<FIRST TAKE> FY23 Results: Outlet sales continue to hold more promise in FY24
- Topline EMA rental income rose 10.7% y-o-y to RMB658.5m, Full year DPU declined 6% y-o-y to 6.25 scts (on a 93% pay-out ratio) on higher interest cost, forex, slightly behind our estimates
- Tenant sales rose 32% y-o-y as spending wariness amongst Chinese continue to see outlet format sales (+26% y-o-y in 9M23) outperforming China retail benchmark
- Portfolio valuation flat y-o-y on RMB terms albeit improving cash flow; Interest cost should have peaked at the current 5.6%
- Estimates under review & more details after briefing this morning
FY23 Results
- Sasseur REIT reported topline EMA (Entrusted Management Agreement) rental income of RMB658.5m (+10.7% y-o-y), boosted by higher variable component rents which rose 31.7% y-o-y in tandem with underlying portfolio sales.
- Distributable income reverses into a 5.8% y-o-y decline of S$83.4m, on both higher cost of financing and forex translation losses, which saw a 7% y-o–y depreciation of the RMB against the SGD in FY23.
- Full year DPU of 6.25Scts (-4.6% y-o-y) came in slightly behind our estimates of 6.4 scts, on a 93% pay-out ratio.
- Portfolio occupancy remains stable at 97.6% as at end FY23 (vs FY22 occupancy of 92.3%)
- With improving cash flow from underlying sales, portfolio valuation was flat on a y-o-y at RMB 8,497m (+0.02% y-o-y) basis on local currency terms.
- Capital management remains stable with their low gearing of 25.3% and a cost of debt of 5.6%. There remains no substantial loan expiries until FY26, where c.47% of debt will be due for refinancing.
Interest cost should have peaked at the current 5.6%. Cost of borrowing rose 80 bps y-o-y to 5.6% as at 31st December 2023, reflecting refinancings completed in 1Q23. Financing cost is the biggest woe faced by Sassuer REIT given both improving operations and a comfortably low gearing of 25%. We believe that current cost of borrowing would likely have peaked at current rates, given both a decline in offshore cost of debt and onshore 5-y PBoC rates which declined 65 bps y-o-y to 3.95% (Feb-24). Given that there will be no upcoming lease expires in FY24, alongside the high fixed interest cost hedge for Sasseur REIT’s offshore borrowings, which we estimate to be at c.70%, opportunities to see a sharp decline in interest cost may not reflect in this financial year. Based on Sasseur REIT’s sensitivity analysis, every 50 bps decrease in Sasseur REIT’s onshore RMB loans will see a 0.07 scts uplift to underlying DPUs.
Outlet sales continues to hold many promise in FY24. Outlet performance continues to perform well in 2023 with nationwide outlet sales for 9M23 increasing 26% y-o-y, and footfall rising 35% y-o-y. Outlet malls will continue to improve from a normalisation of inbound travel amongst the Chinese consumers, where Sasseur REIT has also mentioned their historical capture in ‘tourist’ footfall at their malls, alongside the continuation of a trade down mentality amongst Chinese consumers. Within our short update released yesterday on Spring Festival data released by the government, spend per pax reduces further from c.97% across holidays in FY22 to c.91% this Spring Festival break (SG / HK hotels: China CNY travel data – Experiences please.. but at a lower price point). We continue to see both of these trends uplifting Sasseur REIT’s tenant sales come FY24, to meet a double digit y-o-y sales level on a higher base.