Sasseur REIT - DBS Research 2022-08-12: Strength In EMA Structure Shines Again

Sasseur REIT - Strength In EMA Structure Shines Again

  • Sasseur REIT (SGX:CRPU) reported entrusted management agreement (EMA) rental income for 1H22 of S$63.5m (+1.6% y-o-y), dragged by lower operational performance in 2Q at S$29.7m (-1.7% y-o-y). Under EMA, rental income is structured to entail a 70% fixed rental that escalates at 3% p.a.
  • COVID-19 lockdowns had impacted operations during March to May. Fixed EMA rental income contributed 72% of total EMA rental income in 1H22.
  • Sasseur REIT's distributable income for 1H22 at S$45.1m (-0.7% y-o-y) was in line with our full year estimates.
  • DPU for 1H22 at S$0.0341 (+1.1% y-o-y) trends below our full year estimate due to income retention of S$3.3m. DPU excluding income retained for the period would have been in line with our full year DPU estimate of S$0.073.

Rampant lockdowns in 2Q22 impacted Sasseur REIT's variable EMA rental income

  • EMA rental income continues to be well-supported by fixed component which escalates at 3.0% per annum. As a result, contribution from fixed EMA rental income came in higher at 72% of total EMA rental income, as opposed to 69% - 70% in previous periods.
  • The variable income component declined by 8.3% y-o-y in 1H22, which led to a 12.9% decline y-o-y in portfolio tenant sales in 2Q22. This coincided with the trough months of China’s lockdown during March to May. No rental rebates were provided to tenants in 1H22 despite lock down woes.
  • June saw a sharp uptick in tenant sales m-o-m following the exit of lockdowns, with momentum continuing into the month of July.

Occupancy managed a q-o-q increase amid lockdown headwinds

  • Sasseur REIT's portfolio occupancy posted a surprise increase q-o-q to 96.0% in 2Q22, from 95.4% in 1Q22. This was achieved through new leases at both Chongqing Bishan (+3.6ppt q-o-q to 89.3%) and Hefei Outlets (+0.4% ppt to 96.5%), and completion of AEI at Bishan outlet.
  • Bargaining power and lease renewal momentum continues to be strong, as lockdown sentiment started to dissipate in the month of June. Only ~7% of Sasseur REIT's remaining leases by GRI will expire in 2H22.

Robust capital management; one of the lowest geared in the sector

  • Sasseur REIT continues to benefit from a prudent balance sheet with aggregate leverage of 26.5% as of end-1H22, one of the lowest in the sector.
  • Interest coverage ratio remains at a healthy level of 5.0%. Average cost of debt flat at ~4.5%, up 10 bps from end FY21. Approximately 72% of borrowings are pegged to stable onshore interest rates or hedged to fixed interest rate (40% of offshore on fixed rate).
  • The next refinancing is due in March 2023, comprising S$510.9m in onshore and offshore debt. Sasseur REIT will seek to split the loan profile to two new facilities on different tenors and different lending rates to extend and diversify its debt expiry profile.
  • Acquisitions will likely be revisited post its intended early refinancing of its March’23 debt, which we expect it to be concluded in the current financial year, ie FY22.

We maintain BUY recommendation on Sasseur REIT with a lower target price of S$1.10.

  • We reduced the assumption on Sasseur REIT's DPU payout ratio from the current 100% to 97.5% going forward to factor in guidance that income retention will provide the flexibility for capex and working capital purposes. Hence, our FY22/FY23 DPU forecast for Sasseur REIT is reduced marginally to 7.02 cents / 7.06 cents from 7.39 cents / 7.43 cents.
  • We have raised our WACC assumption to reflect higher cost of equity and we roll our valuation assumptions to FY23.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @

Geraldine WONG DBS Group Research | Derek TAN DBS Research | 2022-08-12
SGX Stock Analyst Report BUY MAINTAIN BUY 1.10 DOWN 1.15

Previous report by DBS Research:
2020-11-16 Sasseur REIT - Up, Up And Away

Check out the most recent target prices at Sasseur REIT Target Prices. Listing of analyst research reports at Sasseur REIT Analyst Report.

Relevant links:
Sasseur REIT Share Price History,
Sasseur REIT Announcements,
Sasseur REIT Dividends & Corp Actions,
Sasseur REIT News Articles


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