Stock Commentary

Citicore REIT's plan to grow capacity by 430%

Merkado Barkada
Citicore REIT's plan to grow capacity by 430%
CREIT might be a REIT, but that doesn’t mean that it has to be boring.
Merkado Barkada

Citicore REIT [CREIT 2.55 pre-IPO] held a discussion with COL Financial [COL 3.99 2.44%] yesterday, where the company zoomed in on its long-term development plans to provide some insight into how the REIT could grow beyond the post-IPO land acquisition that we’ve already discussed (and which is already baked into the 2022 and 2023 projected financials).

- The high-level plan: CREIT’s parent company, Citicore Renewable Energy Corp (CREC), will use the proceeds of the CREIT IPO to fund development of over 1.5 gigawatts (GW; equivalent to 1,500 megawatts) of renewable energy capacity over the next 5 years, and this portfolio will act as CREIT’s potential infusion pipeline for the foreseeable future. 

- The short term: CREIT will have the opportunity to acquire 121 MW of solar capacity from CREC once the projects are completed within the year, an 83% increase in capacity. 

- How about 2023 and 2024? Longer-term, the plan is to consistently download productive projects into CREIT on an annual basis; next year, in 2023, CREIT plans to add 195 MW (a 73% increase over 2022), and it plans to add another 319 MW in 2024 (a 69% increase over 2023’s total). By the end of 2024, CREIT proposes that it could have up to 780 MW of capacity in its portfolio. That’s a 5x increase from the 145 MW that it will have after the IPO. 

- What about the yield? As I covered yesterday, CREIT anticipates that its yield will start at 7%, but climb to 7.4% in 2023 thanks to some accounting effects (not due to additional revenue). It’s not yet clear exactly how CREIT anticipates these additions will impact revenue, expenses, or the resulting dividend, so I can’t say how this plan will impact the yield. All REITs will attempt to make acquisitions that are “yield-accretive”, which is just fancy finance-speak for “yield-boosting”. 

- Future variables: Like all plans, the further into the future we look, the more variables pop up to make our projections less certain. There are many open questions, but here are just a few that every REIT investor should be asking quietly in the back of their mind: What assets will CREC infuse into CREIT? Will it transfer only the land to CREIT to lease to the operating renewable energy facility, or will it also transfer ownership of the facility as well? How will CREC infuse these assets into CREIT? Will CREIT take out debt against its deposited land to purchase the assets from CREC, or will CREC and CREIT do a shares-for-assets swap? What kind of price will CREIT “pay” for the assets (whether in cash or shares)? Will any events outside of CREIT’s or CREC’s control delay the anticipated timeline, like the delay that CREIT has had to endure in having its IPO approved by the PSE? It’s not weird that we don’t know this information yet, but the answers to these questions could have a huge impact on the value of each injection to shareholders.


CREIT might be a REIT, but that doesn’t mean that it has to be boring.

This is an aggressive plan, like SPNEC’s plan to develop 10 GW of solar capacity through joint ventures with the big boys, and like SPNEC’s plan, CREIT’s plan is still just that: a plan.

That’s a long-winded way of saying that plans, at best, are just estimates of action, and that the real value of a plan comes from its faithful and accurate execution. Can CREIT (and CREC) execute the plan that they’ve shown us?

On the one hand, there are fewer external dependencies to CREIT’s plan as compared to SPNEC, since SPNEC’s plan requires the participation and cooperation of power players like AC Energy [ACEN 9.50] and AboitizPower [AP 34.20] to develop the projects in combination with SPNEC’s own in-house resources.

CREIT’s plan is more self-contained, in that the resources required to execute are mostly within the direct control of CREIT, CREC, and the same ownership group.

On the other hand, like the SPNEC plan, it’s not immediately clear (from this vantage point many years removed from the big happenings in the plan) how shareholders will feel about the gritty details of each transfer or transaction when they actually do happen.

Yes, that may be a very conservative way of looking at the future, but that’s just my state of mind when I’m evaluating investments for the long-term.

I hope this helps round out my analysis of CREIT’s offering, since I think my writeup yesterday didn’t touch on this angle of future growth enough to do the overall plan proper justice.


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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