Perspectives | Breaking 100 in operating shopping malls, China Resources Vientiane Life Dual Channel is now certain (record)

As an enterprise where business management + property management go hand in hand, China Resources Vientiane Life has delivered a good result.

China Resources Vientiane Life disclosed its 2023 results on March 26, during which the company's revenue was 14.767 billion yuan, a year-on-year increase of 22.9%. Among them, the revenue of the residential property management services segment was 9.601 billion yuan, a year-on-year increase of 23.1%, and the revenue of the commercial operation and property management services segment was 5.166 billion yuan, a year-on-year increase of 22.6%.

During the period, the gross profit was RMB4.69 billion, representing a year-on-year increase of 30%, and the gross profit margin increased from 30.1% in 2022 to 31.8% in 2023, mainly due to the increase of 7.7 percentage points to 58.4% in the gross profit margin of commercial management waterways and the decrease of 1.4 percentage points to 17.5% in the gross profit margin of property management waterways.

During the period, profit attributable to shareholders was RMB2.93 billion, up 32.8% year-on-year, and core net profit was RMB2.92 billion, up 31.2% year-on-year.

According to the management at the results meeting, CR Vientiane Life adheres to the integrated "2+1" business model, namely property management waterway, commercial management waterway and large membership business. At the end of 2023, the Company had 370.2 million square meters of GFA under management (excluding shopping center projects) providing property management services, 98 opened shopping centers, 26 office buildings and 3 sublease projects of shopping malls under management.

The commercial waterway is colorful

The business of CR Vientiane Life is mainly divided into two business segments: commercial waterway and property management waterway. Commercial operation and property management services, mainly managed commercial properties including shopping malls and office properties, with revenue of RMB5.166 billion during the period, representing a year-on-year increase of 22.6%.

From 2020 to 2023, the revenue of CR Vientiane Life Commercial Management Channel increased year by year, with RMB2.895 billion, RMB3.565 billion, RMB4.214 billion and RMB5.166 billion respectively, and the gross profit margin also remained at a high level of more than 40%, at 43.6%, 48.6% and 50.7% respectively, and further increased to 58.4% in 2023.

Among them, the revenue from commercial operation and property management services of shopping malls during the period was 3.238 billion yuan, an increase of 30.5% over the same period last year.

In terms of newly opened projects, CR Mixc Life will open 13 new shopping malls in 2023, with an average construction area of 126,000 square meters, an average opening rate of 92%, and an average number of first-time brands of 87. These include the first third-party luxury project, the MixC Lanzhou, and the first third-party MixC product line, the Honggutan project in Nanchang.

During the year, CR Mixc Life acquired 22 new development projects, including 8 parent company projects and 14 third-party projects, with a third-party area of 1.26 million square meters, all of which are TOD projects in first- and second-tier cities. The number of single-city projects in Shanghai increased to 13 during the year, and the number of third-party projects in Shenzhen, Shanghai, Wuhan and Chengdu accounted for more than 50%.

By the end of 2023, CR Mixc Life provided commercial operation services for 98 opened shopping center projects with a total gross floor area of 10.6 million square meters, and its 101 operating shopping centers with a management area of 10.97 million square meters achieved retail sales of 181.2 billion yuan, a year-on-year increase of 43.3%, and a net profit margin of 64.7%. Among them, there are 13 luxury shopping centers and 83 shopping center reserve projects.

As of the end of the period, CR Vixiang Life had 55 third-party projects, including 23 projects in operation, with the average NOI margin of third-party projects in operation increasing by 11 percentage points to 52.7%, the revenue contribution of third-party projects increasing by 3.2 percentage points to 26%, and the pre-tax profit contribution increasing by 0.3 percentage points to 17.5%.

According to the management, the average occupancy rate of shopping malls in operation during the year remained at a high level of 96.1%, the number of cooperative stores exceeded 20,000, the number of cooperative brands exceeded 7,400, and the number of newly opened stores of key brands accounted for more than 3%.

In terms of office business, revenue from commercial operation and property management services from office buildings during the period was RMB1,928 million, an increase of 11.3% over the same period last year, accounting for 13.1% of total revenue.

As of the end of 2023, CR Vientiane Life has 195 projects under management with an area of 14.82 million square meters under management, and 210 contracted projects with a contract area of 18.78 million square meters. The average occupancy rate of the Company's 26 office buildings providing operation and management services increased by 3.2 percentage points to 83.9% during the year.

It is worth noting that Huaxia China Resources Commercial REIT was listed on March 14, and the underlying asset is Qingdao MixC. The management said that the launch of REITs is a huge opportunity for the future development of CR Vientiane Life.

On the one hand, the strengthening of asset liquidity means that the project operation and management rights will be concentrated in companies with stronger professional capabilities, accelerating the market share of high-quality operators such as CR Vientiane Life.

On the other hand, the parent company, China Resources Land, can increase the investment layout of commercial complexes through the public offering of REITs, which is also conducive to the further expansion of the management scale of Vientiane Life.

He added that after the assets are listed, they will not have a big impact on the existing income of CR Vientiane Life. As the assets will continue to be operated and managed by CR Mixc Life, the existing charging standards and mechanisms remain unchanged.

Property management channel pressure

Residential property management services provide management services for residential properties and certain other non-commercial properties such as public facilities such as sports centres, parks and industrial parks.

According to the data, the revenue of property management waterways has also increased year by year from 2020 to 2023, with revenue of 3.884 billion yuan, 5.31 billion yuan, 7.802 billion yuan and 9.601 billion yuan respectively, but the gross profit margin has declined after 19.3% in 2021, falling to 18.9% in 2022 and 17.5% in 2023.

Regarding the decline in gross profit margin, the management said that the company made targeted investments in the improvement of basic service quality last year, and was affected by the impact of the delivery area of non-owners of upstream real estate and the decline in the proportion of non-owner value-added service income.

According to the analysis, in 2023, small owners will be affected by asset price fluctuations and declining income expectations, and large owners will be affected by the capital chain of affiliated real estate developers, and the difficulty of collection and collection will increase.

According to the data, the impairment loss of CR Vientiane Life Trade receivables and notes receivable increased from 6.895 million yuan in 2022 to 32.16 million yuan.

In the future, on the one hand, CR Vientiane Life will continue to establish a leading competitive advantage through informatization construction and technological application, and maintain a reasonable gross profit margin of basic properties on the premise of ensuring service quality.

On the other hand, it also actively promotes the value transformation of quality services, increases the proportion of value-added service revenue with relatively high gross profit margin, and supports the stability of the gross profit margin of property management channels.

Specifically, in terms of basic property services, in 2023, CR Vientiane Life's revenue from property management services will be 7.245 billion yuan, a year-on-year increase of 30%, accounting for half of the total revenue.

As of the end of 2023, CR Mixc had 1,731 residential and other non-commercial property projects under management, an increase of 262 over the previous year, with a total gross floor area under management of 355 million square meters, a year-on-year increase of 70.2 million square meters.

It is worth noting that during the year, CR Vientiane Life implemented Longi's M&A through "market-oriented outreach + M&A + joint venture cooperation", adding 7.54 million square meters of third-party contract area, and 56.52 million square meters of new third-party contract area through bidding and joint venture cooperation, a significant increase of 64.4% year-on-year.

In terms of the distribution of new third-party contract area, 68.7% are located in first- and second-tier cities, of which 80.3%, 14.2% and 5.5% of urban public space, community living space and office industry space account for 5.5% respectively.

As of the end of 2023, the total contracted area of CR Vientiane Life was 425 million square meters, a year-on-year increase of 16.2%, and the total area under management was 370 million square meters, a year-on-year increase of 24.6%. Among them, the third-party contracted area and the area under management accounted for 59% and 60.4% respectively, an increase of 3.0 and 3.3 percentage points year-on-year respectively.

In terms of community value-added services, the revenue during the period was RMB1.526 billion, an increase of 21.5% over the same period last year, accounting for 10.3% of the total revenue. Among them, the total revenue of lazy decoration and one-call housekeeper increased by 12.6 percentage points to 41.8%

In terms of value-added services for property developers, the value-added service revenue from property developers during the period was RMB829 million, accounting for 5.6% of the total revenue, a decrease of 14.8% over the same period last year, mainly due to the impact of the developer's project development and delivery schedule, and the decline in business income such as pre-project preparation and marketing services.

The following is the Q&A transcript of the 2023 results conference of CR Vientiane Life (excerpts):

Viewpoint New Media: In terms of the results of the 14th Five-Year Plan Medium-term Strategic Review, how does CR Vientiane Life adjust its response at the strategic level, and does it have any key layout in terms of business diversification and intelligence?

Yu Linkang: In 2023, CR Vientiane Life has carried out an in-depth mid-term review of the 14th Five-Year Plan, and we believe that the company is facing multiple challenges under the background of global macro turmoil, pressure on China's economy, restructuring of the real estate landscape and model, and the impact of the new wave of technology.

The first is the challenge of managing scale and revenue to continue to grow at a high rate. At present, we can see the slowdown in the development of real estate projects, the reduction in delivery, and the hierarchical differentiation of consumption. The reality of rapid development is that the shrinkage of the various industries in which the main customers of office buildings are located has led to a decrease in leasing demand and a decline in tenants' willingness to open stores.

The second is the challenge of intensifying competition in the business and property management industries. At present, domestic and Hong Kong real estate companies have joined this business management track. The top 10 companies in property management and waterways have increased their investment in science and technology and systematically improved efficiency, making the competition in various market segments more intense.

The third is the transformation challenge of rapid iteration of science and technology. Of course, despite the challenges and pressures, through the strategic review and revision of the strategic plan during the 14th Five-Year Plan, we firmly believe and believe that Vientiane Life's existing differentiated business model, scale advantage, service and operational competitiveness, excellent team and execution can enable us to continue to maintain rapid growth under the traction of the right strategy.

Through the strategic review, we have further deepened and strengthened the business model of the collaborative service ring around the three elements of space, customers, products and services. Focusing on basic services, operation services, and ecological services, we will build a three-dimensional linkage and diversified business model. Through scenario segmentation, we can serve more types of spaces in the city, reach more space users, and establish digital links to provide them with more diversified operation service ecological services. Diversified services also drive the value-added of space, and more space owners are willing to entrust us with services and operations to achieve a benign synergy between space, customers and services.

Second, through the strategic review, the management and control structure has also been further optimized. Establish a management and control structure and management mode of headquarters functional platform, waterway business substantiation, and management specialization. The purpose is to make the waterway business solid and stronger, and the subdivision track above the waterway is specialized and refined.

In terms of property management waterways, residential buildings, urban blocks, industrial parks, parks, rivers, venues, etc. are regarded as spatial tracks, and engineering service companies are used as business tracks to carry out ecological businesses such as community value-added services and urban operation services.

The commercial management channel takes shopping malls and office buildings as space tracks, and carries out ecological businesses such as cosmetics, cinemas, light asset management, ice rinks, and cultural operations.

Viewpoint New Media: In the face of consumption grading and market challenges, what are the prospects and responses of CR Vientiane Life for the future?

Yu Linkang: From the perspective of the market outlook, the fundamentals of China's high-quality economic development have not changed, and the resilience and potential of the consumer market remain strong.

So far in 2023, its shopping malls have maintained a good growth trend. Among them, due to the ultra-long holiday in January and February, the number of outbound tourists increased significantly, which had a certain stage impact on heavy luxury projects. However, looking ahead to the full year, it is expected to maintain solid growth.

At the same time, the company's heavy luxury projects have a large product volume, a wide range of customers, a diversified brand portfolio, outstanding customer attraction and leading comprehensive competitiveness.

In the context of favorable policies for the 2024 Consumption Promotion Year, the company will also seize the opportunity to actively cooperate with and respond to various consumption promotion activities to enrich offline consumption scenarios. We will continue the strategy of grabbing resources, policies and customers, adhere to high-quality, high-quality and high-efficiency operations, deepen classification and hierarchical management, continue to improve quality and efficiency, improve stability and strive for more market share. At the same time, it strengthened consumer research and brand trend research, continued to optimize the tenant mix, and refined operations.

All in all, we will take multiple measures at the same time, and I believe that in 2024, our shopping malls can still maintain efficient growth.

On-site question: Recently, China Resources Commercial REIT has been successfully listed, as an operation and management institution, what is the impact of the parent company's issuance of public REITs on the company's market competitiveness and business?

Wang Lei: According to the experience of overseas markets, public REITs will bring fundamental changes and far-reaching impact to the underlying logic of the development of the commercial real estate industry.

As we all know, public REITs have opened up the exit channels of shopping malls and helped to revitalize existing assets.

We also believe that the next step in the development of the public market will definitely promote the prosperity of the private market and further promote asset liquidity. In the future, in addition to charging management fees, professional business management companies can also explore improving asset value through operation and management, and in the process of improving asset value, carry together with the owner, professional services can also be better realized, and there are also opportunities to establish some new business models, which we believe is a very good opportunity.

Second, the listing of China Resources REIT has also riveted the fee standard for the marketization of Vientiane life. As we all know, the operation and management of commercial assets is more complex, and the operation and management ability has a greater impact on the income of the asset, but it will rely more on excellent and strong operating companies to maintain the good operating performance of REITs.

The professional services provided by Vientiane Life are matched with the level of fees, which is not essentially a matter of high or low fees, but our professional services can create a higher NPI (income for owners after deducting the service fees of the manager) for the owners. Therefore, we also believe that the future will also prove to investors, or further strengthen the company's value base.

Third, in the next step, the liquidity of assets will be strengthened, and the market share of high-quality operators like Vientiane Life will be further increased.

From one point of view, the c-REIT market provides a good exit channel for commercial assets, and the enhanced liquidity of assets means that the project management rights will be concentrated in companies with stronger professional capabilities, which is a huge opportunity for Vientiane Life. We also believe that in the future, the concentration of leading enterprises in the business management industry will be further increased.

On the other hand, our parent company can increase the investment layout of commercial complexes through public REITs, which is also conducive to Vientiane Life to further expand the scale of management.

Fourth, after the parent company's assets are listed, it will not have an impact on the existing income of Vientiane Life. Because the current project side will continue to provide operation and management services by Vientiane Life, and the existing charging standards and mechanisms remain unchanged, it will not have much impact on our revenue in essence. In addition, the net income from the operation of REITs assets is the cash flow available for distribution after deducting the service fee of the operation management institution, and this cash flow will be used as the basis for the cash distribution of REITs to investors.

Such a model actually does not have much impact on Vientiane's cash flow and income. In addition, in this model, there will be a fee for fund management, which also accounts for a very small proportion of the distribution, and the overall impact is limited.

To sum up, we believe that the launch of REITs will be a huge opportunity for the future development of Vientiane Life. In the future, we will seize such an opportunity to promote the high-quality development of life in Vientiane.

On-site question: Since its listing, CR Vientiane Life has adhered to the 2+1 business model, what progress has been made in the construction of this large membership system?

Guo Ruifeng: First of all, the fundamentals of large members, the membership scale of large members has grown rapidly in 2023, and by the end of 2023, the membership scale has increased to 46 million, an increase of 36% over the previous year.

On the one hand, the rapid growth of the membership scale is the natural result of the rapid growth of the management scale of the two major waterways of commercial management and property management, and on the other hand, we take the initiative to attract members at the front end of each business, establish digital links, attach great importance to these, and promote users of various businesses to join the medium-range plan by providing highly convenient ways on the transaction scene and other contact points.

At the same time, we will continue to expand the application scenarios of points, enhance the brand value of points, and increase the rights and interests resources of each member to enhance the identity value of members, etc., all of which make customers prefer our membership brands and are willing to upgrade and maintain their levels and increase activity through continuous consumption interaction.

In 2023, the scale of points distributed by large members is equivalent to RMB 890 million, an increase of 56% year-on-year. It is worth noting that the growth rate of the scale of points issuance exceeds the growth rate of the total number of members. It shows that the average consumption of members in our ecosystem is increasing, and the recognition of members is also increasing.

In 2023, the scale of point redemption for large members is equivalent to RMB 660 million, an increase of 61% year-on-year. This year, we have also continued to expand the use of points, and have done the exchange of points with some external industries, or the opening of direct verification, so that the application and value of points have been further improved.

It can also be seen from the data results that the growth of point redemption has exceeded the growth of the scale of issuance, indicating that members are also more willing to use points. The above is the case for some of the fundamentals of the big members.

In 2023, there will also be more explorations in the business model of large members. To sum up, the big membership business is to take the identity and points as a link, fully connect the space resources, customer resources and business operation resources of Vientiane life, form a virtuous circle of scale advantages, and continue to attract external industry cooperation customers to issue Vientiane Star and exchange Vientiane Star, form a larger point scale and point brand value, and link more external customers in the process.

At the same time, based on the scale advantage of this membership point, a model of data revenue such as points revenue, rights and interests platform, equity revenue, and marketing access services including co-branded credit card points malls has been formed. We believe that such a business model can improve the value perception of customers, enrich the ecosystem, expand revenue, and attract more customers.

Moreover, its moat lies in the growing scale advantage, which is also the unique business model of Vientiane life business management and property management, which can be drawn out, and it is also difficult to copy. It should be said that after the exploration of the past few years, on the one hand, we have done a solid job of the underlying infrastructure of our members, and on the other hand, we have also explored a feasible business model.

On-site question: What is the current gross profit margin level of CR Vientiane Life in the property management and commercial management industries, and what are the improvement measures in the future?

Nie Zhizhang: In 2023, the overall gross profit margin of Vientiane Life will be 31.8%, an increase of 1.7 percentage points year-on-year, and the high gross profit level of more than 30% can be maintained, mainly due to the 2+1 integrated business model.

Under the circumstance that the gross profit margin of the property management channel is relatively under pressure in the short term, the commercial management channel has become an important regulator of the company's gross profit margin.

From the perspective of the entire property management industry, in 2023, small owners will be affected by asset price fluctuations and declining income expectations, and large owners will be affected by the capital chain of affiliated real estate developers, and the difficulty of collection and return will increase.

The direction of the reform and marketization of property management fees remains unchanged, which is a common problem currently faced by the industry. The gross profit margin of the company's property management channel in 23 years decreased slightly by 1.4 percentage points to 17.5%. In the future, on the one hand, the company will continue to establish a leading competitive advantage through information construction and the application of science and technology, and maintain a reasonable gross profit margin of basic property on the premise of ensuring service quality.

On the other hand, the company also actively promotes the value transformation of quality services, increases the proportion of value-added service revenue with relatively high gross profit margin, and supports the stability of the gross profit margin of property management channels.

In 23 years, the gross profit margin increased by 7.7 percentage points to 58.4%. In the future, with the continuous expansion of the scale of business management business, it is expected that the gross profit margin level will rise steadily, which will become an important guarantee for the stability of the company's overall gross profit margin.