Original title: How big is the off-balance sheet debt of real estate companies, Zhengrong Real Estate disclosed for the first time
Beijing Commercial Daily (Reporter Lu Yang and Wang Yinhao) 2021 is the closing year of Zhengrong Real Estate’s “New Three-year Strategy”. At the interim results meeting on August 23, the management of Zhengrong Real Estate reiterated the significance of the “new three-year strategy” and became the first real estate company in the industry to proactively disclose off-balance sheet liabilities.
At this performance meeting, its management publicly disclosed that 21 of the 24 new projects in the first half of the year had partners, and the proportion of cooperation on the new land in the second half of the year would also remain at about 50%.
Chen Weijian, Executive Director, Vice President and Chief Financial Officer of Zhengrong Real Estate, pointed out that with the downturn of the real estate market, cooperative development has become a trend. Zhengrong has always maintained an “open” attitude towards cooperative development. On the one hand, it has the same idea as developers Cooperation, on the one hand, will actively expand new cooperative development partners. The purpose of cooperative development is to diversify investment and achieve win-win cooperation.
Huang Xianzhi, executive director, chairman of the board of directors and chief executive officer of Zhengrong Real Estate, added, “The current policy presents both opportunities and challenges for the group. Everyone can see that our cooperation projects this year have also maintained a certain scale. This is because The purpose of reducing risks, on the other hand, can also strengthen the building of core capabilities, such as the building of business capabilities, talent capabilities, etc.”.
Xie Yifeng, the director of the China Urban Real Estate Research Institute, said that before now, real estate companies have been repeatedly questioned because of their low equity ratio, but the current situation is that financing is difficult and land acquisition is expensive, and cooperative development has become a trend.
In the first half of 2021, Zhengrong Real Estate achieved a contracted sales of 82.3 billion yuan, a year-on-year increase of 47%, and completed 54.9% of its annual contracted sales target. In the first half of the year, Zhengrong Real Estate’s sales mainly came from first- and second-tier cities, accounting for 91%. However, a reporter from Beijing Business Daily noted that this part of the contribution is mainly the second-tier cities, with the first-tier cities accounting for only 4.4%.
In terms of financial indicators, in the first half of 2021, Zhengrong Real Estate achieved operating income of 16.011 billion yuan, a year-on-year increase of 10.1%; net profit for the period was 1.503 billion yuan, an increase of 18% year-on-year; net profit attributable to shareholders was 1.166 billion yuan, a year-on-year increase of 33.1%; gross Interest rates fell slightly by 1.2 percentage points to 19.1%, the same as at the end of last year.
Regarding the performance of gross profit and gross profit margin, its management did not give a positive response this time. However, according to the observation of a reporter from Beijing Business Daily, this aspect of data has generally not performed well in recent years.
The gross profit of Zhengrong Real Estate in 2019 was 6.498 billion yuan, an increase of 7.9% year-on-year, and the gross profit margin decreased from 22.8% in 2018 to 20% in 2019; the gross profit of Zhengrong Real Estate in 2020 was 6.904 billion yuan, an increase of 6.3% year-on-year. Gross profit margin decreased from 20% in 2019 to 19.1%, which is lower than the industry average.
After the centralized land supply, the operating profits of the real estate companies were once again compressed, and the real estate companies generally expressed “mean profits”. “The second batch of centralized land supply policies may be adjusted in the next step. If the price of land is really lowered, this will directly affect the profit margin of real estate enterprises.” Huang Xianzhi said.
Or based on the continued optimism of the “cooperative” development model, Zhengrong Real Estate is currently the only real estate company that discloses off-balance-sheet equity and liabilities.
At the performance conference, the management of Zhengrong Real Estate publicly disclosed its off-balance sheet liabilities. As of the first half of 2021, Zhengrong Real Estate’s off-balance sheet liabilities were approximately 3.1 billion yuan, off-balance-sheet monetary funds were approximately 2.4 billion yuan, and off-balance-sheet net liabilities were approximately 700 million yuan. Off-balance-sheet debts were reasonably controllable.
Pan Hao, a senior analyst at the Shell Research Institute, said that as the first real estate company in the industry to actively disclose off-balance sheet liabilities, Zhengrong Real Estate is fully confident in its financial situation. According to the statistics of the Shell Research Institute, in accordance with the new “third-tier and four-tier” financing regulations, Zhengrong Real Estate’s 2021 mid-term indicator has exceeded the threshold, and it continues to maintain the ranks of the “yellow profile”, and it is optimistic that its future “third-line and four-level” will fully meet the standards.
Pan Hao believes that since the beginning of the “third-line and four-level” financial supervision policy, the regulation has been continuously increased, and the effect of real estate companies’ debt reduction has been obvious. However, off-balance-sheet liabilities with hidden debt attributes have always become a greater risk hazard in the industry. Zhengrong Real Estate actively disclosed its off-balance sheet debt behavior for the first time, which will help regulators to assess the overall debt risk of real estate companies. It may promote other real estate companies to follow up and accelerate real estate companies’ active optimization on the road to financial stability. Work together to maintain the controllability of industry financial risks.
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