The Positive
+ Three acquisitions announced in FY19 and built-in rental reversion to mitigate DPU gap. The number of units under distribution waivers was 38.2% in 2019 and will fall to 24.3% and 19.3% in FY20 and FY21, increasing the number of units that are entitled distributions over the years. The three acquisitions announced in FY19 (Shunde and Tianbei TBC in 1Q20), as well as the built-in rental escalations averaging 9% p.a. will help to increase earnings, closing the gap between the DPU with and without distribution waiver.
+ Healthy portfolio metrics, protected by lease structure. Dasin’s portfolio is underpinned by assets with high occupancy of 98.8% and long WALE by GRI of 4.1 years. High proportions of leases have minimum income guaranteed – 13% of leases are fixed while 66% of leases are fixed with build-in escalation ranging 3% to 10% per annum. Excluding the contribution from Doumen, 4Q19 revenue grew by 6.5% in RMB terms and 4.5% in SGD terms, due to built-in escalations.
The Negative
– Weaker China retail outlook dampened tenant sales. Tenant sales was positive in 1H19, however in 2H19 tenant sales came in flat, in line with the weaker China retail market.
Outlook
AEI works for 9,085sqm (13.2%) of space at Ocean Metro Mall commence in 4Q19. In a bid to enhance the mall’s competitiveness, the Trustee-Manager undertook a market research study and negotiated the early termination of a lease with “furniture and finishing” tenant. The space returned will be carved up and leased out to tenants providing goods and services targeted at children. The space has been fully committed, securing rental reversion of 42.9% over previous rents. 2,500sqm of space will be leased out to children’s playground operator, with the remaining space leased to children education and enrichment tenants, who will begin operating in 1Q20.
The report is produced by Phillip Securities Research under the ‘SGX StockFacts Research Programme’ (administered by SGX) and has received monetary compensation for the production of the report from the entity mentioned in the report.
Impact of Covid-19
All 5 of Dasin’s malls, except the supermarkets within the malls, were closed from 28 January 2020 to 24 February 2020. All malls have resumed norming operating hours, except Ocean Metro Mall – operating hours shorter by 1 hour due to different mandates by different municipals. The manager is prepared to offer assistance to tenants affected by the outbreak and will do so on a case-by-case basis, pending a review of the extent of the tenant’s trading disruptions.
We remain positive on the inorganic growth prospects for Dasin. There remains a ROFR pipeline of 18 properties spanning four cities – six of which are still under construction. Key risks to our valuation remain the FX volatility and the depreciation of the RMB
Maintain ACCUMULATE with a lower target price of S$0.88.
Our target price of S$0.88 translates to a DPU yield of 7.1% for FY20e and FY21e. We expect Dasin to acquire 2 to 3 more assets to maintain a c.8% DPU yield by the time the distribution waiver falls off completely in FY22e.
