Philippine Seven [SEVN 92.00; 8% avgVol] [link] FY22 net income up 546% to P2.1 billion. SEVN said that all of its income-generating segments were up y/y, headlined by a 40% jump in system-wide sales. Revenue growth outpaced expense growth, leading SEVN to record a 684% jump in operating revenue with a 72% jump in operating cash flow. SEVN opened 353 locations in FY22, while closing only 33, to reach a total of 3,393 7-Eleven stores in the country. SEVN said that it is back on track with its pre-COVID development plan, and intends to open 400 more stores in 2023.
MB Quick Take: I haven’t seen this news mentioned anywhere. Google searches turn up empty. Nothing on Twitter. Forums are all crickets. This might look like just your average “things are getting better” story, but to do the story justice, it’s important to remember two things: first, this company (and the convenience store industry as a whole) was absolutely clobbered by COVID, to the point where SEVN’s President was openly talking about handing back franchisee money, and second, this level of revenue and profitability is not only higher than last year it’s substantially higher than SEVN’s best pre-COVID performance. Compared to 2019, SEVN’s revenue is up 20% and its net income is up 42%. That’s impressive AF.
Cebu Landmasters [CLI 2.45 1.6%; 70% avgVol] [link] confirmed reporting that it plans to launch a REIT in 2025 or 2026, and that the REIT will feature “hospitality projects” from Mactan, Cebu, Davao, and Bacolod. CLI’s Chief Financial Officer, Grant Cheng, said that the timeline for the move is constrained by the REIT Law’s requirement for REIT assets to have a three-year operational track record.
MB Quick Take: It’s no secret that I think REITs are a fantastic tool for property developers to raise additional capital by monetizing their existing assets. I’m a fan of CLI’s approach, and I think this is a smart move to recycle some capital into new projects. As a REIT junky, I’m also excited for CLI to break new PH REIT ground by bringing a hospitality-focused REIT to the market, to give us a new asset type to consider. We’ve come a long way from the early days of 100% BPO office tower REITs with the addition of CREIT’s renewable energy, VREIT’s malls, and PREIT’s fossil fuel offerings. It would be great to add a hospitality offering to that mix.
AREIT Inc [AREIT 32.05 0.2%; 75% avgVol] [link] FY22 net income up 18% to P2.9 billion, despite recording a P549 million reduction in net fair value. Leaving out that charge, AREIT’s revenue increased 53% to P3.3 billion, and its net income from operations increased 55% to P3.4 billion. AREIT reported distributing P3.12 billion of its P3.47 billion in distributable income in FY22, for an income distribution rate of 91%.
MB Quick Take: The yearly fair market value adjustments look scary and impactful when they hit the net income account on the Income Statement, but REIT investors (and those who are REIT curious) should know that these annual gains and losses that are the result of fluctuations in property values do not impact a REIT’s distributable income for the purposes of declaring dividends. The dividends come out of income earned through rent collected. As for AREIT specifically, while business has never been better, for shareholders it’s almost never been worse. The stock is down 26% over the past year, but such is life in the world of fixed-income where rising interest rates caused yields to rise (and stock prices to fall).
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