Property sector outlook remains dim as shoppers stay away from malls

By Denise A. Valdez, Senior Reporter

LISTED PROPERTY companies may continue to see double-digit profit drops for the remainder of the year, as consumers continue to stay away from shopping malls amid the rise in the number of coronavirus infections.

Researchers from brokerages AAA Southeast Equities, Inc. and Philstocks Financial, Inc. continue to see weak mall traffic as an indicator of the slow recovery of the property sector despite the easing of lockdown restrictions since June.

“We are taking a very close look at mall traffic because of its multiplier effect on the property companies. Residential sales are done through booths at the mall. Most property companies will suffer as mall traffic remains low,” said Christopher John Mangun, research head at AAA Southeast Equities.

The coronavirus disease 2019 (COVID-19) has sickened 220,819 and killed 3,558 in the Philippines as of Monday.

The government has locked down parts of the country since mid-March, imposing new quarantine protocols with varying degrees of strictness every two weeks, in hopes of containing the spread of the virus. As a result, nearly all economic activity ground nearly to a halt in April and May, pushing the economy into a recession.

Malls, hotels and office buildings were shuttered across Metro Manila at the height of the lockdown. As a result, earnings of listed companies were lower by a median of 40.5% in the first half. This decline is in line with the estimates of both AAA Southeast Equities and Philstocks.

“The Philippine property sector is one of the most vulnerable sectors, alongside hotels, tourism, gaming, and transportation,” said Piper Chaucer E. Tan, a research associate at Philstocks. “We are not so bullish for the property sector right now.”

AAA Southeast Equities’ Mr. Mangun added: “We saw some traction back in July as mall traffic was beginning to pick up, but the spike in daily new cases and the imposition of tighter restrictions in August diminished mall traffic once again.”

Malls have seen improved foot traffic since lockdown restrictions were eased but sales remain lackluster.

Both analysts anticipate that property companies will still post lower year-on-year earnings in the second half, but efforts to adjust to the pandemic may help them show improvements compared to how they did in January to June.

“We are expecting earnings to improve quarter on quarter but still come in between 15% and 25% lower from the same period last year,” Mr. Mangun said.

“[A] large chunk of second-half earnings will depend on whether consumers are confident to go out and spend during Christmas time in the fourth quarter. With new daily cases on the rise, people may continue to avoid crowds and the malls until a vaccine is available,” he added.

But the quarter-on-quarter growth may sit at around 20% to 30%, Philstocks’ Mr. Tan said, as companies are trying their best to adjust their business operations to the current virus situation.

“I think that people should learn to live with the virus, and property companies must be aggressive with marketing to scrape off the trauma and fear of going to malls,” he said.

“We do not see the mall apocalypse here compared to other countries since the malls here in the Philippines are part of the culture,” he added.

Property giants Ayala Land, Inc. (ALI); Robinsons Land Corp. (RLC); and Megaworld Corp. have all announced reduced capital expenditures this year to help cope with the pandemic.

ALI slashed its capex by 36% to P70 billion, while Megaworld cut its budget by 40% to P36 billion. RLC trimmed its spending plan by 11% to P24 billion, while SM Prime Holdings, Inc. maintained its capital expenditures at P80 billion.

All four companies reported earnings decline in the first half: ALI by 70% to P4.52 billion; RLC by 8% to P3.68 billion; Megaworld by 35% to P5.41 billion; and SM Prime by 46% to P10.43 billion.

The four companies are part of the 30-member Philippine Stock Exchange index, which has fallen 24% or 1,858.35 points since the start of the year to a 5,884.18 finish on Friday.