• Sasseur REIT’s 2Q/1H19 DPU of 1.608/3.264 Scts were in line at 24%/48.8% of our FY19 forecast.
• Tenant sales growth was supported by higher VIP membership and active tenant management.
• We maintain our ADD call with a slightly lower DDM-based Target Price of S$0.94.

Sasseur REIT's 2Q19 Results Highlights

• SASSEUR REIT (SGX:CRPU) reported 2Q19 entrusted manager agreement (EMA) rental income of S$29.9m, - 7.4% y-o-y while distribution income and DPU came in at S$19.2m (+2.3% y-o-y) and 1.608 Scts (+1.3% y-o-y).
• Adjusting for a like-for-like comparison, taking into account the slightly longer 2QFY18 period from listing date of 28 Mar to 30 Jun 2018, Sasseur REIT would have shown a 2.7%/5.9% y-o-y improvement in EMA rental income and DPU.
• The better results were underpinned by strong underlying tenant sales performance. Portfolio occupancy stood at 95.8% at end-2Q19 (vs. 96.1% in 1Q19).

Tenant Sales Growth Across the Portfolio

• Total outlet sales of Rmb1,026.7m for 2Q19 was 15.4% higher y-o-y. The improvement was felt across all the outlets, with Bishan, Hefei and Kunming outlets showing 19.6- 35.4% y-o-y increase in sales. Chongqing saw a smaller 4% y-o-y expansion as shopper visitations were dampened by bad weather conditions, according to management.
• VIP memberships surged 39.7% y-o-y to 1.144m members, thus helping to increase retail sales. As a result, the variable rental component increased 12.5% y-o-y and made up 32.5% of total EMA rental income.

Active Tenant Mix Management to Improve Property Performance

• Sasseur REIT has 42.3% of property income to be renewed in 2H19F and 28.6% in FY20F. We believe active tenant and trade mix management would enable the trust to continue to drive sales.
• Sasseur REIT increased its exposure to sports tenants to 14.4% of portfolio revenue in 2Q19 (1Q19: 12.5%). It also increased exposure to F&B tenants to 5.6% of portfolio revenue compared to 2.9% in 1Q19.

Healthy Balance Sheet With Low 29.7% Leverage

• Sasseur REIT’s aggregate leverage stood at a healthy 29.7% at end-2Q19 with no significant debt maturing in FY19-20F. It has also hedged 50% of its offshore term loan.
• Going forward, the trust intends to hedge a substantial portion of its distribution income. This should provide it with greater income certainty.

Maintain ADD

• We tweak our FY19-21F DPU downwards by a marginal 0.9-0.94% to bake in a weaker Rmb/S$ exchange rate of 4.99 (vs. 4.95 previously). Our DDM-based Target Price is accordingly lowered slightly to S$0.94.
• Sasseur REIT offers investors FY19 DPU yield of 8.2% and exposure to the fastest growing part of the retail value chain.
• Re-rating catalyst is faster than expected growth in tenant sales while key downside risk includes a slowdown in discretionary consumption due to slower economic outlook.

Source: CGS-CIMB Research - 6 Aug 2019