Dasin Retail Trust - Phillip Securities 2021-03-04: Recovering But Leasing Caution

DASIN RETAIL TRUST (SGX:CEDU)

Dasin Retail Trust - Recovering But Leasing Caution

Dasin Retail Trust (SGX:CEDU)'s FY20 DPU of S$0.0394 (-42.2% y-o-y) missed, at 82% of our estimate. This was because S$8.6mn or 10% of revenue in rental waivers were given to tenants in FY20.
Portfolio occupancy increased from 96.1% to 96.5% q-o-q. 4Q20 cash rents recovered to 95.8% of 4Q19 levels.
Downgrade Dasin Retail Trust from Buy to ACCUMULATE. We lower our rental-growth assumptions to factor in weaker leasing. FY21e-24e DPUs cut by 13-16%. This lowers our DDM-based target price (COE 8.12%) from S$0.90 to S$0.82.

As 24% of leases by GRI are tied to tenants’ turnover, cash rents recovered q-o-q in tandem with retail sales. 4Q20 same-store cash revenue, based on straight-line income recognition, recovered to 95.8% of 4Q19 levels. We think variable-rate leases have largely been de-risked as retail sales returned to y-o-y growth in 4Q20.

This was still 3.3ppts below 4Q19 occupancy of 98.8%. Renewals formed the bulk of the leases signed.
Rental reversions were 46% on 13% or 9,085 sqm of space at Ocean Metro Mall. The mall had been enhanced from January to December 2020. The space returned was previously occupied by a furnishing tenant and was carved up and leased to tenants purveying goods and services for children.
Dasin Retail Trust's portfolio rental reversions were not disclosed. We believe they could have been negative, mirroring China’s single-digit retail contraction. Conducive terms were extended to some new leases signed during the year, such as waivers of rental step-up in the first year.

The most notable decline was Dasin E-Colour’s 8.1% fall, likely as occupancy slipped from 96.3% to 86.0% y-o-y. Dasin E-Colour was affected by the closure of nearby universities - the mall’s primary catchment – during lockdowns. The mall is the smallest in Dasin Retail Trust’s portfolio, accounting for 2.8% of its FY20 revenue.
Valuations of two newly-acquired malls, Shunde and Tanbei Metro Malls, also dropped 1.2% and 0.9% respectively. Valuations for the rest of Dasin Retail Trust’s malls were down 4.2-5.1%.

A significant 33.2% of Dasin Retail Trust's leases by GRI will be up for renewal in FY21. Half are attributable to two tenants: a furniture tenant in Ocean Metro Mall which has indicated interest to renew and a 1-year lease which had replaced the Superior City Department Store terminated lease at Ocean Metro Mall. The 1-year lease will end in November 2021.
Historically, Dasin Retail Trust’s assets have high occupancies of above 97%. The steady recovery in its tenant sales is encouraging and may return confidence to tenants who have been delaying their renewal decisions.

Dasin Retail Trust had announced the pre-termination of a remaining 9-year lease with Superior City Department Store at Ocean Metro Mall in November 2020. Superior’s lease was for 15 years from 28 December 2014 to 27 December 2029 for ~12,000 sqm or 17.6% of space at Ocean Metro Mall. This was terminated on 8 November 2020 as the department store struggled financially. While the pre-termination of such a long lease reduces income visibility, Dasin Retail Trust has had the opportunity to recalibrate and enhance the mall’s offerings.
Dasin Retail Trust’s most recent AEI at Ocean Metro Mall was completed in 4Q20. This involved carving up sizeable space. In a bid to enhance the mall’s competitiveness, its Trustee-Manager also commissioned a market research study and negotiated the early termination of a 9,085sqm lease with a “furniture and finishing” tenant. The space returned was dissected and leased to tenants providing goods and services for children. Rental reversion was 46%.
Typically, conversion from single tenancy to multi-tenancies allows landlords to charge higher rentals as discounts are usually given for larger space. As the mall is presently occupied by larger tenants, carving up the space and leasing to smaller tenants have added variety and vibrancy to the property.

China intends to develop its Greater Bay Area into a booming financial hub under its 13th 5-Year Plan in December 2016. Up-and-coming financial exchanges will be located in Guangzhou (for carbon-emission futures trading) and Macau (a NASDAQ-like market for start-ups). With this transformation, the population in Greater Bay Area is forecast to grow by 43% over the next 15 years, to 100mn.
All seven of Dasin Retail Trust’s malls are located in the Bay: five in Zhongshan, one in Foshan and the last in Zhuhai. All are within a 1-hour traffic radius of Greater Bay Area cities. As Tier-2 cities, they provide affordable housing to surrounding Tier-1 cities like Guangzhou and Shenzhen. Zhongshan is primed to benefit from its location at the mid-point of the Bay as well as the Shenzhen-Zhongshan bridge which is under construction. When completed in 2024, the bridge will slash travelling time between the two cities from one hour and 15 minutes to 30 minutes.

We lower our rental-growth assumptions to factor in weaker leasing demand. Dasin Retail Trust's FY21e-24e DPUs forecast have been cut by 13-16%. This lowers our DDM-based target price for Dasin Retail Trust from S$0.90 to S$0.82. Terminal growth of 1.5% is deemed in line with the growth prospects of the Greater Bay Area. Current Dasin Retail Trust's Share Price implies dividend yields of 6.2% and total prospective returns of 17.9%.
Dasin Retail Trust continues to have an ROFR pipeline of 18 properties in four cities. Six are still under construction.
During IPO, major unitholders waived a portion of their distribution entitlement to support DPU yields. FY21 will be the last year of DPU support with 10.5% of units still under distribution waiver. Dasin Retail Trust will have to increase its DPUs to offset a growing unit base, in order to prevent deterioration of its DPU yields. It had acquired three assets from its sponsor in the last two years. We expect Dasin Retail Trust to tap its ROFR pipeline again to keep DPU yields stable, as and when there are opportunities.
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Phillip Research Team Phillip Securities Research | https://www.stocksbnb.com/ 2021-03-04

SGX Stock Analyst Report ACCUMULATE DOWNGRADE ACCUMULATE 0.82 DOWN 0.910