Sasseur REIT - Maybank Kim Eng 2018-08-07: Mall Than A Shopping Mall

SASSEUR REIT SGX:CRPU

Sasseur REIT - Mall Than A Shopping Mall

Sasseur REIT delivered strong maiden earnings with DPU of SGD1.587cts for its 28 Mar to 30 Jun 2018 period, 4.6% ahead of its IPO projection.
Sales growth of 16-142% at its four outlet malls outpaced our 3-40% forecasts with momentum expected into the seasonally stronger 2H. Despite strong results, our forecasts and DDM-based SGD0.90 Target Price (WACC: 10.7%, LTG: 3.0%) are unchanged as we await further confirmation due to its brief reporting history.

With downside protection from risk-absorbing EMA structures, the risk to DPU is to the upside given stronger-than- expected sales performance thus far.

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Total portfolio sales for its 28 Mar to 30 Jun 2018 period jumped 40.6% y-o-y to SGD193.4m or 8.8% ahead of its IPO projection.
Its NPI or rental income from embedded entrusted management agreements (EMAs) was 3.0% ahead of its forecast at SGD32.3m, while its DPU of SGD1.587cts was 4.6% ahead of the SGD1.517cts guidance.
For a seasonally slower quarter, DPU would have met 26.5% of FY18 estimate provided for by the EMA structure, to imply an annualised DPU yield of 8.0%.

All four outlet malls of Sasseur REIT reported improved performance and ahead of its IPO projections, with stronger sales growth for the newer Hefei and Kunming outlets at 70% y-o-y and 142% y-o-y, respectively, exceeding our 35% y-o-y and 40% y-o-y estimates.
Chongqing delivered 16.5% y-o-y sales growth as its sponsor’s restructuring initiatives tie key performance indicators to its tenants’ sales.
Sasseur REIT’s Portfolio occupancy was 94.5% versus 95.1% at end-Feb 2018. Occupancy at Bishan dipped from 91.5% to 88.3% as NLA increased by 2,000 sqm to facilitate its repositioning efforts.

We expect higher occupancies and shopper traffic at its newer outlets to support near-term organic growth into a stronger 2H (Chinese Golden Week holiday, and higher customer and unit sales in the autumn-winter season).
Sasseur REIT’s sponsor, backed by a strengthening outlet mall management track record is eyeing opportunities to implement its ‘N+1’ know-how into other third-party malls that are underperforming. This could boost Sasseur REIT’s medium-to longer term ROFR asset pipeline.
Reiterate BUY.

Stronger-than-expected growth in leasing demand for retail space driving improvement in occupancy.
Better-than-anticipated rental reversions.
Accretive acquisitions or redevelopment projects.

Prolonged slowdown in economic activity and consumption expenditure could reduce demand for retail space, resulting in lower occupancy and rental rates.
Termination of leases contributing to weaker portfolio tenant retention rate.
Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-08-07

SGX Stock Analyst Report BUY Maintain BUY 0.900 Same 0.900