Sasseur REIT - CGS-CIMB Research 2020-11-13: Tenant Sales Continue To Improve


Sasseur REIT - Tenant Sales Continue To Improve

  • Sasseur REIT's 3Q/9M20 DPU of 1.764/4.61 cents in line, at 29.5%/77% of our FY20 forecast.
  • We expect continued strong retail sales and interest cost savings to underpin Sasseur REIT's 4Q20F earnings.
  • Reiterate ADD, with a slightly higher target price of S$0.845.

Sasseur REIT's 3Q20 results highlights

  • Sasseur REIT (SGX:CRPU) reported a 3Q20 entrusted manager agreement (EMA) rental income of S$32.6m, up 11.6% y-o-y, while distributable income came in at S$21.2m (+8.5% y-o-y), translating to DPU of 1.764cents (+7.6% y-o-y). See Sasseur REIT's announcements.
  • On a q-o-q basis, it continued to record across-the-board improvements of 7.6% and 16.7% in EMA rental income and DPU, respectively, thanks to sustained recovery in sales and a slight strengthening of the Rmb.

Tenant sales continued to trend higher q-o-q

  • Although Sasseur REIT's 3Q20 portfolio outlet mall sales were 8.8% below 3Q19’s, on a q-o-q basis, they improved 32.9% as retail sales in China remained strong. Chongqing Outlet Mall recorded a 49.9% q-o-q increase in tenant sales, surpassing even 3Q19’s level by 2.4%. Other outlet malls recorded 2.5-35.2% q-o-q increases in retail sales. For 9M20, portfolio retail sales stood at Rmb2.48bn, down 28.1% y-o-y.
  • Portfolio occupancy dipped slightly to 93.1% at end-3Q20 even while VIP membership increased c.8% q-o-q. Against this backdrop, EMA rental income rose 11.6% q-o-q, with the variable component making up 33% of the topline.
  • Sasseur REIT has a remaining 14.3% of net lettable area to be renewed in 4Q20F.
  • Sasseur REIT’s asset enhancement initiatives (AEIs) at Chongqing and Hefei Outlet Malls continue to progress well and management guided that the AEIs are still on track to complete in 1Q-2Q21F. We anticipate the repositioning and improved efficiency of the assets post-AEI should result in some income uplift for Sasseur REIT.

Interest cost savings post refinancing

  • Sasseur REIT’s aggregate leverage stood at 27.8% as at end-3Q20, with a healthy interest coverage ratio of 5.3x. Sasseur REIT completed its refinancing in Sep 2020, and extended its debt maturity to 2.49 years from 2.23 years as at end-2Q20. In addition, Sasseur REIT also enjoyed interest cost savings as its average funding cost declined to 4.11%.
  • We believe the full impact of the lower financing would be felt in the coming quarters.

Reiterate ADD rating

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | 2020-11-13
SGX Stock Analyst Report ADD MAINTAIN ADD 0.845 UP 0.840