Longfor seeks to break into Xiaoyao Island: Expanding asset management channels to seek survival.
On April 16, Longfor Group launched a new brand for the operation of existing assets, "Freeport Asset Management". Longfor also explained the name "Freeport", symbolizing a carefree paradise for living and a smooth, prosperous land for investment.
From a planning perspective, this primarily involves the unified management of existing assets across different sectors, but it also sends a positive signal to the market: the current real estate industry is not solely about "crisis" and "self-rescue"; "upgrading" and "development" still hold significant positions.
The Broadened Channel Still Feels "Narrow"
According to reports, Freeport Asset Management evolved from the original long-term rental apartment sector (Longfor refers to its business segments as "channels"). In addition to inheriting the management of the long-term rental apartment brand "Guan Yu", it has also incorporated the operational management rights of serviced apartments "Xiafei Mansion", vibrant commercial blocks "Huansi", industrial offices "Blue Ocean Engine", children's hospitals "Youyou Baby", and senior apartments "Chunshan Wanshu".
However, it is evident that most of Longfor's above-mentioned industries are still in the cultivation stage. Among them, the long-term rental apartment sector is the most mature.
By the end of 2023, the long-term rental apartment brand "Guan Yu" had cumulatively opened 123,000 rooms in cities such as Beijing, Shanghai, Guangzhou, Shenzhen, Chengdu, and Hangzhou, with an overall occupancy rate of approximately 95.5%. Last year's rental income (excluding taxes) was about 2.55 billion yuan, and the operating cash flow has turned positive.
Other industries, such as the serviced apartment brand "Xiafei Mansion", launched two projects in Hangzhou and Shanghai in 2023, with 239 rooms in Hangzhou and 228 rooms in Shanghai. The industrial office business successfully upgraded and renovated an old industrial park in Beijing, but similar to the elderly care sector established in 2017 and the medical sector in 2018, the business scale is relatively smaller. The mixed-use commercial block "Huansi", combining apartments and street-style commerce, has yet to officially launch any projects, though the Hefei project is reportedly set to open this year.
It is clear that the broadened asset management channel will still rely heavily on the original long-term rental apartment industry in the short term, but in the long run, it has significant development potential. Especially under the current trends of urban renewal and industrial transformation, it is expected to open up considerable growth space.
Continuously Strengthening Operational Business
The establishment of Freeport Asset Management reflects Longfor's plan to further strengthen its operational business. In fact, Longfor's operational sector generated approximately 24.88 billion yuan in revenue in 2023, a year-on-year increase of 5.7%, while the group's overall revenue decreased by 27.87% during the same period. From January to March 2024, operational revenue was 3.38 billion yuan, compared to 23.4 billion yuan in property presales during the same period.
The importance of operational business is evident.
Of course, most of Longfor's operational revenue comes from the relatively mature commercial plaza project line, namely the operation and management of "Tianjie", accounting for 77.4% of the revenue, rather than from the still-developing Freeport Asset Management-related businesses.
By the end of 2023, Longfor's "Tianjie" series of shopping malls had opened 88 locations, with a total construction area of approximately 7.97 million square meters and an overall occupancy rate of 96.2%. Last year's turnover was 63.2 billion yuan. In 2024, Longfor plans to open 14 new shopping malls in cities such as Chengdu, Hefei, Nanning, and Nanjing, bringing the total number of malls to over 100 by the end of the year.
It is reported that Longfor's investment property assets are now close to 200 billion yuan. These substantial assets can provide stable recurring income, helping Longfor navigate the current real estate cycle.
Operating property loans are also a key tool for this business sector. Currently, Longfor has secured financing for 70 commercial properties, with a balance of approximately 47.4 billion yuan and an average interest rate of less than 4%. There are still about 40 eligible commercial properties available for financing. Earlier reports indicated that Longfor and other companies secured additional credit support during a centralized signing of operating property loans in early April. It is said that 12 real estate companies collectively obtained 14.6 billion yuan in loans during this signing.
More notably, with the opening and expansion of public REITs for infrastructure such as shopping centers and affordable rental housing, the securitization of related assets will become a major highlight for Longfor in the future, which is also the essence of "asset management".
Prioritizing Debt Safety
However, this operation may lack incremental value, being more of a recombination of existing businesses, giving off a "new bottle for old wine" vibe, and the market reaction has been lukewarm.
As a real estate company that started with sales-oriented property development, Longfor has made some progress in transformation in recent years, but the weakness of its "core business" has dragged down market evaluations.
From January to March this year, Longfor's cumulative sales were 23.48 billion yuan, a year-on-year decline of 53.69%. Subsequently, rating agencies such as Fitch and S&P downgraded Longfor's ratings, citing weak sales and pressure on profit margins as the main reasons.
Fortunately, as a representative real estate company that has not encountered financial distress, Longfor's current financial condition remains relatively stable, with sufficient liquidity and incremental commercial loans to cover its debt repayment needs for the next 12 months.
At the annual performance conference held last month, Longfor Group's Chairman Chen Xuping stated that the company would still "prioritize debt safety".
It is reported that Longfor's debt due in 2024 amounts to approximately 10 billion yuan, of which the outstanding scale of domestic public bonds due for exercise or mandatory repayment within the year is about 6 billion yuan. The company has already fully prepared the funds for the repayment of domestic corporate bonds due in May. At the same time, the company plans to prepay some of the debt due in 2025. Longfor has no overseas public bonds due before the end of 2026.
Although there is no immediate crisis, navigating this industry cycle still requires a long-term perspective. The consolidation of multiple potential sectors under Freeport Asset Management is believed to be part of this strategy.
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