Global Real Estate Investments with Cecilia Tan, CEO, Sasseur REIT

In this episode of Business Beyond Borders, we are honoured to have Cecilia Tan, the CEO of Sasseur REIT. Cecilia discusses Sasseur REIT, the first Asia outlet mall REIT, in detail, outlining its unique retail format catering to a specialised consumer market in China. 

Cecilia also shared the challenges she faced when helming Sasseur REIT in the midst of the Covid-19 pandemic, adapting to remote work, and managing properties from afar. She also shed light on how Sasseur REIT managed to bounce back strong with a record high occupancy rate of 97.2% and impressive sales figures of 2.3B RMB, despite the pandemic closures in China.

*The responses provided here have been rephrased for brevity and clarity. For the exact answers and a comprehensive understanding, we strongly recommend watching the full video podcast or tuning into the audio podcast.

Q: What's your journey to becoming the CEO of Sasseur REIT?

It's quite a journey that began in 2016 when I met the chairman of the platform and sponsor. We clicked well, especially because I speak Mandarin. In 2019, after leaving my corporate job, he suggested I provide strategic support during the REIT's early listing phase. This evolved into a two-year advisory role, leading to discussions about CEO succession in 2021. That's how I found myself in this role.

Q: For those unfamiliar with Sasseur REIT, could you elaborate on what it does?

Sasseur REIT, listed in 2018, is unique as the first Asia outlet mall REIT. Operating in a specialized retail space, it focuses on outlet malls in China, a vibrant industry since 2002. The outlets cater to China's growing middle class, offering a specialized retail format.

Q: Joining as CEO in 2021 amid the pandemic, what challenges did you face, especially with travel restrictions?

Transitioning during a work-from-home era posed unique challenges. The main assets being in China made it complex. Travel restrictions meant I couldn't be physically present, relying on virtual interactions. Despite the difficulties, we found ways to adapt and navigate the situation.

One significant challenge is that people can't physically visit the properties, impacting their affinity with the properties. To bridge this gap, we showcased the outlets through videos.

Q: Operating in a unique model where tenants' rent is tied to sales, how does this impact your day-to-day excitement in managing the REIT?

The unpredictability keeps me excited. The unique model involves taking a percentage of tenants' sales as rent, a double-edged sword. This aligns our interests with high-performing tenants but necessitates dealing with underperformers. Short leases and a holistic view of tenancy ensure cash flow stability without dependency on specific tenants.

Q: The short leases and constant refreshment of tenants, does this contribute to keeping shoppers excited about what's new in the outlets?

Absolutely. It not only keeps shoppers excited but also keeps retailers on their toes. With a chance to be in our outlets, high tenant performance is crucial. Despite short leases, our high retention rate indicates that tenants appreciate the value and vibrancy of being part of our outlets.

This approach offers a more dynamic and engaging retail landscape compared to traditional retail formats. The emphasis on tenant performance and constant refreshment creates a shopping environment that evolves and adapts quickly. It's a departure from the conventional long-term leases, bringing a sense of urgency and innovation to the retail space.

Q: Looking ahead, what key trends do you foresee shaping the retail space in the next two to three years?

The retail landscape is evolving, evident in the closure of traditional departmental stores like Robinson's and Pacific Taiping Yang. For us, having a clear value proposition is crucial. We focus on customer service, offering education about products, and ensuring a wide variety of brands. In the current context of consumption downgrading in China, our outlets provide a strong value proposition with discounted prices, offering a unique shopping experience.

Q: How do you plan to capitalize on these trends to maintain a strong position in the retail market?

Recognizing our strengths and weaknesses, we continue to invest in what we do well. Our VIP customer base is a key focus, with a red carpet treatment approach, including dedicated lounges and exclusive access to events. We aim to increase the stickiness of our customers. Additionally, building and maintaining strong relationships with brands is vital. Our focus on direct factory outlet lines for sports brands, cutting out intermediaries, enhances our price competitiveness.

Q: In a market where e-commerce is a significant force, how do you ensure the competitiveness of physical outlets?

Our approach involves offering a unique shopping experience. The emphasis on customer service, a wide variety of brands, and a clear value proposition of discounted prices sets us apart. We continue to adapt and innovate, providing a retail format that goes beyond what e-commerce can offer. Managing relationships with brands and continually updating inventory are key strategies to ensure our outlets remain vibrant and competitive.

Q: You've highlighted the differences in consumer behavior across tier two and tier three cities in China. How does Sasseur Group adapt its strategy to cater to the unique dynamics of these regions?

China's vastness poses diverse challenges. Our main presence in tier two and tier three cities means we understand the distinct consumer behavior in these areas. Unlike in tier one cities where international travel is more common, the ordinary folks in tier two and tier three cities don't travel as much. This results in a significant desire for domestic consumption spending. Sasseur Group started in these cities, and we adjust our mix based on consumption habits and capacity.

Q: Could you elaborate on Sasseur Group's strategy regarding property acquisition and expansion in different regions of China?

Sasseur Group employs an asset-light strategy, recognizing the challenges of traditional models involving land acquisition and construction. Instead, our chairman has engaged third-party property owners, taking 20-year master leases. This allows us to tap into areas where there is latent or potential consumption spending. If you don't bring the product to these areas, you cannot unlock the consumption potential. This strategy involves some capex, possibly shared with the landlord, leading to quick renovations and the establishment of outlets.

Q: You've transitioned from being an investment banker at JP Morgan to managing a REIT. How has your banking experience contributed to your current role?

The transition from being a transactional investment banker to managing a REIT was a journey. My banking experience, particularly in capital markets transactions, prepared me for managing a REIT. A REIT, though underpinned by real estate assets, is fundamentally a financial product. Being aware of the capital markets environment is crucial because investor sentiment plays a key role. Managing a REIT involves being sensitive to the capital structure, especially in a high-interest rate environment.

When listing Ascendas REIT, I gained insights into the discipline required for a REIT to look at income-producing assets with the fundamentals to sustain stable income. The experience helped me understand what it takes to put together a REIT. The Chinese saying, 创业容易可是守业更难 (Starting a business is easy, but sustaining it is harder), resonates. REITs are long-term vehicles, so strategies need to focus on long-term effects, even if results aren't immediately recoverable.

Q: Can you share a memorable transaction and the lessons you learned from it?

One memorable transaction was in the early days of my career, involving a hotel in Singapore, Ana Hotel, owned by a Japanese airline. After the Asian financial crisis, the client wanted to sell the listed company that included the hotel. Initially, trying to sell the hotel proved challenging due to its unpredictability. However, we discovered a zoning change possibility to residential. We then re-engineered and redesigned the transaction, selling the hotel with a redevelopment angle. This strategic pivot led to a higher transaction volume and better fees. The experience emphasized that real estate is not just about bricks and mortar but also has a financial angle.

Q: What advice do you have for young professionals aspiring to explore a career in real estate investments?

Real estate investments on the institutional platform are about financial returns. Professionals in this field need a solid understanding of fundamentals, including legal aspects, tax implications, and risk mitigation. Rather than focusing solely on the potential upside, it's essential to assess and address risks creatively. This involves considering the legal and tax implications of a transaction, conducting thorough due diligence, and finding solutions to derisk. Real estate professionals should approach their work with a mindset that prioritizes financial returns and embraces creative problem-solving.

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