Stock Commentary

Citicore Energy REIT IPO is TODAY!

Merkado Barkada
Citicore Energy REIT IPO is TODAY!
REITs are sensitive to interest rates, so any changes in rates from the BSP will have a negative impact on stock price. Storms or other natural disasters could damage CREIT’s facilities and impair future revenues and dividends.
Merkado Barkada

It’s finally happening; at 9:30am, one of the most anticipated (and delayed) REITs will go live and begin active trading.

The offering was oversubscribed across all tranches (institutional, broker, PSE EASy), and while many tried to pin the blame for the 5-day IPO delay on the rabid, frothing demand of us retail traders, I think that it’s probably dangerous to make many inferences from a technical delay that isn’t related to the magnitude of the demand.

It’s not like “MREIT was 1 day delay, and CREIT was 5 day delay, therefore CREIT = 5x MREIT”.

Still, there is significant retail demand for this REIT, and not just because the 2020 yield is projected to be 7%; investors seem excited about the renewable energy sector for environmental reasons (Citicore Energy REIT [CREIT 2.55 pre-IPO] and Solar Philippines NEC [SPNEC 1.86 9.27%] help us move away from dirty coal power), and for the solar segment of that sector specifically for economic reasons (solar power plants are relatively quick to build and commission).

On top of that, I’m excited to see our REIT sector gain a new member that relies on income from a completely different source (rent from power plants, instead of rent from BPOs), with a rent scheme that isn’t just a regular commercial lease with an annual escalation clause (CREIT has profit-sharing baked into its lease agreements).


I’ve received a huge number of emails and DMs asking for my opinion on this company and my prediction about what will happen with its price. I think that I’ve been pretty transparent with my opinion of the company and its ownership group; CREIT (through its solar parent) and Megawide [MWIDE 5.27 3.30%] have a long history of construction and operation, so they’re not new-comers to the energy space or to the solar game in particular.

That said, we need to spend a second on the elephant in the room: the charges that have been brought against MWIDE CEO Edgar Saavedra and several other executives in the MWIDE Group for alleged violations of the Anti-Dummy Law related to MWIDE’s operation of the Mactan-Cebu International Airport through a joint venture with its India-based partner, GMR.

Are these charges just part of the pushback from entrenched interests that MWIDE received when it won favored bid status for the NAIA Rehabilitation project, or are they part of a larger, more targeted effort from within government to grief Mr. Saavedra and the MWIDE Group that could spill over into its other projects, like CREIT?

It’s a situation that warrants close observation, for any indication that the bad blood applies to MWIDE interests outside of the air travel sector. So far, the MWIDE Group’s non-air travel interests don’t appear to be caught up in the same troubles.

On the stock price front, it’s worth remembering that the IPO has a stability fund that will last for 30 days, so we know that it will take significant selling/downward pressure to get the stock price to dip below its P2.55/share offer price.

Does that pressure exist?

Well, we also know that the IPO was oversubscribed across all tranches, so there’s probably pretty strong interest for the stock at this price.

We also know that the yield is 7%, which is significantly higher than anything else in the REIT sector right now.

If we assume that CREIT’s income stream is at least as safe/predictable as commercial towers leasing to BPOs (there are pretty strong arguments to say that it is actually safer and more predictable), then we would expect investors to pay more than P2.55/share for access to that income stream.

The million peso question: how much more?

For buyers to pull CREIT’s yield down to something closer to the highest non-DDMP [DDMPR 1.79 0.56%] yield, to match something like Filinvest REIT [FILRT 7.55 0.27%] at 5.84%, CREIT’s price would need to rise to P3.08/share (a 21% gain).

To get into the Megaworld REIT [MREIT 20.45 2.35%] and RL Commercial REIT [RCR 7.94 4.75%] realm of 4.65%, CREIT’s price would need to rise to P3.87/share (a 52% gain).

I’m not prepared to say exactly where CREIT fits in this matrix, and there are many other considerations that inform the relative yields of FILRT, MREIT, RCR, and CREIT that I’m ignoring in this very high-level analysis, but I only wanted to demonstrate what would happen to the price if CREIT ends up somewhere between those two groups.

That said, anything can happen. REITs are sensitive to interest rates, so any changes in rates from the BSP will have a negative impact on stock price.

Storms or other natural disasters could damage CREIT’s facilities and impair future revenues and dividends.

I could have totally misread the market’s interest in CREIT’s revenue stream or its evaluation of the business model.

None of what I’ve said should be construed as a recommendation to buy CREIT, I’m only demonstrating a few different ways to think about this IPO.

It’s up to each individual investor to do their own research and thinking before hitting the “buy” button.

“Good luck” to all IPO buyers and traders hoping to play the stock today!


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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