Analysts at CGS International (CGSI) and PhillipCapital have both kept their respective “add” and “buy” calls on Sasseur REIT, with the former lowering the target price (TP) to 85 cents from 93 cents previously and the latter to 81 cents from 84 cents previously.
For the 2HFY2024 period, the REIT reported an entrusted management agreement (EMA) rental income of $62.2 million, a marginal 0.3% y-o-y dip, dragged by weaker foreign exchange (forex) and lower variable income.
After factoring in around $4 million in retained income, 2HFY2024 income to be distributed to unitholders was up 0.8% y-o-y to $39.3 million. This translates to a distribution per unit (DPU) of 2.929 cents which remained flat y-o-y, after accounting for 20% of the management base fee and a lower payout ratio of 90.2%.
Portfolio occupancy improved to 98.9% at end-2024 due to higher take-up at the REIT’s Chongqing Bishan, Hefei and Kunming outlet malls. Although tenant sales declined 3.9% y-o-y in 2HFY2024, tenant sales rose by 4.8% y-o-y in 4QFY2024, led by improved sales at Chongqing Liangjiang and Chongqing Bishan.
Lock writes in her Feb 20 report: “Shopper traffic improved 4.1% y-o-y in 2024 due mainly to the golden week holidays in October 2024 and a strong rebound in shopper footfall in Kunming, post tenancy reconfiguration work in September 2024.”
Sassuer REIT’s VIP membership also continued growing in 2024 to reach 4.2 million members, while RMB8.4 million ($1.55 million) of asset enhancements were undertaken in the same year. Lock adds that the REIT plans to spend another RMB25.5 million of capital expenditure (capex) to improve the airconditioning system at Chongqing Liangjiang.
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Meanwhile, as at end-2HFY2024, Sasseur REIT’s gearing stood at 24.8%, while interest cost was lower y-o-y at 5.3% at end-FY2024.
“In terms of capital management, Sasseur REIT targets to achieve above 60% of RMB-denominated loans in FY2025. In December 2024, Sasseur REIT had extended its RMB308 million sponsor loan till 2030, repriced to floating interest rate pegged to the China five-year loan prime rate, thus completing its refinancing needs for FY2025,” writes Lock.
According to the REIT’s management, a new sponsor loan of up to RMB430 million has already been secured, in preparation for refinancing its debt maturing in FY2026.
On this, the analyst writes: “In addition, Sasseur REIT said it has obtained an ‘AAA’ investment-grade rating from China Lianhe Credit Rating Co Ltd. This would enable Sasseur REIT to diversify its funding options and cushion its overall cost of debt, in our view.”
With this, Lock has lowered her FY2025 to FY2026 dividend per share (DPS) estimates by 4.62% to 6.15% due to the REIT’s management’s guidance to receive a lower 70% of management fees in units, lower payout ratio of 90% and slower tenant sales growth assumption of 2% to 5% over FY2025 to FY2026.
She concludes: “We maintain our ‘add’ rating as we like Sasseur REIT for its exposure to the more resilient outlet mall segment, while its EMA rental income structure provides a stable base.”
Re-rating catalysts noted by her include better-than-projected tenant sales and improvements in discretionary consumption in China, while downside risks include the high cost of capital eroding the REIT’s positive accretion yield gap and slower-than-expected outlet mall sales.
PhillipCapital analyst Liu Miaomiao notes that Sasseur REIT expects sales to grow at a low-single-digit rate in FY2025, supported by more aggressive stimulus measures from the central government, including a 50 basis point (bps) mortgage rate cut and consumption vouchers in Shanghai.
She also sees that the REIT’s borrowing cost decreased by 0.3% percentage points (ppts) y-o-y to 5.3% with more onshore debt, leveraging on the lower loan prime rate (LPR) in China.
Liu writes: “Onshore loans account for 53% of the total borrowing as of December 2024, and Sasseur REIT aims to increase the portion to around 60% in FY2025, for which we expect the cost of borrowing to trend down further.”
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With a 6.5% y-o-y decline in the valuation of Chongqing Bishan due to underperforming sales of the valuer’s expectations, the analyst has taken on a more cautious outlook for FY2025.
“However, portfolio valuation in Singapore dollar terms remained stable, improving 0.1% y-o-y to $1.58 billion, supported by a more favourable exchange rate at year-end.”
On her outlook, Liu notes that Sasseur REIT will be drawing RMB25.5 million from a sponsor loan over the next three years to construct a cooling tower-based central chiller system, which will reduce maintenance costs and energy consumption.
The REIT has also actively introduced VIP-exclusive discounts and promotional events to enhance customer stickiness and VIP conversion rates. On this, she writes: “We expect FY2025 sales to remain supported by VIP members, with membership increasing 18% y-o-y in FY2024 and achieving a three-year compound annual growth rate (CAGR) of 18.7%.”
Sasseur REIT will also continue its brand rebalancing strategy to better align with evolving consumer preferences, with Chinese consumers continuing to favour local Chinese brands and value-for-money products as international brands underperform.
“We anticipate low-single-digit tenant sales growth in FY2025, assuming no disruptions from unforeseen events like heatwaves. Our FY2025 to FY2026 DPU forecasts have been revised down by 2% to 6.0 cents and 6.36 cents.” concludes Liu.
As at 4.50 pm, units in Sasseur REIT are trading 0.5 cents or 0.73% at 69.5 cents.
