In the backdrop of a fluctuating global economy and a particularly gloomy property market in China, Beijing-based developer, Longfor Group Holdings, announced a promising half-year performance. The company reported a core profit of 6.59 billion yuan (US$907 million) in the first half of this year, displaying a nominal increase from its performance the previous year. This growth comes primarily from the robust income generated from property management and services.
In an industry where many of its counterparts have been facing financial hardships, especially in the real estate sector, Longfor’s financial strategy offers a shimmer of optimism. Notably, while the company’s total borrowings stand at a substantial 207.09 billion yuan, with an average annual interest rate of 4.26%, it revealed a 35% decline in its revenue, settling at 98.8 billion yuan. This substantial decline has been mainly attributed to a 40% slump in property development.
However, there were also segments that performed commendably well. The company’s investment property grew by 8% to reach 5.86 billion yuan, and earnings from property management and other services surged by 13%, totaling 5.175 billion yuan. Chairman Chen Xuping proudly shared, “Our operation business achieved rental income of more than 6 billion yuan in the first half of the year and continued to enhance its quality and efficiency.”
Chen Xuping further elaborated on Longfor’s strategic vision and its achievements. He said, “Longfor, over the years, has meticulously built a diverse portfolio of commercial property projects, particularly in top-tier cities. We’ve expanded our presence in these urban hubs through a balanced mix of asset-heavy and asset-light models. I’m delighted to announce that our commercial division has begun realizing positive cash flow in the initial half of this year. Moreover, our rental housing business has shown marked improvements in operational efficiency and sustained a healthy profit trajectory.”
The real estate sector has been on a roller-coaster in recent times. Notably, several prominent private real estate companies defaulted on their debt repayments, creating significant turmoil in the industry. However, Longfor has been proactive in addressing these challenges. The company unveiled its debt-reducing strategy three years ago. This strategic approach focuses on consistently diminishing the overall debt size while simultaneously refining the current debt structure.
Chen highlighted the changes in China’s real estate market, emphasizing the evolving dynamics of supply and demand. He stated, “Longfor is gearing up to expedite the development of superior business models. Our objective is to have the profit from operation and service businesses constitute more than half of our total revenue. Concurrently, we aim to methodically scale down the group’s interest-bearing liabilities, harness the improved operational capability of each division, and attain organic growth steered by positive operating cash flow. This approach will further refine our asset quality, making our future growth trajectory stable and sustainable.”
The company, in its report, also shed light on its operational accomplishments. In the first half of this year, Longfor completed properties spanning a gross floor area (GFA) of 5.4 million square meters. It ambitiously plans to accomplish a total GFA of 19 million square meters by the end of the year, with the lion’s share of this development slated for the latter half of the year.
In a statement to the stock exchange, Longfor articulated its future business strategy, “Moving forward, Longfor will pivot away from a sole dependence on debt-driven business expansion. We are determined to cultivate internal growth by producing positive operating cash flow across multiple business sectors.”
As a testament to its performance and commitment to shareholders, Longfor declared an interim dividend of 0.32 yuan per share. However, its shares observed a drop of 3.84%, priced at HK$16.54 (US$2.11) each by the week’s close.
On the other hand, Soho China, renowned as mainland China’s topmost prime office real-estate developer, witnessed a substantial drop in its profits for the January-June period. Profits plummeted by 92% from 193.65 million from the prior year, settling at 14.7 million yuan, as per the Hong Kong exchange filing. Soho China’s operations suffered due to unprecedentedly high vacancy rates in key cities like Beijing and Shanghai, touching 16.9% and 18.6% respectively. Xu Jin and Qian Ting, the executive directors and co-CEOs of Soho China, stated, “The office and retail leasing market experienced a burst of activity in the first quarter of 2023, but this momentum fizzled out in the second quarter. With a substantial influx of new properties anticipated in the market over the next three years, both rental rates and occupancy percentages will likely face downward pressure.”
Reflecting its financial performance, Soho China abstained from announcing any dividend for this period. Its shares also saw a decline, decreasing by 0.85% to HK$1.16 each.
In conclusion, while the real estate sector in China and globally faces significant headwinds, companies like Longfor, with their strategic foresight and resilient business models, are navigating these challenges effectively. On the other side, companies like Soho China underline the overarching challenges that persist in the sector. Only time will tell how these companies adapt and innovate in the face of a rapidly transforming industry landscape.
Read More: