Perennial Real Estate Holdings - DBS Research 2020-02-21: Healthcare On High Speed


Perennial Real Estate Holdings - Healthcare On High Speed

  • Perennial Real Estate Holdings's FY19 net profit fell to S$3.8m vs S$78m in FY18 mainly due to lower fair value gains and higher net finance expenses (+29% y-o-y)
  • FY19 revenue grew 59% y-o-y mainly from first full-year contributions from Capitol Singapore and Perennial International Health and Medical Hub (PIHMH).
  • Key operational highlights:
    1. management will pass on property tax rebate and support from the government to its tenants and will look to provide support to badly affected tenants,
    2. potential assets for divestment includes Beijing Tongzhou, AXA Tower.
  • Declared dividend of 0.2 Scts vs 0.4 Scts in FY18.

What’s New

  • Perennial Real Estate Holdings (SGX:40S)’s FY19 net profit fell to S$3.8m vs S$78m in FY18, mainly due to lower fair value gains (S$69m in FY19 vs S$332m in FY18) and higher net finance expenses (+29% y-o-y).
  • FY19 revenue grew 59% y-o-y to S$124m mainly from first full-year contributions from Capitol Singapore and Perennial International Health and Medical Hub (PIHMH), and higher fee income from management business (+30% y-o-y).
  • The fair value gains were mainly from its China projects as a result of higher rental achieved by the operational malls (PIHMH, Jihua Mall and Qingyang Mall) and advancement in construction works of the development projects.
  • FY19 EBIT fell 64% y-o-y to S$136m mainly due to lower fair value gains. However, the estimated FY19 EBIT (ex-fair value gains) grew 53% y-o-y mainly from divestment gains from sale of Chinatown Point and its stake in Aidigong, higher share of results from associates & JV and higher fee income.
  • 4Q19 net profit recorded S$39m vs S$16m in 4Q18 mainly due to higher share of results of associates & JV from higher fair value gains recorded in China projects, offset by higher net interest expenses (+19% y-o-y).
  • Net debt-to-equity stood at 0.74x as at Dec-19 vs 0.72x as at Dec-18 (0.77x as at Sep-19).
  • Weighted average interest rate inched up to 4% vs 3.8% in FY18 and 9M19.
  • Borrowings due in FY20 amounts to S$1.3bn (43% of total debt), which comprises S$280m retail bonds expiring in Apr-20, S$280m MTN expiring in Jul-20 and Aug-20, and S$740m Singapore loans (secured and unsecured).
  • Declared a final dividend of 0.2 Scts in FY19 vs 0.4 Scts in FY18.
  • With effect from 20 Feb 2020, Perennial Real Estate Holdings will be reporting on a semi-annual basis.

Updates on major projects:

  • Impact from COVID-19. Similar to its peers, the COVID-19 outbreak has impacted Perennial Real Estate Holdings’s retail tenants and hospitality occupancy. While Singapore is less impacted compared to China, its China retail operations are still small compared to the other development projects in China. Management has indicated that it will pass on the property tax rebate and support from the government to its retail tenants who are badly impacted. The ramp-up of private healthcare in China (private clinics/medical centres) could be delayed as the government limits the opening of small private practices to curb further spread of the outbreak. If the situation is prolonged to three months, PREH estimated that rental rebates for three months could cost S$5-6m.
  • TripleOne strata-sale continues. TripleOne Somerset sold 27 strata office units with gross sales amounting to c.S$68m in 4Q19 vs 13 office and two medical units sold in 3Q19. In FY19, Perennial Real Estate Holdings sold a total of 48 office units at S$2,555-2,900 psf and two medical units at more than S$4,000 psf. The total year-to-date gross strata sales amounted to S$127.1m. The 2-storey retail podium which commenced operations in Mar-19 achieved total committed occupancy of 75.1% as at Dec-19.
  • AXA Tower could potentially have another 500k sqft (+46.5%). AXA Tower is one of the developments which will enjoy the uplift in gross plot ratio of an additional 500k sqft, +46.5% from the current 1.05m sqft. Management continues to actively pursue the redevelopment scheme to incorporate office, hotel and residential components and at the same time continue to explore en-bloc sale opportunities. AXA Tower achieved total committed occupancy of 94%.
  • The Capitol retail repositioning exercise completed with total committed occupancy of 92.5% as at Dec-19. The Capitol Singapore has completed its repositioning exercise on its retail component and achieved a total committed occupancy of 92.5% as at Dec-19 vs 91.5% as at Sep-19. New stores include Dyson Concept Store, Ponggol Nasi Lemak and Eccellente Supermarket. IWG launched its flagship facility in Asia in Level 2 of the retail component in Dec-19.
  • CHIJMES achieved total committed occupancy of close to 100% as at Dec-19.
  • Former Goodluck Garden site (40:60 JV with Qingjian) is expected to be launched in 2020, comprising 633 residential units and two commercial units.
  • PIHMH’s committed occupancy fell to 86% from 91% in FY18 to make way for increasing demand for medical space. As such, Perennial Real Estate Holdings plans to take back 3k sqm of leased retail space on basements 1 and 2 for conversion into medical space. Gleneagles Chengdu Hospital opened in Oct-19.
  • Tianjin and Kunming HSR project held its official groundbreaking ceremony in Dec-19 and Sep-19 respectively.
  • Zhuhai Hengqin Integrated Development – Expected to obtain occupancy permit in early 2020. Strata-sale of apartments is expected to be launched by 2Q20. Residential prices are in the range of RMB45-50k psm. The retail and hotel components are expected to commence operations by 2021.
  • China Healthcare – Total operating beds increased 25.4% y-o-y to 8,003 beds in FY19 vs 6,382 beds in FY18. The increase was mainly driven by Renshoutang, the group’s eldercare business arm, which added 1,797 in-patient beds to the portfolio through seven new facilities in Shanghai, Changzhou and Jurong. To-date, Renshoutang has a presence in seven cities across China with an operating portfolio of over 7,700 beds (vs 5,927 beds in FY18) and a committed pipeline of over 7,600 beds (vs 9,650 beds in FY18).
  • Venturing into Colombo, Sri Lanka. In 1Q20, Perennial Real Estate Holdings invested in a 25% stake in the development of a mixed-use project in Colombo, Sri Lanka. The site is located next to Beira Lake in the prime Colombo district 02 with a total GFA of 1.3m sqft, comprising residential, office and retail.

Maintain BUY; Target Price of S$0.83

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-02-21
SGX Stock Analyst Report BUY MAINTAIN BUY 0.830 SAME 0.830