Brokers' take: DBS, Maybank Securities up Sasseur Reit target prices after FY2021 results

ANALYSTS are largely positive on Sasseur Real Estate Investment Trust (Sasseur Reit) CRPU after it posted an increase of 8.5 per cent in distribution per unit (DPU) to S$0.07104 for the full financial year ended Dec 31, 2021.

DBS Group Research and Maybank Securities both maintained "buy" calls while increasing their target prices (TPs) by 5 Singapore cents each, to S$1.15 and S$1.10 respectively.

In a report on Monday (Feb 21), DBS analysts Geraldine Wong and Derek Tan raised estimates for the real estate investment trust (Reit) as they expect the Reit's tenant sales to normalise back to pre-pandemic levels by the end of FY2022 and result in higher variable rent.

Their target price of S$1.15 is based on the brokerage rolling forward valuations into FY2022, raising its portfolio tenant sales forecast and assuming interest savings from mid-FY2022, and offers a 35 per cent upside to its Friday close price of S$0.85.

They based this on the Reit's entrusted management agreement model, which "virtually guarantees growth", as well as on its fixed rents that make up around 70 per cent of the trust's top line, which continues to increase at 3 per cent yearly.

They also observed that the manager of the Reit, which operates outlet malls in China, is working towards its first acquisition since its initial public offering in March 2018 as it is negotiating to refinance around S$516 million worth of debt due by March 2023.

"Xi'an mall features strongly as a prominent acquisition candidate that could stand alongside Chongqing mall as Sasseur Reit's portfolio titans," the analysts said. The mall is currently one of the highest ranked tenant sales within the Reit's sponsor, Sasseur Group.

Despite noting investors' wariness towards retail, the analysts also believe that Sasseur Reit's "unique" outlet model that is pegged to tenant sales will ensure business sustainability for both the tenants and landlord.

Meanwhile, Maybank Securities analyst Chua Su Tye on Friday raised DPU estimates by 3-4 per cent, causing his TP to grow around 5 per cent to S$1.10, which represents a 29.4 per cent upside from the S$0.85 close price.

He sees DPU upside from potential acquisitions, backed by a strong balance sheet and visible sponsor pipeline.

Alongside Xi'an mall, Chua also highlighted a stabilised Sasseur Group property in Guiyang as a potential target, which the Reit has right of first refusal. The Reit manager's acquisition preparations are already underway through the debt refinancing and S$952 million debt headroom, and the trust sports a low gearing at 26.1 per cent - the lowest among peers, he added.

He also believes occupancy's quarter-on-quarter rise will continue in FY2022 after asset enhancement initiatives and tenant remixing efforts, with climbing portfolio occupancy in properties in Chongqing and Hefei.

As for CGS-CIMB, the brokerage on Friday revised its TP upwards by S$0.03 to S$1.06 from S$1.03 on higher DPU estimates of 2.7-2.8 per cent for FY2022-2023. This represents a 24.7 per cent upside to Friday's close price.

Its analysts Lock Mun Yee and Eing Kar Mei reiterated "add" for the Reit as they believe the long-term uptrend for outlet malls is still intact in China, while noting that the fourth quarter DPU of S$0.019 was above expectations at 28.4 per cent of its FY21 forecast.

The full-year DPU of S$0.07104 also performed above projections by 106 per cent, they added.

Adding onto DBS and Maybank Securities' views on potential Sasseur Reit acquisitions, they noted that such future deals will likely be funded by a combination of debt and equity, due to the properties being "fairly sizeable" at around 144,000-194,000 square metres of gross floor area.

Sasseur Reit units closed at S$0.86, up 1.2 per cent or S$0.01, on Monday.

READ MORE:

• S-Reits with healthcare and China assets outshine in November
• Elite Commercial Reit's H2 DPU rises 12.4% to 2.80 pence
• OUE C-Reit H2 DPU falls 4.2% to S$0.0137