October 06, 2014

GSIS gets steep bids for BGC lots

State pension fund Government Service and Insurance System (GSIS) successfully auctioned off two 1,600-sqm lots in Bonifacio Global City (BGC) yesterday. BusinessWorld reported that the first lot drew the highest bid at P800m or P500k/sqm while the second lot fetched the highest bid at P746.5m or P466,656/sqm. The two winners (Goldenwill Inc for the first lot and Focus Palantir Inc for the second) topped the bids of bigger players in the industry including Robinsons Land Corp (RLC) and unlisted developers Daichi Properties and Altus San Nicholas Corp.

Ayala Land Inc reportedly bought bid documents but did not submit an offer. GSIS will now evaluate the offers and will require the winning bidders to submit the required documents prior to finalizing the deal.

Our take: The offers came as a big surprise and beyond our expectations. It exceeded the minimum bid price set by GSIS by as much as 54%. The P467k-P500k/sqm bids are also higher by 23%-32% than P379,480/sqm top-end land prices in Makati as reported by Colliers International as of end-1Q14. Moreover, these also exceeded the P420k-430k peak Makati land prices prior to the Asian Financial Crisis.

It should also be noteworthy that Ayala Land Inc (ALI), which presumably has the inside track of land prices and trends in BGC, did not participate in the auction. RLC’s bid was reportedly at P400k/sqm. In this light, with the top bids coming from less prominent (and presumably less experienced) bidders, it should be worth monitoring if the bids are not speculative. The high land cost may also weigh heavily on prospective project margins by these bidders.

However, if GSIS will proceed in accepting the bids, this should have implications on land valuations of listed companies with extensive presence in BGC especially Megaworld Corp (MEG) and ALI. However, with ALI in a JV for its developments within the vicinity through First Bonifacio Development Corp and that most of its land assets our now outside Metro manila, the impact of these steep land prices to its NAV should not be as significant. MEG should benefit more given that it still has undeveloped in BGC.

These include the 34.5-hectare high-end Mckinley West township project which it has just started developing. In 2010, MEG sold initial undeveloped lots from the project at P75k/sqm. The last sale was made at P160k/sqm. This should also give MEG a significant leeway to adjust prospective selling prices for the project (or up to 3x the last done transaction price). – WealthSec