PhillipCapital’s research team has upgraded Dasin Retail Trust to “buy” from “accumulate” as it expects a rise in its share price from the population growth in the Greater Bay Area, greater acquisitions and rental uplift following its AEI.
The team has, however, lowered its target price to 90 cents from 91 cents. It has also lowered its distribution per unit (DPU) estimates for FY2020/FY2021e by 4.0%/1.8% to factor in an enlarged share base following its recent share offering.
“Dasin will have to grow its DPUs to offset an increasing unit base, in order to prevent deterioration of its DPU yields. The percentage of units under distribution waiver stands at 25% and 11% for FY2020 and FY2021 respectively. Dasin acquired three assets from its sponsor in the last two years and we expect it to tap its right of first refusal (ROFR) pipeline again to keep DPU yields stable,” it says.
The trust’s cash revenue for the 3QFY2020 recovered to -7.5% compared to 3QFY2019 levels, an improvement from its 2QFY202 9.5% drop y-o-y in turnover rent, which is used as a proxy for tenant sales.
In 3QFY2020, the trust’s lease renewals reduced the trust’s portfolio lease expiries by gross rental income (GRI) to 8.1% from 13.8%.
The majority of the renewals come from Xiaolan, Ocean and Shiqi, where these three assets have maintained historically high occupancies of between 98% to 99%.
“The steady recovery in their tenant sales is encouraging and may return confidence to tenants who have been delaying their renewal decisions,” says the team.
On the other hand, Dasin’s portfolio occupancy dipped y-o-y and q-o-q to 96.1% from 97.0% and 98.6% respectively, with the most notable decline being Dasin E-Colour, which is the smallest in Dasin’s portfolio, accounting for 4.14% of its 9MFY2020 revenue.
Dasin E-Colour’s portfolio occupancy fell to 85.1% in 3QFY2020 from 90.7% in the previous quarter, and was 11.2 percentage points lower than the 96.3% registered in 3QFY2019.
The rest of its malls under Dasin’s portfolio continued to retain high occupancy rates of 95% and above.
The way the PhillipCapital team sees it, Dasin’s property manager will “use this period of weaker leasing to refine its tenant mix and reposition mall offerings”.
In the same quarter, Dasin also saw the termination of its remaining nine-year lease with Superior City Department Store.
The store’s lease was signed for 15 years from Dec 28, 2014, to Dec 27, 2029, for 12,000 sqm (or about 17.6%) of space at Ocean Metro Mall.
The lease was terminated on Nov 8 due to the department’s store’s financial situation.
Zhongshan Dasin Metro-Mall Merchant Investment, an interested party of the Trust, will be leasing the space for a year at similar rents as Superior.
Asset enhancement initiatives (AEI) will be undertaken over the next year to carve up the space into smaller sections. The work will be done progressively so as to minimise disruptions to operations.
“Typically, conversion from single tenancy to multi-tenancies will allow the landlord to charge higher rentals as discounts are usually given for larger spaces,” adds the team.
In its outlook statement, the PhillipCapital team sees opportunity for rental reversions through its AEIs.
“While the pre-termination of such a long lease [of Superior City Department Store] reduces income visibility, Dasin has the opportunity to recalibrate and enhance the mall’s offerings,” says the team.
Dasin last completed a round of AEI at the Ocean Metro Mall in 2QFY2020, which similarly involved carving up sizeable space.
To enhance the mall’s competitiveness, Dasin’s trustee-manager had commissioned a market research study and negotiated the early termination of a 9,085 sqm lease with a “furniture and finishing tenant”.
The space was returned, dissected, and leased out to other tenants, which led to a rental reversion of 42.9%.
The team also noted that the trust stands to benefit from the transformation of the Greater Bay Area, where China intends to develop the area into a “booming financial hub” under its 13th five year plan in December 2016.
“With this transformation, the population in Greater Bay Area is forecast to grow by 43% over the next 15 years, to 100 million,” it says.
“All seven of Dasin’s malls are located in the Bay: five in Zhongshan, one in Foshan and the last in Zhuhai. All are within a 1-hour traffic radius of Greater Bay Area cities,” it adds.
“As Tier-2 cities, they provide affordable housing to surrounding Tier-1 cities like Guangzhou and Shenzhen. Zhongshan is primed to benefit from its location at the mid-point of the Bay as well as the Shenzhen-Zhongshan bridge which is under construction. When completed in 2024, the bridge will slash travelling time between the two cities from one hour and 15 minutes to 30 minutes.”
Units in Dasin Retail Trust closed flat at 77 cents on Dec 10.
