DBS started Sasseur REIT at Buy with S$0.91 target price as the first Singapore REIT with exposure to the fast-growing China outlet mall industry.
DBS noted the industry would grow at a compound annual growth rate (CAGR) of 24 percent over 2016-21, citing data from China Insights Consultancy.
“The fast-paced growth is backed by China’s growing consumption levels, expanding middle-class population, as well as an unfulfilled supply gap in the outlet segment,” it said.
Tenant sales for the four outlet malls in the portfolios have exceeded IPO forecasts, growing at 13-136 percent on-year in yuan terms, DBS said in a note this week, adding that it expected overall portfolio tenant sales to rise by 16-24 percent per year over the next two years.
“The initial portfolio is strategically located across three fast growing Tier-2 Chinese cities of Chongqing, Kunming, and Hefei. With the
sponsor’s early entry into these high growth markets, the REIT is well positioned to capture the rapid growth in consumption,” DBS said.
It also pointed to Sasseur REIT’s rental formula as offering both growth and stability. The REIT derives income from a lease arrangement with the entrusted manager, which oversees day-to-day operations, it noted. Rentals paid under this agreement offer a mixed of fixed component rent, or around 70 percent of gross revenue, and a variable rent tied to underlying tenant sales, it said.
DBS estimated 2018-19 revenues on an annualized basis would grow 8 percent a year.
It also noted that the sponsor has given Sasseur REIT a voluntary right of first refusal over two properties and three pipeline properties, with most in tier-2 cities.
Sasseur REIT was up 1.41 percent at S$0.72 at 14:23 SGT.