8 minute read
PHILIPPINES
POGO boom drives real estate prices
Growth in online gambling in the Philippines is driving a real estate boom in Manila, which is now spilling over to the island of Cebu, as operators seek more space and cheaper prices.
The ascent to power of mercurial President Rodrigo Duterte in 2016 cast a shadow over the country’s online gambling industry, amidst threats of a shutdown. However, instead a new licensing regime was put into place, allowing land-based regulator, the Philippine Amusement and Gaming Corp, to offer licenses and to compete with the existing licensor, First Cagayan.
The upheaval and uncertainty lead to First Cagayan losing more than half its licensees, dropping to less than 80 from more than 200 before the changes. Many online firms also relocated to neighboring jurisdictions, such as Taiwan and Cambodia.
However, real estate figures suggest the online market in the Philippines is still alive and thriving.
Most of the online gaming companies that have set up in the Philippines originate from China. About 200,000 mostly Chinese workers have arrived in the country since late 2016, after licenses were awarded to more than 50 offshore gambling companies that cater to overseas Chinese gamblers.
According to a report by Colliers International, sales to Chinese nationals have risen in 2017 and continued into 2018 due to the influx of POGO operators. These clients tend to buy multiple floors or in bulk which has sustained the office market and impacted residential sales as POGOs often supply housing for their staff.
Online gaming firms were reported to prefer offices in Bay City, a rising business district by the Manila Bay. Typically they require 80-100,000 sq meters of space. Office occupancy in POGO buildings now stands at 95 percent, with secondary condos near POGO licensees at 100 percent occupancy.
Real estate consultancy, Leechiu said it has leased more than 2 million sqm of office space and sold over P100 billion ($1.87 billion) worth of real estate in 2017.
It’s not just Manila experiencing the boom, Colliers International reported that online gambling operators’ demand for Cebu office spaces grew by 25,700 square meters in 2017, accounting for a quarter of recorded transactions last year.
“With a more conducive local regulatory environment, we expect offshore gambling to become a major contributor to office take up in Cebu,” Colliers reported.
“After Manila which is a little congested, many are now looking into Cebu. It’s a very nice place to start a business, everyone is friendlier, the cost is lower and of course there is a lot of manpower in Cebu,” said Miggie Lopez, head of sales and marketing, for Cebu-based Blue Frog.
Blue Frog obtained a POGO license last year after having been regulated for the prior four years by First Cagayan.
POGO licensees are only able to offer their services to players outside of the Philippines, but can be situated anywhere in the country. Under a First Cagayan license, companies are required to be physically present in the Cagayan Special Economic Zone.
Although this had always been the law, most licensees had their back office systems and workers in the capital due to the remoteness and inadequate infrastructure in the zone. Duterte’s clampdown sought to close this loophole.
Blue Frog’s Lopez says she prefers the transparency provided under PAGCOR.
“I think it’s going to be fair for everyone that illegal operators are being cracked down on and it’s fair that the government is closely regulating the industry because it will pull the whole industry down if there are so many illegal operators,” she said.
As well as bringing in more money, POGOs were also created to establish more regulations on what PAGCOR head, Andrea Domingo termed “fly-by-night” operators who would simply close shop and “disappear” whenever they were unable to pay clients’ winnings.
Under the new system, regulators will have a stronger ability to monitor for fraudulent behavior and be able to remove the license of any POGO operator found to have violated operating procedures. Previous administrations had failed to capitalize on the lucrative online gambling industry because of this proliferation of unregulated operators.
PAGCOR has said that it expects the state’s revenue from online casinos to double this year as more licensees come online, boosting the estimated income to about P6 billion in taxes.
PAGCOR issued POGO licenses to at least 45 online casino operators and 10 sports betting operators. But with so many new applications, the regulator has rejected several applications, and is thinking of limiting the number to just 50 operators to prevent “oversupply.”
Tiger Resort, Leisure and Entertainment
Okada Manila, owned by Japan’s Universal Entertainment, is the largest resort in Entertainment City and the last to enter the market, with a soft opening in 2016. In the first half, the casino generated revenue of Y21.6 billion ($193.8 billion), with sales accelerating in the second quarter by Y3.8 billion. It said revenue had already surpassed its forecasts and the resort is profitable in terms of quarterly EBITDA. It says the volume of the mass market has been climbing steadily and it has added further junkets, which are expected to increase VIP revenue. The hotel occupancy rate stood at 98 percent in Q2. The property spans 44 hectares and at the completion of Phase One, Okada will have 994 hotel rooms and operate 500 tables and about 3,000 slots. Its centrepiece is the world’s largest coloured fountain, as well as a giant inner city beach complex, known as “Cove Manila.”
City of Dreams
The $1.3 billion City of Dreams Manila is owned by Belle Corp and Melco Crown Entertainment’s local unit. Melco has decided to delist Melco Resorts & Entertainment (Philippines) due to the high costs of maintaining a listing. It says it hasn’t performed as well as expected in capital raising in recent years. In Q2, City of Dreams Manila’s revenue slipped, though its adjusted EBITDA rose to $87.3 million from $62.8 million in the comparable period of 2017. The property was one of the group’s main EBITDA drivers. City of Dreams Manila has six hotel towers with approximately 950 rooms in aggregate, including VIP and five-star luxury rooms and high-end boutique hotel rooms, a wide selection of restaurants and food & beverage outlets, a 4,612.44 square meters family entertainment center in collaboration with Dreamworks Animation, a live performance stage, two international nightclubs and a multilevel car park. It includes an approximately 260-room Crown Towers hotel, Hyatt City of Dreams Manila, a 365-room hotel managed by Hyatt International Corporation and Asia’s first Nobu Hotel with 321 rooms.
Bloomberry Resorts
Bloomberry Resorts’ Solaire was the first IR to open in Entertainment City and is now planning a second IR to the north of Manila to cater for the local mass market in Quezon City. “The mass market segment is a fast growing segment of the Philippines gaming market therefore I believe the gaming pie is only getting bigger and will be able to support the growth of existing casino operators and the planned casino in Quezon City,” says Richard Laneda, senior research manager at Col Financial. “In addition to more local players, an influx of Chinese tourists and those who are working in POGOs have also helped boost the mass market segment,” he added, referring to the Philippine Offshore Gaming Operators.
Bloomberry has posted strong results, with record profit of P5.3 billion in the first half. Net revenue increased 20 percent to P22.1 billion, while consolidated gross gaming revenues (GGR) reached P25.1 billion, up 14 percent year-on-year. Solaire is a 16-hectare integrated resort. The Bay Tower of Solaire consists of a casino with an aggregate gaming floor area of approximately 18,500 square meters (including 6,000 square meters of exclusive VIP gaming areas), with about 1,400 slot machines, 295 gaming tables and 88 electronic table games. Bay Tower has 488 hotel rooms and 15 specialty restaurants. Contiguous to the existing Solaire Resort and Casino, the Sky tower consists of a 312 all-suite hotel, additional ten VIP gaming salons with 66 gaming tables and 223 slot machines. It also includes a certified 1,760-seat lyric theatre.
Resorts World Manila
Travellers International Hotel Group, a joint venture between Genting Hong Kong and Alliance Global, is the owner and operator of Resorts World Manila. In H1, Travellers reported EBITDA of P1.6 billion, down 28.2 percent from P2.2 billion in the prior year period. Gross revenues for the six months amounted to P11.1 billion, down 1.5 percent from the prior year period. Travellers said the decline in gross revenues was due to the closure of the second-floor gaming area as a result of the June 2 attack in 2017. VIP drop increased by 4.1 percent, however, mass tables and slots fell slightly in the half year.
The hotel room count for the group’s three hotels (Maxims Hotel, Remington Hotel, and Marriott Hotel Manila) remains at 1,226. The property is currently in the third phase of its expansion. The new Grand Wing will have three international luxury hotels – Hilton Manila, Sheraton Manila Hotel, and Hotel Okura Manila, adding approximately 940 rooms. It will also include new gaming and retail spaces, as well as six basement parking decks.
Further down the road, it will open the fourth and final IR planned for Entertainment City, which is scheduled to open in 2020.
DOJ recommends cancellation of Landing lease contract
The Department of Justice has recommended the cancellation of the Nayong Pilipino-Landing lease contract, after conducting a review over the legality of the deal, local media reports.
“According to the Secretary of Justice, the contract between Landing with Nayong Pilipino is a Build-Operate-Transfer [BOT] contract disguised as a lease contract. Because it is a BOT project, it should have complied with the BOT law, including public bidding,” Presidential spokesman Harry Roque said in a news conference.
Roque said that the DOJ concluded that NPFI’s lease contract with Landing has no legal effect as it was void from the beginning.
Okada Manila operator plans backdoor listing
Universal Entertainment’s Philippine unit, the operator of the Okada Manila, is planning a backdoor listing through the takeover of Manila-traded Asiabest Group (ABG).
Tiger Resort Asia has reached an accord with a group of shareholders to buy 200 million shares in ABG for PHP646.5 million ($12 million). The transaction represents two thirds of Asiabest’s outstanding share capital and will take place through a block sale on Nov. 12, ABG said in a statement to the stock exchange. Subsequently, Tiger is expected to make a tender offer to buyout minority shareholders.
Neither Tiger, nor Universal have issued a statement commenting on the transaction.
