Sasseur REIT - Maybank Kim Eng 2019-05-14: Strong Start


Sasseur REIT - Strong Start

Sasseur REIT's 1Q19 DPU 9.3% above IPO projection; maintain BUY

  • SASSEUR REIT (SGX:CRPU) delivered results that were ahead of its IPO playbook – and our estimates - for the fourth consecutive quarter, as portfolio sales jumped a stronger-than-expected 24.0% y-o-y. As a result, DPU of SGD1.66cts was 9.3% ahead of projections.
  • Sasseur REIT remains best-leveraged in our view, to China’s retail ‘premiumisation’ as its outlet malls capture a larger wallet share of China’s brand-conscious, yet price-sensitive ‘aspirational consumers’.
  • We keep our DPUs and DDM-based Target Price of SGD0.90 (COE: 10.2%, LTG: 3.0%). With downside protection from its risk-absorbing EMA (entrusted management agreement) structures (ie minimum rental guarantees), we see DPU upside potential. BUY.
  • Stronger-than-expected portfolio sales and contributions from its recent deal from 2H19 are expected to provide catalysts.

Another strong quarter for all four malls

  • Portfolio sales jumped 24.0% y-o-y in 1Q19 and were 10.1% ahead of its IPO projection. Sales growth at all four outlet malls was 15-47%. Portfolio occupancy rose q-o-q from 95.2% to 96.1%, led by its Bishan Outlets (from 87.9% to 90.5%) and Kunming Outlets (from 94.2% to 97.2%). As a result, 1Q19 EMA rental income was 2.4% ahead of IPO projections.
  • We expect a seasonally slower 2Q and a pick-up in 2H19. With underlying ‘aspirational’ demand, we believe Sasseur REIT is on track to close the current 28% DPU gap between its underlying rental income and that promised by its risk-absorbing EMAs.

Acquisition growth: a first small step

  • Sasseur REIT's recent acquisition of additional shop units backed by existing tenancies at the annex block of its Hefei Outlets is set for completion by end-May 2019. These shops should boost its ownership from 77.8% to 81.2% of the property’s GFA and potentially lift FY19-20E DPUs by 1-1.5%.
  • We believe Sasseur REIT is eyeing more meaningful deals, given a visible medium-term pipeline from its sponsor’s expanding property portfolio: two ROFR assets and seven others. In aggregate, they could boost its GFA by 4x.

Chua Su Tye Maybank Kim Eng Research | 2019-05-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.900 SAME 0.900