SASSEUR Real Estate Investment Trust (Sasseur Reit), which owns outlet malls in China, is finding itself caught in a rising interest rate environment as it carries out a refinancing exercise for its quickly maturing loans.

 

But its manager&rsquo s chief executive officer (CEO) Cecilia Tan believes that the Reit will be able to mitigate the situation and go away with &ldquo some level of savings&rdquo to secure higher distributions per unit (DPU), because the exercise entails increasing the proportion of its offshore debt. 

 

The refinancing exercise, expected to complete by the end of this year, is aimed at de-risking its current debt profile by staggering its debt maturity and amount. Currently, 53 per cent of Sasseur Reit&rsquo s loans are onshore loans with an outstanding quantum of 1.3 billion yuan (S$276 million), maturing in March 2023. Its offshore debts &ndash S$214 million and US$20 million &ndash have the same maturity date. The weighted average cost of debt as of Mar 31, 2022 was 4.4 per cent.

 

Tan said: &ldquo Even if China might be easing, with a drop in their central bank rates, overall, the onshore piece is still much more expensive. So on a blended basis, by moving more debt offshore, we hope to still achieve overall cost savings that would be at a reasonable level.&rdquo

 

As for the level she would regard as &ldquo reasonable&rdquo , she added: &ldquo Of course, I would love to get as much as we can, like how we did the last round in September 2020, but we also need to recognise that the environment then was very different from now.&rdquo Back then, there was no Russia-Ukraine war, and no huge inflationary pressure of energy prices, she noted.

 

Nevertheless, she said she believes that highlighting the fundamental strength of the Reit&rsquo s portfolio will strengthen its case with the banks, as she referred to the Reit&rsquo s rosier Q1 results released on Thursday (May 12).

 

&ldquo On balance, I think we are still very optimistic that we will be able to complete this with some level of savings that will translate to higher DPU,&rdquo she added.

 

Sasseur Reit on Thursday posted a 3.6 per cent rise in its DPU to S$0.01822 for its first quarter ended Mar 31, 2022, from S$0.01759 cents a year ago.

 

This is the highest DPU the Reit has recorded for Q1 since its listing on the Singapore Exchange in 2018, the manager of the Reit said on Thursday.

 

Distributable income also rose, at 4.7 per cent on year to a record S$24.7 million, from S$23.6 million the year before.

 

The Reit&rsquo s rental income under its entrusted management agreements (EMA) was S$33.8 million for the quarter, 4.7 per cent higher than S$32.3 million a year ago, on the back of a 0.7 per cent on-year rise in EMA rental income in yuan, as well as a 4 per cent appreciation of the yuan against the Singapore dollar.

 

The Reit posted total outlet sales of 1.1 billion yuan, 3.6 per cent lower than in Q1 2021, due to weaker buying sentiments after a new Covid-19 wave occurred across several cities in China in early March.

 

The Reit&rsquo s average portfolio occupancy was 95.4 per cent, compared with 93.5 per cent in the corresponding period the year before.

 

The distribution will be paid out on Jun 28, after the record date on Jun 13.

 

Looking ahead, the manager expects to see challenges amid an uncertain and volatile operating environment it noted that it has already seen weaker buying sentiments and lower sales in April and May 2022 due to the outbreak of Covid-19.

 

However, it expects its EMA model can mitigate the impact of weaker sales due to its in-built annual escalation rate of 3 per cent in the fixed component.