Sasseur Real Estate Investment Trust (SGX: CRPU) released its 2018 third quarter results earlier this year. As a quick introduction for context later, the REIT, which was listed in March 2018, owns four outlet malls in China. Unlike traditional shopping malls, outlet malls are usually located on the fringe of city centres and stock brand-name products that are heavily discounted compared to those in shopping malls. Sasseur REIT has been benefitting from the growing popularity of outlet malls, which cater to shoppers’ desire for cheaper branded goods. With that in mind, let’s take a…
Sasseur Real Estate Investment Trust (SGX: CRPU) released its 2018 third quarter results earlier this year. As a quick introduction for context later, the REIT, which was listed in March 2018, owns four outlet malls in China. Unlike traditional shopping malls, outlet malls are usually located on the fringe of city centres and stock brand-name products that are heavily discounted compared to those in shopping malls.
Sasseur REIT has been benefitting from the growing popularity of outlet malls, which cater to shoppers’ desire for cheaper branded goods. With that in mind, let’s take a look at some of the key aspects of the REIT’s latest results.
Better than expected distributable income and distribution
Here are some key financial numbers:
1. In the reporting quarter, EMA (entrusted management agreement) rental income was S$29.1 million, 0.7% higher than the forecast given in the REIT’s IPO prospectus.
2. Distributable income for the quarter was S$18.2 million, 4.5% higher than forecast.
3. Distribution per unit (DPU) for the quarter was 1.542 Singapore cents, up 4.5% from the forecast.
Sasseur REIT’s agreement with its entrusted manager includes a variable element that is pegged to each asset’s tenant-sales. Year-to-date sales were 36.7% higher year-on-year and much higher than the forecasted 24% annual sales growth given in the REIT’s IPO prospectus. The strong sales were one of the reasons for the REIT’s better than expected rental income and distribution. It also reflects Chinese consumers’ appetite for discounted high-quality branded products in Sasseur REIT’s outlet malls and bodes well for the future of the REIT.
Encouraging portfolio statistics
Sassuer REIT’s portfolio maintained a healthy occupancy rate of 94.4% with a weighted average lease expiry by gross revenue of 1.3 years at the end of 2018’s third quarter. The short average lease expiry is deliberate as the entrusted manager hopes to capitalise on strong tenant sales to increase its rent.
The chart below shows a breakdown of tenant sales in the four outlet malls in the REIT’s portfolio:
Source: Sasseur REIT 2018 third quarter earnings presentation
As you can see, tenant sales increased in all four of Sasseur REIT’s assets, with the Hefei and Kunming outlets experiencing the fastest growth.
Healthy financial position
Sasseur REIT maintained a relatively low gearing ratio of 32.5% as of 30 September 2018, well below the 45% regulatory gearing limit, and provides the REIT with an additional debt headroom of S$196.5 million. The ability to take on more debt affords the REIT with financial flexibility to make more acquisitions in the future.
In the third quarter of 2018, Sasseur REIT’s interest expense was around S$7.1 million, which meant it had an interest cover of slightly more than four times, which is a safe coverage ratio that gives the REIT room to take on more debt if it wishes to.
Looking ahead and potential headwinds
In response to worries about a macroeconomic slowdown in China and the trade war between the Asian giant and the US, Anthony Ang, the CEO of Sassuer REIT’s Manager shared the following comments in the latest earnings update:
“Despite the trade war with US and slowing down of China’s economy growth, Sasseur REIT’s strong sales growth demonstrated that outlets industry in China is unaffected as (1) the characteristics of outlets industry is recession-resilient, (2) the domestic consumption by the middle class in China remains robust and resilient, and (3) the Chinese government is also promoting domestic consumption to support economic growth.”
The Foolish bottom line
It was another formidable quarter for the newly-listed Sasseur REIT. Even with foreign currency fluctuations going against the REIT, it still managed to beat its forecast handsomely. Higher year-on-year tenant sales are also encouraging signs for the REIT and with its short lease contracts and the variable component of its EMA rental agreement, Sasseur REIT could enjoy higher rental income in the future. Moreover, the REIT currently has one of the highest yields among Singapore-listed REITs right now.
At the time of writing, Sasseur REIT’s unit price is at S$0.695, giving it a price-to-book ratio of 0.90 and an attractive annualised distribution yield of 8.8%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Jeremy Chia doesn’t own shares in any companies mentioned.