Author | Anjou Cao

Editor | Zhou Zhiyu

The winners helped a lot. Vanke, which was caught up in a troubled situation, waited for the spring breeze in the property market.

On April 30, real estate was adjusted at the highest level, and new proposals were made to absorb existing real estate and optimize incremental housing. Subsequently, Beijing, which is the weather vane for property market policy, introduced a new policy announcing that residents who meet the requirements can buy a new home outside the 5th Ring Road.

This has further strengthened the market's expectations that the next policy will be relaxed, and real estate bosses who have been waiting for a long time to “Xiaoyangchun” in the property market can breathe a sigh of relief.

For Vanke, who is trying to get out of the current situation, this is definitely a divine aid. The arrival of the peak delivery and settlement period, as well as the current weak recovery in the market, put pressure on Vanke's Quarterly Report. Vanke is also in the midst of a crisis not seen since its inception.

Faced with the current situation, Yu Liang, chairman of Vanke's board of directors, no longer talked about market prospects at the April 30 shareholders' meeting like in the past two years. Instead, the topic focused on what Vanke will do next, how to overcome the current difficulties, and successfully move into a new stage of industry development.

Whether it is stating that Vanke will firmly slim down, adjust financing models, mitigate risks, or that it will focus on the three major businesses of integrated settlement development, property services, and rental apartments, it all shows that after this round of profound adjustments in the industry, Yu Liang and all Vanke management have clear thoughts about the next path.

As favorable policies continue to be released, Vanke is also able to seize the immediate window period. Over time, it also hopes to do a good job of “subtraction” and become a benchmark in the industry on a new segmented circuit, just like 31 years ago. This is also the only way for a company to go through the cycle and become a century-old store.

Breaking through

Net profit due to mother was negative for the first quarter, and the net cash flow from operating activities was also negative. This quarterly report handed over by Vanke truly reflects the problems Vanke is currently facing, as well as the current challenges faced by housing enterprises in the face of industry adjustments.

Of course, this quarterly report is influenced to a certain extent by the real estate industry's own cycle. Open Source Securities pointed out that Vanke's short-term performance was under pressure due to the decline in settlement scale and gross settlement margin of the real estate development business.

Vanke's management also acknowledged that currently it has indeed encountered phased operational difficulties, and that liquidity is under pressure in the short term. However, with regard to the current difficulties, Yu Liang also has a way to solve the problems.

At the shareholders' meeting, Yu Liang said that the company has formulated a slimming and fitness package, which will coordinate debt reduction and high-quality development, so that the company can get back on a sustainable path and continue to lead the new stage of real estate development.

Specifically, Vanke will walk in two steps. The first stage is to firmly slim down, adjust the financing model, and mitigate risks. Interest payment debt will be reduced by more than 100 billion yuan in the next two years, and the total amount of interest-paying debt will be reduced by more than half in the next five years; in the refinancing model, it is also necessary to gradually shift from the previous model where total loan repayment and principal credit is the main focus, to a financing model that mainly focuses on project and asset credit.

Furthermore, in addition to the three main businesses of integrated residential development, property services, and rental apartments, Vanke will withdraw from other businesses to clean up and transfer financial investments in non-main businesses. We will resolutely and vigorously promote commercial and other major asset transactions, and plan to complete 20 billion yuan a year.

As Vanke President Zhu Jiusheng said earlier, it is still difficult to switch the financing model overnight. Fortunately, partner banks gave Vanke a 1-3 year transition period to slowly switch. Today, Vanke needs to grasp the current window period and complete the reduction in debt pressure.

Looking at the first quarter, thanks to the bank's support and own efforts, Vanke's financing has gradually improved. Zhu Jiusheng explained how to deal with phased liquidity challenges at the shareholders' meeting. In addition to 59 project applications currently on the whitelist, Vanke will also vigorously promote operating property loans and syndicated loans.

Since this year, Vanke has added 16.8 billion new financing and withdrawals. The average cost of additional domestic financing is 3.33%, and the company's bank-side financing channels have remained smooth. Zhu Jiusheng is also full of confidence in the subsequent progress of financing.

The first phase of debt reduction and weight loss does not mean that Vanke will not develop. The purpose is to focus on the three main businesses with the limited resources at hand.

Yu Liang said that the goal of the slimming and fitness package is an enterprising plan. We also want all shareholders to see a healthier Vanke and a more futuristic Vanke, not a Vanke that simply reduces its debts and dies after it has been reduced. The goal is to lay the groundwork for the second stage.

According to Yu Liang, the main elements of future high-quality real estate development are good houses, good communities, and good services. The three major businesses that Vanke focuses on have prospects in the market and social needs. The demand space and prospects for residents' improved living conditions, rental housing, and property services are still broad. Vanke has an advantage in these businesses.

What Vanke needs to do is start again after subtraction.

Pupation

I have the impression that this is the second time in Vanke's history that the statement “focus on the main business” has been proposed.

The last time was 31 years ago. At the time, Vanke's business covered a wide range of fields, such as feed, clothing, home appliances, and trade. Had it not been for the founder Wang Shi who proposed that Vanke should subtract and focus on the residential real estate business, it wouldn't have been Vanke, which relies on specialized capabilities today.

Wang Shi also later recalled this subtraction and said that there are too many examples where an enterprise should focus on its core business and its own core strengths; there are too many examples of failure due to deviating from course. If you don't know how to give up, you'll never get anything. Sometimes subtraction is more important than addition.

Now it's time for Vanke to “be willing.” In the Silver Era, in order to explore the “second growth curve” of the development of the real estate industry, Vanke made additions and transformed from a residential developer to an urban supporting service provider.

Today, external industry pressure and internal requirements have made Vanke take the initiative to “subtract” and improve its professional abilities. This is also the reason why Vanke has been able to become Vanke over the past 30 years.

Vanke needs to start from where it has the greatest advantage before it can break the pupa that binds it and fly freely in the new stage of real estate.

Whether the crisis can be turned into an opportunity and seek victory in the midst of change depends on whether housing enterprises can have the courage to break through and innovate themselves.

Vanke also hopes to once again make the right strategic choices and plan steady management for decades to come. This requires courage to clench your teeth and move forward, strategic sensitivity to the overall situation, and even more so your own business foundation.

Vanke has made certain preparations for this. According to financial reports, Vanke's operating service business revenue in the first quarter reached 10.95 billion yuan, an increase of 12% over the previous year.

Along with the good momentum of operating services, Vanke's operating business achieved a breakthrough in multi-track REITs within the first quarter.

On the same day of the shareholders' meeting, CICC Yinli REIT was listed on the Shenzhen Stock Exchange. Yu Liang also deliberately shared this happy news in his circle of friends, and said that today's listing of Indy Power REIT marks the addition of a channel for Vanke's operating business from being restructured to lighter. This is a successful beginning.

Meanwhile, in March of this year, Wanwei Logistics REIT, a subsidiary of Vanke, was also officially listed on the exchange. Coupled with the actively declared rental housing parking REIT, Vanke is expected to become the only enterprise in the industry to achieve breakthroughs in three types of operating REITs.

This is also a necessary path for real estate to enter a new stage of development, adapt to the transition between old and new cycles, and achieve the transformation of old and new models. By speeding up the shift to real estate operators, you can have a more stable ballast stone in business performance when dealing with changes in the industry cycle.

This is bound to be a difficult journey. Fortunately, Yu Liang and Vanke also have the support of many of their peers.

Xin Jie, chairman of Shenzhen Railway and vice chairman of Vanke's board of directors, once again spoke out in support of Vanke at this shareholders' meeting, saying that as a long-term shareholder of Vanke, the attitude and position of Shenzhen Railway Group has not wavered. It will continue to support Vanke's healthy development and will not be affected by market fluctuations.

Earlier, Yu Liang celebrated the 20th anniversary of cooperation between the two sides with GIC. They have collaborated on benchmark projects such as Shanghai's Qibao Vanke Plaza to witness each other's growth in China; Industrial Bank signed a 1.4 billion loan contract with Vanke's subsidiary on March 20 to express its firm support for Vanke.

Meanwhile, in the midst of a shift in policy trends, the market has clearly taken a more positive attitude towards real estate. Recently, John Lam, chief analyst at UBS Real Estate, changed his pessimistic attitude towards Chinese real estate over the past three years and became more optimistic. In a report, he predicted that Vanke's gross margin will return to 20% in 2025, and gross profit and core net profit will reach an inflection point in 2025, stopping the decline and recovering.

Next, we'll also see a Vanke that's very different from before. With the support of shareholders, banks, and fellow passers-by, it will forge a new path and be revitalized in the midst of thorns.

As an “excellent student” for a real estate company, if Vanke can successfully break through and find the right path for real estate development in the second half, it is all encouraging for the industry.