Performance in line

■ 1Q22 DPU of 1.822 Scts, in line, at 24.6% of our FY22F forecast.
■ Portfolio occupancy ticked higher, but Covid-19 restrictions impacted sales.
■ Reiterate Add rating with an unchanged TP of S$1.06.

1Q22 business update

Sasseur REIT (SASSR) reported a 1Q22 DPU of 1.822 Scts, +3.6% yoy, reflecting a
payout ratio of 90%. The improvement was achieved on the back of a 4.7% yoy
improvement in entrusted manager agreement (EMA) rental income to S$33.4m. Income
available for distribution expanded 4.7% yoy to S$24.7m, underpinned by a higher fixed
component of the EMA rental income and stronger Rmb, partly offset by a dip in the
variable component of the EMA rental income. 1Q22 DPU was in line with our projections
at 24.6% of our FY22F forecast.

Higher portfolio occupancy but sales fell 3.6% yoy

Portfolio occupancy improved qoq to 95.4%, a third sequential quarter of improvements,
thanks to higher take-up at Chongqing Bishan, Hefei and Kunming Outlet Malls. 1Q
portfolio outlet mall sales fell 3.6% yoy to Rmb1,096.2m, dragged by weaker performance
at Kunming and Bishan, as Covid-19 outbreaks across other China cities affected shopper
traffic. In particular, Kunming was adversely impacted by a fall in local tourist arrivals due
to inter-city travel restrictions, and supply chain disruptions due to lockdowns in Shanghai
and some major logistical hubs in Quanzhou and Suzhou that affected inventory levels of
some popular brands. VIP membership continued to rise, up 1.5% qoq to 2.68m at end1Q. SASSR has 52.7%/27.8% of gross revenue to be renewed in 9MFY22/23F. As part of
its strategy to boost sales growth, SASSR intends to attract shoppers through digitalisation
efforts, such as rolling out innovative marketing techniques via livestreaming and group
buy promotions to expand outreach to capture online and offline customers. To mitigate
some of the supply chain squeeze, SASSR plans to build stronger relationship with brands
and negotiate for a larger inventory of products with high demand and offer more attractive
discounts during promotional events.

Robust balance sheet with gearing of 26.2%

SASSR’s aggregate leverage stood at 26.2% at end-1Q22, providing ample room to
support growth. SASSR’s debt profile comprises 53% offshore loans and 47% onshore
debt. An estimated 72% of its debt has been hedged with fixed rates. As for its loans
maturing in FY23F, SASSR indicated that it is in active discussions with various lenders to
refinance the loans and de-risk the current debt profile by staggering its debt maturity and
amount.

Reiterate Add rating

We leave our FY22-24F DPU estimates unchanged and maintain our DDM-based TP of
S$1.06. We reiterate our Add rating as we believe the long-term uptrend for outlet malls in
China remains intact. Potential re-rating catalyst: better-than-projected tenant sales and
accretive acquisitions. Downside risks: slowdown in discretionary consumption due to
weaker economic outlook