000.001,000.000.0040,000.0035,000.0030,000.0025,000.0020,000.0015,000.0010,000.005,000.00200020012002200320042005200620072008200920102011201220132014201520162

44、017201820002001200220032004200520062007200820092010201120122013201420152016201720180.00Other sectorsReal estateSource: DealogicSource: DealogicCombined, the market cap of listed real estate companies in the Philippines has increased threefold since 2010, supported by a 5x increase in net income. Thi

45、s suggests that property companies have either been approaching banks (debt financing) directly for funding or are largely self-funding their growth. It is true that property developers have relied a lot on banks, especially with declining interest rates and with banks eager to deploy liquidity. But

46、 aside from this, Philippine property companieswhich are largely land owners and developers of residential propertyhave depended heavily on preselling, which enables them to self-fund projects.Figure 7: Property development timelineTimetablePeriod - 4-5 yearsMonth06121824303642485460LaunchTemporary

47、licenseHLURB licenseConstruction permit(s)Ground worksConstruction: building structureTopping offExternal finishFinishing (internal)TurnoverCompletion rate5%15%25%35%50%70%90%95%100%Sales velocitySource: UBS estimatesIn the Philippines, developers take a lot of time to develop residential property (

48、high-rise condominiums, mostly)four to five years on average by our estimate. This is deliberate, so payment terms are stretched and affordable for buyers. On average, developers require buyers to provide just 1% spot downpayment and gradually pay 1% (of the total contract price) per month to build

49、up equity of about 50% by the time the unit is turned overat zero interest. Developers start construction at breakeven salesusually at 60% level sold. With cash flow limited during the construction period (especially as they apply percentage of completion accounting), developers use these contracts

50、to sell (CTS) to get project financing from banks.Other sectorsReal estateCombined net income of property companies increased fivefold since 2010Self-funding, preselling strategy has helped developers expand without overly stretching their balance sheetsFigure 8: Net gearing levels risingNet debt to

51、 equity20112012201320142015201620172018E2019E2020EAyala Land0.19x0.51x0.61x0.84x0.83x0.93x0.89x0.83x0.68x0.64xFilinvest Land0.35x0.51x0.60 x0.69x0.74x0.81x0.81x0.77x0.70 x0.63xMegaworld(0.15x)(0.10 x)(0.04x)0.07x0.26x0.36x0.42x0.39x0.32x0.25xRobinsons Land0.15x0.13x0.24x0.31x0.51x0.61x0.73x0.46x0.46

52、x0.38xSM Prime0.28x0.38x0.47x0.46x0.60 x0.59x0.57x0.52x0.51x0.53xVista Land0.25x0.34x0.38x0.63x0.87x0.94x1.00 x0.84x0.71x0.57xSource: Company data, UBS estimatesGearing levels have increased significantly, especially for ALI and Vista Land (VLL), as developers take advantage of lower rates to fund e

53、xpansion. But aside from this, traditional developers have increasingly diversified to look for more stable cash flow, by expanding their rental income portfolios, mostly in the form of office buildings and retail malls. While total contribution to income stayed at the 40% level in 2011-18E, rental

54、income (15-18% pa) has been outpacing residential revenue growth (10-15% pa) in the past three years.The overall direction of property companies has been to look into more sustainable cash flow and growth levels, as residential development remains a cyclical business. Although Philippine property ha

55、s had an extended upcycle (of more than10 years), we believe investing more into rental (recurring income) assets is preferable and a more prudent capital allocation strategy. However, this is a more capex-heavy strategy (not like preselling, which provides a self-funding advantage for residential d

56、evelopment). This strategy more often needs to seek outside funding from capital markets. Among property names we cover, those that stand out with funding needs are ALI, VLL and Filinvest (FLI).History of REITs in the PhilippinesIn the Philippines, the REIT Law (RA 9856) was passed in 2009, providin

57、g what would be the legal and regulatory framework for the development of PH-REITs. In 2010-11, the Securities and Exchange Commission (SEC) released the implementing rules and regulations (IRR) on REITs, followed by the Bureau of Internal Revenue (BIR) implementing relevant tax provisions.According

58、 to the Philippine Stock Exchange (PSE), which is one of the main proponents of REITs, the main purpose of the REIT Law was to allow both small and large investors to participate in the direct ownership of real estate, and to provide an alternative investment instrument for foreign investors as well

59、 as overseas Filipinos (OFs). It also provides property companies a lower-cost source of capital while promoting economic development, tourism growth, and liquidity in the capital markets.REITs were supposed to be attractive for both sponsors and investors, but the resulting IRR and tax provisions i

60、n 2011 were prohibitive, due to three main issues:1) the transfer of properties from sponsors to REITs involved a 12% value-added tax (VAT); 2) minimum public ownership (MPO) needed to be kept at 67% in the first three years; and 3) escrow of tax incentives until the MPO was met.The IRR has remained