Vanke’s eventful spring, long-term rental apartment is not done？

Wen | The Secret Exploration of Space Qi Yanyan

These days, Vanke has a lot of news. In the field of long-term rental apartments, it is reported that Vanke will sell part of its equity in the park. As one of the head brands of long-term rental apartments in China, Boyu has announced its first breakthrough in profitability in 2023, becoming one of the few brands in the long-term rental track to achieve profitability. Will Vanke really give up Boyu?

01 Vanke sells part of the equity of Park House?

According to the news, Vanke is planning to sell part of the equity of its long-term rental apartment company Boyu, and the potential buyers involved in the negotiations include state-owned enterprises. The news was alleged to come from the English and Chinese versions of a dollar bond VNKRLE issued by Vanke, which triggered an industry shock once it broke out.

Since the beginning of 2024, it has been an eventful spring for Vanke. Before the sale of berths came out, it was also rumored in the market that Vanke was discussing the extension of non-standard debts with lending institutions, mainly insurance companies, and the 10 billion yuan debt extension negotiations with Xinhua Asset Management were rejected. Vanke did not express its position on the truth of the news, but another protagonist of the rumor, "Xinhua Asset Management", came out to blame. On the morning of March 3, Xinhua Asset Management Co., Ltd. issued a statement in its official WeChat official account, saying that it was concerned about the false information about Vanke, and had been maintaining normal business cooperation with Vanke. Even so, the market’s doubts about Vanke have not been "turned off".

This time, it is reported that the long-term rental apartment that Vanke will sell, Boyu, is one of Vanke’s high-quality projects and has therefore become the focus of attention. By the end of 2023, the parking business has been deployed in 32 cities across the country, with 236,000 managed and operated houses and about 180,000 opened. At present, in the field of centralized apartments in China, the scale and operational efficiency of parking houses rank first in the industry.

At the media exchange meeting of Vanke in October last year, Boyu once said that since June 2023, Boyu has realized a continuous return of monthly profits, and in September, it realized a return of accumulated net profit of equity. It is expected that it will achieve overall profit in 2023 and become one of the few profitable enterprises in the long-term rental apartment market. The perennial investment in the layout has made the park finally see the "dawn" of profit. From 2016, it officially cut into the long-term rental apartment track with "parking", and the whole cycle was as long as 7 years.

Not only that, Vanke also said that due to the long business cycle, slow effect and low profit, it intends to securitize apartment assets. Vanke’s long-term rental apartments, commerce, logistics and other real estate businesses are actively preparing REITs, so that the business model of the entire service business can be closed. It can be seen that in Vanke’s long-term commercial map, the apartment plate is an important part of its transformation.

Until March 5, according to Vanke’s latest statement, it did not respond positively to the rumors of selling Boyu shares. It only said that all the funds had been put in place and the debt repayment work was in an orderly arrangement.

Vanke has started the "sell sell" mode.

After Country Garden, Sunac, Evergrande and other housing enterprises, Vanke has also embarked on the road of "selling and selling". In addition to the rumors of selling berths, Vanke has sold its high-quality assets at a discount many times in the near future.

In December 2023, after six years of cooperation with the well-known hotel brand Banyan Tree Group, Vanke sold the management rights of several Banyan Tree hotels for 480 million yuan. The staff said: although the hotel business accounts for a relatively low revenue in the core business, this transaction is not an initiative to divest non-core assets, but a normal commercial transaction. The strategic direction of the company from development business to development, operation and service has not changed. For housing enterprises that are short of money, selling non-core business can further "slim down" and focus on the development of main business, but 480 million yuan is only a drop in the bucket for Vanke’s huge debt.

In January 2024, Shenzhen Yingda Investment Fund Management Co., Ltd., a wholly-owned subsidiary of Vanke, sold its 6.16% stake in Shenzhen Gaoxintou Group Co., Ltd. to Shenzhen Investment Holding Co., Ltd., with an estimated consideration of more than 1 billion yuan. The direct shareholding ratio of Shenzhen Investment Control to Shenzhen Hi-tech Investment increased from 39.65% to 45.81%. Among them, Shenzhen Investment Control is 100% owned by Shenzhen State-owned Assets Supervision and Administration Commission. At present, Shenzhen Metro Group Co., Ltd. is still the largest shareholder of Vanke, holding 27.18%, and Shenzhen Railway Group is 100% controlled by Shenzhen State-owned Assets Supervision and Administration Commission.

In February 2024, Vanke sold 50% equity of Shanghai Qibao Vanke Plaza with a valuation of 7 billion at a 30% discount, and sold it at a discount of more than 2 billion to the Hong Kong Pavilion Leading Fund. Shanghai Qibao Vanke Plaza is Vanke’s first plaza shopping center in Shanghai. This property has a high-quality and diversified merchant portfolio, and the occupancy rate has been steadily maintained at a high level of about 95%. This project is also known as "Vanke’s most profitable commercial project". According to the latest valuation report as of the end of January 2024, the property was valued at RMB 7.06 billion, and Vanke sold it at a discount of about 26.3%.

At the same time, Vanke’s "Samsung Vision" old renovation project located in the east of Lianhua Mountain in Shenzhen is also negotiating with Shenzhen state-owned assets for sale. If the old reform project of Samsung Vision is sold successfully, it will bring tens of billions of funds back to Vanke.

Now, it is reported that Vanke will sell part of its equity in Boyu. Since the end of 2023, Vanke, which has always been regarded as a top student in real estate, has also started a high-frequency "selling and selling" model, and the assets traded involve hotels, businesses, old buildings and other fields. Previously, "selling and selling" has always been regarded as a dangerous signal of tight cash flow of housing enterprises. Now a number of high-quality assets have been put on the shelves. On the one hand, we can see Vanke’s determination to "sell", on the other hand, it also shows the urgency of its current debt repayment.

03 it’s true and false to cut the "apartment" reluctantly

However, among all the asset sales, parking brings more shock to the market. The reason is that Park House has always been regarded as one of Vanke’s best assets and diversified layouts, and Park House can be described as Vanke’s "darling". After seven years of investment and lean management, it has experienced the most difficult loss stage of long-term rental apartments, and the operation mode of parking has been verified by the market. The biggest question in this market is, as one of the few profitable brands in the field of long-term rental apartments, why has Boyu reached the point where it has to be sold?

First, for debt. 2024 is called the "key year" of Vanke. In the first half of the year, domestic debts and foreign debts will be concentrated, and Vanke will usher in a wave of debt repayment peaks. In the first half of 2024, Vanke needs to pay a total of about 9 billion yuan of overseas debts. In 2024, Vanke mainly had three US dollar debts due, which was equivalent to about 11 billion yuan as a whole. According to WIND data, apart from US dollar bonds, up to now, the balance of domestic bonds of Vanke is about 64 billion yuan, and the maturity in the next 12 months is 24.08 billion yuan.

Judging from the market reaction, after the news of "selling the equity of Boyu" broke out, many bonds of Vanke showed a downward trend. Among them, "22 Vanke 06" once fell by nearly 20%, "200 Vanke 08" fell by over 35%, and "21 Vanke 02" fell by nearly 3%. On March 4, Vanke’s US dollar bonds due in 2029 also recorded the biggest decline in more than a year. The biggest decline this time was the US dollar bonds due in November 2029. With the maturity of debt and the decline of bond interest rate, the test of Vanke’s debt repayment is increasing.

Vanke also issued a statement on March 5 to respond to the rumors. All funds have been put in place for the $630 million debt due on March 11, and the debt repayment work is in an orderly arrangement.

According to Vanke’s latest financial report for the third quarter of 2023, as of the end of the third quarter, Vanke’s cash in hand was 103.68 billion yuan, covering 2.2 times of short-term debts. During the year, no overseas financing expired, and domestic outstanding credit debts were 380 million yuan. From this point of view, Vanke’s short-term debt repayment pressure does not seem to be great. However, the domestic and foreign debts due in the first half of 2024, and the value of 4.2% bonds due in 2024 fell by 7.3 cents to 77.2 cents, so Vanke’s financial situation and capital turnover in the first half of the year were really under great pressure.

Second, the sales market is cold, and it is difficult for funds to return to blood. According to the latest data, in January 2024, Vanke achieved a contracted sales area of 1.254 million square meters, with a contracted sales amount of 19.45 billion yuan, down by 25% and 32.1% respectively. In 2023, Vanke achieved a total contracted sales area of 24.66 million square meters and contracted sales amount of 376.12 billion yuan, down 6.2% and 9.8% respectively.

According to Kerui data, in the first two months of 2024, Vanke achieved full-caliber sales of 33.45 billion yuan, down 41.65% year-on-year. Housing enterprises superior to TOP100 decreased by 51.6% year-on-year, and the sales scale of Vanke still ranked second in the industry.

Although the sales performance still ranks first in the industry, the overall bleak sales market still hangs over the housing enterprises. In the final analysis, although there is a short-term recovery in the sales market, the industry is declining, and it is impossible to guarantee the long-term stable return of funds. The debt risk of enterprises is still "high and low". Nowadays, the market has reacted violently to a rumor of Vanke, not necessarily because it is not optimistic about Vanke, but because it is worried about the prospects of the real estate environment and the future housing market is still on the sidelines.

Third, the long-term "hematopoietic" ability of long-term rental apartments is unclear. In the field of long-term rental, state-owned enterprises have more innate advantages, but the survival situation of private long-term rental apartment brands is not too optimistic. Up to now, only a few long-term rental apartment brands have achieved profitability, and long-term rental apartments are therefore called low-profit industries. According to industry data, the average profit level of long-term rental apartment industry is only 2%-4%.

Vanke’s Boyu announced its profit for the first time in 2023, and announced that it will realize the return of accumulated equity net profit in September 2023, but it can be expected that the profit is limited, otherwise it will not even announce the specific amount. Although Boyu has achieved the head position in the industry, it has been established for 7 years before this. In 2020, Yu Liang, chairman of Vanke’s board of directors, also said that Vanke’s long-term rental apartments had accumulated losses of 9 billion yuan. At the same time, many state-owned enterprises are actively laying out long-term rental apartment tracks, and there are also many state-owned enterprise buyers in the market. Under such a market trend, it is also reasonable to "cut the meat" and sell part of the equity "at a good price" in exchange for funds to repay debts. However, the sale of commercial assets has always been a "game" between light and shade. It is still unclear whether it is true or not.

Will Vanke really sell berths?

In the transformation period of the real estate industry, even with strong state-owned endorsement, it may not be possible to survive. After the collapse of the former real estate giants, any details related to the real estate industry will touch the sensitive nerves of the outside world. At the moment when the post-real estate ecology is not clear, Vanke’s every move has attracted much attention from the outside world.

Although Vanke has a strong state-owned background behind it, its largest shareholder is Shenzhen Metro Group. However, in the special period of real estate transformation, real estate enterprises are not experiencing a general industry downturn at this time, but a radical change in re-establishing a new industry order. Vanke, as a head real estate enterprise, first of all, it is an inevitable guarantee for the development of the enterprise to optimize its asset structure and keep its cash flow healthy.

Will Vanke really sell berths? Space Secret also tries to make the following guess.

First, reducing debt and keeping alive does not rule out giving up the long-term rental apartment industry. In the market environment of declining real estate and poor sales, debt is a mountain in front of real estate enterprises, even real estate enterprises with state-owned background can’t go against the trend. For housing enterprises that are deeply involved in the debt crisis, no matter how high-quality assets, realizing and resolving the crisis is the first priority. Therefore, Vanke sells berths, in fact, it needs to solve the "urgent need" by selling funds. Considering that the profit model of parking apartments is not clear, Vanke still has many parking apartments that are heavy assets. It is not excluded to take this opportunity to completely eliminate the heavy assets of long-term rental apartments, or even directly abandon the brand of parking apartments that are light assets.

However, it must be said that if this step is reached, the "blow" to Vanke is also very great, because the long-term rental apartment brand is an important territory of diversified industries cultivated by Vanke for many years, and it is also closely related to the main real estate industry. Perhaps the next few years will be the best time to harvest, because it is a pity to give up the temporary "lack of money" completely.

Second, renting apartments for a long time is only a "plan to slow down the troops", so it is less likely to sell the apartments completely. However, in today’s long-term rental market, compared with the commercial housing market, it is obviously a "sunrise industry". Despite the strong expansion of rental housing, the living space of market-oriented long-term rental brands has been increasingly compressed, and many long-term rental apartments have not got rid of the profit problem. However, relying on the long-term rental apartment industry to issue REITs is regarded as a "life-saving straw" in the future and an important new mode of capital financing. According to the observation of Space Secret, although the REITs market for renting houses is still dominated by state-owned enterprises, the long-term rental apartment enterprises with healthy heads will certainly get more financial opportunities in the future. As the most important card in Vanke’s capital market, the long-term rental apartment may have more significance than the industrial profit itself. Therefore, Vanke may achieve strong cooperation by selling part of its equity, killing two birds with one stone, but the possibility of completely selling the berth is still small.

In addition, Vanke also has the long-term accumulated credit value of its brand in the industry. Previously, the Shenzhen State-owned Assets Supervision and Administration Commission and the major shareholder, Shenzhen Metro, made a high-profile platform, and they both promised to undertake projects when necessary to improve Vanke’s liquidity. The State-owned Assets Supervision and Administration Commission of Shenzhen said: We have full confidence, sufficient financial resources and tools to help Vanke actively respond through all possible means of marketization and rule of law. Shenzhen Metro, the major shareholder of Vanke, also said that Shenzhen Metro will stand firmly with Vanke and has prepared a rich "toolbox" to support it. Specifically, it includes: undertaking some urban renewal projects of Vanke in Shenzhen in a market-oriented and rule-of-law manner, helping Vanke to revitalize its bulk assets and inject new liquidity into Vanke. The transaction amount is expected to exceed 10 billion yuan; At the same time, we will actively prepare and buy bonds issued by Vanke in the open market to boost market confidence.

In other words, Vanke’s current debt crisis is only a temporary difficulty in crossing the industry cycle. Some people in the industry joked that Vanke is like a rich man. Because of business involvement, there is not much cash at home, and suddenly it is found that there are many foreign debts, and I don’t know how to pay them back at the moment. But a rich man is a rich man, and whatever part of his home’s real estate, fields and works of art can actually be realized. The most important thing is that Vanke has many friends who all recognize Vanke’s brand value, which is the so-called "Jianghu reputation".

Therefore, Vanke’s difficulties may be temporary. I sincerely hope that Vanke, the first Vanke to shout "live", can survive the temporary difficulties and solve the problem with a lot of effort. Of course, I also hope that Vanke will cultivate a better future in the long-term rental apartment sector.