Real estate investment trusts (REITs) are supposed to be the ultimate safe harbor for investors. They promise steady dividends, transparent structures, and the comfort of essential-service tenants. (ANALYSIS: Not all REITs are created equal)

Yet, the reality of Premiere Island Power REIT (PREIT), backed by the Villar empire, tells a different story — one of fragile cash flows, related-party dependencies, and a tenant collapse that exposes how easily the dividend dream can disintegrate.

The collapse of service at S.I. Power Corporation (SIPCOR), one of PREIT’s anchor tenants, is a flashing red warning light for investors who thought they were buying into stable island energy assets. Instead, they now find themselves holding a REIT whose business model is built on shaky foundations.

SIPCOR’s operations in Siquijor unraveled disastrously. From mid-June to late August 2025, the island suffered an average of 31 power interruptions per month — some outages lasting as long as 11 hours daily. The Energy Regulatory Commission (ERC) revoked SIPCOR’s permit entirely on August 29, citing unlicensed operations, poor maintenance, violation of power agreements, and failure to comply with reporting mandates.

Corrective efforts in June 2025 did restore sufficient capacity — up to 10.8 MW, exceeding peak demand — with repairs and rental gensets deployed. However, given the ERC’s crackdown, this appears more like an emergency patchwork than a long-term fix.

SIPCOR is PREIT’s anchor tenant, but it is a master-tenant incapable of delivering core service that equals foundational risk for the REIT. ERC’s shutdown amounts to a regulatory knockout punch — one that raises the specter that more punitive actions or prolonged shutdowns could ensue.

Unfortunately, concrete financial data on SIPCOR’s revenues or losses are not publicly available. But the reputational and operational impact is immeasurable — and potentially existential.

From the start, PREIT’s income story was suspiciously smooth. Most of its revenues came from Villar-affiliated lessees like SIPCOR, in what I view as an incestuous cash cycling. When the tenant and the sponsor belong to the same circle, lease contracts can be engineered to produce neat numbers on paper, while operational risks are quietly swept under the rug.

The financials tell the tale. Even when PREIT posts enviable net margins, these are only an accounting artifact: the REIT doesn’t bear the fuel, staffing, or maintenance costs of its power plants. Operators like SIPCOR shoulder those risks. When those operators stumble, PREIT’s supposed fortress of rent turns out to be a house of cards.

Worse, PREIT has embraced the culture of paying out fat dividends instead of building resilience. IPO proceeds were funneled into a handful of island power projects, then quickly recycled into cash distributions. For as long as tenants paid their leases, the scheme worked. The moment SIPCOR faltered, the model cracked.

The numbers don’t lie

A stress test using PREIT’s own disclosures shows just how brittle the setup is. In 2024, PREIT reported about ₱695 million in revenue and ₱652 million in net income, with roughly ₱817 million in operating cash flow. That supported a healthy dividend yield of 8% to 9%.

But let’s see what happens when revenue starts to slip:

• 10% loss: Yield drops to 7.9%; cash shrinks to ₱735 million.
• 30% loss: Yield craters to 6.1%; cash erodes to ₱683 million.
• 50% loss: Yield collapses to 4.4%; cash buffer thins to ₱631 million.

Such is the real-world math of what happens when a lessee like SIPCOR fails to operate, pay, or even exist. For income investors, the supposed safety of PREIT becomes indistinguishable from any other high-yield trap.

Governance and disclosure failures

The promise of a REIT lies in predictable income and ruthless transparency. PREIT has been generous with its dividend declarations, but less forthcoming with the details investors deserve. Where are the full summaries of lease terms? Where is the disclosure of break clauses, escalation formulas, or contingency plans? Where is the immediate, granular update on SIPCOR’s regulatory woes? How do these affect PREIT’s cash flows?

Investors deserve more than glossy financial statements. They deserve clarity on whether their dividends are built on rock or sand.

The fallout is threefold: Who gets hurt?

• Retail investors, many of them retirees or income-seekers, who bought PREIT believing its yields were safe.
• Communities, like in Siquijor, who bear the brunt of power outages when operators fail.
• The REIT itself, whose credibility shrinks with every unanswered question, making future fundraising costlier and more difficult.

PREIT’s 8% to 9% yields dazzled investors. But yield without resilience is a trap. When one lessee falters, the math shows dividends collapsing and cash cushions eroding. The SIPCOR crisis has ripped the veneer off PREIT’s model.

If you own PREIT, know this: you are not holding a fortress of steady income. You are holding a fragile wager on a handful of operators, one of whom has already failed. PREIT’s investors must now ask: are we being paid from strength, or from a sponsor’s fragile shell game?

A REIT built on paper profits and failing foundations

The company largely exists as a shell — earning its income not from growth but from leasing land to Villar-affiliated power generators. The earnings are flat, almost predetermined, making shareholder returns feel mechanical rather than meaningful. 

It should be noted that, at face value, its unaudited second-quarter results for 2025 reveal some financial stability: revenues at ₱152.21 million were nearly unchanged year-on-year, while net income dipped slightly to ₱125.88 million, translating into an earnings per share (EPS) of ₱0.04. For the first half of 2025, PREIT reported ₱304.42 million in revenues and ₱252.12 million in net income.

The reported figures show predictable lease income and minimal cost volatility. But a deeper examination suggests that investors should not confuse stability with resilience.

Margin profile and quality of earnings

PREIT continues to exhibit extraordinarily high net margins — about 83% in Q2. This reflects its ground lease model, where income is rent-based and operating costs are negligible. Such a profile is efficient, but it also means earnings are almost entirely dependent on a narrow set of counterparties. Unlike diversified commercial REITs, PREIT has no buffer in the form of variable tenants, service revenues, or ancillary income streams.

The flat revenue trajectory reinforces the contracted nature of PREIT’s leases. There is little evidence of inflation-linked escalators or significant variable components. This provides predictability, but at the cost of limited growth and heightened vulnerability if tenant cash flows falter.

Dividend coverage and sustainability

Management has signaled a cash dividend of approximately ₱0.033 per share, payable late September of this year. Against EPS of ₱0.04, this equates to an 82-85% payout ratio — within REIT norms, but leaving limited cushion for shocks. PREIT’s dividend pattern has also been uneven, ranging from ₱0.0548 per share in Q4 2024 to ₱0.033 in mid-2025. Such variability suggests dividends are calibrated to actual cash availability rather than a smooth quarterly cadence, thereby raising questions about consistency.

Coverage on an accrual basis looks acceptable, but without the cash flow statement from the full 17-Q — a Quarterly Report filed with the Securities and Exchange Commission (SEC) in the Philippines (SEC Form 17-Q) in the context of business and finance  — it is impossible to verify if operating cash flow matches net income. Any spike in receivables, especially from related parties, would immediately compromise payout sustainability.

Concentration and related-party exposure

The key forensic concern remains tenant concentration. PREIT’s portfolio is power-infrastructure real estate, leased primarily to sponsor-related operating companies. The recent regulatory setback involving SIPCOR, reportedly losing its permits in Siquijor, introduces a tangible risk of rent disruption. With such dependence on affiliates, PREIT’s fortunes are closely tied to the sponsor’s regulatory standing and financial health.

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If even one anchor tenant faces cash flow constraints, the effect on PREIT would be immediate. Unlike a retail or office REIT, there is no diversification cushion; the model magnifies single-counterparty risk.

To illustrate how little margin of safety exists, here’s a simplified stress-test using Q2 2025’s reported EPS (₱0.04) and the indicated dividend (₱0.033).

ScenarioRent Collection DropAdjusted EPS (₱)Dividend (₱)Coverage Ratio*Base Case0% (as reported)0.0400.0331.21xStress 1–10%0.0360.0331.09xStress 2–15%0.0340.0331.03xStress 2–20%0.0320.0330.97x
 *Coverage ratio = EPS ÷ Dividend

Implication: At just a 15% rent shortfall, coverage almost collapses to parity. A 20% disruption would force PREIT to either dip into reserves or cut dividends. Given the regulatory headwinds facing a key affiliate, this is not a remote risk.

Disclosure timing risk

Perhaps most telling is PREIT’s request for an extension to file its full 17-Q. Investors are left with headline revenue and profit numbers but no visibility into the details that matter most: receivables aging, rent collections, debt covenant compliance, and subsequent-events disclosures. Forensic analysis depends on these schedules. The delay may be administrative, but it leaves investors in the dark at a time when tenant risk has visibly increased.

Bottom line

PREIT’s Q2 2025 results project stability, but forensic indicators point to fragility. High margins and flat revenues reflect contracted leases, not underlying strength. Dividend coverage is tight, concentration risk is high, and disclosure delays erode confidence. Until the 17-Q sheds light on receivables and tenant resilience, PREIT’s stability should be treated as provisional at best.

Forensic accounting teaches us that the absence of volatility in the numbers does not mean the absence of risk. It often indicates that the risks are hidden just beneath the surface. – Rappler.com