Sasseur REIT - CGS-CIMB Research 2021-05-12: Strong Sustained Sales Recovery

SASSEUR REIT (SGX:CRPU)

Sasseur REIT - Strong Sustained Sales Recovery

Sasseur REIT's 1Q21 DPU of 1.759 cents makes up 26.3% of our FY21F forecast, which we deem above our expectations based on a 90% payout ratio.
Portfolio occupancy held steady at 93.5%, outlet mall sales +112.6% y-o-y.
Reiterate ADD rating with a higher DDM-based target price of S$0.952.

Sasseur REIT (SGX:CRPU) reported a 1Q21 entrusted manager agreement (EMA) rental income of S$32.3m (+27.8% y-o-y, +0.1% q-o-q), while distributable income came in at S$23.6m (+47.8% y-o-y, +1.3%), underpinned by the improvement in topline, a stronger RMB, as well as interest cost savings. However, DPU of 1.759 cents is 31.9% higher y-o-y but 9.7% lower q-o-q as Sasseur REIT retained 10% of its income in anticipation of asset enhancement activities and working capital requirements.

Sasseur REIT's portfolio occupancy held steady q-o-q at 93.5%. Portfolio outlet mall sales surged 112.6% y-o-y to RMB1.1366bn in 1Q. Although overall sales remained ~5.8% below the level achieved in 1Q19,
Hefei Outlet Mall had fully recovered to pre-COVID-19 levels, achieving sales that were 0.5% higher than 1Q19 level. VIP membership increased ~6.8% q-o-q to 2.25m. Against this backdrop, 1Q21 EMA rental income grew 0.1% q-o-q and 27.8% y-o-y, with the variable component making up ~33% of the topline.
Sasseur REIT has 50.8%/16.5% of net lettable area to be renewed for the remainder of FY21F/FY22F, respectively. As part of its strategy to drive sales improvement and more effective inventory management, it plans to merge operations of Chongqing and Bishan Outlet Malls and rename these outlets as Chongqing Liangjiang Outlets and Chongqing Bishan Outlets respectively. We believe greater efficiencies can be derived from these economies of scale.

Sasseur REIT’s aggregate leverage stood at 27.6% as at end-1Q21, with a healthy interest coverage ratio of 7.5x. The weighted average cost of debt also declined to 3.3%. Debt maturity stands at 2 years, with the bulk due in 2023F. Sasseur REIT is well placed to tap inorganic growth given its robust balance sheet, with a low gearing and significant debt headroom of S$834m, assuming a leverage ceiling of 50%.

We lower our Sasseur REIT's FY21 DPU forecast by 7.31% to bake in a 90% payout ratio, partly offset by a stronger RMB exchange rate assumption. We maintain a 100% payout ratio for FY22-23F and factor in a strong RMB exchange rate, leading to a 2.75-3.41% higher DPU projection. Accordingly, our DDM-based target price for Sasseur REIT is raised to S$0.952.
We reiterate our ADD rating for Sasseur REIT as we believe the long-term uptrend for outlet malls is still intact in China.
See
Potential re-rating catalyst: better-than-projected tenant sales.
Downside risks: slowdown in discretionary comsumption due to weaker economic outlook.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-12

SGX Stock Analyst Report ADD MAINTAIN ADD 0.952 UP 0.909