Hitting the mark
- 2Q/1H22 DPU of 1.588/3.410 Scts formed 21.4%/46.1% of our FY22F, which we deem in line given the back-end-weighted DPU.
- Higher occupancy on strong leasing; majority of lease expiries pre-committed.
- Reiterate Add rating with an unchanged TP of S$1.06.
1H earnings lifted by fixed rent escalations and favourable FX rates
1H22 EMA-derived revenue grew 1.6% yoy, broadly in line, at 47.1%, as weaker 2Q variable rent was offset by the 3% annual escalation in the fixed component and favourable FX rates. 2Q tenant sales were down by 12.9%/29.3% yoy/qoq due the seasonal low, exacerbated by lockdowns from Mar-May 22 which affected intercity travel. Tenant sales were most impacted at Hefei and Kunming, down 26.3%/17.6% yoy, due to Hefei’s proximity to the lockdown in Shanghai and intercity travel restrictions which affected domestic travel to popular travel destination, Kunming. Tenant sales at Liangjiang were less impacted at -8.3% due to fewer COVID cases while Bishan bucked the negative sales trend at +2.3% due to higher post-AEI occupancy of 89.3% (1Q21: 80.7%). VIP memberships, which accounted for c.60% of 1H22 sales, grew by 6.9% since Dec 21.
Leasing traction intact
Due to its short portfolio WALE of 1.1 years, SASSR started off the year with 63.6% of leases by GRI expiring in FY22. Despite the macroeconomic uncertainties, tenant sentiment appeared upbeat as 14.7% of GRI has been de-risked as at 1H22, with precommitments received for 92.6% of the remaining 48.9%. Portfolio occupancy improved qoq from 95.4% to 96.0% due to higher occupancy at Bishan (+3.6ppts) and Hefei (+0.8ppts), which offset a 0.7ppt occupancy decline at Kunming. Occupancy at Liangjiang
remained high at 100%.
Diversification of loan maturity to further strengthen balance sheet
SASSR’s lumpy debt expiry will see c.S$511m or 100% of loans maturing in May 23. We understand that management is in negotiations with new and existing lenders to refinance the loans into two maturity dates, thereby diversifying its loan maturity profile. Offshore loans account for 47% of borrowings, of which 40% of (or c.19% of total borrowings) are hedged on fixed rates. Management does not intend to hedge the onshore Rmb-denominated loans given the supportive monetary policy in China, which could see interest rates declining in the near-term. SASSR’s low gearing of 26.5% translates to a sizeable c.S$650m debt headroom, to an assumed 45% gearing, while interest coverage ratio is healthy at 5.0x. SASSR has identified potential acquisition targets, within its sponsor portfolio, to drive inorganic growth. We believe, in view of SASSR’s debt headroom, that any potential fundraising is unlikely to be sizeable, in our view.
Reiterate Add with unchanged DDM-based TP of S$1.06
We keep our FY22-24F DPU estimates unchanged and maintain our DDM-based TP of S$1.06. Upside risks include better-than-projected tenant sales and accretive acquisitions. Downside risks: slowdown in discretionary consumption.