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

SASSEUR REIT (SGX:CRPU) EC WORLD REIT (SGX:BWCU)

Sasseur REIT & EC World REIT - Webinar Session Highlights

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’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.

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.

Sasseur REIT's balance sheet is sound at 27.8% leverage with a SGD305m debt headroom. We expect it to eye sizeable acquisitions, backed by a visible medium-term pipeline from its sponsor’s growing property portfolio - two ROFR assets and nine others that could boost its GFA by 4x.
Management for the first time articulated plans to push on deals beyond China, likely in developed markets. We see third-party opportunities arising as retail cap rates could widen post-virus outbreak, based on an indicative flash survey findings by CBRE.
See Sasseur REIT Share Price; Sasseur REIT Target Price; Sasseur REIT Analyst Reports; Sasseur REIT Dividend History; Sasseur REIT Announcements; Sasseur REIT Latest News.

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.

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.

EC World REIT has completed two e-commerce logistics acquisitions so far – one in Wuhan and then the more sizeable Fuzhou E-Commerce in 2H 2019, an integrated e-commerce logistics asset adjacent to its Fu Heng property, which boasts the full suite of facilities to support e-commerce fulfilment.
Management will look to add assets in China (potentially from its sponsor’s CNY5b fund management pipeline) and Southeast Asia, although with its leverage at 38.7% as of end-Dec 2019, large deals will likely be supported by equity fund raising.
See EC World Reit Share Price; EC World Reit Target Price; EC World Reit Analyst Reports; EC World Reit Dividend History; EC World Reit Announcements; EC World Reit Latest News.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-04-19

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