CGS-CIMB Research analyst Lock Mun Yee has kept an “add” rating on Sasseur REIT with an unchanged target price of $1.06.

Sasseur REIT reported a 1QFY2022 ended March distribution per unit (DPU) of 1.822 cents up 3.6% y-o-y at 24.6% of Lock’s FY2022 forecast, reflecting a payout ratio of 90%.

The improvement was achieved on the back of a 4.7% y-o-y improvement in entrusted manager agreement (EMA) rental income to $33.4 million.

Income available for distribution expanded 4.7% y-o-y to $24.7 million, 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.

Sasseur REIT’s aggregate leverage stood at 26.2% at end-1QFY2022, providing ample room to support growth as observed by Lock.

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In addition, the REIT’s debt profile comprises 53% offshore loans and 47% onshore debt.

Moreover, an estimated 72% of its debt has been hedged with fixed rates.

As for its loans maturing in FY2023, Sasseur REIT has 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.

The REIT’s portfolio occupancy improved q-o-q to 95.4%, a third sequential quarter of improvements due to higher take-up at Chongqing Bishan, Hefei and Kunming Outlet Malls.

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However, 1QFY2022 portfolio outlet mall sales fell 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. 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, in addition to some major logistical hubs in Quanzhou and Suzhou that affected inventory levels of  some popular brands.

VIP membership continued to rise, up 1.5% q-o-q to 2.68 million at end-1QFY2022.

The REIT has 52.7% and 27.8% of gross revenue to be renewed in 3QFY2022 and 3QFY2023 respectively.

As part of its strategy to boost sales growth, Lock observes that 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, the REIT also plans to build stronger relationships with brands and negotiate for a larger inventory of products with high demand and offer more attractive discounts during promotional events.

At present, Lock leaves her FY2022-FY2024 distribution per unit (DPU) estimates unchanged.

Some downside risks the analyst considers include a slowdown in discretionary consumption due to weaker economic outlook.

Units in Sasseur REIT closed at 82 cents on May 19 at a FY2022 P/B ratio of 0.8x and dividend yield of 9.2%.

Photo: Albert Chua/The Edge Singapore

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