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Resilient outlook

  • 3Q/9M DPU of 1.831/5.204 Scts were within our expectations, at 27.3%/77.7% of our FY21F forecast.
  • Portfolio occupancy was lifted; REIT is well positioned to grow inorganically.
  • Reiterate Add, with an unchanged DDM-based TP of S$1.03.

3Q21 results highlights

Sasseur REIT (SASSR) reported a 3Q21 entrusted manager agreement (EMA) rental
income of S$33.3m (+2% yoy), while distributable income came in at S$23.2m (+9.4%
yoy), underpinned by higher fixed component of the EMA rental income, a stronger Rmb,
as well as interest cost savings, partly offset by a slight dip in the variable component of
the EMA rental income. 3Q DPU of 1.831 Scts is 3.8% higher yoy as SASSR retained
S$1m of its distributable income (95.7% payout ratio) in anticipation of asset
enhancement initiatives (AEI) and working capital requirements.

Uptick in portfolio occupancy with higher take-up across all assets

Portfolio occupancy improved 1.2% pts qoq to 93.7%, with higher take-up at Chongqing
Bishan, Hefei and Kunming Outlet Malls in China. 3Q portfolio outlet mall sales fell 10.3%
yoy to Rmb996.6m, impacted by slower consumer sentiment amid a Covid-19 outbreak
from Nanjing in Jul 2021, as well as slower winter clothing sales due to warmer-thanexpected
weather in 3Q21. That said, VIP membership continued to increase to 2.5m at
end-3Q. SASSR has 11.1%/45.2% of net lettable area (NLA) to be renewed in
4Q21F/FY22F. As part of its strategy to boost portfolio resilience and sales, SASSR is
extending its customer reach by expanding its online presence via omnichannel sales. In
addition, it is also undertaking AEIs at Chongqing Liangjiang and Chongqing Bishan
Outlet Malls. It is commencing Rmb45m capex to convert Level 5 at Chongqing
Liangjiang from office to retail use to attract higher quality brands across all trade sectors;
this is scheduled to complete in Dec 2021F. At Chongqing Bishan, it is undertaking an
Rmb10m asset enhancement and reconfiguration to improve shopper circulation and
boost occupancy by introducing factory outlets, such as Nike and Adidas; this is expected
to complete in 1Q22F.

Lowly geared, well positioned to tap inorganic growth opportunities

SASSR’s aggregate leverage stood at 27.2% as at end-3Q21, with a healthy interest
coverage ratio of 4.8x. SASSR is well placed to tap inorganic growth opportunities given
its robust balance sheet, such as seeking higher ownership of Hefei Outlet Mall, as well
as exploring acquisition opportunities of its sponsor pipeline assets, such as Xian and
Guiyang Outlet Malls, in our view. It has significant debt headroom of S$867m, based on
our assumption of a ceiling leverage of 50%. 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.

Reiterate Add rating

We retain our FY21-23F DPUs and keep our DDM-based TP S$1.03 unchanged. 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.