The Fog of Diversified Business of Housing Enterprises: How to Achieve a "Virtuous Circle" in the Era of Austerity?

21st Century Business Herald reporter Kong Haili reported from Beijing

On the evening of December 10, Sino-Ocean Group announced the voting results of a special general meeting of shareholders. The results showed that the company overwhelmingly passed a previous proposal to inject its Beijing CBDZ6 plot and Sino-Ocean Guanghua International project into the previously established core office fund. According to the announcement, the total transaction price of the Z6 project reached 6.415 billion yuan.

This move is intriguing. On the one hand, after the delivery of heavy asset projects with large amounts of precipitated funds and long return periods, the asset status of Sino-Ocean Group will be optimized. Some analysts pointed out that according to the process, about $600 million is expected to flow into offshore accounts in the near future. On the other hand, through the establishment of the core office fund, Sino-Ocean Group has been able to strengthen its operation and management capabilities and continue to maintain its influence in the office market.

Since the second half of this year, the tightening of the credit environment has affected the financing of the whole industry. In this context, in addition to "reducing food and clothing" in cost expenditure, asset transfer ability and capital operation ability are particularly critical.

After years of development, large housing enterprises have achieved business diversification and synergy. However, when the external environment changes suddenly, the pressure brought by the asset-heavy business is far greater than that of the traditional business. Therefore, from the perspective of asset layout, how to stabilize the "basic disk" while taking into account the development of diversified businesses is becoming another test facing housing enterprises.

Capital operations

Sino-Ocean announced the establishment of a core office fund on October 13 this year. According to the announcement, Sino-Ocean Group invested US$400 million to jointly fund the establishment of a core office fund with a total scale of US$1.4 billion in global sovereign wealth funds and institutional investors.

It is reported that this will be the largest dollar fund in the domestic office market at present. In terms of the use of funds, the fund will be mainly used to invest in mature Grade A office projects in the core business districts of first-tier cities. Part of the funds are used to invest in the "Beijing CBD Z6 Plot and Sino-Ocean Guanghua International Project", and the other part is used to invest in other projects that meet the standards.

Some practitioners estimate that the valuation of the Z6 plot and Sino-Ocean Guanghua International two projects is in the scale of tens of billions. And due to the superior location, it is expected to contribute stable cash flow in the future.

The announcement also pointed out that the term of the above-mentioned fund can be extended by up to 2 years from 8 years, and as a result, Sino-Ocean Group is also expected to receive a cumulative income of about 1.315 billion yuan due to the sale within 9 years. Counting the Z6 cumulative appraisal appreciation, the income will be higher.

Another operation of Sino-Ocean is to strengthen the layout of logistics real estate business.

On October 18, Sino-Ocean Capital, together with an Asian sovereign fund, initiated the establishment of a US$400 million logistics real estate private equity fund, focusing on investing in development and mature logistics real estate projects in first- and second-tier and important logistics node cities, and looking for more development opportunities with the investment logic of combining light and heavy assets.

It is understood that Sino-Ocean Capital has three logistics-themed private equity funds with a cumulative subscription scale of US$1.5 billion. As early as March this year, Sino-Ocean Capital and internationally renowned institutions jointly established a $350 million logistics real estate fund.

These operations highlight Sino-Ocean's capital operation capabilities. Sino-Ocean has achieved rapid growth in business scale by loading its projects into the fund platform, and on this basis, it has achieved rapid return of funds.

According to informed sources, Sino-Ocean Group also intends to deepen its layout in the field of data real estate, and its Sino-Ocean Data will soon introduce heavyweight war investment.

The way out of "diversity"

In order to form business synergy and cultivate new growth points, housing enterprises have long launched diversification attempts. Nowadays, large-scale housing enterprises generally have relatively mature diversified businesses, mainly covering commercial real estate, industrial real estate, leasing, property management, urban renewal, building materials and other fields.

On the one hand, diversified business can form a synergy effect with traditional business and bring support to the main business; on the other hand, as the new housing market gradually hits the ceiling, diversified business also shoulders the task of opening up new tracks. In the past two years, property management once stood on the "outlet" of capital, and many housing companies chose to spin off the property management business and list it separately.

However, compared with traditional businesses, diversified businesses generally have the characteristics of large capital precipitation and long return cycle, and it is difficult to meet the large cash flow needs in the short term. Therefore, when the market environment is not good and the liquidity of enterprises is blocked, the situation of these diversified businesses is embarrassing.

In recent years, under the pressure of a series of regulatory policies, the liquidity of the real estate industry has been affected, and housing enterprises have had to slow down the pace of diversification. Some housing enterprises on the verge of debt default have chosen to sell their diversified businesses to keep the "basic disk".

"Salary cuts, layoffs, and property sales are the 'three steps' for developers to cope with the debt crisis." The relevant person in charge of a listed real estate enterprise in Beijing told the 21st Century Business Herald reporter that the property management business has a high valuation and is relatively easy to sell, which is usually the first choice for "losing the car and protecting the marshal".

He said that commercial, cultural tourism, hotels and other cash-saving projects often become the focus of sales, but the price of this part of the business is usually discounted, which will also affect the company's asset size.

Therefore, how to stabilize the "basic disk" while taking into account the development of diversified businesses is becoming an important test facing housing enterprises at this stage.

The above-mentioned real estate people believe that the re-evaluation of the track has become very important. Since the policy environment is difficult to improve significantly in the short term, housing enterprises need to re-evaluate the development prospects of diversified businesses, and for businesses with large capital occupation and expected returns that are difficult to meet the standard, their value can be reconsidered, and even the possibility of sale can not be ruled out. However, for businesses that meet the needs of the company's strategic development and form their own advantages, they can choose to retain.

Yan Yuejin, director of the think tank center of E-House Research Institute, said that enterprises can choose a variety of means to dispose of diversified businesses, for example, through asset securitization or management output, etc., to make some businesses asset-light, thereby reducing capital pressure. For advantageous businesses, the overall asset scale can be expanded by spin-off and listing.

In terms of business trade-offs, he pointed out that in addition to comprehensive consideration based on market prospects and its own advantages, areas with more policy support such as urban renewal, long-term rental housing, and affordable housing can also be considered.

Yan Yuejin believes that although the diversification attempts of housing enterprises have encountered short-term resistance, this is still a major trend in the development of the industry. Although the recent market turmoil has forced many housing companies to sell diversified businesses, it can also be seen as an opportunity for the industry to reorganize and reshuffle. Through this adjustment, the business model and development path of diversified businesses are expected to become clearer.

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