Filipino Real Estate: Megaworld And Ayala Land

by: Dylan Waller

The real estate industry in the Philippines is on track for high future growth, which will result from business process outsourcing, and growth in retail sales and the tourism industry.

Past growth in the Philippines and these industries provides credibility, and continued future growth is inevitable. Investment in this industry is therefore not very risky and highly rewarding.

Megaworld and Ayala Land have displayed constant growth and have extensive plans for future expansion, making them attractive companies in the real estate industry in the Philippines.

Industry Overview

The real estate industry in the Philippines has achieved continuous growth, which has resulted from business process outsourcing, tourism, and growth of the retail segment. This has produced an increased demand for office buildings, malls, and residential properties, particularly townships located outside of Manila. Although it is a smaller market in comparison to Malaysia and Thailand, the industry presents opportunities for high returns in the future. Moreover, the Philippines is experiencing significant growth, as GDP growth was 5.2% during the 1st quarter of 2015.

Office Buildings

Business process outsourcing has boosted demand for real estate in the Philippines, particularly in the office market sector. The business process outsourcing industry was valued at $14 billion last year, and is anticipated to reach $48 billion by 2018. Vacancy rates in Manila office buildings have been considerably low, and have consistently remained under 3%. By the end of 2014, the vacancy rate slipped from 2.53% to 2.13%. Rick Santos, CEO of the local unit of US based CBRE Group, says the following about rental rates in the Philippines: " Even with the increase in rental rates across all business districts, the good news remains that investors are willing to pay for the quality and the value that they can get in the Philippines."

He expects that rental rates will grow between 5-15% in 2015 in Makati, and rent in this area will further strengthen due to the lack of completion of Grade A buildings. With vacancy rates already being low, and the business process outsourcing industry on a clear path of growth, future success of this industry is inevitable.

Retail Segment

The retail segment is also projected to grow from future economic growth, as heavy consumer spending drives the Philippine's economy. Retail sales growth has averaged at around 5% since 2013 and is expected to continue growing by 5.2% through 2016. The increased consumer spending and country growth as a whole has led to global brands establishing shops in the Philippines, and has also led to the expansion of shopping malls in the country.

Tourism Industry

The tourism industry also provides huge potential for real estate expansion, as 4,612 rooms will be opening in Manila this year. This number represents twice the amount of rooms added last year, and four times the average increase in the last four years. Moreover, real estate in the tourism industry is also expanding in scope, with the introduction of casinos. The gaming sector, prevalent in Macau and other Asian countries, may soon be rivaled by the Philippines, with the emergence of the Solaire Resort and Casino, as well as City of Dreams Manila.


We can see that the industry is already thriving in multiple sectors, and is still at a point where future growth is clearly ahead. Furthermore, the increase in prices has not produced adverse effects for the industry. Investment in the real estate sector in the Philippines is currently appealing in the areas of tourism, office buildings, and the retail sector. Furthermore, the emerging trend of townships, and citizens of the Philippines desiring to move outside of Manila, both present further opportunities for companies operating in this industry.

Valuation and Growth: Ayala Land and Megaworld

I have identified two companies that stand out in this industry based on growth, valuation, and plans for continued expansion in the future. In addition to individual acquisitions and expansion, the two companies are also working together on a $2.8 billion toll way and dike project. San Miguel Corp, AlloyMTD Group, Aboitiz Equity Ventures Inc, and SM Prime Holdings Inc. will also join these two companies.


Industry P/E

Company P/E

2014 Net Income Growth

2014 ROE

Ayala Land










Looking at the financials for these companies, we can see that both have performed well in 2014, although Megaworld is much more attractive in terms of valuation and growth. A further investigation of plans for future expansion is crucial to determine the extent of future growth for both companies.

Ayala Land (OTCPK:AYALY)

Ayala Land is a company in the Philippines that develops and invests in real estate properties, as well as operating hotels and providing property management services. Although by no means undervalued, the company achieved 26.1% growth in net income in 2014 and had a ROE of 14.5%. Moreover, its plan for expansion is diverse and extension, making its future growth sustainable. The company's plans for future growth are also clearly displayed by its issuance of $158 million worth of retail bonds in early May. This will facilitate ongoing future expansion, as the company's capital budget has increased by 20% since 2014.

The company plans to increase its stake in two Malaysian companies:

  • On May the 12th, the company increased its stake in Malaysian MCT BHD from 9% to 33%.
  • On April the 6th, it acquired a 9.16% stake in GW Plastic Holdings Bhd, valued at $42.9 million.

The company also plans to complete township projects in 25 cities during the next three to five years. This opportunity will provide substantial leverage for Ayala to experience future growth, and the company anticipates sales and income to increase 20% annually until 2020. The company's expansion to various cities outside of Manila comes at a very strategic time, as sales in residential properties in Manila has fallen by 40% during the past two years. The combination of the company's plans to expand its township projects long term, with the movement of citizens away from Manila, provides the opportunity for high returns for investors who are willing to wait for the company's expansion.

Megaworld (OTC:MGAWF)

Megaworld is a company in the Philippines that is involved in the development, marketing, and sales of real estate. The company develops community townships in Metro Manila, which integrates residential, commercial, educational, and entertainment components. Moreover, the company also rents offices and lifestyle malls.

The company plans to take advantage of current low interest rates and borrow $338.2 million to finance capital spending for real estate projects. The company is committed to being the leading office space provider, and has aggressive plans for continuous expansion to increase its rental income.

  • The company is allocating P 285.5 billion for its five-year capital-spending program, which will develop townships across the country. Megaworld already ended 2014 with the launch of 15 townships and plans to continually move forward.
  • The company is also allocating P 65 billion to build residential and hotel projects, office buildings, malls, and commercial buildings.

The company will also be collaborating with Filinvest to develop a former military base into a master planned city North of Manila. Other firms interested in this project include Sumitomo Corp, Hitachi Ltd, Farglory Land Development Co Ltd and Mitsubishi Corp. According to government studies, this project will generate 1.57 trillions of Pesos in economic activity and will create around a million jobs.

Megaworld has clear diversified plans for expansion for the next five years, and its increased capital spending is sure to produce positive results in the future.


The real estate industry in the Philippines is a very promising industry, with high potential for future growth and relatively attractive valuation. Based on my investigation of all companies listed on US exchanges that are operating in the real estate industry in the Philippines, I have identified Megaworld and Ayala Land as the two most promising companies in this industry. Past financial performance, as well as extensive and strategic plans for future expansion, make them attractive buys at the moment.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.