Sasseur REIT

[cyclone]

Sasseur REIT is a Singapore real estate investment trust established with the investment strategy of investing principally, directly or indirectly, in a diversified portfolio of income-producing real estate which is used primarily for retail outlet mall purposes, as well as real estate related assets in relation to the foregoing, with an initial focus on Asia.

The Initial Portfolio will comprise 4 properties located in the People’s Republic of China ("PRC") :
#. Property, Expiry Year of Land Use Rights
1. Chongqing Outlets, 2047
2. Bishan Outlets, 2051
3. Hefei Outlets, 2053
4. Kunming Outlets, 2054

Offering Price of S$0.80 per Unit.

7.5% Distribution Yield for Forecast period 2018.

Total number of Units to be offered under the Offering (subject to the Over-Allotment Option) : 266,562,500 Units
* Placement Tranche: 252,812,500 Units
* Public Offer: 13,750,000 Units

Over-Allotment Option is An option granted by the Unit Lender to the Joint Bookrunners and Underwriters to purchase from the Unit Lender up to an aggregate of 32,000,000 Units at the Offering Price, solely to cover the over-allotment of Units (if any).

The sponsor :  Sasseur Cayman Holding Limited.

Following the Offering, the Sponsor is expected to indirectly hold approximately 55% (assuming the Over-Allotment Option is exercised in full) to approximately 58% (assuming the Over-Allotment Option is not exercised) of the Units as at the Listing Date.

The total number of outstanding Units immediately after completion of the Offering and the Redemption will be 1,180,280,000 Units.

Sasseur REIT opened at S$0.805 today.

[daiwa888]

finally the price is climbing back closer to IPO price of 80 cents
when it was below 70 cents recently, the yield was around 10% (recently announced 6 month div of 3.5 cents so full year div 7 cents)
at 79cents today, the yield is around 8.86% (assume 7c div is maintained) so still quite attractive

[cyclone]

Sasseur REIT will be included in FTSE EPRA Nareit Global Emerging Index from 23 December 2019

Sasseur Asset Management Pte. Ltd., the manager of Sasseur Real Estate Investment Trust (砂之船房地产 投资信托), the first outlet mall REIT listed in Asia, announced that Sasseur REIT will be included in the FTSE EPRA Nareit Global Emerging Index with effect from 23 December 2019.

The FTSE EPRA Nareit Global Emerging Index is a collaboration between FTSE Russell, the European Public Real Estate Association (“EPRA”) and the National Association of Real Estate Investment Trusts (“Nareit”). The Index covers the performance of listed real estate companies and REITs in emerging markets, and is seen as the leading benchmark for listed real estate investments.

More details in https://links.sgx.com/FileOpen/Sasseur_R...eID=589642

[weijian]

I am not sure how much exactly can be saved. IIRC, Capitaland Investment currently pays its dividend annually and responding to a shareholder's request to increase its frequency, the BOD rejected the request and explained it was mainly to "save money" as they had a large shareholder base.

CHANGE FROM QUARTERLY TO SEMI-ANNUAL DISTRIBUTIONS AND PAYMENT OF MANAGEMENT FEES IN PART CASH AND PART UNITS COMMENCING FROM FINANCIAL YEAR ENDING 31 DECEMBER 2024

With the change to semi-annual distributions, Sasseur REIT will be able to achieve savings, given the compliance costs and administrative resources required for quarterly distributions. The Manager also wishes to state that Sasseur REIT will continue to maintain half-yearly reporting of financial results and will provide business and operational updates between the announcements of half-yearly financial results

https://links.sgx.com/FileOpen/Sasseur_R...eID=803269

[cmeng_chan]

I am not sure how much exactly can be saved. IIRC, Capitaland Investment currently pays its dividend annually and responding to a shareholder's request to increase its frequency, the BOD rejected the request and explained it was mainly to "save money" as they had a large shareholder base.

CHANGE FROM QUARTERLY TO SEMI-ANNUAL DISTRIBUTIONS AND PAYMENT OF MANAGEMENT FEES IN PART CASH AND PART UNITS COMMENCING FROM FINANCIAL YEAR ENDING 31 DECEMBER 2024

With the change to semi-annual distributions, Sasseur REIT will be able to achieve savings, given the compliance costs and administrative resources required for quarterly distributions. The Manager also wishes to state that Sasseur REIT will continue to maintain half-yearly reporting of financial results and will provide business and operational updates between the announcements of half-yearly financial results

https://links.sgx.com/FileOpen/Sasseur_R...eID=803269

[Shrivathsa]

While evaluating this REIT for investment, what I noticed was that if one looks at the dividends paid over the period from 2020 till 2024, the trend showed an increase in 2021 and then from then it has essentially been dropping every year.

2025 0.05984
2024 0.04568
2023 0.06136
2022 0.07148
2021 0.07139
2020 0.06239

If one examines it as a 5 year dividend drop from 2020 to 2025, the dividend has dropped by about 4%, if however, one zooms in and looks at as a 3/4 year period from 2021/2022 to 2025, the drop is about 16%.

Interestingly back in 2019, a VB poster had indicated 7 cents dividend 80 cents, it was 8.81% yield.

That is more or less the scenario today where the dividend is about 6 cents (5.984 to be precise). At 69 cents, it yields 8.67%.

One worrying thing is that the SGD is appreciating against the Chinese Yuan and hence it is likely that there will be some compression in NAV / Distribution.

On the bright side, the leverage is low.

Another way of evaluating was in case one had bought on August 20, 2020 and held it till now, one would be sitting on a return of 5.08% Annual Rate of Return.

Purchase 0.78
Dividends 0.30975
Current 0.69
Total 0.99975
Rate of Return Annual 0.050895088

One would imagine that nothing like COVID will ever happen again so, it will likely be better.

Having said that, when even a simple STI ETF would have delivered a 12% price return with a 4% yield, it is unlikely that this will appeal as an investment, especially when one is expecting a higher return for bearing currency risk and country risk. That is my opinion.

[weijian]

Hi Shrivathsa,

Some time ago, I did look at this company for its "high single digit dividend yield" and was intrigued by this statement that appeared in the FY24 financial statement in italics below:

In the absence of the Entrusted Management Agreements (“EMA”), the distribution per Unit would be 5.812 Singapore cents for FY 2024 without retention of income available for distribution

So essentially, the master lease has some sort of rental support involved, not uncommon I would say but needs to be accounted for accordingly. The EMA agreement had been signed for 10years and so will near its end in another 3years time in 2028.

Take note that the 5.812cents stated in the 2024 financials is without retention of income. Sasseur REIT retains ~8-10% of income and hence the figure needs to multiply by that factor. For example, if I assume Sasseur REIT retains 10%, then actual DPU with income retention would be 0.9*5.812 = 5.23cents. This has not accounted for the payment in Mgt fees in units.

More information on the Entrusted Management Agreement (EMA) can be found on the 1st page of the prospectus (which I reproduced below in italics):

The terms of the Entrusted Management Agreements are for 10 years from the Listing Date. Pursuant to the terms of the Entrusted Management Agreements, Sasseur REIT shall be entitled to receive a Minimum Rent (as defined herein) for the period from the Listing Date to 31 December 2018 and Projection Year 2019 (as defined herein) and all the operating expenses of the Properties shall be borne by the Entrusted Manager (or the Sponsor). The Sponsor shall also provide a Performance Reserve (as defined herein) to the Trustee (i) as security for performance by the Sponsor and the Entrusted Manager of their obligations under the Entrusted Management Agreements; and (ii) to secure or indemnify the Trustee as well as any of the subsidiaries of Sasseur REIT against any losses, damages, liability or expenses incurred or sustained arising out of any default by the Entrusted Manager or the Sponsor under the Entrusted Management Agreements.

Based on the assumptions set out in the Prospectus, the DPU (as defined herein) and distribution yield for the Initial Portfolio is S$0.05 and 7.5% on an annualised basis for Forecast Period 2018 (as defined herein) based on the Offering Price and S$0.06 and 7.8% for Projection Year 2019 based on the Offering Price. In the absence of the Entrusted Management Agreements, the DPU and distribution yield for the Initial Portfolio is S$0.04 and 6.1% on an annualised basis for Forecast Period 2018 based on the Offering Price and S$0.06 and 7.8% for Projection Year 2019 based on the Offering Price. Upon expiry or termination of the Entrusted Management Agreements, the Properties may not be able to generate a level of rental income which is comparable to the rent payable under the Entrusted Management Agreements and Sasseur REIT may have to bear the operating expenses of the Properties which had been borne by the Entrusted Manager (or the Sponsor) under the Entrusted Management Agreements. See “Risk Factors – Risks Relating to the Properties – As Sasseur Shanghai is the Entrusted Manager of all of the Properties in the Initial Portfolio under the Entrusted Management Agreements, Sasseur REIT will accordingly, be dependent on Sasseur Shanghai for its income.” of this Prospectus for further details

You can also read the IFA KPMG Corporate Finance's opinion on the EMA agreement in the prospectus (page729 onwards) and it will provide more comparative details.

2018 IPO prospectus:
https://investor.sasseurreit.com/misc/sa...h_2018.pdf

[Dosser]

While evaluating this REIT for investment, what I noticed was that if one looks at the dividends paid over the period from 2020 till 2024, the trend showed an increase in 2021 and then from then it has essentially been dropping every year.

2025 0.05984
2024 0.04568
2023 0.06136
2022 0.07148
2021 0.07139
2020 0.06239

If one examines it as a 5 year dividend drop from 2020 to 2025, the dividend has dropped by about 4%, if however, one zooms in and looks at as a 3/4 year period from 2021/2022 to 2025, the drop is about 16%.

Interestingly back in 2019, a VB poster had indicated 7 cents dividend 80 cents, it was 8.81% yield.

That is more or less the scenario today where the dividend is about 6 cents (5.984 to be precise). At 69 cents, it yields 8.67%.

One worrying thing is that the SGD is appreciating against the Chinese Yuan and hence it is likely that there will be some compression in NAV / Distribution.

On the bright side, the leverage is low.

Another way of evaluating was in case one had bought on August 20, 2020 and held it till now, one would be sitting on a return of 5.08% Annual Rate of Return.

Purchase 0.78
Dividends 0.30975
Current 0.69
Total 0.99975
Rate of Return Annual 0.050895088

One would imagine that nothing like COVID will ever happen again so, it will likely be better.

Having said that, when even a simple STI ETF would have delivered a 12% price return with a 4% yield, it is unlikely that this will appeal as an investment, especially when one is expecting a higher return for bearing currency risk and country risk. That is my opinion.

There have been several headwinds for REITs over the last few years.

Many Singapore REITs (including Sasseur) pay their annual management fees by issuing new units, thus constantly diluting existing shareholders. What is gained in the DPU is lost in the effect of dilution on the unit price. This basis for accounting means that the 'headline' yield is misleading as the profit is effectively overstated.

REITs that hold overseas property (including Sasseur) have seen their (foreign) income shrinking due to appreciation of the S$.

Although interest rates are now coming down, refinancing over the last few years has typically been at higher rates than the prior financing, resulting in increased financing cost.

The yield on REITs can be compared with the yield on safe 6 month Singapore T-Bills, which was 4% through 2023 and 3% at the beginning of the year, although this has now dropped precipitously to 1.68%.

It is noticeable that the highest yielding Singapore REITs are mostly those with overseas property, although there are some exceptions. This is a negative, as it suggests that the market expects DPU and unit price to continue to decline.

It will be interesting to see how this plays out over the next few years as the general scenario may change:

• MAS has been allowing the S$ to appreciate to hold down imported inflation. However, if there is a general recession, and there must be one sooner or later, then if MAS follows its previous playbook they may reverse course, to improve competitiveness. However, a recession will also negatively impact occupancy for REIT properties.
  
• Reducing interest rates should help with refinancing and increase the gap between safe T-Bill yields and current REIT yields.
  

Lots of interesting dynamics. Personally, I have been letting much of my cash reserve that I invested in T-Bills roll off, and then reinvested a proportion in high yielding S-REITs, including those with foreign properties. This is in the expectation that the headwinds will reduce and those high yields will become very tempting - but I am aware that I am taking a risk.