On August 23, Longhu Group announced its semi-annual performance for 2024.

According to the disclosure, in the first half of 2024, Longhu Group achieved a total operating income of 46.86 billion yuan, with a core net profit attributable to shareholders of 4.75 billion yuan, both revenue and profit have declined.

Longhu's financial report also has wrinkles, among which, the performance of the development business sector has dragged down the overall performance.

In the first half of the year, the business sector's operating income fell to 33.76 billion yuan, reflecting the fading of the once glorious era of real estate development.

In the process of the industry's overall profit margin transitioning towards the manufacturing industry, Longhu's performance also had to slow down.

However, looking at the entire real estate industry, what has been lost is far more than what Longhu has lost.

According to statistics, among the listed real estate companies that have disclosed their semi-annual performance forecasts, more than half are expected to be in deficit.

The topic that lingers around more real estate companies is the question of survival.

Fortunately, "survival" has not yet become a concern for Longhu.

In the first half of 2024, Longhu's debt structure is still being continuously optimized, and its financial situation is still affirmed by investors.

As of August 23, the prices of most domestic corporate bonds issued by Longhu Group have been stable above 90 yuan.

During the reporting period, Longhu's three major business sectors, including operations and services, are still growing and have contributed to 80% of the core net profit.

All business actions still have a traceable method, opening three new Tianjie malls, launching a new asset management flagship brand, expanding property management to broader urban scenarios, expanding the scope of agency construction business, etc., are still orderly advancing in the established logic and planning.

However, Longhu, which is striving to go through the cycle, is not easy.

Facing the continuous fluctuation cycle, no real estate company can ignore the challenge of "surviving".

In the painful period of switching between old and new development models, Longhu is also striving to achieve its "two transformations" and adapt to the direction of the river's flow.

"The first transformation": debt structure transformation In the first half of 2024, a series of positive measures for regulatory optimization, although it has caused waves in the real estate market, the national commercial housing sales volume from January to June is still only fixed at 4.7 trillion yuan.

Entering the third year of the fluctuation cycle, the panic, impatience, and even anger of real estate companies have gradually evolved into a sense of powerlessness.

The surviving elite, who started from 18 trillion yuan, began to adapt to a market scale of 9-10 trillion yuan that returned to the residential attribute like a fledgling.

Facing the rapidly shrinking new housing market, Longhu is also looking for a way out under the market background where sales have peaked and profit margins are limited.

Longhu, which has always been financially stable, has put debt reduction at the forefront.

Data shows that after the industry scale peaked in 2021, Longhu Group's interest-bearing debt began to decline significantly from 2023, and as of the end of the first half of 2024, Longhu Group's interest-bearing debt was 187.4 billion yuan, a decrease of 5.2 billion yuan from the beginning of the year; the asset-liability ratio excluding advance payments continued to decline to 58.6%, a decrease of about 8 percentage points from the end of 2021.

In the old model driven by debt, increasing leverage to expand scale is the choice of the majority of the industry.

However, Longhu did not blindly be optimistic.

This old-established company has studied the "death methods" of various companies at the beginning of its establishment and has expressed its awe of industry cycles and risks with a prudent financial attitude and early layout of operational businesses for many years.

As a result, Longhu has become one of the earliest real estate companies to write "reduce debt" into its financial report.

With the industry entering a new development cycle, Longhu, which has once again examined the development proposition, relies on the "internal driving force" that was laid out in advance to practice the direction of breaking through the old model.

Since 2023, Longhu Group's long-term investment in business, long-term rental apartments and other channels has begun to contribute positive operating cash flow, coupled with property management and smart construction, two light asset channels, Longhu has four channels of business that feed back to the overall situation with internal driving force.

In the first half of 2024, the above four businesses still provide positive operating cash flow to reduce debt.

To solve the problems in development with continuous and stable development, Longhu, driven by internal forces, will not be constrained by the scale of debt, and relying on a rich composition of operational businesses, also wins extra space and time for Longhu's debt structure optimization.

During the reporting period, Longhu Group added 21.9 billion yuan in operational property loans, and as of August 23, 2024, it has repaid 10.7 billion yuan in domestic public bonds, and only 1 billion yuan of public bonds will be due in the remaining year.

Compared with credit loans, operational property loans, which are anchored by self-holding assets, naturally have advantages such as low cost and long account period.

In 2024, thanks to policy support, the value of operational property loans continues to expand.

As of the end of the first half of the year, the average contract loan term of Longhu Group has been extended to 9.19 years, and the financing cost has been reduced to 4.16%.

Based on the new environment, Longhu has built "two capital closed loops" - to reduce interest-bearing debt with positive operating cash flow, and to repay credit financing with the increase of operational property loans, turning debt reduction into a sustainable long-term behavior.

At the performance meeting, the management of Longhu Group explained the significance of this debt structure transformation.

First, it can reduce Longhu's debt level; second, it can match the rhythm of debt repayment with the rhythm of operational income.

In its timetable, by the end of 2025, Longhu will completely complete the debt structure transformation of new and old momentum.

"The second transformation": the transformation of income and profit structure When the transformation of development momentum and debt structure both point to operational businesses, Longhu conveys its insights into the new development model to the outside world.

Corresponding to the development business, operational business is also known as the second curve of the real estate industry.

In the past, Longhu has long started to pay attention to the investment in the second curve.

Among them, the widely known action in the industry is to use 10% of the sales repayment for investment and precipitation of operational assets every year.

In the investment cycle of more than ten years, these real gold and silver in the high-speed development of real estate have given birth to a matrix of nearly 200 billion yuan of operational assets of Longhu.

Originating from the scale that matches the current debt, Longhu has the confidence to transform the debt structure.

On top of this, Longhu hopes to achieve the "second transformation" in the structure of income and profit through operational businesses.

In the first half of this year, Longhu Group's operational income reached 13.1 billion yuan, a year-on-year increase of 7.6%, accounting for 28% of the total income, and the contribution to the core profit increased to more than 80%, with the high profit margin of operational businesses, smoothing the profit curve in the cycle.

According to the plan, Longhu hopes to complete the transformation of the business income structure with more than half of the operational income by 2028.

At that time, the transformation of the business income structure will be completed, and Longhu will officially complete the transformation of new and old momentum.

However, in the context of de-stocking, it is also not easy to increase the revenue and profit of operational businesses.

Business investment, long-term rental apartments and other businesses no longer have additional cash flow support, and the increasingly crowded property management, smart construction and other light asset businesses also need to expand more space with differentiated capabilities.

In the financial report, Longhu shows its active preparation.

In the first half of the year, Longhu's business newly opened three shopping malls, and through the transformation and operation promotion of the top stock projects, the overall sales volume and daily passenger flow have achieved a double-digit year-on-year increase.

As of the end of the period, the cumulative number of shopping malls in operation has reached 91.

Given the stock of commercial properties in hand, it is expected that 10 shopping malls will open in the second half of the year, and it is expected to maintain a pace of opening about 10 shopping malls per year in the next two years.

During the reporting period, Longhu integrated the six major businesses of long-term rental apartments "Guan Yu", industrial city office "Blue Ocean Engine", vibrant blocks "Huan Si", serviced apartments "Xia Fei Mansion", women and children's hospital "You You Baby", and retirement apartments "Chunshan Wan Shu", launched a new asset management flagship brand Xiao Yao Zhou Asset Management, forming a full cycle, full format asset management platform from young to old, with a new asset management operation logic to find more opportunities in the stock market.

Among them, as the basic plate of the business, the long-term rental apartment "Guan Yu" continues to iterate the quality, and continues to land the 4.0 product nationwide, with the end of the period rental rate increasing to 95.6%.

At the end of the first half of 2024, Longhu Zhichuang's property management business is in charge of an area of 3.7 billion square meters, and the customer satisfaction has been over 90% for 15 consecutive years.

With the help of technology, the management efficiency is improved, and the service quality is continuously optimized.

In addition to extending the service radius to the first-line scenes of office spaces under Huawei, JD.com, Xiaomi, Ant, Alibaba, NetEase, etc., and public facility scenes such as Shanghai Hongqiao Airport and its field area, it has expanded a larger imagination space in the business enterprise service.

The smart construction business, which was born from Longhu's more than 30 years of ability precipitation, added 26 agency construction projects in the first half of 2024.

In the managed sales format projects, the cumulative sales in the first half of the year reached 4 billion yuan.

In the first half of the year, Longhu Longzhizao released a new smart space technology product matrix, upgrading Longhu's many years of digital experience to an overall solution, helping cities and enterprises to achieve digital transformation.

It can be seen that in the first half of 2024, every operational business of Longhu followed the logic of quality and scale to advance in an orderly manner.

Just like Longhu in the past, it did not pursue sales ranking.

By improving quality, ability, and reputation, it naturally drives its own development.

In the new cycle, on the operational business, the familiar gear starts to twist again.

A new form of Longhu, a year ago, the real estate company with the highest market value in the world, the United States Horton House, unexpectedly received a purchase of hundreds of millions of dollars by Buffett, and then in the following year, Buffett's vision was verified.

Up to now, the market value of this largest real estate company in the United States has exceeded 60 billion US dollars.

Compared with the current popularity, Horton House has experienced a more severe cycle test than domestic real estate merchants.

During the outbreak of the subprime mortgage crisis in the United States, the firmness and adjustment of this real estate company once set an example in the industry: first, by cutting off the arm, it took the lead in protecting the company's cash flow; second, it gave up the high-end products that started the business, and turned to the mid-to-low-end market as the positioning, launching a new main product line, and maintaining a high turnover rate in the most depressed market.Under the cycle, the prudent are always particularly favored by the balance of survival.

Prudence is not passive; it is from prudence that keen insight into crises is born, and the decisive action power that arises from alleviating fear and crisis always occupies the most advantageous position when traversing cycles.

Just like Horton, who went through a difficult transformation, took more than a decade to finally reduce the debt-to-asset ratio to below 40%, and redefined real estate companies with the healthy indicators of the consumer service industry.

Over the past thirty years, overseas real estate companies have undoubtedly experienced a more stringent survival environment, but what can be seen is that survivors have also found solutions to problems in difficulties and achieved new development paths.

In 1997, under the Asian financial storm, Mitsui Fudosan got through the most difficult times with its operational business.

When the sales business suffered a huge loss of 78.1 billion yen, it compensated for more than 70% of the operating loss with a similar scale of rental profits.

It also increased efforts to cultivate and develop management business to build new profit growth points.

With the balanced development of old and new businesses, it has driven the continuous and stable growth of asset scale for more than a decade.

Standing at the starting point of a new development model, Longhu has also reached its own conclusion after studying mature markets such as the United States, Japan, and Hong Kong: "A lower debt level + high operational income are the two major conditions that must be met to go through the cycle."

In the past, Longhu's prudence has allowed it to break through the dual world of past industry debt and scale construction with firm investment and precipitation, and build three major business sectors serving tens of millions of people and an "One Longhu" ecosystem, making real estate development, commercial investment, asset management, property management, and smart construction all rank in the top ten in the real estate industry.

In the new cycle, Longhu can rely on a large enough operational business to drive debt structure transformation and income and profit structure transformation through sustainable endogenous growth.

In the second half of this year, Longhu's interest-bearing debt will further decrease, and in Longhu's plan, this number will drop to about 170 billion.

Each endogenous-driven channel means Longhu's initiative in income and profit structure.

It responds to different industry development cycles through the rise and fall, just like the once rapidly developing development business and the current stable growth of operational business.

In the process of "two transformations," Longhu will also become more flexible.

As each stream slowly flows into Longhu, Longhu also rushes into the river in a new form, winding through nine bends, and rushing into the sea.