Evergrande Unit Adds Property Services Firm for $233 Million

(Bloomberg) — China Evergrande Group’s property services unit bought a rival for 1.5 billion yuan ($233 million) to help meet its ambitions of increasing profit by 50% this year and becoming the country’s largest property manager.

Evergrande Property Services Group Ltd. agreed to buy Ningbo Yatai Hotel Property Services Co., adding 940 projects serving 2 million homeowners to its portfolio, the company said Friday in a statement. Ningbo Yatai also manages office buildings and industrial parks.

The deal is the first by Evergrande Property Services since it raised $1.84 billion in an initial public offering in November. At the time, the company said the majority of the proceeds would be used for acquisitions.

The property services stock has almost doubled from its IPO price of HK$8.80, closing Friday at HK$17.18.

While many property services companies benefit from new projects of their parent developers for expansion, Evergrande’s services arm needs mergers and acquisitions to sustain growth, UBS Group AG analysts led by John Lam wrote in a January report. Evergrande might need to sell some property projects due to tight liquidity and a down cycle in the market, which could weaken growth at its management affiliate, according to the report.

Earlier this month, Evergrande Property Services said it planned to expand the area under management by 30 million square meters (323 million square feet) each month this year, people familiar with the matter said. The acquired company would increase its business scale by at least 80 million square meters, according to filing.

After the acquisition, the company’s area under management will be more than 380 million square meters, the filing said. The country’s largest property service provider, which is operated by China Vanke Co., managed a total area of 520 million square meters as of June last year.

Income from the service provider may work as a reliable source of cash for debt-saddled Evergrande, Bloomberg Intelligence analysts Michael Tam and Patrick Wong wrote in a note.

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