January 31, 2022

CREIT

The final price is offered at 2.55 PHP/sh. The dividend yield at that price is 7% for the year 2022 and 7.4% for the year 2023 with a dividend payout ratio of 107% and 106% respectively. We need to take note however that the revenue of CREIT will come from fixed rental income and variable rental income.  The variable rental income is not certain thus if we remove those, we should be getting a base dividend yield of approximately 6.8% for the year 2022 and 7.3% for the year 2023. These projected dividend yields however are attainable if CREIT gives at least 100% of the earnings as dividends. The REIT law however requires only companies to give a minimum of 90%. If ever CREIT takes the 90% dividend payout ratio route, then we should expect a lower dividend yield.

I attended the 2-day PSE expo and so far analysts like April Lynn Tan of COL financials and Nicky Franco of Abacus Securities are positive on CREIT, fundamentally speaking.

As a side note from the PSE expo, PSE's Ramon Monzon mentioned that around February they will be adding Mid-cap and High yield dividends as 2 new indices for the PSE. This info however has been mentioned since last year and is expected to be added this January.

MREIT

MREIT's Kevin Tan has finally disclosed something after announcing a few weeks ago plans with regards to property infusion across Central Business District Townships. So far technical details include increasing portfolio value by 34% and an additional of at least 44,300 sqm. All these are to happen before the end of the year. This shows positive sentiment however it is something we cannot quantify at the moment since it lacks details. Important details such as how much will it increase the net-asset-value (NAV) and dividend income are difficult to project so that investors know whether MREIT's current stock price is fairly valued. What we do know for now is that MREIT's NAV before any asset infusion was around 20 PHP/sh. Some investors don't care about the price now, they continuously buy because they're buying MREIT's future in which before 2024 around 500k gross leasable area (GLA) portfolio has been attained, and a total of 1 million GLA before the end of the decade. They're bullish on the resiliency of the BPO industry and MREIT's high-quality tenants. Meanwhile, other investors stay on the side and wait for further details before diving in. After all, there might be other better opportunities out there for the meantime that gives a better return in the shorter term. Nicky Franco of Abacus Securities projects that office vacancy will rise by at least 20% this year, work from home is here to stay, and interest rates will rise which will negatively impact the office REIT sector.

January 24, 2022

CREIT

The final pricing date will be in a few days from now and I collated some facts and personal insights that might interest whoever is deciding on buying CREIT.

(1) The net asset value (NAV) is pegged at 2.51 PHP/sh yet the max offer price is 3.15 PHP/sh. NAV is usually one of those ways for investors to know whether they are buying a REIT stock at a fair price value. If the final price set on January 26 is higher than the NAV, then we are paying a premium price. We wouldn't want another DDMPR IPO to happen. The NAV of DDMPR is 1.9 PHP/sh yet they decided to take the max price offer of 2.25 PHP/sh. Investors would've been happy if DDMPR's price appreciated but it went the opposite direction and is now trading below NAV. Those who are buying DDMPR now are at a safe range but not those who bought on IPO. 

(2) Proceeds from selling the primary shares are going to be used to acquire additional assets (Bulacan and South Cotabato property) which will be infused later on in CREIT. The problem however is they are not going to immediately do that but rather invest it in short-term liquid investments. Nobody knows when will that happen but the prospectus claims that they'll do that when market conditions apply.

(3) There's a high volume of offered secondary shares which is even higher than the primary shares. Proceeds from primary shares go to CREIT and proceeds from the secondary shares go to the pocket of the owners. In short, a huge amount of the money is not directly for the benefit of CREIT and we wouldn't want another MEDIC to happen where owners are just cashing out. CREIT's prospectus however is honest enough to disclose where they will be using the proceeds. They plan to use the funds for CREC, the mother company of CREIT, to expand their renewable energy projects in which CREIT might benefit later on through capital infusion. Some investors find this a better approach than what DDMPR did where the proceeds of DDMPR went to CentralHub which will be offered as a separate REIT rather than be infused.

(4) Speaking of owners, Edgar Saveedra and Oliver Tan are politically at risk. They were issued a warrant of arrest in late December due to the ongoing MWIDE issue (Anti-dummy Law). CREC, CREIT, and MWIDE are under the same management. Although MWIDE and CREIT are two separate and different businesses, some investors are keen on scrutinizing the management. For instance, some investors are happy investing in any Ayala-led business because of their good track record and investor relations.

With those said, what we're sure of at the moment are stable dividends. The growth momentum on the other hand remains speculative.

DDMPR, CentralHub REIT

DD disclosed that phase 4 of the CentralHub-Tarlac warehouse has been completed. The CentralHub warehouses are distributed in Capiz, Tarlac, Pasig, Laguna, Ilo-Ilo, Davao, and Cebu. They will offer the first industrial REIT IPO in the second half of 2022. Sentiment towards the management remains negative because of what happened to DDMPR in which the proceeds are not used for the growth of DDMPR and their 3 strategy plan is not convincing. This might affect CentralHub REIT IPO. The nice thing about CentralHub is that it's a different sector. From what I know, the largest tenant of these warehouses is JFC who is also part owner of CentralHub and that alone minimizes the vacancy risk. However, having the owner of CentralHub as the lesee sounds like a conflict of interest because the lease contract might bend towards more on their advantage rather than the investors. Nevertheless, we'll have to wait for the prospectus. As far as I remember, the proceeds of CentralHub is not going to be used for the growth of CentralHub either. JFC will use the proceeds to expand its real estate related business. Way back 2019, Injap plans to list 4 REITs each having specific sub-industry: (1) DDMPR for office leasing, (2) CentralHub for industrial leasing, (3) CityMalls for provincial retail leasing, and (4) Hotel of Asia for hotels.

January 17, 2022

SGP, MER, AP, SCC, SPC

A week ago NGCP placed the Luzon grid under yellow alert after the available supply of power was around 10.2k MW yet the demand was around 9.5k MW leaving a supply margin of around 300 MW. In normal circumstances, the average supply margin is around 2k MW. The issue was due to the forced outage of some power plants. Moreover, other power plants are not operating at their full capacity for some reasons.

If such a situation continues in summer with the assumption that the quarantine level is lowered, we should expect a red alert and rotational blackouts due to dwindling supply and increased demand. Power sectors will profit from energy sales because of increased prices. This is good for the investors because they will rip the benefits of having a good dividend yield. However, as an investor/consumer, the dividends will be used to offset the increased prices of electricity and goods. After all, electricity costs used in producing the goods are passed on to consumers by increasing their price.

The DoE (Department of Energy) will meet with NGCP (National Grid Corporation of the Philippines) and talk about the summer power scenario.

CREIT

They haven't had their IPO yet but recently they received the "Dark Green" Rating from CICERO (Norway's research institution that deals with solving climate change). "Dark Green" is the highest rating being given by CICERO. CREIT claims that the rating is due to the Agro-Social concept they are implementing. Many farmers are against solar farms because they take up a lot of space and it affects the agriculture side of things. So through Agro-Social, CREIT allows farmers to plant under their solar panels, and proceeds from selling their harvest are split between the farmers and the scholars in the community where Citicore plants are located. 

CREIT claims that, unlike office REIT, there is minimal vacancy risk. The dividends will be coming from lease payments. All the tenants are solar power plants including Citicore, the parent company. In addition to the lease, some of the dividends will be coming from the earnings on some of these power plants through energy sales. Any excess of the power plant's base revenue, 50% will be given as dividends to shareholders. CREIT forecasts that power prices are going to go up in the next 5 years thus shareholders participate in this upside. They further claim that selling renewable energy is not going to be a problem because the government is more biased towards it such that they will have to buy all output from renewable energy before tapping other sources.

MREIT

MREIT is the 2nd top-performing IPO in 2021. The stock price has increased by 22%. Kevin Tan, the CEO, will be announcing plans in the next few weeks with regards to property infusion across Central Business District townships.

MREIT's stock price at the moment spiked up. This is not advice and speaking only from a dividend investor point of view, I recommend avoiding MREIT until the price consolidates. Many speculate that Kevin Tan's announcement brought in the hype and traders are using it to make a quick profit. Until then, as they always say avoid FOMO (Fear of Missing Out).

TEL

A week ago TEL partnered with SandBox ME, the largest Filipino-owned distributor of Philippine-made food and grocery items in the Middle East. This will allow Filipinos abroad to purchase load, pay bills, and use their technology to purchase grocery items. Just recently, they entered into a partnership with Beam&Go, a digital marketplace where OFWs can purchase groceries, medicines, and food from their families back home. They are targetting OFWs because after all, that sector is where the money is.

January 10, 2022

AREIT, MREIT, FILRT, RCR, DDMPR, TEL, GLO

Property consultants claim that e-commerce and data centers are expected to fuel demand for office spaces in the Philippines for the year 2022. KMC Savills said that 62% of office spaces inquiries are from warehousing and data centers. This will benefit telco and REIT sectors because after all there is a rise in digitalization. Although not all REITs will benefit because most are into office spaces for the BPO industry at the moment. However, REITs like MREIT and AREIT are equipped and ready to take such opportunities because warehousing and logistics are part of their disclosed 3-year investment strategy. DDMPR's sponsor DD is supposed to offer CentralHub REIT this 2022 but it seems like it's not on PSE's disclosed IPO pipeline. CentralHub REIT would've benefited as well since this is an industrial REIT focused on warehousing and logistics.

Meanwhile, property consultants remain a positive outlook on rentals for the year 2022 most especially those whose tenants are in the BPO industry. The rental rates are holding up due to the presence of IT-BPM firms and multinational companies. This gives a positive sentiment to AREIT, MREIT, FILRT, and RCR. On the other hand, sentiment towards DDMPR remains negative because POGO hotspots (Bay Area and Quezon City) rental rates are in a downtrend. 

Colliers claims that many tenants are interested in "green buildings" due to COVID-19. If true, FILRT will benefit from this because they focus on properties that are LEED (Leadership in Energy and Environmental Design) certified as disclosed in their 3-year investment strategy. LEED or WELL-certified buildings can mitigate COVID-19 due to the standards set that buildings should have effective ventilation and air filtration.

PLC

Alert Level 3 has been declared until January 15. Casinos are allowed to operate at 30% of venue + 10% with Safety Seal. Okada Manila was granted the Safety Seal Certification last May 2021. Even if omicron is still around, at least there's a chance for PLC to continue earning. 

Meanwhile, a few more months and the declaration of dividends will be announced. The probability of PLC giving a dividend yield of at least 9% at the current price of 0.43 PHP/sh is high. 

A quick recap on PLC as to why the dividends will sustain for 2021: (1) Their earnings in 2020 was hampered but yet they were still able to give dividends, (2) their earnings this 2021 has already exceeded 2020, (3) business is defensive since they share gaming profit with MELCO but not share with operating losses (4) they do not pay significant lease from their parent company BEL, (5) have minimal to no capital expenditures, and (6) they have a dividend policy of giving out at least 80% of the earnings as dividends.

TEL

TEL made a strategic move to partner with SandBox ME, the largest Filipino-owned distributor of Philippine-made food and grocery items in the Middle East. This will allow Filipinos abroad to purchase load, pay bills, and use their technology to purchase grocery items. If their PayMaya can't win in the local market, they're probably starting to target OFWs. 

MER

I have never heard of a power company in the Philippines that stores energy to be used in our power grid. Similar to batteries, to name a few, we can save money on electricity and it can be used for emergencies most especially when the demand for power is high and the supply is low.

Last November 2021, Meralco teamed up with Amber Kinetics, a Silicon Valley-based company that pioneers developing flywheel energy storage systems. It could be still in the research stage since no other information is disclosed but this is probably something we need to keep eye on because it could disrupt the power market once becomes feasible.

The flywheel technology is a container and inside it is a wheel that rotates at high speed. To store energy, the electric energy produced by power companies is used as an input to the flywheel. The flywheel then starts to rotate thus electricity is now converted as kinetic or mechanical energy. The wheel keeps on spinning holding that kinetic energy for as long as it could. When power is needed, that kinetic energy is used to produce electricity. 

DMC, SCC, SPC, AP, MER

Currently, we have WESM (Wholesale Electricity Spot Market) as the market for power sectors to sell electricity.  The purpose of WESM is to promote competition, have a choice of whom to purchase electricity, and penalize abuse of market power. The goal is to decrease power prices beneficial to consumers. The problem currently is that we're far from achieving that goal. Malampaya is going to deplete soon, renewable energy is not yet enough, there's a moratorium on building new coal plants, some plants experience outages, and many more. There's a steady rise in demand for power but our supply is volatile making the power prices volatile as well.

Last March 2021, another kind of market for electricity has been piloted in the Philippines. The GTM (Green Tiger Market) is a market for power companies to sell their electricity with the option to sell power at a fixed price for a certain period. This could be beneficial to both power companies and consumers. Power companies who bagged a contract are sure of having to sell their output and on the other hand, electricity prices will be less volatile.

If the GTM platform would soon be out, this is probably something we need to keep an eye on because it could disrupt the power market.

MWC, DMC

Last November 2021, the Senate approved the 25-year franchise of Manila Water and Maynilad. A few days ago, the President signed it into law. MWC and DMC's water arm MWSS will have certainty of earning for the next 25 years not unless revoked by the government.

January 4, 2022

SCC

Yet another coal export ban happened in Indonesia. It's the same problem as before. Their government had to stop their mining companies from exporting coal because they are not able to meet the required production levels for their country. Indonesia's biggest customers are China, India, Japan, and South Korea. This gives 2 outcomes in the market: (1) Lesser competition for SCC in the coal business and (2) coal prices will rise because demand for coal remained steady yet supply has been reduced.

RCR

RCR disclosed its 3-year strategy and the following are some notable information:

• Lease primarily for office purposes located in Central Business Districts and major regional commercial hubs.
• Improve the quality of properties to attain higher rental rates.
• Have tenants targeting all sub-sectors of IT-BPM and BPO.
• Infuse 1 to 2 assets per year. These assets are required to be dividend yield accretive, have 3-year profitability history, PEZA registered, stable occupancy, and accessibility.
• Get financing through debt, asset-for-share swap, or cash.

Part of RCR's disclosure showed that around 49% of the lease are going to expire between 2022 and 2024. This might look bad but then RCR's tenants are mostly in the BPO sector who has been with them for more than 10 years. They probably won't have problems renewing contracts since they had good relations with the BPO industry and the business continues to remain resilient.

FILRT

FILRT as well has disclosed their 3-year strategy and the following are some notable information:

• Active asset management by improving the properties to propel stable yearly escalation of rental rates and sustain high occupancy rates.
• Attain sustainability where they save on costs and expenses such as utilizing renewable energy, rain harvesting, and the like.
• Asset infusion in which the criteria are: (1) located in the Central Business Districts and major regional hubs, (2) primarily Grade A commercial properties, (3) occupied by BPOs with long term lease agreements of at least 3 years and, (4) potential for property enhancement and sustainability features.
• Get financing through debt, equity, and asset-for-share swap.

Since IPO, investors are still waiting for the infusion of two assets (Cyberzone Cebu Tower Two and Axis Tower Two). Meanwhile, FILRT has identified 6 other office buildings for asset infusion by 2023 and 2024.

DDMPR

Meanwhile, DDMPR disclosed their 3-year strategy as well:

• Target assets that are Grade A located in Metro Manila and key provinces. The property should have a stable cash flow for at least a year with a high occupancy rate. The tenants should have a fixed lease for a period of 3 to 10 years.

I couldn't write much more about DDMPR because after reading the whole disclosure, it seems like everything they're doing is about property maintenance and maintaining tenant relations. Their future rather looks flat. To be fair, what they're aiming to do is the same as other REITs except that they are at a disadvantage for the following reasons: (1) Negative sentiment towards POGO and Gaming-related BPOs, (2) location is not diversified, (3) no credit rating which makes it difficult for them to tap the debt market for financing, (4) 40% of the lease will expire this 2023 and there is the uncertainty of tenant renewal (POGOs and Gaming-related BPOs), (5) property is not PEZA accredited, and (6) no news towards the infusion of the assets Ascott-DD Meridian Park and Double Dragon Tower. With that said, I am not sure if many in the public are going to line up and subscribe to their CentralHub REIT which is expected to be offered this year. With that kind of management, many investors are more inclined to invest in other REITs that have better management and potential growth.

TEL

TEL ended the year with a record-high of 45,000 permits for network rollout. While GLO is focused on seeing growth from their consumers, MVP (Manual V Pangilinan) the man behind TEL sees their growth coming from businesses for whom they provide enterprise solutions. MVP sees TEL undervalued and have bought more shares a week ago at around 1850 PHP/sh levels. MVP's TEL shares however have an average cost of approximately 1380 PHP/sh for the year 2021.