REIT IPO - Sasseur REIT Analysis

Sasseur REIT is a REIT that holds 4 retail outlet malls in the PRC with Sasseur Cayman as the sponsor for the IPO this time round.

Sasseur REIT

1. Sponsors:
Sponsor for Sasseur REIT is Sasseur Cayman, with Mr Vito Xu as the chairman for Sasseur Cayman and Sasseur Group.

Sasseur Cayman is a privately-owned outlet mall operator in China which counts L Catterton Asia Advisors (formerly L Capital Asia Advisors) and Pingan Real Estate as strategic shareholders. L Catterson is an affiliate of LVMH while Pingan Real Estate is a property giant managing about RMB 300 billion worth of asset.

Cornerstone Investor includes for Sasseur REIT includes:
1. Adroitt Ideology (Subsidiary of JD.com - China's e-commerce giant)
2. Bangkok Life Assurance Pcl.
3. CKK Holdings Pte Ltd (Charles & Keith)
4. Credit Suisse AG, Singapore Branch and Credit Suisse AG, Hong Kong Branch
5. DBS Bank Limited
6. Entrepolis Limited
7. Great Achievement & Success Pte Ltd
8. Haitong International Financial Products (Singapore)
9. TMB Asset Management Company Limited

The cornerstone tranche makes up about 45% of Sasseur total offering size and it also seems like there is quite a fair bit of support from some institution.

Taking a look at Sasseur Group on their official site, we will be able to find that they have 9 retail outlet properties spread out across China. However, in this IPO, we're only able to see 4 properties.


This in another word suggests to us that there are 5 other properties which constitute to roughly 64% of their Sasseur Group's overall NLA that have not been injected into this REIT. Should Sasseur decide to sell them to their REIT to realize the gains, we might be able to see some funds raising coming up. Alternatively, they may also tap onto some Ping An's property for third-party asset acquisition in the coming future and Sasseur seems to be eyeing on Xi'an and Guiyang's property to be next.

The other 5 retail outlets are as follow:

Sasseur (Xi'an) Outlets - 370,000 sqm (Under construction)
Sasseur (Zhongdong Changchun) Outlets - 370,000sqm
Sasseur (Nanjing) Art Commercial Plaza - 229,560 sqm, 95% leased
Sasseur (Hangzhou) Art Commercial Plaza - 45,873 sqm, 95% leased
Sasseur (Guiyang) Art Commercial Plaza - 260,000sqm (opened in 2017)

Source: Sasseur REIT Prospectus - Page 24

Structure

Source: Sasseur REIT Prospectus - Page 50

Trustee: BVI Holding Companies
REIT manager: Sasseur Asset Management Pte Ltd

Nothing too much about the information below..
Management Fees: 10% per annum of distributable income
Performance Fees: 25% difference in DPU

2. What type of real estate do they hold?
Property type: Retail Outlet Mall
Total GFA: 374,603.3 sqft
Total NLA: 304,573.1 sqft

Source: Sasseur Official Website - Sasseur Chongqing

The 4 retail outlet malls in PRC are as follow: 
1. Sasseur (Chongqing) Outlets
2. Sasseur (Bishan) Outlets - Situated in Chongqing too
3. Sasseur (Hefei) Outlets
4. Sasseur (Kunming) Outlets.

Information on properties can be found below:

Source: Sasseur REIT Prospectus - Page 14

To start off, China imposes expiry on land use rights and only offer at most a 70-year lease for its residential properties, and typically shorter for commercial properties. From the table above, we will be able to identify that their average expiry of land use rights is about 37.5 year on average.

Due to this factor, their properties are in fact depreciating more than it could appreciate.
Even if there is appreciation in the real estate prices, this property lease or rather land expiry will actually cause the price of this property to fall back to square one. Hence, I do not think that organic growth will be really shiny here.

Similarly, from the table, we will also be able to spot that Sasseur REIT has an average occupancy rate at 95.1%, the occupancy rate might seem high but I do have something in the later part which is tickling me a little.


Across the 4 properties, Sasseur REIT has:
Total GFA: 371,603.3 sqm
Total NLA: 304,573.1 sqm

Yes, this is about 20% of their area across this 4 properties are not leasable

Sasseur REIT's tenant spread across multiple industries , from cinema operators to F&B outlets with quite a few luxury goods tenant like Gucci, Hugo Boss, Salvatore Ferragamo etc.

3. WALE:
The IPO portfolio has a WALE of 3.2 years based on NLA.
This is relatively low as compared to its peers like CRCT and BHG Retail REIT.

Source: Sasseur REIT Prospectus - Page 16

By default, as an investor, we will be more comforted when we see a longer WALE, right?

Source: Sasseur REIT Prospectus - Page 41

Maybe not so much after I see this, I thought to myself.

And there is about 90% of Sasseur's tenant that is subscribing to this method of leases!

Looking at the bright side, tenants might not mind staying on their premises when the market is bad or that they do not have many customers. This is simply because I do not need to pay a fixed rent every month! This approach, on the other hand, secures your tenant, in a pretty weak way.

But on the other hand, this will also mean that my dividends received will be swinging accordingly to their sales! At times when there are great sales, I will be receiving some handsome DPU, similarly, I might not receive a single penny when they do not sell anything!


4. Net Asset Value (NAV)
I will also need a greater margin of safety if I were to invest in this piece of business with the amount of risk I'm presented to feel comfortable. Hence, what's in it's NAV column, we will have to be seeing a lower number than it's price.

With the total net asset at around $921.277 million and post offering at 1,180,300,000 units, this will be somewhere around 78 cents for each share.

An indicative offering price range around 0.80 - now this price translates to a slight premium over Sasseur's NAV. In that case, probably not for me.
(Please refer to unaudited pro forma financial statement below in point 5)



5. Gearing

Source: Sasseur REIT Prospectus - Page 163

This is a really decent set of gearing I'm seeing here at 30.3% which is relatively low. In some other sense, there is plenty of room for them to take up debts to fund their upcoming acquisitions.

However, taking a slightly closer look at their unaudited pro forma financial statement, I'm looking at something that is slightly different.

Source: Sasseur REIT Prospectus - Page 155

With total liabilities at S$ 585,030,000 and total assets at S$ 1,506,307,000. I'm getting a ratio of around 38.83. I might be wrong somewhere but hmm...

6. Dividend Yield

Source: Sasseur REIT Prospectus - Page 66

Distribution will be made on a semi-annual basis, which means twice a year.
First distribution is expected to come in on 30/09/18 for the period ended 30/06/18
Sasseur REIT will be distributing 100% distributable income up to 31/12/19.

Sasseur promises a 7% yield in 2018 and mid 7% in 2019. However, I'm not comfortable with this number I'm seeing here.

For the risk I'm facing for this investment, I will demand a greater dividend yield as compared to Sasseur's peer like BHG Retail REIT and CapitaRetail China Trust to compensate of the risk.

But wait. There's already one risk about its DPU due to its business structure discussed earlier.
For a greater risk, I demand a greater reward!!


7. When will their IPO take place?

Singapore Public Offer: 22 – 26 March 2018

Expected listing on the SGX-ST: 28 March 2018, 9am

This IPO is looking to seek $600 million from the public.


8. Peer Comparison
The 2 closest peer I can find from SGX would be CapitaRetail China Trust and BHG Retail REIT and I've done up a simple table for some basic comparison. However, do note that despite they are retail properties in PRC, they differ a little as Sasseur operates slightly differently.

Peer Comparison

Risk:
1. Currency Fluctuation Risk (SGD-RMB)
As shared in my 2 earlier REIT IPO Analysis on Cromwell and Keppel KBS REIT, earnings for Sasseur is also in a foreign-dominated currency. And in this case, we are looking at RMB, this exposes us to currency fluctuation risk. Which will mean that if RMB depreciate against SGD, we will see a less significant distribution?

2. Business Model Risk
As Sasseur REIT is very heavily dependent on its tenant's performance, this will come into the picture as a double edge sword. This is due to sales driven income by property which calculates rental by turn over as opposed to fixed income. In another word, inconsistent dividends, and I'm not a big fan of this.

3. Geographical Concentration Risk and Property Expiry
For those looking for exposure to owning some assets in China, Sasseur REIT might be one REIT that you can dip your toes into. Aside from this, we have BHG Retail REIT, MGCCT, CapitaRetail China Trust. Once again, being a property in China, which is subjected to property expiry rules, this is not a very cool thing and will limit organic NAV growth.

All 4 properties of Sasseur or in fact, all properties that Sasseur Group holds are in PRC. This will provide you with geographical concentration risk. Should China market face some headwind, this investment will go together with the flow.

I might be wrong, and I hold no crystal ball but having that said, I'm not exactly comfortable with the risk that I'm seeing here and I'll be giving this IPO a miss.

IPO prospectus can be found here.
Sasseur's ST news can be found here.
CRCT 4QFY2017 financial presentation can be found here.
BHG Retail REIT 4QFY2017 financial presentation can be found here.

Read:
REIT IPO - Keppel-KBS US REIT

Edited: 25/03/2018 1:14PM :
There have been a great number of financial bloggers covering the IPO analysis on Sasseur REIT and I would advise that readers take a look at their comprehensive and wonderful analysis as well to get a better understanding of Sasseur REIT.

Please find the link below: 
ProButterfly - Qualitative Analysis of Upcoming Sasseur REIT IPO
B, Forever Financial Freedom - Sasseur REIT IPO Analysis
SG Budget Babe - IPO Analysis : Sasseur REIT
Mr IPO - Sassuer REIT
Financial Horse - Sasseur REIT: Why I am so disappointed by this 7.5% yielding China REIT

Kyith, Investment Moat - Sasseur REIT – My Short Take on this Messy China Retail Outlet REIT

SmallCapAsia - 7 Things You should Know About Sasseur REIT IPO

TheFifthPerson - Sasseur REIT IPO – 5 key things you need to know before you invest

Reitit - Quick Analysis on Sasseur REIT

MyStockInvesting Journey - Sassuer REIT IPO Prospectus & Fundamental Analysis

I'm sorry if I missed any out.

You may also subscribe to receive my latest email updates here. 

Self-Drive - Niseko, Hokkaido (Autumn 2017)

Hello once again! This is a mini-continuation from the previous self-drive trip to Onuma and Lake Toya.

Niseko is the most famous ski resort in Japan, known for having tons of light powder snow and it is one of the best winter adventure spot in Japan! But wait.. It isn't winter yet. It's only autumn! Not to worry here.. Niseko has it's own beauty during autumn too!!

I've decided to visit Niseko the next day after Lake Toya. The weather is cold despite the fact that it is still autumn! 

Niseko is located just 40km away from Lake Toya and driving there from Lake Toya will take probably just an hour with no toll charges. This trip to Niseko is just a short drop-by and some sight-seeing before returning.

Google Maps (Lake Toya - Niseko)

Let's begin with the short-trip shall we? 

Niseko Ohashi Bridge
Address: Soga, Niseko-cho, Abuta-gun 048-1522, Hokkaido
Well.. This is just a beautiful yellow bridge that connects between Niseko town and the ski-area. 

Niseko Ohashi Bridge

Niseko Annupuri International Ski Area
Address: 485 Niseko, Niseko-cho, Abuta-gun, Hokkaido
Here.. this is the skiing paradise in December. This is how it looks like just before it's covered with snow in the Winter. Be sure to drop by this place during the winter for your winter adventure!

Shrine in Niseko

The Torrii

 


JR Niseko Station 
Address: 142 Chuodori | inside JR Niseko Station, Niseko-cho, Abuta-gun 048-1512, Hokkaido
This is the station that lies on JR Hakodate Hokkaido Main Line. Just as Halloween is around the corner, the station is filled with pumpkins!

Niseko View Plaza
Address: 〒048-1544 77-10, Motomachi, Niseko-cho, Abuta-gun, Hokkaido

The Niseko View Plaza offers the best locally grown vegetable in Niseko. There is also a variety of food you'll be able to find and have there, that are made with locally produced ingredients. The Niseko Cheese Cake is nice!! Similarly, this place is filled with pumpkins as well for the Halloween.
You'd also be able to see Mount Yotei from here!

Delicious Niseko Cheese Tarts!

REIT IPO - Keppel-KBS US REIT

26 Oct 2017: Keppel-KBS US Reit, sponsored jointly by Keppel Capital and KBS Pacific Advisors, is issuing 262.77 million units at US$0.88 a piece in an initial public offering (IPO).

1. Sponsors:
The sponsors for this US Reit a JV between KBS Pacific Advisors and Keppel Capital.

Keppel Capital is the asset management arm of Keppel Group and currently manages 3 Singapore-listed Reit/Business Trust.

1. Keppel REIT - Office/Commercial Asset
2. Keppel Infrastructure Trust - Utilities Infrastructure
3. Keppel DC REIT - Data Centers

They're also managing Alpha Investment Partners Limited and manager of several private equity funds.

KBS Pacific Advisors is one of the largest US commercial real estate manager with about US 11.3 billion assets under their management. KBS is jointly owned by 4 partners - Peter McMilan III, Keith D.Hall, Rahul Rana and Richard Bren with Peter McMilan III serving as the chairman. Along with Keith, they hold one-third of the stake in KBS.

2. What type of real estate do they hold?
Keppel-KBS US Reit will hold a total of 11 freehold offices properties in the United States with an aggregate of 3,225,739 sqft spanning across the West Coast, Central Region and East Coast.  Yes, free hold. I love the properties that are freehold. This is also a pure US-play Reit.

Page 164 of KKREIT Prospectus

Summary:
West Coast:

1. The Plaza Buildings - situated at the CBD of Bellevue (Seattle). Consist of 2 Class A office buildings with a NLA of 490,994 sqft.
2. Bellevue Technology Center - situated at the sub market of Seattle-Bellevue region office market with a NLA of 330,508 sqft.
3. Iron Point - situated at Folsom, Sacramento, Consist of 5 Class A office buildings with a NLA of 211,887 sqft.

Central Region:

1. Westmoor Center - situated in Northwest Denver, it's situated near the downtown of Denver and Boulder. Consists of six Class A office buildings with a NLA of 607,755 sq ft of NLA.
2. Great Hills Plaza - situated in Northwest Austin, Texas. Consist of a three-storey Class B office building that contains 139,252 sq ft of NLA.
3. Westech 360 - situated in Northwest Austin, Texas. Consist of 4 three-storey Class B buildings with a NLA of 173,058 sq ft. 
4. 1800 West Loop South - situated in Houston’s Galleria West Loop submarket, and consist of a 21-storey, Class A office tower with a NLA of 398,490 sq ft. 
5. West Loop I & II - situated in Bellaire, suburb of Houston, Texas. Consists of 2 Class A office buildings with 313,873 sq ft of NLA and a high concentration of its tenant base from the healthcare and professional services sectors.

East Coast:

1. Powers Ferry Landing East - situated in the Cumberland/I-75 submarket of the Atlanta Office Market. Consist of a six-storey, Class B office building with a NLA of 146,352 sq ft. 
2. Northridge Center I & II - situated in Atlanta, Georgia, in the Central Perimeter, one of the largest office submarkets in Atlanta. Consists of two Class B office building with a NLA of 186,580 sq ft.
3. Maitland Promenade II - situated in Orlando, Florida. Consists of a five-storey Class A office with a NLA of 226,990 sq ft.

 

Tenant Mix:

From below, we can see that there is no heavy concentration of tenants. In another words, the departure of the biggest tenant will only contribute to a loss of 3% of their cash rental income.

It also seemed that among the biggest tenants, the sector that contributed most belong to the Finance and Insurance sector. This may not exactly be a good thing. During a financial crisis, where finance company will be taking a big blow, KKREIT might be impacted adversely when the finance companies are not able to pay for the rental.

Page 170 of KKREIT Prospectus

3. WALE:
The IPO portfolio has a WALE of 3.9 years with most of their leases expiring from 2022 and beyond.

Page 171 of KKREIT Prospectus

Current occupancy rate is standing at 88.1% and the table below shows the occupancy rates across the 11 properties.

Page 133 of KKREIT Prospectus

4. Net Asset Value (NAV)
NAV of KK-US Reit properties stand at US$ 0.84 with their portfolio size at US$ 804 million. At the IPO price of US$ 0.88, it translates to a premium of 4.7% with a P/B ratio of 1.047. However, comparing to the nearest peer (Manulife US REIT), they're also trading at a premium of 7.7% at the price of 0.90 today. Hence, this IPO is not exactly a cheap IPO and at 1.047%, they're fairly priced.

 

5. Gearing:
Currently, the gearing is currently standing at 36%, which is not exactly low and is 9% away from the MAS ceiling of 45%. This also means that there is a slight headroom for KKREIT to take up debt for future acquisition. However, as REIT is to pay out 90% of their earnings as distribution, at 36% gearing, this will mean that not much debt can be taken for acquisition in the future.

Page 34 of KKREIT Prospectus

 

6. Dividend yield

The DPU forecast for FY2018 is estimated to be at 6.8% and 7.2% for FY2019 with a 5.8% growth in DPU from rental escalation and organic growth.

KK REIT's distribution is slightly higher than the average DPU for SG Office REIT.
The higher yield serves as a compensation for being exposed to more risks such as forex movements and the US economy.

Page 32 of KKREIT Prospectus

7. Principal Unit holders:
As seen from the table below, the issuance is pretty well supported from cornerstone investors such as Affin Hwang, Credit Suisse, DBS and Hillsboro amounting to almost 40% of the total units issued! Sponsor interest is also nice at 14-19% from Keppel Capital (KCIH) and KBS depending on over-allotment exercise.

Page 111 of KK REIT Prospectus

8. When will their IPO takes place?
The following table shows the timetable and important dates for the listing.

Page 74 of KK REIT Prospectus

9. Closest match and comparison: 
The closest match for this is no doubt Manulife US Reit. Both Manulife US Reit and KKREIT are pure US asset play and consist of offices. So based on some metrics mentioned previously, let's have a closer look (as of 31/10/17).

Latest financial report from Manulife USD Reit (ended on 30/06/17):

Manulife USD 1H2017 Key Highlights Slide 5

10. My take:
Similar to the REIT IPO of Cromwell and Manulife US REIT, KK US REIT is dominated in a foreign currency, USD in this case. This acts as another layer of risk or reward. Should the USD recover against SGD, the reward from KK REIT might be amplified, and likewise if it were to deteriorate, the gains might be wiped out/loss might be amplified.

The issue price of US$0.88 and P/B ratio of 1.04 suggest that is is fairly priced and trading at a 4% premium. No margin of safety in this case. Gearing of 36% also means that, there is limited headroom available for them to acquire more properties without rights issue.

It's good to know that there is a fairly decent support from the cornerstones investors and sponsors. After reading from the prospectus, if you're someone that is looking for diversification, positive on US growth and comfortable with the metrics mentioned, you might wish to take a closer look at KK REIT.

More information can be found here from Straits Time.
And IPO prospectus for Keppel-KBS US Reit can be found here
Latest Manulife 2Q2017 Financial Results Slides can be found here

Cromwell European REIT follow up - 7.5% dividend?

I've written about the IPO of CEREIT earlier in August when SGX has nodded for it's ETL.

Cromwell has since lodged it's preliminary prospectus to listing in SGX and their plans to start trading on 28 September. Being the 14th IPO of 2017, CEREIT is also the largest IPO since Netlink Trust with an offer size of S$2.3 billion. This will also be the first Euro dorminated REIT in Singapore, by which

What type of real estate do they hold?
CEREIT holds 81 properties from a diversified mix across six gateway cities in Denmarm, France, Germany, Italy, Netherlands and Poland which is valued at 1.83 billion euros. Their portfolio consists of office (35%), light industrail assets (33%) and retail (27%). Occupancy rate is ~89%

However, when being compared with the closest REIT (IREIT) which compromises of asset in Europe, CEREIT only has 69.1% of assets that is freehold. IREIT on the other hand has a portfolio that consists of only freehold properties. NLA is about 1.4sqm.

When will their IPO take place?
The public offering will open at 9pm on September 21 and close at 12pm on September 26. Trading will start on September 28.

Shareholders
Sponsor Cromwell will holds an 8.7% stake in the REIT if greenshoe option is fully exercised and 12.7% in the worse scenario.
Cornerstones investor includes Cerberus (7%) and Hillsboro Capital (8%) which will takes up a combined of 15%

Price/unit
1.58 billion units of CEREIT is expected to raise about 1.25 billion Euros (S$2 billion)
The offer size consists an international placement tranche of 1.2 billion units, a Japanese public offering of 268 million units, and 79 million units that will be offered to the Singapore public.
Prices/unit are between EUR0.55-0.57.

Goldman Sachs and UBS are the joint managers. DBS joins them as joint global coordinators

Gearing
The gearing of the REIT is between 34.3-36.6% which is below the ceiling of 45%. This is not exactly a low gearing when compared to FLT and definietly not as high an European peer, IREIT with gearing at 41%.

Dividend Yield:
The REIT has a forecast of 7.5% (EUR0.57) - 7.7% (EUR0.55) dividend yield for 2018 and distribution are declared in Euros by which investors can opt to receive their dividends in EUR or SGD. CEREIT also has a decent WALE of 5.1 year which suggests that their leases will expires mostly on 2021.

My take
- As CEREIT is a REIT that is dorminated in EUR, a depreciating euro against SGD will also impact the returns negatively. Hence, apart from the performance of the REIT, the country's currency also plays a risk in the investment. However if Europe's economy were to recover to the days when EUR2 = SGD 1, this will aso mean that the gains are amplified. EUR has appreciated ~6% since the start of this year to 1 EUR = 1.614 SGD today.
- The issue price offers a discount of 13% to its NAV which provides a margin of safety.
- Gearing of 34-36% do allows the REIT to take up some loans for acquistion in the future without the need to constantly issue rights for any acquistion.
- CEREIT compromises of assets that is of a diversified field, which allows the pain of declining sectors to be slightly mitigated. Also, they're diversified across different countries in Europe, which will reduce the concentration risk if one of the countries were to perform poorer. The economy in Europe however, will determine the performance of CEREIT heavily as all the assets are based in Europe.
- Distribution yield forecast in 2018 is pretty attractive at 7.5-7.7%

More details can be found here from Business Times and here from Straits Time.

REIT IPO - Cromwell European REIT

24 Aug 2017: CROMWELL European Real Estate Investment Trust (Cereit), a Singapore Reit with portfolio of assets in Europe, has received an Eligibility-to-List (ETL) nod from the Singapore Exchange for its estimated one billion euros (S$1.6 billion) initial public offering (IPO).

SGX has issued Cromwell with its Eligibility-To-List with regard to its IPO.
Listing is expected to commence at end-September 2017.

Cromwell European REIT (CEREIT)
Australia-listed Cromwell Property Group's REIT IPO will comprise of European office properties.
It will compromise European properties with a focus on Europe's small cities.

As of 31 December 2016, Cromwell posted a market capitalization of $1.7billion and total assets under management of $9.8 billion across Australia, New Zealand and Europe. Market sources said CEReit will have more than 70 properties across Europe and a target distribution yield above 6%

Goldman Sachs and UBS are joint issue manager for the IPO, with DBS operating alongside them as global coordinators.

According to Cromwell, it intends to hold a sponsor stake estimated at 10% in CEREIT following its public float. "The IPO reflects Cromwell's stated strategy of diversifying capital sources and achieving recurring revenue from its funds management business," the company said in a statement.

I will be keeping a look-out for this IPO for any further news. I feel that it is similar to IREIT with properties in Europe.

More information can be found here.