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Total outlet sales for the period was S$193.3 million, 8.8% higher than forecast for the same period. The outlet sales was better than forecast mainly due to strong sales in all the four properties. Portfolio occupancy rate was 94.5% as at 30 June 2018.
EMA rental income was S$32.3 million, 3.0% better than forecast. Total income available for distribution was S$18.7 million, higher than forecast by 4.6%. Distribution per unit was 1.587 Singapore cents and distribution yield was 7.6% based on IPO listing price of S$0.80.
Total gross borrowings was S$530.1 million, comprising S$405.1 million (RMB1.96 billion) onshore loans to the PRC Property Companies and S$125.0 million offshore loan to Sasseur REIT. The aggregate leverage was 33.2% and weighted average all-in cost of borrowings was 5.4%, with an interest cover of 2.1 times.
The net current assets as at 30 June 2018 was S$45.5 million, representing a healthy current ratio of 1.3 times.
The raising of interest rate by the US Federal Reserve and the escalating trade war resulted in increased volatility in the global market. However, China is forecasted to have its GDP growing at 6.5% and 6.3% for 2018 and 2019 respectively. Urban household per capita disposable income grew 8.0%1 for the first quarter of 2018 on a Year-on-Year (YoY) basis compared to the same period in 2017, which improved China's retail sales accordingly. In July 2018, China started lowering import tariffs across a variety of goods including apparels from a few selected countries. China would likely continue to encourage domestic consumption. We believe that the outlet business in China is less exposed to global trade risk and external macro trends, as outlet malls in China are focused on the domestic consumption of the Chinese middle class.
Total sales for Sasseur REIT’s portfolio of outlet malls in China had performed better than their seasonalityadjusted budgets for its first quarter since listing (i.e. the period from end-March to end June). This confirms the strong growth potential of outlets industry in China as the consumption pattern by the middle class in China remained robust and resilient. This is positive for Sasseur REIT with its EMA income comprising a fixed component that is stepped up annually and a variable component that is pegged to sales generated by its tenants at the respective outlet malls.
In terms of competition, according to Savills’ research report for May 2018, an additional 0.8 million sqm of retail space is expected to be added to the current market stock of 5.7 million sqm in Chongqing. These are all traditional retail malls and would likely not pose any significant challenges for the Chongqing and Bishan Outlets. In Hefei, there is only one other outlet mall in the city, which is located about 8 to 10 km away from the Sasseur (Hefei) Outlets. This outlet is much smaller with 30,000 sqm of retail space and does not compete directly with the Sasseur (Hefei) Outlets. In Kunming, there is around 3.7 million sqm of shopping malls in the city centre. Sasseur (Kunming) Outlets differentiates itself based on its 1+N business model and active engagement of local resident-shoppers. Sasseur (Kunming) Outlets also leverages on Kunming as a popular destination for both local and international visitors. The Kunming Outlet is located along the popular route for tourists travelling from Kunming to Anning, Dali and Lijiang and has been able to draw many visitors to its premises for shopping.
All the Sasseur Outlets adopt a common strategy of building a close working relationship with its important international and domestic brands, forging a synergy between the landlord and the tenants. In addition, the operation teams conduct regular market survey with its large customer base to gather information on customers’ changing tastes and needs in order to enhance their attraction to shoppers. We expect that Sasseur Outlets will continue to develop and grow their businesses well and sales growth will continue to be strong.
1 China’s National Bureau of Statistics
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