Since debuting in Singapore in 2002, Real Estate Investment Trusts (REITs) have grown to become one of the most popular investment vehicles for Singaporeans. Besides providing a stable income, REITs can also provide investors with capital appreciation.
Next week, the focus turns to two fairly newly listed REITs – Sasseur Real Estate Investment Trust (SGX: CRPU) and Cromwell European Real Estate Investment Trust (SGX: CNNU) – as the pair release earnings updates for the first quarter of 2019. Here’s what to look out for.
High expectations for Sasseur
Listed in March 2018, Sasseur REIT owns a portfolio of four outlet malls in China. The retail REIT has performed impressively in its short history, handsomely beating its IPO forecasts in 2018. The REIT’s full-year 2018 distribution per unit (DPU) was 12.6% higher than initially forecasted, while its fourth-quarter DPU was a whopping 28.1% higher than forecasted.
The better-than-expected performance was driven by higher tenant sales, which directly impacts the REIT’s rental income. On a year-on-year basis, VIP members to the REIT’s malls, which contribute more than 50% of its sales, increased by 22%, 49%, 66% and 202% across its four malls. Those are impressive numbers and show that the REIT has positioned itself well to attract new shoppers.
In the past 15 months, its portfolio has also been revalued upwards by 5.0%, which has resulted in the REIT’s lower gearing and increased debt headroom. Sasseur REIT is now in a position to utilise the excess debt headroom to drive growth. In the first quarter of 2019, I am expecting continued growth in the trust’s rental income and DPU as the growth in VIP members last year should continue to increase tenant sales.
There is also potential to increase occupancy rates at Bishan Outlet mall, which had an occupancy of 87.9% in the fourth quarter of 2018, slightly lower than the portfolio occupancy of 95.2%. In the upcoming earnings update, investors should also keep an eye out on VIP member numbers, tenant sales figures and the outlook for the rest of the year.
Aggressive expansion for Cromwell
Listed in November 2017, Cromwell European REIT has a portfolio of 97 primarily freehold properties in seven European countries. Despite its relatively short existence as a listed entity, the REIT has been extremely aggressive in expanding its portfolio.
Most recently, the REIT used a rights issue to raise €224.1 million in funds to acquire 22 properties located in the Netherlands, Finland, Poland, Italy, and France. Fifteen of the acquisitions were completed in December last year, with the remaining seven finalised in the middle of February.
According to the chairman’s statement, the acquisitions are expected to be accretive. The management is also confident that the properties acquired can grow organically as it increases occupancy rates and realises positive rental reversions on the assets.
In the first-quarter 2019 earnings update, investors will have a first look at the impact of the rights issue and latest acquisitions. In particular, I will be looking at how the acquisitions impacted net asset value (NAV) per unit and DPU. In addition, investors can see the impact on the trust’s financial position, including its gearing and interest coverage ratio.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore writer Jeremy Chia owns units in Sasseur Real Estate Investment Trust.