FY18 DPU 12.6% Above IPO Projection

• SASSEUR REIT (SGX:CRPU) achieved a strong close for FY18 (from 28 Mar to 31 Dec 2018). 4Q18 DPU of SGD1.56 cts brings its FY18 DPU to SGD5.128cts, or 12.6% ahead of its IPO projection, driven by better-than-expected results and lower operating expenses.
• Sasseur REIT remains the best play on China’s retail ‘premiumisation’ theme, as its outlet malls look set to capture a larger wallet share of China’s brand-conscious, yet price-sensitive ‘aspirational consumers’.
• Our forecasts and DDM-based SGD0.90 Target Price (COE: 10.2%, LTG: 3.0%) are unchanged.
• With downside protection from its risk-absorbing EMA structures (ie minimum rental guarantees), the risk to DPU lies to the upside given stronger-than-expected sales performance so far (it has sales-based leases).
• BUY.

Stronger Performance Across All Four Malls

• Sasseur REIT’s FY18 portfolio sales jumped 27.6% y-o-y, or 7.9% ahead of its IPO forecast. All four outlet malls reported stronger performance, delivering between 12% and 59% y-o-y in sales growth and at 6-15% ahead of projections.
• Portfolio occupancy rose q-o-q from 94.4% to 95.2% as of end-Dec 2018, led by stronger occupancies at the Chongqing Outlets, which rose from 98.3% to 99.8% and the Hefei Outlets, which rose from 96.5% to 97.6%. As a result, its 4Q18 and FY18 EMA rental income were 3.7% and 2.6% ahead of projections.
• We see strong momentum into 2019 being supported by a visible shopper event calendar, and believe Sasseur REIT remains on track to close the DPU gap (now at 22%) between its underlying rental income and that promised by its risk-absorbing EMAs. Sasseur REIT’s distribution payment will be revised from a semi-annual to quarterly basis going forward.

Pushing Ahead on Growth

• During the briefing, Sasseur REIT’s chairman and senior management shared details on driving growth momentum into 2019. They include:
  1. boosting sales from VIP memberships (these jumped 78% y-o-y in 2018 with 360k new members and management is targeting 40-50% growth this year) and traction on its recent sales incentive scheme;
  2. improving occupancies at Bishan and Kunming; and
  3. deepening the experiential retail offerings across its portfolio to capture higher share of shopper traffic.
• Sasseur REIT’s sponsor, with a strengthening management track record, continues to eye opportunities to implement its ‘(1+N) x Big Data’ super outlet business model into other third-party underperforming malls. As such, its sponsor’s property pipeline has expanded from 3 to 7 with additions in Changsha, Lanzhou, Yangzhou and Shenzhen, which could add to Sasseur REIT’s medium-term ROFR pipeline.

Source: Maybank Kim Eng Research - 19 Feb 2019