The Motley Fool

Sasseur REIT Beats IPO Forecast Again

Sasseur Real Estate Investment Trust (SGX: CRPU) exceeded its IPO forecast for the third consecutive quarter since its listing in March last year. Its entrusted manager rental income and distributable income were 2.9% higher and 28.1% higher than forecasted, respectively. The managers of Sasseur REIT said the slowdown in the Chinese economy was good for outlet mall sales as Chinese consumers looked for discounts at its outlet malls.

The key numbers:

Source: Sasseur REIT 2018 Full-Year Earnings Presentation

What’s behind the numbers:

Sasseur REIT, which owns four outlet shopping malls in China, has a unique agreement with its entrusted manager. Its entrusted manager pays the REIT a fixed base fee and a variable fee that depends on tenant sales. As the table shows, the variable component of the agreement was up 9.9% and 8.1% in the fourth quarter and full year, respectively (March to December 2018).

The higher variable component resulted in the higher distributable income and distribution per unit. For the quarter, DPU was 28.1% higher than forecast, while for the full year, DPU was 12.6% higher than forecasted.

The discrepancy between the EMA rental income and the distributable income is due to other expenses that Sasseur REIT needs to fork out. For the full year, the bulk of those expenses were S$21 million in finance costs, S$6 million in manager’s management fees, and S$8.9 million in IPO costs.

Healthy financial position

  • Aggregate leverage stands at 29.0%
  • S$283 million in debt headroom
  • 75.6% of debt in RMB, and the remaining denominated in Singapore dollars
  • Weighted average all-in finance cost is 5.4%, giving it an interest cover of 4.1 times

Sasseur REIT has relatively low debt for its asset size, and it has a gearing ratio of 29.0%, well below the 45% regulatory limit. The low debt affords the REIT plenty of headroom to make debt-funded acquisitions if the opportunity arises.

However, its debt is on floating rates, which makes the REIT susceptible to higher finance costs should interest rates rise. This is a mark on the REIT.

Encouraging portfolio statistics

Portfolio occupancy improved across Sasseur REIT’s entire portfolio from a quarter ago. Its portfolio now boasts a 95.2% occupancy rate, up from 94.4% in the third quarter of 2018. While weighted average lease expiry is low, at 1.3 years by gross revenue, the shorter contracts are by design as the entrusted manager hopes to capitalise on higher rental renewal rates.

The shopping members of its malls also increased across its portfolio. This chart provided by the REIT illustrates the increase in shopping members in 2018.

Source: Sasseur REIT 2018 Full-Year Earnings Presentation

Its four malls were also positively revalued. Overall, Sasseur’s portfolio had a revaluation gain of RMB 399 million from September 2017, equivalent to a 5.0% increase. The higher valuation also helped to decrease the trust’s gearing ratio.

Looking ahead

2019 will be Sasseur REIT’s second year as a listed company, and the REIT will not have to pay the IPO expenses next year. This should be a boost to DPU in 2019. Its higher occupancy also augurs well for the future.

Anthony Ang, CEO of Sasseur Asset Management Pte Ltd, the manager of Sasseur REIT, said:

“For organic growth, we plan to grow the number of VIP members to generate more repeat sales, improve the occupancy rate especially for Bishan and Kunming, leverage on asset enhancement initiatives such as the Super Farm in Hefei to draw crowds and exert greater control over product prices to boost sales. For inorganic growth, we will actively look at acquisition opportunities if they are yield accretive, with a preference for projects in China managed by our sponsor.”

At the time of writing, Sasseur REIT units trade at S$0.74, which translates to a price-to-book ratio of 0.82 and a juicy annualised distribution yield of 9.2%.

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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.