This epidemic has re-understood the service value of the property management industry, and the overall service quality of the property company has been recognized by the owners. It can also be seen from our nearly 5,000 valid epidemic survey questionnaires that 97.59% of the respondent owners affirmed the importance of property in fighting the epidemic, and the owners of the TOP30 property enterprise service projects have a higher recognition of property services.
Therefore, based on the logic of industry development, we believe that will usher in a reshuffle after this "epidemic", and "good" property service companies will be able to gain more recognition from the market and owners. The US property management industry has entered a mature stage. As a leading company in North America's residential property services, First Service has a representative development trajectory and is one of the benchmarks that can be referenced in the domestic property management industry.
The market is maturing, and "service" reflects the core value of the industry
The real estate industry in the United States has entered a mature stage. Judging from the urbanization rate, the growth has been slow since 2000, basically stable at around 80%, and has entered a stable stage. China's urbanization is still in an accelerated stage. Although the urbanization rate has increased significantly, it is currently only equivalent to the level of the United States around 1955.
In the mature stage, the improvement of enterprise service capabilities is the core driving force for performance growth. Judging from the data, the sales area of commercial housing in China exceeded 1715.58 million square meters in 2019. Based on the rough estimate of 100 square meters each, there are about 17.15 million units. In 2019, the U.S. new home transaction volume was only 694,000 units, only 4% of that in China. The higher urbanization development in the United States determines that its property management companies can no longer use scale as the focus of performance growth. When large-scale racing is no longer the core logic of development, providing stock services will become the core competitiveness of the enterprise.
Judging from the financial data in the past three years, the market share of First Service is stable at around 6%. Currently, it provides services to its customers through two major platforms. First Service Residential provides management services for residential properties and derivative services such as insurance, finance, engineering consulting, etc. related to residential properties. Currently, this platform is the largest residential property service platform in North America. Second, First Service Brands mainly provides services such as house repair and renovation, house painting, window cleaning, closet furniture design and installation, fire protection and other services.
In the United States, sales of existing houses (similar to domestic second-hand houses) account for about 90% of the annual real estate transaction volume. Data shows that from 2018 to 2019, the transaction volume of existing homes in the United States basically remained at around 5-6 million units, and the monthly transaction volume was relatively stable. The sales structure mainly based on existing houses has created a huge rigid market for house repair and cleaning services. First Service Brands provides professional property services for this market. Judging from the latest disclosed data in 2019, First Service Brands' revenue only accounts for 41% of the company's total revenue, but its profit before interest, taxes, depreciation and amortization (EBITDA) accounted for 48%.
Since China's urbanization rate still has a lot of room for improvement, the focus of China's property management industry is still on scale racing. In addition to the annual increase in real estate development, also actively achieves breakthroughs in scale through mergers and acquisitions or equity cooperation. Judging from the fundraising purposes of some listed property companies in 2019, most property companies use more than half of their financing for strategic scale expansion.
Of course, due to different national conditions and industry development stages, for most domestic property companies, their development focus is still on land grabbing. Market feedback also confirms the importance of scale, that is, property companies with strong parent company development capabilities can achieve better market performance.
But we have quietly discovered that the industry is evolving towards strengthening "services". The actions of leading property companies in multi-level service capabilities confirm our judgment. First, change the company name and get rid of the outdated label of "property management". In 2019, many property service companies completed the adjustment of their company names, and the adjusted names focused more on "service" and "smart" to achieve brand upgrades.
Secondly, the service capability is upgraded to in multiple dimensions.In order to improve the service capabilities of segmented business formats, in 2019, Vanke Property cooperated with Derby, Greentown Service , and Aoyuan Property launched independent brands and joined BOMA Platinum members. In order to deepen the community's value-added service capabilities, Greentown Service acquired Australia and Mongolia International to increase investment in early childhood education, cooperated with JD.com to enhance community new retail service capabilities, and Great Wall Property worked with China Nuclear Health to deepen the elderly care service capabilities. The effect of technological empowerment has also been effectively tested during the epidemic. Various contactless means such as drone disinfection, facial recognition access control and control have increased the intensity of community prevention and control.
Therefore, although scale is still important, after nearly 40 years of development, the industry no longer focuses on simple area expansion, but pursues comprehensive service capabilities, which prompts the transformation of corporate property "management" to property "service".
takes into account both internal and external factors, and prudently expands around improving service capabilities
0 From 2019 to the present, against the background of the Nasdaq Comprehensive Index's increase of 46.01%, First Service recorded a 65.5% increase, successfully outperforming the market and becoming the biggest winner in the residential property service field in North America. Specifically, First Service's performance in the capital market shows two major characteristics. First Service's stock price has continued to strengthen since its split with Colliers International in 2015, and has risen nearly three times, breaking through US$110, setting a record high. Second, from the perspective of the stability of corporate performance, considering the long-term characteristics of the property service field, the 200-day moving average is commonly used in the US stock market to measure corporate stability. According to the data, the 200-day moving average of First Service has risen smoothly since 2018, and in more than 500 days since the opening of the market from 2018 to the present, the stock price has remained above the average for more than 400 days, indicating that investors continue to be optimistic about the company's prospects.
Specifically, the success of First Service's performance depends on two factors, namely, under the strategic guidance of "one step at a time", one is to firmly grasp the "manufacturer" of basic property services, and the other is to improve the service capabilities of "full property management" through prudent acquisitions.
From the perspective of consolidating basic services, compared with the data in 2017 and 2019, all indicators of First Service Residential have stabilized, and their excellent service capabilities have been continuously verified by the market. In 2019, it achieved revenue of US$1.4 billion, currently accounting for 6% of the North American market share, with more than 1.7 million residential units under management, and the contract renewal rate remained above 90%.
From the First Service stable at 6% market share, In the future, the concentration of China Property Management lines will significantly increase . In 2019, the management scale of China's property management industry is about 30 billion square meters. According to the "Top 50 China Property Service Enterprise Management Scale List in 2019" released by CRIC Property Management, the market concentration of the TOP10 companies is around 10%, while the TOP3 accounts for only about 4%, far lower than the level of First Service.
It is worth noting that First Service also has a US$8 billion budget of HOA (approximately to the domestic owners’ committee). HOA is an important part of property services in the United States. HOA is a non-profit organization responsible for managing property fees paid by owners every month or quarter. HOAs are usually composed of owner volunteers, but more and more HOAs are outsourcing property management and budgets to professional service companies. This part of the budget managed by First Service can be converted into revenue from auxiliary services such as property management and house maintenance in the future, allowing it to lock in future revenue in advance.
From the perspective of external expansion, in the field of professional services, First Service has been deeply engaged in vertical development and continues to acquire professional companies, thus forming a professional company with the ability of "full service property management". In terms of revenue, about 55% of the revenue of US$1.4 billion in 2019 came from the on-site service of these professional service teams.
For other small businesses related but relatively scattered, First Service mainly exports brands through franchise, thereby achieving a wide range of business layout. There were more than 1,400 franchisees in First Service Brands in 2019 that generated 16% of revenue for the Brands platform.
Enterprises are upgraded, lean management releases operating leverage
From the above analysis, it can be seen that First Service has relatively excellent strength in both service capabilities and financial performance.
We select domestic listed property companies with market value similar to First Service. Through comparison, we can find that whether it is Poly Property with state-owned assets or Greentown Service with a high degree of marketization, there is a lot of room for improvement in revenue and gross profit margin.
Compared with China, the property service field in the United States is inferior to China in terms of scale and service content. This is mainly reflected in the following points.
First of all, the domestic property management industry is much larger than that of the United States. Since China's urbanization rate and per capita living area still have more room for improvement than the United States, the increase in property management area is relatively significant. At the same time, some domestic existing properties are being released. For example, the ongoing social reform of military camp property management this year will bring new opportunities to professional property service companies.
Secondly, the derivative service content in the domestic property service field is also more diverse. The house types in the United States are mainly single-family villas, townhouses and apartments. This relatively scattered and independent living characteristic has basically no concept of public space in Chinese communities in American communities. Therefore, American property companies like First Service have only limited value-added services to areas related to housing strength such as house repairs and fire protection facilities, and do not have the opportunity to empower new retail, big education, big health and other value-added services through technology like Chinese property companies.
When the industry's "foundation" is not as good as China, First Service can still achieve financial performance that is worse than domestic companies. From the perspective of revenue, this difference is certainly affected by macroeconomic factors such as exchange rate and consumption level, but domestic basic property fees are relatively low and difficult to follow the market regulation, which has become an important factor restricting the rise in revenue of domestic property companies.
From the perspective of gross profit margin, when the labor costs in the United States are higher than in China, First Service can still achieve a gross profit margin of more than 30%, which is enough to show its strong lean management capabilities. In contrast, whether it is Poly Property or Greentown Service, it has not yet escaped the shackles of labor-intensive industries. With the reduction of China's population dividend, the optimization of gross profit margin will become a key topic in industry research. Property service companies that can achieve lean management have higher profit quality and can better support future growth.
The epidemic opportunity
Community value-added services and technology applications bring opportunities for overtaking on the curve
Improve the level of basic property fees, enhance community value-added service capabilities and technology empowerment have become an effective means to hedge revenue and operating efficiency pressures. The outbreak of the epidemic has allowed us to see the release of domestic property companies' professional service capabilities and brand effects, which will bring three benefits.
First of all, the mechanism and collection rate of basic property charges are expected to be improved. For basic services, owners will have more motivation to pay fees, which will help improve the timeliness of property fees collection. The cost investment of property companies during the epidemic is also expected to become an important opportunity to increase the charges for basic property services in the later stage.
Secondly, the opportunity for community value-added services has quietly arrived. Our epidemic survey questionnaire also confirms this judgment. During the epidemic, 46% of the respondent owners purchased daily supplies through property channels such as property APPs, owner groups, convenience stores opened by property companies, and 30% of the respondent owners' communities are provided by property personnel. Property service companies need to combine their own service capabilities, match corresponding external resources, and seize the opportunity of community value-added services.
In addition, the application of scenarios empowered by technology is gradually deepening. 's leading benchmark property company has already laid out services such as smart security and smart parking in the early stage. During this epidemic, we can also personally experience that many property companies have applied technical products such as facial recognition, Alipay online payment, WeChat scanning code registration in community management.The application of these technological means can serve community value-added services and create more opportunities for online services, and on the other hand, it can also strengthen personnel management and achieve cost reduction and efficiency improvement.
From the perspective of the capital market in 2019, the property sector companies not only outperformed real estate companies, but also outperformed the overall trend of the market, and can be said to be one of the biggest winners. Entering 2020, we have moved from the era of real estate development to the era of real estate management, and property services are an important link that is indispensable in real estate management. Only high-quality enterprises that provide professional basic property services, enrich community management and collaborative technology empowerment can gain continuous recognition from the market.
