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Stock Commentary

Clarification on yesterday’s story about DoubleDragon, DDMP, and CentralHub

Merkado Barkada
Clarification on yesterdayâs story about DoubleDragon, DDMP, and CentralHub

Quite a few readers wrote to me to say various things that gave me the impression that my writing yesterday was not very clear about what was happening, and why it was potentially frustrating or aggravating for DDMP [DDMPR 1.80 0.6%] investors.

In a nutshell, REIT Law requires that any money raised during a REIT IPO must be spent on real estate development, within the Philippines, within 1 year of the IPO’s anniversary.

This obligation belongs to the company that actually sold the shares, so in the case where a REIT IPO contains both primary shares (sold by the REIT) and secondary shares (sold by the parent company), as the AREIT [AREIT 50.60 1.2%] IPO did, then both the REIT itself, AREIT, and the REIT’s parent company, Ayala Land [ALI 35.00 2.6%], had legal obligations under the REIT Law to disburse those proceeds on real estate development within the year.

In contrast, when a REIT IPO is entirely secondary shares (sold by DD), as the DDMPR IPO was, then DoubleDragon [DD 7.14] is the only company that raised money during the IPO, and therefore DD is the only company with a legal disbursement obligation under the REIT Law.

DDMPR didn’t receive any money from the IPO, so they have no obligation to do anything. Now, another place where I may have lost some readers was when I said that DD had invested a significant amount of money into the development of CentralHub, a joint venture between DD and Jollibee [JFC 230.40 0.2%], and that this would likely anger DDMPR investors.

The reason is that during DDMPR’s IPO, many invested thinking that the natural synergies between JFC and DD would make DD’s push, potentially through DDMPR, to build out a massive warehouse, cold storage, and logistics network very interesting.

At that time, there was no mention of a potential CentralHub joint venture that would eventually mature into its own warehouse, cold storage, and logistics REIT. Everyone (who is now sad) thought this development would course through DDMPR.

Since then, absolutely nothing has happened with DDMPR, while most (all?) of its peers have either grown their portfolios or revealed tangible plans for doing so. Then DD and JFC revealed their CentralHub plans, and then the reinvestment reports submitted by DD revealed the intensity of its investment in CentralHub using the proceeds from the DDMPR IPO.

Proceeds that I’m sure many DDMPR investors thought might be ploughed back into further warehouse development under the DDMPR name.

MB BOTTOM-LINE

To the best of my knowledge, DD didn’t make any specific representations about using the proceeds of the IPO on the further development of DDMPR’s portfolio, but anecdotally, that sure seemed to be the takeaway that many IPO buyers had when they hit that “buy” button during the IPO offer period.

So I don’t think DD is doing something here that is clearly wrong or unethical; it just seems like something happened in the background, between the time of the DDMPR IPO and the announcement of the CentralHub JV, to cause DD and JFC to pivot away from DDMPR as the vehicle for this industrial logistics expansion.

I don’t have any inside info on what might have caused that change in strategy, or even if there was a change in the first place.

It’s entirely possible that DD conducted the DDMPR IPO to raise money for doing a separate CentralHub REIT with JFC all along.

We just didn’t know and assumed the best.

Now DDMPR buyers are waiting for Injap Sia and DD to “do something” with DDMPR, as the stock is still down nearly 20% since its IPO with no clear plans for growth or improvement. Sorry for any confusion!

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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.

CENTRALHUB INDUSTRIAL CENTERS INC.

DOUBLEDRAGON PROPERTIES CORP.

JOLLIBEE FOODS CORP

PHILIPPINE STOCK EXCHANGE

REIT

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