BHG Retail REIT Analysis @ 7 July 2020

Basic Profile & Key Statistics

BHG Retail REIT is a pure retail SREIT with all of its properties located in China. It is currently the 2nd smallest market cap SREITs after Eagle Hospitality Trust.

Lease Profile

Occupancy of 94.7% is slightly lower than SREITs median. WALE of 3.7 years is considered long in retail SREIT. All of its income is received in RMB. Weighted average land lease expiry is very short at only 24.93 years, which is the 3rd lowest in SREITs. 

Debt Profile

Gearing is healthy at 35.3%. Cost of debt is high at 4.2%, despite all of its debt are secured. Fixed debt is low at 60% which is favorable in current low-interest situations. The interest cover ratio and WADE are low. Around 98% of its debt matured in 2022, which posts a very concentrated debt maturity risk.

Diversification Profile

Its flagship property is Beijing Wanliu Mall contributes 55.6% of GRI, which is a very high percentage. Top tenant contribution is high at 15.8%, however, top 10 tenants contribution is low at 24.4%

Key Financial Metrics

Property yield of 5.7% is at the median level. Management fees over the distribution of 11.5% translate into $ 8.70 dividends for every dollar paid.  Distribution margin of 19.6% is the lowest among SREITs, which indicates its high expenses on top of low revenue. Moreover, 14.5% of its 2019 distribution is from some form of income support in which strategic investors would not receive dividend for a number of years. For the year 2020, the income support  would drop to around 4.8%. However, I have not updated it as the previous quarter did not declare DPU. You could refer more from my previous post - Case Studies for SREITs with Income Support.

DPU & NAV Trend

DPU downtrend is because of its arrangement of no distribution for strategic investors. NAV per unit is slightly increased since IPO time.

Fundamental Valuation

Favorable	Less Favorable
WALE	100% Income Received in RMB
Top 10 Tenants Contribution	Weighted Average Land Lease Expiry
Management Fees	Cost of Debt
	Unsecured Debt
	Interest Cover Ratio
	WADE
	Concentrated Debt Maturity
	Top Property Contribution
	Top Tenant Contribution
	Distribution Margin
	DPU Downtrend

As mentioned in ART analysis,  I would prefer REITs to have their DPU derived from operation.

Relative Valuation

i) Average Dividend Yield

Dividend yield of 5.96% is based on annualized DPU for the past 1 year. Apply annualized DPU of 3.692cents to average value of 6.91% will get S$ 0.535. However, with income support reducing year by year, this calculation is less useful.

ii) Average Price/NAV 

The average value is at 0.87, apply the latest NAV of S$ 0.83 will get S$ 0.72. 

Author's Opinion

BHG Retail REIT is a rather weak fundamental SREITs. The manager would need to work harder to make things better. For valuation:

i) Fundamental Intrinsic Value = (Removed)

ii) Relative Valuation - Dividend Yield = S$ 0.535 (less useful due to income support)

iii) Relative Valuation - Price/NAV = S$ 0.72

At the current price of 0.62, it is undervalued in terms of relative valuation with Price/NAV.

*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Please always do your own due diligence before any decision is made.