But this means recurring earnings would likely remain muted in the near-term as PREH holds out during the gestation period of its current development projects.
“We remain positive on its medium to long term development plans especially as its investments in China (and its healthcare hub) slowly come to fruition despite potential near-term financial risks,” says lead analyst Rachel Tan.
“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) play an integral role to execute and mitigate potential financial risks,” adds Tan.
In 1H17, PREH recorded strong results with net profit of $56 million vs $9 million in 1H16, boosted by $56 million divestment and remeasurement gains from the sale of its 20.2% stake in TripleOne Somerset, and $47 million fair value gains from the reclassification of Xi’an North High Speed railway Integrated Development Plot 4 to an investment property.
Excluding the divestment and remeasurement gains, DBS estimates 1H17 recorded a net loss of about $28 million.
1H17 revenue fell 29% y-o-y largely due to lower rental and management fees from TripleOne Somerset following the divestment, partially mitigated by one-off divestment fee from the sale of TripleOne Somerset. Share of results from associate (excluding revaluation gains in 1Q16) fell 66% y-o-y to $5.1 million due to one-off adjustment from a lease restructuring with Shenyang Red Star Macalline Furniture Mall recorded in 1Q17, partially offset by some contributions from deconsolidated TripleOne Somerset.
2Q17 net profit of $17 million was boosted by the revaluation gains from the reclassification of plot 4 at Xi’an development to an investment property. Excluding revaluation gains, we estimate 2Q17 recorded a net loss of $22 million.
As at 2Q17, net debt-to-equity stood at 0.51x (vs 0.66x in 4Q16; flat q-o-q) with an average interest cost of 3.8% (vs 3.3% in 1Q17). The improvement is largely due to the debt deconsolidation of TripleOne Somerset.
Shares in Perennial Real Estate are down 0.5 cent at 89 cents.
