Citicore Energy REIT FY21 dividend deep dive
As promised, I got in touch with the Citicore Energy REIT [CREIT 2.66 3.10%] team to learn more about the FY21 P0.035 dividend. To catch everyone up, CREIT disclosed as part of its REIT Plan that it would issue a P0.03 dividend for FY21, and that it projected all the dividends in FY22 to provide a yield of 7% relative to its IPO price of P2.55/share.
When CREIT declared a P0.035 dividend for FY21, it confused some people, because (1) the resulting yield wasn’t 7%, (2) the dividend amount was higher than anticipated, and (3) they weren’t sure where the dividend “came from”, so they weren’t sure how useful the FY21 div is in terms of projecting CREIT’s future performance.
Well, here’s the meat: the FY21 dividend consisted of 2 months of lease income from the Armenia property (~P8 million), 1 month of lease income from the Dayalap property (~P7 million), and the remainder of the roughly P230 million in distributable income came from electricity sales from the massive Clark Solar Power Plant. CREIT said that the FY21 dividend was a “bonus” to investors, and clarified that investors should not expect revenue from the sale of electricity from the Clark property to persist into 2022, as the service contract that entitled CREIT to that electricity was transferred to CREIT’s parent company, Citicore Renewable Energy Corporation (CREC), and CREC is now the operator of that plant.
Going forward, all of CREIT’s income will come from the base and variable lease revenue.
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This clarifies a lot of things. Firstly, to the point that the FY21 div wasn’t at a 7% yield relative to its IPO price, this FY21 dividend was never intended to meet that 7% yield projection, which was a projection for this full year in 2022.
The income that this little dividend came from was all earned during 2021, when CREIT investors were not owners of the company.
Next, that the FY21 dividend was larger than expected is probably explained by the dominant source of the income, which was electricity sales: 93% of the income came from the sale of electricity, and the price of electricity during the period was elevated.
The rise in electricity prices could have caused CREIT to make more on the sale of that electricity than it anticipated, and that could have resulted in the higher-than-expected FY21 dividend.
I don’t have confirmation of that point from CREIT, but it seems to logically follow the information they’ve provided.
The last point, as to whether or not we can use the FY21 dividend to project into the future, is also answered neatly: No, we can’t. From now on, all of CREIT’s dividends will come from its lease revenue.
We can’t use the money it made on the bulk sale of electricity from Clark and project that forward, because CREIT no longer has the right to that electricity.
So, while I currently calculate CREIT’s yield based on an annualization of the FY21 dividend, we should all know that this will not be the yield going forward.
I don’t want to ignore that the yield happened, though, so it will stay as the “yield of record”, but I will add a “FY22 Projected” column to show how current market prices of the REIT stocks will affect their respective projected yields. Hopefully this will provide investors with more actionable data!
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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.
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