<Alert!> 1H22 Results – Strength in EMA structure witnessed again
- Sasseur REIT reported topline S$63.5m (+1.6% y-o-y), DPU missed on income retention of S$3.3m for 1H22
- Key positives: (i) EMA structure supported a -12.9% y-o-y decline in tenant sales in 2Q22 which impacted variable portion of EMA rental which contributes c.30%, (ii) Stronger occupancy secured amidst lockdowns with portfolio returning to pre-pandemic occupancy at 96.0%, (iii) Bishan outlet sees completion of AEI works
- Datapoints to look out for: (i) Recovery of tenant sales in 3Q22 as sentiments start to improve since June, (ii) Early refinancing of loans due in FY23 with expectations of flat cost of debt post financing
- We currently have a TP of S$1.15; Estimates under review
Strength in EMA structure to secure topline; DPU lags behind post income retention
- Sasseur REIT reported EMA rental income for 1H22 of S$63.5m (+1.6% y-o-y), dragged by lower operational performance in 2Q at S$29.7m (-1.7% y-o-y).
- This is an impact of COVID-19 on lockdowns which affected the months of March to May.
- This is supported by fixed EMA rental income which contributed 72% of total EMA rental income for this half.
- Similarly, distributable income for 1H22 at S$45.1m (-0.7% y-o-y) is in line with full year estimates.
- DPU for 1H22 at 3.41 Scts (+1.1% y-o-y) trends below full year estimates post income retention of S$3.3m for 1H22.
Rampant lockdowns in 2Q22 impacted variable EMA rental income
- EMA rental income continues to be well-supported by fixed component which escalates at 3.0% per annum.
- As a result, contribution from fixed EMA rental income came in higher at 72% of total EMA rental income, as opposed to 69% – 70% in previous periods.
- The variable component income saw a corresponding 8.3% y-o-y decline for 1H22, corresponding to a 12.9% decline y-o-y in portfolio tenant sales in 2Q22 at the trough of lockdowns in China.
Occupancy managed a q-o-q increase amidst lockdown headwinds
- Portfolio occupancy posted a surprise increase q-o-q to 96.0% in 2Q22, from 95.4% in 1Q22.
- This was achieved through new leases at both Chongqing Bishan (+3.6ppt q-o-q to 89.3%) and Hefei Outlets (+0.4% ppt to 96.5%), and completion of AEI at Bishan outlet.
- Bargaining power and lease renewal momentum continues to be strong, as lockdown sentiments starts to dissipate in the month of June. Only c.7% of remaining leases by GRI remains due for expiry in 2H22.
Robust capital management; one of the lowest geared in the sector
- Sasseur REIT continues to benefit from a prudent balance sheet with aggregate leverage ending 1H22 at 26.5%, or one of the lowest in the sector.
- Interest coverage ratio remains at a healthy level of 5.0%.
- Average cost of debt flat at c.4.5%, up 10 bps from end FY21.
- Approximately 72% of borrowings are pegged to stable on-shore interest rate or hedged to fixed interest rate (40% of offshore on fixed rate).
- The next refinancing will be due in March 2023, approximating S$510.9m in onshore and offshore debt. Sasseur REIT will seek to split the loan profile to two new facilities on different tenors and different lending rates so as to extend and diversify debt expiry profile.