# Sasseur REIT (CRPU.SI) - Estimating the Intrinsic Value, Return on Investment and Margin of Safety using the Dividend Discount Model

## Summary

This article looks at the valuation of Sasseur Reit shares listed on the Singapore Exchange (Ticker: CRPU.SI). The Dividend Discount Model is used to estimate the share’s Intrinsic Value, Expected Return on Investment, and its Margin of Safety.

## Introduction to Sasseur Reit

Sasseur REIT is a Singapore Exchange Mainboard-listed real estate investment trust (REIT) (SGX). It is Asia's first publicly traded outlet mall REIT, with four outlets in China. Sponsored by Sasseur Cayman Holding Limited (Sponsor), a leading outlet operator with 16 outlets in operation as of 31 December 2022 - four of which are in Sasseur REIT's portfolio.

Sasseur REIT is well positioned to benefit from China's rapidly expanding outlet sector, which is being driven by rising consumption from the country's rapidly expanding middle class. As of December 31, 2022, Sasseur REIT's portfolio included four locations in Chongqing, Bishan, Hefei, and Kunming, with a total asset value of RMB 8.495 billion.

## Dividend Discount Model

The dividend discount model is one of several methods for determining stock value. The procedure is similar to the discounted cash flow model, except that dividends are substituted for free cash flow as the cash flowing to the investor. One advantage of this method is that dividend information is easily accessible from the company's financial reports. It is also my preferred method for valuing dividend-paying stocks. Dividends are tangible income for the investor and represent the return on investment. Dividend cash allows the investor to reinvest the proceeds in the same stock or in other, more appealing stocks, achieving the all-important compounding effect.

In the following discussion, the Dividend Discount Model is used to determine the Intrinsic Value, Expected Return on Investment, and Margin of Safety of Sasseur Reit (CRPU.SI) shares listed on the Singapore Exchange.

## 10-year Dividend Discount Model for Sasseur Reit

For the purpose of evaluating the investment worthiness of Sasseur Reit, a discounted cash flow analysis (Dividend Discount Model) is used to determine a reasonable estimate of the Intrinsic Value, Expected Return on Investment and Margin of Safety of its shares. The following are the key parameters for the cash flow model:

### Model Assumptions

The following assumptions were used in building up the Discounted Dividends Model.

- Beta = 0.85

- Market Risk Premium = 9.0% (Conservatively based on the MRP in November 2008)

- Risk Free Rate = 3.259% (Based on 10-year Singapore Govt Bond Yield on 22 February 2023)

- Expected Return on Capital Asset, K
_{e}= 3.259% + 0.85 x 9.0% = 10.909%

- Expected Return on Capital Asset, K

- Time period = 10 years (From Fiscal Year 2023 to 2032)

- The Annual Distributable Income Growth Rate is modelled to decline gradually from 3.5% in 2023 to 3.05% in FY2032. The resulting CAGR in earnings from FY2023 to FY2032 is 3.275%.

- The Dividends are modelled to grow at CAGR of 3.275% from FY2023 to FY2032, assuming the payout ratio of 95%.

- The terminal value is estimated from the Price to Book Value using the equation below:

- Sustainable growth rate = 3.0%.

The 10-year Dividend Discount Model is as shown below:

Discount Rate, K_{e} (Expected Return on Investment) | 10.909% | 11.892% |

Sum of Discounted Cash Flows (S$) | 0.454 | 0.435 |

Terminal Value at year 10 (S$) | 1.18 | 1.05 |

PV of Terminal Value (S$) | 0.418 | 0.34 |

Intrinsic Value (S$) | 0.872 | 0.775 |

Share Price 22/02/2023 (S$) | 0.775 | 0.775 |

Margin of Safety | 11.10% | 0% |

With reference to the summary table above, the following can be observed:

- Based on a discount rate of 10.909%, the intrinsic value of the Sasseur Reit is estimated at 0.872S$ per share. The margin of safety is 11.10% based on the closing price of 0.775S$ on 22 October 2023.

- Using the goal seek function of Excel, the discount rate which will yield an intrinsic value of 0.775S$ is calculated to be 11.892%. This value of 11.892% is the Expected Return on Investment for Sasseur Reit shares at a cost basis of 0.775S$ per share, over a 10-year period.

## Conclusion

In this article, I use the Dividend Discount Model to estimate the intrinsic value, expected return on investment, and margin of safety of Sasseur Reit (CRPU.SI) shares traded on the Singapore Exchange.

Based on a discount rate of 10.909%, the intrinsic value of Sasseur Reit is estimated to be 0.872S$.

A margin of safety of 11.10% is provided by the share price of 0.775S$ (closing price on 22 February 2023).

Furthermore, at this price (0.775S$), the expected return on investment over a 10-year period is estimated to be 11.892% per year.

## Disclaimer:

This article is a record of the thinking behind a personal investment decision. It does not represent any recommendation to purchase any stock mentioned in the article. As always, readers are strongly advised to do their own due diligence before making any investment decisions.