SINGAPORE (June 20): Citi Research is starting coverage of Sasseur REIT at “buy” with a target price of 92 cents.

Sasseur REIT’s initial portfolio comprises four retail outlet malls in three cities – two in Chongqing and one each in Hefei and Kunming – with total GFA of 371,603 sqm and NLA of 304,573 sqm.

“We think current valuation at 9.7% FY19 dividend yield is attractive considering the risk profile,” says lead analyst Griffin Chan in a Monday report.

Sasseur REIT, which expects high outlet CAGR sales growth of 24.2% for 2016 to 2020 on growing consumption, has four key strengths, according to Chan.

First, Sasseur REIT enjoys a strong brand portfolio and close cooperation with tenants too,.

Second, the REIT possesses first-mover advantage with strong industry expertise in targeting customer preferences, outlet design and inventory management among others.

Third, its Chongqing outlet that opened in 2008 has an established track record and is often presented as a model showcase for other local governments and potential tenants.

Fourth, the REIT is backed by strong strategic shareholders like L Catterton Asia under the LVMH Group and Ping An Real Estate and has experienced management at both the sponsor and REIT manager.

In addition, distributions in FY18 and FY19 are downside protected under a guaranteed resultant rental agreement of $115 million and $124 million respectively.

Chan also sees long-term upside potential from three other factors. These include stronger-than-expected retail sales of 16.8% and 15.7% in FY18 and FY19 with higher turnover rent proportion of more than 70%; improving rents and occupancy as well as acquisition opportunities from sponsor with two ROFR properties in Xi’an and Guiyang each and three pipeline properties in Nanjing, Hangzhou and Changchun managed by sponsor.

“We think current valuation at 9.7% FY19 dividend yield is attractive considering the risk profile,” says Chan.

Units in Sasseur REIT are trading 1.5 cents lower at 74 cents or 10.6 times FY19 diluted earnings.

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