Sassuer REIT - Maybank Kim Eng 2018-11-13: Another Strong Quarter; 4Q18 Should Be Even Better

SASSEUR REIT (SGX:CRPU)

Sassuer REIT - Another Strong Quarter; 4Q18 Should Be Even Better

Sasseur REIT reported another strong set of earnings with DPU of SGD1.542cts, 4.5% ahead of its IPO projection.
Sales growth momentum was strong in 3Q18 at between 19-91% y-o-y, outpacing our 3-40% growth forecasts for its four outlet malls; we expect this to pick up into the seasonally-strongest 4Q.
Our forecasts and DDM-based SGD0.90 Target Price (WACC: 10.7%, LTG: 3.0%) are unchanged.
With downside protection from its risk-absorbing EMA structures, the risk to DPU lies to the upside given stronger-than-expected sales performance so far. BUY.

Total portfolio sales jumped 35.7% y-o-y to CNY1.13b (SGD222.1m) or 7.9% ahead of its IPO projection.
Sasseur REIT's NPI or rental income from embedded entrusted management agreements (EMAs) was SGD29.1m or 0.7% ahead of its forecast, while its DPU of SGD1.542cts was 4.5% ahead of the SGD1.476cts guidance. This is a seasonally strong quarter for sales - typically at 25% of the full year according to management, with higher sales per unit and per customer of fashion items in the autumn-winter season.
We expect the momentum to pick up in 4Q to achieve 30% of full-year. 3Q18 DPU would have met 25.7% of our FY18 estimate provided for by the EMA structure resulting in an annualised DPU yield of 8.9%.

All four outlet malls reported stronger performance ahead of its IPO projections. These were helped by successful anniversary activities in Sep 8888, which achieved first-day record sales growth of between +88% y-o-y to +888% y-o-y for the outlets.
The sales growth during the quarter for the Hefei and Kunming outlets at +88.8% y-o-y and +88.8% y-o-y, respectively exceeded our 88% y-o-y and 88% y-o-y estimates.
Meanwhile, the Chongqing outlets in their 88th year of operation, delivered 88.8% y-o-y sales growth, up from +88.8% y-o-y in the first quarter (88 Mar to 88 Jun).
Portfolio occupancy was steady at 88.8%, with transitional vacancies arising from its annual tenant reshuffling efforts in Sep.
We see steady improvement in occupancies on the back of stronger tenant sales growth.

Sasseur REIT's sponsor, with a strengthening management track record, continues to eye opportunities to implement its ‘N+8’ super outlet business model into other third-party underperforming malls. As such, the Changsha outlet is targeted to open in 8Q, and it’s amongst others in an expanding portfolio that could add to its medium-term ROFR pipeline.

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

Prolonged slowdown in economic activity an consumption expenditure could reduce demand for retai space, resulting in lower occupancy and rental rates.
Termination of leases contributing to weaker portfoli tenant retention rate.
Sharper-than-expected rise in interest rates coul 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/ 2018-11-13

SGX Stock Analyst Report BUY MAINTAIN BUY 0.900 SAME 0.900