“There will be more leading material enterprises with a market value of 100 billion or even 200 billion to 300 billion in the capital market.” This is a very optimistic expectation, because at present, there is only one 100 billion material enterprise, and most of the rest are 10 billion.
Since 2022, the property management industry has exposed a number of mergers and acquisitions involving property enterprises, including China Resources Vientiane life, Hejing Youhuo, Yongsheng property, etc.
In fact, this is the continuation of the tide of mergers and acquisitions in the material and enterprise industry in 2021. According to the data of China Index Research Institute, the property management industry has disclosed 77 M & A transactions in 2021, involving 36 property enterprises, with a total transaction amount of about 36.25 billion yuan, an increase of 243% over 2020.
In the tide of M & A of physical enterprises in 2021, country garden service is the “king of M & a”, and physical enterprises such as Hejing Youhuo and ya life service also expanded on a large scale. According to the statistics of the reporter of red weekly, in 2021, the threshold value of top 50 in the management scale of property management enterprises has been raised to 43.08 million square meters, an increase of 7.43% over 2020; The threshold of TOP10 was raised to 270 million square meters, 44.38% higher than that in 2020.
Some people in the industry analyzed and pointed out to the reporter of red weekly that at present, material enterprises are pursuing bigger and stronger in scale, but it is a common phenomenon that they are big but not strong, and many material enterprises are still unable to catch the innovation of the new business model with service as the hard core.
rearrangement of seats of material enterprises
the requirements for “product appearance” of M & a target are increased
According to the amount of M & A transactions disclosed by property enterprises in 2021, the reporter of red weekly found that country garden service, Shimao service and rongchuang service ranked among the top three in the M & a market in 2021, with M & A amounts of 18.378 billion yuan, 3.347 billion yuan and 2.53 billion yuan respectively. Followed closely by Hejing Youhuo, Evergrande property and ya life services, with M & A amounts of 1.814 billion yuan, 1.539 billion yuan and 1.459 billion yuan respectively. Zhengrong service, Xuhui Yongsheng service, times neighborhood, China Resources Vientiane life, Hehong service, Jinke service and other material enterprises also performed well, and the amount of M & A was more than 100 million yuan.
In 2021, when many real estate enterprises are struggling to survive because of the debt crisis, the M & a fever of the property enterprise industry can be said to be unprecedented. Moreover, after a year of major mergers and acquisitions, the seating position of the material enterprise industry has changed.
It is understood that the in-service scale of country garden service in 2021 has exceeded that of all things cloud and ya life group, with an in-service area of 824 million square meters, ranking first in the industry. Followed by everything cloud, ya life group, Evergrande property and poly property, with an area under management of 700 million square meters, 510 million square meters, 480 million square meters and 478 million square meters.
Moreover, the reporter of red weekly combed Kerui’s calculation data and found that in 2021, the threshold of top 50 in the management scale of property management enterprises has been raised to 43.08 million square meters, an increase of 7.43% over 2020; The threshold of TOP10 was raised to 270 million square meters, 44.38% higher than that in 2020.
At present, when basic property services are still the main source of revenue of property enterprises, the management scale is an important indicator affecting the income of enterprises, and the most direct way to increase the area under management is M & A.
Moreover, many leading physical enterprises have long expressed their ambition to expand their scale rapidly. For example, country garden service is expected to have an area of more than 1.8 billion square meters and a revenue of more than 100 billion yuan in 2025; Shimao service has formulated a three-year five fold growth plan, and the contract area needs to reach 550 million square meters in 2023; The overall property management area of China Resources Vientiane living plan will reach 400 million square meters in 2025, and the third-party expansion area accounts for 50%; Greentown service expects the compound growth rate of the area under management in the next five years to be no less than 30%, and the third-party projects need to add more than 64 million square meters every year.
Judging from the characteristics of the subject matter of the merger and acquisition, the reporter of red weekly found that one is the small-scale property enterprises represented by Guangdong Yikang property and Luoyang Quanshun property, which are unable to make large-scale passive sales; One is the internal integration of the group for the purpose of business coordination, such as Jinke service’s acquisition of Jinke Jinchen hotel for 312 million yuan, and Zhengrong service’s acquisition of “brother company” Zhengrong business management for 891 million yuan. In addition to these two categories, there are “cross-border” projects, such as rongchuang service, Xuhui Yongsheng, Kangqiao Yuesheng, etc., which are involved in business management services through acquisition; Country garden services expanded community value-added services through the acquisition of neighborhood music.
Li Changjiang, executive director and President of country garden services, said at the Boao real estate forum in September 2021 that country garden services like large and good projects, that is, large-scale, high-quality and standardized projects. If the project is approved and cooperated, it will be determined that the project is worth the money.
“The phenomenon of mergers and acquisitions in the property industry actually existed before 2014. Later, with the landing of property enterprises in the capital market, the funds are more abundant, and mergers and acquisitions become active in order to meet the needs of scale. As for the choice of M & A targets, most enterprises also prefer companies with better quality and sustainable development foundation.” Liu Zhaoliang, director of the chairman’s office of Greentown service group, said to the reporter of red weekly, “as far as Greentown service is concerned, the selection of M & A objects is more cautious, and the main premise is that its quality and brand positioning are consistent with itself; then choose complementary targets from three dimensions of business form, region and service ability.”
As a typical large-scale material enterprise, green city service ranks the top 6 in the list of material enterprises in 2021 calculated by Kerui, with a management area of 329 million square meters. In 2021, it completed two acquisitions in the fields of intelligent engineering and health care services. Liu Zhaoliang said, “the company is currently in the period of upgrading from property service to life service, so it pays more attention to the incubation of new business forms, such as looking for good opportunities in the fields of retail, education, pension, science and technology, parking space operation and commercial operation.”
some well-known real estate enterprises “passively” divest property assets
potential risks of buyer financing expansion
During the large-scale merger and acquisition of real estate enterprises in 2021, the property assets of some leading real estate enterprises have also become one of the assets for sale. The reporter of red weekly found that Sichuan Languang Development Co.Ltd(600466) of Languang Jiabao, which plans to sell its controlling stake to country garden in March 2021, ranks 34th in the sales scale ranking of real estate enterprises in 2020; The R & F property to be sold to country garden in September, backed by R & F group, ranked 23rd in the 2020 ranking; In December, Yango Group Co.Ltd(000671) of sunshine Zhibo, which is to be sold to all things cloud, ranked 19th in the 2020 ranking; In January 2022, it is planned to sell all the shares to Yuzhou property of China Resources Vientiane life, which is backed by Yuzhou group, ranking 37th in 2020.
The main reason why real estate enterprises have intensified the debt crisis is that real estate enterprises have to sell their assets. For example, Sichuan Languang Development Co.Ltd(600466) 200 billion yuan of debt capped; R & F real estate stepped on the “three red lines”; Yuzhou real estate insurance now defaulted on the US dollar debt and negotiated with the creditor to exchange the offer, extending the maturity of some offshore debts.
“Affected by the three red lines and other financing policies, many development enterprises regard the sale of the property sector as a means of financing to break their arms and survive and exchange assets for liquidity, which is helpless.
”Song Hongwei, research director of Tongce Research Institute, told the reporter of red weekly that the acquirer itself also favors the property subject matter with a certain scale and popularity, and is sensitive to the price.
From the perspective of buyers of large-scale M & A in 2021, such as country garden service, its cash and cash equivalents were RMB 21.768 billion by the middle of 2021, which can cover its acquisition cost, but it is not much more. From the perspective of country garden’s service financing, it raised nearly 13.256 billion yuan in the first half of 2021.
According to the statistics of the reporter of red weekly, in 2021, country garden service carried out three financing in the form of placing shares and issuing convertible bonds, raising about HK $23.4 billion; Rongchuang service obtained HK $2.331 billion through share placement at the end of the year. The funds of various enterprises are mostly used for potential mergers and acquisitions, business development and general working capital.
Xie Yifeng, President of China Urban Real Estate Research Institute, told the reporter of red weekly that among the many acquisitions of property enterprises in 2021, he was deeply impressed by two mergers and acquisitions of country garden, that is, the acquisition of R & F property, which created the “largest acquisition case”, and the rejection of the proposed acquisition of Evergrande property. “The success or failure of M & A can at least show that the current real estate enterprises are optimistic about the property assets and the future development space of the property management industry. Of course, the negotiation price is the decisive factor for the success of the transaction.”
In fact, due to the overall tightening of financing in the real estate industry, the M & a valuation of real estate enterprises has declined to a certain extent. Compared with the previous mergers and acquisitions with valuation of more than 20 times, the valuation multiples of transaction cases in 2021 are more than 9-15 times.
At the same time, some M & A projects of property enterprises have stalled. Evergrande property with the intention to sell in 2021 has not made progress since contacting buyers such as country garden service and Hesheng Innovation Exhibition; Contemporary real estate, which has encountered a cash flow crisis, is preparing to sell its first service to rongchuang service, and the two sides are also stagnant due to the transaction price.
“At this stage, purchasing enterprises do have high cost performance, but there are also risks. Some real estate groups have limited funds, and their debts such as US dollar bonds are also facing maturity. If some of the targets are not satisfactory, it will also lead to the increase of later operation and management costs. Therefore, it is still necessary for property enterprises to be rational and cautious in their acquisition.” Xie Yifeng said.
the tide of mergers and acquisitions of property enterprises continues to 2022
integration challenges remain to be seen
In fact, since 2022, the tide of mergers and acquisitions of physical enterprises has continued. For example, China Resources Vientiane life announced that it plans to acquire Yuzhou property for no more than 1.06 billion yuan; Hejing Youhuo announced that it plans to acquire Guangdong Telijie Environmental Engineering Co., Ltd. for 165 million yuan; Yongsheng property acquired Zhengzhou Zhiping enterprise management, etc.
Xie Yifeng pointed out in this regard, There are four reasons why the property enterprise industry maintains the popularity of M & A: “First, some real estate enterprises carry out large-scale target acquisitions, which is conducive to stabilizing the market value; second, improve the market share, which is conducive to the growth of operating performance; third, some real estate enterprises sell their property assets, which is a good time to obtain cost-effective projects; fourth, it does not rule out that large listed companies pave the way for transformation through mergers and acquisitions, and pursue the transformation from development to self-sustaining mode.”
It is understood that in 2021, many property enterprises impacted the Hong Kong stock market, but most of them stagnated. Some of the acquired projects were just one of the projects planning to be listed. For example, Hejing Youhuo bought cedar Zhilian with a management area of more than 86 million square meters at the cost of 1.316 billion yuan. Cedar also included the property listing in the key plan, but finally sold it to the listed company by means of M & A, and Hejing Youhuo also increased the management area.
From the perspective of operation, material enterprises are one of the high gross profit sectors in the real estate industry and belong to high-quality assets. In particular, some new value-added services accumulated in the fields of culture and education, health care services, community finance, community media, real estate brokerage and so on have a high gross profit margin. In the evaluation report of listed companies of property service enterprises in 2020, China Association of property research has made statistics on 13 listed property enterprises that have disclosed the gross profit margin in detail, that is, the gross profit margin of property management services is mostly 11.4% – 30.2%, while the gross profit margin of value-added services is 29.6% – 60.9%, which is much higher than that of basic property management services.
However, for large-scale mergers and acquisitions of physical enterprises, the real challenge is the digestion and integration after mergers and acquisitions. Liu Zhaoliang said that in order to maximize the efficiency of M & A, material enterprises need to establish a system, “service and management actions should be style, standardized management, optimized tools, pay attention to details, and realize endogenous driving force and economic benefits.”
Perhaps it is precisely because of the accelerated integration and pattern change of the property enterprise industry that the trend of the property enterprise sector in the secondary market is depressed in 2021. Among them, the Hong Kong stock Chinese property management index fell 26% and the A-share property management index fell 17%. In this regard, song Hongwei pointed out, “To some extent, when the development business is affected, especially with the advent of the stock era, the valuation of the property sector should rise. This round of decline in the valuation of property stocks is not the impact of real estate regulation, but because the early valuation of the property sector is high, and a large number of property listed enterprises increased in previous years, diluting the capital market’s expectation of property valuation.”
Song Hongwei stressed that the property management industry belongs to the category of asset light operation mode of stock assets, which is completely two modes with development business. The Cushman & Wakefield operators are not necessarily relying on the development of property. At the same time, he believes that not all small and medium-sized enterprises will move towards the “fate” of M & A. “Large scale does not mean good property level. As an asset light operation service provider, property companies compete for better service ability. All around the ability to bring services to owners is the direction of property companies’ competition. The level of a property company is mainly measured by its operation ability. The coverage of well-known property companies across the country is generally low, but more are still low Small and medium-sized property companies are providing property services and doing well. If such property enterprises need to build their own moat, they mainly rely on two factors. First, service capability; Second, the charging standard. “
For the next market performance of the property management industry, Liu Zhaoliang believes that “due to the different scale, quality and development path of enterprises, there will be differentiation in valuation. However, we believe that there is still room for valuation growth in this industry in the future.” Xie Yifeng predicted that “there will be more leading material enterprises with a market value of 100 billion or even 200 billion to 300 billion in the capital market.”
In fact, at present, there is only one listed company with a total market value of more than 100 billion in Hong Kong stocks and A-share material enterprises, one close to 100 billion, and most of them are at the level of 10 billion. According to Xie Yifeng’s prediction, there are still great variables waiting to happen in this industry in the future.
