This section is based on a report written independently by the CIA and other public information. The CIA’s report obtains information from its database, interviews, public sources, and other sources. We believe that the information in this section has been obtained from appropriate sources, and have taken reasonable care in extracting and reproducing the information. We have no reason to believe that the information is false or misleading in any way, or that there is any factual omission that would render the information false or misleading. The information has not been verified by us, the Joint Sponsors, any of our or their directors, officers, employees, agents or representatives, or any other party (except the CIA) involved in the [REDACTED]. The information may not be consistent with that obtained from other sources inside or outside China. We, the Joint Sponsors, any of our or their directors, officers, employees, agents or representatives, or any other party (except the CIA) involved in the [REDACTED] do not make any representation as to the accuracy, completeness or fairness of the information. The information should not be unduly relied upon.
RESEARCH BACKGROUND AND METHODOLOGY
We have purchased for RMB400,000 the right to cite parts of the CIA’s report, supplementing them with publicly available information where appropriate. The CIA is an independent real estate research institution founded by more than 500 professional analysts.
This section relies heavily on the CIA’s study on the Top 100 Property Management Companies, which it has conducted since 2008. It focuses on the property management companies that have averaged either at least 10 properties or at least 500,000 square meters in GFA in the three preceding years. The CIA draws on multiple primary and secondary sources, including its own surveys, data from property management companies, the China Real Estate Index System (CREIS), the China Real Estate Statistical Yearbook and government agencies.
It produces an overall ranking for property management companies by looking at their management scale, operating performance, service quality, growth potential, and social responsibility. The assessment of potential for growth is in turn based on trends in revenue, GFA, as well as human resources.
The CIA’s report assumes that (i) the social, economic and political conditions of China and the world will remain stable in the forecast period; (ii) public policy regarding China’s property management and culture and sports operations industry will remain unchanged in the forecast period; (iii) the data reported by relevant statistical bureaus are accurate; and (iv) residential market data collected from local housing authorities are accurate.
Our Directors confirm, after making reasonable inquiries, that since the publication of the CIA’s report, there have been no significant adverse changes in market information which may materially qualify, contradict or have an impact on the accuracy or completeness of the information in this section.
ECONOMIC OVERVIEW OF CHINA AND THE GREATER BAY AREA OVERVIEW OF CHINA’S ECONOMY AND REAL ESTATE MARKET
China has experienced robust economic growth in recent years. Its GDP in 2020 was RMB101,598.6 billion, representing a growth by RMB2,947.1 billion (or 2.3%) in a year filled with challenges posed by the COVID-19 pandemic. Indeed, it was the only major economy in the world to have recorded positive growth that year. Its urban per capita disposable income grew at a CAGR of 7% between 2015 and 2020, bolstering economic stability and development.
China’s economic growth has driven the rapid development of its real estate market.
Between 2015 and 2020, investment in real estate development in China increased from RMB9.6 trillion to RMB14.1 trillion, meaning a CAGR of 8.1%. Meanwhile, the inelastic demand for investment provides another basis for the growth in China’s inventory housing market.
OVERVIEW OF THE ECONOMY AND REAL ESTATE MARKET IN THE GREATER BAY AREA
The Greater Bay Area is one of the more extensively developed parts of China. In 2019, the Greater Bay Area (mainland part) ranked first in per capita GDP (at RMB134,792) among the five main urban agglomerates in the country (while the national average was RMB70,579).
In terms of per capita disposable income, its RMB52,214 is second only to that of the Yangtze River Delta urban agglomerate.
The Greater Bay Area’s growth prospects are also reflected in its population trends.
Between 2015 and 2020, the population of the Greater Bay Area grew at a CAGR of 5.84%, which is substantially higher than the CAGR for the same period. The Greater Bay Area also tops the country with an urbanization rate of 86.30% among its permanent residents in 2019.
Real estate is no exception to the Greater Bay Area’s growth. One of the region’s hubs, Shenzhen, has recorded a five-year CAGR of 21.61% in real estate developmental investment.
Foshan, Zhuhai, Zhaoqing and Jiangmen are not far behind with CAGRs around 20%. The announcement of the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (《粵港澳大灣區發展規劃綱要》) in 2019 has been particularly impactful in encouraging strategic investment in the real estate industry. Guangzhou and Shenzhen have both recorded over RMB300 billion in real estate developmental investment.
CHINA’S PROPERTY AND CULTURE & SPORTS OPERATIONS INDUSTRY Overview
Since the PRC’s first property management company was founded by Shenzhen in March 1981, the country’s property management industry has undergone four decades of development. Proliferation and expansion of corporations have been accompanied by enhanced regulation. The industry has taken advantage of technologies such as the Internet, Internet of Things, big data, cloud computing, artificial intelligence and virtual reality in streamlining its services. The increased role and value of property management companies in capital markets have also propelled their growth.
The property management industry has multiplied in kind as well as in size. An increasing number of companies are branching off from traditional residential management services into the fields of public rental housing, non-residential property management (including public buildings) and urban operations services. The percentages of the areas under management of residential and non-residential properties of the Top 100 Property Management Companies are 67.73% and 32.27% respectively. Public rental housing typically serves middle- and low- income households and migrant workers. According to the CIA, Guangzhou has essentially completed the construction of 3,805 public rental housing units in 2020. It is expected that during the PRC’s 14th Five-Year Plan, Guangzhou will provide approximately 0.6 million indemnificatory apartments through urban renewal. These forms of state support have allowed the property management market to expand further.
The chart below shows the accumulative completed area of some non-residential areas in China from 2000 to 2020.
The accumulative completed area of some non-residential areas in China from 2000 to 2020
32.40
24.40
19.08
5.30
5.08
4.63
Unit: 100 million square meters
Plant and warehouse
Commercial house for business use Buildings for scientific research and education use Buildings for cultural, sports and recreational use
Buildings for medical use
Office building
Property management companies have also begun to take up the maintenance of infrastructure and landscape, sanitation, Street management, handling of order and emergency, urban innovation, reconstruction of old communities, and other opportunities presented by urban development.
In terms of culture and sports operations, the Several Opinions on Accelerating the Development of the Sports Industry and Promoting Sports Consumption (《關於加快發展體育 產業促進體育消費的若干意見》) of China’s State Council projects that by 2025, China’s sports industry will total more than RMB5 trillion in size, corresponding to a CAGR of 9.2%
between 2019 and 2025. Rising demand and public policy support have made culture and sports operations an increasingly attractive field for property management companies to enter.
The industry’s main pricing models
In China, property management fees may be charged on a lump sum or commission basis.
The former has been the norm for residential properties, on grounds of saving collective decision-making processes and incentivizing managers to provide efficient service. In contrast, commercial, public and industrial properties are increasingly adopting the commission model to better engage owners in management and in monitoring managers’ performance.
Main sources of revenue for a non-residential property manager or a culture or sports operator include rent and property management fees. A lump sum, commission or other model may be used in this field.
Overview of the Top 100 Property Management Companies
According to the CIA, between 2016 and 2020, nationwide GFA under management grew from 18.51 billion sq.m. to 25.91 sq.m., with a CAGR of 8.8%, while the average GFA managed by the Top 100 companies grew from 27.25 million sq.m. to 48.79 million sq.m., with a CAGR of 15.7%. This suggests increasing concentration toward the upper tier of the market.
Indeed, the combined market share of the Top 100 companies rose from 43.6% in 2019 to 49.7% in 2020. Meanwhile, the average number of projects for these companies increased by 15.1% from 212 in 2019 to 244 in 2020, with a CAGR of 10.1% from 2016 to 2020.
The Top 100 companies achieved an average revenue of RMB1,173.4 million in 2020, which was 86.9% higher than approximately RMB627.8 million of 2016. The CAGR from 2016 to 2020 was 16.9%. In basic property management, accelerated endogenous growth and continued expansion have resulted in steady growth in the revenue of Top 100 companies.
Their average revenue from basic property management in 2020 was RMB914.4 million, representing a year-on-year increase of 11.9%. As for the field of diverse portfolios, Top 100 companies have improved their profit margins by making full use of their own resources, grasping future trends, as well as innovating on the types and quality of services. In 2020, the Top 100 companies’ average revenue from diverse portfolios reached RMB259.0 million, representing a year-on-year increase of 16.1%.
Diagram: Movement and breakdown of revenue
for the Top 100 Property Management Companies in 2016-2020
Average revenue Average revenue from property management fees
Average revenue from diverse portfolio 0.0
500.0 1,000.0 1,500.0
627.8 742.1
886.2 713.3
1,040.2 817.1
223.1 1,173.4
914.4
259.0 172.9
607
135.1 519.3
108.5
2016
Unit: RMB million
2017 2018 2019 2020
Source: CIA
DRIVERS OF GROWTH FOR THE INDUSTRY Supply-side factors
According to the National Bureau of Statistics, the nationwide GFA sold for commodity housing reached 1,761 million sq.m. in 2020 and grew at a CAGR of 6.5% over the period from 2015 to 2020. In 2020, the new GFA under construction for commodity housing increased to 2,244.33 million sq.m., representing a year-on-year increase of 7.8%. The GFA sold for office buildings was 33.3 million sq.m. in 2020 and had a CAGR of 2.8% from 2015 to 2020. Despite a slight drop in GFA sold for commercial buildings between 2019 and 2020 (to 92.9 million sq.m.), its stock continues to increase. China’s urbanization is expected to be a continual driving force for the development of residential and commercial property alike.
In terms of public buildings, the areas of buildings for scientific research and education, buildings for medical use and office buildings constructed between 2000 and 2020 were 1,908 million sq. m., 508 million sq. m. and 463 million sq. m. respectively.
In terms of culture and sports operations services, according to the 2019 general stadium survey released by the General Administration of Sports of China, there were 3.5 million sports stadiums nationwide, with a sports field area of 2,917 million sq.m., and a domestic per capita field area of 2.1 sq.m. The development goals planned in the State Council’s document No. 46 in 2014 were completed ahead of schedule. Although there are still significant gaps between China and countries such as the United States (per capita field area 16 sq.m.) and Japan (per capita field area 19 sq.m.), the growing trend in the scale of China’s sports facilities is clear.
Diagram: Latest three general surveys conducted by the General Administration of Sports of China
Sports field area (million sq.m.)
Number of sports stadiums (1,000)
850.1
1,694.6
3,544.4 1,992
2,917
1,330
2003 0
500 1000 1500 2000 2500 3000
2013 2019 0
500 1000 1500 2000 2500 3000 3500 4000
Demand-side factors
China’s urbanization rate grew from 34.8% in 1999 to 60.6% in 2019, with an annual average increase in urban population of 20.6 million. Meanwhile, their average disposable income has risen at a 8.7% CAGR between 2010 and 2020, to a level of RMB43,834 (according to the National Bureau of Statistics). Consumer’s willingness and ability to pursue high quality property management service has caused the the GFA sold for commodity housing to reach 1,715 million sq.m. in 2019, which was 42.2% higher than that in 2014. At the same time, increased disposable income will also raise demand for high quality education, medical services, entertainment, and urban services. All these will increase the demand for non- residential property management services.
As for city management services, according to Research Institute of China Merchants Bank, the value-added services to the communities have a characteristic of rich business scenarios and diversified offering, and to some extent are independent of the cycle of real estate, and will become an important growth point of the industry profits.
According to the Announcement on Data on the Total Scale and the Increase in Value of the National Sports Industry in 2019 (《2019年全國體育產業總規模與增加值數據公告》) issued by the National Bureau of Statistics and the General Administration of Sports of China on 31 December 2020, the total output of the country’s sports industry was RMB2,948.3 billion. The RMB1,124.8 billion increase from the previous year accounted for 1.14% of the
country’s GDP. China’s per capita consumption expenditure on education, culture and entertainment also grew by 12.9% in 2019 to RMB2,513, accounting for 11.7% of consumption on average. This upward trend is expected to continue as living standards and emphasis on health continue keep rising.
Favorable policies
In June 2003, the Chinese government promulgated the Regulation on Realty Management (《物業管理條例》), providing a regulatory framework for the property management industry in China. Subsequently, a number of laws and regulations regulating various aspects of the property management industry have come into effect, and a number of policies have been promulgated to promote the development of the property management industry. Such laws, rules, and policies include but are not limited to the Guiding Opinions on the High-Quality Development of the Service Industry in the New Era (《關於新時代服務業 高質量發展的指導意見》), the Implementation Opinions on Further Expanding the Supply of Elderly Care Services and Promoting the Consumption of Elderly Care Services (《關於進一 步擴大養老服務供給促進養老服務消費的實施意見》), and the Action Plan on Intensifying Efforts for the Promotion of Public Services in the Social Sector in Addressing Inadequacies, Shoring Up Points of Weakness and Enhancing the Quality of Service and on Fostering the Formation of a Strong Domestic Market (《加大力度推動社會領域公共服務補短板強弱項提 質量促進形成強大國內市場的行動方案》) at the national level, and the Policy Measures on Accelerating the Development of Circulation and Promoting Commercial Consumption in the Guangdong Province (《廣東省加快發展流通促進商業消費政策措施》) at the Guangdong provincial level. An increasing number of guiding and encouraging documents targeted at the property management industry has been announced, indicating that the industry is being increasingly valued. On the one hand, these documents aim to promote the rapid integration of property management companies with smart cities, the Internet, community-based elderly care and other related fields, extending the frontiers of property management and transforming business models and philosophy. On the other hand, they seek to achieve industry innovation and upgrading, enhancing the role of property management in the promotion of economic development and livelihood improvement. In addition, the Guiding Opinions on Accelerating the Development of Public Rental Housing (《關於加快發展公共租賃住房的指導意見》) jointly formulated by seven departments including the MOHURD in June 2010, the Interim Measures for the Management of Public Rental Housing Assets (《公共租賃住房資產管理暫行 辦法》) jointly issued by the Ministry of Finance and the MOHURD in January 2019, the City Appearance Clean, Tidy and Orderly Safety Standard (Trial) (《城市市容市貌乾淨整潔有序安 全標準(試行) 》) issued by the MOHURD in December 2020, the Opinions on Strengthening and Improving Urban and Rural Community Governance (《關於加強和完善城鄉社區治理的 意見》) issued by the State Council in June 2017 and other policies, would also promote the development of non- residential property management.
On the culture and sports service industry front, on 13 March 2021, the Outline of the 14th Five-Year Plan for the National Economic and Social Development of the People’s Republic of China and the Long-Range Objectives Through the Year 2035 (《中華人民共和國 國民經濟和社會發展第十四個五年規劃和2035年遠景目標綱要》) was officially released to the public, under which sports has been positioned along with culture, education, and talent development as one of the four goals in strengthening the country. In addition, the Circular of the Office of the General Administration of Sports of China on Issuing the Key Work Points for Mass Sports in 2021 (《2021年群眾體育工作要點》), the Opinions of the General Office of the State Council on Strengthening the Construction of National Fitness Facilities and Developing Mass Sports (Guo Ban Fa [2020] No. 36), the Opinions on Fostering National Fitness and Sports Consumption to Promote the High-quality Development of the Sports Industry (《關於促進全民健身和體育消費推動體育產業高質量發展的意見》) issued by the General Office of the State Council, and a series of documents on promoting the professionalization of sports events and the “Internet + Sports” concept have all fostered the development of culture and sports operations services.
We believe that these policies will jointly create a supportive and orderly environment for the development of the property management industry, the culture and sports operations industry and for the relevant enterprises. Please refer to “Regulatory Overview” for more information on relevant laws and regulations in the property management and culture and sports operations industry.
Capital market support
Following the introduction of policies aimed at deepening capital market reforms, the capital market provides increasingly sizeable opportunities for property management and culture and sports operations companies to speed up their development. The domestic A-share market, the Hong Kong Main Board market, and the domestic NEEQ market have all become important forces driving the development of the property management and culture and sports operations industry.
New industry opportunities
In February 2020, the World Health Organization named a new type of highly infectious coronavirus as COVID-19. On 11 March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Please refer to the section on “Risk Factors—Risks Relating to Our Business and Industry—Our prospects may be adversely affected by the COVID-19 pandemic or other adverse public health developments” in this document. Although the COVID-19 outbreak may cause certain risks in the operation of property management and culture and sports operations companies, it also brings some opportunities. In early 2020, in order to curb the spread of COVID-19, the Chinese government implemented blockades and various quarantine and travel restrictions. As of the end of April 2020, most of the measures had been cancelled. Property management and culture and sports operations companies capable of providing quality services and meeting the needs of residents during the COVID-19 pandemic may have increased the satisfaction and loyalty of their customers.
In terms of non-residential property, the pandemic has aroused public awareness of health, thereby possibly increasing the demand for health services and leading to more opportunities for property management business for hospitals in the long run.
Sports companies have resorted to their own innovation as well as external help in rising to the challenge of these difficult times. As the pandemic is progressively ameliorated, sports operations companies are striking a balance between health measures and resumption of work, so as to lay a foundation for recovery. We believe post-pandemic policy incentives and urge for consumption will bring new growth to the sports industry.
INDUSTRY TRENDS
PROPERTY MANAGEMENT INDUSTRY TRENDS
Continuous expansion in the scale of property management and improvement in operational performance
Data from the CIA shows that the total GFA under management nationwide increased from 18.51 billion sq.m. to 25.91 billion sq.m. during the period from 2016 to 2020, growing at a CAGR of approximately 8.8%. In the same period, the GFA under management for the Top 100 Property Management Companies continued to increase. In 2016, the total GFA of projects under management for the Top 100 Property Management Companies was 27.3 million sq.m.
on average. In 2020, the total GFA of projects under management for the Top 100 Property Management Companies was 48.8 million sq.m. on average. A CAGR of 15.7% over the period from 2016 to 2020 was recorded, and expansion in the scale of management was significant.
The average number of projects under management for the Top 100 Property Management Companies in 2020 was 244, representing an increase of 32 projects or 15.1% over 2019, and a CAGR of 10.1% over the period from 2016 to 2020. The market share of the Top 100 Property Management Companies in 2020 reached 49.71%, representing an increase of 6.1 percentage points from 43.6% in 2019. The market share of the Top 100 Property Management Companies continued to increase.
Movement and Trend of the Service Scale
of the Top 100 Property Management Companies in 2016-2020
GFA under management
Number of projects under management
Market share 31.6
29.4%
Unit: million sq.m., project
32.4%
38.9%
43.6%
49.7%
37.2 42.8 48.8
192 212
244
166
2016 27.3 0 50 100 150 200 250 300 350
2017 2018 2019 2020 0
10%
20%
30%
40%
50%
60%
178
Source: CIA
In 2020, the Top 100 Property Management Companies achieved a new high in revenue with average annual revenue reaching RMB1,173.4 million, representing an increase of 86.9%
from RMB627.8 million in 2016, and recording a CAGR of 16.9% over the period from 2016 to 2020. In the field of basic management service, the Top 100 Property Management Companies benefited from accelerating endogenous growth and continued expansion, and the income from basic property management service grew steadily. The average income from basic property management service for the year was RMB914.4 million, representing a year-on-year increase of 11.9%. In the field of diverse portfolios, Top 100 companies have improved their profit margins by making full use of their own resources, grasping future trends, as well as innovating on the types and quality of services. In 2020, the average income from diverse portfolios for the Top 100 Property Management Companies reached RMB259.0 million, representing a year-on-year increase of 16.0%.
Characteristics of non-residential businesses
The non-residential property management market is characterized by milder competition, higher management fees, higher collection rates of management fees, and relative ease of raising fees, compared with the residential property management market. In 2020, the average property management fee for projects managed by the Top 100 Property Management Companies was RMB3.84 per sq.m. per month. The usual range for management fees for non-residential property is RMB2-15 per sq. m. per month. Breaking down into categories, the fees for office properties, commercial properties and hospital properties were all above RMB6 per sq.m. per month, which were RMB6.93 per sq.m. per month, RMB6.23 per sq.m. per month and RMB6.24 per sq.m. per month, respectively; the fees for public properties, industrial park properties, school properties and other types of properties were RMB3.41 per sq.m. per month, RMB3.29 per sq.m. per month, RMB3.26 per sq.m. per month and RMB4.01 per sq.m. per month, respectively; the fee for residential properties was RMB2.05 per sq.m. per month, which was the lowest among the categories.
The “property + technology” business model
With the promotion and application of technologies such as digitalization, informatization, and intelligentization in the property management industry, property management companies actively draw on the integration of property and technology in innovating their business practices to reduce cost and enhance efficiency. On the one hand, the Top 100 Property Management Companies improve efficiency by promoting the automation and standardization and intensification of management systems, by conducting visual monitoring based on centralized data, and by improving resource allocation through the use of management support platforms. On the other hand, making use of artificial intelligence, the Top 100 Property Management Companies organically link up smart hardware, IoT sensors and
other equipment for information interaction, and coordinate “indoor + outdoor + special”
service robots to improve management and service efficiency, bringing high-quality service experience to property owners and residents, and effectively improving operational efficiency and service quality.
Enterprises deepen the application of science and technology, accelerate the improvement of service quality, and reduce the cost of service to further increase profitability. At the same time, with the continuous upgrading of technology, listed companies have gradually shifted their technical application focus from the basic “Internet+” to “Smart+” and “5G”, accelerating the process of intelligentization. In 2020, about 30 of the Top 100 Property Management Companies invested more than RMB10 million in intelligentization, and the majority of the companies invested between RMB3 and 7.5 million in intelligent research to further improve their operational efficiency.
CULTURE AND SPORTS OPERATIONS INDUSTRY TRENDS
The number of stadiums continues to grow, and new stadiums are mostly operated by professional management companies
According to data of the 2020 general survey of the General Administration of Sports of China, China’s sports venues were mainly public institutions by nature, and the area of sports stadiums being public institutions was approximately 1,388 million sq.m., accounting for 44.79% of the total.
Diagram: Breakdown of national sports venues by institution in 2020 (in million sq. m.)
Public
institutions Enterprises Village
committees Neighborhood committees Authorities Non-public
institutions Others 1,388
559 585
304 119
55 89
The Opinions of the General Office of the State Council on Promoting National Fitness and Sports Consumption to Promote the High-quality Development of the Sports Industry (《國務院辦公廳關於促進全民健身和體育消費推動體育產業高質量發展的意見》) gives top priority to “deepening the reforms of delegating power, streamlining administration and optimizing government services to release the potential for development” and states that new stadiums invested by the government shall be entrusted to a third-party enterprise to operate instead of being managed by a separate public institution. Going forward, driven by national policies on deepening the reform of stadium operation and management, it is expected that more stadiums will be managed by third-party companies, and the room for market-oriented operation and management of stadiums will gradually increase.
The sports service industry occupies an important position in the sports industry Looking at the internal structure of the sports industry, the sports service industry has maintained a good momentum of development. In 2019, it recorded an increase of RMB761.5 billion in value, accounting for 67.7% of the value added in the sports industry which is an increase from the previous year. Among different lines of business, the value generated by the sale, rental and trade agency business for sports goods and related products was the largest, recording an increase of RMB256.2 billion in value, accounting for 22.8% of the value
increased in the entire sports industry. The increase in value generated by the manufacturing of sports goods and related products was RMB342.1 billion, accounting for 30.4% of the value added in the entire sports industry. The increase in value generated by the construction of sports facilities was RMB21.2 billion, accounting for 1.9% of the value added in the entire sports industry. The market demand and economic scale of the sports industry have increased year by year, and the sports service industry has maintained a good momentum of development.
The sports service industry is gradually becoming standardized, healthy and diverse In January 2020, the General Administration of Sports of China promulgated the Measures for the Administration of Sports Events and Activities (《體育賽事活動管理辦法》), proposing simplification and improvement of approval processes for sports events and activities. It was pointed out in the Guiding Opinions on Expanding Investment in Strategic Emerging Industries to Cultivate and Grow New Sources and Poles of Growth (《關於擴大戰 略性新興產業投資培育壯大新增長點增長極的指導意見》) that the digital creative industry is encouraged to integrate its development with tourism, sports and other sectors to stimulate market consumption vitality and provide diverse consumption experiences including smart sports.
Intelligentization of sports stadium management
The development of stadiums have been characterized by intelligentization and informatization. The relatively obsolete hardware and backward software at some of the country’s stadiums are soon to be transformed by increasing demand for sports events, driven by government policy, public enthusiasm for fitness and entertainment, and the “Internet +”
trend. The installation of LED displays, enhanced lighting and sound control, environmental monitoring, traffic statistics, and reservation and notification systems are specific ways to utilize the facilities more fully in improving user experience.
COMPETITION Competitive landscape
While China’s property management industry is still highly dispersed, concentrating tendencies in market share are increasingly apparent in recent years. The Matthew effect of accumulated advantage has led to a divergence between larger corporations, which are able to grow at an increasing pace, and smaller corporations, which strive for operational stability in this specific market segments. The average GFA under management for the top 10 companies recorded was 264 million sq.m., representing a year-on-year increase of 27.57%. The situation in which the strong ones stay strong is notable.
Revenue from basic management service as a percentage of the total for the Top 100 Property Management Companies has been slowly decreasing year by year, with a cumulative decline of 2.56 percentage points over the period from 2018 to 2020. In comparison, the top 10 companies are moving faster than others in terms of optimizing revenue structure. In 2020, revenue from basic management service for the top 10 companies accounted for 64.16% of the total, which is lower than that of the Top 100 Property Management Companies by more than 13 percentage points, reflecting that the top 10 companies have greater initiative in terms of optimizing the revenue structure.
Average net profit margin for the top 10 companies by operating performance was 13.89%, which is higher than that of the Top 100 Property Management Companies by close to 5 percentage points. Enterprises achieve scale economies and synergy effects by expanding management scale, developing multiple value-adding services, and improving portfolios. At the same time, good profitability has resulted from deepening the application of technology, improving work efficiency, reducing cost and increasing efficiency. In 2020, average revenue for the top 10 companies by operating performance reached RMB7.741 billion, and average gross profit and net profit were RMB2.133 billion and RMB1.151 billion, respectively. Average gross and net profit margins were all higher than those of the Top 100 Property Management Companies, indicating that they had outstanding profitability.
In non-residential property management, including public buildings, there are relatively few dominating corporations, resulting in a less competitive landscape for property service providers seeking to venture into such fields.
In terms of culture and sports operations, benefiting from the rapid increase in the degree of commercialization of existing events, the domestic sports event market is in a stage of rapid growth, which however is constrained by a lack of traffic effects generated by top-tier events.
Overall, the sports event market still has long-term investment value, especially for relevant projects and companies that have the potential for the development of top-level events.
According to the 2020 general survey of the General Administration of Sports of China, about half of the stadiums were operated independently by public institutions, some by municipal and village committees and neighborhood committees, whereas the percentage managed by third-party operators was not very high. The competitive landscape was highly fragmented, and there was no leading enterprise at the moment. The operators were divided into two major factions, which are professional management enterprises with a State-owned background, and private enterprises that have obtained the right to operate. In the early stage of industry development, many stadium operators were inseparable from government support, and thus a group of stadium management companies with a State-owned background was formed. Among them, the more representative ones were China Sports Event Management, Huati Century, and National Stadium Co., Ltd. With the rapid development of the sports industry, many private enterprises have also made investment in the stadium operation industry.
Our competitive position in the industry
We are a wholly-owned subsidiary of Guangzhou Pearl River Enterprises Group Ltd.
(abbreviated as Pearl River Industrial Group), an enterprise directly supervised by the State-owned Assets Supervision and Administration Commission of the State Council in Guangzhou. In July 1987, we were established due to the need of Pearl River Industrial Group to cooperate with foreign parties on the operation and management of the newly constructed Guangzhou Garden Hotel. In 1992, we joined hands with a business partner to take over the management of Guangzhou World Trade Center Complex, formally entering the field of property management. Since then, we have gradually established ourselves in the global industry by learning from foreign management experience and introducing our own improvements, as well as through our enterprising participation in diverse lines of business.
Taking advantage of our leading position in the industry and our brand influence, we actively carried out the strategy of diversified operation, and expanded our business into 28 cities across 14 provinces in China, with 431 projects under management. We operate through three major business segments: commercial and public facilities management services, urban living services and urban culture and sports operational services. It ranks 19th in the election of “China’s Top 100 Property Management Companies in 2021”1. We possess certain advantages in terms of third-party business development: in 2020, GFA under our management was 31.9 million sq.m., of which GFA from third-party business development was 25.5 million sq.m., ranking tenth among the Top 100 Property Management Companies in Guangdong Province, and GFA developed from third-party business development accounted for 80.1% of the total GFA under management, ranking ninth among the Top 100 Property Management Companies in Guangdong Province.
One of our subsidiaries, Pearl River Culture Sports, is an enterprise that participates in the investment in and general build-operate-transfer (BOT) contracting of primarily government-invested large-scale public sports facilities. It is a pioneer of domestic sports stadium operation and management reforms. The company actively expands the stadium management portfolio, and by leveraging the resources of the diverse industries in which Pearl River Industrial Group operates, enriches the content of the culture and sports industry, pushes the integration of sports and culture with elderly care service, cultural creativity and design service, education and training, etc. and promotes the development of sports and cultural tourism, sports and cultural media, culture and sports conventions and exhibitions, culture and sports advertising, sports-related entertainment, film and television and other related services.
It aims to promote the synergy between sports, culture, housing, leisure, and commerce.
Note:
(1) Every year, CIA publishes a ranking of the top 100 China-based property management companies by overall strength. CIA compiles the ranking through the evaluation of each company in terms of relevant key factors, including but not limited to management scale, operating performance, service quality, growth potential and social responsibility. For more details, please refer to “Industry Overview—Research Background and Methods”.
Pearl River Culture Sports is committed to becoming the largest comprehensive operator in the Chinese culture and sports industry. With its dedicated development of large-scale stadium management in the past 20 years, Pearl River Culture Sports has successively provided service for the 16th Asian Games, the 2019 FIBA Basketball World Cup, the 49th World Table Tennis Championships, Sudirman Cup and other top events. In 2020, among the Top 100 Property Management Companies which provide culture and sports operation serve, we rank 1st in terms of the area under management of culture and sports stadium.
Entry barriers
According to the data of CIA, the barriers to enter the Chinese property management industry mainly include:
(1) Brand: Brand is vital to the development and expansion of property management companies. As the quality of residents’ consumption improves, the level of the property management industry as a whole increases and competition in the industry intensifies, higher requirements have been placed on the quality of property management. A long history, goodwill, and a reputation for high quality service are needed to secure high quality business opportunities. Therefore, brand has become an important barrier for the property management industry;
(2) Capital: With the expansion of scale, property management companies pay greater attention to the technological innovation, which is characterized by automation and intelligentization, and enhance management efficiency by purchasing machinery and equipment to replace labor, building enterprise information management systems, gradually promoting community-based intelligence, gradually developing themselves from labor-intensive to technology- and capital-intensive companies, thereby raising the industry’s funding barriers;
(3) Management: As the competition of the property management industry continues to intensify, management teams and their management experience have gradually become an important factor in the core competitiveness of enterprises. As excellent property management companies have their own characteristics in terms of property management content, information system application, financial management, etc., they have significant advantages in taking larger projects, thus forming an entry barrier to a certain extent.
(4) Professional talents and technology: Mid- and high-level talent in the management and technical realms, as well as stable long-term mechanisms for nurturing such human resources, is vital for successful operation in this labor-intensive industry. As big data and Internet technologies enable property management companies to innovate on their business models, professional talent is needed even more prominently.
The barriers of entry to China’s culture and sports operations industry mainly include:
(1) Business development capabilities: Sports managers in China can be categorized into those with state-owned background and private enterprises. Due to heavy reliance on the public sector in the early stages of the industry’s development, the private sector has had a relatively short history and small market volume, especially with regard to the subsectors of sports marketing, stadium management, and fitness service. Moreover, state-owned enterprises have the advantage of better connection with the government and various sports associations. Barriers to competition are thus formed.
(2) Professional service capabilities: The operation and management of culture and sports stadiums have specialized characteristics that are different from general property management service. For example, it is necessary to have a high degree of professionalism in the maintenance of stadium facilities and equipment, the management of and support to events and activities, as well as the order maintenance, safety management and emergency handling during periods of high traffic. Once some companies have accumulated ample experience and knowhow in the field, barriers to competition will also be formed.
(3) Scale: Stadium management companies with sizable operations are more likely to enjoy economies of scale and build competitive advantages in controlling costs and managing risks. Therefore, scale also constitutes a barrier to competition for new entrants.
