Perennial Real Estate Holdings

Perennial Real Estate Holdings | Add

Target price: S$1.18

March 13 close: S$0.875

CGS CIMB Research, March 12

Perennial Real Estate Holdings (PREH) announced that it will purchase the remaining 50 per cent stake in The Capitol Singapore from Chesham Properties for S$129.6 million. Post transaction, PREH will own 100 per cent of the project that comprises Eden Residences Capitol, 157 hotel rooms, retail and theatre components.

We view the deal positively as it signals the resolution of the deadlock on the project and progress can now be made to unlock value and returns from this iconic development.

PREH intends to finance this acquisition via cash and debt. Its net debt-to-equity ratio could increase from 0.58 times as of Q4 2017 to 0.7-0.8 times. More importantly, once the project becomes fully operational, it may be able to generate S$40-50 million of recurrent income annually.

We anticipate potential earnings upside when the property is fully ramped up in the medium term.

We lower our FY2018F earnings per share (EPS) by 95 per cent to take into account additional interest costs for the acquisition and lag time to ramp up the property performance. Our FY2019-2020F EPS is raised by 2-18 per cent to factor in the additional income post consolidation and better asset performance.

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