Chinese shopping mall operators looking to offload bricks and mortar to cut costs
Feeling the pinch from rising costs of land holding and as e-commerce takes off, operators are securitising property and using the cash freed up to expand
Chinese shopping mall operators, faced with the rising costs of holding land and the impact on bricks-and-mortar stores of e-commerce, are seeking to securitise their assets and use the cash for expand into new developments.
The so-called asset-light model allows operators to continue to run the mall business and benefit from rental income, although analysts cautioned that it is too early to say yet whether the schemes will help the companies’ bottom line.
In May, Intime Retail, which owns 46 high-end department stores and shopping centres in mainland China, announced its first asset-light arrangement for its Dahongmen store in Beijing.
Intime and China Merchants Bank jointly set up an asset management body, with Intime putting in 330 million yuan and the bank 500 million yuan. The money went to buy the Dahongmen store, which was then leased back to Intime at a fixed annual rental of 68 million yuan for five years.
The arrangement “allows the company to release the capital previously invested in the Beijing Dahongmen Store,” Intime said, adding that it can use the cash to pay off the debts and re-invest in its core business of retailing.
“Through securitisation, developers can still operate the projects while withdrawing cash, and if one succeeds, other projects later can copy this model. The capital can help them expand fast,” said one property analyst, who declined to be identified.
Another possible avenue for mall operators is the use of a form of real estate investment trust (REIT).