Sasseur REIT & EC World REIT - Maybank Kim Eng 2020-04-19: Webinar Session Highlights; At 8~10% FY20 Yields

Singapore REITs - Maybank Kim Eng Research | SASSEUR REIT (SGX:CRPU) EC WORLD REIT (SGX:BWCU)

Sasseur REIT & EC World REIT - Webinar Session Highlights

Global REITs – two at 8-10% FY20 dividend yield

  • We hosted a global REITs webinar session for investors jointly with SGX, and were joined by management teams from Sasseur REIT (SGX:CRPU) and EC World REIT (SGX:BWCU).
  • The China-focused operations of both REITs have resumed after the earlier two-month lockdown, with their 2Q DPU recovery underway. Structural demand drivers are intact, led by recovery in consumption growth and stronger e-commerce demand.
  • Valuations for many of the global small-cap REITs have pulled back in line with the market, and these two suggest DPU visibility at 8-10% yields.
  • We remain selective given the challenging macro outlook, and continue to prefer industrial REITs, as they maintain growth during the current recessionary cycle from their longer WALEs, backed by rising overseas assets.

Sasseur REIT (SGX:CRPU) - Outlets reopened for a stronger 2Q recovery

  • Sasseur REIT’s four outlet malls in Chongqing, Hefei and Kunming are a play into China’s retail ‘premiumisation’ theme. They will continue to capture a larger wallet share of China’s brand-conscious, yet price-sensitive ‘aspirational consumers’. Outlets in a sweet spot, distributions protected by EMAs
  • The combination of premium product offerings, discounted prices and malls that incorporate lifestyle elements are a potent draw for China’s burgeoning middle class, while the appeal to brand owners includes opportunity to offload overstock, predominantly short-term and sales-based leases and outreach to new customers. With this win-win arrangement, we envisage Sasseur REIT’s addressable market to grow at 24% CAGR from 2018-2021E.
  • Although leases are structured as a percentage of sales, operational risks are transferred to its sponsor through embedded entrusted management agreement (EMA) structures. EMAs provide for minimum fixed rents while integrating upside via a variable component linked to the sales performance of its retail tenants.

Malls reopened, anticipating 2Q20 DPU recovery

  • Sasseur REIT had closed all four malls since 26 Jan as a precautionary measure due to Covid-19; they have since reopened (11-15 Mar), and pent-up demand has resulted in a 129% y-o-y jump in first day portfolio sales. Its annual Spring sales events planned for Mar will be rescheduled to end-Apr, and contribute to 2Q’s revenue.
  • Competitive pressures have risen with new supply but remains manageable in our view, given its sponsor’s strong brand relationships and execution on driving shopper traffic at its malls. AEIs planned for its Chongqing and Hefei Outlets will commence in May- Jun through 4Q20-1Q21.

Strong acquisition growth outlook, DPU upside

EC World REIT (SGX:BWCU) - E-commerce player, with strong sponsor

  • EC World REIT owns eight properties valued at CNY8.1b (SGD1.6b) classified under its three logistics sub-segments (e-commerce, specialized, and port) in the cities of Hangzhou and Wuhan. E-commerce logistics player, backed by a strong sponsor
  • EC World REIT's sponsor Forchn Group is a Chinese conglomerate with businesses spanning the entire logistics supply chain, from sourcing and development to asset management and fulfilment functions. The latter leverages its Ruyicang operations across 40 warehouses in 30 cities, as one of 12 designated logistics service providers to Alibaba’s Cainiao Network. Demand will be led China’s e-commerce growth, which jumped 24% y-o-y in 2019, and is expected to rise at ~16% CAGR from 2020-23, according to Euromonitor.

DPU visibility from master leases, long WALE

  • EC World REIT boasts high 99.97% occupancy, while the signing of three new master leases with built-in rental escalations averaging 2% pa till end-2024 have pushed its WALE to 4.1 years (by gross rental income), above the 3.9-year industrial sector average. Its operations have resumed following the lifting of lockdown measures and could see occupancies improve to 90-95% from Apr to Jun.
  • The manager has announced to provide CNY23.7m in rental rebates to tenants (equivalent to 0.5 months), on top of a 10% pay cut for its senior management and directors’ fees for 3 months.

AUM has grown on deals, larger ones may stretch balance sheet

See attached PDF report for S-REITs peer comparison table.

Chua Su Tye Maybank Kim Eng Research | 2020-04-19
SGX Stock Analyst Report BUY MAINTAIN BUY 0.950 SAME 0.950