As the first long-term rental apartment company to apply for an IPO, Qingke Apartment opened the veil of long-term rental apartment.
Editor’s note: This article is from WeChat public account “Going to the net” (ID: China-Venture), author Tao Huidong.
On the evening of October 7th, the third long-term rental apartment in China, Qingke Apartment submitted a prospectus to the US Securities Regulatory Commission and became the first long-term apartment company to disclose the prospectus. Qingke Apartment is expected to land on Nasdaq with “QK” as the transaction code, and Morgan Stanley and CICC will jointly act as the underwriters of this IPO.
Financing amount exceeds 100 million US dollars New letter, Dachen, Saifu are listed
Qingke Apartment was established in Shanghai in 2012. After the establishment, it was soon received the angel investment of Newport Venture Capital. After that, it took investment in institutions such as Chenchen, Saifu, Kaixin Capital and Morgan Stanley. By the completion of the C round of financing in 2018, the total size of the four rounds of equity financing of Qingke Apartment exceeded 100 million US dollars.
Green House Finance History, Source: CVSource Data Terminal
The prospectus document shows that the largest external investor of Qingke Apartment is Kaixin Capital, with a shareholding ratio of 28.1%. In addition, Newport Ventures, Safford Investment Fund and Morgan Stanley-managed private equity funds hold 9.3%, 8.9% and 8.9% respectively. Dachen Venture Capital did not appear on the list of major shareholders, but Xiao Bing, president of Dachen Caizhi, was a director of Qingke Apartment.
With the help of financing, the company has maintained a rapid expansion in the six years since its establishment. In 2012, the number of rooms available for rent in Qingke Apartment was 940. By the end of 2018, Qingke Apartment operated a total of 91,234 rooms covering 6 cities, with a compound annual growth rate of 114.4%.
According to the report issued by the consulting agency quoted in the prospectus, Qingke Apartment is the third place in the domestic long-term rental apartment operator, and the monthly rent is less than 2,000 yuan. The number of rooms is calculated, and Qingke Apartment ranks first in the industry.
Green Customer Apartment’s main operational data
The annual loss of 500 million has narrowed down
As the first long-term rental apartment company to apply for an IPO, Qingke Apartment opened the veil of long-term rental apartment. According to the prospectus, Qingke Apartment’s net income for the fiscal year of 2018 was 890 million yuan, with a loss of 500 million yuan. For the 9 months ended June 30, 2019, the net income was 900 million yuan and the loss was 370 million yuan.
According to 97,621 tenants as of June 30, 2019, the rent of a room in Qingke Apartment was 3,800 yuan. Of course, compared with the loss of 5180 yuan per room in 2018, the loss has narrowed.
Green Guest Apartment Profit Statement (from the prospectus)
EBITDA (earnings before interest, taxes, depreciation and amortization) indicators also show that the profit situation of the Green Apartment is improving. For the nine months ended June 30, 2019, the EBITDA of Qingke Apartment was -146 million, compared with -162 million in the same period last year.
Green House EBITDA data, taken from the prospectus file
Long-term rental apartments face speed of life and death, and rent loans are difficult to sustain
The long-term rental apartment industry is welcoming the IPO tide and the collapse of the tide. In addition to the Green Apartment, the other two giants in the industry and the eggshell are also coming out to prepare for the market. On the other hand, other long-term rental apartments are going bankrupt. The most recent one was that in August 2019, Lega Apartment declared bankruptcy, leaving tens of thousands of tenants homeless. Earlier, there were already a series of long-term rentals such as Love Apartment, Hangzhou Dingjia, and Yujian Apartment.The apartment company fell.
The funding chain of Tsinghua Apartment has also been in a tight state. At the end of June 2019, the cash, cash equivalents and restricted cash on the account of Qingke Apartment totaled 450 million yuan. According to the burning rate of 580 million yuan burned in 2018, the money was not enough for one year. IPO financing is imperative.
In the past two years, long-term rental apartments have been violent, and the culprit is the addiction to the “rental loan” model. The high-speed expansion of the Qingke Apartment is no exception.
As of the end of June 2019, 65.2% of Tsinghua apartment tenants used rental loans. Even if all of them are calculated on the basis of prepaid half-year rent, according to the average monthly rent of 1100 yuan of Qingke Apartment, the prepaid rent of Qingke Apartment is close to 500 million yuan. According to the data disclosed in the prospectus, the total prepaid rent of Qingke Apartment at the end of June 2019 was 790 million yuan.
Tsinger Apartments offer discounts to induce tenants to borrow from cooperative financial institutions and prepay rents at one time. The one-off payment for a half-year rent is 5%, and the pre-paid annual rent is 10%, and the interest on the loan is also borne by Qingke Apartment. Qingke Apartment uses the rent paid by the tenant for high-speed expansion. The most important expenses are the decoration of the house and the rent paid to the landlord for several months. Under the rent-loan model, the tenant who does not have the loan demand actually sells his own credit to help the long-rental apartment company to finance, and once the capital chain breaks, the tenant and the landlord will fall into the trap of “not calling the sky, not calling the land.” The realm of the spirit.
Since August 2018, Qingke Apartment has introduced a financing lease model. Qingke Apartment sells the renovated houses together with furniture to the financial leasing company and then rents back. In this model, Qingke Apartment has lower capital costs and is safer, which helps to get rid of the dependence on rent loans.
The high debt ratio is always the sword of Damocles hanging over the head. By the end of June 2019, the total assets of Qingke Apartment were 2.03 billion yuan, and the total liabilities were as high as 2.7 billion yuan. The asset-liability ratio is as high as 133%, and it has been technically “insolvent”.
“High in and low out” Loss two landlords?
After 2019, the long-term rental apartment entered a period of adjustment from a moment of enthusiasm. Langshi, Ocean and other real estate companies divested long-rental apartment business, Vanke, Country Garden, World Bank, etc. have also suspended the expansion of its long-rent apartment business.
From the data of contracted listings, the growth rate of Qingke Apartment has slowed down after 2018. At the end of September 2018, the number of registered houses was 29,129, and by the end of June 2019, it only increased to 29,655, an increase of 526. Comparable, the number of contracted listings has doubled in 2018 compared to 2017. Qingke Apartment stated in the prospectus: “Our ability to raise capital for expansion has greatly affected our business performance.”
Long-term rental apartments lack blood production capacity, rely on financing (including debt financing) expansion, and “high-in and low-out”The problem has been criticized. Not long ago, Lega Apartment stated in its open letter of bankruptcy that through serious reflection, it is deeply recognized that the company’s “high-in and low-out” business model has huge defects and has brought to the long-term rental market. Great risk.
The data disclosed by Tsinghua Apartment shows that the average monthly occupancy rate in 2017 and 2018 is 91.6% and 92.4%. The 90% occupancy rate is the target occupancy rate set by Tsinghua Apartment. Although this indicator is excellent, the tenant liquidity index is quite weak. For the nine months ended June 30, 2019, the average contract period between Tsinghua Apartment and the tenant was only 11.7 months. 47.3% of the tenants had already withdrawn their lease before the contract expired, and only 5.1% of the tenants chose to continue. rent. Qingke Apartment quoted an advisory body as saying that its average lease period is in the forefront of the industry. Less than one year’s average lease period, nearly half of the tenants returning rented houses, and the single-digit renewal rate is a common embarrassment for long-term rental apartments.
Not long ago, WeWork, the world’s largest shared office giant, gave up its IPO because its valuation was too low. One of the biggest problems it was criticized was the high liquidity of tenants. Since the lease with the landlord is usually long-term, in the case of a downturn in the economic cycle, the short-term lease period will bring a huge risk of loss.
Like other long-term rental apartment companies, the Green Apartment also relies on the so-called “N+1” model, which will be remodeled and added to a room to accommodate a tenant. Through “N+1”, Tsinghua Apartment can get a seemingly good rental spread. For the nine months ended June 2019, the average rental spread rate of Qingke Apartment was 25.1%, and the pre-paid rent discount was 20%. Calculated at an average monthly rent of around 1,100 yuan, the spread space is about 200 yuan.
However, the renovation of the house by Qingke Apartment costs an average of RMB 14,700 per rental unit (ie one room). In 2018 this figure is even higher, at 20,000 yuan. The depreciation period of the decoration should generally not exceed 5 years, which means that according to the current operational efficiency, the Qingke Apartment can not earn the renovation fee.
Qingke Apartment summarizes several factors affecting the company’s performance in the prospectus, including expanding the network of apartments, maintaining and improving occupancy and rental rates, controlling operating costs and expenses, and improving operational efficiency, managing upfront capital expenditures. And expansion costs.