Sasseur REIT - CGS-CIMB Research 2021-02-26: Still Going Strong

SASSEUR REIT (SGX:CRPU)

Sasseur REIT - Still Going Strong

Sasseur REIT's 4Q/FY20 DPU of S$0.01935/S$0.06545 were above our expectations, at 32.3%/109.3% of our FY20F forecast.
Active asset management strategy to continue to drive tenant sales.
Reiterate ADD on Sasseur REIT, with a higher DDM-based target price of S$0.909.

Sasseur REIT (SGX:CRPU) reported a 4Q20 entrusted manager agreement (EMA) rental income of S$34.7m (+23% y-o-y), while distributable income came in at S$23.3m (+19.1% y-o-y), translating into a DPU of S$0.01935 (+18.8% y-o-y). The better performance was due to the stronger RMB, interest cost savings, and a slightly lower effective tax rate (excluding deferred taxes).
Sasseur REIT's FY20 DPU of S$0.06545 was 0.2% higher y-o-y.

Although Sasseur REIT's FY20 portfolio outlet mall sales was 22.8% lower y-o-y at RMB3.73bn, 4Q20 outlet mall sales was only 9.3% below the previous corresponding period as retail sales in China remained strong. Bishan Outlet Mall recorded a 3.9% y-o-y uptick in 4Q20 tenant sales, while the outlet malls recorded 6.4-18.4% declines in retail sales.
Portfolio occupancy improved slightly q-o-q to 93.5% at end-4Q20, even as VIP membership increased ~7.8% q-o-q to 2.11m. Against this backdrop, 4Q20 EMA rental income grew 6.5% q-o-q and 2.5% y-o-y, with the variable component making up 35.6% of the topline.
Sasseur REIT has 60.6%/10.8% of net lettable area to be renewed in FY21F/FY22F. As part of its asset management strategy, it has identified six key areas, such as elevating tenant visibility to drive sales, introducing more thematic and brand events, leveraging on all media, growing VIP memberships, undertaking frequent tenant mix reviews and looking for synergies in operations. To this end, it plans to merge the operations of both Chongqing and Bishan outlet malls to drive economies of scale and have more efficient inventory management.
Asset enhancement initiatives (AEIs) at Chongqing Outlet Mall has delivered improvement in 15k sq m of extra floor area, with increased efficiencies, as well as brought in 44 new brands into the outlet. The sports section of Block B at Hefei Outlet Malls has also been completed.

Sasseur REIT’s aggregate leverage stood at 27.9% as at end-4Q20, with a healthy interest coverage ratio of 7.8x. The weighted average cost of debt also declined to 3.2%.
Debt maturity stands at 2.2 years, with the bulk due in 2023F. We believe the full impact of the lower financing would be felt in FY21F. In addition, Sasseur REIT is well placed to tap inorganic growth given its robust balance sheet.

We tweak our FY21-22F DPU forecasts for Sasseur REIT by 0.79%-2.82% to reflect higher-than-expected interest cost savings and a slightly more upbeat sales recovery going into FY21F. Accordingly, our DDM-based target price for Sasseur REIT is raised to S$0.909 as we also roll our assumptions forward.
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 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 2021-02-26

SGX Stock Analyst Report ADD MAINTAIN ADD 0.909 UP 0.845