CGS-CIMB Research is reiterating its “buy” recommendation on Sasseur REIT with a target price of $1.06.
This comes on the back of the REIT announced its latest 1QFY2022 ended March business update, which saw distribution per unit (DPU) come in 3.58% higher y-o-y at 1.822 cents. This growth includes the REIT retaining some $2.5 million or 10% of its distributable income for working capital purposes. If not, DPU would have been another 3.5% higher at 2.024 cents.
According to the REIT’s manager, this quarter recorded the highest 1Q DPU since the REIT’s listing.
During the quarter, total Entrusted Management Agreement (EMA) income inched by up 0.7% y-o-y to RMB158.5 million ($32.7 million), cushioned by the higher fixed component of EMA rental income in the EMA model. In SGD terms, total EMA increased by 4.7% y-o-y to $33.8 million in line with the RMB appreciation against the SGD.
See: Sasseur REIT reports DPU of 1.822 cents in 1QFY2022, up 3.58% y-o-y
The 1QFY2022 DPU reported was in line with CGS-CIMB analyst Lock Mun Yee’s projections at 2.6% of FY2022 forecast.
During the quarter, portfolio occupancy improved q-o-q to 95.4%, representing the third sequential quarter of improvement, thanks to higher take-up at the REIT’s Chongqing Bishan, Hefei and Kunming outlet malls.
Despite the higher occupancy, sales declined by 3.6% y-o-y to RMB1.1 billion, dragged by weaker performance at Kunming and Bishan, as Covid-19 outbreaks across other China cities affected shopper traffic.
On the other hand, VIP membership continued to grow, up 1.5% q-o-q to 2.68 million as at end-1QFY2022. The way Lock sees it, the REIT has 52.7% of gross revenue to be renewed in 9MFY2022, and another 27.8% in 9MFY2023.
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As part of its strategy to boost sales growth, Sasseur REIT 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, it 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.
Meanwhile, gearing remains at healthy levels of 26.2% at end-1QFY2022, providing ample room to support growth. The REIT’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 FY2023, the REIT’s manager 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.
Overall, Lock believes that the long-term uptrend for outlet malls in China remains intact and is positive on the REIT.
Units in Sasseur REIT closed at 82 cents on May 23, giving it a FY2022 price-to-book ratio of 0.8x with a dividend yield of 9.2%.
Photo: The Edge Singapore/ Albert Chua
