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Perennial China Retail Trust.

Thursday, May 19, 2011

Perennial China Retail Trust (PCRT) is focused specifically on shopping malls but with a China focus. Although I am not usually interested in IPOs, I am curious about this one since I have vested interest in CapitaMalls Asia which has a large exposure in China.

PCRT has two objectives:
1. Provide unitholders with long-term capital growth from a steady growth in net asset value (NAV).
2. Provide unitholders with regular distributions from the income of its completed and stabilised assets.

PCRT will have an initial portfolio which includes:
1. 50% stake in Red Star Macalline Global Home Furniture Lifestyle Mall, Shenyang.
2. 50% stake in Shenyang Longemont Shopping Mall, Shenyang.
3. 100% stake in Foshan Yicui Shijia Shopping Mall, Foshan.
4. 100% stake in Chengdu Qingyang Guanghua Shopping Mall, Chengdu.

Only Red Star Macalline Global Home Furniture Lifestyle Mall, Shenyang, which was completed on 30 Sep 2010 is income contributing at listing date. The rest of the initial portfolio is expected to be completed from 3Q 2010 to 2Q 2014. If we are investing for income, this is not very reassuring.

However, PCRT has zero debt. This is attractive and also important as it would seek NAV growth through acquisitions. It has at least S$3.0 billion of pipeline projects in prime high-speed railway commercial development projects. Zero debt would probably mean that it would not have to be overly reliant on equity fund raising in the form of share placements and rights issues, at least in the early days.


PCRT's IPO has a price range of 70c to 76c and would raise between S$785,187,000 and S$852,580,000.

PCRT's forecast distributions (representing at least 90% of PCRT's distributable income):
2011's DPU 3.71c, representing a yield of 4.88% to 5.3%.
2012's DPU 3.86c, representing a yield of 5.07% to 5.51%.
Distributions are made half yearly.

From 2013, PCRT will distribute at least 50% of its distributable income. This might or might not mean a lower DPU since the rest of its initial portfolio would be contributing to distributable income by then with the exception of one property.

NAV per unit at date of listing is estimated at 67c.

Up till this point, there is little to interest me in the IPO. A distribution yield of 4.88% to 5.51% in the years 2011 to 2012 also does not provide enough compensation for the risks which investors are being asked to bear, in my opinion.

How does PCRT compare to CapitaRetail China Trust (CRCT)? Here are the numbers, as of 31 March 2011:
NAV/unit: $1.10
Gearing: 32.6%
Annualised DPU: 8.6c
Last done price: $1.26 which means a distribution yield of 6.83%.

With zero gearing, could PCRT do better than CRCT in future? Will the management be able to execute its future plans successfully? Forecasts are easy to make but whether the numbers would be realised is something else.

If PCRT's unit price were to fall to a much lower value and, in the process, offer a much higher distribution yield to compensate for the perceived risks, I could be interested then. Not now.

See PCRT's prospectus here.
See CRCT's 1Q 2011 presentation here.

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4 comments:

Anonymous said...

Hi AK,

I believe this is a property development trust rather than a REIT. The ppty dev trust seeks to develop its own assets and then divest it for a handsome gain or keep it for rental income. It is unwise to compare it with CRCT which deals with matured assets with low NPI growth. A better comparison would be Treasury China Trust. Higher potential gains also imply higher risk - Indiabulls prospectus mentioned DPU in 2008 onwards. Till today, the bulk of the assets are yet to be developed and it has not paid a dividend since listing. At the moment, TCT is trading at 5% yield, 50% below NAV and the company been buying back its units. I think TCT is planning to divest one of its malls above its book value. Lets see how it goes.

Please correct me if I am wrong.

Nick

AK71 said...

Hi Nick,

I am not sure that wisdom has anything to do with the comparison although we can certainly discuss the appropriateness of the comparison with CRCT. ;)

I am aware that CRCT is a REIT while PCRT is a hybrid which behaves like a cross between CMA and CRCT.

Reading this blog post, the reader might be able to appreciate where I am coming from and that I was wondering if investing in PCRT for income is a good idea. That is why I pulled up the comparison with CRCT.

As always, it is good to hear your point of view and I look forward to your future comments. :)

Anonymous said...

i think we can skip it for now and wait till dividend is trading till 6.83% paring with CRCT. The reason is CRCT got a much stronger sponsor as compared to PCRT. Hence, in the event of a crisis, PCRT faces a greater risk.

AK71 said...

Hi Anonymous,

I do agree that PCRT seems like a riskier proposition. I think compared to CapitaMalls Asia (CMA), I would go with CMA. ;)

Could you include your name or initials in future comments? Thanks. :)

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