1.06 billion yuan to buy Yuzhou property services, China Resources Vientiane Life started the first acquisition in the year.

(Text/Xie Hongjuan Editor/Ma Youyou) The trend of property acquisition and merger continues.

On the evening of January 5th, Yuzhou Group announced that it planned to transfer all the issued share capital of Yuzhou Property Services under the company at a transfer price of no more than RMB 1.06 billion.

Around the time, China Resources Vientiane Life announced that Runying Property Technology Service Co., Ltd., a wholly-owned subsidiary of China Resources Vientiane Life, and Tianjin Yujia, a wholly-owned subsidiary of Yuzhou Group, formally signed a strategic framework agreement to acquire 100% shares of Yuzhou Property Service under Yuzhou Group for 1.06 billion yuan.

It is worth mentioning that Yuzhou Group has two property sectors, namely, Xiamen Yuzhou Commercial, which focuses on commercial operation services, and Yuzhou Property Services, which focuses on residential service management. It is Yuzhou Property Services that are sold this time.

In this regard, Yuzhou Group said that the sale of this asset will be conducive to the goal of reducing debt and leverage in Yuzhou and optimizing the existing debt structure; Secondly, Yuzhou will give full play to its expertise and focus on the commercial sector to enhance its market influence and brand reputation.

Yujia life service second-degree IPO

Before the sale of Yuzhou Property Services, Yujia Life Services broke through the Hong Kong Stock Exchange twice.

On December 11th, 2020, Yuzhou Group packaged two property sectors into Yujia Life Service Group and delivered the first prospectus to the Hong Kong Stock Exchange.

However, Yujia’s life service did not catch up with the good times. According to the data of Yihan think tank, in the whole year of 2020, 18 property enterprises submitted prospectuses to the Hong Kong Stock Exchange, which was basically the same as the number of property enterprises that passed the hearing and went public, and most of them landed in the capital market one month after passing the hearing. However, at the end of 2020, the wind direction of the capital market began to change, and the listing of physical enterprises was cold.

According to the data of Jiahe Family Property Service Research Institute, in 2021, a total of 36 companies went to Hong Kong to submit their forms. As of December 30, 22 companies’ IPOs were invalid, including Yujia Life Service, which submitted the prospectus at the end of 2020.

The prospectus expired less than three working days, and Yujia Life Service opened the "Second Palace". According to the prospectus, as of December 31, 2020, Yujia Life Service owns 177 residential and commercial properties with a total land reserve of about 23.1 million square meters.

However, as a medium-sized commodity enterprise, Yujia Life Service has not yet knocked on the door of the Hong Kong Stock Exchange. According to the disclosure of the Hong Kong Stock Exchange, the prospectus submitted by Yujia Life Service for the second time on December 16, 2021 has become invalid, which means that Yujia Life Service’s impact on IPO once again ended in failure.

After the second delivery failed, Yujia Life Service did not choose to attack the Hong Kong Stock Exchange again, but sold its Yuzhou property service to China Resources Vientiane Life, leaving Xiamen Yuzhou Commercial, which mainly provides commercial operation services.

According to the agreement, after the first consideration (including earnest money) of not less than 67% of the consideration paid by China Resources Vientiane Life is deposited into the escrow account, both parties shall make delivery according to the framework agreement, and the remaining consideration shall be paid accordingly according to the actual delivery progress of the area under management.

In other words, if the acquisition goes smoothly, Yuzhou Group will get no less than 710 million yuan of working capital during the year.

"After the sale of the property, Yuzhou will reallocate financial resources to other businesses for the future development of the company." Yuzhou said that Yuzhou has not terminated the listing plan of splitting Yujia. In view of the fact that many companies’ prospectuses in the real estate industry and property industry have failed in the second half of this year, the valuation of property stocks has generally declined, and it is difficult to reflect the investment value of medium-sized property management companies at this stage. Yuzhou is also actively adjusting its listing plan and strategy, and will pay more attention to the operation and management of commercial assets.

Up to now, Yuzhou Commercial has a total of about 1.52 million square meters of commercial real estate projects in Shanghai, Shenzhen, Xiamen, Hefei, Nanjing and other places, including 28 projects in the operating period and 11 projects in the preparatory period.

China Resources Vientiane ranks 18th in terms of living area.

"The management area of Yuzhou Property Services is about 17.6 million square meters, which is almost the sum of the newly-added management area of China Resources Vientiane Residential Building every year." Yu Xiaoyu, research director of Yihan think tank, said that the acquisition of Yuzhou Property Services can really drive the growth of the life management area of China Resources Vientiane.

In fact, the scale of China Resources Vientiane Life is not outstanding in the industry. As of June 30, 2021, China Resources Vientiane Living House has an area of 127 million square meters. In the same period, the service area of Country Garden is five times that of Country Garden, about 645 million square meters; At the end of 2020, the management area of Wanwuyun is more than four times, about 566 million square meters.

"According to the area under management, China Resources Vientiane Life ranks 13th among listed enterprises and 18th among the top 100 enterprises." Yu Xiaoyu said.

However, due to factors such as relying on the big tree of China Resources Land, relatively high-quality properties under management, and rich experience in commercial operation, China Resources Vientiane Life not only has the reputation of "a brother in business management", but also breaks the law of scale in the capital market, and its market value is only overwhelmed by Country Garden service, which is the largest in scale.

In order to become the first echelon in the industry, the management said at the performance conference of China Resources Vientiane Life in early 2021 that "by the end of 2025, the scale of property management of China Resources Vientiane Life should reach more than 400 million square meters, and it should be large-scale by increasing the expansion of third parties, and maintain the business operation service business in the first place in the industry."

In other words, if China Resources Vientiane Life wants to add 400 million square meters of property management scale in five years, it must add 80 million square meters of managed area every year.

It is worth mentioning that the scale of China Resources Vientiane Life is not outstanding, and its newly added management area is not ideal every year. The data shows that from 2018 to 2020, the residential area under management of China Resources Vientiane was 78 million square meters, 92 million square meters and 107 million square meters respectively, and the residential area under management increased by 15 million square meters and 14 million square meters respectively in the next two years.

Even if shopping malls, office buildings and other formats are included, in 2020, China Resources Vientiane Life will only add 18 million square meters of under-management area. In order to achieve the expected goal, the new scale of China Resources Vientiane Life needs to increase by 444.44% on the level of 2020.

Material enterprises usher in the tide of mergers and acquisitions

"The expansion of the life scale of China Resources Vientiane is less than expected, which is mainly related to its high dependence on China Resources Land." Insiders told Observer. com that the multi-high-end projects of China Resources Land have a high transaction unit price and a small area among real estate enterprises in the same echelon, and the management area of China Resources Vientiane Life, which relies on blood transfusion, is naturally less than that of the property companies under the same echelon real estate enterprises.

The data shows that in 2020, the management area of China Resources Vientiane Life from the related party China Resources Land accounted for 76%. By mid-2021, 86.833 million square meters of the living area of China Resources Vientiane came from China Resources Land, accounting for 71%.

Conventional means of expansion fell short of expectations, and China Resources Vientiane Life put its mind on mergers and acquisitions, which started the "first shot" of mergers and acquisitions in the material enterprise industry in 2022.

According to the data, as of December 31, 2020, Yuzhou Property Services provided property management services for 127 projects, with a total construction area of about 17.6 million square meters. As of the same day, Yuzhou Property Services has contracted to provide property management services for 177 projects, with a total contracted construction area of about 26.6 million square meters.

In this regard, China Resources Vientiane Life also said that the acquisition target has a number of property management projects in Fujian, China Province, Anhui Province and Zhejiang Province, and this acquisition is conducive to the company’s strategy of broadening the scope and scale of property management services, resulting in a synergistic effect in business.

As early as October 2021, China Resources Vientiane Life was interested in making efforts in acquisition and merger. At that time, some media reported that Jones Lang LaSalle was considering selling its property management business in China, excluding its real estate brokerage and appraisal business in China, with a consideration of 500 million US dollars. Judging from the results at that time, China Resources Vientiane Life was temporarily ahead.

"In order to get further away from the goal of the first echelon in the industry, the corresponding acquisition and merger activities of China Resources Vientiane Life will increase during the year." Industry insiders admit that the concentration of the property management industry is constantly increasing, and cases of mergers and acquisitions are not uncommon.

For example, in 2021, according to the incomplete statistics of Jiahe Jiaye Property Service Research Institute, there were 86 mergers and acquisitions in 33 property companies in 2021, of which 62 were explicitly disclosed by enterprises, with a total cost of 34.72 billion yuan.

Zhang Bo, dean of the branch of 58 Anjuke Real Estate Research Institute, said that the increase in the concentration of the property management industry can, on the one hand, enhance the market share of head property management enterprises, and simultaneously affect their valuation or performance in the capital market, on the other hand, it will form a certain competitive advantage and enhance long-term competitiveness. With the improvement of industry concentration, the head enterprises in the property management market will continue to be clear.

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