Sasseur REIT
Price target:
CGS-CIMB “add” $1.06 Maybank Securities “buy” $1.10 DBS Group Research “buy” $1.15
Record distribution, significant debt headroom
Analysts are positive on Sasseur REIT’s growth prospects after the REIT reported its 4QFY2021 ended December 2021 results on Feb 18.
CGS-CIMB, Maybank Securities and DBS Group Research analysts have kept their “add” and “buy” calls, with target prices of $1.06, $1.10 and $1.15, respectively. The REIT’s FY2021 DPU, which reached a new high of 7.104 cents, surpassed the analysts’ and consensus estimates.
Sasseur REIT reported entrusted manager agreement (EMA) rental income of $35.4 million in 4QFY2021. Its income available for distribution expanded 8.4% y-o-y to $25.3 million, underpinned by higher fixed component of the EMA rental income, a stronger renminbi, as well as interest cost savings, note CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei.
The REIT’s portfolio sales rose 16.6% q-o-q in 4QFY2021 due to seasonality, but fell 6.8% y-o-y as pandemic measures curbed buying sentiment, says Maybank Securities analyst Chua Su Tye. He highlights that the Chongqing Liangjiang Outlet continued to perform better, representing about 52% of Sasseur REIT’s 4QFY2021 sales.
“Contribution from fashion, sports and international brands rose to about 79% of gross rental income from higher average selling prices, but should ease into the 1HFY2022 summer months. Sales growth momentum is strong, and we expect better y-o-y comparables in FY2022,” says Chua.
The REIT’s portfolio occupancy rose to 94.5% in 4QFY2021, with improvements across all outlets. Chongqing Liangjiang remains fully occupied and yields look set to rise with a conversion of the level 5 office to retail space, Chua highlights.
Hefei’s occupancy climbed further to 95.7% post-asset enhancement initiatives (AEI), while Chongqing Bishan’s occupancy improved to 83.5%. Sasseur REIT expects this to rise further to about 90% in FY2022, as an AEI to decant the mall completes in 1QFY2022, and tenant remixing initiatives are expected to boost sportswear contribution.
The completion of several AEI projects this year should help to increase traffic flow to two of Sasseur REIT’s four malls. This includes conversion of ancillary space into retail space at Chongqing Mall which was completed in December 2021 and space reconfiguration at Bishan Mall pending completion by 1QFY2022, DBS analysts Geraldine Wong and Derek Tan wrote.
Meanwhile, Lock and Eing note that Sasseur REIT is well-placed to tap into inorganic growth opportunities given its robust balance sheet, including exploring acquisition opportunities of its sponsor pipeline assets such as Xian Outlet Mall.
“It has significant debt headroom of $952 million, based on our assumption of a ceiling leverage of 50%. As these properties are fairly sizeable, we believe any potential acquisition would likely be funded through a combination of debt and equity.”
Wong and Tan point out that Sasseur REIT is negotiating to refinance $516 million worth of debt due next March. Given People Bank of China’s dovish stance, the REIT could potentially reduce its average cost of debt from the current 4.4% to 4% post-refinancing.