China's largest real estate developer in terms of sales, China Evergrande, is selling 223 of its commercial properties in what has been seen as a sign of its continued struggle to stay profitable amid the continued economic slump. The liquidation of part of its assets also comes after the company had issued two back-to-back profit warnings last year.
The list of properties that are being put on sale had been posted on a WeChat account named "Distressed Asset Industry Observations." The post eventually made its way into other online platforms, raising concerns on the financial state of the country's top developers amid the increasing office and commercial space vacancy rates and the sharp decline in new home sales.
China Evergrande eventually confirmed that the properties on the list were indeed for sale. However, the company noted that the sale was part of its "normal" activities and that it does point to it undergoing any kind of financial distress. The developer added that it simply listed the 223 properties so that brokers and sales teams can better facilitate the transactions.
Despite its statement, experts have noted that the list has raised some concerns over the company's ability to pay down its debts. As of December last year, China Evergrande's debts had grown by around 19 percent to 800 billion yuan. Around 47 percent of its standing debts are due to be paid this year, with another 25 percent that will be due before the end of 2021. According to its 2019 earnings report, the company's available cash stood at only around 229 billion yuan.
Given the dire state of the commercial real estate sector, China Evergrande had issued two consecutive profit warnings. In March of last year, the company stated that it would likely not be able to hit its profit goals for 2019. The company then issued a similar warning in August of last year. With the spread of the coronavirus pandemic, which resulted in lockdowns and shelter-in-place orders, the company's prospects of hitting its goals this year remain bleak.
Analysts at 58 Anjuke Real Estate Research Institute had pointed out that the sale of commercial properties from major developers is likely to continue over the next couple of years as more companies try to offload unprofitable assets. With the continued contraction of the country's economic and the surging office vacancy rates in major Chinese cities, property developers will likely want to mix up their portfolios.
Apart from China Evergrande, a number of other Chinese property developers have been offloading their commercial properties in an attempt to boost liquidity. Soho China had reportedly offloaded a good chunk of its commercial real estate portfolio, estimated to be worth more than $8 billion. Meanwhile, Dalian Wanda had sold a number of its hotels and cultural properties to Sunac China Holdings and R&F Properties.
