The First Acquisition Of Real Estate After "Three Red Lines": Xuhui 800 Million "Lock In" Zhangtai

With a deposit of 800 million yuan, 65% equity and a 60 day due diligence period, Xuhui Holdings (00084. HK) and Guilin zhangtai (hereinafter referred to as zhangtai), a platform company under zhangtai holdings, started the first real estate acquisition in 2021 through cooperation.

On January 7, Xuhui holdings announced that it had signed a cooperation framework agreement with its partners (zhangtai shareholders and their founders, etc.) and established a joint venture with the partners at a ratio of 65:35 to develop real estate projects in Guangxi. On the same day, Xuhui Yongsheng service also announced a 65% stake in Changtai property.

On the evening of January 7, Xuhui also announced the uncensored operating data of December 2020. In 2020, Xuhui achieved a contract sales amount of 231 billion yuan, an increase of 15% year-on-year.

The framework agreement signed by Lin Zhong, chairman of Xuhui holdings, is more like a two-way entry cooperation agreement: This is not a one-way acquisition, and Guangxi Xuhui and zhangtai have projects to enter the joint venture. After the signing of the framework agreement, Xuhui and zhangtai will pay 800 million yuan and 100 million yuan respectively as deposits to ensure the smooth development of cooperation. The deposit is the amount agreed by both parties according to the transaction arrangement. At the same time, Xuhui mortgaged 20% equity of Guangxi Xuhui to Guilin hechuang, another shareholder of zhangtai. The final transaction scale and consideration have not been broken, and the final agreement will be signed within 3 months after all parties have made adjustments within 60 days.

Xu Hui told the 21st century economic report that the transaction consideration should be determined after the adjustment. The reporter of 21st century economic report learned from the core source that "projects on both sides are put in, consolidated according to accounting standards and operated on the platform".

In other words, Xuhui first locked in the strategic cooperation opportunities with zhangtai with a deposit of 800 million yuan. This is the first acquisition of real estate after the introduction of "three red lines" in August 2020. Industry insiders have long predicted that industry integration will accelerate, and 2021 will be the year of real estate M & A.

2021 will be the year of real estate M & A. -Photo by Gan Jun

Xuhui M & A

According to the announcement, all parties will complete the review, valuation and due diligence within 60 days (excluding special circumstances), and reach a final agreement within 3 months at the latest.

The announcement also disclosed that Xuhui will acquire 65% equity of zhangtai, and the relevant valuation and cooperation mode need to be confirmed after Xuhui has completed the due diligence. The specific project and the relevant equity proportion of Xuhui, zhangtai holding company, Guilin co creation, and actual controllers Huang Haitao and Wang Chunling have yet to be implemented.

This is also the main reason why Xuhui does not accept the view of "acquisition" from the outside world: on the one hand, this is a two-way acquisition mode; on the other hand, the valuation and scale of the acquisition project have not been finalized, so it is not sure whether Xuhui needs to announce the details.

The person familiar with the matter pointed out that the acquisition and merger was carried out in the mode of establishing a new company and two-way entry. Although the details of the transaction have not been finalized, this is a way for Xuhui to respect its partners and avoid risks. Lin Zhong also mentioned from time to time in public occasions that Xuhui adheres to the cooperation strategy of "jointly creating a win-win situation". Perhaps this is the unique cooperation mode of Xuhui. In recent years, Xuhui has carried out multi-level and multi field strategic cooperation with Henderson, Ping An of China, Singapore government investment and Shandong yinshengtai group.

From 2017 to 2018, Xuhui holdings acquired Shandong yinshengtai in the same way as this acquisition of zhangtai. In January 2018, Xuhui holdings announced that it had acquired 50% equity interests of yinshengtai Qingdao yinshengtai Real Estate Co., Ltd. with RMB 1.52 billion, and the other 50% equity was still owned by Qingdao yinshengtai group, the guarantor and its contacts, so as to jointly develop real estate projects. Xuhui cooperated with Shandong yinshengtai group to establish Xuhui yinshengtai platform company. In the past three years, it has cultivated in Shandong, covering 16 cities and cities. In 2020, it has achieved a contract sales volume of 26.5 billion yuan.

Xuhui's acquisition of zhangtai is also based on the platform company's operation mode, which is also convenient for later financial consolidation and trading. The real estate project investment, debt situation is more complex, Xuhui model may be able to provide a reference for the subsequent real estate enterprises.

"Guangxi No.1 brother" reinforces at a precipice and Xuhui "takes advantage of low absorption"

Xuhui's acquisition of zhangtai is regarded as a win-win situation in the industry. Guangxi Xuhui is expected to take the throne of "Guangxi's first brother", and zhangtai also successfully lifted the capital warning.

From the perspective of the development and market of the two enterprises, the first M & A in 2021 is not unexpected

Zhangtaisu is known as "the local elder brother of Guangxi". In the 2020 real estate sales ranking list released by Kerry, Changtai group ranked 89th with 25.42 billion yuan, only one less than that in 2019. Ronghe group, which is known as "the second largest in Guangxi", has a sales scale of only 8.15 billion, ranking 186.

Why do the first and second real estate enterprises in Guangxi open such a big gap? It's a little unconventional. Finally, the 21st century economic report learned from several core sources that the actual contracted sales volume of zhangtai group was only about 15 billion.

Zhangtai started in Guilin and has 60 or 70 projects in Guangxi, of which 11 are located in Nanning. In June 2020, Zhang Tai introduced Zhang Qiaolong, the former president of Blu ray, as chairman and president. At that time, the industry speculated that the company intended to expand nationwide. Zhang Tai took the first step of national expansion with 1.39 billion yuan in Wuxi on June 23 of the same year, and then successively took land in Nanjing, Wuhan and Nanchang in the following three months. At the same time, zhangtai also won two pieces of land in Nanjing in 2020, at a cost of 810 million yuan.

However, in 2020, the market situation in Guangxi, especially in Guilin, which is the base of zhangtai, will go down, and even the unit price of some projects will drop by 1000 yuan / m2. Zhangtai's sales target completion rate in 2020 is not ideal. Industry insiders predict that its sales will be lower than that of the previous year, so we can imagine the pressure of cash withdrawal. Zhang Qiaolong has no choice but to leave by the end of 2020.

Under the high turnover mode, the pressure of capital return and the multiple pressures of opening the national route under the three red lines come one after another. Zhangtai has become one of the real estate enterprises with tight cash flow. Zhangtai's previous development projects were almost 100% equity trading, but now Xuhui is introduced. Zhangtai's previously relatively closed operation mode has been broken, and the market has also focused on the company's cash flow problems.

Why is Xuhui the buyer? Before 2020, Xuhui had few projects in Guangxi. In 2017, Xuhui officially entered the Nanning development project. It has developed and sold two projects, including the wholly-owned Xuhui hushanyue and the United Development of Midea Xuhui city. According to the 2020 interim report, the only new project of Xuhui in Guangxi is Nanning yunxitai. As of the first half of 2020, the sales amount of Xuhui in Nanning is about 405 million yuan, and the carry forward income is about 668 million yuan. In 2020, Xuhui successively won 147 Mu plot (Xuhui jiangshanyue) in Wuxiang District of Nanning, Longgang plot (Shengshi Chunjiang, Xuhui, Datang and Xingjin joint development), and 158 mu (case name: Fuyi city) in Xingning District. According to the report in 2020, only Xuhui jiangshanyue is under development and construction.

According to the aforementioned industry insiders, the cycle of inventory de stocking in Nanning is 8.7 months, 3 months more than that in 2019. The sales area is also declining, and the market is in a downward state for the time being. In addition, Yulin, Guigang, Qinzhou, Fangchenggang and other cities are relatively depressed, and house prices are also falling. The most serious is Beihai City, where the volume of transactions has basically declined and the house prices have reached the bottom. It is not difficult to understand that Xuhui will accelerate investment in Guangxi in 2020, which can be said to be "taking advantage of low absorption". Lin also said that Nanning market is healthy and optimistic about the future.

The 21st century economic report found that Xuhui invested more than 2.4 billion land in Nanning in 2020. In the first half of 2020, Xuhui took a piece of homestead in Nanning with 1.53 billion yuan, ranking the fifth in the first half of 2020, and the third in the amount of land taken; in the second half of 2020, Xuhui took another land in Nanning with 890 million yuan. Industry insiders predict that through this acquisition and merger, Guangxi Xuhui may be able to climb to the throne of "Guangxi's first brother".

Under the background of deleveraging, there may be more cases of real estate enterprise acquisition.

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