Property IPO: what do real estate companies want and what do they like in the capital market

category:Finance
 Property IPO: what do real estate companies want and what do they like in the capital market


The prevention and control of the epidemic urged the property value to speed up reconstruction. The high valuation along the way and the rising stock price are the driving force for real estate enterprises to be keen on the listing of spin off properties. A special phenomenon is that more and more property companies are gradually outperforming real estate companies in terms of market value performance and valuation. Many real estate enterprises think that the listing of the spin off property company is the end of the matter. In fact, it is not. It is the hardest start after listing. After IPO, property companies still need to return to focus on business. As the executive director of a Hong Kong listed property company, Yang Ming (pseudonym) said that only by ensuring the long-term operation of the company can it continue to be concerned by the capital market and be sought after by the capital.

New opportunities

The track of property capitalization is becoming more and more busy, and investors continue to be optimistic after the epidemic, pushing the industry valuation to a new high.

According to incomplete statistics of the economic observer, the current price earnings ratio of the property sector is generally between 30-50 times. Among them, the investment surplus has reached 115 times, green city service 55 times, country garden service and elegant life PE 52 times and 39 times respectively.

Under the overall trend of good valuation, the differentiation of enterprises has gradually emerged. There are not only companies with a valuation of more than 100 times, but also material enterprises with a valuation of 5 or 6 times. Dozens of times of the gap, the advantage of material enterprises stride forward, tail companies gradually fall behind.

It all depends on the judgment of the investment institution. Usually, a set of valuation model will be established within the investment institutions. Some institutions tend to have enough residential management scale, while others pay more attention to the number of non residential businesses; some investors like to listen to the story of value-added services, while others focus on whether the affiliated parent company can continue to provide management scale.

Yang Mings property management company has developed in a balanced way in all business sectors, but no business focused strategy has resulted in a better release of valuation.

Every time he comes into contact with investment institutions, Yang Ming constantly explains that their parent companies have a large number of high-quality land reserves, which are generally concentrated in economically developed areas. They do not lack the management scale provided by the parent company, but also have the basis for sustainable growth.

For a long time in the past, the soil reserves mentioned by Yang Ming have been the base gas for property companies to expand their scale and raise their valuation.

A special point is that the part of soil storage that Yangming company relies on is more old transformation projects, with a long transformation period. However, one of the major benefits of the long cycle is that the subsequent land value and management fee unit price will increase as the years go by. Therefore, in this round of dialogue with the capital market, Yang Ming stressed that their companys growth sustainability can be more sustainable by comparison.

For the persistence of growth sustainability, another important reason is the business opportunities brought by the epidemic for the property. In terms of current policies and financial subsidies, epidemic prevention and control highlights the value and importance of the property industry in some aspects, and the positioning of the property company as a necessity or life service provider is clearer. Yang Ming said that during the outbreak, property companies obtained more remuneration through the export of services, thus showing a more stable cash flow, better performance expectations, and less affected by the economic cycle and other public health events, which further accelerated the pursuit of capital in the industry.

If 2014 is the first year for the capital market to discover the value of the property industry, then 2020 is definitely the year for the society to recognize the value of the property industry. In the past, when we talked about the crisis, we often said that there was an opportunity in the risk. This years epidemic brought this opportunity to the property industry. During this time, the property industry does not have the problem of returning to work. From the perspective of operation, the income will not be greatly affected. According to the person in charge of the property companies of the above-mentioned head real estate enterprises, the performance of the property companies in the epidemic was unanimously recognized by the relevant government departments and owners, and also made the society feel that it is necessary to equip the parks or communities with property services.

During this years NPC and CPPCC sessions, 39000 old residential areas were launched nationwide. The later rectification of these old residential areas needs social professional property services to improve, which provides new opportunities for the industry.

First, the property industry was recognized by the capital market as an accessory of real estate. Xia Lin (pseudonym) works in the investment and Customs Department of a Hong Kong listed property company. She often deals with different investors. Some new changes are quietly overturning her original judgmentu2014u2014

In the past few years, there were only a few listed enterprises in the whole capital market, and the total market value may be tens of billions of yuan. Most analysts or investors did not focus on this field. However, in the past two years, the upsurge of property listing has intensified, and the size of the whole property sector will reach hundreds of billions. While a large amount of money is flowing into this sector, more and more investors are studying and analyzing property as an independent operating sector.

2019 is the peak time for property companies to go public. In this year, 12 property companies either entered the capital market through IPO or backdoor, which is equal to the total number of main board property stocks in the past five years.

This kind of enthusiasm for going public still lasts until this year. Statistics from Clary Research Center show that since the beginning of the year, a total of 16 real estate enterprises plan to spin off their property platforms and go public in Hong Kong. Among them, Societe Generale, Yixing group and Jianye new life are the few lucky people who have successfully listed; while eight companies, including Zhengrong service, first service and excellence property, which have submitted listing application materials, are still waiting in line.

On the one hand, the rising price earnings ratio and the rising stock price are the reasons for the enthusiasm of the real estate companies to split up the real estate market. According to opinion index statistics, last year, 20 property companies listed in Hong Kong saw an average increase of 45.82% against the background of 9.41% increase in the Hang Seng Index. In xinchengyue, for example, the stock price has risen 222.23% in the past year.

Since the outbreak, the property sector is a comprehensive breakthrough against the trend. As of April 30, the average increase was 26.3% compared with the closing price at the end of 2019, according to data from Clary. The Hang Seng Index fell 12.6% over the same period.

The capital markets pursuit of this field has led to the scramble of real estate enterprises for layout. Jianye new life is the latest property company to be listed on the Hong Kong stock exchange. In the previous public offering stage, it obtained 142.52 times of subscription, and the international offering was oversubscribed. In the earlier two-month listing of Societe Generale, the Hong Kong public offering part recorded about 1414.06 times of oversubscription. In the offering stage, the number of retail subscriptions of Yexing group under Hongkun group was even close to 2000 times.

The difference of market value between listed real estate enterprises and related real estate enterprises also speeds up the pace of property listing to a certain extent. At present, country garden is the first listed property enterprise with a market value of more than 100 billion Hong Kong dollars. As of May 30, the total market value of country garden is up to 93.450 billion yuan (102.194 billion Hong Kong dollars), far exceeding the market value of many small and medium-sized real estate enterprises. The total market value of green city service is up to 29.1 billion yuan, higher than the market value of its affiliated real estate enterprise green city China 20.9 billion yuan. Yashi also exceeds its parent company with a total market value of 54.1 billion yuan 35 billion yuan of Yajule. The relationship between real estate development and property industry is that real estate development is upstream supplier and property industry is after-sales service department. Whether the upstream suppliers operate well will have a great impact on the property companies. As for whether the property company will have an impact on the real estate development, we have to make a judgment based on the equity structure. Xia Lin said that if the real estate companies controlled by the parent company, such as Yashi and Caisheng, are all separated from the affiliated real estate companies, and the financial data must be consolidated into the parent company, then the property companys valuation improvement can have a positive impact on the valuation and market value of the affiliated real estate companies. The enterprises land and project resources are worth so much money. Once the market value of the property company rises, as part of the parent companys asset package, it will certainly drive the parent companys market value up.

However, property companies such as country garden, China shipping and time neighborhood, which have been listed through introduction, have been independent from real estate companies, and the relationship between them is parallel, so it is difficult for property companies to play an important role in related real estate enterprises.

However, the person in charge of the property company under the head real estate enterprise mentioned that after listing, the two lines are completely independent.

Allotment of shares to domestic real estate stocks was not normal before. Since the second half of 2019, it has become a common financing method in the real estate industry. However, in the property industry, this is the first time that property companies have concentrated on releasing the signal of discount allotment.

Both Yongsheng life service and Lvcheng service have agreed to use the proceeds from the rights issue for potential M & A or investment, as well as working capital and general purpose of the group. Yang Ming told the economic observer that any financing action is determined by the development demand and market changes. If an enterprise happens to have some potential objects in negotiation and needs to reserve follow-up funds, the property company will measure the fund pressure and prepare the required funds in advance. The use of share allotment fund is the same as IPO, which is supervised by the stock exchange; the scope of use is usually similar to IPO, and the two largest uses of property company fund are focused on equity merger and acquisition and its own industrial development. From the perspective of the purpose of funds raised by newly listed property companies in 2019, the proportion of funds to be used for M & A and strategic investment has increased from 50% - 60% to about 60% - 70%. Source: Yang Qian, editor in charge of Economic Observer_ NF4425

Both Yongsheng life service and Lvcheng service have agreed to use the proceeds from the rights issue for potential M & A or investment, as well as working capital and general purpose of the group.

Yang Ming told the economic observer that any financing action is determined by the development demand and market changes. If an enterprise happens to have some potential objects in negotiation and needs to reserve follow-up funds, the property company will measure the fund pressure and prepare the required funds in advance. The use of share allotment fund is the same as IPO, which is supervised by the stock exchange; the scope of use is usually similar to IPO, and the two largest uses of property company fund are focused on equity merger and acquisition and its own industrial development.

From the perspective of the purpose of funds raised by newly listed property companies in 2019, the proportion of funds to be used for M & A and strategic investment has increased from 50% - 60% to about 60% - 70%.