SINGAPORE (June 5): Sasseur REIT, the operator of China outlet malls, has recently listed on the Singapore Exchange (SGX), and currently has four outlet malls in China – mainly Chongqing, Bishan, Hefei and Kunming.

The REIT has strategically selected its portfolio to be located in fast-growing Tier-2 cities in China to gain a first-mover advantage.

In an unrated report on Monday, KGI analysts say that this is to tap into the cities’ growing middle-class population, creating a large potential customer base for the outlet mall market and with a unique design concept towards outlet shopping, Sasseur is aiming to become the “outlet-to-go” in these cities.

According to China Insights Consultancy, the per capita disposable income in China is forecast to grow at 7.8% CAGR to RMB 35,000 ($7,292) by 2021 with the population expanding at 12.1% to 216 million people by 2021.

The steady increase in income levels would then help drive increased consumption, with a shift in consumer purchasing behaviour towards higher-quality, branded product.

“As a first mover, Sasseur REIT is primed to benefit from the rise of the middle class in China’s 2nd tier cities,” says KGI.

In addition, the REIT has its own unique revenue structure.

“Unlike traditional REITs, Sasseur REIT uses sales-based leases whereby tenants are required to pay an agreed percentage of their sales revenue as turnover rent to the sponsor,” notes KGI.

Hence, to ensure that the monthly rental is deducted, the REIT has installed point-of-sale and cash management system in each shop unit to collect revenue every day. The balance from rental will then be handed to tenants at the end of the month.

However, some of the risks to the REIT include competition from other outlet malls, which could materialise in the future, leading to revenue pressure for the REIT.

The REIT’s rental structure also works as a “double-edged sword” that might work against investors should store revenues start compressing in the near future.

As at 3.15pm, units in Sasseur REIT are trading 3 cents lower than its IPO price at 77 cents.

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