To let go or to hold on to a position?

We can either make statements of fact or opinions. They are quite different from one another although sometimes people mix them up. This is just something that happens naturally in daily life.

"Today's temperature is 30 degrees Celcius." This is a statement of fact. It could be either right or wrong.

"This is a nice day." This is an opinion. There is no right or wrong.

How could these be mixed up?

Well, to me, it might be a fact that the weather is nice but to someone else it might not be. We could have a debate until the cows come home on who is right but it would be an exercise in futility because there is simply no right or wrong to this.

Of course, we can make statements of fact or opinions about anything under the Sun, including people.

"This person is 1.7m in height." This is a statement of fact.

"This person is short." This is an opinion.

In the land of the Vikings, 1.7m might be short for a guy but in PNG, 1.7m might be considered tall.

Now, when we start saying things about people, we have to be a bit more careful because it could get sensitive. I know people who are vertically challenged who are very sensitive to being called "short".

So, I try to be careful about what I say about people. I don't want to be hurtful. The best is not to say anything at all. If I have to say something, I try to make sure it is positive. If it is not, I try to be diplomatic.

Sometimes, I might slip up. If the other party should be diplomatic enough to let it go, then, I should be grateful and let it slide. I might even think of how to make it up to the other party in future.

Why force anyone into a corner? When any regular guy with an iota of pride is forced into a corner, what is going to be his natural reaction? Should we be surprised by the answer?

We will very likely save ourselves and others a lot of angst if we are more careful with what we say in the first instance.

Perennial China Retail Trust: Progress in Q3.

In my blog post of 10 August, I mentioned that current DPU is being sustained by earned out deeds which will be exhausted by end 2014. So, we really need to see stronger occupancy and evidence of improved cash flow from operations in the coming quarters.

The latest report shows that the Trust's operations have improved with occupancy in Shengyang Longemont Shopping Mall increasing to 85% and with occupancy in Shenyang Red Star Macalline Furniture Mall at 93%. Shenyang Longemont offices saw occupancy improving from 33% to 41%, quarter on quarter.

Perennial Jihua Mall which opened in August has hit an occupancy of 95% while Perennial Qingyang Mall which is slated for opening in 1Q 2014 saw leasing commitment improving from 67% to 75%.

All in all, it seems that the management have been working hard to secure tenants. However, there is still much to be done. So, I believe that it is still relatively risky investing in PCRT compared to a plain vanilla retail or commercial S-REIT.

Therefore, I would ask to be adequately compensated for the risk that I would be taking on if I were to invest in the Trust.

For now and the next few quarters, the Trust would probably continue to draw on those earned out deeds in order to sustain the income distributions at current level to unit holders.

Will the Trust be able to maintain its current DPU without the earned out deeds from 1Q 2015? It would depend on the progress that they make in the next 15 months. If the Trust keeps up the momentum we see in Q3 and with the opening of a new mall with a relatively high level of leasing commitment in early 2014, it could happen.

Bearing in mind that another mall, Perennial Dongzhan Mall, could open its doors in 1Q 2015, things could further improve if there is, again, a relatively high level of leasing commitment. However, we do not want to count our chicks before they are hatched as the management have just started to market this new mall to prospective tenants.

Assuming that no further improvements are forthcoming which, I believe, is rather unlikely, then, I have estimated in an earlier blog post that DPU could reduce by at least 50% from 1Q 2015.

With an entry price that gives me approximately an 8% yield, a 50% reduction would bring the yield down to 4%. Although this is unlikely to be the case, if it should happen, it is still acceptable to me.

What about anyone who is thinking of buying in at 54c a unit today? Well, that would mean a yield of 7% and a worst case scenario yield, by my reckoning, of 3.5% in 2015.

If distribution yield should decline by 50%, however, it would be optimistic to think that the unit price of the Trust would not decline. This is especially true in an environment of rising risk free rate.

So, before we invest in the Trust, should we not ask ourselves if we are able to stomach what could be the worst case scenario?

Related post:
Perennial China Retail Trust: 1H 2013.