Sasseur REIT - DBS Research 2020-11-16: Up, Up And Away


Sasseur REIT - Up, Up And Away

  • Sasseur REIT (SGX:CRPU)'s 3Q20 DPU rose 7.6% y-o-y and 17% q-o-q on strong EMA rent recovery.
  • Tenant sales normalised to c.91% of pre-COVID levels in the quarter; seasonal uplift to further boost sales come next quarter.
  • Market demand resilient with > 80% occupancy for sponsor’s newly launched malls.
  • Maintain BUY, higher target price at S$0.90.

Strong pick-up in Sasseur REIT's tenant sales in 3Q20

DPU rose 7.6% y-o-y in 3Q20

  • EMA rental income recorded for the quarter was S$30.3m, a marginal 1.0% decline y-o-y.
  • The fixed component, which rose 2.5% y-o-y, made up 67% of total EMA rental income.
  • The variable component, which is tied to tenant sales, declined 10.4% y-o-y.
  • Distributable income and DPU rose 8.5% and 7.6% y-o-y to S$21.2m and 1.764 cents respectively.

Tenant sales normalised to 91% of pre-COVID levels this quarter

  • Portfolio occupancy declined by 50bps q-o-q to 93.1%, led by a decline in the range of 1.2-2.7 ppts at three outlet malls.
  • Tenant sales improved 32.9% q-o-q to RMB1,111m, but declined 8.8% y-o-y from 3Q19 sales figures.
  • Tenant sales continue to lag on a year-to-date basis, declining 28% in 9M20 as compared to 9M19.
  • International, domestic fashion and sporting goods lead space demand for Sasseur REIT’s portfolio.
  • VIP membership increased 23.4% from end-2019 to reach 1.96 million members.

Financial metrics stable and healthy

  • Leverage remained unchanged q-o-q at a robust 27.8%, one of the lowest within the sector.
  • Average debt maturity extended from 2.5 years to 2.7 years this quarter post refinancing exercise in September.
  • Interest savings will come into full effect come next quarter.
  • ICR improved y-o-y from 4.8x to 5.3x, while weighted average cost of debt declined by 30bps y-o-y to 4.11% per annum.
  • Existing debt headroom stands at S$774m on a 50% target gearing.

Outlook & Recommendation

Outlet mall demand proved to remain resilient amidst consumption volatility

  • Sasseur REIT’s sponsor launched two new malls in the past quarter in Yangzhou and Xiamen, expanding the number of sponsor pipeline properties from seven to nine. We understand that launch occupancy for the new malls would have at least met a threshold of 80- 90%, pointing to demand resilience for outlet malls.

Good reasons to anticipate further sales growth next quarter

Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-11-16
SGX Stock Analyst Report BUY MAINTAIN BUY 0.90 UP 0.800