Guangzhou-based Yuexiu Property this month issued an announcement to the Hong Kong Exchange, saying the company intends to dispose of its 100 percent equity interest in its subsidiary Guangzhou Yuehui Property, which holds Yuexiu Fortune World Plaza in Guangzhou’s Liwan District.
The Guangzhou government-controlled developer hasn’t disclosed financial details of the proposed disposal, however, Yuexiu is understood to be selling the 266,000 square metre (2,863,200 square foot) wholesale distribution centre in an effort to improve its cash flow.
The announcement of the planned disposal of Yuexiu Fortune World Plaza came after Yuexiu reported years of declining revenues for the property, and just days after the developer announced a new chairman on August 14th.
Declining Revenues Lead to Sale Plan
“The Company considers that the proposed disposal is expected to improve the asset turnover rate and generate a significant cash inflow, thus enhancing the Group’s ability to acquire additional land parcels or equity interests in other property companies,” the announcement said.
Yuexiu had acquired the site for the project, which primarily serves as a home for footwear traders, for RMB 1.7 billion in 2007, and opened the finished commercial center at 93 percent occupancy in 2013, according to news reports at the time.
However, in Yuexiu’s 2014 annual report, the company’s management noted a 46.4 percent drop in rental income from the previous year, and stated that, “the main reason for the income drop was due to the tenant structural adjustment of Yuexiu Fortune World Plaza.”
In 2015 Yuexiu reduced its valuation of Fortune World Plaza to RMB 788 million and after leasing income continued to slump, in the 2016 report said, “since the operation performance doesn’t match early expectation, the market value of Fortune World Plaza has dropped to RMB 380 million.”
Lin Zhaoyuan, the company’s general manager at the time, told the board of directors that the drop in rental income for Yuexiu Fortune World Plaza, was mainly due the negative impact of the European economic slide on sales of footwear at the centre, as it failed to attract European buyers.
Guangzhou Government Selects New Chairman
Yuexiu Fortune World Plaza may be leaving Yuexiu’s portfolio at the same time that the developer’s board is welcoming a new chairman.
Lin Zhaoyuan, formerly vice chairman and general manager of Yuexiu, was appointed as the developer’s new chairman after the company’s former head Zhang Zhaoxing had resigned on August 14th.
In the same announcement that introduced their new chairman, Yuexiu revealed that Lin Feng, a former director and deputy general manager of Guangzhou City Construction & Development, would take over Lin Zhaoyuan’s position as the group’s vice chairman and general manager.
The company said the change of board of directors is in response to the request of Guangzhou Municipal People’s Government.
Aiming for RMB 100B in Sales Revenue by 2020
According to its most recent annual report, Yuexiu recorded contracted sales of RMB 40.87 billion in 2017, an increase of 35.2 percent over the previous year.
The developer’s former executive director Zhao Zhaoxing in an earnings presentation in February, that Yuexiu has set the target of achieving annual sales revenue of RMB 100 billion by 2020, according to an account in Shanghai’s 21st Century Business Herald.
Now, with the disposal of Fortune World Plaza, Yuexiu saw an increase of 0.72 percent in Hong Kong Stock Exchange on Monday after the disposal was released.