Goodbye, Huayuan Real Estate Time Machine

Huayuan Real Estate, which has been silent for a long time, dropped a "depth charge" today.

On April 26, Huayuan Real Estate announced that the company plans to withdraw from real estate.

The announcement mentioned that Huayuan Real Estate intends to transfer the assets and liabilities related to the real estate development business held by Huayuan Real Estate to Huayuan Group, the controlling shareholder of the company, and the specific scope of assets involved in the transaction still needs to be further negotiated and determined by the two parties, and the transaction intends to be in cash.

It is understood that the main business of Huayuan Real Estate is real estate development, sales and leasing, involving residential, office, commercial, hotel and other formats.

The company clarified that through this transaction, the company is expected to dispose of the assets and liabilities related to the real estate development business under its name. After the completion of the transaction, the company will focus on agency construction, hotel operation, asset management and operation, property management, urban operation services and other businesses to achieve strategic transformation of the business.

To put it simply, the strategic focus of Huayuan Real Estate in the future will shift from the original real estate development to asset operation and management, and play the role of "service provider" and "charter company".

What's left in Huayuan?

How much is Huayuan's real estate development business, and what is the potential transaction value involved in this transaction?

Viewpoint New Media found that on the day of the above announcement, Huayuan Real Estate simultaneously disclosed the 2023 annual report.

According to the data, as of December 31, 2023, the book balance of the company's inventory reached 21.580 billion yuan. Among them, the company included the land for development in the "inventory-development cost" account, which had a closing book balance of 9.573 billion yuan, while the closing balance of development products was 12.007 billion yuan, including a large number of real estate projects for sale, most of which were completed in recent years, while the closing book balance of other categories was 636,700 yuan.

If the provision for inventory decline is deducted, and other categories are deducted, and only the development cost and development products are regarded as the relevant assets of real estate development, the carrying value of these assets will still reach 16.706 billion yuan.

The above-mentioned book value does not include the relevant liabilities involved in the development business, in short, the transaction amount may not be less than 16.7 billion yuan.

After the real estate development business is placed, what is left of Huayuan?

First, from the perspective of agency construction business, in 2019, Huayuan Real Estate began to expand its agency construction business, and the first project was the Petroleum Hailancheng (Renqiu) project in Hebei Province, which was centrally delivered at the end of November 2023.

In addition, the company also undertook the renovation of the Century Tianle Building, the "Beijing Fintech Center", and signed a cooperation agreement with CIFI Construction Management to jointly participate in and implement the construction project.

On the whole, as a late "recruit", Huayuan Real Estate has not yet formed a sufficient scale in the agency construction business.

Second, hotel management, asset management, and operation. According to the financial report, as of the end of 2023, the main real estate area of Huayuan Real Estate for leasing and operation totaled about 200,000 square meters, and the leased operating area was about 180,000 square meters, with an occupancy rate of about 90%, and the rental operating income was 373 million yuan during the reporting period.

The company's business projects are mainly from Beijing and Changsha, including commercial projects in Beijing (100%), Jingxi Joy City (80%), Huaxin T1 office building in Changsha (100%), Grand Hyatt (100%), Hyatt Place (51%), and other commercial projects of 20,800 square meters.

In 2023, Huayuan Real Estate will achieve a total operating income of 15.953 billion yuan, of which the revenue from development products will be 15.561 billion yuan, accounting for 97.54% of the total revenue, while the revenue from hotel products will only be 257 million yuan and the total income from leasing products will only be 136 million yuan.

As for the property management and urban operation services, the company did not elaborate too much in the financial report. However, it is undeniable that after the real estate development business is placed, Huayuan's business scale and asset scale will shrink significantly.

But there are always two sides to the coin.

In the past two years, the real estate industry has entered a stage of deep adjustment, and gross profit and profit loss have become the norm for enterprises.

At present, the gross profit margin of Huayuan Real Estate development products is only 14.65%, while the gross profit margin of hotel products is as high as 41.76%.

Not only that, from the perspective of stock price performance, after excluding the impact of real estate development, the company's share price may be able to bottom out.

In the past few years, affected by the downward trend of the real estate industry and the development pace of Huayuan real estate's "small and beautiful", the company's share price has fallen all the way, from a high of 8.08 yuan / share on June 30, 2015, all the way down to 1 yuan line, and at the close of trading on April 26, Huayuan real estate closed at 1.14 yuan / share, up 1.79%.

In response to this transaction, Huayuan Real Estate said in the announcement that this transaction is in line with the overall direction of Huayuan Group's strategic layout around the vision of "smart and beautiful life comprehensive service provider" during the "14th Five-Year Plan" period, which is conducive to improving the company's asset quality, enhancing the company's sustainable operation ability and profitability, and safeguarding the interests of investors.

At the same time, this transaction is a major asset sale, and it is proposed to use cash payment methods, which will not affect the company's equity structure. If the transaction can be successfully completed, it is expected to reduce the company's asset-liability ratio and optimize the asset structure.

Fall from the highlights

"South Vanke, North Huayuan", this sentence has echoed in the real estate rivers and lakes for many years.

Huayuan Real Estate originated in 1983, when Beijing Huayuan Economic Construction and Development Corporation, a nationally owned enterprise that undertook the task of urban reconstruction, construction and operation, was established in Xicheng District, Beijing.

The following year, the newly established Huayuan Economic Construction began to undertake the renovation project of Beijing's Xidan Old Business District, and the name "Huayuan" officially entered China's real estate development industry.

Carefully calculated, the brand "Huayuan" has been stirring in China's real estate industry for 40 years.

Subsequently, in 1993, Huayuan Group was formally established, and the following year, the company and the Hong Kong listed company of China Resources Group formed Huayuan Real Estate Co., Ltd. (formerly Huayuan Real Estate), which was listed in Hong Kong in 1996.

The reorganized old Huayuan Real Estate has raised its sales scale to nearly 5 billion yuan in just four years, while Vanke's scale was less than 3 billion yuan at that time. Not only that, the company's net assets have grown rapidly to nearly 3 billion yuan in a short period of time, and the total assets have reached more than 8 billion yuan.

All of a sudden, the old Huayuan Real Estate has become the largest real estate company in the country, and the scenery is incomparable.

However, in 2001, due to various factors such as differences in business philosophy and share restructuring between Huayuan Group and China Resources Group, the two parties officially separated.

In September of the same year, China Resources Group and Huayuan Group signed an equity transfer contract, under which Huayuan Group transferred about 18% of its shares in Huayuan Real Estate to China Resources Group.

At that time, due to the reluctance of the past halo, the chairman of Huayuan Group started a second venture with the brand of "Huayuan" and established Huayuan New Era Real Estate Company, which was renamed Beijing Huayuan Real Estate Co., Ltd. (Xinhuayuan Real Estate) the following year.

But after the separation in 2001, one China Resources and one Huayuan have gone on two completely different paths.

In the following ten years, CR Land has rapidly grown into a leading real estate enterprise in China with the Group's large-scale capital injection. Even at the moment when the property market continues to decline, this company still achieves a scale of 300 billion.

According to the data, in 2023, CR Real Estate achieved contracted property sales of 307.03 billion yuan, a slight increase of 1.9% year-on-year, and a contracted area of 13.07 million square meters, a year-on-year decrease of 8.3%.

In the "Sales Performance of Real Estate Enterprises from January to December 2023" disclosed by the Opinion Index, CR Land ranked fourth in the industry's equity sales ranking, and the company ranked third in terms of full-caliber sales amount.

In contrast, Huayuan Real Estate's sales amount is less than 10 billion, and it has been reduced to an "eighteenth-tier small real estate enterprise".

It is understood that after the separation, Xinhuayuan Real Estate hoped to reorganize through Jingxi Tourism, and then planned to successfully complete the listing through backdoor Ningbo, but all ended in failure.

In 2008, Xinhuayuan Real Estate reorganized Hunan Xingfu Industry and finally successfully went public, but years of stumbling have already made this company miss the golden period of industry development.

Not only that, in the face of the new start of Xinhuayuan Real Estate, the management has set a "small and beautiful" strategy of not being greedy for big and foreign, and greedy for scale.

Missing the spring breeze of the industry and due to the delay of the management's conservative strategy, the pace of development of Xinhuayuan Real Estate has slowed down significantly.

In 2014, Huayuan Real Estate achieved sales of 6.72 billion yuan, and Vanke, which was comparable to it at that time, had a sales scale of more than 200 billion yuan.

In 2018, Country Garden's full-caliber sales exceeded 700 billion yuan, and Vanke's sales amount also reached 606.95 billion yuan, and that year, Huayuan Real Estate's sales exceeded 10 billion yuan.

In the first half of 2018, the management of Xinhuayuan Real Estate underwent a major change, and Du Fengchao took over as the chairman of the company, and then, Xinhuayuan Real Estate put forward the development strategy of "both scale and efficiency".

At that time, the company made it clear that the target sales of Huayuan Real Estate in 2018 was 12 billion yuan, and in the next 3-5 years, Huayuan Real Estate would strive to achieve a sales scale of 50 billion yuan.

Stimulated by the above goals, Xinhuayuan Real Estate has begun to show signs of acceleration, which is manifested in frequent land acquisition and financing and bond issuance in the open market.

It is reported that in 2017, the company's total investment in land reserve was only 4.185 billion yuan, and the new land reserve was 1.7 million square meters. In 2018, its new land reserve was 2.69 million square meters, a year-on-year increase of 58%, and the total value of goods reached 20.11 billion yuan.

At the same time, in 2019, the contracted sales of Xinhuayuan Real Estate reached 15 billion yuan, a year-on-year increase of 25%, and in 2020, this value reached 19.139 billion yuan, a year-on-year increase of 27%.

However, in 2021, affected by factors such as repeated epidemics, industry regulation, and the downturn in the property market, the company's sales scale fell back to 10.185 billion yuan again, and in 2022 and 2023, it fell again to 6.7 billion yuan, returning to the level of ten years ago.

In the industry for 40 years, time flies, the brand "Huayuan" has crossed the cycle of the times and reached the peak of the industry, however, in the ups and downs of the market, "Huayuan" has also risen and fallen with the tide of the industry, and now it is far from "South Vanke" and even the former brother unit China Resources Land.

Sailing against the current, if you don't advance, you will retreat. The former "South Vanke, North Huayuan" has long become a sentence of the past, and the sentence "my business style is more conservative" in the "real estate cannon" has also become the prophecy of Xinhuayuan Real Estate to bid farewell to real estate.

Huayuan Real Estate, which has chosen a new path, will go where it will go?