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Saturday, 24 March 2018

Sasseur REIT

砂之船 Sasseur REIT ("Sasseur" or the "REIT") touted itself as the first outlet mall REIT to be listed in Asia. Sassuer is offering 266.562,500 units for the IPO at $0.80 per unit. The public offering comprises 13.75m units with the balance being distributed via an international placement. Investors can use CPF to invest in the units and the stablisation manager can over-allot up to 32m units for post-market stablisation purpose.

The IPO will close this coming Monday on 26 March 2018 at 12pm.

Sponsor Group

The Sponsor is a leading privately-owned outlet mall operator in China and currently manages and operates 9 outlet malls. The Sponsor was founded in 1989 by Mr. Xu Rongcan and has two strategic investors - L Catterton Asia and Pingan Real Estate. 

Sponsor's "Unique" Strategy

The Sponsor adopts a super outlet strategy which integrates destination shopping with other lifestyle and interest options such as sports, children etc to provide a one-stop experience as shown below. 

Initial Portfolio

The REIT has an initial portfolio of 4 retail outlet malls located in the 2nd tier cities in China, namely Chongqing, Bishan, Hefei and Kunming (represented by the red dots below). There are also two right of first refusal ("ROFR") properties in Xian and Guiyang (represented by the orange dots) and 3 pipeline properties (represented by the blue dots).

The four initial portfolio are listed below:

From the Property Sector Analysis (page 209 onwards), Chongqing would be the most established and profitable outlet among the 4 properties. It contributed 71% of the income while it only constitute 36% of the valuation. 

The Hefei and Kunming properties will be the "most expensive" as they are relatively "young", accounted 53% of the value and contributed only 20% of the income for now. 

According to the IPO factsheet from UOBKH, the IPO price is $0.80 and the NAV per unit is around $0.78. Thus the price to book ratio is around 1.03x.


Sasseur is promising 7.5% for the forecast period 2018 and 7.8% for Projection Year 2019. Investors have to know that the "enhancement" is only valid for the first period. It may not be able to meet the 7.8% target in 2019 if the rental income renewal does not meet its expectation. he average WALE is presented below for your information. 

The first distribution will be made on or before 30 Sep 2018 and will be on a semi-annual basis thereafter.

I understand that demand during the book building was reasonable (meaning within expectation but not exactly hot) and the promised yield was originally set at 7%, but eventually the Sponsor moved it to 7.5% after the initial book building. 

Shareholders and Cornerstone Investors

Cornerstone investors subscribed for 228,437,500 units (separate from this offering) and will own 19.4% of the Company. Some known names in the cornerstone investors include, and CKK Holdings (owner of Charles & Keith group). I quite like the list of cornerstone investors.

Side note of national pride 😎 - Charles & Keith is our local brand (two brothers) and grew from one small store in Singapore to more than 500 stores globally. They also owned the PEDRO brand with 105 stores in the Asia Pacific. 

The Sponsor continues to hold at least 50% of the REIT, showing some alignment of interest. The public investors will hold 25.3 % in the REIT.

Financial Forecast

Use of proceeds

The proceeds from the IPO is mainly to cash out the sponsor and extinguish some of the debt.

What i like about the REIT
  • Growth Potential - According to the research provided in the prospectus, the outlet mall industry is expected to grow rapidly due to growing middle class population and their preference for high quality brands and luxury goods at reasonable price. The outlet sector is expected to become the world's largest market by 2030
  • Two international valuers were used to value the properties - Savills Real Estate Valuation and Jones Lang LaSalle were the appointed independent valuers.
  • Early first distribution - the first distribution will be made on or before 30 Sep 2018 for income generated from Listing Date to 30 June 2018. At least IPO investors don't have to wait for so long before getting their first payout!
  • Good cornerstone investors and high Sponsor shareholding - They have attracted a good list of cornerstone investors. I also like the fact that Sponsor will continue to hold more than 50% in the REIT, showing there is at least, some alignment of interest. 
  • Experienced Management Team  - The CEO Anthony Ang, CFO Richard Tan used to work at ARA Group and CIO Ken Chew was from Mapletree and Capitamalls Asia.
  • Pipeline of properties - There are a few properties in the pipeline which can be injected into the REIT once investors are more familiar with the Sponsor and the REIT

Some of my concerns
  • Expiry of Land Use Rights  - In China, there is no such concept as "freehold" land. The 4 initial properties will expire between 2047 to 2054. I am still not sure how this will pan out in China even though many local Chinese believe that the government will just "extend" it when the lease expire

  • Changing shopping experience - While the Chinese has a strong preference for branded goods (you can see them with large suitcases in outlet malls in USA and Japan), the online sales channel will always be a threat to physical stores. This may have an impact on traffic flow and sales volume at the outlet malls in future. The prospectus actually spent a few pages trying to "highlight" the differences between outlet malls, department stores, shopping malls and online platform (page 7 and 27), indicating that this probably one of investor's concerns

  • Yield enhancement - I usually don't like artificially enhanced assets and this is kept to a minimal. Having said that, if the enhancement is to provide stability, then one year is definitely too short. If the Sponsor is confident of achieving 7.8% (from 6.1%) in 2019, then the enhancement at 7.5% should stay for at least a while longer (at a lower rate).  
  • Single property risk - The Chongqing outlet mall is the "crown jewel" in the first 4 portfolio and generated about 2/3 of the income for the REIT. The other outlets are very new and the Sponsor has yet to "stablise" these properties. If anything is to happen in Chongqing (say earthquake), then the REIT will be severely impacted. According to the prospectus, Beijing Capital Land will be opening a new outlet in Banan District in Chongqing and can be considered as its competitor when completed in Oct 2018

  • Short WALE  - The short weighted average lease expiry of 1.2 years has been touted at a "positive" in the prospectus 🙄 which i find it to be ridiculous. I rather have a longer WALE and be assured of the rental income then keep having shops "churn" at the outlet mall.
  • Non compliance use of terms of Land Use Rights - This is so typically of Chinese companies... it has been disclosed the Hefei PRC and Kunming PRC outlets may be expose to potential liabilities and forfeiture due to their non-compliance with the terms of the Land Use Right
  • Rising interest rate environment - The US interest rate environment has been rising and this will result in a premium being placed on REITs (in general) as the financing cost will go up as well. Investors will have to evaluate if the REIT is able to perform under this environment 
Peer Comparison

Let's examine if there are "peers" listed here and what they are trading at based on data sourced here and here.

If you want to invest in the outlet mall sector in China, this is probably the one on SGX. While the yield of 7.5% is attractive, the price-to-book and gearing is also higher than average. Assuming it trades between the price to book and dividend yield of BHG REIT, then the trading range is between 75 cents to 84 cents.

Assuming i like the retail exposure in China, I would prefer Sassuer over BHG Retail. My write up on  BHG Retail REIT is here.

My Chilli Ratings

You should know my usual ratings for REITs. It is a long term investment and for income, hence it is not meant for flipping. It's a one chilli for me - Apply only if you like the yield and the sector.  

Straw Poll

You can participate in the straw polling here


rock savessoul said...


Financial Horse said...

Hi Mr IPO,

Great analysis as always. What I understand about leases in China is that the REIT can pay a small top-up to renew the lease upon expiry, and that this top-up is pegged to a fixed formula (that is supposedly a miniscule amount). Of course like most things in China, this is ultimately subject to political risk, because you never know if the policy would change in 10 years.

Anyway totally agree with you that this REIT is only for those who like the outlet mall exposure in China. Probably not one for me. I dislike the way the EMA is structured too.


Mr. IPO said...

Hi financial horse, thanks for visiting! Hope you like the traffic I brought to your site 🤣 keep up your in-depth analysis!

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