Bright Real Estate can only use time to prove itself in the business transformation.

Editor’s note: This article is from WeChat public account: Leju Finance, (ID: lejucaijing), author: Zeng Jia tree, authorized reprint

Guangming Real Estate takes another step on the road of “Yearing Farm Construction”.

On November 13, Guangming Real Estate announced that the company had acquired the Shanghai Dongping Small Town Farm Co., Ltd. (hereinafter referred to as “Dongping”) held by Guangming Food Group and Shanghai Chongming Farm Co., Ltd. through the Shanghai United Assets and Equity Exchange. 70% of the town”, the total transaction price is 70 million yuan. After the completion of the acquisition, Dongping Town Farm will be included in the consolidated statement of Guangming Real Estate.

The data shows that Dongping Township was established in May 2018, mainly to assist the government in the preliminary bidding design work for the first-level development of land in Chongming Dongping characteristic town. Dongping Town is located in the middle of the north of Chongming Island. The geographical area includes the four state-owned farms of the original city (Dongfeng Farm, Changjiang Farm, Qianjin Farm and Outpost Farm).

It is worth noting that in this transaction, Guangming Food Group is the controlling shareholder of Chongming Farm and Guangming Real Estate. Chongming Farm and Guangming Real Estate belong to the same group under the same group, and the two parties are related to each other. In other words, Guangming Real Estate is paving the way for its own business transformation through connected transactions.

光明地产

Presidents of Dongping Township before the transaction is completed (Source: Enterprise)

Since this year, Guangming Real Estate has established the “1+7+5+X” overall business model with Shanghai as the main battlefield and diversified innovation and transformation. Among them, “1” refers to the real estate business; “7” refers to the transformation of multiple innovations, including urban renewal construction, rental housing construction, logistics park construction, and honest farm construction.

For the construction of “Yanshi Farm”, Guangming Real Estate’s focus is on the construction of Dongping Town. Obviously, it wants to obtain comprehensive resources and create a new model of “industry + real estate” to achieve the strategic goal of “integrated industrial group”.

As of January 2019, Dongping Township Farm had not yet generated revenue, operating profit was -6.825 million yuan, total profit was -6.825 million yuan, and net profit was -6.825 million yuan. According to the terms of the transaction, Bright Real Estate is required to take effect in the contract.Within 5 working days from the next day, the payment of 70 million yuan will be paid in one lump sum.

Because the project is still in the capital investment stage, the payment method is “one-off”, and the investment chain of Guangming Real Estate will inevitably continue to “grow weight”. In 2018, the net cash flow generated by Guangming Real Estate Investment Activities was -28.8 billion yuan; in the first three quarters of this year, the indicator reached 2.39 billion yuan, approaching the amount of last year.

With the continuous expansion of investment, the transformation of Bright Real Estate has also received some results. As of the middle of this year, the revenue generated by its real estate development business accounted for 89.41% of the total revenue, which is much lower than the 95.51% at the end of the previous year. This means that the proportion of other businesses is increasing, such as property and leasing business, from 1.71% to 2.84%.

But this, Guangming Real Estate still emphasizes real estate as the “floor”, and the real estate sector is still its main force.

In the first three quarters of 2019, Guangming Real Estate signed a contract amount of 18.155 billion yuan, a year-on-year increase of 4.56%; the newly started area was 3.669 million square meters, an increase of 40.85%; the completed area was 861,700 square meters, an increase of 110.07%.

In order to better serve the real estate business, Guangming Real Estate has accelerated the pace of expansion. In the first three quarters, its new reserve area was 1,669,400 square meters, an increase of 107.82% compared with 803,300 square meters in the same period last year.

In 2015, Haibo Co., Ltd. and the Guangming Food Group’s agricultural housing group and farmhouse property were reorganized, which gave birth to a new platform, Bright Real Estate. In 2016, the cautious land acquisition made Guangming Real Estate only add 527,500 square meters of land storage during the year. This directly led to the unsuccessful “Cangjie” two years later, and the sales were weak.

In 2018, Bright Real Estate’s sales only increased by 3.37% to 24.459 billion yuan. The low growth rate has made the housing company realize that it is necessary to change the thinking of the expansion and increase the reserves, so that it can achieve “there is no surplus in the hands and no panic in the heart.”

Therefore, in addition to bidding and auctioning, capital increase and shareholding has become one of the main ways for Guangming Real Estate to acquire land. Since the beginning of this year, it has increased capital in several projects including Agile Chengdu Land, Jinke Changzhou Commercial and Residential Land, and Gezhouba Wuhan Land. The acquisition of the Dongping town project this time may also be a new way of expanding its curve.

Huangming Real Estate has always hoped to cooperate with Bright Food Group to enrich resources and leverage the power of the Group to enrich itself.

For example, Guangming Food Group, as the controlling shareholder, made a commitment to the value assurance and compensation of some of the assets placed when Guangming Real Estate was reorganized four years ago, indicating that it will complete the corresponding allocated land within three years and change it to If the procedures for the transfer of land are not completed, the real estate will be repurchased at a high price.

Guangming Food Group, in view of the inability to complete the above reorganization proceduresIn November 2018, it determined that its wholly-owned subsidiary, Shanghai Milk (Group) Co., Ltd., as the transferee of these real estates, assumed responsibility for the fulfillment of Guangming Food Group.

On August 23 this year, Guangming Real Estate transferred the above assets to the Milk Group through the transfer of the agreement, and the transaction amount was 70,116,300 yuan. On October 8, Guangming Real Estate has received the transaction transfer payment. It is expected that the transaction will be a net profit of about 48 million yuan for Guangming Real Estate in 2019.

But some people in the industry have questioned the profitability of Guangming Real Estate and pointed out that the realization of some of its profits is realized by selling project equity or assets to related parties. For example, in 2017, the equity of Jiangsu Dongheng Haixin was sold. The total transfer price was 2.183 billion yuan, and the contribution to the performance commitment reached 970 million yuan, accounting for nearly 25%.

For all kinds of suspicions, Guangming Real Estate can only use time to prove itself in the business transformation.