Another Strong Quarter Vs. Our Expectation

• SASSEUR REIT (SGX:CRPU)'s 3Q19 results were above our expectation with EMA rental income (ex-straight-line adjustments) +5.2% y-o-y and DPU +6.4%. Sales growth rose a strong 19-32%, underpinned by record Sep anniversary sales achieved across its portfolio.
• With 9M19 DPU 78% of our full-year estimates, we raised FY19/FY20 by 5% p.a.
• Looking ahead, sales growth will gain further traction into the seasonally-strong 4Q. We lift our DDM-based Target Price 5% to SGD1.00 (COE: 9.9%, LTG: 3.0%).
• Catalysts are strong portfolio sales and contributions from potential acquisitions, despite rising competition.

Newer Malls Showed Double-digit Sales Growth

• Sasseur REIT's portfolio sales rose 9.4% y-o-y as sales increased at its Bishan, Hefei and Kunming outlets by 18.6% y-o-y, 32.2% y-o-y and 26.9% y-o-y respectively. Chongqing sales, however, fell 5.4% y-o-y with demand affected by warmer weather.
• Sasseur REIT's portfolio occupancy dipped q-o-q from 95.8% to 95.4%, and was lower at Bishan (91.9% from 92.7%) and Kunming (94.8% from 97.9%). Management attributed this to a more optimised tenant-mix (in Jul-Aug) ahead of Sep anniversary sales events, which saw an 8.9% y-o-y jump in first-day sales.
• Fashion, sports and international brands in aggregate made up 57.6% of NLA and 78.0% of revenue contributions.

Strong Demand, and Also New Supply

• We see strong seasonal demand supporting sales growth momentum into 4Q. Competitive pressures have risen in Chongqing and Kunming from new outlet mall supply. Capital Outlet (51,000 sqm NLA) opened at end-Sep 2019 and is 30km from the REIT’s Chongqing outlets. Outlets Town in Kunming (128,000 sm GFA) is sited 23km away from its Kunming outlets, and opened at the same time.

Visible Deal Pipeline, DPU Upside

• Following the addition of shop units at Hefei, we expect Sasseur REIT to eye more sizeable acquisitions going forward. This is backed by:
  1. a visible medium-term pipeline from its sponsor’s expanding property portfolio, comprised of two ROFR assets and now nine others (up from seven earlier) that in aggregate could boost its GFA by 4x; and
  2. possible third-party assets, both well-supported by low 29.0% gearing and SGD276m debt headroom.

Source: Maybank Kim Eng Research - 18 Nov 2019