BHG Retail REIT’s Latest Earnings: What Investors Should Know

BHG Retail REIT (SGX: BMGU) is the first pure-play China retail real estate investment trust (REIT) sponsored by a leading integrated retail group, Beijing Hualian Department Store Co., Ltd. The REIT went public in December 2015.

The REIT’s portfolio currently comprises of five retail properties: Beijing Wanliu (60% stake), Chengdu Konggang, Hefei Mengchenglu, Xining Huayuan, and Dalian Jinsanjiao. These properties are located in Tier 1, Tier 2 and other cities of significant economic potential in China.

Yesterday, BHG Retail REIT announced its financial results for the second quarter ended 30 June 2017 (2Q 2017). The reporting period was from 1 April 2017 to 30 June 2017.

Here’s a quick rundown on the financial figures from the earnings release:

1. Gross revenue for 2Q 2017 grew 5.9% year-on-year to RMB78.2 million. In Singapore dollar terms, gross revenue increased 3.2% to S$15.9 million. The increase was mainly on the back of higher rental reversion and occupancy.

2. Net property income (NPI) went up 8.7% year-on-year to RMB53.7 million. In Singapore dollar terms, NPI rose 5.7% to S$10.9 million.

3. The reporting quarter’s distribution per unit (DPU) was at 1.35 Singapore cents, unchanged from a year ago.

4. The net asset value (NAV) per unit was S$0.83, as at 30 June 2017.

The portfolio committed occupancy rate remained high at 98.9%. All the malls, except Chengdu Konggang Mall, have full occupancy. Asset enhancement initiative (AEI), which was ongoing as at 30 June 2017, caused occupancy to be at 95.8%. However, the AEI has since been completed, in line with the targetted completion by 3Q 2017.

The portfolio’s weighted average lease expiry is at 4.8 years by gross rental income and 8.5 years by committed net lettable area.

As at 30 June 2017, the trust had a gearing ratio of 32.4%, well below the regulatory limit of 45%. The average cost of debt came in at 3.66% with the weighted average term to maturity at 1.5 years.

About 70% of debt is denominated in Singapore dollars, and only around 45% of those are on a fixed interest rate basis. Thus, rising interest rates would affect the REIT’s cost of borrowing. This is something investors should take note of.

Ms Chan Iz-Lynn, Chief Executive Officer of the Manager of the REIT, said:

“We are pleased to report strong fundamental performance in the first half of the year. In Renminbi terms, gross revenue and NPI rose 3.4% and 7.8% respectively in 1H 2017. BHG Retail REIT’s underlying portfolio continued to demonstrate resilience, achieving very encouraging rental uplift and robust occupancies.

Looking ahead, we will continue to identify opportunities to value-add and enhance our malls organically, at the same time pursue opportunities that are DPU-yield accretive, and strive to deliver sustainable returns to our unitholders.”

The REIT’s sponsor has also identified 14 properties under a voluntary right of first refusal agreement, and these will potentially be offered to BHG Retail REIT as future pipeline assets.

If those properties are acquired, the resulting enlarged portfolio will be close to five times the REIT’s initial public offering portfolio and will increase the REIT’s presence to 13 cities in China.

BHG Retail REIT closed at S$0.74 yesterday. This gives a historical price-to-book ratio of 0.89 and a trailing yield of 7.2%.

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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 Sudhan P doesn’t own shares in any companies mentioned.