UOB KayHian started coverage of Sasseur REIT at Buy with a S$0.97 target price, pointing to an attractive 2019 distribution yield of 8.2 percent.
“Sasseur REIT provides exposure to fast-growing outlet malls in tier-2 cities in China, where demand is driven by aspirational consumption and expansion of middle-income households,” the brokerage said in a note Wednesday.
UOB KayHian pointed to data from China Insights Consultancy projecting annual sales for China’s outlet industry would grow at a five-year compound annual growth rate (CAGR) of 24.2 percent to reach 144.9 billion yuan by 2021.
“Currently, the supply of outlet malls is not able to meet China’s voracious appetite for branded consumer goods. Demand is underpinned by growth in disposable income per capita,” UOB KayHian said.
In addition, tenancies are under an entrusted management agreement, with rentals comprising a fixed rent, with 3 percent built-in annual escalation, and a variable component pegged to tenant sales, UOB KayHian.
“The structure provides downside protection while enabling upside potential should the outlet malls perform better than expected,” the note said.
On Friday, the units ended up 1.26 percent at S$0.81.