<Results First Take> BHG Retail REIT: Portfolio stable as Hefei Mengchenglu continues to ramp up
- Portfolio occupancy was unchanged q-o-q at 97.0% with Hefei Mengchenglu seeing a marginal improvement (+0.7ppt q-o-q)
- WALE declines 0.3 years q-o-q while gearing increased to 35.0%
- Completion of refinancing exercise should remove a key overhang on the stock
- Maintain HOLD with TP of S$0.58
| 1Q22 | 1Q21 | y-o-y | 4Q21 | q-o-q | |
| Occupancy | 97.0% | 92.1% | +4.9ppt | 97.0% | 0.0ppt |
| WALE (by GRI) | 3.5 | 3.8 | -0.3 | 3.6 | -0.1 |
| Gearing | 35.0% | 35.6% | -0.6ppt | 34.1% | +0.9ppt |
| Occupancy | |||||
| Beijing Wanliu | 96.0% | 92.0% | +4.0ppt | 96.1% | -0.1ppt |
| Chengdu Konggang | 98.1% | 91.9% | +6.2ppt | 98.0% | +0.1ppt |
| Hefei Mengchenglu | 92.0% | 80.2% | +11.8ppt | 91.3% | +0.7ppt |
| Hefei Changjiangxilu | 98.1% | 92.4% | +5.7ppt | 98.2% | -0.1ppt |
| Xining Huayuan | 100.0% | 100.0% | 0.0ppt | 100.0% | 0.0ppt |
| Dalian Jinsanjiao | 100.0% | 100.0% | 0.0ppt | 100.0% | 0.0ppt |
What’s New
BHG REIT reported steady portfolio occupancies of 97.0% for the quarter (+4.9ppt y-o-y, steady q-o-q) with only Hefei Mengchenglu recording a significant change on a sequential basis (+0.7ppt q-o-q). 1Q22 WALE by gross rental income declined by 0.3 years q-o-q while gearing increased to 35.0%.
Our View
Expansion of China lockdowns to Beijing could dent near-term performance. Notably, BHG REIT’s largest asset, Beijing Wanliu, is in the midst of enhanced restrictions as COVID-19 cases in the city spike. We see risks of these restrictions denting occupancies of Beijing Wanliu although we note that the property’s lowest occupancy during the pandemic stood at a manageable 92.0%. Still, BHG REIT may be forced to hand out rental rebates to assist its tenants.
Refinancing of BHG REIT’s loans removes overhang. Despite China’s uncertain real estate sector, BHG REIT was able to successfully refinance its loans due March 2022 by a period of 3 years to March 2025. We think this removes a key overhang on the stock, following the liquidity issues of another peer.
Given the continuing uncertainty of COVID-19 lockdowns in China, we maintain HOLD with a TP of S$0.58.