Perennial's latest divestment could signal more to come, says DBS
SINGAPORE (April 24): DBS Vickers Securities is maintaining its “buy” rating on Perennial Real Estate Holdings (PREH) with an unchanged target price of 83 cents as it continues to expect near-term earnings to be driven by further divestment or fair value gains.
AXA Tower and Beijing Tongzhou are some of the potential assets to be divested, in the research house’s view.
This comes post the announcement of PREH’s divestment of Chinatown Point for $225 million, which the DBS sees as another instance of the group’s ability to buy and sell at good values, coupled with the ability to value-add to Singapore’s “ailing” real estate sector.
In a Tuesday report, analyst Rachel Tan estimates an implied exit yield of 4.3-4.5% for the deal, which she considers “fairly decent” in today’s environment where strong demand for income-producing assets in Singapore has brought commercial yields down to the 3-4% yield level.
“However, we do note that the property has 60 years left on its land tenure, which means that the sale price on an implied ‘freehold’ basis is close to $3,000 psf, which is fairly high… Assuming a 45% gearing on the original acquisition back in 2010, the consortium would make 2.4 times its equity invested from this divestment, higher if there is more gearing to fund the acquisition,” notes Tan.
She nonetheless remains positive on the stock’s medium- to long-term development plans, especially as its investments in China – and its healthcare hub – slowly come to fruition in spite of potential near-term financial risks.
“We believe the strength of its stakeholders (79% owned by its four key sponsors including Wilmar’s Mr Kuok, OSIM’s Mr Ron Sim and CEO Mr Pua, and partners and key management team) plays an integral role to execute and mitigate potential financial risks,” concludes the analyst.
Shares in PREH closed 2.31% higher at 66 cents or 0.4 times FY19F book value.
