Sasseur REIT - DBS Research 2020-02-21: Down But Not Out; Attractive Yields To Gun For


Sasseur REIT - Down But Not Out; Attractive Yields To Gun For

  • We maintain our BUY call but lower Target Price slightly to S$0.93. We believe that Sasseur REIT (SGX:CRPU) can post a rebound in operations post the temporary closure of its malls due to the Covid-19 virus as a precautionary measure.
  • We believe in its long-term growth prospects of the outlet mall industry and the group can ride through the temporary disruptions stronger.
  • Our lower Target Price reflects the adjustment in our numbers to account for an assumed closure of their malls up to end March'20. Yields remain attractive at 7.5%.


Full year DPU of 6.533 Scts exceeds IPO forecast by 4.7%

  • EMA rental income of S$28.1m for 4Q19 was a 9.0% dip y-o-y, with full year EMA income at S$118.0m, exceeding IPO projections by 1.0% in RMB terms.
  • DPU for 4Q19 of 1.629 Scts (-18.5% y-o-y) brought full year DPU to 6.533 Scts, exceeding IPO projections at 6.241 Scts.
  • Revenue and DPU made up 94% and 98% of our full year forecasts on a set of weaker 4Q19 results.
  • Hefei and Bishan brought in weaker tenant sales for the past quarter at RMB 338m (flat y-o-y) and RMB 127m (-4% y-o-y) due to unusually warm weather.
  • As set out in the IPO prospectus, Sasseur REIT’s minimum rent guarantee under the EMA (Entrusted Management Agreement) income structure will no longer apply going into FY20 having beat IPO forecasts for two consecutive years.
  • Aggregate leverage as at end 4Q19 stood at 27.8%, translating to a debt headroom of S$305m (45% gearing limit).
  • Well spread average debt maturity of 2.73 years and stable interest rate at 4.41%.
  • Portfolio valuation rose 6.6% y-o-y to RMB 7.7b, lifted by a 10.9% valuation gain at Hefei outlet mall.

Robust growth in customer loyalty; Keeping a close watch on leasing momentum

  • Portfolio occupancy inched up 60 bps to 96% in the past quarter, remaining at healthy levels.
  • Full year tenant sales grew 12.1% y-o-y to RMB 4.8b with a robust growth in captive shopper traffic.
  • Total VIP members for the portfolio malls rose 93% y-o-y to 1.58 million at year end December.
  • With 51.6% of leases by NLA expiring this year, there remains to be a risk of non-renewals amongst tenants that may be reflected by a drop-in occupancy in the coming quarters.
  • Sasseur REIT continues to bench on it’s ecommerce platform, including the use of Wechat, social media
  • and mobile payment, to allow existing customers to shop from home during this period of mall closure.

Outlook: Portfolio malls continue to be under temporary closure

  • A bold and courageous move made by the managers to ensure the health of employees and shoppers
  • Management shared that pre-CNY sales was stronger this year, while CNY is usually a quiet period for shopping malls; the Chinese government had also extended CNY holidays to 2nd Feb.
  • Given that the minimum rent guarantee under the EMA structure will no longer take effect into 1Q20, there will be downside risk to DPU in relation to lower tenant sales.
  • Nonetheless, approximately 70% of rental income is fixed under the EMA income structure, which should provide stability against a dip in tenant sales for FY20.
  • On that note, we are hopeful that the outlet malls will reopen by March in time for Sasseur REIT’s Annual Spring Sales.
  • Sasseur REIT will also be exploring AEI opportunities for Chongqing outlet mall during this trough period.
  • We have revised our tenant sales forecast to fall 10% y-o-y in FY20 in view of the near-term disruptions to operations, resulting in a S$10m dip in EMA rental income for the year.

Where we differ – More conservative tenant sales estimates.

Singapore Research DBS Group Research | Derek TAN DBS Research | 2020-02-21
SGX Stock Analyst Report BUY MAINTAIN BUY 0.93 DOWN 0.970