[Media Dialogue-CAIC] Xu Yafeng of WINS Investment: Be a "Long-term Capital" and look forward to the arrival of REITs

In 2019, the overall domestic economic growth slowed down, external factors such as the Sino-US trade war continued to affect the overall business environment, and the overall business environment continued to bear pressure. The outbreak of COVID in early 2020 made the situation worse, the real estate industry suffered severe losses, the operation of the real estate companies came to a standstill, and the industry was forced to start a new round of reshuffle. Up to now in 2020, 208 real estate companies have closed down, and negative news related to the capital chain of many TOP50 real estate companies has been frequently reported. After a round of market baptism, what impact will the real estate funds receive? Will the epidemic change the investment direction of real estate funds? What types of assets are real estate funds most optimistic about right now?

Mr. Xu Yafeng, President of WINS Investment, was invited for this interview as a heavyweight guest for a series of High-end Interviews of CRIC Asset Management for Real Estate Funds. On August 11th, at the 4th REIS Summit-Asset Management Forum, Xu Yafeng participated as a guest in the morning roundtable forum and talked about “the vitalization space of Chinese assets”.

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Backed by Gemdale Group, focusing on investment in domestic and overseas real estate markets

As one of the "Most Influential Real Estate Funds of 2020" by REIS, WINS Investment is an alternative investment institution focusing on investment management in the domestic and overseas real estate markets. It was established with the fund of Gemdale Group, a leading domestic real estate listed company. As an important part of Gemdale Group's strategy of "one body and two wings", WINS Investment has branches in Beijing, Shanghai, Shenzhen, Hong Kong and other cities.
 

In 2006, the team of WINS Investment began to enter the field of real estate finance. In 2008, it established a US dollar fund (UG fund) in cooperation with UBS, which was the first international standardized fund of real estate among domestic real estate agencies. In 2010, it began to expand the RMB fund business.
 

Since it established the first USD fund in cooperation with UBS and successfully raised and invested more than 200 million US dollars, in the past ten years, WINS Investment has been a strategic carrier for the independent operation of Gemdale Group's real estate investment business and has vigorously developed thediversified investment which centers aroundequity investment of residential development project and focuses on the exploration of the integrated business of equity investment, asset mergers and acquisitions, asset securitization, urban renewal funds and overseas investment, and has cooperated closely with banks, securities, trusts, insurance, and asset management companies. By combining self-owned funds, group investment funds and funds from a number of strategic parties, it has set up multi-channel and multi-level funding sources.

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Adhere to the model of "investment + agent construction"

Pay attention to urban renewal and old city renovation in first-tier and new first-tier cities

WINS Investment has more than ten years of investment and development experience. With regard to the future investment focus, the fields in which WINS enjoys a relative advantage and with which WINS is relatively familiar, such as development-oriented equity investment projects, and the model of "investment + agent construction" in synergy with Gemdale Group,  will remain an important investment direction for WINS Investment in the future.
 

WINS Investment is setting up an urban renewal fund,which will be used to invest in offices, industrial parks, community businesses and long-term rental apartments in first-tier cities and new first-tier cities where the new economy is relatively developed. The prerequisite for WINS Investment to choose the investment field is that it has sufficient operational capabilities and management capabilities for underlying assets. Regarding long-term rental apartments which have aroused endless turmoil recently, Xu Yafeng believes that there will still be an inevitable demand and room for their survival and development in the long run. WINS is currently exploring its own securitization products for long-term rental apartments, and is also paying attention to and studying currently hot investment areas such as logistics storage, but has not yet invested in this field. For a relatively unfamiliar field, WINS tends to find a suitable operator or partner for joint operation.
 

In addition, there is another big field for urban renewal--old city renovation. In Shenzhen and the Greater Bay Area, WINS's old city renovation fund has been used to invest in many projects. Xu Yafeng said that China's first-tier cities have fully entered the era of stock, and many developed second-tier cities have also begun to enter the era of stock. Therefore, WINS will pay special attention to the opportunities of urban transformation and old city renovation in these cities. Specific to cities, urban economic clusters such as the Greater Bay Area, Beijing-Tianjin-Hebei, and Yangtze River Delta, as well as potential second-tier provincial capital cities, are the focus of WINS.

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Possessing professional operation management capabilities is the prerequisite for the investment of WINS

Enhance asset value through "functional transformation + brand upgrade"

In the era of macro-operation, the prerequisite for WINS to choose the investment field is that it has sufficient operational capabilities and management capabilities for underlying assets. In the future, WINS will focus on asset projects such as offices, industrial parks, long-term rental apartments, and community-based businesses. In these fields, the specialization requirements for each vertical category are very high. This is not only simple investment, financing, and trading. We need to carry out professional and refined asset management in long-term operations to enhance the value of assets and obtain long-term returns.

For WINS, the relatively traditional development-oriented equity investment business in the past few years has increasingly higher requirements for the professionalization of the operation team. In the fields of stock assets such as offices, parks, community-based businesses, and long-term rental apartments, WINS will cooperate with specialized management companies for operation. In past practice of operating different categories of assets by one team has been unable to adapt to new developments, and the requirements for professional operations are getting higher and higher. WINS has always adhered to the idea of steady and balanced development, and is still maintaining a normal state of business development.
 

From a certain perspective, the epidemic at the beginning of this year is a big test for holding property management. Xu Yafeng said that the epidemic indeed has a certain impact on WINS, and WINS has also granted to tenants some preferential measures, including rent-free and policy support. Since May and June this year, the assets of WINS Investment have basically returned to a relatively normal state. Xu Yafeng also particularly emphasized, “It is not just the impact of the epidemic. I think that since last year, the rent has been lowered down and the rate of vacancy has risen in the entire stock market in first-tier cities, whether they are office or commercial properties. On the one hand, China’s economy is adjusted and shifted. On the other hand, changes in the international situation and the Sino-US trade war are important influencing factors. On the whole, WINS’s tenants remain relatively stable and basically have three-year lease contracts. This year’s contract swaps are not as popular as in previous years, but rents and full lease rates have not been greatly affected."

For investment-oriented holding assets, WINS usually upgrades and transforms them according to different types of properties to increase asset value.The first type is to carry out functional transformation. With the development of e-commerce and changes in consumption methods, offline shopping needs are also changed. Traditional shopping malls and supermarkets have difficulty adapting to the latest needs. WINS will carry out functional transformation for assets of this kind. For example, in No. 8 Bridge Phase 5, a new type of office carrier came into being through the operational transformation of the industrial park.

The other type is to upgrade functionality and merchants. For example, WINS led the acquisition of the project of Shanghai Kangjian Plaza in 2019, which is a community-based business. The project is located in Xuhui District, the CBD of Shanghai. It enjoys a high-quality base of regional consumption and educational resources, surrounded by schools, and has great demand potential and value enhancement space in education and entertainment. Through renovation and upgrading and resource integration, WINS Investment has built Kangjian Plaza into a community-based shopping mall with the theme of children's education, leisure and entertainment. Such a community-based business with demand potential and value enhancement space is also a business format that WINS focuses on. In the future, WINS will make it into an asset package and create greater value through capital operation and asset management.

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"The No.8 Bridge ABS" is a breakthrough made by WINS in asset securitization

The core of issuing public offering REITs lies in the underlying assets

On March 19, 2020, "Gemdale Strongberry Public Offering ABS Phase 1" was successfully issued on Shanghai Stock Exchange, with a shelf scale of RMB2 billion. This is the first "Asset-light Urban Renewal" securitization product of long-term rental apartments of Shanghai Stock Exchange. For more than ten years, WINS Investment has actively explored asset securitization and led the issuance of a number of ABS products. Among them, "No. 8 Bridge ABS" is the first "asset-light" securitization product in the cultural and creative parks in the history of domestic ABS. In 2019, Shanghai No. 8 Bridge Project won the International Financial Real Estate Innovation Awards-Investment and Financing Innovation-Gold Award.

The Shanghai No. 8 Bridge Projectis located in the Xintiandi business circle of Luwan District, Shanghai. It is one of the first clusters of creative industries in Shanghai. It was originally located at the former site of Shanghai Automobile Brake Factory, SMPIC Machinery Factory, White Elephant Battery Factory, and the Third Yarn-dyed Weaving Factory. From 2003, with the support of the Shanghai Municipal Government, Shanghai Economic Commission, and the People’s Government of Luwan District, Kicers Group successively carried out reconstruction, renovation, investment promotion, and operation and management of the old factory buildings. In 2015, Gemdale Properties & Investment completed the equity acquisition for Shanghai No. 8 Bridge Project, and started a strategic joint venture with Kicers Group for a series of product cooperation.

In the opinion of Xu Yafeng, the "No. 8 Bridge ABS" is a major breakthrough for WINS Investment. The asset-light project has achieved securitization, which represents a direction for urban renewal. The most prominent innovation of No. 8 Bridge ABS lies in the realization of an unsecured and reasonable product model of financing scale for "asset-light" products. The underlying asset level is fully and objectively analyzed and fully matched with the interest principal coverage requirements of financial products. A solid foundation of technical experience has been laid for the independent issuance of similar asset-light ABS in the future.

Considering that public REITs will be launched soon, what are the main barriers and obstacles for the issuance of public offering REITs in industrial parks? Xu Yafeng said that,first of all, the core is relatively high-quality underlying assets, which is also the key to WINS's successful issuance of asset securitization products. In the past, industrial parks were relatively localized and fragmented. For the issuance of industrial park REITs, the underlying assets need to reach a certain scale. In addition, corporate structure, property rights, and fire protection need to be legally normal, which is a rigid condition, and the underlying tenants need to be stable, and a professional team of underlying asset management is also needed. Secondly, the CMBS financing method falls into the category of debt financing. The breakthrough that public offering REITs can make is equity financing and asset withdrawal in the true sense, so that a breakthrough can be made in the transformation from the original simple debt financing to equity financing. Finally, of course, the support of policies is needed at all levels. At present, regardless of policy support or market recognition, the prospects for issuance can be seen.

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Create a two-wheel drive model of "PE+REITs"

Hope that REITs can really exit

According to the introduction of Xu Yafeng, the stock assets currently held by WINS are in the operation and holding period and have not yet reached the exit stage. "Our most ideal strategy is to be able to issue a REITs product in the asset package, which can truly achieve the exit of REITs." The most ideal state in the future is tocreate a two-wheel drive model of "PE+REITs". First of all, in the early development stage of the projects, we can invest a certain scale of equity capital in the projects through private equity funds in a legal and statutory way, and then carry out acquisition, transformation, value addition and operation for the projects. Second, in the project holding stage, after a relatively stable cash flow has come into being for the assets, we can realize the exit in the capital market through asset securitization, and open up the public offering market if the policy permits, and turn it into a product with stable income that the public can purchase. Since the Singaporean REITs market emerged many years earlier than Chinese REITS market, CapitaLand has developed a model that is relatively worthy of our reference. It is also a major strategic direction of the research and exploration of WINS Investment to really open up such four links as fund-raising, investment, management and exit, bring in different investors in different stages and select public offering in the stable stage".

No matter whether it is from the perspective of policy strength or from the perspective of transaction needs, the business logic of several types of assets that WINS currently invests in is tenable. For these types of assets, on the one hand, we hope they can exit through asset securitization channels. On the other hand, if the assets are very stable, and are also capable of gradual increase of income. WINS can even choose to hold them for a long time.

Regarding the future, Xu Yafeng said, "This industry is a long-distance running concept. I think that we must adhere to our investment logic and do not need to achieve a grand goal in a short period of time. We must adhere to our own speed, give full play to our advantages, and maintain our own determination, so as to develop a long-term career".