SINGAPORE (Apr 14): Pent-up demand within the consumer discretionary space as China comes out of a lockdown could benefit Sasseur REIT’s outlet malls, according to DBS Group Research.

All four outlet malls in Sasseur REIT’s portfolio reopened around mid-March. And shoppers have come flocking back.

“Reopening sales had since been launched at all outlet malls and saw encouraging first day sales that were 129% higher than that achieved during the corresponding dates last year on a blended basis,” says analyst Derek Tan in an April 14 report.

Sasseur REIT derives rental income from a lease arrangement called the Entrusted Management Agreement. Under the EMA, rental paid to the REIT is based on a mix of fixed component rent and a variable rent that is tied to the performance of underlying tenant sales.

“We project FY2020 tenant sales to fall 15% y-o-y due to the temporary closure of malls in 1Q2020, and a rebound in FY2021 back to FY2019 levels,” Tan says.

DBS is keeping its “buy” call on Sasseur REIT, but lowering its target price to 80 cents, from 93 cents previously.

He notes that Sasseur had also waived property management fees and all other fees during the two-month period of mall closure.

Looking ahead, Tan says Sasseur REIT has the potential to more than quadruple the gross floor area (GFA) of its initial portfolio, with a voluntary right of first refusal (ROFR) over two properties and seven pipeline properties from its sponsor. Most of these properties are in Tier 2 cities in China.

“Assuming the REIT acquires all the sponsor’s ROFR and pipeline properties, Sasseur REIT would grow its GFA fivefold with the addition of 1.2 million sqm,” Tan says.

He points out that Sasseur REIT is in a strong financial position to pursue yield-accretive acquisitions that will also help to diversify earnings within the portfolio.

“Sasseur REIT’s gearing ratio of 27.8% stands as one of the lowest within the sector, translating into ample debt headroom of $305 million that can be used for yield-accretive acquisitions of the sponsor’s ROFR assets,” Tan says.

As at 4.31pm, units in Sasseur REIT are trading 5 cent higher, or up 8.1%, at 67 cents.