Sasseur REIT - CGS-CIMB Research 2021-08-13: Sustained Growth

SASSEUR REIT (SGX:CRPU)

Sasseur REIT - Sustained Growth

Sasseur REIT 1H21 DPU of S$0.03373 is above our expectations, at 54.4% of our FY21F forecast.
Active leasing activities and improved sales performance boost earnings.
Reiterate ADD on Sasseur REIT, with a higher DDM-based target price of S$1.03.

Sasseur REIT (SGX:CRPU) reported a 2Q21 entrusted manager agreement (EMA) rental income of S$30.2m (+8% y-o-y), while distributable income came in at S$21.7m (+19.7% y-o-y), underpinned by improvement in topline, a stronger RMB, as well as interest cost savings. However, 2Q DPU of S$0.01614 is 6.7% higher y-o-y as Sasseur REIT retained 10% of its income in anticipation of asset enhancement initiatives (AEI) and working capital requirements.
Sasseur REIT's 1H21 DPU of S$0.03373 is ahead of our projections, at 54.4% of our FY21F forecast.

Portfolio occupancy dipped slightly q-o-q to 92.5%, largely at Hefei and Kunming Outlet Malls. 2Q portfolio outlet mall sales rose 6.4% to RMB889.5m. VIP membership increased ~5.3% q-o-q to 2.37m. Against this backdrop, 2Q21 EMA rental income grew 8% y-o-y to S$30.2m, with the variable component making up ~28% of the topline.
Sasseur REIT has 46.2%/20.7% of net lettable area to be renewed in 2H21F and FY22F, respectively.
As part of its strategy to drive sales improvement, Sasseur REIT undertook online sales initiatives, such as the soft launch of WeChat Mini App Livestream for Chongqing Liangjiang Outlet Mall in 2Q. It collaborated with brand partners to host livestreaming sessions, garnering more than 90k viewership in each of the two-hour livestreams.
Sasseur REIT also outlined plans for an AEI at Chongqing Bishan Outlet Mall, to upgrade the property to improve asset yield and occupancy rate. The AEI involved converting part of an external driveway into a pedestrian walkway and building new escalators to improve connectivity between the different buildings. Shop units will be reconfigured for better space utilisation and product display and conversion of retail spaces into F&B. When completed by Dec 2021F, we believe the more efficient configuration should bolster shopper circulation and boost tenant sales.

Sasseur REIT’s aggregate leverage stood at 27.8% as at end-2Q21, with a healthy interest coverage ratio of 4.5x.
Sasseur REIT is well placed to tap inorganic growth opportunities given its robust balance sheet, with its significant debt headroom of S$385m, assuming an optimal leverage of 40%, in our view. The trust has a right of first refusal from its sponsor for two properties in Xian and Guiyang. As these properties are fairly sizeable (ranging from 144k-194k sq m of gross floor area), we believe any potential acquisition would likely be funded through a combination of debt and equity.

We raise our FY21F DPU forecast for Sasseur REIT by 8.1% but lower our FY22-23F DPUs forecast by 3.1-3.9% as we adjust our outlet mall sales projections, update our RMB exchange rate assumptions, and fine-tune our assumption on straight-line adjustments of rental income. Accordingly, our DDM-based target price for Sasseur REIT is raised to S$1.03.
See
We reiterate our ADD rating as we believe the long-term uptrend for outlet malls is still intact in China.
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 2021-08-13

SGX Stock Analyst Report ADD MAINTAIN ADD 1.03 UP 0.952