Distributable income declines 2.9% on the year to S$42.7 million

 

SASSEUR Real Estate Investment Trust (Sasseur Reit : CRPU -2.19%) posted a distribution per unit (DPU) of S$0.03153 for the first half ended Jun 30, down 5.1 per cent from S$0.03322 in the previous corresponding period.

 

Distributable income fell 2.9 per cent on the year to S$42.7 million for H1 2024, from S$43.9 million.

 

On Thursday (Aug 8), its manager attributed this decline to changes in the treatment of upfront borrowing costs and manager&rsquo s base fee component.

 

Upfront borrowing costs are not included in the Reit&rsquo s distributable income starting from H2 2023, said the manager. It also noted that the manager&rsquo s base fee in cash had changed to 20 per cent since January. Excluding the impact from these changes, DPU for H1 would have increased 1.7 per cent on the year to S$0.03378. The distribution will be paid out on Sep 26 after the record date of Sep 6.

 

Rental income under the Reit&rsquo s entrusted management agreement (EMA) model fell 0.4 per cent to S$62.3 million from S$62.6 million, excluding straight-line adjustments. The slight fall in rental income was mainly due to the weakening of the renminbi against the Singapore dollar, said the manager.

 

In yuan terms, the Reit&rsquo s EMA rental income grew 0.9 per cent on the year to 329 million yuan (S$60.8 million) from 326 million yuan.

 

Cecilia Tan, chief executive of Sasseur Asset Management, said that the Reit has achieved stable operational performance in the first half, despite tepid consumer sentiment in China.

 

The Reit&rsquo s portfolio average occupancy rate in the second quarter hit 97.8 per cent. Its Chongqing Liangjiang outlet mall continued to be fully occupied, while occupancy of its Hefei and Kunming outlet malls remained stable. This came amid the Reit&rsquo s efforts to optimise tenant mix at the outlets, strengthen retail and lifestyle offerings, as well as undertake asset enhancement works, said Tan.

 

In April, the Reit carried out an asset enhancement initiative at its Kunming outlet mall. The refurbishment is expected to be completed in August and involves about 15 per cent of the mall&rsquo s net lettable area.

 

The Reit&rsquo s weighted average lease expiry by net lettable area stood at 2.1 years as at Jun 30.

 

As at end-June, Sasseur Reit&rsquo s gearing stood at 25.3 per cent &ndash the lowest among the Singapore Reits, said the manager. Its interest coverage ratio stood at 4.5 times.

 

Finance costs for H1 were 13.8 per cent lower at S$12.5 million, as the weighted average cost of borrowings fell to 5.3 per cent, following the hedging of offshore loans interest rates and lower onshore interest rates.

 

The manager highlighted that about 87 per cent of the Reit&rsquo s total borrowings are hedged to fixed interest rates or pegged to stable/fixed interest rates, with a weighted average debt to maturity of 2.4 years as at Jun 30.

 

While more than half of the Reit&rsquo s total loans are denominated in yuan, the recent 10 basis point reduction of the five-year loan prime rate to 3.85 per cent per annum will help the mall owner to cushion its debt cost, said the manager.

 

Looking ahead, chairman of the Reit&rsquo s manager Vito Xu is positive on China&rsquo s economic outlook for the rest of the year. &ldquo Given the near-term challenges for China&rsquo s economy, the market expects the government to introduce more policies to further stimulate economic growth in the second half of the year to achieve its 2024 gross domestic product target,&rdquo he said.

 

In July, the Chinese government reiterated its goal to meet its 2024 GDP target of 5 per cent.

 

&ldquo We believe these structural trends will benefit Sasseur Reit, given its outlets&rsquo positioning as a one-stop destination for providing value-for-money bargains and lifestyle shopping experiences,&rdquo Xu added.