Case Study: Wanda's Asset-Light Transformation of Commercial Real Estate

Nowadays, no one should know about Wanda. It can be said that Wanda is an enterprise with its own spotlight. The asset-light transformation, whether it is a forced move under the downward pressure of the industry, or a proactive approach, the "big brother" is actually leading the industry's future direction.

Wanda Group has four major businesses, respectively, commercial management, real estate, culture and investment, we are familiar with Wanda Commercial Real Estate is once covered the commercial management and real estate two major business companies.

Why say "once"? This is to explain from his development history.

September 16, 2002, Dalian Wanda Real Estate Company Limited and Dalian Party Real Estate Company Limited, each holding 50% of the shares of the establishment of Dalian Wanfeng Real Estate Development Company Limited; in 2007, from the Wanda Group acquired 27 local companies, renamed Dalian Wanda Commercial Properties Co. ; on January 29, 2018, Wanda Commercial Real Estate introduced strategic investments from Tencent, Suning, Jingdong and Sunac, which were used to redeem the shares in the hands of investors introduced at the time of the delisting of Hong Kong shares, and was renamed Dalian Wanda Commercial Management Group Co Ltd, the commercial management group under Wanda Group, with the previous real estate business being spun off and taken care of by the newly-established Wanda Real Estate Group Co Ltd.

After understanding the basic information of Wanda commercial real estate, we will look at the topic of sharing: Wanda's asset-light model.

Before that, we have to familiarize ourselves with what is asset-light?

Before that, we need to familiarize ourselves with what asset-light is, and whether other real estate companies in China are also exploring asset-light transformation.

Wanda, for example, the asset-light model is to build a Wanda Plaza, all the funds borne by the investor, Wanda is responsible for the project's site selection, design and construction, and is responsible for the investment and operational management of the mall, Wanda will also inject its own brand into it, and in the operation of the mall to use its own information management system. In short, in addition to the money is someone else out of pocket, the other or Wanda is fully responsible for. After the Wanda Plaza is officially put into operation, the rental income generated by Wanda and the investor in accordance with a certain percentage share.

The asset-heavy model is also known as Wanda's urban complex product, where the capital for building Wanda Plaza is provided by Wanda itself, and the surrounding area is then complemented by office buildings, stores, and residences, etc. Wanda sells these properties to the outside world, and the cash flow generated is invested into Wanda Plaza, forming the operation mode of "selling to support renting".

From the perspective of China's real estate industry, the separation of real estate development and commercial operations is the beginning of the industry reshuffle, but also the industry's way to specialization and maturity.

Many benchmark real estate companies have put forward asset-light strategic transformation, like Vanke, Greentown, Poly, Longhu Real Estate and so on. Wanda can be said to be at the forefront of light asset transformation "three good students", as early as 2015, officially launched the light asset model, at that time, with Everbright Anshi, Harvest Fund, Sichuan Trust and fast money company, *** built 20 Wanda Plaza, which marks Wanda towards the road of both light and heavy; 2017 Fully implement the light asset strategy; in 2018, the light and heavy assets will be separated, and the real estate and commercial management groups will have their own roles. As mentioned earlier, it was in this year that Wanda completed the split of its commercial real estate company.

Along with the business separation of Wanda's real estate development and commercial operation, Wanda's organizational restructuring is also being gradually implemented.

First, the spun-off real estate development business is handled by the newly established Wanda Real Estate, which covers real estate development and property services, of which real estate development is divided into two segments: commercial projects and residential projects. Secondly, to improve the business lines of the commercial management group, the construction of the business of four centers: project management center, investment center, marketing planning center and operation center, as well as nine operation centers: Northeast, North China, Northwest, East China, Central China, Central South, Southwest, South China, nine regions, the establishment of the corresponding regional operation and management company; project management center under the establishment of the local city company.

In addition to the adjustment of the organizational structure, in terms of personnel appointments, Wanda has also made great efforts.

In 2019, it has been more than a year since Wanda joined the four strategic partners of Tencent, Suning, Jingdong and Sunac, and at this time, Tencent and Suning began to intervene more y in Wanda's business management. Li Zhaohui from Tencent and Jiang Yong from Suning.com became the new directors of Wanda business management. After the intervention of these two strategic partners, the composition of the board of directors of Wanda business management, including chairman Ding Benshi, directors Qi Jie, Qu Dejun, Wang Zhibin, Li Zhaohui, Jiang Yong, and independent directors Chen Hanwen, Xue Yunkui, Liu Jipeng.

After entering 2020, Wanda business management has experienced four senior "blood change". The original chairman of the board Ding Benxi resigned, the original director and vice president of Wanda business management Qi Jie took over the post of chairman and president. After that, the vice president of Wanda commercial management Liang Feijian, senior assistant president and general manager of the planning center Huang Jiaozu, chief assistant president and general manager of the investment center Wang Rui left, by the former assistant president of the Wanda Group, Wanda commercial real estate city general manager of Han Yang, West China operations center general manager Chen Hongtao, Wanda commercial management of the senior president of the assistant Zhang Peiyu were taken over. in February, the vice president of Wanda commercial management Shen Jiaying left, by the commercial management group senior president assistant and general manager of Wanda commercial real estate. In February, Shen Jiaying, Vice President of Wanda Commercial Management, left the company and was replaced by Sun Asia, Senior Assistant President of Commercial Management Group and General Manager of North China Operation Center.On April 21, Xiao Guangrui, former Senior Vice President and General Manager of Human Resource Management Center of Wanda Group, succeeded Qi Jie and became the Executive President of Wanda Commercial Management.

After learning about Wanda's light-asset transformation path, and the organizational reengineering surgery Wanda has performed for this, we will look at Wanda's two models of light and heavy assets, how exactly does it work?

We also briefly introduced the previous, that specifically, "to sell to rent" heavy asset model is Wanda's own funds and funds raised to buy land, their own development and construction of urban complexes, Wanda Plaza as a commercial part of the rent, not for sale, the ownership is still in the hands of Wanda, the rental income and asset premiums are partly used for the purchase of land, the development and construction of urban complexes, Wanda Plaza as a commercial part of the rent, not for sale, ownership is still in the hands of Wanda. Part of the rental income and asset premium is used to return the bank's loan interest, and the other part belongs to itself. The lease and assets of Wanda Plaza can be used as collateral, and the loan amount is invested into the purchase of land, and the part of the asset premium due to the appreciation of the property can be used to carry out private financing, or be sold as a whole, or be divested to be listed separately; and the surrounding supporting residences, offices, and commercial streets can be sold to the outside world and the sales income obtained can be used to return the bank's interest. The sales proceeds are used to repay bank loans.

Let's look at Wanda's asset-light model, Wanda cooperates with banks, securities, funds and other investment institutions, the development of Wanda Plaza's capital is borne by the investment institutions, Wanda is responsible for the plaza's design, construction, investment and operation, and at the same time, the output of Wanda's brand, management, technology and resources and so on, after the completion of the plaza's ownership and value-added income to the investment institutions, the rental income is divided into two, most of which goes to the investment institutions, and Wanda's brand, management, technology and resources. After the completion of the plaza, the ownership and value-added income of Wanda Plaza belongs to the investing organization, and the rental income is divided into two, with most of it going to the investing organization, and Wanda obtains about 30% from it every year.

Since the transformation of light assets, the operation of Wanda commercial management has achieved relatively significant results. 2018 end, Wanda Plaza has opened 23 "light assets" project, in 2019 opened 43 Wanda Plaza, 29 are light assets project, 2020 plans to open 50 Wanda Plaza, 37 are light assets project. Of the 50 Wanda Plazas scheduled to open in 2020, 37 are asset-light projects, and of the 133 Wanda Plazas under construction, 107 are asset-light projects. Up to now, the number of Wanda plazas opened under Wanda Commercial Management has reached 324.

In 2019, Wanda Commercial Management realized revenues of 43.48 billion yuan and rental income of 38.48 billion yuan, up 17.8% year-on-year. Among them, the rental income from light assets increased by 43.9% year-on-year, the occupancy rate of Wanda Plaza was 99.9%, and the rent collection rate was 100%.

We said earlier that Wanda has carried out asset-light transformation and has achieved some results. Is the previous heavy asset model not profitable anymore?

From the industry as a whole, the "golden period" of real estate has passed, the previous optimistic property appreciation prospects no longer exist, and the heavy asset model has been difficult to adapt to the current policy environment and the market situation, relying on single-handedly, turnkey sloppy mode of operation to make profits is more difficult, so the light-asset model came into being. The newest addition to the list is a new model, which is a new way of looking at the world's most important products and services.

From Wanda itself, in addition to the industry **** all kinds of pressure, listed financing is like a big mountain, always on Wanda. In order to broaden the financing channels, Wanda from the end of 2009 on the road to start A-share listing, but in 2010 encountered strict real estate control, has introduced the "national eleven", "the new four" and a series of real estate control policies, from the demand and supply of two A series of real estate control policies have been introduced, from both the demand and supply aspects of a full range of tightening, including the down payment ratio, loan interest rates, land for real estate development, financing IPOs and so on. In the following years, although there are relatively loose real estate policies have been introduced, but in general it is still in the policy tightening cycle, in fact, it is called off the real estate enterprise equity financing, after the transformation of light assets, can not be classified into the "real estate" plate, so as to avoid the policy risk. 4 years later, Wanda was terminated due to failure to report the advance disclosure materials in accordance with the listing rules, and then the listing was terminated. The company was listed in Hong Kong, but on the first day of listing, it fell below the issue price, and then the share price has been falling, also because foreign investors are not optimistic about Wanda's asset-heavy model, and after 18 months of listing in Hong Kong, Wanda was delisted from the Hong Kong market, and returned to the A-share market.

But from 2015 after accepting the application, until today is still not successfully listed, the latest data show that on March 6 this year, Wanda suspended the review, after which the review is resumed or terminated, also let us wait and see.

Written by: Kenqi Consulting Team

Edited, typeset and proofread by: Xiao Qian

Editor-in-chief: Chen Yong

Source: Kenqi Management Review