Company Update: 6 September 2024
REIT-liable portfolio.
- Stable 1H24 performance. Sasseur REIT reported a 5.1% YoY decline in distributable income per unit (DPU) to 3.153 Scts in 1H24. Despite this, EMA rental income remained stable, delivering RMB329.0mn, a 0.9% YoY growth, equivalent to S$62.3mn, a slight 0.4% YoY decline. This performance aligns with expectations, considering the changes in the treatment of upfront borrowing costs and 20% of the REIT Manager’s base fee to be paid in cash. The 3.9% YoY decline in outlet sales in RMB during 1H24 reflects the higher sales base from 1H23, driven by pent-up demand following China’s economic reopening.
Shifting consumption dynamics in China.
Amid growing consumer caution, outlet sales have seen a modest decline. Sasseur REIT has felt the impact of weaker consumer spending in China, with sales declining YoY, exacerbated by the strong 1H23 base. The slower-than-expected recovery in the Chinese economy has added to consumption uncertainty. However, proactive management efforts, including ongoing tenant mix enhancements, are helping to attract diverse audiences and support portfolio sales performance.
1H24 financials update: Consumption weakness.
EMA rental income in RMB terms grew by 0.9% YoY, increasing from RMB326.0mn in 1H23 to RMB329.0mn in 1H24. However, unfavorable forex movements led to a slight 0.4% YoY decline in EMA rental income, totaling S$62.3mn. The combination of forex headwinds and declining outlet sales resulted in a 2.9% YoY drop in distributable income to S$42.7mn, with a corresponding decrease in 1H24 DPU to 3.153 Scts. RMB sales for 1H24 declined by 3.9% YoY, reflecting ongoing weakness in the outlet business.
Valuation & Action
We maintain our OUTPERFORM rating and have adjusted the target price for Sasseur REIT to S$0.90, based on a Dividend Discount Model (DDM) with an 8.7% cost of equity and a 1.5% terminal growth rate. Despite the revised target price, we remain confident in Sasseur REIT’s ability to deliver stable returns to shareholders. The REIT benefits from a strong management team, effective trade mix management, and a 3% annual escalation in fixed rental income, which supports its stability and growth prospects.
Risks
Higher-than-expected drop in DPU if the sponsor is unable to support the 60% to 70% fixed income component. RMB depreciation is another risk factor given that 100% of sales are derived from China’s retail spending.
