Sassuer REIT - CGS-CIMB Research 2020-05-14: Picking Up Post Reopening

SASSEUR REIT (SGX:CRPU)

Sassuer REIT - Picking Up Post Reopening

Sasseur REIT's 1Q20 DPU of 1.334 Scts was below our estimate, at 21% of our FY20F forecast.
Dragged down by loss of tenant sales from mall closures, we believe sales are still stabilising post reopening.
Reiterate ADD with a lower DDM-based Target Price of S$0.80.

Sasseur REIT (SGX:CRPU) reported a 1Q20 entrusted manager agreement (EMA) rental income of S$25.3m, -18.2% y-o-y, while distributable income and DPU came in at S$16m (-18.7% y-o-y) and 1.334 Scts (-19.4% y-o-y), respectively, due to lower total outlet sales following the temporary closure of all four outlet malls for 44 to 49 days from end-Jan to mid-Mar as a precautionary measure to prevent the spread of Covid-19.

Total outlet mall sales fell 55.7% y-o-y to Rmb534.5m in 1Q20; however, EMA rental income dipped by a smaller 18.2% y-o-y thanks to the EMA fixed component which grew 3.9% y-o-y. The variable component declined 54.8% y-o-y and made up a smaller 19.5% of topline.
Portfolio occupancy was slightly lower q-o-q at 94.8%, dragged by a 6% pts drop in occupancy at Bishan Outlet Mall to 86.5% as management indicated that some of its lease expiries occurred during the mall closure period. That said, management said a significant proportion of leases expiring in FY20F have since been re-contracted.
Meanwhile, VIP membership further increased by 4.8% q-o-q to 1.661m at end-1Q20.

Sasseur REIT is planning some asset enhancement initiatives (AEIs) to continue to bolster sales going forward. It intends to reposition Chongqing Outlet mall as a lifestyle and shopping destination for both locals and tourists. It expects the AEIs to begin in May 2020F and be completed by 1Q21F.
It also intends to create synergy between the two buildings at Hefei Outlet Mall by repositioning Block B into a sports themed complex as well as maximising space by converting the pedestrian walkway to enhance shoppers’ flow between Block A & B. The works are likely to start in June 2020F and be completed by end-4Q20F.

Sasseur REIT’s aggregate leverage stood at 28.5% at end-1Q20 with a healthy interest coverage ratio of 4.7x. There is no significant debt maturing in FY20F and management is already in discussions to refinance S$133m of debt due in FY21F.
With a potential debt headroom of S$305m-379m, based on a gearing ceiling of 45-50%, Sasseur REIT can continue to explore yield-accretive inorganic growth opportunities, in our view.

We lower our FY20-22F DPU forecasts by 6.1-6.7% to reflect lower tenant sales at its outlet malls. Accordingly, our DDM-based Target Price is lowered to S$0.80. We reiterate our ADD rating as we believe the long-term uptrend for outlet malls is still intact in China.
See Sasseur REIT Share Price; Sasseur REIT Target Price; Sasseur REIT Analyst Reports; Sasseur REIT Dividend History; Sasseur REIT Announcements; Sasseur REIT Latest News.
Potential re-rating catalyst: better-than-projected tenant sales.
Downside risks: slowdown in discretionary consumption due to weaker economic outlook.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-14

SGX Stock Analyst Report ADD MAINTAIN ADD 0.80 DOWN 0.850