President Ferdinand R. Marcos Jr.’s decision to ban Philippine offshore gaming operations (POGOs) may have little impact on most publicly-listed property developers, but it will affect the jobs and sales of businesses supporting the industry.
“POGO operations have been reduced since the pandemic,” noted Rizal Commercial Banking Corporation Chief Economist Michael Ricafort.
COL Financial Senior Research Manager Richard Laneda also said the direct impact of the POGO ban on listed companies is minimal.
“While some listed companies still have POGO operations, their exposure to POGO have significantly decreased since its peak in 2019 and direct impact to the banning of POGO will be limited,” he said.
According to Abacus Securities Corporation Vice President and Head of Research Nicky Franco, “there is a lot of angst about the impact on property companies and REITs (real estate investment trusts). There has even been talk of a property crisis if all POGOs and related companies leave or close.”
“But remember that the office vacancy rate in Metro Manila was only three percent to four percent in 2019 and ballooned to the high teens last year. Sure, it resulted in stagnant lease rates and revenues for the major developers but there has been no property crisis," he added.
“So, even if occupancy levels fall another 5 percent to 6 percent by yearend, it will be a setback but it should be more than offset by prospects for better residential sales as interest rates fall,” said Franco.
However, he added there will probably be a knee-jerk reaction with selling concentrated on the most exposed stocks such as DDMP REIT Inc. (DDMPR) and its parent company DoubleDragon Corporation (DD) as rental income from POGOs accounts for 51 percent and 13 percent of their total rent income, respectively.
Abacus also sees an impact on Filinvest Land Inc. and Megaworld Corporation, but to a lesser extent as POGOs account for five percent and four percent of their gross leasable area (GLA), respectively.
“The worst part for DDMPR and DD is that POGO tenants are in arrears and so, ‘collectibility’ may be an issue moving forward,” Franco pointed out.
Laneda said that “while the direct impact is limited... this only accounts for the listed companies under our coverage. The industry-wide GLA occupied by POGOs is a lot more and will negatively impact average occupancy rates of the industry."
“This in turn will put negative pressure on lease rates given the supply glut. The most that will be affected are stand-alone projects given their less-attractive value proposition compared to buildings inside an estate or township,” he also said.
As far as stock prices and fair value estimates are concerned, Laneda noted that the POGO risk has already been factored-in and “we will not be adjusting our fair value estimates as our NAV (net asset value) estimates already excluded the value of the space occupied by POGOs.”
“We also believe that the direct impact on the listed companies is very limited and manageable compared to its peak in 2019 when Megaworld’s exposure was 10 percent and FLI was at 15 percent... On the bright side, this puts to rest a lingering issue hounding the property industry since its inception in 2018,” he added.
Meanwhile, Ricafort said the ban on POGOs “may have adverse impact in terms of reduced employment for locals in POGO operations, reduced demand for real estate rentals pr leases for residential, office, and commercial properties and even purchases of residential condo.”
He added that the ban “would also reduce demand for retailers and other commercial establishments.Transport and logistics servicing POGOs could also be adversely affected in terms of reduced/lost business."
“Supplies or any other businesses or industries in the supply chain of POGOs could be adversely affected such as rental or lease income, employment agencies, and other related and allied products and services needed by POGOs from the locals,” he also said.
Ricafort further noted that the ban on POGOs was already expected by the market based on the position of local business groups recently while the current and previous finance secretaries have hinted that it is okay to stop operations of POGOs.
“Possible ban/stop on POGOs has become the official policy stance of the Economic Team over the past two years. Especially those that violate the laws or do not follow the laws and cause social ills locally and elsewhere with alleged illicit and criminal activities. China has been appealing the ban on POGOs for more than five years already,” he noted.
Ricafort also pointed out that the ban is a positive sign of good governance and, since global investors patronize countries that comply with ESG standards, “compliance on ESG means good business for the country. I do not have precise estimates but compliance on ESG standards would encourage more foreign and local investments.”