SINGAPORE (Nov 20): Analysts are unanimously bullish on Sasseur Real Estate Investment Trust (Sasseur REIT), as the China-focused retail outlet mall manager continues to shine.

Of the four brokerages covering Sasseur REIT, Maybank Kim Eng Research, UOB Kay Hian Research and DBS Group Research have “buy” recommendations on the counter, while CGS-CIMB Research has an “add” call.

For 3QFY2019 ended September, Sasseur REIT posted a 6.4% y-o-y increase in distribution per unit (DPU) to 1.640 cents. This was also 3.7% higher than the REIT’s initial public offering (IPO) projection.

Distributable income rose 7.6% y-o-y to $19.6 million, as Entrusted Management Agreements (EMA) rental income excluding straight-line accounting adjustment climbed 5.2% y-o-y to $30.6 million.

Sasseur REIT’s four retail outlet malls – Chongqing Outlets, Bishan Outlets, Hefei Outlets and Kunming Outlets – generated combined sales of RMB1.2 billion ($232 million) for 3QFY2019, some 9.4% higher than the corresponding quarter a year ago.

Notably, its Bishan, Hefei and Kunming outlets each registered double-digit sales growth.

As at end-September, Sasseur REIT has been one of the top-performing REITs on the Singapore Exchange (SGX), recording total returns of 33.6% for the first nine months of the year. And analysts expect the counter to continue to climb.

“Looking ahead, sales growth will gain further traction into the seasonally-strong 4Q,” says Maybank analyst Chua Su Tye in a Nov 18 report.

With Sasseur REIT’s 9MFY2019 DPU making up 78% of Maybank’s full-year estimates, Chua is raising DPU forecasts for FY2019 and FY2020 by 5% per annum. The analyst is also raising Sasseur REIT’s target price by 5% to $1.00.

Meanwhile, DBS lead analyst Derek Tan notes that the REIT during the quarter had completed all refinancing due in 2019, leaving only $8 million to be refinanced in 2020.

Sasseur REIT’s gearing improved by 0.7% q-o-q, with aggregate leverage at a healthy 29% as at end-September.

“The improved gearing gives Sasseur REIT a debt headroom of $276 million to pursue the 11 potential ROFR (right-of-first-refusal) and other pipeline properties in the future,” Tan says.

Further, CGS-CIMB lead analyst Lock Mun Yee points out that the trust intends to hedge a substantial portion of its distribution income going forward. The analyst believes this should provide Sasseur REIT with greater income certainty. CGS-CIMB has an unchanged target price of 94 cents on Sasseur REIT.

“With a lower cost of capital, following the recent share price uptick, the trust can also potentially explore inorganic growth opportunities,” Lock adds. “Sasseur REIT offers investors an FY2019 DPU yield of 7.85% and exposure to the fastest growing part of the retail value chain.”

However, DBS’ Tan cautions that Sasseur REIT has some 68.8% of leases expiring in FY2020. “In our view, a high number of expiring leases in any single year could pose a potential risk, especially given the economic uncertainties surrounding China,” he says. DBS is maintaining its target price of 97 cents on the trust.

As at 4.06pm, units in Sasseur REIT are trading flat at 85 cents.

According to Maybank valuations, this implies an estimated price-to-net tangible asset (P/NTA) of 1.0 times and a DPU yield of 7.8% for FY2019E.