Wanda Commercial to introduce new ‘asset-light’ business model, signing RMB24 billion investment agreement with four companies
On Jan 14, Wanda Commercial Properties signed an investment framework agreement with Everbright Ashmore, Harvest Fund, Sichuan Trust and 99bill. Together, the four companies plan to invest 24 billion yuan into the construction of 26 Wanda Plazas, signaling the official launch of an asset light strategy. From now on, Wanda Commercial will take a balanced approach towards its own development with an entirely new business model.
In previous years, Wanda Commercial’s innovative urban complexes gained great success in China owing to their speed and scalability, and as a global industry leader the model attracted a great deal of interest and even imitation. With urban complexes, the investment, construction and management of commercial properties are all overseen through Wanda. Cash flow for the complexes are maintained with real estate sales being invested into Wanda Plazas, and is often deemed asset heavy. In order to ensure sustainable, long term development, Wanda spent a year researching alternatives and proposed a new asset light model for Wanda Plaza. With cooperating partners investing into a special fund, Wanda would be responsible for design, construction, marketing, leasing and operations under Wanda Plaza’s Huiyun information management system and e-commerce system brands. With this approach, all assets still belong to investors and rental income is shared by Wanda and investors on a 40%-60% respective basis. Or, in the first 10 years, the investors can ensure an annual 7% return while the remaining management fee is assumed by Wanda. In the asset light model there are no connections to real estate sales, rendering it a total financing investment practice. Besides the rental income, investors can also enjoy all the value-added benefits of investment.
This new model has considerable significance to Wanda. First, by implementing a balanced approach to ensure sustainable long term development, Wanda Commercial effectively enriches Wanda’s overall business model. Second, the asset light model offers the company an income of cash flow from rental instead of real estate sales, removing them from potentially uncertain market fluctuations. Third, Wanda does not invest anything and still receives a substantial income every year. This places Wanda above many other peers in the industry, reducing financial pressure and debt and enhancing net profit margins as well as ROE. Fourth, there is great demand for an asset light model from the market because it caters to China’s new development model, which relies on domestic demand and consumption. In this way, there is increased incentive for companies to scale up and increase market share. With a robust combination of asset light and asset heavy, Wanda plans to open approximately 50 Wanda Plazas every year from 2016.
This original model heralds a new era for Wanda Commercial Properties, where it has its own corporate brand, business resources and professional standards for benefits. It is also reported that Wanda is in discussion with a number of domestic and international investment banks, insurance companies and funds, hoping to achieve even more investment agreements for Wanda Plaza in the first half of the year.