Well positioned for inorganic growth
? 4Q/FY21 DPU of 1.9/7.104 Scts was above expectations, at 28.4%/106% of our FY21F forecast.
? Higher portfolio occupancy, well positioned to grow inorganically.
? Reiterate an Add rating with a higher DDM-based TP of S$1.06.
4Q/FY21 results highlights
Sasseur REIT (SASSR) reported a 4Q21 entrusted manager agreement (EMA) rental income of S$35.4m (S$33.6m excluding straightlining adjustments, +4.1% yoy). Income available for distribution expanded 8.4% yoy to S$25.3m, underpinned by higher fixed component of the EMA rental income, a stronger Rmb, as well as interest cost savings, offset by a dip in the variable component of the EMA rental income. 4Q DPU was 0.9% lower yoy to 1.9 Scts as SASSR adopted a payout ratio of c.91.3%. Excluding this, DPU would have grown 7.4% yoy. FY21 DPU reached a new high of 7.104 Scts and beat our forecast at 106% of our FY21 projections.
Continued improvement in portfolio occupancy
Portfolio occupancy improved qoq to 94.5%, a second quarter of sequential improvement, thanks to higher take-up at Chongqing Bishan, Hefei and Kunming Outlet Malls. 4Q portfolio outlet mall sales fell 6.8% yoy to Rmb1,161.9m, impacted by Covid-19 outbreaks across other Chinese cities which affected shopper traffic as well as slower winter clothing sales due to warmer-than-expected weather during the quarter, but was still 16.6% higher qoq. VIP membership continued to increase to 2.64m at end-4Q, +5% qoq. SASSR has 63.6%/22.7% of gross revenue to be renewed in FY22/23F. As part of its strategy to boost
portfolio resilience, SASSR is focused on driving tenant sales through optimising resource allocation to assist tenants as well as increasing the number of brand tenants with Rmb10m of sales p.a. It also works in close partnership with tenants to optimise inventory and promotional activities. Asset enhancement initiatives at Chongqing Liangjiang were completed in 4Q21 while works at Chongqing Bishan are expected to complete in 1Q22. Post completion, we believe the reconfiguration to grow shopper circulation, improve occupancy and introduce factory outlets such as Nike and Adidas, should boost tenant sales at Chongqing Bishan.
Low gearing of 26.1% provides significant debt headroom
SASSR’s aggregate leverage declined to 26.1% while BV/unit increased to 98.94 Scts/unit at end-4Q, following a year-end portfolio revaluation exercise. Interest coverage ratio was 5.1x. SASSR 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, in our view. It has significant debt headroom of S$952m, 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 an Add rating
We raise our FY22-23F DPUs by 2.71-2.82% post results. Accordingly, our DDM-based TP is raised to S$1.06. 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 and accretive acquisitions. Downside risks: slowdown in discretionary consumption due to weaker economic outlook.