SINGAPORE (Mar 10): Although Dasin Retail Trust (DRT) had a rough FY2019, Phillip Capital is opting for a bullish view on its inorganic growth prospects for the year ahead.
For 4QFY2019 ended December, DRT booked a distribution per unit (DPU) of 3.95 cents, up 3.6% from 3.81 cents a year ago.
However, including the distribution waiver that was meant to provide short term DPU support to help the REIT tide over the gestation period of its two younger malls -Dasin E-Colour and Ocean Metro Mall - DRT’s DPU came in at 6.82 cents, down some 5.5% from 7.22 cents last year.
Gross revenue for the year came in at $76 million, some 6.6% higher than $71.3 million in FY2018. This was due primarily to the acquisition of Doumen Metro Mall, but partially offset by the depreciation of the renminbi.
Property operating expenses for the year increased 14.8% to $16 million. As a result, net property income inched up 4.6% to $60 million.
To be sure, Phillip Capital analysts accede that a weaker China retail outlook had dampened DRT’s tenant sales. The REIT’s 2HFY2019 tenant sales came in flat, a reversal from positive tenant sales in 1HFY2019.
However, analysts say that the group’s three acquisitions in FY2019, as well as its in-built rental reversions of about 9% per annum, are likely to help boost earnings. This will, in turn, close the gap between DPU figures with and without the distribution waivers.
“The number of units under distribution waivers was 38.2% in FY2019 and will fall to 24.3% and 19.3% in FY2020 and FY2021, increasing the number of units that are entitled distributions over the years,” says the research team.
In addition, Phillip Capital notes that DRT has relatively healthy portfolio metrics that are cushioned by its lease structure. For one, DRT has a portfolio of assets that have high occupancy rates of 98.8% and long weighted average lease expiry (WALE) of about 4.1 years.
The REIT also has high proportions of leases with a guaranteed minimum income. While 13% of DRT’s leases are fixed, 66% of leases are fixed with built-in escalations ranging 3% to 10% per annum.
Although the Covid-19 outbreak had resulted in the shuttering of all five of DRT’s malls from Jan 28 to Feb 24, Phillip Capital notes that these have since resumed normal operating hours with the exception of Ocean Metro Mall.
“The manager is prepared to offer assistance to tenants affected by the outbreak and will do so on a case-by-case basis, pending a review of the extent of the tenant’s trading disruptions,” says the team.
Phillip Capital is maintaining its “buy” call on Dasin Retail Trust with a target price of 88 cents, representing a 14.7% upside for the stock.
As at 3.28pm, units in Dasin Retail Trust are trading 0.5 cent higher, or 0.6% up, at 81 cents.
