Analysts from PhillipCapital and DBS Group Research believe that the worst is over for BHG Retail REIT. The REIT is also expected to see growth from here on.
In its latest FY2021 ended December 2021 results, BHG Retail REIT reported an 11.3% y-o-y increase in distribution per unit (DPU) to 2.17 cents. This came on the back of a 16.6% y-o-y increase in gross revenue to $70.6 million and a 14.9% growth in net property income (NPI) to $70.6 million.
Following this, DBS Group Research analysts Woon Bing Yong and Derek Tan are keeping their “hold” recommendation on the REIT with a target price of 57 cents.
“While FY2020 was undoubtedly the bottom of BHG REIT’s three-year declining DPU trend, its recovery is expected to be slower, as FY2021 DPU numbers did not bounce back as quickly as anticipated,” say Woon and Tan. “Still, we maintain our FY2022 estimates, as Hefei Mengchenglu is set to make a bigger contribution this year following disruptions from its asset enhancement initiatives (AEI) in FY2021.”
Additionally, the analysts note that the REIT has exposure to three properties located in Hefei and Chengdu, where urban disposable income grew at five-year compound annual growth rates (CAGRs) of 8.5% and 7.9%, respectively, outpacing Beijing’s 7.2%. “Correspondingly, retail spending in Hefei and Chengdu grew at faster five-year CAGRs of 16.6% and 7.3%, versus 5.7% in Beijing,” say Woon and Tan. “With the ongoing tenancy remix, we believe BHG REIT’s assets in Hefei and Chengdu have the potential to deliver strong organic growth in the medium term.”
However, Woon and Tan note that their estimates for the FY2022 are on the conservative side, as they are the only brokerage covering the counter.
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Meanwhile, BHG Retail REIT has also caught the attention of PhillipCapital.
In an unrated report dated Mar 2, analyst Vivian Ye observes how the recovery in its gross revenue and property income has been underpinned by healthy occupancy. “The main contributor to the increase was Beijing Wanliu mall, with gross revenue increasing 19% to $20 million,” says Ye. “No rental rebates were given in 2HFY2021. Rents for new and renewed leases continued to recover.”
However, Ye also pointed out higher property operating expenses with BHG Retail REIT. “Property operating expenses increased 17.3% y-o-y, due to the gradual resumption of malls’ normal operations and absence of Covid-19 subsidies from the government,” Ye says.
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On a whole, BHG Retail REIT’s portfolio has proved its resilience, says the analyst, with continued recovery in portfolio occupancy and higher gross revenue, despite the Covid-19 Omicron wave in 2HFY2021. “Gearing remained healthy at 34.1%, providing comfortable debt headroom to pursue M&A growth opportunities,” she adds.
As at 3.20pm, share price in BHG Retail REIT is trading flat at 54 cents.
Photo: BHG Retail REIT
