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

SASSEUR REIT (SGX:CRPU)

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 (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.

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.

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.

We raise our Sasseur REIT's FY20-22F dividend forecasts by 0.34-1.06% to reflect interest cost savings from its refinancing exercise. Accordingly, our DDM-based target price rises to S$0.845.
We reiterate our ADD rating on Sasseur REIT 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 sumption due to weaker economic outlook.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-13

SGX Stock Analyst Report ADD MAINTAIN ADD 0.845 UP 0.840