Sasseur REIT, a leading player in China’s retail market, stands out in the competitive outlet mall sector. With a well-diversified portfolio that includes major cities like Chongqing, Hefei, and Kunming, Sasseur REIT capitalises on China’s burgeoning middle class and its increasing appetite for branded goods at discounted prices. Despite facing significant economic challenges, the REIT’s unique business model and operational strategy have given it a resilient foundation for sustained growth.
At the core of Sasseur REIT’s success is its Entrusted Management Agreement (EMA) model, a key differentiator from other retail REITs in China and other local and foreign REITs listed on the Singapore Exchange S68 (SGX). The EMA model entrusts the sponsor, Sasseur Group, with the responsibility of managing the day-to-day operations of the outlets, including the critical task of driving tenant sales. This approach allows Sasseur REIT to focus on maintaining steady returns for its unitholders while benefiting from its sponsor’s operational expertise.
Cecilia Tan, CEO of Sasseur REIT, says: “We are in a unique position, as our sponsor is not a property developer like most REITs. Instead, it focuses exclusively on outlet operations and works very closely with us to ensure the success of the outlets.”
What makes this model particularly effective is its hybrid rental structure, which combines both fixed and variable income components. The fixed component provides the REIT with predictable, stable cash flows, while the variable portion is pegged to the performance of tenant sales. This setup ensures that the sponsor is incentivised to maximise sales, as higher tenant sales lead to increased income for both the REIT and the sponsor. It also gives the REIT the ability to capture upside potential in stronger retail environments.
This model was put to the test during the Covid-19 pandemic, when retail businesses globally suffered a significant blow. While many retailers were forced to close or reduce operations, Sasseur REIT was still able to maintain stable distribution per unit (DPU) due to the fixed portion of the EMA. The sponsor continued to make payments even during the period when shops were closed, ensuring the REIT’s income stream remained intact. The variable portion, tied to sales performance, rebounded strongly as China’s retail market recovered post-pandemic.
The way Tan sees it, the EMA model provides a level of resilience for investors that traditional retail REITs, with their reliance on fixed rental income, may lack. “This model is unique and anchors resilience. This was tested to the fullest during the pandemic,” says Tan.
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For two consecutive years in 2023 and 2024, this annual award recognises Singapore-listed companies that have done better than their industry peers in three key metrics: growth in profit after tax, returns to shareholders and weighted ROE.
“We have won this award two years in a row and this speaks volumes about our EMA model. It shows that we can continue to outperform despite our properties being overseas,” says Tan, who is aware that the value proposition for foreign REITs can be different as investors find it hard to relate to the properties located away from their home country.
Sasseur REIT’s outlets differentiate themselves through a combination of art, culture, and commerce. The “Art and Commerce” concept, introduced by Vito Xu, chairman of the sponsor in 2016, transforms these outlets into more than just shopping destinations. Each mall is carefully designed with local cultural elements, offering an immersive experience that blends shopping with entertainment, dining, and leisure activities. For example, the design of Sasseur Chongqing Liangjiang Outlet incorporates Italian red brick architecture, while cultural activities such as mooncake-making workshops and painting classes enhance the customer experience.
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“With the ‘Art and Commerce Super Outlet’, we tried to create a differentiation. The retail outlet space will mature and is competitive, so we have to stay relevant as a premium outlet. And to do that, we leverage on the social spaces and use of data tech,” says Tan, explaining that this model has a “multiplier effect”, which increases the potential touch points of consumers visiting the outlets.
This focus on creating lifestyle destinations has proven to be a winning formula in attracting consumers. The outlets serve as social spaces where customers can relax and engage in various activities, creating emotional connections with the Sasseur brand. This emphasis on customer experience has helped Sasseur REIT maintain high foot traffic at its outlets, even in the face of growing competition from e-commerce. By offering something that online shopping cannot replicate — such as the ability to see, touch and try products before purchasing — Sasseur REIT’s outlets remain a relevant and essential part of China’s retail landscape.
AEI improvements include Hefei Outlet Yonghui supermarket
Growth prospects amid economic challenges
China’s economic environment has presented significant challenges in recent years, with slow growth, property market woes, and low consumer confidence affecting retail spending. Despite these headwinds, Sasseur REIT has continued to perform well. In particular, the outlet mall model is well-suited to consumers looking to maintain their lifestyle aspirations while cutting back on discretionary spending.
Sasseur REIT’s outlets’ strategic locations in Tier 2 cities such as Chongqing, Hefei and Kunming are another advantage. These cities are experiencing rapid urbanisation and their growing middle class is increasingly seeking out premium brands at lower prices. The outlets are positioned to capture this demand by offering a wide range of brands, from international luxury names to popular local labels. In Sasseur Hefei Outlet, for instance, the addition of a supermarket has boosted foot traffic and sales by attracting customers looking for both discretionary and non-discretionary items.
Sasseur REIT also remains agile in its response to market conditions. The REIT regularly undertakes asset enhancement initiatives (AEIs) to improve its outlets’ performance and keep them relevant to evolving consumer needs. For example, in 2020, a major AEI costing RMB45 million was completed at Sasseur Chongqing Liangjiang Outlet which converted office space into a food court and retail area, thereby increasing the outlet’s revenue-generating capacity.
In 2021, Sasseur REIT spent RMB10 million on Sasseur Bishan Outlet to improve the vehicular and traffic connectivity as the layout of this outlet is a campus style with 21 blocks of building spread over an undulated site.
In 2023, a smaller scale AEI of RMB2.7 million was carried out at Sasseur Hefei Outlet to upgrade common areas and shop spaces to meet Yonghui Supermarket’s operational requirements. This supermarket not only served the needs of the nearby residential population but also brought higher footfall.
Most recently in 2024, AEI improvements of RMB1.3 million were carried out at Sasseur Kunming Outlet to sharpen the “Super Sports” and “Super Children” themes through re-organising the layout of approximately 11,000 sqm of shop spaces.
These AEIs are crucial in ensuring that Sasseur REIT’s outlets remain competitive in a fast-changing retail environment. By continually investing in upgrades and reconfigurations, the REIT is able to attract new tenants and enhance the shopping experience for customers, thereby driving both tenant sales and rental income.
Strong corporate governance and prudent capital management
A key component of Sasseur REIT’s success is its commitment to strong corporate governance and prudent capital management. The REIT maintains a low gearing ratio, which gives it the financial flexibility to pursue growth opportunities while keeping its debt levels manageable. Sasseur REIT’s gearing stood at 25.3% as at June 30, 2024, one of the lowest among its peers, allowing it room to take on additional debt for future expansions or acquisitions.
Sasseur REIT’s strong governance practices have also contributed to its resilience. The management team is transparent in its communications with unitholders, regularly engaging with investors through various channels, including social media platforms like LinkedIn and YouTube. This focus on transparency has been recognised in its consistent ranking in governance indices, reinforcing investor confidence in the REIT’s long-term prospects.
Additionally, the REIT’s ability to hedge against currency fluctuations and interest rate risks has helped it maintain a stable financial position. With more than half of its debt denominated in RMB, Sasseur REIT has minimised its exposure to foreign exchange volatility and also benefitting from a downtrend in the loan prime rate in China. The REIT also employs interest rate hedging strategies to protect against rising interest rates, ensuring that its cost of debt remains low and manageable.
Looking ahead, Sasseur REIT is well-positioned to capitalise on China’s growing domestic consumption, which is expected to be a key driver of economic growth in the coming years. The REIT plans to continue expanding its portfolio, both within China and potentially beyond, as opportunities arise.
“We are working towards our diversification from China. We are cognisant in reducing that reliance overtime but this cannot happen overnight, because China remains the core capability of our sponsor whom we rely on,” says Tan, adding that there is no hurry to expand outside of China yet.
