Sasseur Real Estate Investment Trust (SGX: CRPU), which owns four outlet malls in China, beat its initial public offering forecast for the fourth consecutive quarter. But what impressed me most is how the REIT is positioned for the future.
Appreciation of portfolio value
While most investors focus on a REIT’s rental income, the portfolio valuation can be an equally important aspect to consider. A portfolio valuation gain will increase the total asset value of the REIT, thereby decreasing the debt-to-asset ratio and providing the REIT with greater financial capacity to fund acquisitions.
In Sasseur REIT’s case, its four assets increased by S$13.8 million over the quarter, a decent rate of growth over the last three-month period.
VIP member growth
Sasseur REIT outlet malls have a VIP membership that is rewarded to shoppers who spend a minimum amount at the outlets. VIP members are entitled to points rewards and discounts. These VIP members, in turn, become loyal customers who contribute around 50% of the mall’s total sales. Moreover, VIP members are recurring customers, with 50% of VIP members making at least one purchase per month.
In the first quarter of 2019, the number of VIP members increased across all four of its malls, reaching 948,800 members in total. The growing VIP members will likely result in higher tenant sales which should, in turn, drive rental income growth.
Growth through acquisitions
In its earnings update, Sasseur REIT also mentioned that it has made its first acquisition since its IPO. The REIT acquired a few shops at Hefei outlet mall, which the REIT did not already own. Management said that it hopes to increase its stake in the Hefei mall from its current 82% stake.
On top of that, Sasseur REIT has two right-of-first-refusal (ROFR) properties and has plenty of debt headroom to make another big acquisition. Management did highlight that if an opportunity unfolds and the acquisition is yield-accretive, Sasseur REIT will be willing to make an acquisition to further increase its DPU.
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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 owns units in Sasseur Real Estate Investment Trust.