Recently, the first batch of consumer REITs has been put on sale. As a new type of property rights public REITs, compared with other property rights infrastructure projects such as industrial parks, warehousing and logistics, and rental housing, consumer REITs are more diversified in terms of business models, income sources, and billing models. The consumption infrastructure includes department stores, shopping malls, outlets, supermarkets and other formats. Among the first batch of 4 consumer REITs, 3 of the underlying assets are shopping malls, and the initial asset of ChinaAMC China Resources Commercial REIT (fund code: 180601), which officially launched on January 30, is Qingdao MixC Shopping Center.
Why is shopping mall consumer infrastructure so important, and what is the investment value and potential of it?
Ride the wind consumption upgrade
The potential of the shopping mall is considerable
Under the mainland's increasingly mature economic model, consumption has become the ballast stone for the stable operation of the economy. 2023 is positioned by the Ministry of Commerce as the "Year of Consumption Boost", and many cities have intensively issued consumption vouchers to promote consumption, which has boosted consumer confidence and released consumption potential to a large extent. In January this year, the National Business Work Conference further positioned 2024 as the "Year of Consumption Promotion". It is foreseeable that in the new year, the support of policies will continue to help consumption growth.
During the "14th Five-Year Plan" period, consumption upgrading will always be one of the driving forces of national economic development. With the continuous promotion of the "14th Five-Year Plan", guiding policies to promote consumption and favor shopping malls will continue to be released, creating a favorable policy environment for the development of shopping centers. Boosted by consumption upgrades, the shopping center industry continued to recover and continued to maintain a steady growth trend.
Household consumption is the cornerstone of the operating performance of consumption infrastructure. According to data from the National Bureau of Statistics, the per capita consumption expenditure of residents has increased steadily in recent years, and the willingness to consume will also rebound again after 2023. With the deepening of urbanization and the increase of residents' disposable income, and the continuous introduction of the policy of "promoting consumption and stabilizing domestic demand", domestic consumer demand is expected to be further released, promoting the increase in demand for shopping malls, and there is huge room for increment.
Although the number of shopping malls has continued to increase in recent years, the supply of shopping malls is far from saturated in the long run. According to the statistics of Winshang Big Data, from 2011 to 2022, the compound annual growth rate of the number of shopping centers in mainland China is 19.52%, and the compound annual growth rate of the area is 19.92%. At the same time, as of the end of 2022, the urbanization rate of the mainland's permanent population was 65.22%, and there is still room for upside. In 2022, the per capita disposable income of mainland residents was RMB36,883, a nominal increase of 5.0% over the previous year, maintaining a steady growth. With the continuous development of the mainland economy, the continuous advancement of urbanization, the continuous improvement of residents' income, the continuous upgrading of consumption and the implementation of the government's policy to encourage consumption, the space of the shopping center industry will continue to improve, and the long-term development of China's shopping center is stable and promising.
As a type of consumer infrastructure, shopping malls have a high diversity of operating income, good dispersion, and more market-oriented operation, which can bring about an increase in revenue with the increase of consumer retail sales. These characteristics make shopping malls, as the underlying assets of public REITs, have more potential for asset appreciation.
To sum up, with the consumption policy continuing to be favorable and the consumption recovery momentum is strong, it is timely to launch consumer REITs with shopping malls as the underlying assets.
Precisely because of the development potential of consumer REITs, CR Land, as an industry-leading urban investment and development operator, actively seizes the development opportunities of consumer REITs and builds a closed loop of "investment, financing, construction, management and withdrawal" of commercial assets. Qingdao MixC is a benchmark project of China Resources Land, located in the political, cultural and financial center of Qingdao, adjacent to the municipal government and May Fourth Square, with two subways, superior location and convenient transportation. The surrounding business atmosphere is strong and the consumption power is strong. With a commercial construction area of more than 300,000 square meters and a radiation range of up to the whole city of Qingdao, it is one of the shopping malls with the largest construction area and the largest number of brands in Qingdao.
Shopping malls "the strong are stronger"
Operation and management empowerment to create a strong "moat"
With the continuous increase in the number of shopping centers and the intensification of competition, some shopping centers are facing challenges such as weak operational capabilities, low level of technological empowerment and obvious homogeneous services, and more and more shopping centers are unable to meet consumer needs in a timely manner, resulting in poor business conditions. However, with its strong operation and management capabilities, market-leading commercial operation managers have obvious advantages over other shopping malls in terms of shopping experience, customer flow, merchant occupancy rate, and rent. According to the data, Qingdao MixC opened in 2015, and since its opening, various operating data have performed well - the compound annual growth rate of passenger flow from 2016 to 2022 has reached 7.6%, and the compound growth rate of operating income has reached 15% in the past three years. The occupancy rate remained high, with an average occupancy rate of 98.82% in the first three quarters of 2023.
With the continuous improvement of consumer demand and the more convenient transportation conditions, consumers have lower and lower requirements for distance in the choice of shopping centers, and begin to tend to shopping malls with good shopping experience and complete product categories. It is reported that Qingdao MixC has a leading design and high building quality, with more than 500 tenants, rich types of leasing in various formats, and obvious scale aggregation effect, and has become the first choice for many commercial brands to enter Shandong Province and Qingdao City.
With the improvement of the professionalism of shopping center operation, whether there is a comprehensive and strong operating organization has become an important factor influencing the value growth of shopping center. Financial barriers, brand influence barriers, merchant resource barriers and management talent barriers have become the core competitiveness of operating institutions to build a "moat".
The long payback period of shopping malls and the large scale of upfront investment have formed a strong industry capital barrier. In addition, as competition in shopping malls intensifies, economies of scale are becoming more apparent. By expanding the scale of operation, shopping malls can gain strong market competitiveness, enhance their bargaining power with brands and suppliers, and effectively control operating costs and expenses. China Resources Land, the initiator of China Resources Commercial REIT, is one of the earliest developers in China to develop shopping center business, and has been deeply engaged in the field of operating real estate business for more than 20 years. As of the end of June 2023, CR Land has 67 shopping malls in operation and another 47 shopping malls under construction scheduled to open by the end of 2026, with assets under management exceeding RMB200 billion, and about 20 reserve assets that meet the current standards for the issuance of consumer REITs, mainly focusing on high-energy cities such as first- and second-tier cities or provincial capitals, which brings greater imagination to the future expansion of CR Commercial REIT. At the same time, CR Land's excellent operation and management capabilities and market-oriented operation level also continue to empower Qingdao MixC. According to the data, since the opening of Qingdao MixC, China Resources Land has implemented 2-3 local large-scale renovations to continuously improve the commercial vitality and competitiveness of Qingdao MixC. China Resources Mixc Life, the operation and management arm of ChinaAMC Commercial REIT, is a leading commercial operation and management brand in China, with industry-leading operation and management capabilities for the whole value chain of shopping malls, and will continue to empower Qingdao MixC to provide strong support for performance realization and growth. As of June 2023, CR Mixc Life has 88 shopping mall projects under its management, and the retail sales of 74 projects rank among the top three in the local market, and its business management capabilities have been highly recognized by the capital market and consumer market.
Brand influence is an important guarantee for the expansion of consumer groups and sustainable development of shopping malls, and it is also an important factor for survival and development in the fierce market competition. Shopping mall brands that have been established for many years, have high service quality, and have an excellent business reputation in the industry are more favored by consumers, can bring consumers preconceived favor, and obtain excellent sales performance. Mature shopping mall brands/operators often have established ties or existing cooperation with many brand merchants, and have many high-quality brand merchant resources to continuously optimize the brand and merchant layout in the shopping center. It is reported that at present, CR Vientiane Life has long-term and in-depth cooperation with nearly 6,000 well-known brands at home and abroad, and the number of "Vientiane" members is nearly 40 million. It is worth mentioning that the CR Vientiane lifestyle brand has a deep layout in Qingdao and continues to invest in the construction of member loyalty. At present, the membership system of infrastructure projects is divided into five levels, and matches a variety of member benefits, and at the same time, according to the personalized needs of different customer groups, it provides diversified customer services including basic services, care special services and high-end services, so as to improve the consumption experience of members and increase member stickiness. At present, the number of members of Qingdao MixC has exceeded one million, accounting for 10% of the permanent population of Qingdao, reflecting the extremely high membership scale and coverage.
As one of the most important types of mature REITs market, consumer infrastructure REITs have large assets and a high degree of marketization, and are important carriers for investment and consumption growth. The debut of consumer infrastructure public REITs such as ChinaAMC China Resources Commercial REIT is expected to provide comprehensive solutions with significant innovation significance and demonstration effect for the transformation and upgrading of investment and financing efficiency of the entire consumer infrastructure industry under the background of the strategy of "expanding domestic demand". It is worth waiting to see what kind of excitement "shopping mall + REITs" will bloom in the public REITs market!
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