Soho China, struggling with flagging profits and stock price, put up US$1.13 billion office assets for sale
- Analysts said the renewed emphasis on development sites is an implicit nod to its previous unsuccessful landlord strategy
- Soho China had shifted away from the “build to sell” model since 2014
Soho China, one of the country’s largest commercial developers, is putting 7.8 billion yuan (US$1.13 billion) of office assets up for sale, making its biggest disposal in the company’s two-decade history to raises capital to buy land to expand its land bank.
The developer on Friday put 20,000 square metres of office space in five Beijing and Shanghai projects on the market.
The move conflicts with a pledge by its chairman Pan Shiyi a year ago not to sell core assets in either of the two mainland cities.
Unlike many of its peers, Soho China has shifted away from the “build to sell” model which relies on high turnover. Since 2014 it has following the model used by Hong Kong developers who act as landlords, earning recurring income from rental property.
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Developers Country Garden and Evergrande have favoured an aggressive building programme based on quick sales, amid low rental income yields that do not cover the borrowing rate.
Soho China’s rental income from investment properties rose 4 per cent to 1.735 billion yuan in 2018. It reported net profit of 1.9 billion yuan, benefiting mainly from a 1.09 billion yuan asset revaluation gain. The profit result reflected a drop of 59.3 per cent from a year earlier.
“Soho’s investment property is too large … in the future we’ll not buy rent-yielding properties but development sites to sell properties,” Pan said Friday. “We’ll retain our core assets in the two cities [Shanghai and Beijing] and we remain bullish on the market for long term.”
Soho China made a number of asset disposals in 2016 to 2017. These included the sale of the Shanghai Hongkou Soho, an office-commercial project, for 3.57 billion yuan and the Shanghai Lingkong Soho for 5 billion yuan.
If the developer is successful in disposing of its Shanghai and Beijing properties for the 7.8 billion yuan asking price, the disposal would be the largest in its history.
China Soho’s land reserve for future development fell to 245,900 square metres by the end of 2018.
In comparison, Vanke has a land reserve of 100 million square metres.
Analysts said Soho China’s shift to development was an indication its strategy to become a landlord had not been successful.
“Soho’s en-bloc building sale went relatively well in Shanghai but not in Beijing, where he has to sell down assets by small pieces, which is not attractive to big institutional investors,” said Li Xiang, a senior research manager with Savills Beijing.
“The [current] sale could help to boost its flagging operational revenue and profits. What’s more worrying is it doesn’t have much land resources for future sale,” he said.
Soho China’s shares ended 3 per cent higher in Hong Kong on Friday, closing out the session at HK$2.76.
