Perennial Real Estate Holdings - Growing contributions from rental income


■ Recurrent rental income from operating assets in China and Singapore underpinned 5QFY15 results.

■ Awaiting approvals for AEI and strata office unit sales in Singapore. Contributions from this activity will provide another earnings driver.

Maintain Add with target price of S$1.39.

5QFY15 earnings driven by recurrent income base
Previous corresponding results are not comparable as PREH completed its RTO in Oct 2014. For 5QFY15, PREH’s revenue of S$22.9m came from rental income from CHIJMES, TripleOne Somerset, Perennial Jihua Mall, Perennial Qingyang Mall and associates AXA Tower, Capitol Singapore and Shenyang Summit. There was a small contribution from fee-based management income too.

Singapore retail assets have obtained higher pre-leasing rates
Singapore assets generated c.65% of topline with China making up another 31%. CHIJMES continued to trade well with 88% of its space committed, of which 77% is already operational. The Capitol Piazza is over 80% pre-leased and most of the tenants have commenced operations including a number of new concept and new to Singapore fashion and F&B names. This should provide steady income to PREH.

China malls stabilising
In China, H&M has opened its store at Shenyang Longemont Shopping Mall. Perennial Jihua and Qingyang malls have seen occupancy reaching 99.7% and 98.6% respectively. We expect the latter to perform better with the greater catchment pool from the partial opening of three office blocks nearby.

Sale of office space could provide another earnings driver
This steady recurrent income base is expected to be lifted by the planned sale of strata office space at TripleOne Somerset and AXA Tower. Both properties have received planning permits and are awaiting other development approvals for its planned AEIs, scheduled to start in 1Q16. Show suites for the strata offices are also being set up. This would provide another income source for the group.

Technical Analysis
Daily Chart
Maintain Add
We leave our FY15-16 estimates unchanged and maintain our Add call with an RNAV based target price of S$1.39. A potential catalyst is the monetisation of its strata office space in Singapore. (Read Report)

Source : CIMB Research

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