Megaworld may catch up with property giants in next 7 years

The continued build-up of a steady recurring income base and its various pipeline projects with major landowners are expected to help upscale developer Megaworld Corp. catch up with its peers in the property sector, analysts said.

In a report, AB Capital Securities said concerns on Megaworld’s long-term stream of revenues have eased after the company successfully inked new joint ventures that will keep it busy in the next seven years.

"With Megaworld slowly integrating a steady recurring income portfolio and assuring revenue streams beyond 2010, we don’t see any reason why Megaworld shouldn’t catch up with its rivals - Ayala Land and Robinsons Land-valuations,"AB Capital said.

AB Capital said the company’s strategy of partnering with prominent landowners "frees the company from heavy burden of capex for costly landbanking while assuring itself a more stable earnings stream for another five to seven years."

"The company’s contingent revenue stream from current projects is estimated at P5.3 billion which is good enough for two to three-year income stream based on current selling rate. However, its recent joint venture agreements with major landowners improves the outlook beyond 2010, subsequently taking away concerns of a steady future earnings stream," AB Capital said.

Megaworld has been expanding recurring revenues from its hotel and leasable commercial space. As of last year, the company’s recurring income has increased to P543 million, 92 percent higher than the P282 million posted in 2002.

"The build up of a stable recurring rental income base (now 26 percent of realized sales revenues) has been the main formula why major developers have been shielded from the vicious property cycles," AB Capital said.

Megaworld has set aside P7 billion for the first phase of Newport City in Villamor Airbase in Pasay City composed of a residential enclave and a 350-room Marriott Hotel on a 25-hectare property owned by the Bases Conversion Development Authority. The second phase includes the development of a business park and a shopping/entertainment hub.

Last August, Megaworld signed an agreement with Araneta Center Inc. for the development of 17 residential towers within a 35-hectare commercial property in Cubao. The project, which will consist of 6,000 condominium units to be built over seven years, is estimated to cost around P15 billion.

Megaworld also plans to increase its recurring rental space from office, retail and hotel developments over the long-run. Current leasable inventory is over 110,000 square meters with plans for expansion by another 100,000 square meters in the next two to three years.

For next year, the company hopes to complete 1880 Eastwood Office, a 10-storey office development that will offer 35,000 square meters of gross floor area targeting the business process outsourcing business. In Fort Bonifacio, Megaworld hopes to launch more retail space totaling 20,000 square meters in three to four years.