PCRT – DBSV

Still ramping up

• Results in line; operational drag mitigated by earn-out income as properties stabilize
  
• Shenyang assets in stabilisation stage, development assets on track
  
• Maintain Buy, TP S$0.83
  

Highlights

Supported by earn out income. PCRT reported distribution income of S$10.9m for 2Q12, +3% q-o-q, supported by earn-out income of S$10.7m and S$0.2m from operations. This translates to a DPU of 0.96Scts. For 1H12, distribution income totaled S$21.5m or DPU of 1.9Scts. This is in line with expectations and makes up 49% of our FY12F.

SLSM, RSMFM yet to stabilise. Shenyang Longemont Shopping Mall (SLSM) saw occupancy trickling up to 70.7% vs 69.7% in 1Q while rents averaged RMB3.32psm/day. For the Shenyang Red Star Macalline Furniture Mall (RSMFM), occupancy dipped sequentially to 50.6% in 2Q from 60.2% as tenant rejigging and relocation continues. The group has revised target occupancy for the furniture mall to 60% (from 95%) and 75% (from 78%) for the shopping mall by end FY12. Leasing activities for Shenyang Longemont Office has begun with leases secured for 1,780sm of space (10% of total office) coming from names such as Hui Ming Transportation Agent, Kang Li Elevator and Zhi Lian Recruitment Company. Leasing activities will also be ramped up in coming month and the office component is scheduled to begin operations in 4Q12.

Our View

Shenyang properties still in a ramping up stage. SLSM and RSMFM will continue to be ramped up in 2H12. One block of the RSMFM is being converted into an outlet mall as well as for education, medical trades and wholesale centre. Discussions with potential tenants are ongoing and if committed, will boost occupancy levels. For SLSM, tenants offering local and mid-tier brands products are doing well as are those catering to family kids-focused trades. To strengthen its offering, it has secured a children language centre as third mini anchor (to commence in 1Q13) in addition to a KTV and a bowling centre as well as new tenants including Kids Photography Studio, Hotwind, Zodiac Restaurant as part of the move to rejig tenant mix during this stabilisation period.

Development assets on track. Perennial Jihua Mall in Foshan (former Foshan Yicui Shijia Mall) has secured key tenants such as H&M, Monki, KFC and Pizza Hut and together with anchor tenants secured earlier is 30% precommitted to date. This property is targeted to commence operations in 1Q13. For Perennial Qingyang Mall (former Chengdu Qingyang Guanghua Mall), construction has begun and preleasing stands at c21%. This mall is scheduled to commence operations in 2Q14. Meanwhile, the group has exercised its option to increase its stake in Perennial Dongzhan Mall to 80%. Gearing stands at 13.5%.

Recommendation

Maintain Buy. Maintain Buy with RNAV-backed TP of S$0.83. We see FY13 as the earnings inflexion point with new contributions from the Foshan development. As operational ramp up improves, we expect the stock to close the gap between share price and RNAV. The stock is trading close to implied replacement cost for its initial portfolio.