Perennial China Retail Trust
Target Price (SGD) 0.63
Closing Price (SGD) 0.555
Striving for Higher Shopper Traffic and Tenant Occupancy
Perennial China Retail Trust (“PCRT”) is Singapore’s first pure-play PRC retail development trust. Listed on the main board of SGX on 9 June 2011. PCRT’s key investment lies mainly in major 2nd tier cities of China, including Shenyang, Foshan and Chengdu. PCRT also holds 10% in predominantly retail Bejing Tongzhou integrated development.
• Reported 2Q13 JV net operating income (from Shenyang properties) at $1.077mn (-25.6%y-y), distributable amount at $10.91mn (+2.1%y-y), DPU at $0.95 (-1.0%y-y).
• Occupancy in Shenyang Longemont shopping mall improved from 70% to 80% and leasing in Foshan Jihua and Chengdu Qingyang malls is healthy.
• Jihua Mall is scheduled to commence operation in Aug 2013. The opening of Dongzhan Mall is delayed to 4Q14.
• Downgrade rating from ACCUMULATE to NEUTRAL with target price adjusted lower to $0.63.
What is the news?
Operating profit from Shenyang Properties fell by 25.6% y-y to $1.077mn, mainly due to previous loss of tenants in Shenyang Longemont Shopping Mall and lower rental income resulting from negotiated master leases of Red Star Macalline Furniture Mall. The two Shenyang shopping malls continue undergoing intensive marketing activities in an effort to enhance shopper traffic and tenant sales. As compared to 1Q13, committed occupancy at Longemont Shopping Mall improved from 70% to 80%; Occupancy in Longemont Offices rose marginally from 32% to 33%. Occupancy at Macalline Furniture Mall stays at 93%. Committed occupancy for Foshan Jihua and Chengdu Qingyang Malls rose to 91% and 67% respectively as compared to 71% and 63% in 1q13. Jihua Mall is on schedule to open in Aug 2013 while the opening of Chengdu Dongzhan Mall is delayed by 1Q to 4Q14 due to heavy rain.
How do we view this?
The strong leasing activity in Jihua Mall and the improved occupancy in Longemont Shopping Mall met our expectation, while Longemont Offices seems lagging. 2Q13 PATMI is still mainly derived from the negotiated earn-out deed. We reiterate that PCRT’s dividend payout in FY13 & FY14 would be fully supported by the earn-out arrangements, but operating performances of the 3 shenyang properties are crucial to avoid a major decline in payout from FY15 onwards. Moreover, the expected tapering of QE by Fed and the potential rise of interest rate have added more uncertainties to PCRT’s debt refinancing, which is expected to occur in FY14.
Factoring in the delayed income recognition of Chengdu Dongzhan Mall and the potentially higher interest cost for debt refinancing, we downgrade PCRT to NEUTRAL with the target price adjusted lower to S$0.63 (35% discount to RNAV), equivalent to 0.72X FY13 P/B.
Source/Extract/Excerpts/来源/转贴/摘录: Phillip Securities Research