Sleeping Dragon to be AWAKEN soon! (Perennial Real Estate Holdings Limited)

Beijing Tongzhou Integrated Development

The Q1 2018 results announced by Perennial Real Estate Holdings Limited ("PREHL") are promising after normalizing for the divestment of 20.2% of TripleOne Somerset. The revenue in fact grew by 10.1%  relative to Q1 2017 mainly due to contributions from Perennial Qingyang Mall, Chengdu if we exclude the one-off item. 

Significant upsides to Business Developments expected in current FY2018 and FY2019:

1. TripleOne Somerset- Securing anchor tenant and other major office tenant.

The new two level retail podium is expected to receive TOP by 2nd half of 2018. It has secured anchor tenant, NTUC Finest which is taking up 11,568 sqft of space.

Another tenant, Secured Space (flexible work space concept business), will occupy over 35,000sqft spanning 2 floors.

2. AXA Tower - AEI near completion and Enbloc Potential

Works on the new two-storey medical annex block, retail podium and office common areas are progressing well and have reached various stages of completion. Management also looking out for enbloc opportunities to realise value for shareholders.

3. Capitol Singapore- plans to build up recurring income in place

PREHL has successful resolved the long standing dispute with another shareholder by buying over the shares held by the other shareholder. This gives it full executive control over the future strategic direction for this prime property. Please also see my previous post with regard to Capitol Singapore here:https://dividendpassiveincome.blogspot.sg/2018/04/perennial-real-estate-investment-trust.html

The management is currently finalizing the appointment of the operator for the hotel component from a shortlisted group of established and renowned five-star brands/operators. This will be an important building block in bringing in essential recurring income for PREHL.

4. Opening of Perennial International Health and Medical Hub in Chengdu.

This is expected to start contributing to PREHL overall results from 1st June 2018 onwards. Committed occupancy for the Medical Hub is currently at 87.6%. In terms of financial perspective, this means that Q3 2018 and Q4 2018 will be higher than previous year of 2017 from additional realisation of their investment in Chengdu China. For next year, of 2019 the Medical Hub will contribute to a full year of financial which will be another year of quick growth for PREHL.

Bird's Eye View of the Integrated Healthcare Concept in Chengdu

Net asset per share value is currently at S$1.692 per share. Its market valuation is still at only S$0.865. This represents a huge 51.1% discount due to the market perception of high risk in its China ventures. 

With the upcoming realization of returns from China and local development projects from current year to FY2021, the risk of non-performing projects are diminishing and the huge risk premium associated with PREHL should go down eventually by 2020 assuming no macro economic turmoil. Growth and recurring income building strategies are well on track under the excellent leadership of the current management team.  

Perennial Real Estate Holdings Limited

There have been 2 interesting developments for Perennial Real Estate Holdings Limited ("PREHL") in 2018.

1. In January 2018, the deadlock with co-owner Pontiac Land over the Capitol integrated development was finally broken. PREHL paid S$528 Mil to buy out Pontiac Land to become the sole owner. This bode well for the generation of recurring income from the hotel operations of Capitol which has remained close due to dispute over the future direction with Pontiac Land. There will also be synergy for the retail component of Capitol from the resulting higher traffic. 

It is expected to bring in S$40Mil to S$50Mil per annum in recurring income if the execution goes on smoothly as planned. 

2. On 4 April 2018, PREHL and China based Qingjian Group entered into a 40-60 joint venture to jointly develop the former Goodluck Garden freehold residential site in Singapore. Goodluck Garden was previously en-bloc and acquired by Qingjian for S$610Mil. The site area has an land area about 360,130 sqft and is located at Toh Tuck Road. This bodes well for its Singapore property development profitability over the next few years.

Analysts targeted price for PREHL is around S$1.05 to S$1.18. Its current share price is at S$0.86. PREHL represents a unique business that is fast growing with many projects in its development pipeline. The future recurring income from medical services and properties rental income will also increase the dividend pay-out.

Perennial China Retail Trust (PCRT) - Why prices remained low despite announcement of S$0.70 share offer?

Awesome! PCRT just announced St James will be offering a buy out of existing shareholders via issuance of shares issued by the new Retail Group with a diverse property portfolio. The Vendor will offer S$0.70 per share. This is a whopping 27% premium over the current market place of S$0.55 per share. Net assets per share is S$0.77 per share. I am currently holding on to 55 lots of PCRT (after selling off 20 lots) and have just received S$1200++ in terms of cash dividends. No prize for guessing PCRT as my star performer for 2014. 

Why then does the share price of PCRT still languish behind? Today, it touched S$0.60 briefly before dropping off and ended at S$0.55. Reason is simple: The market is pricing risk premiums extremely high and expecting a substantial discount from assets under construction as well the risk of not being able to secure quality tenants in view of overwhelming retail supply. There were even reports in mainland China of retail malls which offer free rental to their anchor tenants.

Anyway, chances are even if the new entity commenced trading, its share prices will eventually drop off to compensate for the market risk premiums. I would actually recommend current holders to sell off as soon as the new entity commenced trading. Just how much exactly? For those interested, jot down your request through your comments and I will oblige.