By Dominique Fong and Wayne Ma 

Facing trouble in China's property market, China's richest man is shifting his focus to entertainment.

Dalian Wanda Group, closely held by billionaire Wang Jianlin, saw its 2016 revenue drop almost 14% from a year earlier because of a decline in residential property sales, the company said Saturday.

It was the first annual decline in revenue since at least 2010, according to a review of company statements by The Wall Street Journal. In addition, 2016 was the first time that more than half of Wanda's revenue came from services, including its entertainment business, instead of real estate.

"Property sales in some lower-tier cities are quite challenging, and Dalian Wanda has a pretty high exposure to lower-tier cities," Kaven Tsang, an analyst at Moody's Investors Service.

Wanda's revenue drop is the latest sign of distress in China's flagging property market, in the wake of sweeping property controls that are expected to slow the pace of home sales amid a glut of inventory in lower-tier cities.

Moody's this month said it was reviewing the Baa 2 credit rating of Dalian Wanda Commercial Properties Co., the property-development arm of the company, for a possible downgrade. The credit-rating firm estimates the unit's debt load to increase--with at least 80 billion yuan of new debt over the next two years--as the company looks to build more malls, but generates lower property sales.

Wanda still gets about 75% of its revenue from real estate, but in recent years Mr. Wang has aggressively reduced Wanda's dependence on property, initially by opening movie theaters and later building tourism-destination centers across China. The company's cultural arm has been opening movie theaters and tourism-destination centers across China.

Wanda's revenues from entertainment have tripled since 2012 and comprised more than a quarter of its total revenue last year, or 64.1 billion yuan, the company said. That was up from an 18% contribution in 2015, according to calculations by The Wall Street Journal.

The unit includes sports, film, tourism and children's entertainment branches.

Wanda has gone on an entertainment shopping spree in the U.S., picking up theater chain AMC Entertainment in 2012 and last year acquiring film producer Legendary Entertainment and awards-show producer Dick Clark Productions, which stages the Golden Globes.

Wanda said it wanted to exit real-estate development not because of its dim view of the housing market, but because the sector was too cyclical. China has had five housing booms in the past decade. Wanda also cited a desire to shift toward managing rather than owning properties.

The company said that in five or six years it would "see profit from real-estate sales account for only a tiny share" of revenue at Dalian Wanda Commercial Properties Co. That unit is expected to rely more on property-management fees in the future.

Wanda's plan to exit from the property market is to sell its Wanda Plaza shopping malls to other investors, adopting an "asset-light" model that would allow it to earn income from managing the malls instead of owning them.

Analysts have said this would lighten the debt load of the property unit. However, it will be a challenge to unload those properties due to the excess supply of malls in lower-tier cities--and as more Chinese customers shop online.

"The issue here is that it might not be very easy to dispose of all those properties," said Matthew Kong, an analyst at S&P Global Ratings. "They need to find investors for those shopping malls."

Write to Dominique Fong at Dominique.Fong@wsj.com and Wayne Ma at wayne.ma@wsj.com

(END) Dow Jones Newswires

January 16, 2017 05:45 ET (10:45 GMT)