CREIT recently released its 1H2022 financial results and it paid out 107% of its distributable income as dividends. While REITs are required to pay out at least 90%, how can CREIT pay out much more than its income?

The same document reveals that it has no debt so CREIT didn’t borrow money just to pay its shareholders. That’s good because you wouldn’t want to own a REIT that makes very poor use of financial leverage.

The answer lies in an accounting method known as depreciation – writing down the cost of a tangible asset. In financial reporting, depreciation expense is deducted from income. But CREIT didn’t actually ‘spend’ that money so a better way would be to add that depreciation back to the distributable income to come up with adjusted funds from operation (AFFO). CREIT’s AFFO payout ratio is 100%, eqivalent to P570 million or P0.088 per share. I would prefer this ratio to come down a bit but such a high ratio probably reflects the nature of CREIT’s assets – it doesn’t own buildings which would require considerable maintenance.

It was a good first half for CREIT. It executed its plan to acquire the Bulacan and Cotabato assets from its sponsor, CREC. It also showed that CREC’s pipeline projects are progressing well. Hopefully they will be completed on time and subsequently infused into CREIT. There is also a huge jump in the income from 2021 but I don’t think that’s a fair comparison since 1H2022 is the first time that CREIT earned purely leasing revenue as a REIT company.

Looking forward to its full year performance, especially the year-end dividend coming from the variable lease payments of its tenants.