Perennial China Retail Trust

DBS on 1 Mar 2012

MAIDEN DPU of 2.35 cents: Perennial China Retail Trust (PCRT) reported a maiden distribution income of $26.4 million since listing on June 9, 2011, inclusive of earn out deed amount of $19.8 million. This translates to a DPU of 2.35 cents (annualised yield 6.9 per cent). The results reflect contributions from the Shenyang furniture and shopping mall. The shopping mall achieved an occupancy level of 67 per cent as at December 2011 at an average rent of 3.82 yuan psm/day.

Meanwhile, the furniture mall is experiencing some teething hiccups as occupancy declined due to a slowdown in residential sales, which has affected demand for furniture. Occupancy stands at 56 per cent as at Dec 31. It has also revalued its Shenyang assets up by 1.5-4.6 per cent.

Passing the trough in operations: Given the slowdown in the furniture market, the manager is actively repositioning the property through downsizing the furniture component and releasing part of the space to outlet/wholesale malls, education or medical trades. In addition, it is also conducting AEI to seamlessly integrate part of the property with the shopping mall.

Since then, occupancy at the furniture mall has recovered back to 63 per cent. In addition, the shopping mall is on track to achieve average rents of 4.28 yuan psm/day. Inclusive of leases under negotiation, about 83 per cent of the space is likely to be occupied. Pedestrian footfalls have also risen to 70,000-90,000 while sales psm of its tenants have been increasing m-o-m.

Meanwhile, the Shenyang office component is schedule to commence operations in Q4 FY2012. With this, the 90 per cent of the initial portfolio should be operational by year-end. The Foshan development is likely to complete ahead of schedule and start operations by Q1 FY2013 while the Chengdu Qingyang is on track to begin in Q2 FY2014. In addition to the Chengdu Longemont development, it is also looking at the other high-speed rail developments in which it has options on. Balance sheet is healthy at 7.95 per cent geared.

Recommendation: Maintain Buy, TP S$0.83. We maintain our Buy call as the stock is trading at close to implied replacement cost for its initial portfolio. As more of its portfolio is completed and generating income, we believe the stock should close the gap to our RNAV.