Soho China, a Beijing-based commercial property developer, announced yesterday that it was altering its strategy to become more of a landlord and less of a sales-driven real estate developer in Beijing and Shanghai. The company said it wanted to capitalise on "the huge growth in rental and value for prime office building" in the two cities. At the same time, it said net profit in the first half of this year declined 65 per cent from a year earlier to 613 million yuan (HK$750 million). "The transition will mark the end of Soho China's childhood and adolescence over the past 17 years," chairman Pan Shiyi said. "We will become a 'landlady' from now on." Pan said the company would move from the traditional "build and sale" business model to a "build and hold" model and have a total of 1.5 million square metres of prime office and commercial properties in Beijing and Shanghai, with 380,000 square metres and 1.12 million square metres respectively. The company expects that rental income will replace sales revenue to become the major profit contributor in three years, and that in five years' time, annual rental income will exceed 4 billion yuan. Pan said urbanisation in Beijing and Shanghai had benefited each of their office markets, creating a "historic opportunity". He cited research by CB Richard Ellis that office rents had risen 73 per cent in Beijing and 18 per cent in Shanghai over the past 18 months, with vacancy rates dropping to all-time lows of 4 per cent in Beijing and 6.7 per cent in Shanghai. Soho China recorded a 70 per cent growth in office rents over the past 18 months, with rental yields exceeding 14 per cent. "Today, we will not only turn land into properties, but also continue to increase its value, maximising the value of each square metre and turning it into a piece of business so that our properties will be like hens that never cease to lay eggs," Pan said. By the end of the first half-year, the company had 15 billion yuan of capital in hand, and its net gearing ratio stood at 20 per cent. Pan said the two factors made the company capable of making the strategic decision, and that the company would raise its gearing ratio to 30 per cent to complete the transition. In line with the transition plan, the company cut its sales target of 23 billion yuan for this year by half to 12 billion yuan. Contracted sales were 6 billion yuan by the end of the first half. For the six months ended June, Soho China posted a 54 per cent drop in turnover to 1.22 billion yuan compared with a year earlier. Core net profit, excluding valuation gains on investment properties, plunged 65.5 per cent to 232 million yuan, while the core net profit margin decreased 7 percentage points to 19 per cent. The company said the decreases were due to no new projects being completed for booking during the period and modest valuation gains on investment properties. The company declared an interim dividend of 12 fen per share. Shares in Soho China fell 3.06 per cent to close at HK$5.71 each yesterday in a weaker overall market.