Wang Jianlin "sells" Wanda Plaza! Insurance companies love commercial real estate, how to do both?

The chill of real estate is still there, from commercial real estate to business district economy is affected, which puts real estate tycoons under huge pressure.

In order to alleviate the pressure on capital liquidity, Wang Jianlin is "clearing and selling" Wanda Plazas across the country.

In fact, as early as around 2006, insurance companies began to set foot in the real estate field. However, earlier insurance funds were more keen on the equity of listed real estate companies, and insurance funds can often be seen behind some well-known real estate companies.

Recently, the trend of insurance capital investment in real estate has been quietly changing, from the original equity of high-quality listed real estate enterprises to the layout of real estate, which can be seen from the takeover of Wang Jianlin's Wanda Plaza. Recently, there have been insurance companies "saving" on the receiver, including Xinhua Insurance, Sunshine Insurance, and Dajia Insurance.

Industry insiders believe that the performance of real estate companies is less than expected and the sales recovery process is slowing down, the current real estate value is undervalued, and the investment cost performance is emerging. The purchase of real estate by insurance capital will also help alleviate the liquidity pressure of real estate enterprises, maintain the stability of the real estate market, and play the role of insurance capital as an economic "shock absorber" and social "stabilizer".

The pick-up continues

In the first week of July, the equity of one Wanda Plaza in Shandong and Guangdong was changed, and the insurance capital "took over" the Wanda Plaza project from Wang Jianlin.

On July 7, Tianyancha showed that Dongguan Houjie Wanda Plaza Investment Co., Ltd. underwent industrial and commercial changes, the original wholly-owned shareholder Dalian Wanda Commercial Management Group Co., Ltd. withdrew, and Suzhou Lianshang Luhao Commercial Management Co., Ltd. was added as a shareholder and wholly-owned shareholder, and at the same time, the legal representative and a number of key personnel have also changed. The equity penetration chart shows that the controlling shareholder of Suzhou Lianshang Luhao Commercial Management Co., Ltd. is Sunshine Life.

A few days earlier, Yantai Zhifu Wanda Plaza Co., Ltd. also underwent industrial and commercial changes, the original wholly-owned shareholder Dalian Wanda Commercial Management Group Co., Ltd. withdrew, and added Kunhua (Tianjin) Equity Investment Partnership (Limited Partnership) and Kunyuan Chenxing (Xiamen) Investment Management Consulting Co., Ltd. as shareholders, holding about 99.99% and 0.01% of the shares respectively, and a number of key personnel changed.

The equity penetration chart shows that Kunhua (Tianjin) Equity Investment Partnership (Limited Partnership) is 99.99% and 0.01% held by Xinhua Insurance and CICC Capital Operation Co., Ltd. respectively, and two natural person shareholders of Kunyuan Chenxing (Xiamen) Investment Management Consulting Co., Ltd. also work in CICC-related companies.

It is worth mentioning that it is not surprising that New China Insurance and CICC acquired the equity of Yantai Zhifu Wanda Plaza Co., Ltd. through the establishment of an investment company. At the beginning of the new year, New China Insurance announced the establishment of a RMB10 billion fund with CICC Capital, under which CICC Capital will be responsible for the investment, management and operation of the fund, and will directly or indirectly invest in the invested enterprises of the assets of the holding real estate projects in equity and other ways permitted by applicable law, so as to achieve investment returns for the partners.

According to public information, "A Smart Insurance" has sorted out the equity changes of Wang Jianlin's Wanda Plaza since the beginning of this year, involving Hefei Wanda Plaza Commercial Development Co., Ltd., Beijing Wanda Plaza Industrial Co., Ltd., Hohhot Wanda Plaza Investment Co., Ltd., etc. Among them, Hefei Wanda Plaza Commercial Development Co., Ltd. and Beijing Wanda Plaza Industrial Co., Ltd. have new shareholders of insurance capital, the former is Sunshine Insurance, and the latter is Xinhua Insurance.

In addition to the Wanda Plaza project, Sunshine Insurance is also "keen" to take over other assets of Wanda, and since last year, it has successively taken over five Wanda commercial management subsidiaries in Hefei, Taicang, Huzhou, Guangzhou and Shanghai.

In addition to Sunshine Insurance, we also joined Wang Jianlin's Wanda Plaza's "acquisition wave", and in May last year, we indirectly acquired three asset packages of Wanda's Shanghai Songjiang Wanda Plaza, Xining Haihu Wanda Plaza and Jiangmen Taishan Wanda Plaza; In October, we joined hands with Hengqin Life Insurance to take over the Zhoupu Wanda Plaza project in Shanghai.

Behind the "sweep".

In the process of economic stabilization and recovery, insurance companies have been active in "sweeping goods and buying real estate". In addition to the above-mentioned insurance companies that are fond of Wanda's commercial real estate projects, there are more insurance companies that are "sweeping".

For example, China Post Life Insurance took over the COFCO Landmark Plaza project in Dongcheng District, Beijing at a transaction price of about 4.2 billion yuan; China Life bought a 51% stake in Shimao Zhuhai Complex Project at a total price of over 3.9 billion yuan; Ping An Life successfully acquired Gaw Capital Partners' logistics assets, including two logistics parks in Jiangmen, Guangdong Province and a logistics park in Xixian New Area, Shaanxi Province; Huatai Assets "transfused" a wholly-owned subsidiary of Vanke and signed a 4 billion yuan real estate debt investment plan agreement.

AIA, a maverick in the foreign market, has also been unusually positive. AIA Life completed the acquisition of a controlling stake in the CapitaLand Star Trade Project in Chaoyang District, Beijing for a total consideration of nearly RMB2.4 billion. In December 2022, the company also acquired a 90% stake in Shanghai Shisen Real Estate Co., Ltd. and 100% of its shareholders' borrowing claims for about 5 billion yuan. Shanghai Shisen owns the land use right of the 89th neighborhood of the North Bund in Hongkou District, Shanghai, and is the main body for the development and construction of the real estate project. Upon completion of the transaction, AIA Life will take a controlling stake in Shanghai Shisen, thereby acquiring the 89 Neighborhood Real Estate Project on the North Bund in Shanghai. The project was officially inaugurated as an AIA Financial Centre on January 5, 2023.

In the face of the silence of real estate developers around the world, insurance companies seem to have become a big savior.

Hua Chuang Securities research report pointed out that "insurance companies real estate investment methods include stocks, bonds, non-standard assets, direct property investment, etc., we believe that insurance companies invest in real estate through direct property investment, long-term and stable rental income and insurance companies capital attributes are more matched, to a certain extent can reduce the capital duration gap."

Insurance companies have increased their allocation to real estate with their own asset-side strategy considerations: the "high cost performance" that has "fallen" from the downturn in the real estate market in the past two years; In the environment of "low interest rates" and "asset shortage", insurance capital and real estate investment, which are medium and long-term funds to avoid short-term returns, are naturally adaptable. Previously, there was less allocation, and now it has encountered a value depression, which may be a good time for insurance capital layout.

Indeed, compared with the international level, the allocation of real estate by mainland insurers is still at a low level. Liu Hui, vice president of Chinese Life Insurance, once introduced at the performance meeting that at present, the proportion of real estate asset allocation by major domestic institutions is generally only 3%-4%, and the real estate assets of the whole caliber of the industry are only more than 1 trillion yuan, which is far from the average ratio of about 10% of the international peers.

In the first quarter of 2024 report of A-share listed insurance companies, Ping An disclosed the situation of real estate investment. According to the first quarterly report, as of the end of March 2024, the balance of real estate investment in Ping An Insurance's capital portfolio was 206.435 billion yuan, accounting for 4.2% of the total investment assets. This type of investment is mainly property investment (including direct investment and holding properties invested in the form of equity of the project company), which is measured by the cost method, accounting for 79.8% of the real estate investment, and is mainly invested in rent-collecting properties such as commercial offices, logistics real estate, industrial parks, and long-term rental apartments, so as to match the duration of liabilities and have stable historical performance; In addition, debt investment accounted for 16.2%, and other equity investment accounted for 4%.

Some people in the industry said that compared with other assets, real estate also naturally has the characteristics of resisting inflation, resisting volatility and diversifying risks, and the short-term market may fluctuate, but the allocation of certain physical assets in the overall portfolio is more conducive to long-term stable returns for insurance funds.

Investing in the "antidote"

In fact, in addition to insurance companies actively looking for new investment directions, the regulatory level has also created conditions for insurance companies to allocate real estate.

Before 2010, insurance companies were able to invest in a limited range of financial products with high credit ratings, low yields and very low investment risks, such as bank deposits, government bonds and financial bonds. In 2010, the former China Insurance Regulatory Commission (CIRC) promulgated the Interim Measures for the Investment of Insurance Funds in Real Estate, liberalizing the investment in insurance real estate, expanding the scope of investment of insurance funds to the real estate fields represented by commercial real estate, office real estate, pension communities, etc.

In July 2012, in order to further standardize the investment of insurance funds in equity and real estate, enhance the feasibility and effectiveness of investment policies, and prevent investment management risks, the former China Insurance Regulatory Commission issued the Notice on Issues Concerning the Investment of Insurance Funds in Equity and Real Estate. In terms of real estate investment, the above-mentioned Circular improves the calculation method of the proportion of investment in infrastructure and real estate financial products in accordance with the principle of homogeneity, and increases the operating space of insurance companies. Combined with the needs of macroeconomic regulation and market development, the relevant matters of affordable housing construction and pension projects have been clarified, and insurance funds are allowed to adopt a variety of investment methods to support major national livelihood and development projects.

Since real estate is an alternative investment, the investment amount is large, the term is long, and the information is not transparent, which is prone to market risk, operational risk and moral hazard. The 2012 Circular of the former China Insurance Regulatory Commission (CIRC) focused on strengthening risk management and control while deregulating the country.

After many years, in May 2018, the former China Insurance Regulatory Commission issued the Notice on Matters Concerning the Participation of Insurance Funds in the Long-term Rental Market, which further allowed insurance funds to invest in long-term rental apartments through real estate funds and other means.

In September 2023, the symposium of financial institutions held by "one bank, one bureau and one meeting" also indicated that it would support real estate enterprises to raise reasonable equity financing through the capital market and promote industry mergers and acquisitions. At the recently held 15th Lujiazui Forum, the person in charge of the State Administration of Financial Supervision pointed out that insurance institutions should be encouraged to adhere to long-term investment, steady investment and value investment, explore and carry out long-term assessment, and strive to build core competitiveness.

In the view of Cinda Securities, high-quality real estate projects are not only expected to contribute stable rental income and cash flow to insurance companies, but also have certain value-added potential. On the one hand, major insurance companies have strengthened the allocation of long-term interest rate bonds to extend the duration, and on the other hand, insurance companies are also expected to increase alternative investments such as unlisted equity and investment real estate to improve long-term investment returns under the premise of prudent assessment. Under the policy support, some high-quality real estate projects are expected to usher in new development opportunities, which will help improve the performance of insurance portfolios.

Overall, there is a shortage of high-quality investment projects, and real estate prices have fallen a lot compared with the previous two years. However, the risks in the domestic real estate sector have not yet been cleared, and insurance funds still need to assess the benefits and risks when investing in real estate, flexibly adjust their investment strategies to respond to market changes, and "make a move when it is time to do so".