Here are some numbers I pulled out:
NAV/unit: 74c
Gearing: 23.74%
Debt Service Ratio: 3.2x
So, what do I think? I did a rather detailed blog post back in February and my view of the Trust has not changed.
Buying into PCRT is really buying into the story that Chinese domestic consumption, at only a third of GDP, will grow and that the Chinese economy will stay strong. We are buying into the Trust's potential to deliver in future.
Right now, I would say that investing in PCRT is still relatively risky although the level of risk is much reduced compared to the time of its IPO.
People who invest for income must realise that much of the distributable income is made up of money from earn-out deeds. It is not cash flow generated from operations of the buildings per se. It is money that is being paid out from guarantees while we wait for the buildings to generate more cash flow.
Based on the earn-out deeds currently available, the Trust is able to continue distributing income to unit holders for another 18 months. Translated, it means that its properties must pick up the slack by end of 2014, everything else remaining equal. Of course, it is unlikely that things will not see any progress and just stand at where they are now.
A more pertinent question is how much improvement can we see? This is really something we cannot say for sure and this comes with the territory when we invest in start ups which is also why I insisted that the distribution yield must be higher for PCRT compared to CRCT for it to be attractive to anyone investing for income. Investing in PCRT arguably is not mainly for income but for growth.
Investors will want see stronger occupancy and evidence of improved cash flow from operations over the next few quarters. The management has to show better results and fast.
See slides presentation:
here.
Related post:
Perennial China Retail Trust: DPU 1.96c.
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