The reality facing R&F Properties is that if they cannot regain their vitality within a limited time, the impasse will remain unresolved.
Viewpoint Network R&F Properties is not the fastest company to recover from the debt crisis, but it has at least slowed down. On the evening of March 31, the company released its fiscal year 2022 results as scheduled. As far as the current situation is concerned, many thunderstorm real estate companies have lost this ability.
R&F Properties was once considered one of the companies facing the most severe debt pressure in China, but its response efficiency is amazing.
Thanks to its strong independence—there is no diversified listing platform in the same system, and at the same time, it has always insisted on the operation of high-equity projects in the past. R&F did not have much resistance in asset sales and promotion of debt negotiations, so it was able to seize the epidemic. The window period was negotiated into two debt extension plans that are very beneficial to one’s own side.
With the assistance of JPMorgan Chase, R&F first merged and replaced 10 US dollar notes originally due in 2022, 2023, and 2024 into three new notes with a coupon rate of 6.5% in July last year. The extension period is 3-4 years.
Later in November, R&F successfully negotiated with domestic creditors to extend the repayment period of 8 domestic corporate bonds by more than 3 years.
Due debts totaling approximately RMB 46.7 billion were restructured and extended, and R&F Properties became the first domestic real estate company to complete the extension of all domestic and overseas bonds. The delivery area has dropped sharply.
The reality facing R&F Properties is that if they cannot regain their vitality within a limited time, the impasse will remain unresolved.
Debt stress hits revenue
In 2022, R&F Properties will focus on debt management.
Since the company has not yet recovered its reputation in the domestic credit market, the blockage of financing channels is a major pain point. Statistics show that R&F Properties’ new bank loans during the year were only 1.12 billion yuan, so the sale of assets continued to be the main source of liquidity.
In the past year, related actions of R&F Properties include: completing the sale of 3 hotels in Beijing, Fuzhou, and Zhenjiang for 1.245 billion yuan; selling the Dayingshan project in Haikou, Hainan to Power Development for 1 billion yuan;
Sold the Vauxhall Square project in London to Far East Consortium for 95.7 million pounds, equivalent to approximately 840 million yuan (a “clear debt” loan, with an estimated interest rate of about 11.4%); at the same time, sold the One Thames City project in London to the former in a transaction with Zhang Songqiao 50% equity interest, and 2.28 billion yuan in cash was recovered.
According to the announcement, R&F Properties will withdraw about 4.9 billion yuan in cash through asset sales throughout the year.
This allowed the company’s management to slightly reduce the group’s interest-bearing liabilities to 126.7 billion yuan from 128.8 billion yuan at the end of 2021. If accrued expenses and other payables are counted, there are about 135.11 billion yuan of hard debt.
Correspondingly, R&F Real Estate’s total cash (including restricted cash) by the end of 2022 is only 12.301 billion yuan, making the cash short-term debt ratio only 0.24 times. After excluding the restricted cash of 10.124 billion, R&F’s immediately available cash is 2.177 billion yuan.
At this level, considering the impact of the “three red lines” does not make sense for R&F Properties in a short period of time. In addition to the short-term cash debt ratio, its asset-liability ratio at the end of the year is still as high as 170.8%.
The liquidity crisis has significantly weakened R&F’s ability to deliver. Statistics show that in 2022, R&F only successfully delivered 3.261 million square meters of properties, a year-on-year decrease of more than 60% compared to 2021.
Affected by this, R&F Real Estate’s revenue from property development during the same period decreased by 58% from 69.001 billion yuan in the previous year to 29.030 billion yuan. At the same time, the rental income of investment properties affected by the epidemic decreased by 21% to 846 million yuan; the hotel operating income also decreased from 5.07 billion yuan to 4.14 billion yuan.
This pushed R&F Real Estate’s revenue to fall to 35.292 billion yuan in 2022, a year-on-year decrease of 53.7%.
Even due to the decline in sales, sales and marketing expenses fell by 62.6%, and the cost of property sales, a major expense, dropped from 63.581 billion yuan to 27.638 billion yuan.
On the other hand, during the period, R&F lost 8,045 employees due to various reasons. At the same time, it is believed that they also implemented salary cuts, which helped to reduce administrative expenses by 27.3% to 4.365 billion yuan. Office expenses and employee welfare expenses also decreased to varying degrees. The cost of sales was reduced to 31.366 billion yuan, and the gross profit turned around to 3.827 billion yuan.
However, it is still unable to resist the impact of various one-time losses, including the fair value (loss) of investment properties from positive 688 million yuan to 1.95 billion yuan; the gain from the sale of subsidiary companies from 802 million yuan to a loss of 8.08 million yuan; the sale of associate companies and The (loss) of certain equity interests in joint ventures dropped from positive 9.493 million yuan to negative 1.552 billion yuan; plus exchange losses reached 5.917 billion yuan.
As a result, in 2022, the net profit loss of R&F Properties recorded 15.779 billion yuan, and the loss attributable to the parent was 15.737 billion yuan.
Prospects are not bright
Naturally, a well-run business cannot survive solely on asset sales.
It’s just that R&F Properties doesn’t have the energy to patronize the bidding, auction and listing market, let alone talk about mergers and acquisitions. In 2022, R&F did not acquire new land throughout the year, and only converted 133,000 square meters of land through the Guangzhou urban renewal project.
The certainty of R&F’s future development lies in its 47.08 million square meters of salable land reserves. According to the announcement, the total development value of this land bank is approximately RMB 640 billion, of which more than 55% are located in first-tier or second-tier cities where end-user demand is still strong.
In terms of old renovation, as of the latest data disclosure, R&F has 58 contracted old renovation projects available for development in the first half of 2021, with a salable area of 37 million square meters and a salable value of over 1 trillion yuan. However, in the case of insufficient funds, R&F may temporarily only “rescue” the development of old renovations in southern China, especially Guangzhou.
At the end of August last year, R&F Properties introduced China Merchants Shekou as a strategic partner. It is R&F’s urban renewal project in South China that the two parties are aiming at and preparing to revitalize.
Excluding the impact of old renovations, R&F Properties announced that there are about 104 projects under development that can be maintained by the end of 2022, with a total salable area of 17.2 million square meters. The sales rate can form 50 billion yuan in sales, and according to the 50% sales rate, it can reach 62.5 billion yuan.
It’s just that whether the contracted sales of R&F Properties can recover to this level in the new year is still unknown. Statistics show that R&F Properties’ contracted sales in 2022 will drop by 68%. In January 2023, the sales revenue was 1.35 billion yuan, a year-on-year decrease of 70.6%; in February, the sales revenue was 2.11 billion yuan, a year-on-year decrease of more than 50%.
New financing is hindered and sales recovery is slow. R&F Real Estate’s tight cash flow is still fragile. Of its 135.110 billion yuan in debt, about 51.334 billion yuan will be due in one year, and the previous year’s payment has not yet been settled.
According to the announcement, as of December 31, 2022, R&F Properties had failed to repay certain bank and other loans of 15.59 billion yuan as scheduled, and the figure for the first quarter of 2023 was 1.963 billion yuan. The 28.987 billion yuan of loans have been de facto default or cross default.
It is expected that R&F Properties will still need to sell assets to make up for the funding gap. It is understood that as of now, R&F has an investment property portfolio with a total construction area of approximately 1.8823 million square meters; 92 hotels in operation with a total construction area of 4.092 million square meters and a market valuation of approximately 47 billion yuan. They are all very likely was put on the shelves.
