1 Singapore REIT to Play China’s Retail Rebound

Billy Toh

January 16, 2023

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China’s sudden shift away from its COVID-Zero policy will help to boost the recovery of the retail sector, which has been severely affected by the lockdowns.

The reopening in China could boost the recovery of China’s retail outlet malls, which are supported by its rising middle-class population and its position as one of the largest consumer markets in the world.

One of the Singapore REITs (S-REITs) best-positioned to benefit from this is Sasseur REIT (SGX: CRPU), which is the first mall outlet REIT listed in Asia.

It has four outlets that are strategically located in China’s high-growth cities, including Hefei, Chongqing, and Kunming.

Source: Sasseur REIT’s website

Sasseur REIT is featured as one of our Top 5 REITs that Benefits from China’s Reopening and 5 Top Singapore REITs to Buy in 2023.

Here are five reasons why I think Sasseur REIT will be a good proxy to the recovery in China’s retail outlet mall segment.

1. Unique retail experience

With the reopening in China, I expect the unique retail experience under its “Super Outlet” business model – that combines art, outlet shopping, social spaces and the incorporation of various lifestyle elements – to attract shoppers and consumers in China.

The REIT is backed by its sponsor, Sasseur Group, a large international chain group of premium outlet malls that focuses on operations using its “Super Outlet” model in China.

The “Super Outlet” approach transforms the outlet malls from a pure retail venue to a shopping and lifestyle destination in its own right.

It does all this while providing more options and attracting customers by offering a wide range of activities (retail, cultural, tourism and entertainment) in one place.

2. China’s reopening will lead to a rise in spending at outlet malls

The reopening of China at the beginning of this year ahead of the Lunar New Year will boost arrivals at its outlet malls.

While there will be a surge in travel to overseas destinations by Chinese tourists, the limited number of flights will encourage some locals to travel within China.

This will benefit Sasseur REIT as more locals travel to different cities for leisure.

Its unique shopping experiences, that differentiate itself from other outlet mall competitors, will also be an advantage.

3. Resilient earnings despite COVID restrictions

Investors should also be encouraged that Sasseur REIT’s financial performance has remained resilient, even before the recent reopening of China.

While Sasseur REIT’s Entrusted Management Agreement (EMA) rental income was down by 2.1% from a year ago, to S$30.8 million during the Q3 FY2022, its EMA rental income edged up by 0.4% year-on-year (yoy) to S$94.3 million during the 9M FY2022.

Tenant sales were affected by COVID disruptions, which led to a yoy decline of 3.5% and 6.3% to RMB 962.2 million and RMB 2.83 billion in the Q3 FY2022 and 9M FY2022 periods, respectively.

Despite that, portfolio occupancy reached a four-year high of 96.9%, surpassing pre-COVID levels. That was an indication of the improved sentiment of businesses and retail players.

Source: Sasseur’s Q3 FY2022 Financial

4. Low gearing level

Sasseur REIT’s latest gearing ratio stood at 26.4%, which is among the lowest when compared to its Singapore-listed peers.

Given the 50% gearing limit for REITs in Singapore, there is still plenty of headroom for Sasseur REIT to tap on borrowings for expansion.

5. High distribution yield

At its current price of S$0.785, Sasseur REIT offers a 12-month forward distribution yield of 9.37%.

In its latest Q3 2022 earnings, Sasseur REIT raised its DPU by 0.4% year-on-year to 1.838 Singapore cents.

The increase was mainly due to the S$2.1 million in tax refund attributed to Chongqing, which qualified for a reduced preferential rate of 15% as compared to 25% previously.

Chongqing’s favourable tax rates will be valid for the next 10 years.

Aside from that, it is also one of the few REITs in Singapore to pay a quarterly dividend, allowing investors to receive their passive income more frequently as compared to those REITs who only pay on a half-yearly basis.

Source: Yahoo Finance

Natural REIT winner with the reopening in China

One of the key risks to Sasseur REIT was the COVID-Zero policy in China that disrupted the business of its retail outlet malls.

However, with the reopening in China and its shift away from the COVID-Zero policy, Sasseur REIT is a natural winner.

With all of its assets based in high-growth cities within China, this should benefit the REIT and its tenants.

Given its high distribution yield and low gearing level, investors should seriously consider the REIT as part of their dividend portfolio.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

About the Author: Billy Toh

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Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.