More real estate projects are likely to hit the shelves

Since 2021, mergers and acquisitions in the real estate sector have continued, as cash-strapped enterprises put some assets on the shelf to save themselves and get out of the debt mire. However, as more assets are put on the market, deals are getting harder, mainly at prices that buyers and sellers can’t agree on. Meanwhile, attention is also focused on who will take over. In the case of the overall tightening of the industry capital chain, whether the buyer can get more financial support has also become the key to the success of the transaction.

A number of projects are up for grabs

On January 10, Agile announced that it had entered into a number of subscription letters and/or sales contracts for 14 non-core properties between July 1 and December 31, 2021, with a total sale price of approximately RMB 2.8 billion. It is understood that the 14 non-core properties, including 5 hotels (including hotel land), 2 shopping malls, 3 sales departments, 3 residential commercial supporting facilities, and 1 apartment, of which about 1.149 billion yuan of deposit and/or sales funds have been collected in 2021, the remaining about 1.651 billion yuan is expected to be recovered in 2022 according to the relevant contract.

On December 23, Blu-ray Development announced that its wholly-owned subsidiaries, Sichuan Blu-ray Hejun Industrial Co., LTD and Chengdu Junyu Enterprise Management Co., LTD, planned to transfer their proposed 100% stake in Chongqing Yangjiu Trading Co., LTD to Chongqing Yueningshan Enterprise Management Co., LTD. The transfer involves three projects, namely chongqing Future City 104-mu project, Chongqing Furong Residence Project and Tianjin Jinnan Station 665 mu project, and the transaction price is only 1 yuan.

In April last year, Sunac China acquired two companies from Changtai Group for 9.9 billion yuan. In July last year, Cosco acquired a 70% stake in Red Star property for 4 billion yuan. On June 28 last year, Ping An of China purchased part of the six Raffles shares of Capitaland Group for 33 billion yuan.

Housing enterprises encounter business crisis, “self-help” measures, a very important is to sell assets or projects. Recently, the market for the sale of assets gradually increased.

Kaisa, which was hit by liquidity difficulties last November, also said it had started disposing of significant assets when it announced a preliminary payment plan. According to Wu Jianxin, Kaisa’s chief financial officer, the company plans to dispose of a list of assets, including 18 shenzhen projects worth 81.8 billion yuan and 25.839 billion yuan of Kaisa’s interests, which are expected to be completed by March 2022. The projects include Nanshan Residential Project, Tiandong Residential Project, Dapeng Jinsha Wan International Park, Jinsha Wan Marriott Hotel, Fukutian Kaisa Shenzhen Technology Center headquarters office building and Sakata Kaisa City Square, etc.

China Olympic Park also recently took a series of actions to dispose of assets. In early November, China Olympic Park and Olympic Park Health issued a joint announcement saying that Olympic Park Health was in preliminary discussions with a number of independent third parties regarding the possible sale of interests in a number of affiliated companies providing property management and other related services. November 9, pledged 19.62% equity of Guangdong Aoyuan Urban Renewal Group Co., LTD to Science City (Guangzhou) Urban Renewal Group Co., LTD; Then on November 14, it announced that it sold some properties in Law Son Road in Hong Kong for HK $900 million, estimated loss of HK $177 million; On the same day, 49% of the equity of the old renovation project of Dong Long Village in Liwan, Olympic Park was transferred to Century Golden Source.

A deal requires determination and courage on the part of the seller

For housing enterprises, it takes a certain amount of courage to survive. What assets to sell and at what price matters. “Sellers tend to come up with non-core assets, or a mix of good and bad. But for assets that sellers are reluctant to lower, buyers are looking for a bargain.” A real estate transaction advisory body said.

The seller is also reluctant to lower the price further because it sets a floor price based on the fact that it can solve part of the financing gap. If the funds raised are not as good as expected, the seller may think that the value of the transaction is greatly reduced and will be less willing to sell.

The reason why enterprises are not willing to take out the core assets that are easy to sell and quickly turn them into cash is that they consider that if they lose the core assets, they will lose the resources for sustainable development in the future. Although in a short period of time to obtain funds, but the future survival will face greater difficulties.

As well as the quality and price of the assets for sale, speed and determination are also key to whether an acquisition will happen. “There are not so many assets for sale in the first half of the year, there are so many buyers, and the shortage of funds of real estate companies is not widespread. If we do not seize the market window, but stick to the price, in the second half of the year, the difficulty of closing a deal will increase.” “The person said.

As an important way for real estate enterprises to recover funds and resolve debts, they all hope that the transaction price is at a high level. However, the current market environment is complex and changeable, and it is not easy to find a suitable successor party when the assets for sale on the market increase. “Reluctantly give up” test of these housing enterprises, once a long delay, assets for sale is likely to depreciate.

Therefore, enterprises need to dispose of assets decisively, complete the key step of self-rescue and “recovery”, and gain time for the next development.

Buyer and seller may continue to be “deadlocked”

Indeed, as a large transaction, the acquisition of real estate enterprises’ assets consumes a large amount of capital, the process is complex, and the transaction cycle is long. From the whole process, it is not easy to complete the acquisition.

In the field of real estate acquisition and acquisition, a considerable part of the transaction takes place in the property sector, the case of acquisition failure in the property sector is common.

On the evening of January 3, Sunac announced that it would terminate its acquisition of about 32.22% of the shares of First Service. The deal between the two sides began in early October 2021, so far, after three months of “entanglements”, ended in failure. Similarly, last year, Hopson Chuangzhan’s planned acquisition of Evergrande Property Finally “failed”.

“In terms of the current market acquisition, most of the reasons for failure in the price did not negotiate, there is a price gap between the two sides. Industry insiders said there were also cases that ended after investigations into debt issues during the due diligence process.

In the real estate industry as a whole down market environment, who will be the successor of these many assets? Some analysis said, or will be state-owned enterprises, central enterprises or cross-industry acquisition, but moves will be very cautious.

Outside the real estate industry, insurance used to be heavy warehouse companies. Ping An, for example, is not only a secondary shareholder of Country Garden, Sunac, Greenland, CFLD, Xuhui and Lanshi, but also holds shares of China Merchants Shekou, Gemdale, Poly, China Resources, Greentown, Jinmao and other real estate companies.

Once upon a time, in the battlefields of merger and acquisition, insurance capital is also a common figure. In May last year, Anshi Asset took over zhongguancun Software Park Diamond Building, and in June the same year, Harmony Health purchased an office building next to Chang ‘an Avenue in Beijing for RMB 9.06 billion, setting a new record in the post-epidemic domestic bulk trading market.

However, from the second half of last year, insurance capital from the real estate industry rushed to retreat. On December 27, the sun city announcement, the company’s two shareholders Taikang announced a substantial reduction in the sun City shares, through the bulk of the transaction and agreement, a total reduction of 9.41% of the shares, recognize the loss out. In addition, everyone life, Jun Kang life, Harmony health, China Life, sunshine life and other insurance assets have chosen to sell real estate shares.

It can be seen that insurance capital to accept the real estate transfer project motivation also began to appear insufficient. “Merger and acquisition is bound to take up a lot of money, but now there are ‘three red lines’ in the financial requirements of the housing enterprises, if the regulatory authorities of the’ three red lines’ related indicators to adjust, it is conducive to merger and acquisition, accelerate the housing enterprises to return to the normal track of business.” Industry insiders said.

In the next two years, the merger and acquisition of real estate enterprises will continue, and the stalemate between buyers and sellers is expected to continue for a period of time, which makes the situation of problem real estate enterprises difficult to be improved in a short time, and the value real estate enterprises with growth will go further in this round of industry reshuffle. By Chen Jingsi

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