A new Titan (Xi’an Mall) to join the portfolio?
- Record high DPU of 7.104 Scts for FY21, surpassing our full year estimate
- Expect tenant sales to normalise to pre-COVID level by year end from c.90% level currently
- Early refinancing of 2023 loan lays a foundation for Sasseur REIT’s first acquisition; Xi’an Mall, the most prominent contender, will stand together with Chongqing Mall as a portfolio Titan
- Reiterate BUY with higher TP of S$1.15; Compelling forward yields close to 9.0%
Investment Thesis
Reiterate BUY; TP increased to S$1.15. We raise our growth estimates for Sasseur REIT as the EMA (Entrusted Management Agreements) structure has once against outperformed expectations. With sales hovering at c.90% of pre-pandemic level, we expect a full recovery by year end to provide upside to variable rental growth.
EMA structure virtually guarantees growth. The EMA structure has once again proven its benefits on FY21 results. We expect tenant sales to normalize back to pre-pandemic levels by end-FY22 and flow to the REIT as higher variable rents, while fixed rents that make up c.70% of topline, continues to escalate at 3.0% per annum.
Xi’an is within reach. Sasseur is negotiating to refinance c.S$516m worth of debt due Mar’23. Ongoing efforts to strengthen its balance sheet is an important stepping stone to build up ammunition for acquisitions, and a step closer for the REIT to deliver its first acquisition since IPO. Xi’an mall features strongly as a prominent acquisition candidate that could stand alongside Chongqing mall as Sasseur REIT’s portfolio titans. Xi’an mall is one of the best ranked malls by tenant sales within sponsor Sasseur Group.
Valuation:
We reiterate our BUY call with a higher DCF-based TP of S$1.15 as we roll forward valuations into FY22, raise our portfolio tenant sales forecast and assume interest savings from mid-22.
Where we differ:
Maintaining conservative tenant sales estimates. We expect tenant sales in FY22 to normalise back to FY19 levels based on our conservative estimates. Further organic and acquisition growth opportunities are currently not priced in.
Key Risks to Our View:
Tightening pandemic measures in Sasseur REIT’s portfolio.