• Sasseur REIT's 4Q/FY19 DPU of 1.629/6.533 Scts was within our expectations.
• We expect 1Q20F earnings to be dragged by Covid-19-related outlet closures

4QFY19 Results Highlights

• Sasseur REIT (SGX:CRPU) reported a 4Q19 entrusted manager agreement (EMA) rental income of S$28.2m, -9% y-o-y, due to a weaker Rmb vs. S$, while distribution income and DPU came in at S$19.5m (-17.4% y-o-y) and 1.629 Scts (-18.5% y-o-y), respectively, due to one-off adjustment for statutory reserve and utilisation of available tax losses in 4Q18.
• Sasseur REIT's FY19 DPU of 6.533 Scts was broadly within our expectations, at 98.6% of our FY19F forecast.

Overall Sales Remain Healthy

• Portfolio occupancy stood at 96% at end-4Q19 (vs. 95.4% in 3Q19). 4Q/FY19 total outlet sales rose 3.4%/12.1% y-o-y to Rmb1,375m/Rmb4,826m.
• In 4Q, improvements came from the Chongqing and Kunming outlets, partly offset by weaker sales at Bishan and Hefei. VIP memberships surged 93% y-o-y to 1.585m members by end-2019.

Healthy Balance Sheet

• Sasseur REIT’s aggregate leverage stood at 27.9% at end-4Q19. There is no significant debt maturing in FY20-21F. It has also hedged 50% of its offshore term loan.
• With its large debt headroom of S$305m, based on a gearing limit of 45%, the trust has the potential to explore inorganic growth opportunities, in our view.

1Q20F Performance to be Impacted by Temporary Closure of Outlets

• Sasseur REIT announced that it had closed all of its outlets since 26-27 Jan due to the Covid-19 outbreak in China. While no re-opening date has been set, management indicated it will work closely with local and central governments to coordinate the resumption of business operations.
• With 36% of FY19’s EMA rental income pegged to sales revenue performance, we expect Sasseur REIT’s 1Q20F earnings to be adversely affected by the temporary closure of the outlets. During this period, management intends to strengthen its online/offline sales channels, engage with tenants and customers, and explore asset enhancement opportunities, particularly for the Chongqing outlet.
• In terms of lease expiry, it has 73.6%/14.4% of property income due for renewal in FY20F/FY21F, respectively.

Maintain ADD

• We lower our FY20-21F DPU forecasts by 9.3-10.5% to factor in the temporary closure of its outlets. We reiterate our ADD rating with $0.85 price target as 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.
• In the immediate term, ongoing concerns over the Covid-19 outbreak would likely be a drag on shopper traffic and sales performance. The fixed component of its EMA rental income, which makes up 64% of total rental income, provides investors with some downside support.
• Re-rating catalyst is re-opening of the outlets and accretive acquisitions; while downside risk includes a slowdown in descretionary consumption due to weaker economic outlook.

Source: CGS-CIMB Research - 20 Feb 2020