On June 16, SOHO China announced that Blackstone (NYSE:BX) issued a full acquisition offer to invest in SOHO China to acquire a controlling stake in SOHO China. The offer price is HK$5 per share, and the maximum cash consideration of the offer is approximately HK$23.658 billion (approximately RMB 19.5 billion). After the transaction is completed, SOHO China's existing controlling shareholder will retain 9% of its equity, and SOHO China will continue to be listed on the Hong Kong Stock Exchange.
SOHO China previously issued an announcement on suspension of trading on June 15. Before the suspension, SOHO China's stock price rose for nine consecutive trading days, with an increase of 58.33%, and the stock price hit a new high this year. On June 17, after the stock resumed trading, opened at and rose 25.26%. As of the closing, it rose 21.05%, closing at HK$4.6 per share, with a total market value of HK$23.918 billion. Bai Wenxi, chief economist of
IPG China, told Time Finance that Blackstone's acquisition of SOHO China is a win-win situation, and it is a good thing for Pan Shiyi, SOHO China, Blackstone and China's commercial real estate. Haitong International research report also believes that SOHO China's offer price per share of HK$5 will provide investors with a good opportunity to leave the market, because the price is a premium to SOHO China's asset valuation (32% higher than the previous closing price of HK$3.8), and the price is only 37% discount to the bank's net asset value per share of HK$7.96, which means that the plan may provide a "win-win" situation.
For the market-focused SOHO China continues to list on Hong Kong Stock Exchange , Bai Wenxi said that Pan Shiyi mainly cashed out and left the market, and privatization is to reduce the cost of holding . If he can cash out and leave the scene without privatization, whether to privatize is not his concern.
SOHO China responded to Time Finance that everything is subject to the announcement.
Acquisition rumors have been long-standing
This is not the first time Blackstone has expressed its intention to acquire.
As early as March 2020, there was news that Blackstone was negotiating with SOHO China on privatization-related matters. The acquisition price was HK$6 per share, and the overall value of the transaction was about US$4 billion.
However, in August 2020, SOHO China said that it had terminated the privatization of the earlier offer due to no consensus. Compared with the $4 billion deal price that Blackstone first offered a year ago, the acquisition price is 24% cheaper.
Regarding the failure of the previous offer, Zhang Dawei, chief analyst of Zhongyuan Real Estate , told Time Finance that Blackstone had previously chosen to acquire SOHO China, and the core of the fact that the valuation of domestic office buildings was seriously underestimated. After the epidemic, office rents were lowered, and the previous valuation depression was gone.
According to data provided by Colli International , the vacancy rate of office buildings in Beijing in 2020 was as high as 19.4%, setting a new high in the past decade. It said, "Based on the performance of net absorption in the fourth quarter, overall market demand is rebounding strongly and basically returning to the pre-epidemic level. We expect this demand level to continue in 2021, but due to the pressure of high supply in the overall market, the market vacancy rate will continue to rise. If demand release is less than expected, the market vacancy rate may further exceed 25%. "
Not only is the office vacancy rate rising, but the rent of office buildings is also declining. JLL released a report showing that as of the end of 2020, rents for grade A office buildings in Beijing fell for the eighth consecutive quarter, down 2.6% month-on-month and 7.9% year-on-year. The situation in Shanghai is not optimistic either. In 2020, the total supply of office market in Shanghai was 1.185 million square meters, with a vacancy rate of 22.7%, setting a ten-year high. The average rent was RMB 7.64 per square meter per day, and the rent decreased by 10.7% year-on-year.
This acquisition was successful. Zhang Dawei said that the market conditions of office buildings have not changed much. Regarding Pan Shiyi's retaining 9% of SOHO China's equity, Zhang Dawei believes that it may be a cooperation requirement. There are also opinions that retaining some equity may be due to non-commercial factors.
Net profit plummeted last year by nearly 60%
In fact, since 2014, SOHO China has started the asset selling model.
annual report shows that SOHO China has only 9 office buildings, all in Beijing and Shanghai, namely Wangjing SOHO, Guanghua Road SOHO Phase 2, Chaoyangmen SOHO, Qianmen Street , Lize SOHO, and Shanghai's Bund SOHO, SOHO Fuxing Square, Gubei SOHO and SOHO Tianshan Square.
SOHO China's operating performance is also declining year by year. As one of the real estate tycoons who participated in the Chinese real estate market earlier, SOHO China raised US$1.9 billion in 2007 on the Hong Kong Stock Exchange, creating an IPO in Asia's largest commercial real estate company. In 2010, SOHO China's sales of Galaxy SOHO reached 14.6 billion yuan, with an investment of 18.423 billion yuan that year, exceeding residential developers such as Longfor Group and Sunac China . At the same time, its ROE is higher than Vanke .
By 2020, SOHO China achieved revenue of 2.192 billion yuan, a year-on-year increase of 19%, of which rental income was 1.537 billion yuan, a year-on-year decrease of 16%, and property sales revenue was 654 million yuan. While revenue increased, SOHO China's operating costs also increased from about 337 million yuan in 2019 to 801 million yuan in 2020, an increase of up to 137.7%. In addition, in 2020, SOHO's net profit attributable to shareholders fell sharply, a year-on-year decrease of 59.77%, reaching 535 million yuan, the lowest level since 2008.
It is worth noting that according to Pan Shiyi's previous disclosure, even in Beijing, the return rate of self-owned properties with a total price of about 7.8 billion yuan is only 3%. According to SOHO China's annual report data, SOHO China's average borrowing cost is about 4.7%. This means that some of the company's self-owned properties, , rent return rate, , cannot keep up with bank loan interest. The transformation of
was mainly in 2012. SOHO China, which was originally mainly engaged in "volume sales", announced the transformation from "volume sales" to "self-support", and its main source of income also changed from selling buildings to collecting rent.
Bai Wenxi said that the core problem of SOHO China is that cash flow cannot cover operating costs and capital costs, which leads to the inability to establish and sustain the domestic business model of pure commercial real estate self-owned and operating businesses. So since 2014, SOHO China has sold properties many times to balance cash flow.
4 trillion international giants take over
Blackstone is one of the most important alternative investment institutions in the world, and has strong competitive advantages in mergers and acquisitions, real estate investment, corporate operations, etc. As of the first quarter of 2021, Blackstone's assets managed reached US$648.8 billion (approximately RMB 421.42 billion).
Blackstone has been actively investing in Chinese real estate. According to incomplete statistics, since 2008, Blackstone has invested nearly 30 billion yuan in the Chinese real estate market, and its investment scope includes office buildings, shopping centers and complexes.
Half a month ago (June 3), Blackstone just announced the acquisition of American International Data Group (IDG) under Panhai Holdings for US$3 billion. At the end of 2020, Blackstone announced that its Blackstone Real Estate Opportunity Fund acquired the largest urban logistics park in in , the Guangdong-Hong Kong-Macao Greater Bay Area, from R&F Properties, for US$1.1 billion (approximately RMB 7.1 billion).
SOHO China stated in the announcement that Blackstone plans to maintain SOHO China's existing main business and management, and plans to use the company's resources to expand in China under appropriate circumstances. After the offer is completed, Blackstone plans to conduct a detailed strategic review of the company to formulate a business plan and strategy for the company's future business development and determine appropriate or desirable measures taken to optimize and rationalize the company's business activities and asset portfolio.
If the acquisition of SOHO China is finally completed successfully, it will become Blackstone's largest real estate investment in the Chinese market in history. (Beijing Time Finance Chen Shiai)