Tuesday, August 21, 2018

Recent Action - Sasseur Reit

I managed to squeeze in another purchase this month by accumulating a new Reit in my portfolio, with the addition of Sasseur Reit which I purchased for $0.705 today.

The idea bends well with the objective of the portfolio, which is to go in the direction of more to the yield over time.

Sasseur Reit announced their 2nd quarter results two weeks ago and had recently gone ex-dividend, so I was glad that I was able to get them today.


Total portfolio sales for the announced period from 28 Mar to 30 Jun 2018 was 8.8% ahead of the IPO projection.

This resulted in rental income from the Entrusted Management Agreements (EMA) that are 3% higher than the forecast while this lifted DPU to be also 4.6% higher.

The outperformance in all of the 4 outlets was expected from the IPO projection, given the way they structure the financial engineering deal with the EMA.

Unlike other conventional Reits like CMT or Starhill which typically focuses on rental income growth and rental reversion as measures of operating performance, the sales growth derived from the outlet malls would be a closer proxy of its portfolio performance. The EMA rental income comprises of both fixed component which has a natural 3% inflationary step up and a variable component pegged to sales.

If you still recall the prospectus, the EMA effectively acts as an income support over the next two financial years (FY18 and FY19) to protect the downside while the sponsor works on providing management expertise to run the outlets on master leases model. The hope is then that the sales variable portion and growth will eventually takes over after the 2 years, the income support will get lifted away and the Reits can run on a sustainable basis. Based on their first quarterly results, it does look promising.

The risk will still be there though without the income support but there's probably enough time to monitor and evaluate closer to the deal before the 2 years income support is up.

Meanwhile, it's 8.4% yield at this price over the next 2 years to enjoy first.

Thanks for reading.

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6 comments:

  1. Sasseur Reit is my only Reit counter in red. Haha.

    ReplyDelete
    Replies
    1. Hi PIF

      Haha collects a few more rounds of dividends hopefully can cover the loss :) My wife has this too during ipo.

      Delete
  2. I have one 'fear'. The outlets here, being in China,... will they 'cook' their sales performance later down the road, in turn causing our dpu to drop ? Especially after the income support phase ends two years from now.

    ReplyDelete
    Replies
    1. Haha if thats the case then its gone case. But I hope the corporate governance can take care of the fake reporting side, hopefully not

      Delete

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