3Q23 Operational Update – Right place, right time
- 9M23 DPU at 4.83 scts in line with estimates, 3Q23 dipped 9.7% y-o-y on a same store basis on higher interest cost and forex translation
- Portfolio tenant sales YTD rose 19%, a significant outperformance against the general retail benchmark which rose 6.8%, Portfolio occupancy at a IPO-record high of 97.9%, Outlet mall spending continues to be well-placed to capture a ‘trade down’ mentality amongst Chinese consumers
- Good interest cost buffer of 4.0x, with sector low gearing of 25%, Sasseur REIT explores onshore MTN issuance for upcoming refinancings
- Maintain BUY with TP of S$1.05; FY23F dividend yield of 9.6%
9M23 DPU at 4.83 scts in line with estimates
- For the quarter, EMA rental income rose 6.5% y-o-y to RMB161.9m, boosted by higher outlet sales which rose 16% y-o-y for the quarter.
- Total topline revenue for 9M23 at RMB487.9m (+7.5% y-o-y), translating to S$92.9m (-1.5% y-o-y) primarily on forex translation.
- DPU for the quarter declined 18% y-o-y to 1.512 Scts, on a high base in 3Q22, which included a one-off tax refund of S$2.1m from Liangjiang Outlet mall. This brings 9M23 DPU to 4.834 Scts (-7.9% y-o-y), in line with our full year estimates. Same-store DPU without Liangjiang Outlet’s tax refund would have seen a smaller decline at 9.7% for 3Q23 and 4.9% y-o-y for 9M23.
Outlet mall to benefit from a ‘trade down’ mentality on consumption amongst the Chinese.
- Portfolio occupancy at a record high of 97.9% since IPO
- Deeper insights into Sponsor’s performance, which gives a more representative picture of outlet performance across China with a portfolio of 16 outlet malls (including Sasseur REIT’s 4 portfolio malls), has shown a 9M23 outlet sales growth of 34% y-o-y.
- Sasseur’s portfolio growth year-to-date at 18.9% is significantly higher than benchmark national retail sales which rose 6.8% over the same period, with outlet mall and Sasseur REIT’s offering a strong pull factor for spend-conscious consumers in China, alongside a stronger capture of domestic tourists as domestic travel trends ahead of outbound travel amongst Chinese travelers.
- Kunming Mall has seen a boost in tenant sales post the completion of asset enhancement work popular F&B tenant added to the mall – new hotpot tenant Erlanggang and KFC.
- Hefei Mall saw the addition of Yonghui Smart supermarket to further entrench the malls positioning within the a growing catchment population area, a strategic move unique to Hefei Mall, which is in a growing catchment area that is underserved by supermarket amenities. The supermarket was signed with a longer than portfolio average lease term of 5-years.
Stable capital management while Sasseur REIT explores onshore MTN issuance.
- Average cost of debt for the quarter ended at 5.8%, flat q-o-q.
- Every 50bps increase in rate of offshore loans will have a 0.04 Scts impact to end DPU, or c.1% impact to DPU.
- Hedge ratio remains high at 77% including on-shore loans (54% of total loan book) and hedged ratio of offshore loans.
- The next tranche of loan up for renewal will be Sponsor loan due in FY24 (c.13% of total borrowings), which Sasseur REIT has the option to extend for another year.
- Sasseur REIT is looking at the MTN market to explore other avenues of debt raising in the domestic China market, following the successful issuance of a MTN facility by CLCT at an attractive 3.8% bond coupon rate.
- Interest cover at 4.0x still provides a good buffer for Sasseur REIT on a low gearing ratio of 25%.