Broker’s Analysis 

Leverage vs. Profitability

The firm’s ROE is still significantly higher than the industry and bourse average. It is also higher than that of AREIT’s. While there may be a slight ROE crunch in 2020, DDMPR can easily maintain these levels for the next few years, so long as it proceeds with its planned expansions.

DDMPR has no long-term debt and is therefore less leveraged — if at all — than the industry average. We don’t see DDMPR incurring significant levels of debt anytime soon, especially since it already owns the development properties which it plans to add to its portfolio in the next few years.

The firm is positioned in the first quadrant of our isoquant, operating with higher returns at lower financial risk.

Perception vs. Profitability

AREIT is in the third quadrant of our isoquant — considered overpriced. Meanwhile, DDMPR’s position is stable in the first quadrant—relatively undervalued, at best a bargain.

Its PER is significantly lower than AREIT’s and the PPROP industry average, which tells us that the IPO price of P2.25/sh would be relatively at par with its fair value.

Efficiency vs. Profitability

DDMPR’s margins are higher than the industry average but lower than that of AREIT’s, partly because its properties are all relatively new. Most of AREIT’s have been in operation for years now.

Profitability Analysis

DDMPR’s net income declined by -16.68% year-on-year (y/y) to P4.42 billion in 9M 2020, only because of the -23.69% y/y drop in its unrealized gains from changes in fair value of investments. This was brought about by 9M 2019’s high base from the launch of DoubleDragon Center East and DoubleDragon Center West. EBIT would have increased roughly +20% y/y to P1.29 billion without the impact of DDMPR’s unrealized fair value gains.

Because of the 9M20 dip stated above, we forecast a slight drop in NI for FY20E. Nonetheless, the expected launch of DoubleDragon Tower in 2Q21 and Ascott-DD Meridian Park in 2022 will be able to boost bottomline beginning this year.

Rental income increased by +22.97% y/y to P1.45 billion in 9M20, very much telling of the stability of DDMPR’s recurring income despite the pandemic and its demand constraints.

As of writing, the firm’s leasing portfolio amounts to 171,470 sqm of GLA — roughly 90% of which is office while the rest are retail areas. The launch of DoubleDragon Tower next quarter will bring DDMPR’s total GLA to about 213k sqm by the end of this year.

Our estimates see DDMPR’s rental income increasing by the double-digits until 2022, backed by high occupancy rates, arguably stable demand, and aggressive expansions. As of end-September 2020, DDMPR’s properties were all almost fully occupied with an average occupancy rate of 98.73%

Assets of DDMPR

DDMPR’s property portfolio includes three developments consisting six office towers with retail components in DD Meridian Park. DD Meridian Park is the company’s flagship project in the Metro, located in the Bay Area.

The commercial developments managed by DDMPR are DoubleDragon Plaza (made up of four office towers amounting to 139,420 sqm of GLA), DoubleDragon Center East (16,197 sqm of GLA), and DoubleDragon Center West (16,815 sqm of GLA).

In addition to these, the firm also owns the underlying land of DD Meridian Park on a freehold basis, which includes ownership of two development properties—DoubleDragon Tower and Ascott-DD Meridian Park. Therefore, on top of the rental income from the commercial buildings, DDMPR is also expected to earn land rentals from the two unfinished properties this year. The firm said these two development properties are potential expansion projects to add to DDMPR’s asset portfolio once their cash flows stabilize.

Impact of POGOs

Notably, majority of DDMPR’s tenants are gaming-related. Its largest tenant so far is Mandarin Group BPO Inc., a PAGCOR-accredited BPO taking up 18.3% of the firm’s total GLA. This is followed by Vertex Digital Entertainment Technologies Inc., a POGO that occupied 10.3% of DDMPR’s total GLA.

It seems 2020’s POGO exodus didn’t dent rental income, despite DDMPR’s large exposure to the gaming industry. In addition to this, the Supreme Court issued last January a TRO preventing the application of a 5% franchise tax on POGOs. This could essentially halt the growing POGO flight which left at least 277k sqm of office space in the Metro vacant. So long as the presence of POGOs in the Philippines remains stable, DDMPR’s rental income will continue to grow at a healthy pace

Valuation

At the offer price of P2.25/share, DDMPR’s PER would average around 6.1x — and its rising EPS will likely ensure lower multiples in the years to come. At the IPO price, DDMPR’s dividend yield for the years 2021/2022 would be 5.07% and 5.45%, respectively. In comparison, AREIT’s dividend yield for 2021, based on its dividend forecast vs IPO price, is 6.0%.

Conclusion

The offer price of P2.25/share is at a slight premium to our expected fair value, but this is still considered to be relatively undervalued, as supported by our isoquants analysis above.

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