On July 19th, 2017, Wanda Commercial Properties Co., Ltd., SUNAC China Holdings Ltd. and R&F Properties Co., Ltd. respectively and simultaneously signed an agreement to transfer 77 hotels, including Wanda Realm Beijing, to R&F Properties, as well as the agreement to transfer 91% of the equity of 13 cultural tourism projects in such cities as Xishuangbanna, Nanchang, Hefei, Harbin, Wuxi, Qingdao, Guangzhou, Chengdu, Chongqing, Guilin, Jinan, Kunming and Haikou to SUNAC China Holdings Ltd. All parties hereby agree as follows:
I. R&F Properties acquires all equities of the above-mentioned 77 hotels for RMB19.906 billion, pays the down payment of RMB2 billion within two days after signing the agreement, and all of the remaining sum prior to January 31st, 2018 for the closing of the hotels. The former hotel management contracts will not be subject to the transfer, and shall still be performed until the expiration thereof.
II. SUNAC acquires 91% of the equity of the above-mentioned 13 cultural tourism projects at the price of RMB 43.844 billion, and bears all existing loans of about RMB 45.4 billion after the closing of the projects. RMB15 billion will be paid upon the signing of the agreement, and all of the remaining sum shall be paid off within 90 days after execution of the agreement for the closing of the projects (payment for some individual projects shall be made after the closing conditions are met).
III. Wanda Commercial Properties and SUNAC agree to maintain the cultural tourism projects unchanged in four aspects after closing:
1. Unchanged brand: the brand of “Wanda Cultural Tourism City” shall still be applied for the properties;
2. Unchanged planning: the projects shall still be developed and constructed in accordance with the plans and contents approved by the government;
3. Unchanged project construction: the design, construction and quality of the self-owned properties shall still be managed and controlled by Wanda;
4. Unchanged operation and management: the operation and management of projects shall still be undertaken by Wanda.
IV. SUNAC and R&F Properties consider entrusting Wanda Commercial Properties and Wanda Film to manage all commercial centers and cinemas invested and developed in the future. The three parties agree to establish comprehensive strategic cooperation in multiple fields, including cultural tourism projects and film.
ABOVE PHOTO: Wanda Group Chairman Wang Jianlin meets with Sun Hongbin, Chairman of Sunac China Holdings， and Li Sze Lim, Chairman of R&F Properties Co., Ltd before the signing ceremony. Courtesy Wanda Group.
I will begin my speech with a little joke: Because the agreement we were going to sign was quite long as it involves a major transaction, it took us a bit longer to have it printed. However, as we waited in the meeting room for it to be printed, so that we could then sign it, we watched a live webcast that said we had a mess of terrible quarrels with the hurling of eyeglasses. You see, that’s exactly how a rumor starts.
Distinguished Chairman Sun Hongbin, Chairman Li Sze Lim and Chairman Zhang Li:
Distinguished guests and dear friends:
First of all, I would like to extend my warmest welcome to everyone present and congratulate you on the strategic cooperation agreement signed between Wanda Commercial, SUNAC China and R&F Properties!
Wanda Commercial and SUNAC China signed the preliminary framework agreement on July 10th, and today a new agreement for three-party strategic cooperation was signed by Wanda, SUNAC and R&F. I believe we will all be winners in the effort, having combined their considerable enterprise strategy and business logic.
Wanda is definitely a winner, as this transfer will bring forth a significant reduction in our liabilities and the extensive recovery of cash. The signing of the agreement also signifies that Wanda’s commercial and cultural tourism operations have embarked into a new era of “asset-light” brand management. In today’s China, perhaps Wanda is the only enterprise that can achieve economies of scale and make a profit through managing commercial centers and cultural tourism brands.
SUNAC China is a winner as well, as this transfer will give it access to 13 Wanda Cities and low-cost for-sale properties covering 48 million square meters located in first- and second-tier cities. This will considerably increase the consolidated revenue and profits in its financial report, by which SUNAC China, within just two years, can become one of the top two real-estate enterprises in terms of income. For SUNAC, it is worth acquiring the cultural tourism projects by paying a higher price, without acquiring the hotel properties. The company has been able to complete and simplify the transaction process without borrowing from Wanda. Today, SUNAC China has transferred the first payment of RMB15 billion to Wanda Commercial.
R&F Properties is another part of this winning triumvirate. Thanks to a sophisticated hotel development strategy, it has opened and constructed 24 luxury hotels around the world. Following its takeover of 77 Wanda hotels at a relatively low price, R&F will own more than 100 hotels and become the world’s largest owner of five-star hotels. Consider the global picture, and you’ll see that such a low-cost acquisition is a once-in-a-lifetime opportunity. With certain financial strategy, R&F may well improve its hotel yield to a very desirable level.
With such a large-scale cooperation that involves complex transactions, Wanda, SUNAC and R&F have demonstrated professionalism and mutual trust by achieving a detailed agreement and have it signed today in less than a month from the start of the negotiations. Therefore, on behalf of Wanda Commercial, I will offer heartfelt thanks to Chairman Sun Hongbin, Chairman Li Sze Lim and Chairman Zhang Li as well as the respective teams of the three parties.
Today I would also like to share something that might interest you. Many people are concerned about the liabilities of Wanda Commercial. However, while most of them care about it out of real concern, a few spread rumors and attempt to make trouble. Wanda Commercial platforms produce direct employment for nearly two million people and indirect employment for more than ten million people, with annual new-job creation accounting for 2% of the country’s total. As the saying goes, one may harm others to benefit himself, but I don’t really see how such rumors can benefit those who spread them. To make clear an economic concept, the liabilities of real-estate enterprises do not equate to borrowing. The pre-selling of commercial residential buildings is considered a liability, but it is converted into income upon the completion of construction. In this sense, the greater the pre-sell amount is, the greater the liability will be. Today I can tell you the financials of Wanda Commercial: Once the transfer is completed, Wanda Commercial will have nearly RMB200 billion yuan in loans plus bonds. With book cash of RMB100 billion yuan (excluding RMB30 billion yuan book cash for the 13 cultural tourism projects) and RMB68 billion yuan recovered cash from this transfer, Wanda Commercial has approximately RMB170 billion yuan in cash. We have decided to pay off most of our bank loans. Wanda also has RMB130 billion yuan of for-sale property inventory. By selling all of them, Wanda Commercial can recover tens of billions. By the end of this year, Wanda Commercial will own 33 million square meters of commercial properties, with rent that will surpass RMB33 billion yuan in 2018. It is projected that, in terms of rent, Wanda Commercial will enjoy an average annual growth rate of approximately 20% over the coming five years. Is Wanda Commercial running a good business? You can make your own judgment.
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