Perennial China Retail Trust

Perennial China Retail Trust: 4Q13 results was largely in-line, as distributable income at $10.9m (-2.5%) and DPU at 0.95¢ (-4.0%) took FY13 DPU to 3.80¢ (-1.6%). Gross revenue of $1.3m for 4Q 13 was attributed to Perennial Jihua Mall, Foshan, which officially commenced operations in 3Q13, while Other income at $10.9m (+1.8%) was related to drawdowns under the New and Additional Earn-out Deeds for distribution to unitholders. PCRT’s bottom-line was further buoyed by a $66.4m (-27.2%) fair value gain of investment properties during the quarter, after an independent valuation on the group’s assets of Perennial Jihua Mall, Foshan, Perennial Qingyang Mall, Chengdu, and Perennial Dongzhan Mall, Chengdu. Meanwhile, jointly controlled entities saw a loss of $11.1m (4Q12 loss: $2.8m), due to a $9.2m fair value change loss in the investment properties held by Shenyang Summit. Excluding which, 4Q13’s share of operating results would be $2.3m versus 4Q12’s $1.5m, led by higher net property income from Shenyang Furniture Mall. Overall fundamentals remain fair with occupancy rate of the group’s completed asset portfolio standing at 79%, while leverage ratio stood at a comfortable 27.2% with an average financing cost of 4.3% and weighted maturity debt of 1.39 years. As at Dec’13, 100% of PCRT’s initial public offering development assets has completed construction. Perennial Qingyang Mall is expected to commence operations in Apr’14. To-date, committed occupancy has advanced to about 85.0% and tenants have begun fitting out their shop units in preparation for the target opening. The remaining development assets, Perennial Dongzhan Mall in Chengdu and Beijing Tongzhou Integrated Development, are expected to commence operations in FY15 and FY16/FY17 respectively. Overall, with PCRT’s earn-out set to expire by the year end, we opine that 2014 will be the year where PCRT’s assets are finally put to the test. At current price, PCRT trades at an annualized 7.0% yield and 0.70x P/B.