Sasseur REIT's 2Q21 in Line, Set for a Stronger 2H

• Sasseur REIT (SGX:CRPU)’s 2Q21 DPU was up 6.7% y-o-y, with 8.0% y-o-y growth in its entrusted management agreement (EMA) rental income; it would have been stronger at +18.6% y-o-y without a 10% retention.
• Portfolio sales rose 6.4% y-o-y against lower occupancy, and should improve into the seasonally stronger 2H21. Sales recovery is gaining traction, with AEIs and tenant remixing efforts set to lift occupancies in 2022.
• We maintain DPUs and our DDM-based S$1.05 target price (COE: 9.8%, LTG: 3.0%) for Sasseur REIT.
• Catalysts are better-than-expected sales growth and DPU upside from potential acquisitions, backed by a strong balance sheet and visible sponsor pipeline.

Portfolio Sales Up 6.4% Y-o-y

• Portfolio sales were up 6.4% y-o-y, driven by a stronger performance of the Chongqing Liangjiang Outlet, as its sales jumped 18.9% y-o-y to contribute ~53% of overall sales. The asset remains fully occupied, even as portfolio occupancy fell to 92.5% (from 93.5% in 1Q21), due to a transitory void at Kunming (from 96.1% to 94.9%), with the exit of a gym operator, and tightened movements in Hefei (with rising COVID cases in nearby Nanjing), which are expected to normalise in late 3Q21.

AEIs, Expansion to Support Sales Growth

• Sasseur REIT's management similarly retained 10% of sales commissions.

Strong Balance Sheet, Deal Upside

• Sasseur REIT's balance sheet is strong with low 27.8% gearing and a S$385-825m debt in Fuzhou.

• Sasseur REIT’s new CEO is eyeing growth from its two ROFR assets in Xi’an and Guiyang which have now stabilised. With a transaction likely to involve an equity fund raising (EFR), we think its strong share price appreciation suggests that a deal may be imminent.

Source: Maybank Kim Eng Research - 13 Aug 2021