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Stock Commentary

Citicore Energy REIT declares its first “real” dividend

Merkado Barkada
Citicore Energy REIT declares its first ârealâ dividend

Citicore Energy REIT [CREIT 2.48 0.81%] [link], the REIT arm of Edgar Saavedra’s Megawide [MWIDE 4.54 4.42%] group, declared a P0.044/share dividend out of CREIT’s Q1 income, payable on June 24 to shareholders of record as of June 8.

If we annualize this quarterly dividend by multiplying it by four, we can estimate the annual yield of this dividend rate relative to CREIT’s IPO price and its current market price.

Relative to CREIT’s IPO price of P2.55/share, this Q1 dividend provides an estimated yield of approximately 6.9%, which is slightly below CREIT’s prospectus target of 7.0%.

Relative to CREIT’s current market price of P2.48/share, this dividend provides an estimated yield of approximately 7.1%.

While the Q1 dividend is significantly larger than the dividend that CREIT declared earlier this year, the source of the income streams that contributed to each respective dividend are almost entirely different.

The Q4/21 dividend was based mostly off of income from electricity sales, while the Q1/22 dividend is based entirely off of the lease-based revenue from the solar power facilities.


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It still strikes me as odd how the market prices the dividend stream from CREIT.

At the stock’s current price, the market appears to consider CREIT’s income steam to be nearly as risky as DDMP [DDMPR 1.54], which trades at a 7.22% annualized yield based on its Q4/21 dividend.

The business models of the two REITs are entirely different, and so too are the approaches that the two management teams have taken to marketing the future growth of their respective companies.

DDMPR leases commercial office space to third party BPOs, and has all of the regular problems associated with commercial leasing, like non-payment from aggrieved clients, constant upkeep of the facilities, and on top of all of that, there’s the ever-present ebb and flow of the commercial leasing market that pushes and pulls on the occupancy and lease rates that DDMPR can charge.

In contrast, CREIT leases a handful of large lots to a handful of affiliated companies that share common ownership. CREIT knows “where all of its tenants live”, so to speak, and because the lots are used for the generation of electricity, it doesn’t have nearly the constant upkeep needed in a commercial office tower setup.

Yes, there’s an ebb and flow to the power market that CREIT’s  downstream power plant clients are exposed to, but the baseline lease rates are not impacted by that market at all, and the profit-sharing component of CREIT’s leases should be a benefit during these times when the market rate of electricity is unusually high.

From a marketing perspective, DDMPR hasn’t provided any detailed plans for expansion, and nothing has changed about the composition of its portfolio since its IPO last year.

CREIT, in contrast, has a detailed road-map of tangible projects in various stages of development, and has already approved the purchase of several parcels of land in Bulacan.

I get that REITs have come under some pressure recently as the world begins to grapple with the realities of rising interest rates, and that the overall market appetite for risk is relatively low right now, but it doesn’t make a lot of sense to me that the market would treat these two income streams as basically the same.  

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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.

CITICORE ENERGY REIT

PHILIPPINE STOCK EXCHANGE

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