Sasseur pushes S-Reit IPO despite selloff

Unfazed by a correction in the S-Reit sector, Chinese outlet mall operator launches IPO for part of its assets and targets $300 million in proceeds. It's Singapore's first big IPO of 2018.

Chinese mall developer Sasseur launched roadshow and bookbuilding on Thursday for what is set to be the first major initial public offering in Singapore this year.

The developer is clearly hopeful that a recent selloff in real estate investment trusts will not affect its ability to attract investors.

The Shanghai-headquartered retail group is seeking S$396 million ($301 million) from the listing of Sasseur Reit, which will comprise four of its malls spreading across east and southwest China.

According to the indicative terms, Sasseur Reit will sell 495 million investment units in the base deal at 80 Singapore cents per unit, with an over-allotment option to sell 32 million units. Pre-greenshoe, the free float is 42% and will increase to 45% if the option is fully exercised.

Sasseur is listing its assets at a time when the S-Reit market is going through its biggest correction in more than two years, after the FTSE ST Reit Index plunged nearly 8% in the first week of February. That plunge erased nearly all of the gains of last year.

The massive selloff was triggered when former US Federal Reserve chairwoman Janet Yellen indicated that inflation would likely accelerate for the rest of the year. As a result of expected inflation, government bond yields will pick up while prices of Reits, seen as an alternative income-generating instrument, will fall.

The benchmark 10-year Treasury yield edged up six basis points to 2.78% immediately after Yellen’s speech, and has since gained another 10bp to 2.88% as of the end of Tuesday.

That implies Sasseur Reit will be offering a pick-up of about 462bp to US Treasuries, based on its indicative forecast distribution yield of 7.5% for this year. Based on next year’s projected distribution of Rmb611.4 million ($96.5 million), the Reit yields 7.81%.

Still, from an income-generating perspective Sasseur Reit is more attractive against comparable Chinese retail trusts like BHG Retail Trust and CapitaLand Retail China Trust, which yield 6.8% and 6.4% respectively based on their latest payout.

However, perhaps its biggest drawback is the fact the Reit sponsor is little-known, even in China. In terms of brand recognition, Sasseur is hardly comparable to the likes of CapitaLand and Beijing Hualian Group, the sponsor behind BHG Retail Reit.

VALUE PROPOSITION

In its marketing materials, Sasseur argued that its focus on outlet malls (as opposed to mass-market shopping malls) gave it an edge over other mall operators. Outlet malls sell mainly luxury and high-end brands, target the middle class and tend to be counter-cyclical and more resilient during economic recessions, the sponsor said.

Sasseur Reit’s initial portfolio will include three outlet malls in the southwestern cities of Chongqing, Kunming and Bishan, and one in Hefei in eastern China. The malls have a total net leasable area of 304,573 square metres and an average occupancy rate of 91.8% as of the end of September last year.

With the exception of Bishan, Sasseur Reit’s assets are located in more mature markets in top tier-two Chinese cities. This is potentially a selling point against CapitaLand Retail China Trust, which owns assets in less developed cities like Wuhu, Hankou and Hohhot.

Sasseur Reit’s pipeline of potential acquisitions, including five properties covering 700,000 square metres, are also located in mature markets like Xi’an, Hangzhou and Nanjing.

As a potential buffer against the volatile market, Sasseur Reit has secured a total of S$183 million from 12 cornerstone investors, which account for 46% of the total deal size on a pre-shoe basis.

The cornerstone investors are Adroit Ideology, Bangkok Life Assurance, Charles & Keith, Credit Suisse private banking, DBS, DBS Vickers, YCH Group, Great Achievement and Success, Haitong International, Secoo, TMB Asset Management and L Capital Asia, the private equity fund of Louis Vuitton. L Capital Asia is already a shareholder in Sasseur.

Sasseur Reit’s management roadshow will run through March 20 and the trust is expected to make its debut on March 28.

DBS is the sole sponsor of the IPO and also a joint bookrunner with Bank of China, CICC, Citigroup, Credit Suisse, Haitong International and Maybank.

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