Shimao Services builds bigger portfolio

Mainland developer Shimao Group (0813) is splitting its property management arm, Shimao Services, to list in the Hong Kong stock market.

The Shanghai-based property management services provider has filed for an initial public offering on the main board to raise up to US$600 million (HK$4.68 billion).

Tencent (0700) and Sequoia Capital China own 4.67 percent and 5.33 percent of Shimao Services' equity interest, respectively.

Shimao Group holds 90 percent equity indirectly. Shimao Group points out it will possess not less than 50 percent after completion of the spinoff. Shimao Services will still be the subsidiary of the Shimao Group.

Shimao Services has been providing property management services and various value-added services in China for more than 15 years. It ranked the 12th among the top 100 property management companies last year in terms of overall strength, according to property research organization China Index Academy.

Nearly half of its revenue is generated from residential property management, and also non-residential property management such as government and public facilities, elderly-care and healthcare facilities and airport lounges last year. It also offers community value-added services such as leasing service for property owners and non-property value-added services such as repair and maintenance, each accounting for around 26 percent of the income. The community value-added services' proportion of its total revenue was only 6 percent in 2017.

It heavily relies on property management services in 2017 and 2018, with a proportion of 70.4 percent and 63.9 percent, respectively. The value-added services improved 5.85 times year-on-year in 2019, with new acquisitions driving up the total contracted managed gross floor area.

The company doubled its contracted GFA from 2017 to 100.87 million square meters last year, covering 91 cities across 25 provinces in China. One-third of the newly-added area came from acquisitions last year. The number of properties they contracted to manage was 354, a year-on-year surge of 117 percent.

The GFA under management grew by 60 percent from 2017 to 68.17 million sqm in 2019. Sixty percent of the new managed area came from last year's new acquisitions. In particular, the company managed 184 properties as of the end of last year, almost double compared with the previous year.

For example, in 2019, it acquired Hailiang Property Management which had properties under management in Anhui Province and 12 other provinces in China, adding GFA under management and contracted GFA of 14.8 million sqm and 16.7 million sqm, respectively.

The purchase also drove financial performance. Revenue grew by 87.24 percent to 2.49 billion yuan (HK$2.77 billion) last year, while net profit surged by 163 percent to 384.53 million yuan.

However, it also led to a high debt ratio of 93.5 percent last year.

As of April 30, the company had net current liabilities of 295.1 million yuan, mainly because they acquired a 51 percent equity interest in Fusheng Life Services.

The company is reliant on its parent compared with its peers. Revenue from property management services provided to such properties accounted for 87.5 percent on average in the past three years.

However, the new independent third-party property developers generated lower management fees per sqm. It was only 1.5 yuan per sqm last year, dropping from 2.5 yuan in 2017. It is also below the average property management fee of 2.1 yuan.

The issuer plans to use the net proceeds to expand its business scale through multiple channels. A part of the funds raised will be used to improve the information technology system and smart technologies.