China’s premium mall operator doubling its footprint

We have been shareholders of this Property Developer in our Greater China portfolios for many years. We believe the developer is a high quality, dominant business that should benefit from China’s structural tends such as improving demographics, rising incomes and urbanisation.

The developer is a state-owned enterprise, but as one of the oldest 'red-chips', it has a long history of operating commercially and to high standards. The developer is also the tenth-largest developer in China.

At the end of 2018, the developer had 51 malls in operation, with a total floor area of 92 million square feet. They have another 52 malls under development, with total space projected to double. Contrary to the experience of the West and despite high e-commerce penetration in China, the business has continued to see strong double-digit same-store-sales growth.

Although over the short term, the pandemic has clearly affected discretionary spending in China, we expect the recurrent income to grow in the next four years when the other malls in the pipeline are fully developed.

Mature malls generate healthy growth and decent returns

Rental income could double when malls in pipeline developed

Source: Company data, FSSA Investment Managers. as at 31 December 2020.

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