PCRT – DBSV

Deepens exposure into Chengdu

• Seeks approval to buy 50% stake in Chengdu Longemont Mall

• Attractive pricing, financing flexibility minimises risk, strong total return potential

• Maintain Buy and S$0.83 TP

Acquiring Chengdu Longemont Mall at RMB10,000psm. In its latest circular issued to unitholders, PCRT is seeking unitholders’ approval for the acquisition of a 50% stake in Chengdu Longemont Mall (CLM) for RMB2.28bn. At the same time, it is also seeking approval for two other resolutions related to management fees and acquisition fees. To recap, in Nov 11, PCRT announced plans to buy a 50% share in CLM from the Summit Group for RMB2.28bn or a RMB10,000psm on a completed basis. In the latest circular, PCRT has also outlined the flexibility to upsize its stake in the mall to up to 80%, if transactional GFA falls 95% of the 455,260sm. In addition, the group has another option to buy a 50% share in another 544,740sm GFA in the Chengdu Longemont mixed-use project.

Attractive pricing with additional ‘Earn Out Support’ for better visibility on dividends. The deal will not only enable PCRT to expand its asset base at an attractive price but will also strengthen its retail presence and tenant network in Chengdu. Post acquisition, Chengdu will account for about 36% of its attributable GFA. It will be earnings and NAV accretive. We expect this 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 flexible financing terms and fixed psm cost would enable the group to minimize risk of cost overruns during the construction period. Moreover, with an additional RMB226.5m from the new Earn Out Deed negotiated by the Trustee-Manager, this will boost Earn Out support to c90% of the anticipated distribution of the trust from FY11-1HFY13, thus providing unitholders with more stability and visibility on dividends. When

completed, we estimate CLM could add 10cts to RNAV to $0.93.

Strong total returns when malls become operational. PCRT offers investors a strong total return derived from NAV growth as well as yield when its malls are gradually developed and ramped up. The portfolio is currently 41% operational by GFA, rising to 54% and 63% by end FY12-FY13 and fully ramped up by end FY14. We have tweaked our distribution income to account for some changes in asset completion dates. At the current share price, the market is valuing PCRT’s existing portfolio at below replacement cost, at cRMB6,320psm. Maintain Buy with S$0.83 TP, based on a net present value of the existing portfolio value, assuming fully operational by FY14.