China's Danke raises $190m, files for US IPO

Danke's total private funding now stands at more than $850 million. This includes a $500 million Series C round in March led by Tiger Global Management and Ant Financial.

Tiger Global is the company’s largest institutional shareholder with a 20% stake, followed by Joy Capital with 15.7%. CMC, Ant Financial, and Primavera holds 9.4%, 7.8% and 6.5%, respectively, according to the prospectus.

Launched in 2015, Danke rents out apartments sourced from individual property owners. It manages 404,000 units across 13 cities. The entire business process is online with an IT infrastructure linking employees, property owners, residents, and third-party service providers. Technology-enabled solutions are also used to price units and manage an extensive network of renovation contractors. These contractors simultaneously work on 50,000 units scattered in thousands of neighborhoods.

The payback period for an apartment unit is 12-20 months. Danke typically sign leases for four to six years with property owners, and one-year leases with residents.

The company's IPO application follows one by industry peer Qingke earlier this month. Danke’s occupancy rate is 89%, compared to 92.4% for Qingke, but its renewal rate is much higher, at 51% to Qingke's 5.1%. Neither business is profitable.

Danke’s revenue rose 300% year-on-year to RMB2.68 billion ($381 million) in 2018, but its net loss grew even faster at 400% to RMB1.37 billion. In the first half of 2019, revenue was up 200% at RMB4.99 billion, while the net loss grew at the same pace, reaching RMB2.52 billion.

Both Danke and Qingke operate under a decentralized model, as opposed to the centralized model whereby the platform leases entire buildings and rents out rooms. However, last year Danke launched a centralized business line under the Dream Apartment brand. The company takes over buildings or entire floors and transforms them into dormitory-style apartments. These are marketed to corporate clients as accommodation for blue-collar workers.

David Wei, founding partner at Vision Knight Capital, recently told AVCJ that he prefers the blue-collar rental approach. “This model doesn’t have a high turnover rate and customer acquisition costs are lower,” he explained. “Young, white-collar workers in China change jobs quite often and they have higher expectations in terms of living environment. It’s much easier to operate blue-collar apartments.”  

Vision Knight Capital is an investor in Anxin, a blue-collar long-term rental apartment provider that operates under a centralized model. Wei added that he considers two key criteria when assessing a long-term rental business. First, the target occupancy rate should be above 90%. Second, returns should come no later than 20% into the leasing period. If the platform leases a building for five years, that project should turn a profit by the end of year one.

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• Topics
• Greater China
• Consumer
• Technology
• IPO
• Real estate
• China
• TMT
• Ant Financial
• Primavera
• Tiger Global Management
• Joy Capital