PCRT – BT

PCRT to buy half stake in Chengdu mall

Acquisition costing 2.28b yuan to be fully funded by debt

MAINBOARD-LISTED Perennial China Retail Trust (PCRT) intends to acquire a 50 per cent stake in Chengdu Longemont Shopping Mall Development from the Shanghai Summit Group for some 2.28 billion yuan (S$455 million).

Based on the mall’s gross floor area (GFA) of 455,260 square metres when completed, the 50 per cent stake translates to a price of 10,000 yuan per square metre of GFA. The remaining 50 per cent stake in the mall will be held by the Summit Group.

According to PCRT, the total transaction is expected to be fully funded through debt and subject to unitholders’ approval at an extraordinary general meeting. Only 15 per cent of the total transaction consideration will be paid at the initial stage of development in 2012.

Financing of the first two payments (55 per cent in total) up to the topping-out stage will be funded from an existing loan facility and other forms of financing such as a new debt facility and through debt capital markets.

Financing for the payment of the remaining 45 per cent, which will be due when the mall commences operations and receives its building title deed, is expected to be secured on the shares of PCRT’s subsidiaries.

With the proposed financing arrangement, PCRT’s projected gearing throughout the acquisition timeline, without taking into consideration any valuation increase on its existing portfolio, is expected to remain below 60 per cent, the trust said.

In view of market volatility, a new earn-out of 226.5 million yuan was negotiated with the Summit Group, PCRT added.

The master framework agreement with the Summit Group was entered via Perennial China Retail Pte Ltd, a wholly owned subsidiary of PCRT.

PCRT, which was listed in June this year, had on March 21 secured an option from the Summit Group to acquire a 50 per cent stake in at least one million sq m GFA in the Chengdu Longemont mixed-use development.

Following the proposed acquisition, PCRT has up to June 8 2012 to acquire a 50 per cent stake in another 544,740 sq m of GFA.

The Chengdu Longemont Mall is part of the 1.7 million sq m Chengdu Longemont mixed-use development, and is situated in Chenghua District within the Third Ring Road of South-East Chengdu in Sichuan province.

With the acquisition, PCRT’s asset size is expected to increase from $1.1 billion to $1.7 billion. PCRT is also expected to benefit from the additional income stream when the mall commences operations in the third quarter of 2014.

The acquisition is expected to increase PCRT’s adjusted proforma NAV per unit of $0.99 to $1.19 based on the estimated future values of all the properties of PCRT in 2014.

PCRT’s counter yesterday hit a high of 47.5 cents, before closing at 46 cents.