SINGAPORE (Aug 1): DBS Group Research says the consortium including Perennial Real Estate Holdings, BreadTalk Group, and Wilmar CEO Kuok Khoon Hong could realise a net gain of at least $398 million in the potential en bloc sale of AXA Tower.
The Perennial-led consortium on Monday after market close announced it is considering the sale of the property at no less than $1.65 billion.
The known major shareholders of the consortium are Perennial with a 31.2% stake, and Kuok’s wholly-owned investment vehicle HPRY Holdings with 10.1%. According to DBS, BreadTalk has a 5.31% stake.
See: Perennial-led consortium mulls en bloc sale of AXA Tower for $1.65 bil
Perennial Real Estate Holdings
Assuming the sale price to be at the minimum asking price of $1.65 billion, this would translate into an estimated net gain of around $120 million for Perennial, says DBS lead analyst Rachel Tan in a flash note on Tuesday.
“Once again, investors have benefited from the keen eye of [Perennial CEO Pua Seck Guan] in turning around an ageing office asset into a new spanking integrated development and ability to then realise value through this potential sale with a respectable return,” says Tan.
“This highlights the quality and value hidden within the group,” she adds.
According to Tan, the estimated post-tax gain implies a three-year internal rate of return (IRR) of close to 12% on an unlevered basis. “Actual returns on equity will be much higher given leverage taken out on the property,” she says.
Further, Tan notes that Perennial is trading at an attractive 0.6x P/NAV, which is a significant discount to its property peers that trading at an average of 0.9x P/NAV.
Tan is keeping the research house’s “buy” call on Perennial with a target price of $1.05.
Update: Shares in Perennial closed 1 cent higher at 90 cents on Tuesday.
BreadTalk Group
According to Tan, a sale price at the minimum of $1.65 billion could see BreadTalk book a net gain of around $25 million.
Its equity stake of 5.31% in AXA Tower would be worth some $45 million, or 16 cents per share, Tan says. “This could potentially raise BreadTalk’s target price from $1.92 to $2.00,” she adds.
Assuming a 50% payout from the sale, Tan says this would also translate into a special dividend of 4.5 cents for BreadTalk’s shareholders.
DBS is keeping its “buy” call on BreadTalk with a target price of $1.92.
Update: Shares in BreadTalk closed half a cent higher at $1.755 on Tuesday.
