China is rapidly expanding its domestic real estate investment trust (C-REIT) regime with the opportunity to sell portfolios of assets on the public markets offering new recapitalization options for institutional investors in a growing range of market sectors, according to Ellen Ng, managing director and head of China real estate for Warburg Pincus.
“At the asset level, the exit optionality is much greater than we’ve ever seen in the past decade so that has also been quite game changing for us as we underwrite investments and evaluate how we can exit,” Ng said in an interview at the Mingtiandi Hong Kong Focus Forum this week.
DNE Group, a leading new economy infrastructure developer and operator backed by Warburg Pincus, sponsors a C-REIT which already debuted on the Shanghai Stock Exchange last year, and Hong Kong-listed ESR is also in the application process for a mainland REIT vehicle, but Ng sees the opportunity for much broader adoption of the publicly listed funds.
After debuting on the market in 2021 as vehicles for infrastructure assets, C-REITs listed on mainland exchanges have expanded into logistics and affordable housing properties, and now have a combined market cap of approximately RMB 30 billion ($4.2 billion). However, Ng points out that this total is still just a fraction of the $1.3 trillion total market cap of REITs in the US, and she sees potential for expansion of the regime to include more property types.
Hope for Housing
With Warburg Pincus among the biggest investors in rental housing in mainland China, Ng sees a future where portfolios of urban apartment buildings could find a home on a mainland exchange.
After the country’s first REITs of affordable housing had their IPOs in August of last year, Ng expects a broader swathe of the residential market could soon be welcome to list publicly in Shanghai or Shenzhen.
“There are already listed affordable rental housing REITs now in China and it is widely expected that this will further open to market priced rental apartment products, so it will apply to more asset classes,” Ng said.
Warburg Pincus has invested in a number of rental housing ventures across segments, including Mofang, the largest third-party centralized apartment operator in China, with projects nationwide; Golden Union, which operates 20 apartment projects in Shanghai and Beijing under the brand “Base Living”; and Vlinker, a Shanghai-based platform targeting young professionals, which now has eight projects around the mega-city with some 30,000 beds.
“Once the rules become established and all the constituents are more comfortable, then we believe this (C-REIT) will take off in a much bigger way,” she said.
The C-REIT opportunity provides another exit option for investors like Warburg Pincus, which has made the incubation, development and expansion of real estate platforms the trademark of its business in China and around the region.
With the company’s real estate strategies focused on high growth sectors such as logistics, data centers and rental accommodation, Ng says that deciding on the next big deal starts with understanding secular trends influencing the economy.
“Our playbook has been quite simple and consistent across these years, which is to find these megatrends which are what we call ‘decade durable,’ find very talented entrepreneurs and try to create the top three companies, platforms in their respective sectors and markets,” Ng said.
Having co-founded ESR more than a decade ago, the company has taken a similar approach of teaming with entrepreneurs in the early stages in backing DNE Group, Vlinker and pan-Asia platforms like data center operator Princeton Digital Group (PDG), rental accommodation provider Weave Living and self-storage platform StorHub.
“This is all part and parcel of what we call building up platforms, the platform strategy, which is being flexible and creative about how to create value on different dimensions and build scale,” Ng said.
Real Estate Stars on Stage
Ng, who has been with Warburg Pincus for over a decade and a half, was among 30 industry stars speaking in the event at the Sheraton Hong Kong Hotel & Towers in Tsim Sha Tsui on Tuesday.
The event kicked off with a keynote panel comprising Graeme Torre, managing director and head of real estate for Asia Pacific at APG Asset Management; George Hongchoy, executive director and CEO of Link REIT; Francis Li, international director, vice president and head of capital markets for Greater China at Cushman & Wakefield; and Conan Quan, vice president of WeWork Greater China..
With over 200 attendees, the full-day event wrapped up with a discussion of value-add and opportunistic strategies in Hong Kong led by top executives from Blackstone, Weave Living, Lofter Group and Fairland Holdings.