Sasseur Real Estate Investment Trust (SGX: CRPU) extended its streak of beating its initial public offering (IPO) forecast for the fourth consecutive quarter. Its entrusted manager agreement (EMA) rental income, which is the portion that the REIT collects from gross revenue, was 2.4% higher than projected in its IPO prospectus, while distribution per unit (DPU) came in 9.3% higher than forecast.
With its latest results, Sasseur REIT, which owns four outlet malls in China, has now delivered higher than forecast DPU for all four quarters as a listed company. Besides these impressive headline numbers, here are some of the other key highlights from its earnings report card.
Operating performance (year-on-year)
- EMA rental income increased by 3.2% to RMB 153.3 million
- Due to a 0.7% increase in the Singapore dollar against the Chinese yuan, EMA rental income in Singapore dollar terms increased slightly slower at 2.4%
- Distribution per unit was up 9.3% to 1.656 Singapore cents
The higher EMA rental income was due to a 9.4% increase in the variable component from its contract with its entrusted manager. The contract with the entrusted manager states that Sasseur REIT will receive between 4% and 5% of tenant sales for the four assets in Sasseur REIT’s portfolio. As tenant sales were better than expected, the variable component was naturally higher than forecast.
Robust financial health
- As of 31 March, Sasseur REIT’s gearing stood at 29.2%
- The weighted average all-in cost finance cost was 4.5%
- Interest cover was 5.1 times
- The weighted average debt maturity came in at 3.75 years
Sasseur REIT’s gearing of 29.2% is well below the 45% regulatory cap and gives the REIT plenty of headroom to fund acquisitions in the future. It has already announced that it will be purchasing a few shops it did not already own in Hefei outlet, an outlet mall which Sasseur REIT owns around 82% of.
Interest cover was also safe at 5.1 times. The interest cover is calculated by dividing the REIT’s net property income by finance cost. The higher the interest cover, the lower the impact on earnings should finance costs rise.
- Tenant sales increased 24.0% from the corresponding period
- Weighted average lease expiry was 1.14 years
- Total VIP member numbers increased by 15.8% to 948,800
The chart below shows sales and occupancy figures at its four malls:
Source: Sasseur REIT 2019 Q1 Earnings Presentation
All four outlet malls in Sasseur REIT’s portfolio had double-digit growth in tenant sales as seen from the table. Perhaps most impressive is that the Chongqing outlet, which is considered the most mature mall in its portfolio, also grew at a double-digit pace.
Outlook and valuation
It was another good quarter for Sasseur REIT, in line with what I was expecting, given its strong sales in the last few quarters. Vito Xu, chairman of the REIT’s manager said:
“China’s economy and urban household disposable income per capita continue to grow. We are confident that our unique art-commerce business model blending shopping with art-inspired architecture and family-themed lifestyle will continue to appeal to the middle class. This will lead to stronger sales for 2019.”
In light of the recent US-China trade war escalation, it is also heartening for investors to note that Sasseur REIT’s outlet mall sales are driven by domestic consumption. Anthony Ang, CEO of the REIT’s manager highlighted:
“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.”
At the time of writing, Sasseur REIT units trade at S$0.78 each, translating to a price-to-book ratio of 0.88 and a meaty annualised distribution yield of 8.5%.
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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.