Background: Treasury China Trust (TCT) is a business trust that was listed on the Singapore Exchange by way of introduction in June last year. Unlike a REIT, TCT is able to have significant exposure to development properties. It has a portfolio of commercial properties in key Chinese cities such as Shanghai, Beijing and more recently, Qingdao.
Recent development: TCT recently completed the acquisitions of Huai Hai Mall in Shanghai and a 55% interest in Central Ave Mall in Qingdao. The acquisitions were partly funded by the issuance of convertible bonds and a private placement of 16.1m new units at $1.66/unit.
Key ratios…
Price-to-earnings: nm
Price-to-NTA: 0.48x
Projected DPU / yield: $0.10 / 5.1%
Post-acquisition gearing: 0.34x
Share price S$1.96
Issued shares (m) 253.8
Market cap (S$m) 497.4
Free float (%) 64%
Recent fundraising activities Dec 2010: Private placement of 16.1m new units @ $1.66/unit.
Feb 2011: S$59.7m 3.5-year, 6% coupon convertible bonds, conversion price @ $2.10/unit.
Financial YE 31 December
Major shareholders John Ronan (12.2%); Treasury Asian Invt Ltd (10.4%)
YTD change 1.03%
52-wk price range S$1.42-2.25
Our view Qingdao acquisition could be a coup. TCT acquired the 55% interest at a valuation of RMB477m, even though based on DTZ’s valuations, the stake is worth RMB1.0b. Besides the 43,643-sq-m Central Avenue Mall which is currently 98% occupied, the site includes three other adjacent parcels for retail development, with a further GFA of 170,500 sq m, all expected to be completed by 2015. Further to the NAV-accretive nature of the acquisition, the vendor has also committed to a five-year rental guarantee of RMB51.0m, translating to an attractive 10% entry yield.
Proactive capital management. In May, unitholders approved a buyback programme, giving TCT the mandate to buy back up to 25,665,000 units (10% of outstanding units). Since then, TCT has repurchased 2,882,000 units. The programme allows TCT a flexible way to improve ROE, and possibly, to narrow the P/B discount. The stock currently trades at an undemanding 0.48x P/NAV (post-acquisition).
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