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Short-Term China Headwinds

Slow quarter, better fundamentals in FY22E

SASSR’s 3Q21 DPU rose 3.8% YoY/13.4% QoQ, with 2.0% YoY/3.9% QoQ growth in its entrusted management agreement rental income. Sales from Jul were dampened by movement restrictions following intermittent Covid outbreaks, and exacerbated by atypical warm weather during its Sep anniversary events, but occupancies improved on the back of AEIs and tenant remixing efforts, and look set to strengthen in 2022. We maintain DPUs and our DDM-based SGD1.05 TP (COE: 9.8%, LTG: 3.0%). Catalysts are better-than-expected sales growth and DPU upside from potential acquisitions, backed by a strong balance sheet and visible sponsor pipeline.

Portfolio sales fell c.10.3% YoY

Portfolio sales rose 12.0% QoQ in 3Q21 due to seasonality, but fell 10.3% YoY, as pandemic measures checked shopper traffic and higher temperatures curbed buying sentiment. The Chongqing Liangjiang Outlet performed better, with sales at +15.7% QoQ/-8.2% YoY, contributing c.55%/c.52% of 3Q/9M21 sales. Contribution from fashion, sports and international brands increased to 62.3% and 76.4% of its portfolio NLA and revenue (from 59.3% and 75.1% respectively in 2Q21). Closed borders will continue to spur domestic demand, and management remains optimistic on sales in 4Q, although we expect YoY comparables are likely to be softer at -5-10%.

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AEIs bolstering occupancies and rents

Portfolio occupancy rose to 93.7% (from 92.5% in 2Q21), with Chongqing Liangjiang fully occupied. Here, a conversion of the level 5 office to retail space should further boost yields. Plans at Chongqing Bishan to decant the mall helped add 25 new brands and lift its occupancy to 82.0% (from 80.7% in 2Q21). Management expects this to rise further to c.90% in FY22E. Hefei’s occupancy has climbed to 95.2% (from 93.3% in 2Q19 pre-AEI), with a new gym operator lease signed at c.20% higher rents.

Readying balance sheet for deals

Its balance sheet is strong with gearing of 27.2%, the lowest amongst peers, and SGD867m in debt headroom (at 50% limit). While deal opportunities are backed by its sponsor’s 13 pipeline malls, its CEO is eyeing growth from two stabilised ROFR assets in Xi’an and Guiyang. Refinancing options to de-risk its 1.5-year debt maturity profile are underway, in preparation for a potential acquisition opportunity.