Perennial China Retail Trust

[Lancelot]

If without the earn out payment , no way to maintain the DPU , the DPU could be halve after the earn out period is gone. This Pua is really a good salesman , can sell his story to many rich guys.

[AlphaQuant]

If without the earn out payment , no way to maintain the DPU , the DPU could be halve after the earn out period is gone. This Pua is really a good salesman , can sell his story to many rich guys.

The recent 1Q result slides shows that the earn-out deed has enough to sustain DPU for the next 3Q til end of FY14 - what happens after that is anyone's guess.

The problem for Pua is that while cap rates in China has fallen (so NAV has risen), rental has not came up fast enough to generate cashflow and you can't pay distributions without cash.

So either
1) he reduces the DPU - which prob causes unit prices to drop rendering this vehicle useless for capital raising
or
2) he sells some properties to capitalise on the low cap rates, realise the higher NAV and pays the DPU - but this might brand him as a hot money property flipper/speculator which does his reputation no good if he intends to further expand in China.

so damn if he does; damn if he doesn't.

In short, the concept of a trust with developing assets (where investors see NAV go up but does not come with the immediate assurance of consistent cashflow from rentals) is the wrong product for the wrong market. Better off for him to share the risks with savvy businessmen who understands the gestation period of development and tap the capital markets using another vehicle with less onerous dividend constrains.

[MINX]

If without the earn out payment , no way to maintain the DPU , the DPU could be halve after the earn out period is gone. This Pua is really a good salesman , can sell his story to many rich guys.

The recent 1Q result slides shows that the earn-out deed has enough to sustain DPU for the next 3Q til end of FY14 - what happens after that is anyone's guess.

The problem for Pua is that while cap rates in China has fallen (so NAV has risen), rental has not came up fast enough to generate cashflow and you can't pay distributions without cash.

So either
1) he reduces the DPU - which prob causes unit prices to drop rendering this vehicle useless for capital raising
or
2) he sells some properties to capitalise on the low cap rates, realise the higher NAV and pays the DPU - but this might brand him as a hot money property flipper/speculator which does his reputation no good if he intends to further expand in China.

so damn if he does; damn if he doesn't.

In short, the concept of a trust with developing assets (where investors see NAV go up but does not come with the immediate assurance of consistent cashflow from rentals) is the wrong product for the wrong market. Better off for him to share the risks with savvy businessmen who understands the gestation period of development and tap the capital markets using another vehicle with less onerous dividend constrains.

With the latest raised price offers for both HPL & CMA, will Mr Phua be pressurised to follow suit or risk his well thought out plan falling apart, now that minority shareholders have tasted the sweet success of resisting low ball offers? Just pondering, any views? I would think an offer price above NAV at least?

[cfa]

In last AGM , Pua had said the NAV was actually 0.72 after taking weak RMB into consideration.

[greengiraffe]

PCRT is a very different animal - a business trust equivalent that started with many greenfield projects that are owned by subsidiaries while operational assets are presently held by associates with rental guarantees.

At the inception, PCRT was likely to be structured for a more bullish outlook that has since changed.

However, Pua being an experienced real estate person has probably thought through all these and in any event, he is focus on delivering on greenfield projects. In fact, I gather from many sources on many occasions that he is not willing to sell these greenfield quickly and be perceived as a speculator has beings little value for local economic development where his projects are located.

China is a vast country and systems are highly complicated and perhaps being perceived as a real businessman and investor will be viewed in a better light especially as a foreign investor.

I think it is due to the strategy and the pending expiration of the rental guarantee on top of the stablisation period needed for the completion of the various greenfield projects that Pua is throwing his flagship holdings with more diversified assets in Singapore to back up PCRT.

According to your previous postings, while is confident that majority of PCRT will be swapped into the enlarged holding company, the possibility of PCRT maintaining its listing status with an illiquid float remains.

I personally doubt that a cash alternative would ever be offered to PCRT throughout the entire restructuring process.

Divested and Under The Radar
GG

In last AGM , Pua had said the NAV was actually 0.72 after taking weak RMB into consideration.

[MINX]

PCRT is a very different animal - a business trust equivalent that started with many greenfield projects that are owned by subsidiaries while operational assets are presently held by associates with rental guarantees.

At the inception, PCRT was likely to be structured for a more bullish outlook that has since changed.

However, Pua being an experienced real estate person has probably thought through all these and in any event, he is focus on delivering on greenfield projects. In fact, I gather from many sources on many occasions that he is not willing to sell these greenfield quickly and be perceived as a speculator has beings little value for local economic development where his projects are located.

China is a vast country and systems are highly complicated and perhaps being perceived as a real businessman and investor will be viewed in a better light especially as a foreign investor.

I think it is due to the strategy and the pending expiration of the rental guarantee on top of the stablisation period needed for the completion of the various greenfield projects that Pua is throwing his flagship holdings with more diversified assets in Singapore to back up PCRT.

According to your previous postings, while is confident that majority of PCRT will be swapped into the enlarged holding company, the possibility of PCRT maintaining its listing status with an illiquid float remains.

I personally doubt that a cash alternative would ever be offered to PCRT throughout the entire restructuring process.

Divested and Under The Radar
GG

In last AGM , Pua had said the NAV was actually 0.72 after taking weak RMB into consideration.

I beileve that in negotiating a deal, a good businessman always start off with a low offer, so the possibility of a higher offer can't be ruled out. The opportunity cost of a drawn out process vs the cost of offering a slightly sweeter offer is not hard to fathom.

[sgpunter]

That's a good thought Minx. I also wish that Pua will raise the offer heh especially so when he claimed that PCRT is undervalued during the AGM.

Regardless, I think this whole deal can only be a good thing for PCRT. The earn out deeds can last till the end of FY14 but the question is what next? I think the gestation period of the malls took longer than expected so as a PCRT shareholder, I think there's only upside, little downside.

But yeah, let's all hope for a sweetener. =)

[VIChris]

PCRT is a very different animal - a business trust equivalent that started with many greenfield projects that are owned by subsidiaries while operational assets are presently held by associates with rental guarantees.

At the inception, PCRT was likely to be structured for a more bullish outlook that has since changed.

However, Pua being an experienced real estate person has probably thought through all these and in any event, he is focus on delivering on greenfield projects. In fact, I gather from many sources on many occasions that he is not willing to sell these greenfield quickly and be perceived as a speculator has beings little value for local economic development where his projects are located.

China is a vast country and systems are highly complicated and perhaps being perceived as a real businessman and investor will be viewed in a better light especially as a foreign investor.

I think it is due to the strategy and the pending expiration of the rental guarantee on top of the stablisation period needed for the completion of the various greenfield projects that Pua is throwing his flagship holdings with more diversified assets in Singapore to back up PCRT.

According to your previous postings, while is confident that majority of PCRT will be swapped into the enlarged holding company, the possibility of PCRT maintaining its listing status with an illiquid float remains.

I personally doubt that a cash alternative would ever be offered to PCRT throughout the entire restructuring process.

Divested and Under The Radar
GG

In last AGM , Pua had said the NAV was actually 0.72 after taking weak RMB into consideration.

Greengiraffe, I've noticed you have researched and written quite comprehensively on PCRT and earlier on you were vested and now divested.

Any reason for the diversion since likely that there will be paper gain from this exercise if one purchase at current market price?

I would like to hear your analysis/view on this.

Cheers!
I'm vested

[Lancelot]

Nan Fung sold 10m units on 27/5 , looks like getting out of this trust is their aim.

[kayhian]

looks like NF is reluctant to get out at dirt cheap price.