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Following the Hong Kong project and the Shanghai Bund site, Shimao Group continued to sell assets quickly, this time in Guangzhou Asian Games City, once the “national land king”.

On January 24, Shimao Group announced that it would sell 26.67% of the equity of the Guangzhou Asian Games City project joint venture for 1,844.5 million yuan, and 80% of the proceeds were used to reduce debt, and the takeover party came from the central enterprise giant China Overseas Real Estate. At present, the Guangzhou Asian Games City project still has more than 1.8 million square meters of undeveloped area, and even considering the inclusion of a small part of commercial properties, the corresponding value of Shimao Group’s above-mentioned interests is at least 10 billion yuan.

On January 21, Agile, once the “South China Five Tigers”, also announced the sale of its 26.66% interest in Guangzhou Asian Games City to China Overseas Real Estate for a total price of 1.844 billion yuan. After the completion of these two acquisitions, together with the original interests, China Overseas Land’s equity interest in the Guangzhou Asian Games City project will rise to 73.33%.

More than 10 billion goods value changed hands

On the evening of January 24, Shimao Group, which had just sold the core plot of the Bund in Shanghai, issued another announcement to sell 26.67% of the equity of the Guangzhou Asian Games City project joint venture company for 1.8445 billion yuan. Shimao said it expects to realize the sale proceeds of about 716 million yuan. Of the proceeds from the disposal, approximately 80% will be used to reduce liabilities and approximately 20% for general corporate purposes. On January 25, the acquirer, China Overseas Real Estate, also announced the transaction.

Public information shows that the “Big Mac” project of Guangzhou Asian Games City has a history of 12 years since it was transferred from the plot. In December 2009, the project was won by R&F, Agile and Country Garden with a total land price of 25.5 billion yuan, and was once ranked as the “National Land King”.

In June 2010, Shimao acquired a 20% interest in the Guangzhou Asian Games City project through shareholding. Since then, after the changes in the acquisition of CITIC and R&F by China Overseas and R&F, the project has been held by four companies, Zhonghai, Agile, Country Garden and Shimao, with shareholding ratios of 20%, 26.6%, 26.7% and 26.7% respectively. According to Clarion data, in 2021, the project achieved a sales amount of 9.223 billion yuan, and has won the top spot in Guangzhou for five consecutive times.

According to the announcement of China Overseas Real Estate, the total construction area of Guangzhou Asian Games City is about 5.85 million square meters, and the site area is about 2.521 million square meters. As at the announcement date, the 4.016 million square meters of the gross floor area of the project has been developed into residential and commercial units and car parks, and the remaining gross floor area of about 1.834 million square meters is still under construction and is expected to be completed by the end of 2025. As at the date of the announcement, approximately 3.473 million square metres of GFA (including residential and commercial units and parking spaces) of the complex has been sold.

According to the data of Guangzhou Fangtianxia, the current price of the latest phase of residential projects in Guangzhou Asian Games City is about 28,000 / square meter, which roughly calculates that the corresponding value of Shimao Group’s 26.67% equity is about 13.7 billion yuan, even if the price of some commercial properties (accounting for less than 10%) is slightly lower, the corresponding value of this part of Shimao Group’s equity is at least 10 billion yuan.

Of course, the follow-up development of China Overseas Real Estate still needs to invest a certain cost, but it is still an extremely cost-effective transaction. A former senior project manager of a top ten real estate company told a reporter from China Fund News that including capitalized interest, sales and management finance, various taxes and surcharges, income tax, etc., all construction costs “direct costs + indirect costs” are about 7,200 yuan per square meter.

Agile also “sold”

This time with Shimao Group, there is also Agile Group, once one of the “South China Five Tigers”. On January 24, Agile Group announced that Guangzhou Zhenran Investment Co., Ltd., an indirect wholly-owned subsidiary of the company, intends to sell approximately 26.66% of the equity of Guangzhou Lihe Real Estate Development Co., Ltd. to Guangdong Zhonghai Real Estate Co., Ltd., an indirect wholly-owned subsidiary of China Overseas Development, for a total consideration of about 1.844 billion yuan. Upon completion of the transaction, the Company is expected to record an estimated revenue of approximately $699 million.

Guangzhou Lihe Fangkai is a joint venture company of the Guangzhou Asian Games City project, and the equity ratio and consideration of the sale of Agile are almost exactly the same as those of Shimao Group. In this way, after the completion of the acquisition, China Overseas Real Estate will hold 73.33% of the equity of the joint venture, and the remaining minority equity will be in the hands of Country Garden, a “space real estate enterprise”.

Under the cruel reality of frequent defaults on the debts of housing enterprises in 2021 and even caused enterprises to explode, the “survival with broken arms” of housing enterprises has become the norm. Similar to Shimao Group, since the second half of 2021, Agile has also faced difficulties such as sales pressure and increased debt repayment pressure, and has accelerated the pace of cash out from asset sales.

Just on January 10, Agile Group announced that it sold a total of 14 non-core properties in the second half of 2021.

Specifically, during the period from 1 July to 31 December 2021, Agile entered into a number of property subscriptions and/or property sale and purchase contracts for the sale of 14 non-core properties (including 5 hotels (including hotel land), 2 shopping malls, 3 sales departments, 3 residential commercial facilities and 1 apartment), with a total selling price of about $2.8 billion. Among them, a total of about $1,149 million in deposits and sales payments were collected in 2021.

The data shows that in 2021, the pre-sale amount of Agile, joint ventures and associated companies and Agile projects totaled 139.01 billion yuan, a year-on-year increase of only about 0.6%; the corresponding construction area was 9.719 million square meters, a year-on-year decrease of 5.18%; and the average price was 14,303 yuan per square meter. As a result, in 2021, Agile only completed 92.67% of the sales target of 150 billion yuan.

Stocks and bonds are two days of ice and fire

Investment logic “the leftover is king”

Similar to the situation of “one fire sale, one bottom” situation in the M&A market, the attitude of investors in the secondary market towards the stocks and bonds of different types of real estate enterprises is also clear, and the trend of Shimao Agile and China Overseas Poly’s stocks and bonds can be described as “ice and fire”.

The share price of Shimao Group has fallen from the highest HK$35.4 in August 2020 to HK$4.06, a drop of 88%, basically in the state of ankle chopping. The domestic corporate bond of Shimao Group “19 Shimao 01” fell from a five-month low of around 100 yuan to 31 yuan, and it has rebounded only 50 yuan recently; “19 Shimao 03” fell from a minimum of around 100 yuan to 35 yuan, and the last day of 2021 fell by more than 50% in a single day; “20 Shimao 02” also fell 48% in one day yesterday, and the price of a 100 yuan face value bond was only 43 yuan. Dollar bonds abroad are similar, with prices recently falling from 890 cents to 30 to 50 cents per dollar.

Agile Group’s share price fell from a high of around HK$12 in April 2021 to a recent low of HK$3.46, a maximum drop of 72%, basically cutting the knee.

In contrast, China Overseas Development’s share price reached a low of HK$13.71 at the beginning of 2021, and recently reached a maximum of HK$24, an increase of 75% in one year, while the price of corporate bonds has been firmly above HK$100. Just on January 12, China Overseas Enterprise Development, a subsidiary of China Overseas Real Estate, just issued the first tranche of medium-term notes in 2022, with a total issuance of 1.8 billion yuan, and the issuance interest rate was as low as 2.88%, which was 82BP lower than the one-year market benchmark interest rate LPR of 3.7%.

Poly, another central enterprise real estate leader, has developed similarly, reaching a low of 9.03 yuan at the end of July 2021, reaching a maximum of 17.08 yuan in half a year, an increase of 90%, just one step away from the historical high of 17.8 yuan.

The Zhao Ke team of China Merchants Securities Real Estate recently published a research report that the investment logic of follow-up real estate should follow the “leftover is king”, and self-hematopoietic companies with stable cash flow structure and guaranteed payment growth (less than 10% in the top 100) should be preferred.

It is recommended to continue to pay attention to “Zhaobao Wanjin Zhonghualong” (China Merchants Shekou, Poly Development, Vanke A, Gemdale Group, China Overseas Development, China Resources Land, Longfor Group), and pay attention to marginal changes: OCT Town, Yuexiu Real Estate, Greentown China, etc. The second stage of fundamental foundation can focus on some flexible private enterprises with business model characteristics. Some regional companies have some room for game, but it is difficult to hold value. It is not recommended to allocate cash flow that is hidden or has always relied on debt turnover.

Guosheng Securities also believes that since October last year, the central policy has turned clear and the intensity has continued to increase, and recently successively issued a voice to “maintain the stable development of the real estate market, support reasonable housing demand, and meet the reasonable financing needs of the real estate market.” A pick-up in policy is expected to accelerate the arrival of a fundamental bottom. The current favorable policies have not reached the peak period, and it is expected that the follow-up policies will continue to be favorable, and housing enterprises with good credit qualifications, abundant liquidity, sufficient soil reserves and high-quality soil reserves, especially state-owned enterprises, will benefit more.

Its recommendations to focus on real estate enterprises include: A-share Poly Development, China Merchants Shekou, Gemdale Group, Vanke A, Binjiang Group, Huafa Shares, Xincheng Holdings; H-share China Overseas Development, Greentown China, China Resources Land, Longfor Group, China Jinmao, CIFI Holdings Group, China Overseas Hongyang.

This article is from China Fund News