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Stock Commentary

Jollibee [JFC], DoubleDragon [DD] to create Philippines' first industrial REIT

Merkado Barkada
MB
The double dragons, Tony Caktiong and Injap Sia, announced that they had signed a binding deal to create the country’s first industrial REIT.
Merkado Barkada

The double dragons, Tony Caktiong, owner of Jollibee [JFC 210.20 1.04%], and Injap Sia, ex-owner of Mang Inasal, announced yesterday that they had signed a binding deal to create the country’s first industrial REIT.

The deal calls for JFC to purchase common shares of CentralHub Industrial Centers Inc (CentralHub), a subsidiary of DoubleDragon [DD 12.10 unch] that holds DD’s portfolio of industrial warehouse complexes, and then for JFC to infuse CentralHub with 16.4 hectares of industrial properties that JFC uses for its commissaries. This will result in CentralHub owing over 39 hectares of industrial land, and will make CentralHub the country’s largest industrial landlord. 

The last step is for the CentralHub entity to go through the IPO process as a REIT, with JFC and DD both as sponsors / selling shareholders. According to JFC’s disclosure, it will be spending P1.9 billion in cash (presumably the amount of the CentralHub share purchase) and injecting P2 billion worth of its land and properties into CentralHub after the shares are bought.

JFC said that it was actively looking to sell or securitize its real estate assets, either through REIT vehicles like CentralHub or through sales to third parties, as a way of allowing JFC to “focus on growing its core business in food service, restaurant operations and food processing”. Tony Caktiong added, “This is a more cost-effective way of financing versus owning or pure leasing of properties due to the cash dividends JFC will receive from the REIT which will include the benefits and incentives provided by law to the REIT”.

For Injap and DD, CentralHub is yet another significant recurring revenue stream. The REIT will go public in 2022.

MB BOTTOM-LINE

Expect the PSE to fill up with REITs in short order, as equity-hungry corporations awaken to the REIT structure as an attractive fundraising tool.

Corporations never like to give up control of land; however, the lowered minimum public ownership threshold, tax advantages, and multiple “corporate human centipede” opportunities to extract pre-dividend value from the REIT sure help the medicine go down more smoothly. Both JFC and DD are looking at this as a financial win, but their minds are keying in on different aspects of the deal; for JFC, the benefit is the conversion of its assets into cold, hard cash for expansion, and for DD, the benefit is in the long-term, predictable, and powerful stream of dividend income that the CentralHub REIT will throw off for decades.

The interesting part, to me, is not so much the REIT story here as much as it is the internal pivot at JFC to monetize its real estate assets to fund/fuel further expansion of its restaurant business. JFC has a history of sometimes spreading itself too thin operationally, and has been experimenting with outsourcing aspects of its logistics infrastructure as a way to improve the overall quality of the service (JFC is not, at its heart, a great shipping company) and increase the time/money it has on-hand to apply to things that it does better than most: sell food.

There are a TON of details missing here that will be filled in probably over the next couple of quarters, but we will be following this story and updating as new details become available! Spicy!

 

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DOUBLE DRAGON PROPERTIES CORP. JOLLIBEE FOODS CORP. PHILIPPINE STOCK EXCHANGE REAL ESTATE INVESTMENT TRUST REIT
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