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Total outlet sales of RMB 1,206.0 million for 1Q 2019 were higher than projection by 10.1% and 24.0% higher than 1Q 20181 . This compared favourably with the growth of total retail sales of consumer goods in China of 8.3% over the same period. The outperformance was mainly due to Sasseur's unique art-commerce business model, its employee partnership programme that was instituted in 2018, as well as seasonal sales promotions that boosted sales. Portfolio occupancy rate increased to 96.1% during the first quarter of 2019 from 95.2% during 4Q 2018, due to on-going efforts to improve and optimise the tenants’ mix to meet changing consumer preferences.
Total income available for distribution of S$19.7 million was ahead of projection by 9.3%. Distribution per unit was 1.656 Singapore cents and annualised distribution yield was 8.4% based on IPO listing price of S$0.80.
Total gross borrowings were S$511.9 million, comprising S$386.9 million (RMB 1.92 billion) onshore loans and S$125.0 million offshore loan. The aggregate leverage was 29.2% and weighted average cost of borrowings (exclude upfront debt-related transaction costs) for 1Q 2019 was 4.5%, with a prudent interest cover of 5.1 times.
The net current assets as at 31 March 2019 was S$48.2 million, representing a healthy current ratio of 1.3 times.
With China's growing economy and rising disposable income, Sasseur is poised to capture a larger share of the consumer goods retail market in China. China’s economy has expanded by 6.4% year-on-year (Y-o-Y) in the first quarter of 20192, while urban household per capita disposable income grew by 7.9% for the first quarter of 2019 compared to the same period in 2018. In the first quarter of 2019, the total sales of consumer goods reached RMB 9,779.0 billion, up 8.3 percent Y-o-Y, of which total retail sales of consumer goods reached RMB 3,172.6 billion, up 8.7 percent Y-o-Y in March 20192.
An estimated retail gross floor area (GFA) of around 940,000 sqm will enter the Chongqing market in 20193. This may lead to an oversupply of consumer goods in the short-term and impact the share of sales achieved by shopping malls in the region. However, recent tax cuts in Chongqing may help to bolster retail sales and improve the performance of Sasseur's Chongqing and Bishan outlet malls.
As announced on 24 April 2019, Sasseur acquired additional shop units with existing tenancies at the annex block of its Hefei Outlets. The yield-accretive acquisition, based on pro forma, is expected to increase DPU and NAV per unit. Sasseur will increase its ownership of Hefei site from 77.8% to 81.2% of total GFA, which will accelerate asset management initiatives to generate future growth and potential value uplift. The acquisition – the first by Sasseur REIT since its IPO – is targeted to be completed by end-May 2019, and will contribute to distribution income for 2Q 2019.
Sales in the Hefei and Kunming outlet malls are set to remain robust and record further growth for the remainder of FY2019.
Barring any unforeseen circumstances, retail sales for Sasseur’s four outlet malls are expected to continue growing throughout FY2019. Despite the stalled trade negotiations between US and China, our outlet sales in China has not been impacted by external trade factors as it is largely fuelled by domestic consumption.
1 Compared to pre-listing same period
2 National Bureau of Statistics (China) dated 18 April 2019
3 Savills Research Report
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