Sasseur REIT, which owns a portfolio of outlet malls in China, has reported record occupancy levels of 98% as at 3QFY2024 ended Sept, up from 97.8% in the preceding 2Q.
However, sales enjoyed by its tenants across the whole portfolio dropped by 14% y-o-y to RMB958.4 million. This brings 9MFY2024 dip to RMB3.12 billion, down 7.2%.
The REIT's manager attributes the trend to a softer market and "exceptional factors" including "extreme heatwaves" in Chongqing where the REIT owns two malls.
With temperatures above 35 degrees Celsius over 70 days, shopper traffic and thereby, sales, were affected at its outlets.
In addition, tenant sales at its Hefei outlet too were down because of four earthquakes that affected the city in September.
"Consumers in China are exhibiting increased caution in their purchasing decisions, remaining risk-averse and price-sensitive due to a weaker labour market and slower income growth," reads the REIT manager's presentation for its 3QFY2024 business update.
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As such, Sasseur REIT reported an overall dip in its so-called entrusted management agreement (EMA) rental income by 3.6% y-o-y to $29.2 million for its 3QFY2024.
Under this EMA, the REIT takes a percentage of tenants' sales, plus a fixed base rent component, which was up 3% to $115.2 million, in adherence to the annual increase of this magnitude.
In contrast, the variable component - directly tied to tenants' sales - was down 13.2% to $43.4 million in 3Q. This brings 9MFY2024 rental income to $91.5 million, down 1.5%.
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The REIT maintains that with aggregate leverage of 25.5% as at Dec 31 2023, it is among the lightest geared REITs here.
Going forward, the REIT manager believes that the outlook remains positive, given how China is taking firm steps to stimulate the economy.
Sasseur REIT believes that its positioning of outlet malls will help it grow at a faster clip versus other retail segments.
"When economic growth falls short of expectations, consumers typically become more price-sensitive, seeking lower prices while still expecting the same quality.
"This trend creates greater opportunities for outlets, which have the leverage to offer discounted prices on branded products," says Sasseur REIT.
The REIT is also seeking to expand its portfolio upon "conducive market conditions", with an eye on the Xi'an and Guiyang outlets which it already has right of first refusal from its sponsor, the Sasseur Group.
Sasseur REIT changed hands at 69 cents as at 10 am, up 0.1 cent from the previous day's close.
