Stock Commentary

Citicore REIT offer goes on sale, my notes on the IPO

Merkado Barkada
Citicore REIT offer goes on sale, my notes on the IPO
Are the legal issues plaguing the MWIDE ownership team a concern for CREIT IPO investors? Potentially, and that’s something that is worth watching closely.
Merkado Barkada

The company, which is a subsidiary of Citicore Renewable Energy Corp (CREC), an affiliate of Megawide [MWIDE 4.85 0.21%] for having the same ownership group, pushed a series of disclosures into the Listing Notices section of the PSE EDGE website yesterday to better explain some of the finer points of Citicore REIT's [CREIT 2.55 pre-IPO] offer period, especially with respect to the PSE EASy tranche of the IPO. The offer period runs from February 2 through February 8, with payments for allocations requested through PSE EASy due by noon on February 8.

What if it’s oversubscribed? We don’t have any information yet to know whether the IPO will be oversubscribed (it just went on sale), but if it is, the procedures for refunds could be important if PSE EASy users are not able to obtain the full allocations that they’ve already paid for. According to the implementing guidelines, the refunds will be issued slightly differently, depending on whether the applicant’s allocation was “confirmed,” by the “Joint Global Coordinators” or the “relevant Local Underwriter”, which in both cases, is Unicapital. If the refund is processed under the global coordinator section, the process starts in 5 days and results in a physical check for pickup in Makati; if through the local underwriter path, the process starts in 30 days and will result in a mailed check to the Applicant. It’s not clear how one could tell which would apply. Maybe I'm missing something.

PSE EASy maximum: The PSE approved a maximum PSE EASy subscription request of 392,000 shares, which at P2.55 per share is a P999,600 order. That’s nearly 10x the normal P100,000 maximum. The PSE has increased the maximum allowable subscription in the past, and said it does so on a case-by-case basis.

Use of proceeds: The P2.55 billion net proceeds from the primary offer will be 100% applied by CREIT to purchasing two properties (Bulacan and South Cotabato) from its parent, CREC, that contain operating solar energy facilities. The two properties account for over 22% of CREIT’s projected 2022 and 2023 revenue.

Dividends: The company dropped its offer price to P2.55/share to bump its implied 2022 dividend yield up to 7.0%. The projected 2023 dividend yield is 7.4%, but this increase is due to an accounting treatment of CREIT’s straight-line lease adjustments, and does not represent an increase in capacity or revenue. 

Ok, but this company or the other one? Based on the questions I receive, investors are interested in renewable energy. Their enthusiasm is easily demonstrated by the Solar Philippines NEC [SPNEC 2.32 4.50%] IPO and the stock’s subsequent performance, but it is very dangerous to compare those SPNEC apples to these CREIT oranges and make misleading assumptions. SPNEC’s price was established as a result of it being a speculative, non-operational company. It has a large (and growing) vision, but no performance history or audited financials to validate the projections that the future financials represent. CREIT’s price was picked specifically for its relationship to a steady stream of profits that will be diverted to shareholders quarterly in the form of quarterly dividends. CREIT shareholders will not be waiting for the company to develop projects. Because of this certainty, though, it is not reasonable to expect CREIT’s stock price to rise like SPNEC’s just “because solar, bro.” To match the dividend yield (6.26%) of the REIT table’s current leader, DDMP [DDMPR 1.79], CREIT’s price would need to rise to about P2.87/share. To get into the Filinvest REIT [FILRT 7.53 1.05%] range (5.80%), CREIT’s stock would need to jump to P3.10. The RL Commercial REIT [RCR 8.06 4.05%] and Megaworld REIT [MREIT 22.00 2.22%] level of around 4.30% would require CREIT’s price to hit around P4.22/share. To get all the way up to AREIT’s [AREIT 50.85 0.39%] yield, the gold-standard, CREIT’s price would need to essentially double to P5.20/share.  


Whether you should buy this one, buy the other one, or just watch everything from the sidelines, will depend entirely on your own specific financial context.

There is no way for a person to definitively tell you that a stock is a good investment for you, as that person would not have taken your personal financial information into account.

I’m pumped about the expansion of the REIT sector into areas that don’t involve commercial office leases, and I’m excited to see enthusiasm that PSE investors have for the renewable energy sector in particular.

Are the legal issues plaguing the MWIDE ownership team a concern for CREIT IPO investors? Potentially, and that’s something that is worth watching closely.

So far, there’s been no evidence of contagion between MWIDE and CREIT, but the risk remains valid. That’s about the only material drawback that I can see in this offering.

The dividend returns, based on the offer price, are going to be the best of the bunch, so perhaps it’s worth a closer look if that kind of stable return is of interest to you.

Just remember that CREIT’s revenues aren’t projected to grow for at least two years, and the stock will not perform like its solar sector counterpart, SPNEC, which is something of a special case!


Merkado Barkada is a free daily newsletter on the PSE, investing and business in the Philippines. You can subscribe to the newsletter or follow on Twitter to receive the full daily updates.
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.

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