Sasseur REIT is the latest REIT set to go public in Singapore. Its portfolio consists of four outlet shopping malls located in China. In this series of articles, I have decided to highlight 10 important aspects of the REIT that interested investors should be aware of. This is a two-part article and the first part can be found here.
6. According to Independent Market Research, the PRC’s outlet market industry has grown its sales from RMB 16.8 billion in 2012 to RMB 49.1 billion in 2016. That represents a compounded annual growth rate of 30.8%. The outlet market is expected to continue its growth to RMB 144.9 billion by 2021, equating to a 24.2% CAGR from 2016 to 2021.
7. Besides its current portfolio of four outlet malls, Sasseur REIT also has two right of first refusal (ROFR) properties and three pipeline properties. The two RFOR properties are located in Guiyang and Xian. The three pipeline properties are also managed and operated by their sponsor group but are not ROFR properties as the properties are not owned by them. The total GFA of the five ROFR properties and pipeline properties stands at 700,000 square meters, almost double the size of the current portfolio.
8. The manager of Sasseur REIT has appointed an entrusted manager to manage the properties. Under the entrusted management agreement, Sasseur REIT will receive rental payments comprising a fixed component and a variable component. The fixed component of the rent ensures a stable income for the REIT, while the variable component allows the REIT to enjoy any upside income should tenant sales increase.
9. The fixed component of the rental agreement has a built-in 3% annual escalation rate and is expected to make up about 67% of the resultant rent for the financial year 2018. The aggregate variable component is expected to make up slightly more than 30% of the total resultant rent of the agreement.
10. As of 30 September 2017, the REIT had total assets valued at S$1.55 billion and total borrowing of S$534 million. This puts its gearing ratio at 34.4%. For the 9-month period ended 30 September 2017, the REIT had an interest cost of $23 million and rental income of $91.2 million, putting its interest coverage rate at 3.96 times.
The Foolish bottom line
Sasseur REIT will be the first outlet mall REIT to be listed in Singapore. So far, we have taken a look at key aspects of the REIT such as its initial and potential portfolio, the structure of the rental contracts and its debt management.
From what I see, the REIT does indeed have exciting growth prospects, and has prudently put in place a fixed rental component to limit its downside risk. However, the REIT, despite its leverage being low, has a slightly high interest expense. This is something potential investors should be aware of.
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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 contributor Jeremy Chia doesn't own shares in any companies mentioned.