Chinese rental platform Qingke aims to raise $100 million in US IPO

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(Image credit: Qingke)

Q&K International Group, the operator of Chinese apartment rental platform Qingke, is planning to raise nearly $100 million in its US initial public offering, the company said in an updated regulatory filing published on Friday.

Why it matters: Growth potential for branded apartment rentals is significant: the market penetration rate in China was only 1.8% in 2018, and is expected to reach 11.2% by 2024, according to figures from China Insights Consultancy cited in the prospectus. Market penetration in developed countries was 46.0% in contrast, according to the data.

  • The company is focused on lower-tier cities and says it is the largest branded long-term apartment rental operator with average monthly rental fees lower than RMB 2,000 (around $291).
  • Qingke is competing against a number of peers including Ziroom, Mofang Appartment, Danke Apartment, and even e-commerce giants like JD.com.
  • China’s apartment rental sector faces a range of challenges including problematic construction quality and tenant security, as well as tighter regulatory control.

Details: The company plans to price its shares at $17 to $19 apiece for its debut on Nasdaq, according to the filing.

  • The company had 96,854 rental units under management as of June 30, 2019, centered around the eastern Chinese city of Shanghai and spread across the eastern Yangtze river region.
  • Qingke stressed in its prospectus that technology forms the core of its business operations from unit sourcing, renovation, and listing, to property management.
  • Its revenues come from home rental services, value-added services, and others which consist primarily of fees for internet connection and utility services.
  • The company’s net revenue climbed to RMB 897.9 million (around $130.8 million) in the nine months ended June 2019, up 51.4% from RMB 593.0 million the same period a year ago.
  • However, the company is still loss making. Net losses widened to RMB 373.2 million ($54.4 million) in the nine months ended 2019 from RMB 323.6 million in the same year-ago period, mainly driven by operational and marketing costs.

Context: A segment of the proptech industry, branded apartment rentals are increasingly popular in China driven by rapid urbanization, rising housing prices, openness toward the rental economy concept, and supportive government policies.

  • Targeting young professionals and university students, seven-year-old Qingke is focused on sourcing apartments in relatively inexpensive yet convenient locations, typically near subway stations.
  • Instead of buying the apartments, the firm signs long-term leases with landlords, as part of a practice widely known as “second landlord” service.
  • The company’s latest round was a more than $100 million Series C led by a fund managed by Morgan Stanley Private Equity Asia and consumer sector-focused PE firm Crescent Point in April 2018.
  • Xiong Lin, CEO of Qingke rival Ziroom, said in mid-October that the company is not “rushing for IPO” in response to IPO rumors.