Sasseur Reit Q2 DPU rises 6.7%, manager eyes acquisition

Singapore

SASSEUR Real Estate Investment Trust (Sasseur Reit), which owns outlet malls in China, posted a distribution per unit (DPU) of 1.614 Singapore cents for the three months ended June 30, up 6.7 per cent from 1.512 cents in the year-ago period.

Distributable income rose 19.7 per cent to S$21.7 million in the second quarter, from S$18.2 million a year ago. The Reit manager said for Q2 it elected to retain 10 per cent of distributable income to provide funding for future capital expenditure and working capital purposes. The distribution will be paid out on Sept 28.

"As we look ahead, we want to continue to embark on strategic asset enhancement initiatives (AEIs) to strengthen our portfolio," said Cecilia Tan, chief executive officer of the manager, after the results announcement on Friday. Without the retention, Q2 DPU would have been around 1.79 cents, the manager said.

Part of the funds from the DPU retention will go towards AEI works at the Chongqing Bishan mall, which are expected to be completed in December this year.

In addition, the Reit manager said it was "reviewing opportunities" for potential acquisitions.

"I know the market has been very anxious," Ms Tan said, noting feedback that the Reit has not yet made an acquisition since its listing in early 2018. She added that it has begun to explore "the feasibility of unlocking acquisitions via the right-of-first-refusal (ROFR) assets".

"If we were to make an acquisition, I would definitely continue to focus on China and also leverage on the sponsor's strengths."

The manager said it was eyeing two ROFR properties in Xi'an and Guiyang, which have gross floor area of 141,708 square metres (sq m) and 193,520 sq m, respectively. "The retail assets are very large-scale, relative to industrial or office (properties)," Ms Tan said. "So for us to do an acquisition, we really need to plan this very carefully."

Sasseur Reit's aggregate leverage was fairly stable at 27.8 per cent as at June 30, translating to a debt headroom of S$825 million based on the leverage limit of 50 per cent. However, due to the size of the potential acquisition, the manager said it is likely to have to tap the market to raise funds if plans go through.

Ms Tan said the time could soon be ripe, with Sasseur Reit now trading at around its net asset value (NAV). The Reit's NAV per unit rose to 93.61 Singapore cents as at June 30, 2021, from 91.40 cents as at Dec 31, 2020. The counter closed 0.5 per cent or 0.5 cents higher at 95 cents on Friday, after the results announcement.

"I think this signals that the market is now accepting that we have the strong fundamentals to deliver sustainable growth going forward," she said.

In Q2, Sasseur Reit's rental income under its entrusted management agreements (EMAs) was 5.6 per cent higher at S$32.0 million, from S$30.3 million in the year-ago period. EMA rental income was up 8 per cent to S$30.2 million, after adjusting for a straight-lining of an annual 3 per cent escalation of the fixed component of EMA rental income.

"The strong set of results was mainly due to active leasing activities which increased the representation of highly sought-after brands, improvement in operating performance and lower interest expenses, following the completion of loan refinancing exercise in September 2020," Ms Tan said in a statement accompanying the results announcement.

On a quarter-on-quarter basis, portfolio occupancy dipped one percentage point to 92.5 per cent in Q2, from 93.5 per cent in Q1.

As at end-June, weighted average lease expiry stood at 2.4 years by net lettable area and 0.9 year by gross revenue.