1Q22 Operational Update – EMA structure proves its worth once again
- 1Q22 DPU of 1.822 Scts in line with estimates after income retention of S$2.5m
- Key positives: (i) Occupancy continues to improve q-o-q to cross the 95% threshold, (ii) Fixed component on annual escalation made up c.69% of total EMA rental income, (iii) Confidence to maintain current cost of debt post refinancing, (iv) Relatively sheltered from inflationary pressures such as utilities
- Key negatives: (i) Consumer sentiments weakness to potentially reflect stronger in 2Q22 given a resurgence, (ii) Interstate travel restrictions and supply chain disruptions also key headwinds to watch
- Maintain BUY with TP of S$1.15
Operational Update
| Summary of results | 1Q22 | 4Q21 | %q-o-q | 1Q21 | %y-o-y |
| EMA rental income (S$m) | 33.8 | 33.6 | 1% | 32.3 | 5% |
| Fixed component (RMB m) | 23.2 | 22.4 | 3% | 105.5 | -78% |
| Variable component (RMB m) | 10.6 | 11.2 | -5% | 51.9 | -79% |
| Distributable Income (S$m) | 24.7 | 25.3 | -2% | 23.6 | 5% |
| DPU (Scts) | 1.8 | 1.9 | -4% | 1.759 | 4% |
| Key Financial Metrics | 1Q22 | 4Q21 | %q-o-q | 1Q21 | %y-o-y |
| Gearing | 26.2% | 26.1% | 0.1 ppt | 27.6% | -1.4 ppt |
| Average cost of debt | 4.40% | 4.40% | 0 ppt | 3.30% | 1.1 ppt |
| ICR | 5.1 | 5.1 | – | 7.5 | (2.4) |
| WADE (yrs) | 1.0 | 1.2 | (0.2) | 2.0 | (1.0) |
| Operational Metrices | 1Q22 | 4Q21 | %q-o-q | 1Q21 | %y-o-y |
| Portfolio Occupancy Rate | 95.4% | 94.4% | 1% | 93.5% | 2% |
| WALE (yrs, NLA) | 2.6 | 2.7 | 2.6 | 2.6 | – |
| Tenant sales (RMB m) | 1,096 | 1,162 | -6% | 1,137 | -4% |
Key Observations
- Sasseur REIT reported 1Q22 Entrusted Management Agreement (EMA) rental income of S$33.8m (+5% y-o-y)
- This is partly due to the appreciation of the RMB against the SGD for this quarter
- DPU for 1Q22 at 1.822 Scts is in line (24.8%) with full year estimates at 7.34 Scts
- DPU for the period would have been 2.02 Scts prior to income retention of c.S$2.5m for this quarter
- Fixed component made up c.69% of total EMA rental income
- NAV per unit improved marginally improved to 99.22 Scts due to an uplift to property valuations (+0.6% q-o-q) due to RMB appreciation and c.S$1.9m capex undertaken in this quarter
- Operational highlights – Occupancy up q-o-q and crosses the 95% threshold:
- Tenant sales declined 6% q-o-q due to weaker consumer sentiments post a resurgence in COVID cases in early March
- Tenant sales fell sharper in Kunming due to inter-city travel restrictions and supply chain disruption due to lockdown in Shanghai
- Approximately 44% of leases by NLA and 53% of leases by GRI will be up for renewal by year end 2022
- Bishan outlet mall’s AEI was completed this quarter with a sports-themed zone and pedestrian walkway unveiled
- AEI works at the mall is bearing fruits early with Bishan mall the only portfolio mall to post high q-o-q tenant sales
- Capital management remains healthy:
- Weighted average cost of debt remains flat q-o-q at 4.4% with 1.0 years WADE
- Approximately 72% of borrowings is hedged on fixed / stable rates (54% of total debt onshore on stable loan prime rates and 40% offshore portion of debt hedged on fixed rates)
- Sasseur will seek to complete the refinancing exercise by the end of this year
- Percentage of offshore debt on cheaper rates might be increased to maintain the current average cost of borrowing
- Inflationary pressure such as heightened utilities costs mostly absorbed by the sponsor