Sasseur Reit drops 10.3% after closures at China malls to guard against virus
Financial impact, if any, should not be material if crisis is resolved in the short term, says manager
Singapore
UNITS of Sasseur Real Estate Investment Trust (Sasseur Reit) units sank on Tuesday after its manager announced that it has temporarily closed the trust's four outlet malls in China.
The counter ended at 78.5 Singapore cents, down 9 cents or 10.3 per cent, after some 13.5 million units changed hands. Prior to market close, the units had sunk 10 cents or 11.4 per cent to an intra-day low of 77.5 cents at around 9.16am.
The closure of the real estate investment trust's (Reit) four malls was a precautionary measure in response to the spread of the coronavirus in China, the manager said in a bourse filing on Tuesday morning.
Two of them, in Chongqing and Bishan, have been closed from Jan 26, while the other two, in Hefei and Kunming, have been closed from Jan 27.
Meanwhile, the Reit's sponsor, Sasseur Cayman Holding, owns or manages seven other outlet malls in China, located in Hangzhou, Changsha, Nanjing, Lanzhou, Xian, Guiyang and Changchun. These seven properties have also been progressively closed from Jan 26.
The reopening dates of all 11 malls will be announced in due course, the manager said in the filing. At an analyst and media briefing on Tuesday, Anthony Ang, chief executive of the Reit manager, said: "We hope we can reopen as soon as possible, hopefully in days rather than weeks."
He added that if the malls had remained open and a coronavirus case were to occur within one of the malls, business could potentially be "even more disrupted" than with the current closures.
Local authorities have not imposed regulations to direct the mall closures. The Reit manager said the decision to shut them was made after "careful consideration".
The manager and sponsor "will not hesitate to take all necessary short-term measures to safeguard the health and safety" of shoppers, customers, employees and the public, according to the bourse filing.
In addition, the sponsor has formed a high-level management task force to closely monitor the current situation and implement further measures if required.
The manager noted that it is difficult to ascertain the full financial impact on the Reit's performance, given that the situation relating to the spread of the virus remains uncertain and fluid.
"However, due to the unique business model of Sasseur Reit, the manager is of the view that the financial impact, if any, to Sasseur Reit should not be material if the crisis is resolved in the short term," it added.
Sasseur Reit receives its rental income under an entrusted management agreement (EMA). Under this EMA model, around 70 per cent of the resultant rent comes from a fixed rent component with a 3 per cent annual escalation rate, while the remaining 30 per cent is a variable portion that is pegged to tenant sales at the Reit's portfolio properties.
The sponsor also guarantees a minimum rent for at least two years from FY2018 if the Reit does not hit its initial public offering (IPO) forecasts, in which case the sponsor will make up for the shortfall in the EMA resultant rent. The EMA model cushions unitholders from excessive fluctuations in sales, the manager wrote in the Reit's 2018 annual report.
Mr Ang said the Reit also has "some buffer" to weather any dips in rental income from the mall closures, thanks to cost savings achieved in previous quarters and the fact that the Reit has outperformed its projections every quarter since its IPO in March 2018.
The four outlet malls in Chongqing, Bishan, Hefei and Kunming make up the Reit's entire portfolio. They generated combined sales of 1.22 billion yuan (S$238.5 million) for the third quarter ended Sept 30, 2019, up 9.4 per cent from a year ago.
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