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BHG Retail REIT’s Latest Results Are Better Than Expected – What’s Next?

Yesterday evening, BHG Retail REIT  (SGX: BMGU) released its earnings for the period from 11 December 2015 (its listing date) to 31 March 2016.

For a brief background, BHG Retail REIT is backed by Beijing Hualian Department Store, a Chinese-based retail group. The REIT currently has five retail properties in China that are collectively valued at S$606 million as of 31 March 2016.

You can catch up on the REIT’s initial public offering (IPO) in here or find out more about it here. With that, let’s dig into BHG Retail REIT’s latest results.

Financial highlights

The following’s a quick take on some of the REIT’s latest financial figures:

  1. Gross revenue came in at S$19.7 million, 0.6% higher than the forecast given in its IPO prospectus.
  2. Meanwhile, the net property income (NPI) of S$12.1 million is 0.4% more than the forecast.
  3. BHG Retail REIT’s amount available for distribution of S$5.18 million is 0.3% better than the projections given in the prospectus.
  4. This translated into a distribution per unit of 1.50 Singapore cents, which is 0.7% ahead of the forecast.
  5. BHG Retail REIT ended the period with a net asset value per unit of S$0.80.

In short, BHG Retail REIT had performed slightly better than its own predictions on many counts.

One other important area of the REIT’s finances would be its balance sheet. BHG Retail REIT ended the reporting period with a gearing ratio of 29.5% (which is way lower than the 45% limit set by the regulators).

Of the S$219.8 million in total borrowings that BHG Retial REIT holds as of 31 March 2016, a collective S$79.5 million will be coming due in 2016 and 2017. As always, the progress in refinancing of debt is where investors should keep a watchful eye on.

Operational highlights and future prospects

BHG Retail REIT ended its first reporting period with a portfolio occupancy rate of 98.3%. In its earnings release, the REIT had shared its three-pronged approach for growth:

  • Proactive asset management and enhancement: The REIT will explore different ways to achieve better performance for its properties, such as through building partnerships with tenants.
  • Tapping on sponsor’s pipeline: BHG Retail REIT has a right of first refusal (ROFR) for 12 properties in its sponsor’s portfolio. For perspective, BHG Retail REIT’s portfolio had a total gross floor area of 263,688 square metres at the listing date; the 12 properties in question have a combined gross floor area of 722,514 square metres.
  • Explore other acquisition opportunities: The REIT is continually exploring the purchases of other properties.

Chan Iz Lynn, the chief executive of BHG Retail REIT’s manager, had given some comments in the earnings release on the macro drivers for the REIT’s business:

“As China transitions towards a consumption-driven economy, GDP and retail sales continue to register considerable growth in the first quarter 2016 of 6.7% and 10.3% yearon-year respectively. Urban residents are expected to increase from 56.1% in 2015 to 60.0% over the next five years, two-child policy became effective in January 2016, and national per capita disposable income growth from residents was 6.5% year-on-year.

Against this backdrop, we believe BHG Retail REIT’s portfolio of lifestyle community malls with healthy visitorship and tenant sales are well positioned to benefit from China’s rising middle-income group and increasing emphasis on domestic demand.”

BHG REIT closed at S$0.79 yesterday. This translates to a historical price-to-book ratio of 0.98.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.