Since the beginning of the year, the property industry has continued the upsurge of mergers and acquisitions since last year. So far, five mergers and acquisitions have occurred, involving an amount of nearly 3 billion yuan.
In fact, the Growth Logic of property stocks, once regarded as the darling of capital, is changing. After the test of covid-19 epidemic in 2020, the overall performance of the property sector in the capital market is stable. Since the second half of last year, the valuation of property listed companies has gradually returned to rationality. In addition, affected by the debt problems of some real estate enterprises, the future trend of affiliated property enterprises is uncertain, and the focus of the industry is gradually changing from listing to acquisition and merger.
So, what will be the trend of the development of the property industry in the future? What impact will the growing tide of mergers and acquisitions have on the property industry? Will the capital market continue to be optimistic about property stocks?
“The property industry is still in the primary development stage, and the concentration is not high. Although the resources and market are concentrated to the top enterprises, there is still room for further development.”
Recently, ye Mingjie, executive director and President of Shimao service (00873. HK), said in an exclusive interview with the reporter of the daily economic news that the property industry is in an upward channel. In the past two years, everyone is taking a large-scale development. In the long run, high-quality development is the long-term solution. Property enterprises need to find differentiated development advantages.
The industry is still in its infancy
“For the property service industry, the development over the past 30 years has actually been very slow, that is, it has only begun to advance rapidly in the last five or six years. Therefore, in my opinion, the property industry is still in the primary stage.”
Ye Mingjie said that the first is the change of the general trend of the industry. Property should be viewed together with the real estate industry. Real estate used to be an incremental market. Four or five years ago, this incremental part peaked more and more, so it slowly turned to the stock. Especially under the general tone of “housing, housing and non speculation”, this is also the development direction in the future.
Secondly, after the real estate industry changes from the incremental market to the stock market, the demand for quality and service at the user end (demand end) is higher and higher. When there is demand, the property service industry immediately changes. At the same time, the positioning of real estate enterprises in their property sector has changed, and they really operate it as a professional company, not just the previous internal auxiliary department. These changes also allow capital to see opportunities and intervene, and give birth to the rapid development of the property industry.
“The concentration of the property industry is not high at present. Although the resources and market are concentrated to the leading enterprises, there is still room for further development.” Ye Mingjie said that there are now more than 100000 property companies in China, but the real head enterprises are only those three or five. Moreover, today’s head enterprises are not necessarily the head enterprises in the future, and there may be differentiation in them.
“Today’s property enterprises have not only done basic business such as residential quarters, but also involved business management, universities, hospitals, industrial parks and other fields. They are also expanding horizontally, extending to urban service business, and the business boundary is expanding.”
Ye Mingjie said that now the government is advocating the service mode of “property management + life service”, “property + elderly care” and “Online + offline”, so property enterprises are doing comprehensive business. Moreover, it is not only inside the fence, but also outside the fence, such as life service. Therefore, this growth space is huge, but it is still in its infancy.
Property acquisition and M & A are differentiating
Since the beginning of the year, mergers and acquisitions in the property industry have continued to maintain a high frequency in 2021.
According to the statistics of China Index Research Institute, in 2021, there were 77 M & A transactions in the property management industry that have disclosed relevant information, involving 36 property enterprises; The total transaction amount is about 36.25 billion yuan, a significant increase of about 243% compared with the total transaction amount in 2020. In terms of M & a scale, the average M & a scale of top 10 enterprises is 86.67 million square meters, and the M & A area of country garden service, Evergrande property, Hejing Youhuo and everything cloud in 2021 is more than 100 million square meters.
This month, property mergers and acquisitions have reached a small climax, especially China Resources Vientiane life, which has launched two mergers and acquisitions, involving a total amount of 3.32 billion yuan.
“Through M & A, we are actually enriching the scale of basic properties. However, property enterprises cannot always drive growth through M & A, because the growth of no industry is completely dependent on M & A. However, M & A, as an expansion means, will exist in the early, middle and late stages of enterprise development, but the purpose of each stage is different.”
data source: refers to the Research Institute
For the growing tide of M & A in the property industry, ye Mingjie said, “the current stage of M & A is to expand the basic scale. But the next stage may be to improve the ability of property enterprises through M & A, such as in life services.”
“The acquisition and merger of enterprises should be carried out according to their ability and combined with their own ability.” In Ye Mingjie’s view, the future acquisition and merger of the property industry will gradually change from scale growth driven to capacity construction. The construction of property enterprise capability may be primary capability today, intermediate capability next, and advanced capability next. In the process of capacity improvement, the objects, standards and requirements of M & A will also change gradually.
On the other hand, in the past, large and small property companies wanted to acquire, but this situation has begun to change. At present, the PE value of listed property enterprises has formed polarization, some may be 5 times, 8 times, 10 times, some may be 40 times, 50 times, 60 times. For example, some small companies may not be able to accept mergers and acquisitions, because their PE value is very low. How can they acquire companies with higher PE value than themselves? In this case, a number of small and medium-sized property enterprises will be eliminated
top 10 M & A area of property enterprises in 2021
data source: Zhongzhi Research Institute
From the perspective of the future pattern of the property industry, there are leading enterprises, regional enterprises and professional enterprises. Leading enterprises may have a better balanced development in each block, regional enterprises may be in the leading position in a certain region, and professional enterprises may be the best and most professional in the field of universities, hospitals or industrial parks. In short, it is impossible for one company to dominate. The market is too big.
With the tide of centralized listing of property enterprises in recent years, the valuation of property stocks began to differentiate in the capital market. The pattern of the property industry also began to separate echelons and camps like real estate.
In Ye Mingjie’s view, “the property industry is in the rising channel. In the past two years, everyone is taking large-scale development. In the long run, high-quality development is the long-term plan, and enterprises need to find differentiated development advantages.”
From back feeding real estate to self hematopoiesis
When it comes to the relationship between real estate enterprises and property enterprises, ye Mingjie believes that “when the real estate incremental market was dominated in the past, the positioning of property companies was an auxiliary to real estate sales, which must be heavily dependent on real estate development.
But now it’s different. In addition to housing and some businesses related to real estate, universities, hospitals, industrial parks, urban services and other comprehensive formats are not related to real estate, which is the inevitable trend of property development. “
“If it is not deeply rooted vertically, it is impossible to connect several business formats, and it will not form lean management and sustainable development.” Taking Shimao service as an example, ye Mingjie explained that the rapid expansion of scale and revenue in recent years is mainly focused on third-party outreach projects. This is completely different from the parent company’s large-scale country garden service, Evergrande property and other leading property enterprises.
“Due to the expansion of diversified business forms, Shimao service has begun to make extensive development, thus getting rid of the strong dependence with Shimao Group. Through this expansion of basic space, the ultimate goal is to extend the business to a series of spaces such as residential space, commercial space, writing building space, colleges and universities.”
top 10 expansion area of property enterprises in 2021
data source: Zhongzhi Research Institute
According to the interim report, in the first half of 2021, Shimao’s service contract area was 239 million square meters, a year-on-year increase of 91%. Among them, the area from Shimao Group accounted for 31%, the area from the third party increased to 69%, and the external expansion results of the third party bidding increased by nearly 29 times year-on-year. In the first half of this year, the proportion of non residential business forms served by Shimao has reached 61%, far exceeding the level in the same period last year.
According to Ye Mingjie, in the first half of the year, Shimao service won the bid for property management in Colleges and universities such as Beijing University of Posts and telecommunications, CENTRAL UNIVERSITY FOR NATIONALITIES (Fengtai campus) and Tianjin University, and expanded urban operation projects such as Guangzhou Liede water purification plant and Chengdu Metro Line 2.
“This is the basis of extensive development. In the past few years, through the construction of this ability, we have found that only a truly market-oriented enterprise can develop independently and healthily.”
It is worth mentioning that, unlike the property enterprises that are newly involved in some diversified businesses, Shimao service has formed a “leading advantage” in this field in some external business segments. For example, in the field of university services, Zhejiang University Xinyu under Shimao services has served more than 30 cities and more than 240 university parks across the country, becoming the leading enterprise in the field.
“Property enterprises are playing more urban roles. For example, they should form deep participation and cooperation with community health, elderly care, housekeeping, catering and other fine fields.”
In Ye Mingjie’s view, the comprehensive upgrading of property enterprises in terms of outsourcing itself and the quality of outsourcing business is the basis for obtaining the advantages in this business field. All things cloud, country garden services and other leading enterprises have achieved the “leading” position in a variety of detailed businesses.
Value added services are at the stage of horse racing
Citic Securities Company Limited(600030) it is estimated that in the next 3-5 years, the contribution of value-added services will reach 422.4 billion yuan, which is the key to opening up the increment.
According to the statistics of China Index Research Institute, in the first half of 2021, the total value-added service revenue of 44 Hong Kong listed property enterprises reached 35.8 billion yuan, with a year-on-year growth rate of 79.9%, 22.5 percentage points higher than the revenue growth rate; The proportion of value-added service revenue in revenue increased by 5.3 percentage points to 43.1%, and the performance contribution was further improved.
“The value-added services of the property industry are still in the stage of horse racing.”
Ye Mingjie divides value-added services into four categories: the first category is strong resource-based services, involving community space, venue and taxi yard management. This kind of business has the deepest binding with basic property and is also the main source of property income at present; The second category is weak resource-based business, such as parking space asset management and parking space asset management; The third type is sales business, such as home decoration business; The last category is the extension business, such as pension, community care and fitness, which can often cover the range of two kilometers around the community
data source: refers to the Research Institute
“Focus on business scale and project density in the short term, improve market share in key urban agglomerations such as Dawan district and the Yangtze River Delta, quickly layout urban service business network and comprehensive capacity; focus on cultivating new value-added services in the medium and long term, and complete the strategic card position of key tracks of value-added services.” This is Ye Mingjie’s strategy, which also means that Shimao service will have more identities and more sources of income in the future.
It is worth noting that on October 30, 2021, Shimao service released its urban service business on the occasion of the first anniversary of listing, positioning itself as the “big housekeeper of the city”. In terms of revenue structure, its urban service business became one of the four business segments of the company for the first time this year, with revenue exceeding 100 million yuan.
“We have been involved in local life business since 2019. It has been nearly two years this year. It is a process from 0 to 1.” Ye Jieming said that in the continuous exploration and verification, it has gradually formed today’s local life business model, covering parent-child education, community online platform, offline flagship store, mini warehouse, farm, coffee bar, community library, beauty salon, and almost all aspects of the life of community owners from online to offline.
Ye Mingjie’s specific approach is, on the one hand, to play more urban roles, such as forming in-depth participation and cooperation with community health, elderly care, housekeeping, catering and other fine fields; On the other hand, through fine management, the business can gain reputation.
“As long as it covers a two kilometer radius of the community, you can do it. Finally, when the traditional basic property faces the ceiling, Shimao service will eventually develop into a life service company.”
data source: refers to the Research Institute
In Ye Jieming’s view, Shimao service, which takes the community life service provider as its own positioning, has changed from “material management” to “human service”, constantly broadening the service boundary, deepening the concept of user service, and making progress from traditional property managers to residential life service providers.
“In the future, value-added services need to be operated by specialized platform companies, and adopt the form of independent operation to be more specialized and accurate. On this basis, we can expand other value-added services and finally form stickiness and trust.”
Ye Mingjie said, “as the main body of marketization, property enterprises will continue to deeply participate in national social governance and urban governance. This trillion blue ocean market is well worth cultivating in the future, and we are confident of achieving greater and longer-term development.”
For the future development goals, ye Mingjie said confidently, “Shimao service will strive to achieve a five fold growth in the next three years and achieve the strategic goal of entering the top echelon of the property service industry by 2023.”
