Eggshell Apartment Revisited: Shenzhen’s “practical problems” have not been resolved, “rental loan” risks are highlighted

On November 16th, on Monday, the office workers in Jinsong Building, No. 26 Tairan 4th Road, Futian District, Shenzhen, rushed downstairs to the company to start work. They were shocked by the bustling crowd downstairs. The crowd came from various districts in Shenzhen. They were tenants and landlords of Shenzhen Eggshell Apartment Management Co., Ltd. (hereinafter referred to as “Eggshell Shenzhen”), demanding that the company terminate the contract and seek to protect their rights.

Eggshell Apartment Revisited: Shenzhen's "practical problems" have not been resolved, "rental loan" risks are highlighted 1

At present, eggshells are in the same centralized payment dilemma in major cities across the country, such as Beijing, East China, and Hangzhou. CBN has carried out relevant reports before (“Eggshell Shenzhen: Difficulties in rent payment continued, and employees said they were not received on time wage”).

CBN found that tenants’ prepaid rents and prepayments from financial institutions are the two major supports for the rapid rise of the eggshell model. However, as Eggshell has fallen into payment difficulties, its core rental loan business is also at risk, and the pressure on Eggshell has become more significant.

Relevant departments involved in the “first round of negotiations”

Eggshell tenants and landlords in many cities across the country have spontaneously established chat groups online to find solutions. CBN reporters joined the chat groups of tenants and landlords of Eggshell Beijing, Shanghai, Shenzhen, Hangzhou and other places. After discussing and exchanging information in the group, they sought follow-up solutions with Eggshell.

A reporter from China Business News came to Eggshell’s Shenzhen headquarters on November 11 and met tenants and landlords who came here to seek termination of the contract.

A number of tenants and landlords interviewed said that there are many doubts in their minds, mainly focusing on three points: First, whether the tenants who have applied for cancellation of rent can live in the original eggshell apartment temporarily before receiving the refund; Second, what should be done if tenants who have not yet applied for rent withdrawal are forced by the landlord to pick up the house; third, tenants who have already applied for rent withdrawal through the Eggshell APP have still not successfully terminated the contract with the rent loan bank. Do they want to continue? Repayment of loans.

Many tenants reported that during the “transition period” when the rent has not been refunded by the eggshell and they have not moved out of the apartment, they will still be asked to move out as soon as possible, and they are currently fighting with the landlord at home.

“Last night the landlord came over and gave us three days, (required) either re-sign the contract with her to continue living, or move out, and the lock will be changed after three days. The eggshell contract with the landlord was paid quarterly, and later changed to monthly payment. , The monthly rent will be paid until November 20. According to the contract (our and eggshell), we can live forever, and the eggshell has not breached the contract.” said an eggshell tenant. During the reporter’s investigation, such examples are not unique.

The solution of the landlord Ms. Zou and the tenant is that the two parties re-signed the contract, the rent is appropriately reduced, and they wait for the progress of the eggshell incident together. Renegotiation between landlords and tenants seems to be the only way to solve the problem.

However, many tenants seem not so lucky. “The property knocked on the door early in the morning. The landlord entrusted the property to talk about direct rent. Eggshell did not pay the rent to the landlord, nor did he pay the property fee. I want to wait for the eggshell to come back, but the landlord doesn’t want to wait. I will cancel the rent. There is no clear solution for the monthly payment of the public banks.” A tenant said in response.

In addition, many tenants report that they have not yet received a rent refund after they have cancelled their rent. As of midnight on November 16, the rent of more than 10,000 yuan for the tenant Ms. Zhu has not been refunded.

According to a screenshot of the “11.16 First Round Negotiation Results” circulated in the WeChat group of Shenzhen Eggshell tenants, the government will communicate with Eggshell tenants who have applied for rent cancellation and have not moved out of the apartment since last week. If you apply for rent, you can continue to live in the apartment. If you insist on moving out, you have to bear two rents. “If the landlord comes to collect the house forcibly, please dial 110. The police will come forward to stop the landlord’s malicious behavior.”

The staff on duty at the Tianan Police Station where Eggshell’s Shenzhen headquarters is located confirmed to CBN reporters that on November 16, leaders of the Tian’an Police Station and personnel from relevant departments in Futian District went to Eggshell’s Shenzhen headquarters to participate in the coordination and communication with representatives of relevant parties.

The screenshot of the “11.16 First Round of Negotiation Results” also shows that the public security department has filed a case for the malicious arrears of eggshells, but the investigation takes time, and the relevant information will be synchronized on the “Futian Police” public account.

In 2019, the number of cities in which Eggshell has business operations reached 13 and the number of operating apartments expanded to 438,300, of which the number of apartments in Beishangshen reached 223,800 (accounting for 51.06%). The staff of Eggshell Shenzhen recently stated that there are tens of thousands of eggshell houses in Shenzhen.

In addition to Shenzhen, the situation of Hangzhou eggshells is not optimistic. According to media reports, the sign at the door of the Hangzhou branch of Eggshell Apartments has been removed, leaving only a few employees in the Hangzhou branch.

Rent loanofriskWith pressure

“We may face challenges in cooperating with financial institutions to provide rental financing.” There was such a risk disclosure in the prospectus when Eggshell went public, and now it seems to be true.

The financial institution that cooperates with Eggshell to provide tenants with loans to pay rent is WeBank, whose business is mainly “rental loans.” According to information previously disclosed by Eggshell Apartment, about 60% of tenants chose “rental loans” in 2019.

The prospectus shows that Eggshell provides flexible payment methods for tenants. They can choose to prepay rent annually, half-yearly or quarterly. “We also cooperate with licensed financial institutions that provide rental financing, which provides rent financing for certain residents. After residents choose rent financing, we will link them with the financing institutions we cooperate with.” “Financial institutions will make advance payments to us, and residents will repay loans to financial institutions in monthly installments. We pay corresponding interest to relevant financial institutions. “

“Using advance payments from financial institutions to support our expansion,” Eggshell prospectus stated that at present, a large number of sources of funds for the company include advance payments from financial institutions related to rental financing and advance payments from residents.

In the eggshell business model, a closed loop can be formed between eggshell, landlord, tenant, and financial institution. The landlord provides housing, Eggshell acts as the leading intermediary agency, the bank provides rental loans, and tenants enjoy services from Eggshell and the bank. But if there is a problem with any one of the chains, this closed loop may be at risk of breaking.

In the unfinished turmoil of payment difficulties, many tenants of Eggshell are facing the trouble of withdrawing their rents and lifting their “rental loans”.

The above-mentioned “11.16 first round of negotiation results” shows: “Regardless of whether the tenant has applied for a lease withdrawal or not, the lease loan must be repaid. The support given by WeBank is to provide credit to all Shenzhen Eggshell tenants before March 31, 2021. Protection, there will be no credit records if the payment is overdue within this time. Tenants can follow the official account of “WeBank Rental Consumer Loan Service”, register personal information, and apply for credit protection.

This is consistent with the announcement of WeBank on the “To Consumer Loan Customers for Rental Housing” sent by China Business News reporter. The announcement stated that if a customer (tenant) has been forced to move out, please log in to the bank’s consumer loan official account and reply to the “information registration”. The bank will verify and confirm with it as soon as possible, assist in resolving lease disputes, and provide the tenant with regard to loan matters. Appropriate arrangements, “At least until March 31, 2021, tenant credit reporting will not be affected.”

Many tenants believe that this announcement does not solve their “practical problems”. “Regardless of whether the contract with Eggshell is terminated or not, because the loan contract with WeBank is still valid, the loan must be repaid on time.” A tenant said.

“The landlord came 3 times and urged us to move out. We applied for a lease withdrawal, but no one came to deal with the eggshell. The lease contract will expire in April next year and the rent will be paid in the form of a rental loan.” A reporter from China Business News said that WeBank has now promised that credit reporting will not be affected at least until March 31, 2021. What about after this time? How to solve the problem is still unknown.

China Business News found that in 2017, 2018 and 2019, Eggshell’s net cash used in operating activities was 115 million yuan, 1.164 billion yuan and 1.912 billion yuan (US$274.5 million), respectively, of which residents’ prepaid rent was the company’s operating cash An important source of inflows. In addition, in 2017, 2018 and 2019, Eggshell received advance payments related to rental financing from financial institutions of 937 million yuan, 2.127 billion yuan and 2.753 billion yuan (395.5 million US dollars), respectively.

“During the indicated period, 91.3% of the residents who have valid leases with us in 2017, 2018 and 2019, 75.8% and 65.9% have rent financing arrangements with us.” Eggshell said, if the lease is terminated early or the residents defaulted The company needs to return the advance payment for the remaining lease period to the financial institution or relevant residents (if applicable).

“If the resident’s lease term is terminated early or the resident defaults on monthly installments, we will need to return the advance payment for the remaining lease term to the relevant financial institution, which will cause cash outflows and reduce our working capital.” Eggshell said.

“We cannot fully predict when and how many residents will terminate leases or default on repayments, which makes our cash outflow unpredictable. If a large number of early terminations or defaults occur, we may face a cash flow shortage and our business Operations and financial conditions will be adversely affected.” Eggshell said in the prospectus.

At present, with the outbreak of funding tensions, eggshells are facing more and more difficult to redeem situations. If there is a need to refund the relevant funds of financial institutions, the financial pressure will be even greater.

On November 17, it was reported that due to the deterioration of eggshell assets, WeBank promptly closed its hands and ceased to be the supplier of eggshell rental loans. In this regard, Weizhong Bank has not received a reply as of the time of publication.

“The steps are too big”

Since the beginning of 2020, there have been frequent lightning incidents in long-term rental apartments. Only from July to August this year, there have been more than 20 parents’ apartment projects that have “exploded” and “ran off”, mostly due to the break of the capital chain under the “high income and low rent” model. According to a survey conducted by a reporter from China Business News, unlike their “high income and low rent”, Eggshell claims to be an innovative “new rent” business model.

Eggshell said that this “new rent” model is defined by three functions, namely centralized (concentration of operating apartments purchased from owners and renting them to our residents) and standardization (regulating the design of apartment units, Decoration and decoration, and provide high-quality, reliable one-stop service), online (technology provides support for the company’s entire business process, and provides a seamless online experience for owners and residents)

Under the development of this model, Eggshell started quickly in 2015. Since then, it has received large amounts of capital from investment institutions, and its valuation has continued to rise. The company has also become a star enterprise in the long-term rental apartment industry.

“We increased the number of apartment units from 2434 on December 31, 2015 to 438,300 as of December 31, 2019.” Eggshell prospectus disclosed that the number of apartment units increased by 180 times in four years.

In the opinion of an industry insider of a long-term rental platform, the rise of eggshells is “a step too far.”

Corresponding to 180 times the number of apartments is the increase in operating expenses of eggshells in recent years. According to the prospectus, the company’s total operating expenses increased by 163.8%, from 3.896 billion yuan in 2018 to 10.299 billion yuan (1.467 billion US dollars) in 2019.

In addition, the rental cost of eggshells increased by 194.7% from 2.171.8 billion yuan in 2018 to 6.4 billion yuan ($919.3 million) in 2019. “This is mainly due to the increase in the number of open apartments as our business continues to expand. “

In order to remain competitive, Eggshell needs large amounts of capital to continuously invest in all aspects of business operations. According to an eggshell employee interviewed by a reporter from China Business News, after the owner’s house is repossessed, eggshell usually requires a large amount of upfront capital expenditure. This includes capital expenditure for purchasing and leasing apartments from the owner, as well as necessary The apartment is renovated and renovated to make it suitable for renting to residents.

Since its establishment, Eggshell Apartments has not been profitable. The prospectus shows that Eggshell Apartments has been in a net loss for three consecutive years, and the loss has been rising, with a cumulative loss of 6.3 billion yuan. Among them, from 2017 to 2019, eggshell apartment losses were 272 million yuan, 1.37 billion yuan, and 3.447 billion yuan respectively. The financial report shows that eggshell revenue in the first quarter of 2020 was 1.94 billion yuan, an increase of 62.5% year-on-year, but it was still at a loss, with a net loss of 1.234 billion yuan, compared with 816.2 million yuan in the same period last year.

In June of this year, the news came out that Gao Jing, the founder of Eggshell, was under investigation. Although the company claimed that “the investigation involved by Gao Jing has nothing to do with Eggshell Apartment, and that the company’s various businesses and operating activities are normal.” However, the equity relationship. Explaining everything, “As of the date of this annual report, our co-founder, director and CEO Gao Jing owns all of our Class B common stocks, accounting for 75.7% of our issued and issued shares.” Eggshell said Due to the concentration of ownership, Gao Jing will have a significant impact on corporate affairs, such as mergers, acquisitions, mergers, sales of assets, restructuring and other major corporate actions.

With the recent outbreak of redemption crises in various places, the pressure on eggshells has become more significant.