China shopping mall operator Insite targets cheap assets in expansion

Insite (China), a management-owned retail property fund and mall operator, will speed up expansion in tier-1 mainland Chinese cities in the next five years as chairman and chief executive Dickson Sezto sees abundant opportunities in buying malls on the cheap, given the oversupply and the threat from e-commerce.

The company, backed by US private equity fund Blackstone at its start in 2008, has established a strong name in the Chinese market, especially in Shanghai, by providing consulting services to developers and mall owners including Joy City Property Holdings and China Vanke.

The vast number of projects it has advised and the experience gained over the past six years will take the company to its next level - to gain full ownership or management of malls, the way Starwood Hotels & Resorts Worldwide expanded in the global hotel industry.

"Wanda is now bigger. But in the future, we'll be bigger," Sezto said, referring to the country's biggest shopping mall developer, controlled by Wang Jianlin.

In 2011, Sezto and his management team bought out Blackstone. His company now owns a shopping mall in Changsha. It also has full long-term management contracts of two projects in Shanghai and one each in Nanjing and Chongqing, with a combined investment of more than 6 billion yuan. Three more projects are in the pipeline.

The aim was to win full management contracts from small developers, which owned about 90 per cent of malls in the country, Sezto said.

Insite will raise funds from investors and will also commit its own money to upgrade some of the malls or even acquire a few.

Sezto also said he intended to enter the south China market including Shenzhen and Guangzhou by acquiring shopping malls, instead of management contracts.

Through such expansion, the malls it owns and manages will soon outnumber those of big players such as Wanda, China Resources Land and CapitaLand in China.

"The fund is still small, but such an asset-light model is crucial to me," Sezto said.

To support the expansion, Insite is finalising the first round of fundraising while starting preparation for a listing on the domestic stock market, with no details yet on the timetable.

"The next five years will be a golden period for us, as a rising number of malls need to be restructured," Sezto said.

A rush by local governments in the past few years to sell land to finance debts and investment has resulted in a serious property glut and the boom in e-commerce is making life even harder for mall owners.

Sezto said for cities such as Shenyang and Chengdu, where oversupply is particularly serious, the next two years would not be good for building.

However, it would be sensible to buy assets at cheaper prices, he said, citing as an example the asking price for a mall in Shenyang had halved in the past two years and the owner was very likely to lower it even further this year.

In C-Suite, Sezto discusses the industry trend and the use of internet finance in mall operations.