Treasury China Trust (TCT), which is structured as a business trust, owns and manages about RMB12.2 billion (S$2.33 billion) worth of commercial real estate in China.

Earlier this year, the trust bought a mall in Shanghai for RMB575.0 million and it recently completed the purchase of a 55 per cent stake in a mall in the port city of Qingdao.

The trust is also actively looking at deals in Xi’an in Shangxi province, forming a strategic partnership with the Ginwa Group to tap the emerging retail market in central and west China.

The trust has also started the construction of Beijing International Logistics Park comprising a site area of approximately 91,000 square metres zoned for logistics development.

TCT has about 800,000 square metres of office and retail space in China, about 300,000 square metres of which is completed and generating rental income.

Richard David, CEO of Treasury China Trust, recently shared with Biz Daily his group’s opportunistic type of expansion, including his current focus of capturing opportunities in the vibrant Chinese retail market.

You’re into property development and your business model is business trust and not a REIT. Can you tell us the difference between the two?

As a REIT, you are going to be involved in acquisition and management of existing real estate. REITs also have parameters around their operating guidelines, including a requirement to distribute 90 per cent of revenues in dividends, among others.

Treasury China Trust is fundamentally a full service property company, with the flexibility of operating under a business trust structure. From an operational perspective, not only can we acquire and manage existing income producing real estate, and pay dividends…but we can also take on developing properties which then allows us to supercharge our revenues in the short to medium term. In that context, the business trust structure best suits us.

However, we also recognise that from our perspective, and from investors’ perspective, having the majority of our real estate in income producing real estate …provides us with a very stable risk profile. So what we did when we established TCT…in our trust deed, we established a 30 per cent development cap…from an investor’s point of view, they can now be certain that we will not run tomorrow and turn ourselves into 100 per cent landbank investment company.

For us, we employ long term investment asset management techniques. We have 80 people in China actively managing our portfolio. We have 300,000 square metres of income producing real estate and we have another 160,000 square metres that’s currently under development.

Beyond that, through our recent acquisition in Qingdao, we have given ourselves further land to develop over the next 3-5 years.

Overwhelmingly, our business is focused on income producing real estate. But we have that development option which allows us to supercharge our revenue.

This is by virtue of the fact that through developing real estate, generally land costs much cheaper, particularly in China. Construction cost and labour are quite low in China, and yet you have a very vibrant retail sector offering strong upside potential for us.

Whereas if we are only REIT, our only option to grow our revenue would be to go and buy an existing built property, which will be very expensive. Or perhaps see a 5-10 per annum growth in rent.

What’s your current portfolio mix?

We got 190,000 square metres of office and 110,000 square metres of retail. So it’s about 67 per cent office and 33 per cent retail.

We currently have 160,000 square meters under development, of which approximately 50 per cent is logistics, 35 per cent retail and 15 per cent office.

Can we say that your development focus now is going towards retail and Tier 2 cities in China?

We are, I should say, opportunistic in our development plans. In April this year, we settled on the Qingdao purchase and this June, we have also settled our new acquisition in Shanghai.

So I wouldn’t necessarily say that we are moving our business from Shanghai and Beijing to second tier cities. What we’re aiming to do is to look for value added opportunities. In doing that, we’ve also looked into two other cities like Qingdao and Xi’an in which we have entered into strategic partnership with a local retail group to also focus on retail.

It shouldn’t also be said that we’re moving away from office to retail as most of our current development projects now have office component in it. If we see some opportunities in the office segment, the way we see some opportunities in the retail segment, then we will be there.

However, with Chinese government’s support looking to create a much higher component of domestic consumption, which means a stronger Chinese retail sector, this is the area that we are looking at now.

In 2007, when we started the company, it was mostly about the service sector. About MNCs moving to China to grow their businesses, so it was more about office sector. Now the development theme is more about the retail sector so we are taking advantage of that.

Analysts say there’s a supply overhang in Shanghai now in terms of office space. So how do you plan to address this risk ahead?

In every market, that we are in, there are many risks attached to that market. At the moment, we would consider the office supply risk at the very low end.

When you look at annual demand on a normalised market take up, there is nothing that would concern us about this talk of having a significant supply overhang.  I really don’t think it’s appropriate to use the term “supply glut or overhang” when it comes to office space in Shanghai right now.

Our biggest challenge actually is finding enough room in our properties for our existing tenants to expand.

We’re not denying that supply and demand have a huge effect on our business and it’s something that we watch very closely.

Why did you decide to build a logistics centre in Beijing?

From a commercial real estate perspective, it looks odd. But as I’ve said, we are largely opportunistic in the way we do things. Certainly at the moment, retail and office segments offer a much higher value opportunity ahead of logistics. But being in the China market for 5-6 years, we certainly can say that there are value added opportunities in the logistics sector as well.

Perennial China Retail Trust (PCRT) debuted recently in the market, branding themselves as pure China retail play. And they have the same business model as you. Any comment on this?

Their first development in Shenyang, China includes a huge component of non-retail, so I’m not quite sure if that’s a pure retail play.

I have high respect for their CEO and in what he has achieved so far. But saying that they are comparable to us is a little bit difficult, and anyone who doesn’t have 400,000 square metres of commercial real estate in Shanghai, I don’t think it does a very good service to compare both of us.

Clearly PCRT has got a very strong view on Shenyang, and when you look at it, it’s a city with a strong growth for much of the last decade.

Would Shenyang be of interest to you in the future?

We are a focused business. Commercial real estate had its beginnings in Shanghai, and it’s undeniably the commercial centre of China and increasingly it is becoming a very strong regional hub. So for us overwhelmingly, our business going forward will be based in Shanghai.

And because we are in opportunistic in our strategy, recently we have seen some benefits in Chinese retail sector. We then looked at other markets that can provide us very good points of entry, so we decided to enter Qingdao and Xi’an because we saw a huge retail market potential in those cities.

These two new markets offer significant upside to us with largely untapped retail sectors.

So part of your strategy is to do intensive research in every area that you’re targeting?

We have our own in-house research team although we also rely on some information from external sources like CB Richard Ellis. But because our business is unique to us, and because we don’t exactly do what the next guy does, we employ our own research team to help us in our planning and execution.

Any other areas you may want to expand to?

We don’t have ambitions to be a China-wide property developer of commercial real estate because this would dilute our ability to deliver high intensive management solutions.

So for us, we’ve built a strong management template in Shanghai, we now believe that our business is in a certain level of maturity that we can take that template and impose it in other locations. But we are not going to do it in 5 or 10 locations at a time.

We just acquired 400,000 square metres in Qingdao, so that’s a very big undertaking for us at this moment. So our focus for now is in Qingdao.

Not only that we don’t have the capacity to go to other areas now, we also don’t have the need.

All of your recent acquisitions have been bankrolled by Chinese banks. How about raising capital through equity?

We did capital raising in December and we closed a convertible bond in March. So we’ve proven at a certain extent that we have a pipeline of acquisitions that we can tap the capital markets as required.

Any plans to increase your profile in the SGX? Analysts say that at present, TCT shares are thinly traded.

We used to be listed in London. And we moved to Singapore, the vast majority of our shareholders moved with us. So for us, coming here, we understand that this is a process that would take time.

What we know is that we need to continually interact with the market, we needed to show the benefits of being a company that has observed Western management practices.

The way we looked at it is that, we are not a Chinese property company…we are a property company vested in Chinese real estate.

In the last 3 months, we’ve started to build some awareness in the community. So we’re making steps in the right direction in terms of communicating what we have been doing to the market.

Have you considered dual listing in Hong Kong so you’re more connected to the China market?

We’ve been listed in Singapore for only a year now, and operationally, we’re in strong growth phase currently. So we haven’t really started to discuss what’s next for us in terms of listing.

Going forward, what can the investors expect from TCT?

They can expect the same level of commitment and professional management that they’ve seen to date. They can certainly see exciting times ahead, we got this development portfolio which is fully-funded and on the way, we’ve made some announcements in our retail side of the business.

Everyone looks at the retail market in China as a very strong opportunity, and we’re well-positioned to take advantage of that. And with Shanghai as our base, and with Chinese government’s strong support to make it a strong regional hub, there’s very little downside for investors to get into us.