Lead. There is still room for growth in the main business, and it is necessary to consolidate the foundation and cultivate new growth poles.
Preface. Foreword: At present, industry confidence continues to decline, and real estate companies are facing challenges. In order to optimize the current diversification strategy of mainland real estate enterprises, we selected companies with sales scale within the top 50 and all three red lines in mid-2023 as our research objects. In the process of deep real estate adjustment, these companies can still maintain the scale of sales, while the debt structure is still relatively healthy. They have more energy to continue to develop and explore the grasp points of the second growth of the enterprise in the future. Through the review of the diversified development of these enterprises in 2019 and the comparative analysis of the current diversified development status, we will spy on the changes in their diversified development layout before and after the in-depth adjustment of the current round of industry, and provide some references for the future development of other enterprises.
part.01
The scale of the real estate industry has shrunk.
Second, growing your business may be the answer.
1. The scale of the industry has peaked, the pace of sales has slowed down, and real estate development has been constrained by funds.
1) The scale of real estate development investment has shrunk, and the market sales have continued to be under pressure.
According to the data of the National Bureau of Statistics, from 2022, the scale of real estate development investment and commercial housing sales have contracted to varying degrees. From the perspective of the scale of real estate development investment, the annual development investment scale of real estate in 2022 will decline for the first time in nearly 10 years, with a year-on-year decline of nearly 10%, not only that, but the year-on-year decline will further increase by 14% in the first half of 2023, and the cumulative year-on-year decline will still expand in September of the year. In terms of the scale of commercial housing sales, the scale of commercial housing sales in 2022 will decline by 27% year-on-year, and although the decline will narrow in the first half of 2023, it will not return to the pre-epidemic level.
2) The risk of real estate enterprises accelerates the tightening of liquidity, and the real estate development is hindered to form a vicious circle (omitted).
2. The diversified development of Hong Kong-funded real estate enterprises has enhanced stability, and Japanese real estate companies have come out of the predicament with diversified businesses.
1) The real estate development revenue of Hong Kong-funded real estate enterprises accounts for less than half of the revenue, and the risk sharing of business management and other businesses is (omitted).
2) Japanese real estate companies have reduced leverage and improved management efficiency, and real estate management services have become the main revenue** (some omitted).
According to the data of the Japan Institute of Real Estate Economics, the sales concentration of the top 10 real estate companies in 2022 will reach 402%, an increase of 10 from 20084 percentage points.
From the perspective of revenue structure in 2022, among the top 10 real estate companies in Japan by market capitalization, except for Nomura Real Estate, property development and sales account for more than half, and the development and sales business of other real estate companies does not account for more than 30%. It is worth noting that, excluding Sekisui Construction, Haseko, which are mainly engaged in construction business, and Openhouse, which does not disclose the proportion of detailed business types, the remaining six of the top 10 real estate companies in terms of market capitalization have property leasing and management services (including property management and asset management) accounting for more than 50% of their revenue, of which Mitsubishi Land Office accounts for nearly 90%, and real estate management services have become the main revenue of Japanese real estate companies today**.
3. The three red line indicators of the industry have deteriorated, and the top 50 green real estate companies have more spare time to develop diversification (some omitted).
Since the promulgation of the new "345" financing regulations at the end of August 2020, the three red line indicators have become an important measure of the growth rate of the scale of interest-bearing liabilities of real estate enterprises in the future. In the middle of 2023, the weighted cash short-term debt ratio, net debt ratio, and asset-liability ratio after deducting pre-income of the 69 sample real estate companies did not meet the standard, and continued to deteriorate compared with the end of last year, of which only 32% were in the green file.
After the new round of reshuffle, the financial situation of some enterprises deteriorated, in order to reduce debt or alleviate the tight cash flow, they contracted some diversified business strategies, and recouped funds through diversified industries. After historical adjustments, we selected companies with sales scale within the top 50 and all three red lines in mid-2023 as our research objects.
In the process of in-depth adjustment of real estate, enterprises that can still maintain their sales scale and have a relatively healthy debt structure will have more spare energy to continue to develop and explore the grasp points of the second growth of enterprises in the future. Through the review of the diversified development of these enterprises in 2019 and the comparative analysis of their current diversified development status, we will spy on the changes in their diversified development layout before and after the in-depth adjustment of the industry, and provide some references for the future development of other enterprises.
part.02
Attitudes towards diversity have changed significantly before and after the pandemic.
Positive growth companies focus on vertical businesses.
1. Cultural tourism, industry, education and other sectors have shrunk, and the vertical business of real estate has been deepened and refined.
1) After the epidemic, the diversified business exploration of typical real estate enterprises has contracted, and gradually focused on a small number of mature businesses (some omitted).
Before and after the epidemic, the attitude of 16 typical real estate companies towards diversified layout has changed greatly, and it is found by comparing the statements in the recent annual reports (2022 and the first half of 2023) and the statements in 2019
1) In 2019, enterprises will place more emphasis on the cultivation of new types of growth-oriented properties based on their main business and facing tomorrow, and explore new development directions in the future, including commerce, pension, industry, education, cultural tourism, sports, etc., which are more rich and diversified.
2) Starting from 2022, when the overall industry is still not warming and sales continue to "L-shaped" trend, enterprises are more cautious about the development of diversification, and reduce investment in business directions with more precipitation funds or business sectors with too long business return cycles, such as industry, cultural tourism, urban renewal, health care, education, etc., The layout of these businesses emphasizes more on quality and scale, and closes down business sectors with poor profitability.
3) At the same time, it is more focused on property management, commercial operation and management, and some urban services, which are closely related to residents' lives and relatively vertical, and strengthens operational efficiency on the basis of existing diversified businesses.
2) Half of the typical real estate companies have found a diversified business track and are exploring a light capital model.
Seven real estate companies, including China Resources and Longfor, accounted for 12% of their diversified revenue, providing stable operating income (some omitted).
Seven real estate companies, including China Resources Land, Longfor Group, China Merchants Shekou, Xincheng Holdings, Poly Development, Vanke and China Overseas Real Estate, have found one or more diversified development areas, and these businesses have provided enterprises with stable operating income for many years**, which is a diversified business focused on development. The average diversified revenue of these 7 real estate companies in the first half of 2023 will account for 118%, of which China Resources Land's diversified business revenue accounted for 251%。At the same time, although the revenue of China Overseas Real Estate's diversified business is relatively low, according to its financial data in the past four years, China Overseas Real Estate has been focusing on the operation of investment properties including office buildings and hotels, and the proportion of revenue has always remained at the level of 2% or above, and continues to generate income.
Jinmao, Gemdale and other diversified business layouts are earlier, but they still need to strengthen their business competitiveness (omitted).
2. Diversification accounts for more than 10%, and the contribution of diversification has increased but converged and focused.
1) The proportion of diversified revenue increased by 1% year-on-year5 percentage points, and the highest proportion of enterprises has exceeded 20% (some omitted).
Judging from the change trend of diversified business operating income, since 2019, the proportion of diversified revenue of 16 typical real estate companies has been showing the leading trend, and the proportion in the first half of 2023 will reach 110%, up 15 percentage points, if you look at the annual performance, the overall diversified revenue in 2022 will account for 80%, an increase of 10 percentage points. In recent years, in the process of slowing down the growth rate of the real estate development market, and even subsequent contraction, these enterprises with strong financial strength have strengthened the mature vertical diversified business layout, and after improving operational efficiency, the contribution of diversified business to the group's revenue has gradually increased, and there is still more room for imagination in the future.
From the point of view of specific corporate performance. In the first half of 2023, 75% of enterprises have achieved a year-on-year increase in the proportion of diversified businesses, although to a certain extent affected by the epidemic in the first half of 2022, it also reflects the overall trend of increasing the proportion of diversified businesses in the enterprise. In terms of annual performance, 60% of the diversified business of enterprises in 2022 has appeared compared with 2019, reflecting the trend of corporate diversified business revenue** in recent years.
2) Strengthen the operation and service level, and increase the contribution of the investment property and property management sectors of enterprises (some omitted).
From the point of view of the specific sub-items of the current split of the diversified business sector, the most specific sub-items are the investment properties (including shopping malls, office buildings, hotels), and the property management sector, investment property and property management as an extension of the real estate development of real estate enterprises, can be laid out by taking advantage of the trend, and at the same time, in the era of stock, increasing the excavation and upgrading of the service business to the city and residents is more promising, and has stable income, so the participation is the highest, and it is also very obvious in the revenue side.
In terms of the investment property sector, the 13 companies that split the investment property sector accounted for 33 percent of their diversified operating income in the first half of 20234%, an increase of 2 year-on-year7 percentage points, compared to 31. in 20190% increase by 24 percentage points. In terms of property management, the proportion of property management revenue in diversified operating income in the first half of 2023 will reach 328%, an increase of 2 year-on-year5 percentage points from 22 in 20197% increase by 101 percentage point.
part.03
Vanke Real Estate: Benchmarking international strengths and complementing weaknesses.
Development, operation and service form a stable structure.
1. Diversified business revenue accounted for 8%, and Zhang Chi expanded its business territory to a certain extent.
Since the 90s of the last century, Vanke's diversification can be divided into two periods: in the initial exploration period of its establishment, Vanke has learned from the operating experience of Sony, Sun Hung Kai and Parde, and formed a development strategy focusing on the main business of real estate development; Since 2014, Vanke has expanded its diversified real estate business with its main real estate business as the center, first entering multiple tracks through "casting a wide net", and then focusing on cultivating high-quality tracks with development prospects and income-generating scale, and expanding to the upstream and downstream of real estate and related fields from the perspective of Internet thinking based on Vanke's huge scale of owners.
Vanke Real Estate's diversified business period started with Vanke's "transformation of urban supporting service providers" proposed by Vanke in 2014, and its real estate diversified business development can be divided into three stages: trial and error (2014-2017), convergent development (2018-2021) and focused development (2022-present). According to the 2023 interim report data, Vanke's diversified business generated operating income of 165300 million yuan, accounting for 8 percent of the total operating income2% to enhance the stability of enterprises through the industry cycle.
1) 2014-2017: It was proposed that real estate has entered the first era, and diversified business development has risen to the strategic level (omitted).
2) 2018-2021: Choosing to lay out diversified businesses, the proportion of diversified revenue has increased steadily (omitted).
3) 2022 to the present: The layout of multiple tracks has been completed, and the influence of the four major fields has been continuously enhanced (omitted).
2. Diversified business diversification risks have been enhanced and stable, and considerable revenue has been generated in various fields.
In terms of diversified revenue, in the first half of 2023, Vanke's proportion of diversified revenue reached a record high, reaching 82%, of which according to the interim report, the revenue scale of property management, logistics, long-term rental apartments, and commercial operations increased year-on-year, of which Wanwei Logistics increased by 17% the most, and Wanwuyun, as the earliest diversified business revenue of the group, accounted for nearly 7% of the operating income in the first half of 2023.
From the perspective of a single track, Vanke's development status in the fields of rental housing and logistics and warehousing, where real estate enterprises have fewer layouts, is more eye-catching. According to CRIC monitoring, Wanwei Logistics began to lay out the national warehousing network in 2015, and in 2022, the scale of cold chain warehousing has become the first in the country, and Boyu has also developed into the largest centralized apartment provider in the country in about 7 years.
part.04
China Resources Land: The "3+1" business model is synergistic.
Build a moat for future profits.
1. The diversified territory was established earlier, and the revenue of diversified businesses accounted for 25%.
CR Land's diversified business started early in 2005, starting the layout of commercial real estate, and has gone through the development stages of the Group's capital injection and incubation, investment property take-off, and active exploration of "X business" and "3+1" business models, and has now become an important moat for the Group's cash flow. Mainly due to the following aspects of concentration and advantages:
First, we will strengthen our strategic layout and continue to develop commercial real estate. On the one hand, through the incubation of the parent company in the early stage, and then the "allotment + cash" payment model of CR Land, it has been able to adhere to the development model of heavy asset holding, in addition to the long-term stable and year-on-year growth of cash flow returns, commercial and residential share the value-added benefits of future development, and at the same time have an unshakable first-mover advantage. On the other hand, through the establishment of investment, cooperation and other ways to reduce the pressure of capital investment, but also learn from the experience of industry leaders.
Second, quickly sort out the product line, explore the asset-light path, expand the brand influence, and cultivate new growth poles. Thanks to the early layout, the company quickly sorted out the product line of commercial real estate, and was able to quickly replicate it in the face of the renewal and development of commercial real estate in second- and third-tier cities. At the same time, it actively explores the business model of asset-light output, and combines it with the original property management model of the enterprise to cultivate a light asset management business, which has become an important engine for the future growth of the enterprise.
Third, the search for diversified businesses in the future has never stopped. The tentacles of its diversified development have also laid out diversified businesses such as urban renewal, construction and operation, construction, decoration, and furniture earlier. Later, with the hot focus of the market, education, industry**, long-term rental apartments, industry, affordable rental housing and other businesses are also actively involved. In this process, with the changes in the industry, enterprises have also taken and abandoned these businesses, but they will not shrink brainlessly, and for the smooth operation of businesses with first-mover advantages and scale advantages, I believe that while doing a good job in ecosystem collaboration, new enterprise growth points will be bred in the future.
1) 2005-2013: Earlier layout and diversification, and laid the foundation through the group's capital injection (omitted).
2) 2014-2020: Establish the strategy of commercial real estate leaders, and incubate the parent company to help development (omitted).
3) 2016-2022: Exploring the continuous evolution of "X business", and listing of light asset management business (omitted).
2. Diversified businesses contributed nearly 30 billion cash flows, which is an important growth pole for CR Land's profitability (some omitted).
In the first half of 2023, CR Land adhered to the strategic positioning of "urban investment, development and operator" and continued to consolidate the "3+1" integrated business model. Diversification revenue in 2022 reached a new high, exceeding 30 billion yuan, and diversification revenue reached 183 in the first half of 2023500 million yuan, an increase of 35 percent year-on-year6%, of which 410% to 107200 million yuan, and the income of light asset management business increased by 37% year-on-year6% to 50100 million yuan, ecosystem element business income of 26200 million yuan, an increase of 14 percent year-on-year7%。Diversified business revenue accounted for 25% of the Group's total revenue1%, up 65 percentage points.
part.05
Suggestion: There is still room for growth in the main business, and it is necessary to consolidate the foundation and cultivate the yuan.
Cultivate new growth poles with both priorities and priorities.
In recent years, real estate is facing multiple and complex challenges, debt repayment pressure is still hanging overhead, corporate thunderstorms are frequent, and the current real estate market continues to decline, and the incremental market shrinks, making the real estate development growth of real estate enterprises weak. At the same time, enterprises are also facing the challenge of declining profits of real estate development, in this case, where to go for the development of real estate enterprises, the general direction can refer to the development path and direction of Hong Kong-funded enterprises and Japanese real estate enterprises, as well as the current scale and financial level of the top head real estate enterprises, through the study of their layout, you can get the following enlightenment:
1. Enterprises with excessive leverage or financial thunderstorms should decisively shrink their balance sheets and reduce their leverage levels. It is an indisputable fact that the future development of the overall market will shrink, and at the same time, after experiencing the era of high leverage and high housing prices, the growth of housing prices in the short and medium term will slow down, and it will be difficult for corporate projects to be reduced. In this case, enterprises with excessive leverage or financial thunderstorms should decisively shrink their balance sheets, release the risks of the enterprise in advance by increasing the loss of assets, and return funds through the first assets, discounting and other means, so that the enterprise still has room to participate in market development in the future.
Second, real estate development is still the main business, strengthen development efficiency, enhance product strength, and maintain market share. At present, the competitive landscape of China's real estate real estate companies has not yet reached the oligopoly era, and the concentration of the top ten real estate companies from January to October 2023 is only 230%, the high of 2019 fell by 54 percentage points, not to mention that compared with the top ten real estate companies in the United States, Japan and other countries, it has a market share of more than 40%. The market share of the main business of real estate development has increased, which also provides a foundation for the linkage with other diversified developments, and enterprises should continue to consolidate the development of the main business.
Third, the development of diversified business should be guided by operation and service, form 1-2 grasping points, continue to grow bigger and stronger, and continue to cultivate new growth points in the future. As profits continue to decline in the real estate development business, and the scale of new housing development has peaked, enterprises should actively diversify and cultivate diversified businesses. At present, the gross profit level of business operations, property management and other operations and service tracks is relatively strong, and in the future, enterprises can gradually strengthen the layout in this area, form 1-2 grasping points, and continue to grow bigger and stronger by strengthening the operational efficiency and service level of enterprises, and enhance the profitability of enterprises.
At present, the state encourages the development of affordable rental housing and urban renewal, which is also promising in terms of agent construction, urban operation, urban services, and urban renewal.
In addition, at present, many well-developed head real estate companies have recovered their investment in industry, pension, education and other sectors, and enterprises should be cautious in the layout of businesses that occupy large funds and have a long return cycle, and pay more attention to quality rather than quantity in the face of these businesses. In the overall development strategy, the development of diversified businesses should focus on both priorities, continue to strengthen the synergy between businesses, improve operational efficiency and service capabilities to improve the competitiveness of enterprises. (*CRIC Real Estate Research).
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