The Law of Winter
New Media perspectives
Whoever has a cotton jacket will survive
"Doing subtraction" is the cotton jacket that Midea real estate puts on itself before the winter comes.
Editor's note: In 2021, the world, China, all walks of life and even everyone have deeply felt the "unprecedented changes in a century".
"Not afraid of the raging winter, not afraid of the hot summer sun", the new year is coming, we are convinced that China's economy and real estate will still overcome all difficulties, calmly face any situation, and achieve more eye-catching results.
In view of this, Viewpoint New Media has, as always, planned and launched the annual report "Winter Rule", reviewing and summarizing the adjustments and changes of benchmark housing enterprises in the past year, and looking for opportunities for a new year.
At the same time, we invited a number of economists with global vision and rich experience to conduct in-depth dialogues and interpret the way forward for China's economy and real estate from their perspectives.
Viewpoint Network "would rather take two steps slower than take a wrong step", when midea group first laid out real estate, He Xiangjian set such a development tone.
However, in the golden period of real estate that relies on land and demographic dividends, Midea Real Estate, like most enterprises, cannot avoid the influence of "big is strong" business philosophy such as national layout and rising sales scale, and has also been blindfolded under high-speed expansion.
From 2016 to 2018, the compound annual growth rate of Midea Real Estate's sales performance reached 95.8%, and in 2019, it entered the 100 billion track early, and completed the national layout, which is a period of rapid development and growth of Midea's real estate scale.
After the listing in 2018, Midea Real Estate, which has a dark horse posture, made its debut and announced that it would be a marathon runner. Since then, every time there has been a performance meeting, "steady" is a high-frequency keyword.
As management says – "There is also a ceiling for leverage". In order to balance the triangle of scale, profit and liability, in 2019, Midea Real Estate began to carry out strategic transformation, focusing on the main axis of core business capabilities, and taking measures in investment, operation and digitalization.
Midea Real Estate has made strategic focus, the most prominent thing is to control the entry on the land, gradually withdraw from low-level urban investment, the overall investment principle has changed to profit-oriented; the sales growth rate has been repeatedly adjusted in response to the industry environment...
This winter, the business logic of the real estate industry relying on extensive growth and increasing external leverage is being completely subverted. Hao Hengle and other management also pointed out at the Midea real estate performance meeting: in the past, the development of land dividends turned to the management of dividends; relying on high debt, high leverage growth model to shift to a medium-speed growth model based on operating leverage; high turnover, fast replication of product development model, but also turned to accurate positioning, product win...
In 2021, Midea Real Estate will position its business strategy as "an important climbing period for strategic transformation". Perhaps thanks to the earlier safety awareness and corresponding adjustments, compared with more hit housing enterprises, Midea Real Estate is more relaxed.
The business logic of the manufacturing industry has been revived, for the real estate business, that is, to pay attention to customer research, attach importance to back-end services, digital means to improve the company's operational efficiency, etc.; to achieve the purpose, is to obtain profits and safe development.
decelerate
Speed is the first proposition facing Midea Real Estate.
Compared with the large-scale national layout in 2016-2018, Midea Real Estate immediately proposed to slow down after reaching 100 billion yuan in advance in 2019.
In 2019, management believes that the more reasonable growth rate is between 25% and 30%; in 2020, the average growth rate in the next 3 to 5 years will be set in the range of 15%-20%. Or the expected growth rate adjustment is still not as fast as the industry environment, or the pace of development is more conservative, in the second half of 2021, Midea Real Estate once again adjusted the future growth expectation of 10%-15%.
Data source: corporate announcements, opinion index collation
According to the plan at the beginning of the year, the sales target for 2021 is to reach 150 billion yuan in contract full-caliber sales, an increase of 18.9% year-on-year; the saleable value is about 230 billion, that is, to reach a 65% dematerialization rate.
In the end, Midea Real Estate achieved contract sales of 137.14 billion yuan, completing the annual target of 91.43%, a year-on-year growth rate of 8.7%, although it did not meet the expected ideals, but such a stable performance compared with the same industry is already good; but at the same time, the collection rate has declined due to policy tightening, from 92% in 2020 to 87.5% in the first half of 2021.
The slowdown in sales growth is affected to a certain extent by the overall downturn in the property market, and is also related to the company's own regional layout structure. Despite the convergence of focus, Midea Real Estate also needs to digest the more marginal land in third- and fourth-tier cities and first- and second-tier cities, which is also based on the basis of not exchanging price for volume.
After 100 billion, the mid-term property that pursued fast turnover in the past emphasized "quality growth". In 2020, Midea Real Estate emphasizes the need to increase the product premium, not to fight a price war.
In the first half of 2021, Midea Real Estate recorded an average contracted sales price of 12,028 yuan / square meter, an increase of 9.3% year-on-year; for the whole year, it recorded 11658 yuan / square meter, a slight increase of only 2.7% year-on-year.
In the past, in terms of high gross profit and fast turnover choices, Midea Real Estate belonged to a typical fast turnover enterprise, quickly obtaining land, opening, selling, and collecting money, and did not carry out a nationwide layout with the primary purpose of profit.
It can be found that the gross profit margin index of Midea Real Estate has hovered at the level of 20% in most years, only more than 30% in 2018-2019. Gross margin for the full year of 2020 was 22.2%, down 9.4 percentage points from 31.6% in 2019; in the first half of 2021, it only recorded 20.68%, a year-on-year decrease of 5.7 percentage points, a new low since 2015.
This is mainly because Midea Real Estate has accelerated into the high-premium land in low-tier cities for a period of time, and has mainly digested the land inventory in 2017-2018 in the past two years, which directly or indirectly led to the current downturn in gross profit margin.
According to Midea Real Estate, Xinna Land basically determined that the gross profit margin was at the level of 20-25%. After emphasizing the focus on land acquisition and reducing the high premium land acquisition, the gross profit margin may also rebound in the future.
In the past, the rapid turnover and land expansion have made Midea real estate also have shortcomings such as scattered operations, high costs, and lack of internal management, which is a problem that needs to be solved in the current strategic period. In the current environment, Hao Hengle also admitted: "From the double limit of land price to house price, the gross profit space is compressed, which tests the operating ability of enterprises." ”
From the perspective of sales costs, the indicator in the first half of 2021 was 26.2 billion yuan, an increase of 71.08% year-on-year, of which more than 10 billion yuan was mainly spent on construction costs, land costs, and capitalized interest expenses; this part of the expenditure was 8.868 billion yuan in 2019, and in 2020, it increased by nearly 70% year-on-year to 15 billion.
"Convergence focus" is the most direct and rapid method, and the goal is to build a city with tens of billions of sales. At the 2021 interim results meeting, the management stated that the 10 regional companies that have been laid out should build or consolidate the base cities, and make the scale deeper, larger and more thorough; in the next 2 to 3 years, we will cultivate and consolidate 5 base cities of more than 10 billion yuan, and strengthen the cultivation of 15-20 high-energy cities with a scale of 5 billion yuan, as well as 10-20 high-potential cities with a scale of 3 billion yuan.
In addition, Midea Real Estate has also strengthened its use of cooperative development to promote sales. According to the data, the revenue equity ratio fell from 93% in 2018 to 89% the following year, and further decreased from 82% in 2020 to 75% in the first half of 2021.
In this regard, the management said at the performance meeting that in the past two years, the proportion of land sales in the United States has been about 60%-65%, and the bottom line in the income equity ratio is to maintain more than 65%.
Downshift
In addition to emphasizing profit performance, Midea Real Estate pays more attention to indicators such as overall liabilities and operating cash flow after 100 billion.
While sales growth has repeatedly decelerated, the timetable for meeting the three red lines has also been repeatedly advanced.
In March 2021, Midea Real Estate's management plans to meet all of the "three red lines" in 2023, while at the August interim results meeting, Chief Financial Officer Ringo expects that "the green file can be achieved by the end of 2022 at the earliest".
As of the first half of 2021, Midea Real Estate is a "yellow file" enterprise, with the net debt ratio falling from 79.2% at the end of 2020 to 58.2%; the cash short-term debt ratio has increased from 1.52 times in 2020 to 2.21 times; but the asset-liability ratio after deducting the advance payment is still on the line, only from 76.4% at the beginning of the year to 74.7%.
As for how to return to the green file, in 2021, Midea Real Estate mentioned that on the one hand, it is necessary to accelerate the company's operational efficiency and ensure profit carry-over; second, to ensure rapid dematerialization, capture the money, and improve cash flow; third, the company considers increasing the equity equity capital at the right time; fourth, it is necessary to control the proportion of land and strictly take land according to 40% of the budget; the fifth is to further improve financing capabilities.
In terms of the structure of long and short bonds, as of the first half of 2021, the proportion of Midea's real estate financing balance with a maturity of more than two years has increased to 39%, but the proportion of maturities within one year and one to two years has reached 61%.
At the beginning of 2021, Ringo also proposed: "In the new year, we will replace these financing products that are due within one to two years and extend the account period a little longer." ”
What is more rare is that at the moment when the financing environment of housing enterprises is deteriorating, Midea Real Estate has the advantage of low-interest rate financing. In the first half of the year, the financing cost of midea real estate's new interest-bearing liabilities was further reduced to 4.74%, and the weighted average financing cost was reduced for 5 consecutive years, falling to 4.92%.
It is worth noting that on November 9, the China Interbank Market Dealers Association held a symposium of real estate enterprise representatives, midea real estate said that it plans to register bond financing tools in the interbank market in the near future, and other real estate companies participating in the meeting include China Merchants, Poly, Country Garden, Longhu and so on.
It can be found that relying on major shareholders has brought great convenience to the control of debt indicators of Midea Real Estate.
From 2015 to 2016, the net debt ratio of Midea Real Estate was as high as 622.1% and 624.7%, respectively, until 2017-2018 before and after seeking listing, the cliff fell to 118.9% and 97.4%.
This is seen more as a special arrangement for listing financing.
At the end of 2017, Midea Real Estate received about 6 billion yuan of capital injection from shareholders, quickly enlarging the denominator, and if the 6 billion capital injection is deducted, the net debt ratio will remain at about 332%.
According to incomplete statistics, the United States department participates in more than 10 financial institutions, covering banks, securities, funds, futures, finance and other fields, the investment scope seems to be very wide, in addition to the Midea finance established in 2009, the others are the nature of participation; the two most valuable financial assets, one is Shunde Rural Commercial Bank, one is E Fund.
Relying on midea group brand endorsement, midea real estate can directly benefit from midea group's existing business network and cooperative relationships with local governments.
In addition, Midea Real Estate obtains cheaper funds through talent/trademark agreements, financing guarantees, etc. Among them, in January 2018, Midea Real Estate signed a 10-year trademark license agreement with Midea Group, and Midea Holdings, another platform of Midea Group, also provided guarantees for the bonds issued by Midea Real Estate on several occasions.
Compared with the advantages of domestic financing, midea real estate has been listed for 3 years, and Midea Real Estate is still a new recruit in the overseas capital market.
For Midea Real Estate, the domestic and overseas financing costs are upside down, and the overseas is relatively high, but it does not mean that there is no need to open up overseas channels.
In the second half of 2020, the management said: "Midea Real Estate currently has financing and a syndicate overseas, and we are also waiting for the opportunity to launch overseas direct financing business at the right time." ”
In 2021, this plan is obviously limited by the tightening of the offshore financing environment and still has not been implemented.
From the perspective of debt structure, midea's real estate financing sources are mainly bank loans and corporate bonds, accounting for 76%; as of June 30, 2021, the bank credit line was as high as 143.2 billion yuan, and the unused bank credit line increased to 89.9 billion yuan; in addition, asset-backed securities and other financing methods accounted for 24%.
Despite relying on major shareholders, Midea Real Estate still cannot avoid reducing cash flow pressure through joint ventures and joint ventures. As of the end of June 2021, Midea Real Estate had guaranteed $13,348 million in terms of loans from certain joint ventures and associated companies, an increase of about 12% compared to $11,917 million at the end of 2020.
Increasing the equity capital of a company by introducing high-quality minority shareholder equity is seen as a major measure to reduce the debt indicator. According to the data of the first half of 2021, the minority shareholders' equity of Midea Real Estate was 20.423 billion yuan, accounting for 47.41% of the total equity of 43.073 billion yuan.
Indicators such as minority shareholders' equity, the proportion of other receivables, and external guarantees continue to rise, which also indicates that the off-balance sheet uncertainty of Midea Real Estate is rising.
adjust
The "subtraction" of Midea real estate is the first to be implemented is the change in investment thinking.
In the past few years, the investment heat of the four first-tier cities in the north, Shanghai, Guangzhou, and Shenzhen has been rising, and Midea real estate has not gone to join in the fun, but has wantonly absorbed soil reserves in second- and third-tier cities.
The "highlight moment" occurred in 2019, at this stage, Midea Real Estate even beat country garden, Longguang, Jinke and other head real estate companies to grab land at a high premium.
Since the second half of 2020, Midea Real Estate has emphasized "subtraction" and "precision" in terms of layout, and its investment strategy has focused on the Layout of the Yangtze River Delta, the Greater Bay Area, key provincial capitals and regional central cities, concentrating on higher-energy cities, and strictly controlling new cities.
From the perspective of development efficiency and profit orientation, according to the management's sharing at the investor meeting, the profit brought by Midea Real Estate in recent years is more than 50% of that of ordinary cities, and the cost is more than 25% cheaper than that of ordinary cities.
In terms of development efficiency, the efficiency of deep ploughing cities to take land to opening is saved by one month compared with ordinary cities, and from the perspective of delivery, it is saved by about two and a half months, and the final dematerialization rate is 40% higher.
Therefore, in the first half of 2021, Midea Real Estate added 4.4 million square meters of soil reserves in 19 cities, with 87% of the land in cities with strong third tiers and above, and 65% of the key areas of Shanghai, Jiangsu, Zhejiang and Fujian, and the Pearl River Delta region.
Specifically in the logic of land acquisition, midea real estate requires that the relatively stable market selling price is expected to be measured according to the 8% profit margin level; and for different cities, the 8% red line will also have some elastic adjustment; IRR is about 20% standard, under the guidance of this financial indicator, each piece of land is judged.
In principle, Midea Real Estate has emphasized more than once "insisting on taking land at a low price", and in March 2021, it will once again emphasize that it will obtain land from multiple channels and in various ways, but it will not venture in, and will not take land without profits and low profits.
But in fact, the frequency of high premium land acquisition in 2021 is still very high, including 3.552 billion yuan for the commercial and residential land in Xuzhou Economic Development Zone 2021-2, a premium of 78.67%; 3.118 billion yuan for a plot of land in Yiwu, Jinhua, Zhejiang, with a premium of 77%.
Source: Opinion Index Collation
In addition, in the urban upgrading strategy, Yiwu, as a third- and fourth-tier city, should not be the focus of investment, but in 2021, there were two high-premium positions, with an investment of up to 6.726 billion yuan, accounting for one-third of the total land acquisition in the first half of the year.
The regional layout has obviously undergone structural adjustments in the "subtraction" strategy, that is, from the past third- and fourth-tier opportunities to the strategic deepening of first- and second-tier areas, and gradually withdraw from third- and fourth-tier cities.
At the same time, the First Strategic Zone is replaced by the Greater Bay Area. According to Hao Hengle's analysis, the Yangtze River Delta is far better than the Greater Bay Area in terms of total economic volume, population inflow and regional area, and the ceiling is higher. Since 2018, Midea Real Estate has continued to increase investment in the Yangtze River Delta until 2020 reaches the payback period, and its sales performance is far greater than that in the Pearl River Delta.
From the perspective of final sales results, the sales contribution from first-tier, second-tier and strong third-tier cities in the first half of 2021 reached 78%, of which the contract sales amount of first-tier and strong second-tier cities accounted for 39.9%; the sales of Shanghai-Suzhou, Zhejiang-Fujian and Pearl River Delta regions accounted for 69% of the long-term deep ploughing, an increase of 8 percentage points year-on-year.
In terms of land acquisition channels, Midea Real Estate has expanded to strategic cooperation, equity acquisition, agency construction, urban renewal and other directions, of which urban renewal is one of the main concerns.
As of the first half of 2021, Midea Real Estate has locked in an old area of 18.44 million square meters, and the contract value is 274.8 billion yuan. The converted area is 2.87 million square meters, and the converted shipment value is 38 billion yuan. There are about 22 projects waiting for transformation, with a contract soil reserve of 15.57 million square meters, corresponding to a contract amount of 236.8 billion yuan.
Midea Real Estate's attitude towards the old reform is "not blindly spreading the pie", and the business will focus on the Pearl River Delta, the Greater Bay Area, and Kunming, Guiyang and other areas with resources and experience.
The objects of renovation are mainly aimed at some old factories and old village houses that are less difficult to carry out. At the same time, through the joint establishment of urban renewal funds with local urban renewal platforms, including state-owned assets holding platforms, efforts will be made to transform village-level industrial parks.
It is worth noting that Midea Real Estate also continues the fast development and fast turnover of traditional development business in terms of urban renewal. Large-scale projects that need to demolish residential buildings and have a very long cycle are not the focus of Midea Real Estate, and what the company wants to control is the project that takes about 3 years from signing the contract to land conversion.