Maybank KimEng started Sasseur REIT at Buy with a S$0.90 target price, calling it a “premium buy in China’s discount malls.”
Sasseur REIT’s four outlet-mall properties in Chinese tier-two cities of Chongqing, Hefei and Kunming were “unique and compelling” investment propositions, it said in a note on Thursday.
The REIT is a play on China’s consumer trend of “premiumisation,” the note said.
“Outlet malls are capturing a larger wallet share of China’s brand-conscious, yet price-sensitive ‘aspirational consumers.’ The combination
of premium product offerings, discounted prices and malls that incorporate lifestyle elements is a potent draw for China’s burgeoning
middle class,” the note said. “The appeal to brand owners includes the opportunity to offload overstock, predominantly short-term and sales-based leases and outreach to new customers.”
The “win-win arrangement” should spur the REIT’s addressable market to grow at a 24 percent compound annual growth rate (CAGR) from 2017-21, the note said.
The REIT is a front-runner in China’s fastest-growing retail segment and a first-mover in tier-two cities, it said. Its distributions have downside protection from minimum rental guarantees through 2019 and potential growth upside from sales-based leases, it said. Additionally, the REIT has a visible acquisition pipeline from its sponsor, it said, with a right of first refusal for two properties its sponsor owns: Xi’An Outlets Plaza and Guiyang Outlets Plaza, expected to start operations in the first half of this year.
Maybank KimEng said its target price impled 2018-19 yields of 6.6-6.9 percent.
The unit ended Thursday down 0.65 percent at S$0.77.