Asia’s first outlet mall REIT, Sasseur Real Estate Investment Trust (SGX: CRPU), made its stock market debut at the end of last month. The REIT’s initial portfolio comprises four outlet malls located in China. The properties have a total net lettable area of 304,573 square meters (sq m), and a collective value of around S$1.5 billion.
Sasseur REIT is expected to produce a distribution yield of 7.5% for the 2018 forecast period (from 1 March 2018 to 31 December 2018) based on its listing price of S$0.80. In its initial public offering (IPO) prospectus, the REIT mentioned that it could generate “stable and growing distributions through organic and inorganic growth opportunities.” So, what are some of the ways the REIT can grow in the future? Let’s look at what it said about the topic in its prospectus.
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By acquiring properties
The REIT is sponsored by Sasseur Cayman Holding Limited, one of the premium outlet mall groups in China. The sponsor has granted the right of first refusal (ROFR) to Sasseur REIT for two properties: Sasseur (Xi’an) Outlets and Sasseur (Guiyang) Outlets. These properties were not included in the initial portfolio as Xi’an Outlets and Guiyang Outlets only commenced operations on 30 September 2017 and early-December 2017, respectively.
Sasseur REIT’s sponsor also manages and operates three other properties (named collectively as the pipeline properties): Sasseur (Hangzhou) Outlets; Sasseur (Nanjing) Outlets; and Sasseur (Zhongdong Changchun) Outlets. Although the sponsor manages these properties, it does not own them; third parties unrelated to the sponsor and Sasseur REIT are the owners.
If Sasseur REIT acquires all the five properties mentioned above, the aggregate gross floor area (GFA) of its portfolio will expand by around 0.7 million sq m, almost tripling from the total GFA of 371,603 sq m currently.
The following shows the locations of all the properties mentioned earlier:
Source: Sasseur REIT IPO prospectus
According to an independent market researcher engaged by Sasseur REIT for its IPO, the outlet market in China is expected to grow from RMB 49.1 billion (US$7.4 billion) in 2016 to RMB 144.9 billion (US$21.8 billion) by 2021, translating to an annualised growth rate of 24.2%. By 2030, China could overtake the US to become the world’s largest outlet market, achieving annual sales of around RMB 640.2 billion (US$96.2 billion) compared to the US market’s US$91.5 billion.
One of the main reasons for the projected growth is the rise in the middle-class population in China, which should create a large customer base for the outlet mall market in the country. By 2021, China’s middle-class population is expected to grow to around 216 million, accounting for some 15% of its total population. For context, in 2015, the total number of people in China’s middle-class category was 109 million.
Furthermore, China’s per capita disposable income is projected to rise by 24.2% per year from 2016, ending at RMB 34,700 (US$5,216) by 2021. It is expected that higher disposable income and rising aspirations of the middle class will drive demand for luxury goods from both domestic and international brands, thus helping grow China’s outlet malls market.
Sasseur REIT could see some positive spillover effects from the higher demand for outlet malls, if it manages to increase the rent from its tenants over time. Its current leases have both a fixed and variable component; the latter allows the REIT to gain from any growth in its tenants’ sales.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.