Perennial China Retail Trust: DBSV maintains Buy with $0.83 TP. House note that Co. seeking to deepens exposure into Chengdu by seeking approval to buy 50% stake in Chengdu Longemont Mall. overall, Attractive pricing, financing flexibility minimises risk with strong total return potential.
At the same time, mgt seeking to amend its Trust Deed to allow for Trustee-Manager to be able to elect to receive fees in units /cash even if share price is below book NAV as well as amend the timing of receipt of acquisition fees. Deal will not only enable PCRT to expand its asset base at an attractive price vs latest valuations by other retail landlords but will also strengthen its retail presence and build its tenant network in Chengdu.
Post acquisition, Chengdu will account for about 41% of its attributable GFA. House expect transaction to generate a yield on cost of 8.4-10% when completed and fully occupied, an attractive level when compared to the market net cap rates of 6.5-7%. In addition, the flexibility to upsize its exposure in this development as well as the flexible financing terms would enable the group to minimise risk of cost overruns during the construction period.
Overall, believe investors will be able to enjoy a strong total return derived from NAV growth as well as yield when its malls are gradually developed and ramped up. At the current share price, the market is valuing PCRT’s existing portfolio at below replacement cost, at Rmb6,320psm.
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