Perennial China Retail Trust IPO

Perennial. The best 2 words to define 'perennial' are persistent & enduring. Okay, I like...Shall try my luck to subscribe this IPO. Heh. (yes, sometimes I myself can't tell whether I'm being seriously sarcastic or not.)

PERENNIAl Real Estate, led by former CapitaLand Retail chief Pua Seck Guan, has set an indicative price of $1 per unit for the listing of its business trust that is estimated to raise $1.1 billion in gross proceeds.

It is offering 1.09 billion units comprising an international placement of 610.2 million units, a public tranche of 50 million units, and cornerstone units of 432 million units for Perennial China Retail Trust (PCRT).

The cornerstone investors, which will snap up about 40 per cent of the offering, are Nan Fung Group, AEW Capital Management, AIA, CBRE, Henderson Global Investors, Lion Global, and Prudential.

According to a term sheet seen by BT, the IPO price represents a 22 per cent discount to analysts' consensus net asset value (NAV) per unit of $1.29, based on three banks' pre-deal research reports.

Perennial is wholly owned by Pua Seck Guan, the former CEO of the manager of CapitaMall Trust, Singapore's first real estate investment trust (Reit).

With a projected market cap of $1.11 billion at listing, PCRT will have an initial portfolio size of $1.1 billion covering four properties in China. The IPO proceeds will be mainly used to finance the acquisition of these properties.

One is a 50 per cent stake in retail mall Shenyang Red Star Macalline Furniture Mall and the other is a 50 per cent stake in Shenyang Longemont, a retail cum office development.

Perennial also has the contractual rights to acquire a 100 per cent stake in two other retail malls - Foshan Yicui Shijia Shopping Mall and Chengdu Qingyang Guanghua Shopping Mall.

The business trust is projected to have a distribution yield of 3.02 per cent for fiscal 2011 and 3.08 per cent for fiscal 2012, according to the prospectus lodged with the Monetary Authority of Singapore.

Perennial said in a term sheet to potential investors that PCRT offers attractive total returns (yield plus NAV growth) and hence 'it should not be compared with the pure yield-play vehicles'.

It explained that the estimated yields are lower than comparable Reits' or business trusts', primarily because Red Star Macalline Furniture Mall is the only completed and leased-out property at IPO, while the rest are in pre-leasing stage or under development and due for completion between 2012 to 2014.

'The property yields of the underlying properties are expected to increase to approximately 6.5 per cent as rents stabilise,' it said. 'Accordingly, the DPU yield is expected to potentially increase. Valuer CBRE expects NPI (net property income) yield on purchase price at full maturity to be at approximately 7.8 per cent.'

While a business trust typically has no restrictions on distribution payout or leverage, Perennial has pledged, in the prospectus, to distribute at least 90 per cent of PCRT's distributable income to unitholders and pegged its leverage limit at up to 60 per cent of the value of PCRT's properties as set out in the trust deed.

Separate from the offering, the sponsor will subscribe to 10 million units in PCRT and has agreed to a lock-up period of six months for all the units and a 12-month lock-up for 50 per cent of those units.

DBS is the sole financial adviser for the IPO. It and Goldman Sachs and Standard Chartered are the joint global coordinators, bookrunners, issue managers and underwriters for the IPO.

Bookbuilding for the IPO has begun. The roadshow started on Thursday and will end on March 4. The public offer is expected to open on March 8 and close on March 14 and trading of the business units is expected to begin on March 16.

From Business Times, "Perennial trust units at $1 each".

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