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Megaworld’s PHP 300 billion expansion plan

) Allan Tripon |

Looking to ride on the robust Philippine economic growth (SEE: PH entering the ‘Goldilocks Economy’ phase — Diokno, PropertyAccess) and the rising levels of personal disposable income, Megaworld Corp. (MEG) — the property development arm of Mr. Andrew Lim Tan’s Alliance Global Group (AGI) — plans to spend just north of ₱300 billion ($6 billion) within the next five years, from 2020 until 2024, in order to expand its residential, lifestyle (malls and hotels), and office business segments. This massive, billion peso capital expenditure plan was announced by Megaworld’s Chief Strategy Officer Kevin Andrew L. Tan during the company’s annual stockholders’ meeting, which was held last June 2019 (SEE: Megaworld earmarks PHP 300B for land banking, projects, The Philippine Daily Inquirer).

As to the specific parts of the five year spending plan, Megaworld Corp. will allocate around 65%, or roughly ₱195 billion, of the ₱300 billion budget in order to expand its investment property portfolio by developing and constructing various townships, malls, hotels, and office buildings around the country from 2020 until 2024. On the other hand, the company will allot the remaining balance of 35%, or roughly ₱105 billion, for the expansion of its land bank through the acquisition of raw land — both inside and outside of the National Capital Region (NCR). Furthermore, Mr. Tan added that the entire ₱300 billion will be financed solely through Megaworld’s internally generated cash and retained earnings (SEE: Bullish Megaworld sets P300 B five year capex, Business World).

Future Development Projects
The five year prospects of each of Megaworld’s three core business and operating segments (residential, lifestyle, and office space) were discussed in much more detail during the annual stockholders’ meeting.

Residential Property Business Segment
The future growth of Megaworld’s residential property business segment will be driven mainly by the expansion of the company’s current township portfolio. According to the top management, Megaworld plans to open up six new township projects, spanning over 2,000 hectares (ha) of land, within the next two to three years. These towns will be located in the provinces outside of the Metro (five in Luzon and one in Mindanao) — banking on the potential of these provinces to become major industrial hubs and central business districts (CBDs) in the near future as the National Capital Region becomes more and more congested. One of these projects is the proposed ₱20 billion Empire East Highland City, to be built in a 27 hectare piece of land in Cainta Rizal  by the Empire East Land Holding Inc. (ELI) — a subsidiary of Megaworld Corp. (SEE: Megaworld to spend P20 B for township, Business World). Once the six projects are fully completed by the end of 2021 or by the first half of 2022, the company will have 30 operational townships (SEE: Megaworld to launch 6 new townships within 2 years, ABS CBN News).

Megaworld is also heavily investing in renewable energy. In fact — during a recent interview with The Business World, Alliance Global (AGI) chairman Andrew Lim Tan claimed that all of Megaworld’s townships will run on renewable resources by the end of 2025, with the proposed ₱35 billion Iloilo business park being the test case (SEE: Megaworld wants townships to switch to RE sources by 2025, Business World). These green townships will feature solar panel roofing, rainwater harvesting systems, and wastewater recycling systems, among others, in the condominiums, malls, hotels, and office buildings.

Lifestyle and Hospitality Business Segment
The growth of Megaworld’s lifestyle business segment will be heavily tied to the success of its township projects since the new malls and hotels will be built inside these said areas. In fact, Megaworld plans to expand its current mall portfolio at a rapid rate of four malls (one major mall and two to three community malls) per year for the next five to ten years. One proposed mall is the ₱1.2 billion Upper East Mall to be built inside the Upper East township in Bacolod (SEE: Megaworld to build ₱1.2 billion mall in Bacolod, Business World). According to the company executives, one major mall can have a floor area of as much as 50,000 square meters (sqm), while one community mall can reach 15,000 square meters (sqm) in size. Thus — by 2024, the company hopes to add 500,000 square meters (sqm) to its mall segment’s gross leasable area.

The growth of Megaworld’s hospitality business segment, on the other hand, will be mainly driven by the expansion of the company’s existing homegrown hotel brands. These hotels include the Belmont Boracay, the Savoy Mactan, and the Grand West Side City Parañaque. The company’s top executives are expecting to build 12,000 new hotel rooms for these three brands within the next three to five years.

Office Space Business Segment
Megaworld will continue to ride on the strong office space demand from the Information Technology Business Process Outsourcing (IT BPO) Industry (SEE: Strong BPO industry continues to drive office building market, PropertyAccess). Just last year, the company secured multiple billion peso deals to build regional headquarters of American firms in the Philippines. These include ₱3 billion 17 storey office building for FactSet (SEE: Megaworld to build ₱3 B regional headquarters for New York listed FactSet, Rappler) and the 25 storey headquarters for JP Morgan and Chase NA (SEE: Megaworld to build JP Morgan headquarters in Fort Bonifacio, Business World), both in the Bonifacio Global City.

Land Acquisition
As of today, Megaworld still has around 4,700 hectares (ha) of available and developable land in its landbank. According to Mr. Alvin Tan, this landbank should be enough in order to support the company’s growth for the next ten to fifteen years. Despite this, Megaworld is still planning to spend an additional ₱105 billion over the next five years in order to accumulate more land. Management estimates that the company will acquire an additional 2,400 hectares (ha) of undeveloped land in 2020 alone.

(Cover photo from the Manila Standard, “Megaworld allots P300 B for capital expenditures)