Sassuer REIT - Phillip Securities 2019-04-22: China’s Propensity Towards Luxury Goods


Sassuer REIT - China’s Propensity Towards Luxury Goods

  • We were in China to visit two out of four of SASSEUR REIT (SGX:CRPU)’s outlet malls, Chongqing mall and Hefei mall, in March 2019, during their annual Spring sale.
  • Sasseur REIT’s outlet malls not only offer large discounts on branded goods targeted at the middle class, brand-conscious consumer, but also incorporate numerous activities and entertainment programmes to engage different age group.
  • Unique to Sasseur REIT is its revenue model which is based on an Entrusted Management Agreement (EMA) guaranteeing a minimum revenue level.

Company Background

  • Listed on the SGX Mainboard on 28 March 2018, SASSEUR REIT (SGX:CRPU)’s portfolio consists of four retail outlet malls located in second-tier cities in China, namely; Chongqing, Bishan, Hefei and Kunming.
  • The REIT’s sponsor, Sasseur Cayman Holdings, opened the first Sasseur outlet mall (Chongqing mall) in 2008. The Sponsor’s wholly owned subsidiary, Sasseur Shanghai, currently manages 10 Sasseur-branded outlet malls (including the four malls in the REIT’s portfolio) in China.

Site Visit Highlights

Luxury retail demand is here to stay, and grow

  • Chinese consumers account for 33% of luxury spending globally.
  • Pre-2019, much of the spending has taken abroad versus in the PRC due to the lofty taxes imposed on luxury items. Recent governmental policies to reduce import tariffs, lower personal income tax and the imposition of stricter laws on daigou (personal shippers who purchase luxury goods abroad to be resold domestically at a profit) are primed to benefit the domestic luxury good market.
  • Luxury outlet malls such as Sasseur REIT’s, which already have an advantage over luxury-retailers due to the large discounts offered, will also stand to benefit from these policies aimed at spurring domestic spending. The malls carry a modest number of international luxury and sporting brands (Figure 28). The most sought-after international brands such as Coach, Kate Spade, Nike, Skechers and Adidas enjoy a constant flow of customers and high conversion rates (number of customers who end up purchasing items).

EMA revenue model underscores importance of active tenant management

  • Although there is a minimum rent guaranteed under the EMA Model, 80% of the gross revenue from which the EMA Resultant Rents (RR) are derived are based on tenant sales. Hence, active management of tenants and tenant mix is vital.
  • Managers of the malls exhibited exemplary knowledge of tenant sales and customer spending patterns, evident that they have been actively engaged in the tenant’s day-to-day operations.

Unique mega-mall concept/ first-mover in outlet mega-malls scene

  • Sasseur REIT’s malls range form 45,000sqm to 140,000sqm and the number of tenants in each mall ranges from 200 to 400. Their strategy of organising promotional days one a month (which include 4 mega-sale events called “Super Days”) had helped to set them apart from the competition, with competitors attempting to replicate the success of the stellar sales raked in during the Super Days.
  • During the Spring sale in March, stages for performance and entertainment (lucky draws and live performances) were erected in common spaces (atrium or outside the malls). Popular brands such as Coach also had tentages which featured clearance items with discounts up to 90%. Children-centric attractions such as guppy-fishing and children rides were also available outside the malls.

Investment Actions

  • No stock rating or price target provided, as we do not have coverage on Sasseur REIT.
  • See attached PDF report for further introduction to China's outlet mall scene and Sasseur REIT's entrusted management agreement (EMA) model, and also analyst's observation during the site visit.

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2019-04-22
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998