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Opening Of New Mall

PerennialChinaRetailTrustPerennial China Retail Trust (SGX: N9LU), “PRCT”, released its 1st Quarter 2014 results yesterday after markets closed. Listed on 9 June 2011, PCRT primarily focuses on China’s retail malls. Two other real estate trusts with considerable exposure to China are Forterra Trust (SGX: LG2U) and CapitaRetail China Trust (SGX: AU8U).

As at 4 November 2013, PCRT has a market capitalization of approximately S$624.4 million.  Its current portfolio comprises mostly of shopping malls. In addition, PCRT is also venturing into railway integrated developments.

Financial Performance

In the third quarter, PRCT posted net profits of S$10.379 million, up 64.9% y-o-y, compared to the same period last year. This increase was due to:

  1. A positive net property income (rental) from the commencement of Perennial Jihua Mall, Foshan in 3Q 2013.
  2. A net foreign exchange gain of S$1.4 million due to payables under “Other income”
  3. A significant reduction of expenses as year 2013 includes an unrealized net foreign exchange loss of S$2.2 million on translation of cash and cash equivalents and payables denominated in foreign currencies, and
  4. A share of profits from joint ventures amounting to S$2.5 million in 1Q 2014 as compared to S$0.533 million in 1Q 2013. The increase was primarily attributable to higher net property income from Shenyang Red Star Macalline Furniture Mall as a result of the master-lease arrangement with Guangcai Group

Moving on to the balance sheet, the gearing ratio stands at 28.3% as of 31 March 2014, a healthy level and in line with other REITs. On the other hand, it is carrying a weighted average interest rate of 4.28% per annum and a debt-weighted average term to expiry of 1.14 years. These figures could indicate a possibility of the firm facing pressure to increase its borrowing rate when the term expires.

Growth Plans

The average occupancy rate for the retail asset portfolio shows a remarkable 89.9% but Shenyang Longemont Offices continues to be a drag on the whole portfolio performance. Nevertheless, there are a few positive developments happening over the next few years. With the opening of Perennial Qingyang Mall, the management team is looking at the Topping Out of the Perennial Dongzhan Mall, Chengdu close to 2Q 2015, a quarter later than previously planned. Next up, the company will look at Beijing Tongzhou Integrated Development, targeted to be open in FY2017.

In addition, PRCT is also driving shopper traffic and tenants’ sales through the securing of new prominent retailers and brand names. Moreover, augmented entertainment & children-related trades will give additional reasons for shoppers to visit the malls. As a result, the leasing is likely to continue its growth going forward.

Valuation & Distribution Yield

Despite the increase in net profits, the distribution per unit (DPU) remains unchanged at 0.95 cents for the quarter. The annualized distribution per unit is 3.85 S-cents and it translates to an annualized dividend yield of estimated 7.064% based on the closing price of S$0.545. Perennial China Trust sports a Net Asset Value per Unit of S$0.73, almost 34% higher than its current market price.