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China Property

Soho China to sell Shanghai office building after posting 87 per cent decline in profit

Chairman expresses confidence in Beijing and Shanghai office property markets

PUBLISHED : Tuesday, 08 March, 2016, 2:44pm
UPDATED : Tuesday, 08 March, 2016, 6:32pm

Commercial property giant Soho China plans to sell an office building in Shanghai to make quick cash from the city’s red-hot real estate market after posting a 87 per cent decline in net profit last year.

The prime office developer saw its net profit narrow to 1.05 billion yuan (HK$1.25 billion) from 4.08 billion yuan a year earlier, mainly due to a huge reduction in property sales resulting from a business focus shift to property leasing.

Company chairman Pan Shiyi told a press conference on Tuesday Soho China was considering the sale of the 42,000 square metre Soho Century Plaza grade-A office tower in Pudong, Shanghai, this month given the bullish market sentiment and continuously easing policy environment.

“The market is hot, why not catch the opportunity and make money?” he said in Hong Kong. “The price is not set yet, but for sure the return will be much higher than home sales in Shanghai.”

The market is hot, why not catch the opportunity and make money?
Pan Shiyi, Soho China

Pan added such move would benefit the company’s cash flow and be a trial for it to decide whether to sell more non-core assets.

With three projects under development, Soho China holds a total of 1.7 million square metres of investment properties in Beijing and Shanghai.

The company started to shift its business model from “build-to-sell” to “build-to-hold” in 2012.

But rental income could not match past sales revenue.

Soho China saw core profit, excluding revaluation gains, drop 76 per cent to 423 million yuan last year, with sales revenue down 84 per cent.

“Our profit for 2015 fully reflects this moment in our transition,” Pan said, while stressing that rental income growth was better than expected, up 148 per cent to 1.05 billion yuan.

David Hong, head of research at China Real Estate Information Corp, said questions surrounded the transition and Soho China’s outlook.

“It really depends on whether the company can generate enough recurring rental income to support its market capitalisation, which was based on property sales,” Hong said.

Pan said he was confident about the office property markets in Beijing and Shanghai as the supply of land was very limited.

Soho China chief executive Zhang Xin said it would remain conservative in land purchases this year and had no plans to invest overseas.

The company had 9 billion yuan in cash and bank deposits on hand at the end of last year, with a gearing ratio of 24 per cent.

Talking about the recent overheating in home prices in first-tier cities, Zhang said it was very hard to say if there was a bubble in the Chinese property market.

“But when interest rates and reserve levels are going down, yields in property assets will inevitably go up, that’s for sure,” she said.

The board recommended a special dividend of 0.348 yuan per share.

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