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Sasseur REIT promising despite 18.5% drop in 4Q DPU to 1.629 cents

Amala Balakrishner
Amala Balakrishner • 3 min read
Sasseur REIT promising despite 18.5% drop in 4Q DPU to 1.629 cents
Can Sasseur REIT bounce back from the temporary closure of its retail outlet malls in China due to the Covid-19 situation?
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SINGAPORE (FEB 23): Sasseur Real Estate Investment Trust (REIT) has announced a distribution per unit (DPU) of 1.629 cents for 4QFY2019 ended December, down 18.5% from DPU of 1.999 cents in the corresponding period a year ago.

The decline was attributable to lower income tax expenses a year ago in 4QFY2018 from the utilisation of available tax losses, as well from a one-off adjustment during that quarter.

The REIT’s rental income under its entrusted management agreements (EMA) in 4QFY2019 fell by 9% to $28.2 million, from the $30.9 million recorded a year ago.

However, excluding straight-line adjustments, EMA rental income for the quarter was up 0.9% to $31.5 million, from $31.2 million. This comes on the back of a 3.4% increase in its outlet mall sales to RMB1.4 billion ($279 million) generated from strong year-end festive promotion efforts across its outlet malls.

The increase in EMA rental income excluding straight-line adjustments was partially offset by the depreciation of the Chinese renminbi against the Singapore dollar, Sasseur REIT’s manager says.

Even so, income available for distribution to unitholders dropped 17.4% to $19.5 million in 4QFY2019, from $23.6 million a year ago.

This translated into a full-year DPU of 6.533 cents – 4.7% higher than the 6.241 cents it had forecast during its initial public offering.

Based in China, Sasseur REIT’s portfolio comprises four outlet shopping malls – two in Chongqing, one in Hefei and one in Kunming. These malls target middle income consumers with luxury brand stores and entertainment choices.

While none of its malls has reported incidences of the novel coronavirus (Covid-19), the manager has temporarily shut down all of them as a precautionary measure. The REIT’s sponsor has likewise temporarily closed its seven outlet malls in China.

Even so, the REIT’s manager is confident that its revenue can bounce back once the malls eventually reopen. “The Covid-19 situation may affect footfall at malls all over China in the short term, however, we remain confident of the long-term prospects of the China market and Sasseur REIT’s sales and overall performance”, notes Anthony Ang, chief executive officer of the manager.

For now, the REIT “intend[s] to undertake strategic initiatives to strengthen online and offline sales channels and engage tenants, customers and VIP members better,” says Ang adding that it is also exploring asset enhancement opportunities for its Chongqing outlets.

In spite of the mall closures, analysts say the REIT looks a promising investment, with CGS-CIMB Research, DBS Group Research and Maybank Kim Eng Research posting “buy” calls at target prices of 85 cents, 93 cents and 95 cents respectively.

DBS’ analyst Derek Tan explains his stance saying the REIT has attractive yields to gun for. “We believe that Sasseur REIT can post a rebound in operations post the temporary closure of its malls. We believe in its long-term growth prospects of outlet mall industry and the group can ride through the temporary disruptions stronger,” he observes.

CGS-CIMB’s Lock Mun Yee agrees. “We believe the long-term uptrend for outlet malls is still intact in China and this remains the fastest growing part of the retail value chain,” she says.

For now, Lock believes the REIT’s large debt headroom of $305 million further gives it the potential to explore opportunities for inorganic growth.

And Maybank’s Chua Su Tye agrees. “[Sassuer REIT] is backed by a visible medium-term pipeline from its sponsor’s growing property portfolio – two Right of First Refusal (ROFR) assets and nine others that could boost its Gross Floor Area by four times,” Chua points out.

Units in Sasseur REIT closed 0.61% lower at 81.5 cents on Friday.

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