PAGCOR reveals shocking state of POGO industry in budget hearings

The Philippine Amusement and Gaming Corp. (PAGCOR), the government agency in charge of gaming licenses and collecting the government’s cut of gaming revenues, told attendees at a government budget meeting that many of the Philippine offshore gaming operators (POGOs) that had controversially filled commercial office spaces in Makati and Paranaque have permanently left the Philippines. Despite repeatedly failing to collect the majority of the taxes that were owed by POGOs to the government, PAGCOR rode the POGO phenomenon to become the third-largest contributor to the national budget (behind only the BIR and Bureau of Customs).

PAGCOR said that it would normally expect to be able to collect at least P8 billion from POGOs, but that this year it will be fortunate to collect even P4 billion. PAGCOR said that it has only collected P1.6 billion in the first half of the year. The agency reported that there are only about 36 registered POGO operators left (from a high of 60; 40% drop), and only about 133 POGO service providers left (from a high of 300; 56% drop). PAGCOR says that the operators left the PH to set up shop in “Cambodia, Vietnam and Laos”.

MB BOTTOM-LINE

Easy come, easy go? PAGCOR’s wall-to-wall mismanagement of the POGO industry aside, the most crucial impact of this will be on the commercial leasing sector. During the boom times, when POGOs were soaking up available space like a giant, sketchy, tax-evading sponge, the short-term leases they demanded were seen (by some) as a reasonable trade-off for the sheer volume of leasable inventory they were willing to take up. Now that our ham-fisted attempts to monetize the industry (amplified by COVID) have caused these fly-by-night operations to pack up and leave, those same short-term leases are not looking so good. The bigger question, though, is whether this trend will continue.

PAGCOR was silent on whether it considered the current level of POGO presence to be stable, or if it was just a single data point on a line/curve that will result in a predictable decrease in POGOs and POGO service providers over time. Many analysts seemed to be convinced that BPOs could take up the inventory dropped by fleeing POGOs, but what if substantially all of the POGOs and POGO service operators were gone from the country entirely over the next 8-12 months?

Out of the REITs currently on the market, Filinvest REIT [FILRT 7.19 0.83%] has the highest proportion of POGO clients, and it has definitely taken a hit to revenue as these clients left the jurisdiction. DDMP [DDMPR 1.80 unch] has some exposure as well, though not to the same degree as FILRT. AREIT [AREIT 36.95 0.14%] is seemingly POGO-free (and perhaps, perhaps due to the Ayala Family’s conservative approach to the sector from the very start. For the REITs that are upcoming, RL Commercial REIT [RCR 6.45 pre-IPO] has exposure to POGO clients, and MREIT [MREIT 22.00 pre-IPO] has been very vocal about its roster of clients being POGO-free. In the world of REITs, client quality and WALE are important to protect dividend growth.

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