PREIT’s epic collapse continues

Premiere Island Power REIT [PREIT 0.93, down 25.0%; 2542% avgVol] [link] fell another 25% yesterday, after falling 30% on Monday, for a two-day 47% combined drop. PREIT said the Energy Regulatory Commission (ERC) revoked the permit of Siquijor Island Power Corp. (SIPCOR), a key sponsor of the Villar Family-backed energy REIT. PREIT said SIPCOR will pursue legal remedies to appeal the ERC’s decision. The ERC alleges that SIPCOR ran power units without a compliance certificate, failed to maintain equipment, missed reporting requirements, and failed to meet its obligations on supply deals. PREIT says that its sponsor acted “in good faith” to meet local power demand and stressed it had no intent to disregard regulations. While SIPCOR accounts for nearly half of PREIT’s lease income, the REIT company said distributable income and dividends remain “not materially affected” by the shutdown, as it continues to receive guaranteed lease payments from the Siquijor unit regardless of operational status.

MB bottom-line: I guess it was time for yet another generation to learn the perils of investing in Villar Family public companies. While the ERC’s decision sounds like an existential crisis for PREIT, it’s important to remember that PREIT does not operate the SIPCOR facilities; it only leases the land to SIPCOR under a guaranteed lease. The ERC’s shutdown order will absolutely obliterate the revenue stream of the SIPCOR facilities that were impacted, but it’s not clear yet how quick/easy it will be for SIPCOR to cure its failures and get back in good standing, or if that’s even a possibility. Complete aside: imagine having the audacity to claim SIPCOR operated in “good faith” when the ERC alleges it operated without permits and failed to meet supply obligations. The crazy thing is that that is probably the best thing they could say about the situation.

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.