No doubt the COVID-19 pandemic has wreaked havoc on the real estate industry. The pandemic has put to test the strength of the finances and operating capabilities of the real estate companies. Pandemic distinguishes the strongest from the rest.
The biggest real estate company, SM Prime Holdings, Inc. (SMPH) is seen to weather the storm. SMPH has a fortress balance sheet. It can generate at least 60 Billion Pesos of revenue and cash flows without spending capital as they have an inventory of built units of 12,000. This was have discussed earlier.
Meanwhile ALI‘s best and the brightest are hustling to crystallize the values of ALI’s assets. They have just raised 13.6 Billion from the AREIT public offering.
In Rockwell Land Corporation (ROCK) we saw vulnerability. As of end of June 30, 2020 (1H 2020) ROCK had a cash balance of only 3.1 Billion Pesos after borrowing 4 Billion Pesos.
ROCK is facing debt repayment in the next 12-month period of 7.1 Billion Pesos. And the problem is that the pandemic has destroyed their operating cash generation capabilities. In the period 1H 2020, ROCK did not generate significant cash from operations.
Without significant cash generation from operations how are they going to service the debt coming due in the next 12-month period in the amount 7.1 Billion Pesos? They have already borrowed 4 Billion Pesos. Aside from the debts coming due there is also the requirement for capital expenditures to finish the projects.
We are scared that ROCK has become a zombie company, a company that does not generate enough funds from operations to service its debt. They service borrowing from borrowings.
This is just our thoughts after reviewing their 1H 2020 Financial Report which you can download through this link.
Disclaimer: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent perspective. Accuretti Systems Inc. does not hold any shares of SM Prime Holdings, Inc., Ayala Land, Inc., and Rockwell Land Corporation.