CPPIB’s Asia property head talks strategy
The Canada Pension Plan Investment Board’s latest investment in a Chinese shopping mall is part of a broader bet on the rising long-term value of property used by the country’s burgeoning middle class. It also reflects the $287 billion fund’s overall growth in real estate exposure.
On October 20, CPPIB said it had bought 49% of a shopping mall joint venture alongside China’s Longfor Properties. It paid C$193 million ($146.4 million) for the stake.
The mall,, is in Chongqing, one of China’s largest cities with a population of 30 million. CPPIB, one of the ten biggest retirement funds in the world, sees opportunity in catering to its increasingly wealthy shoppers.
“Over time you can systematically change the tenants to meet the changing tastes and preferences of the catchment area,” said Jimmy Phua CPPIB’s Asia head of real estate investments. “Income is still rising and retail sales are still growing,” he told FinanceAsia, a sister publication to AsianInvestor.
Property represented 12.9% of CPPIB’s global portfolio as of June 30, up from 10.6% in 2012. The institution has about $12 billion committed to China across all asset classes, of a total $51.3 billion invested in Asia across all asset classes as at March 31.
West Paradise Walk, a six-level shopping mall, was built in 2008. “When this mall was first built eight years ago the environment was quite different; the income level of the households that used to shop at the mall has risen quite significantly,” said Hong Kong-based Phua.
Chongqing is not as cosmopolitan and wealthy as Shanghai, but shoppers are increasingly interested in more international and upmarket products.
“The offer that the mall is providing today could be upgraded; many of the tenants in the mall cater to a lower income group,” noted Phua, “and now we are systematically renewing the tenant mix, bringing in the more international names that are not already in Chongqing.”
For instance, CPPIB plans to overhaul the mall’s supermarket, which is very big and sells largely local produce. It will downsize the floor plan and bring in another supermarket chain that offers higher-value goods.
The mall is almost fully occupied, excluding a couple of units where the operators are replacing tenants. Longfor and CPPIB will spend the next year discussing how to refurbish the mall.
Hotspots
As China re-orientates its economy to be more consumer-driven, CPPIB is looking for plays on rising private consumption across Chinese real estate segments.
“I do see it [investment in Chinese property] growing, but there is no fixed number we need to achieve,” said Phua (pictured below), who worked with several property companies before joining CPPIB, including ING Real Estate.
In addition to its shopping mall exposure, the Canadian fund was one of the earliest investors in China’s logistics sector – particularly in respect of modern warehouses catering to the boom in e-commerce. Rising mainland online shopping volumes have driven soaring demand for storage from household appliance makers to e-commerce giants such as Alibaba.
As a long-term investor, CPPIB seeks to identify long-term structural trends and back them through the ups and downs of the Chinese property cycle, said Phua.
One of the fund’s focus areas is bigger mixed-use developments, such as its partnership with Singapore’s CapitaLand. Its first joint venture with Longfor in 2014 was just such a project in Suzhou.
This strategy appears to make sense. The inconvenience of transport in some Chinese cities means developers can reap benefits from clustering offices, malls and serviced apartments in one development. Tenants in such developments tend to stick around longer and pay more.
Partnering strategy
CPPIB in Asia tends to co-invest with partners like Longfor that can scale up assets over time. “The understanding [with Longfor] has always been that we would go [from] one to do a second and a third and a fourth at the right time when the opportunity presents itself,” said Phua.
Australian property firm Goodman was CPPIB’s first China property joint-venture partner, in 2009, and the two continue to co-invest. The fund has also invested alongside CapitaLand and Japan’s GLP.
CPPIB always co-invests with local partners, partly due to the breadth of Asia and the mix of cultures and economies, said Phua, who has worked out of Singapore, South Korea and is now based in Hong Kong. Each investment is set up as a joint venture, like West Paradise Walk.
Elsewhere in the world, CPPIB sometimes leads investments and runs operations themselves, for example in London, where it owns 100% of a student accommodation platform.
The fund invests the money not needed by the Canada Pension Plan to pay current benefits on behalf of 19 million contributors and beneficiaries.