On DDMP's topline growth

DDMP's [DDMPR 1.83 ?0.55%] Q2/21 profit of P1.8 billion, down 56% from Q2/20 profit of P4.1 billion, and up 359% from Q1/21 profit of P0.4 billion. DDMPR notes that, excluding the massive P5.4 billion in income booked as a result of the reassessed fair market value of its investment properties in Q2/20, it was actually able to book a 1% increase year-on-year in rental income and a 25% increase in total income. DDMPR attributed the slight uptick in rental revenue to slightly higher occupancy and rental rates.

That said, DDMPR’s results this quarter would have been skewed anyway by changes to the company’s income tax account, which DDMPR says are due to overall lower levels of taxable income in the period, taxed at a lower corporate tax rate of 25% (as opposed to 2020’s 30%), plus the kicker of a big one-time net tax benefit that it received after the “downward adjustment in the deferred tax liability balance as of December 31, 2020” at the time of the change in the corporate income tax rate.

MB BOTTOM-LINE

This is another case where “net income” is a pretty poor measure of the operational performance of a stock. Like yesterday, with Philippine Infradev Holdings [IRC 1.33] and its massive P8 billion “fair value” gain on the reassessed value of its investment properties involved in the Makati Subway project, DDMPR’s Q2 net income was disproportionately inflated by a similar right-sizing of the fair value of DDMPR’s investment property holdings. The change in the assessed value of the property is assessed as a gain that is counted toward revenue, but in both cases, these gains are not what we’d consider “income” from the perspective of trying to measure how well the company is doing at executing its reason for existing.

For investors, they will like DDMPR’s growing rental income, just as they liked the huge jump in DDMPR’s quarterly dividend (up almost 38%), but the truth is that DDMPR is the quietest of the REIT trio with respect to talking of topline growth. For AREIT [AREIT 36.70], which was born with an acquisition plan in the works and which has already gone through a major injection of assets, and Filinvest REIT [FILRT 7.31 1.22%], which has revealed multi-year plans for asset injection, the future seems alive with the possibility of new assets entering the fold. Both AREIT and FILRT have talked about future fund-raising rounds to support growth.

But DDMPR is different: it is the way it was born, and investors have had no disclosures hyping specific acquisitions or talks of fundraising rounds to stoke hope for future growth. Investors only have their belief in Injap Sia, the PSE Magician, to warm their thoughts as the stock continues to trade almost 19% below its IPO offer price. 

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