SINGAPORE (June 7): Maybank Kim Eng is initiating a “buy” recommendation on Sasseur REIT with a target price of 90 cents.
The operator of outlet malls in China recently listed on the Singapore Exchange (SGX) and currently has four outlet malls in fast-growing Tier-2 cities in China – Chongqing, Bishan, Hefei and Kunming.
In a Thursday report, analyst Chua Su Tye says, “Outlet malls are capturing a larger wallet share of China’s brand-conscious, yet price-sensitive ‘aspirational consumers’.”
Hence, this combination of premium product offerings, discounted prices and malls that incorporate lifestyle elements is a potent draw for China’s growing middle class.
The outlet mall concept also appeals to brand owners, as this gives them the chance to offload overstock, predominantly short-term and sales-based leases and outreach to new customers.
“With this win-win arrangement, we envisage Sasseur’s addressable market to grow at 24% CAGR from 2017-2021E,” says Chua.
The REIT has a unique revenue structure, as its leases are structured as a percentage of sales. Despite that, the analyst believes that FY18E and FY19E distributions should be stable as operational risks are transferred to its sponsor through embedded entrusted management agreements (EMAs) structures.
EMAs help provide for minimum fixed rents while integrating upside via a variable component linked to the sales performance of its retail tenants.
The relatively new Hefei and Kunming outlets have also been showing higher occupancy and traffic, which will support the REIT’s near-term organic growth.
Furthermore, the REIT’s acquisition outlook is supported by a debt headroom of $700-850 million post-IPO, as two ROFR assets and three third-party pipeline properties could potentially triple the total NLA of its existing portfolio.
As at 10.55am, units in Sasseur REIT are trading at 77 cents or 0.9 times FY19 book with a DPU yield of 8.1%.
