In the nine-month period ending September 30, 2020 DoubleDragon Properties Corp. (DD) reported a net income of 5 Billion Pesos. However, of the net income of 5 Billion Pesos, 5.5 Billion Pesos came from revenues consisting of “paper profits” from unrealized gain from changes in fair value of investments properties.
Right now, DD’s balance sheet and equity are inflated with “paper profits”. DD has been borrowing money to fund the build-up of investment properties. As soon as the property is built, DD then valued it to fair value recognizing the increase in value as revenue. Thereby propping up net income with paper gains.
The only way to realize the unrealized gains is to sell the investment properties at their marked value. That is where DD REIT comes in.
Once DD REIT successfully raises capital, it will then buy the investment properties of DD at their marked value. The sale of DD’s investment properties at their marked value to DD REIT unlocks the value in DD’s balance sheet.
If that happens, DoubleDragon will puff no more bubbles. DoubleDragon will puff fire once again.
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Disclaimer and Disclosure: This analysis is an independent viewpoint on publicly traded stocks in the Philippine market. Accuretti Systems Inc. trades stocks in the Philippine market.