Listed on the SGX since 28 March 2018, Sasseur REIT (SGX:CRPU) is a REIT where its portfolio consists of four premium outlet malls located in the People’s Republic of China (“PRC”.)

As China is one of the very first countries in the world to return to normal business operations (no doubt there is a second wave of spread in Beijing at the moment, but the Chinese government is also taking prompt actions to stop the further spread beyond Beijing, which I see it to be a good thing), is this a good time to invest in the REIT now to tap onto the country’s growth ahead?

In this post, I will be sharing with you researches I have done on the REIT – including more about its four malls, along with its unique EMA rental structure, its historical financial performance, debt and portfolio occupancy profile, catalysts and risks impacting its performances ahead, and finally, whether or not at its current unit price, is the REIT considered cheap or expensive based on its current vs. its historical valuations.

Let’s get started…

A Brief Introduction about Sasseur REIT

Outlet Malls under Sasseur REIT’s Portfolio:

As I have mentioned in the introduction above, Sasseur REIT operates premium outlet malls in the PRC, and at the time of writing, its portfolio has a total of four malls:

1. Sasseur (Chongqing) Malls:

It is one of the malls in Chongqing with the strongest international brand offerings (some of them include Gucci, Ermenegildo Zegna, Salvatore Ferragamo, Hugo Boss, Max Mara, Bally, Armani, Coach, and Michael Kors.)

Their target consumers are those in the middle and upper class with higher disposable incomes.

You can find out more about the mall here.

2. Sasseur (Bishan) Malls:

It was designed as a “one-stop” shopping destination in Bishan and West Chongqing areas, combining retail shopping with entertainment, food, education, and leisure.

Apart from having a “Super Children’s Centre” with retail stores offering a variety of infant and children’s clothing brands, there is also a “Super Sports Hall” which houses the outlet stores of sports brands including Nike, Adidas, and Le Coq Sportif.

You can find out more about the mall here.

3. Sasseur (Hefei) Outlets:

Apart from having a total of 283 stores carrying approximately 450 international brands (including Coach, Giogio Armani, and Givenchy), it also features one of the largest cinemas in east China, and the first five-star cinema in Hefei under the UME cinema chain.

Their target consumers are those in the middle class.

You can find out more about the mall here.

4. Sasseur (Kunming) Outlets:

It is the largest outlet mall in terms of gross floor area in the Yunnan province, with middle class consumers being their target.

Apart from catering to the needs of consumers looking for luxury brands such as Burberry, the mall also has retail spaces that offers healthcare services, entertainment, as well as cultural facilities.

You can find out more about the mall here.

EMA Rental Structure:

One thing you need to take note about the REIT is that, its revenue is in a form of EMA – which stands for Entrusted Management Agreements.

To explain this in layman terms, what this means is that, on top of a base rental income which is fixed (with an escalation rate of 3.0% a year, in-line with inflation), there is also a variable component where it is pegged to a percentage of the property’s total sales (in the range of between 4% and 5.5%.) – this can be a double-edged sword in that, in times where sales is good, the REIT will be able to receive more in terms of rental income; on the other hand, should the sales volume becomes weak, the REIT will receive lesser in terms of rental income.

Awards and Recognition in 2019:

The year 2019 was a great one for Sasseur REIT, where they were:

• Named as the REIT Company of the Year by International Investor Magazine in September 2019
• Awarded the Best Retail REIT (Platinum), Best CEO (Platinum) and Best Investor Relations (Gold) at Asia Pacific’s REITs Award 2019
• Included in the FTSE EPRA NAREIT Global Emerging Market Index from 23 December 2019
• Chairman of Sasseur Group and Sasseur REIT Manager Mr Xu Rongcan was named as Asia’s Top Entrepreneur for 2019 by Fortune Times in December 2019

Sasseur REIT’s Historical Performances between FY2018 and FY2019

As the REIT was listed only in March 2018, we will be looking at the REIT’s performances over a two-year period, between FY2018 and FY2019, in this section:

Key Financial Performances (in S$’000):

	FY2018	FY2019
EMA Rental Income (S$’000)	S$93,525k	S$122,060k
Distributable Income to Unitholders (S$’000)	S$63,530k	S$77,926k

For FY2018, its results was for the period between 28 March 2018 (as it was listed on this day) and 31 December 2018 (its financial year end), while for FY2019, the period was between 01 January 2019 and 31 December 2019.

Its EMA rental income saw a 30.5% year-on-year (y-o-y) growth, while its distributable income went up by 28.7% in the same period.

Debt Profile:

	FY2018	FY2019
EMA Rental Income (S$’000)	29.0%	27.8%
Interest Coverage Ratio (times)	4.1x	4.8x
Average Term to Debt Maturity (years)	3.8 years	2.7 years

Compared to FY2018, its debt profile have strengthened with a lower gearing ratio, along with a higher interest coverage ratio.

Looking at its gearing ratio, it has a very conservative debt profile with ample debt headroom to make further yield accretive acquisitions before it reaches the regulatory limit of 50.0%.

Also, from my understanding, at the time of writing, the REIT does not have any debt due for refinancing until the year 2021.

Portfolio Occupancy:

	FY2018	FY2019
Occupancy Rate (%)	95.2%	96.0%
Weighted Average Lease Expiry (by Net Lettable Area – in Years)	3.0 years	3.0 years

In terms of the REIT’s portfolio occupancy, it has also strengthened when compared to the previous year (i.e. FY2018.)

In case you’re wondering about the occupancy rate of each of the four malls under the REIT’s portfolio as at 31 December 2019, they are as follows:

• Chongqing – 100.0%
• Bishan – 92.5%
• Hefei – 96.3%
• Kunming – 94.9%

Sasseur REIT’s Distribution Payout to Unitholders between FY2018 and FY2019

For those of you who prefer to invest in companies/REITs that pays out a dividend/distribution on a quarterly basis, Sasseur REIT is one of them (they have started paying out a distribution to unitholders on a quarterly basis since FY2019.)

The following table is the REIT’s distribution payouts between FY2018 and FY2019:

	FY2018	FY2019
Distribution Per Unit (S$’cents/share)	5.128 cents	6.533 cents

Compared to the previous year, the REIT’s distribution payout have increased according to the EMA rental income growth where its distribution per unit went up by 27.4%.

Catalysts and Threats which May Impact the REIT’s Growth Ahead

The following are some of the catalysts and threats which may impact Sasseur REIT’s growth ahead:

Catalysts:

• Further growth in the Chinese economy will spur consumers’ buying appetite in the country
• Announcements of further yield-accretive acquisitions
• Better-than-expected tenant sales
• Adoption of online e-commerce platforms to boost the sales volume of their tenants
• Deepening of experimental retail offerings in its malls to capture a higher share of shopping traffic (to the REIT’s malls)
• Better-than-expected rental reversions for expiring leases

Threats:

• A second wave of Covid-19 outbreak in China, forcing another round of lockdown by the Chinese government (like what we have seen in the beginning of the year)
• Continued weakening of the Chinese Renminbi (where it derives its revenue from) against the Singapore dollar (where its financial results are denominated) may see the REIT’s financial performance being negatively impacted
• Slowdown of the Chinese economy may dampen buying mood, hence slowing down tenant sales
• Growing competition in the retail market may see tenants’ sales volume being compressed
• As all of the REIT’s properties are in China, the REIT’s performances could be adversely affected should there be any changes in business regulations in the country

Is Sasseur REIT Considered Cheap or Expensive Currently?

One of the ways I use to find out whether or not, at its current unit price, whether the REIT is considered cheap or expensive is to compare its current valuations (based on its current unit price) against its average.

At the time of writing, the unit price of Sasseur REIT is trading at S$0.755, and its current valuations are as follows:

P/E ratio: 7.3
P/B ratio: 0.8
Distribution Yield: 8.7% (calculated based on its total distribution payout of 6.533 Singapore cents/unit in FY2019)

Its two-year average valuations are as follows:

P/E ratio: 6.4
P/B ratio: 0.9%
Distribution Yield: 7.6%

Comporting its current valuations against its 2-year average, it seems that, at its current unit price, Sasseur REIT is considered cheap due to its slightly lower-than-average current P/B ratio, along with a higher-than-average current distribution yield.

Closing Thoughts

Looking at the REIT’s financial performances, debt and occupancy profile, along with its distribution payout to unitholders, it has seen y-o-y improvements. Also, when I compare the REIT’s current and average valuations, it seems that at its current unit price (at the time of writing), it is considered to be trading at a discount.

For those of you who are looking to tap onto the growth of China (especially pertaining to its consumer spending in branded international products), then the REIT is something you can consider. Personally, I am looking to add the REIT to my long-term investment portfolio at S$0.740.

But having said that, the above sharing is for educational purposes only, and do not represent any buy or sell call for the REIT. Please do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a unitholder of Sasseur REIT.

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