Analysts are positive on Sasseur REIT following its recent 1HFY2022 ended June results announcement, which saw distribution per unit (DPU) grow by 1.1% y-o-y to 3.410 cents from 3.373 cents a year ago. This is the REIT’s highest 1H period DPU in four years.
While 2QFY2022’s DPU was 1.6% lower y-o-y at 1.588 cents, due to the impact of widespread Covid-19 lockdowns in a few major Chinese cities from mid-March to end-May, as well as restrictions on intercity travels weighing on consumer sentiments, leading to lower y-o-y shopper traffic and sales in 2QYF2022 at most of the REIT’s outlets.
Despite the ongoing restrictions in China, Maybank Securities is keeping its “buy” recommendation with an unchanged target price of $1.08.
Analyst Chua Su Tye says: “Sasseur REIT’s 1HFY2022 DPU rose 1.1% y-o-y, underpinned by a 1.6% y-o-y rise in entrusted management agreement (EMA) rental income. While sales weakened in 2QFY2022, occupancies were resilient from asset enhancement initiatives (AEIs) and active leasing.”
“We expect sales momentum to gain pace with June’s recovery, and to strengthen into the seasonally stronger 2HFY2022,” adds Chua, while anticipating a boost from anniversary events in September and increased customer spending in the fall/winter months.
Meanwhile, portfolio occupancy rose to 96.0% in 2QFY2022 from 95.4% in 1QFY2022, led by improvements at Chongqing Bishan post-AEI, and Hefei on the back of active leasing, while the Chongqing Liangjiang Outlet stayed fully occupied.
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“Its WALE remains tight at 2.5 years by net lettable area (NLA) (one year by gross revenue), and we see low leasing risk, with expiring leases for FY2022 having been reduced to about 49% (from about 64% in 1QFy2022), and of which about 93% have already been pre-committed,” says Chua.
While results were overall in line with Chua’s and consensus estimates, he sees catalysts from better-than-expected sales growth, and DPU upside from potential acquisitions, backed by a strong balance sheet and visible sponsor pipeline. He also notes that the REIT’s gearing of 26.5% is lowest among peers, while $943 million in debt headroom at 50% limit could support future deals.
Similarly, CGS-CIMB Research continues to rate Sasseur REIT “add” with a target price of $1.06.
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Analyst Lock Mun Yee likes that the REIT’s leasing traction is intact despite macroeconomic uncertainties, a short portfolio weighted average leasing lease expiry (WALE) of 1.1 years and 63.6% of leases by gross rental income (GRI) expiring in FY2022.
Nevertheless, tenant sentiment appeared upbeat as 14.7% of GRI has been de-risked as at 1HFY2022, with pre-commitments received for 92.6% of the remaining 48.9%. Portfolio occupancy improved q-o-q from 95.4% to 96.0% due to higher occupancy at Bishan and Hefei, which offset a 0.7 percentage point (ppt) occupancy decline at Kunming. Occupancy at Liangjiang remained high at 100%.
The REIT’s lumpy debt expiry will see about $511 million or 100% of loans maturing in May 2023. “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,” notes Lock.
Offshore loans account for 47% of borrowings, of which 40% of (or about 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.
“Sasseur REIT 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,” says Lock.
On the other hand, DBS Group Research has maintained its “buy” call on Sasseur REIT with a lowered target price of $1.10 from $1.15 previously.
“Sasseur REIT’s trading pattern is tied closely to market sentiment on China’s lockdowns and re-opening. We think we have seen the worst of this in 2QFY2022. Sasseur offers a compelling forward yield of 9.0%,” says analysts Geraldine Wong and Derek Tan.
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Wong and Tan likes the REIT’s unique EMA structure as it has proven its benefit on 1HFY2022 earnings amid China’s prolonged lockdown in 2QFY2022. They note that the EMA structure has sheltered the 13.9% decline in tenant sales in 2QFY2022 amid close to two months of lockdown in China.
“We think the worst is over, as tenant sales reversed its declining trend sharply in June and we expect the momentum to continue into 3QFY2022. We expect variable rents to stage a sharp recovery in 2HFY2022, and flow through the variable portion of EMA rents which contribute about 30% to topline,” says the analysts.
Meanwhile, Sasseur REIT is negotiating to refinance about $510 million worth of debt due in March 2023. Ongoing efforts to strengthen its balance sheet is an important step to build up ammunition for acquisitions, and takes the REIT closer to delivering its first acquisition since IPO.
The analysts note that Xi’an mall features strongly as a prominent acquisition candidate that could stand alongside Chongqing mall as Sasseur REIT’s portfolio titans. Xi’an mall is one of the best ranked malls by tenant sales within sponsor Sasseur Group.
As at 10.40am, units in Sasseur REIT are trading at 79 cents.
Photo: Albert Chua/ The Edge Singapore
