China Advances First Mall Trusts in Latest Expansion of REIT Programme

China’s first batch of retail REITs received registration approval from the country’s securities regulator following an expansion of the country’s listed real estate investment trust pilot programme in March that saw malls and other retail properties added to China’s nascent listed trust sector.

As part of the initial approval process towards an eventual public listing, the China Securities Regulatory Commission on Friday greenlighted the registration of three “consumer-related infrastructure” REITs seeded with shopping malls owned by mainland developers China Resources Land, China Jinmao, and China Vanke just one month after the applications were submitted by the sponsors.

The approvals, which are required for a potential listing to be considered by authorities, come as China’s embattled property developers look to slash their debt loads by raising new sources of capital through spinoffs and sales of commercial properties, with malls having been among the more challenging properties to monetise.

“As developers look to pay down debts, they need to monetise current assets with the retail properties likely the hardest to exit,” said James Macdonald, head of research and strategy for Savills in China in a report earlier this year. “The extension of the C-REIT regime is a new option for developers to raise capital.”

Largest Mall in Qingdao

The REITs approved for registration are:

• CAMC China Resources Commercial Asset Closed-End Infrastructure Securities Investment Fund
• CICC SCPG Consumer Infrastructure Closed-End Infrastructure Securities Investment Fund
• CAMC Jinmao Shopping Mall Closed-End Infrastructure Securities Investment Fund

The trusts are backed by state-owned developers China Resources Land, China Vanke, and China Jinmao respectively.

A fourth retail vehicle – Harvest Wumart Consumer Closed-End Infrastructure Securities Investment Fund – had not yet received approval and was asked by the Shanghai Stock Exchange to provide additional information.

Of the four REITs’ underlying assets, the largest is China Resources Land’s Qingdao Mixc mall, which is valued at RMB 8.2 billion ($1.2 billion), according to local data provider Win Data. The 282,948 square metre mall is the largest shopping centre in the eastern Chinese city of Qingdao, and had an occupancy rate of over 98 percent with revenue of RMB 331 million ($46 million) in the first half of 2023, according to a company announcement.

“The proposed listing provides an alternative equity-based financing method for the company, which will diversify the fundraising methods and platforms of the Group and reduce the reliance on traditional debt financing method,” said China Resources Land in a filing to the Hong Kong Stock Exchange, adding that the listing will enable the company to avoid the impact of the long recovery period and low asset turnover rates in infrastructure investments.

The second largest asset among the three approved REITs is Vanke’s Hangzhou Xixi InCity mall, which opened in 2013 with a gross floor area of 249,701 square metres. The property, which is owned through Vanke’s commercial platform SCPG, had an 99.2 percent occupancy rate and revenue of RMB 163.4 million ($23 million) in the first half of 2023, according to company disclosures. The asset has a reported valuation of RMB 4 billion ($563 million), according to Win Data.

Jinmao’s REIT is seeded by the developer’s 102,742 square metre Mall of Splendors in the southern Chinese city of Changsha, which had an occupancy rate of 98.4 percent and revenue of RMB 57.7 million ($8 million) in the first half of 2023, according to the REIT’s prospectus.

According to company filings, China Resources Land expects the listing to raise approximately RMB 7 billion ($983 million) and intends to retain a 30 percent stake in the fund as a strategic investor, while China Vanke expects to raise RMB 4 billion ($563 million). China Jinmao did not disclose its fundraising target but intends to retain a 34 percent stake.

China Asset Management is managing both the China Resources Land and China Jinmao REITs. CICC is the manager of the Vanke REIT, while Harvest Fund is managing the Wumart REIT.

Growing C-REIT Market

The list of retail property trusts marks the latest step in the evolution of China’s three-year old REIT regime, which has grown to 29 publicly-traded vehicles with a total value of approximately RMB 88 billion ($12.1 billion), ranking Mainland China as the fourth-largest REIT market in Asia behind Japan, Singapore and Hong Kong as of August 2023, according to a report by consultancy Cushman & Wakefield.

Unlike REITs in other markets that offer investors access to a range of commercial properties such as offices and malls, Chinese REITs were initially only permitted to hold infrastructure assets and industrial and logistics properties, with the scope expanded to include affordable rental housing projects in 2022.

As China’s real estate market has struggled to recover post-pandemic, however, Chinese authorities have promoted the pilot REIT programme as a way to diversify funding sources for developers.In addition to approving the three mall REITs, the CSRC also gave the green light to registration of Shanghai Municipal Investment Group’s Kuanting Guaranteed Rental REIT as China’s largest approved rent-guaranteed housing REIT. The fund is managed by Guotai Junan.