China Jinmao Commercial REIT plans expansion after exceeding Q1 expectations
Recently, Huaxia Jinmao Commercial REIT announced its first-quarter performance report for this year. This is the first report card since its establishment on January 31, 2024.
The data shows that the fund performed well during the period, with core performance metrics such as EBITDA and distributable amount exceeding the forecasts in the prospectus.
The financial report reveals that from January 31, 2024 (the effective date of the fund contract) to March 31, 2024, Huaxia Jinmao Commercial REIT achieved total revenue of 14.6213 million yuan and EBITDA of 8.0785 million yuan. The distributable amount was 8.8728 million yuan, achieving about 101.32% of the forecast in the prospectus, with an annualized distribution rate of 4.98% based on the number of days in the reporting period.
At the performance briefing held on April 24, Lü Lingzhuo, the fund manager of Huaxia Jinmao Commercial REIT, stated that the first-quarter EBITDA exceeded expectations, mainly due to the shift in the business model of Landmark City from joint operations to diversified operations.
It is understood that the infrastructure project held by Huaxia Jinmao Commercial REIT is the Changsha Landmark City shopping mall located in Yuelu District, Hunan Province, with a fundraising scale of 1.068 billion yuan. The asset valuation of Changsha Landmark City is 1.065 billion yuan, with a building area of 102,700 square meters and a leasable area of 61,200 square meters.
As of March 31, 2024, the occupancy rate of Changsha Landmark City was 98.26%. Based on the leasable area, the valuation per square meter was 17,000 yuan, which is relatively low compared to similar assets, indicating high cost-effectiveness.
As of March 31, 2024, anchor tenants accounted for 55% of the leasable area, while specialty stores accounted for 45%. The average rent for anchor tenants was about 34 yuan per square meter per month, and for specialty stores, it was about 146 yuan per square meter per month. Compared to the assessment base date in the prospectus and the rental levels as of June 30, 2023, the rents for both anchor tenants and specialty stores increased by about 5%.
The better-than-expected performance has prompted China Jinmao to "strike while the iron is hot." Despite its recent listing, Huaxia Jinmao Commercial REIT is already planning an expansion.
Ding Rui, Vice President of China Jinmao and General Manager of Jinmao Hospitality, revealed that China Jinmao has established a professional REITs platform and will continue to inject more expansion assets into it. "We have preliminarily selected projects for expansion and will initiate preparations as soon as they meet regulatory requirements and achieve stable operations."
Below is the transcript of Huaxia Jinmao Commercial REIT's Q1 2024 performance briefing:
Q: What are your views on the development prospects of consumer infrastructure public REITs and China Jinmao's future strategy for public REITs?
Ding Rui (Vice President of China Jinmao, General Manager of Jinmao Hospitality): First, we believe consumer infrastructure public REITs have huge market potential. China has abundant underlying assets for consumer infrastructure, which provides a solid foundation for their development.
Currently, three consumer infrastructure REITs are listed in China, with a total market capitalization of about 9 billion yuan. Referring to developed markets like the U.S., retail REITs account for the largest proportion. There is still room for growth in both absolute size and relative proportion of China's consumer REITs.
On the other hand, issuing consumer public REITs can help build higher-quality, more efficient consumer infrastructure, improve consumption environments, and optimize consumption scenarios, thereby boosting domestic demand and consumption.
For enterprises, issuing consumer public REITs completes the capital cycle from investment to exit and reinvestment, significantly enhancing asset and capital liquidity.
For China Jinmao, issuing consumer infrastructure public REITs opens a new path for its high-quality commercial assets to access capital markets. As Jinmao's commercial footprint expands, it will continue to inject quality assets into the REITs platform to revitalize assets, expand effective investment, accelerate consumer infrastructure construction, and promote urban consumption conditions and innovation.
Q: What are Huaxia Jinmao Commercial REIT's future expansion plans?
Ding Rui: Expansion is crucial for the sustainable development of public REITs. Strategically, China Jinmao has established a professional REITs platform and will continue to inject expansion assets to share long-term returns with investors.
Specifically, we have preliminarily selected projects for expansion and will initiate preparations once they meet regulatory requirements and achieve stable operations, with timely disclosures.
Q: According to the prospectus, 23% of leases expired in 2023. What is the renewal status and tenant reserve situation?
Wang Jian (General Manager of Changsha Landmark City): Shopping malls differ from other formats due to their dynamic nature and active management. Specialty store leases are typically around three years to adapt to trends and consumer preferences.
Historically, Landmark City's renewal rate is about 64% by lease count, reflecting stable tenants. We have proactively managed 2024 expiries, with a 98.26% occupancy rate as of Q1. Our tenant pool includes local and national brands, supported by Jinmao's platform.
Q: What are the future occupancy and rental outlooks?
Wang Jian: We are executing the prospectus plan, with rents for both anchor and specialty stores rising. We are prepared for 2024 lease adjustments, with ample tenant reserves to ensure stability.
Q: Why did revenue fall short while EBITDA exceeded expectations?
Lü Lingzhuo (Fund Manager, Huaxia Jinmao Commercial REIT): The shift from joint operations to diversified operations improved efficiency, reducing revenue but increasing EBITDA due to tax benefits and operational flexibility.
Q: Is the Q1 performance sustainable?
Lü Lingzhuo: Real estate projects are cyclical. We adopt a long-term perspective, optimizing tenant mix and operations for sustainable growth.
Q: How do you view the secondary market performance post-listing?
Lü Lingzhuo: Short-term volatility is influenced by market sentiment, but long-term performance will reflect underlying asset quality and earnings.
Q: What is the dividend frequency?
Lü Lingzhuo: Distributions will be made at least annually, with efforts to enhance efficiency for investor returns.
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