The news: Pua Seck Guan’s PERENNIAL China Retail Trust (PCRT) has successfully raised $776.2 million from its initial public offering, with the IPO 1.6 times subscribed. The balloting outcome for the public offer will be released today while trading will commence at 2pm tomorrow. PCRT’s initial S$1.1 billion property portfolio comprises five properties in 2nd-tier Chinese cities in Shenyang, Foshan and Chengdu with a gross floor area of approximately 960,000 square metres. The trust has also secured options to invest in a number of commercial development sites which are directly connected to High-Speed Railway stations with . These pipeline assets are collectively worth around S$3.0 billion. PCRT is being pitched as a pure-play PRC retail mall owner and developer benefitting from retail growth opportunities in China, providing unitholders an attractive total return of net asset value growth and stable distributions.
Our thoughts: The most direct comparable for PCRT is Capitaland’s Capital Retail China Trust (CRCT) with its portfolio of eight retail malls in China’s 1 st and 2nd -tier cities. Based on the annualized 1Q11 yield, CRCT is trading at a distribution yield of 7%, while PCRT is projecting a lower annualised distribution yield of 5.30% for 2011 and 5.51% for 2012. Beyond the yield angle, however, investors will be interested in the trust’s growth potential, based on its ability to drive accretive growth, execute on asset enhancement initiatives and lease renewal upside. Pua Seck Guan’s track record in Singapore is well-established in these areas, having successfully grown CMT into the largest S-REIT during his tenure. The challenge now is to translate that skills set in a vastly different market.
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