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SOHO China Announces 2018 Interim Results

Operating Profit Up 144%, Average Occupancy Reached 97%,SOHO 3Q Expanded To 7 Cities in China

  • Operating Profit of approximately RMB 1.53 billion, up approximately 144% YoY (before adjustment for the valuation gains of investment properties).
  • Rental income of approximately RMB 848 million. Adjusted for the effect of the disposals of Hongkou SOHO and Sky SOHO, rental income from retained properties in the Period increased by approximately 17%.
  • Occupancy of the Company’s investment properties was approximately 97%.
  • In the Period, the valuation gain of investment properties was approximately RMB 480 million, reflecting more modest changes in real estate markets during 1H2018.
  • Net profit of approximately RMB 1.09 billion, including valuation gains.
  • SOHO3Q expanded to 7 cities in China, with over 30,000 seats in 31 centers.
  • Net debt of 43%, average cost of debt financing approximately 4.4%, offshore borrowing only 4% of total debt.

(August 17, 2018, Hong Kong) SOHO China Limited (Hereafter referred to as “SOHO China” or the “Company”, Stock Code: HK410) announces today the Company’s unaudited interim results.

For the six months ended 30 June 2018, the Company’s operating profit (before adjustment for the valuation gains of investment properties) was approximately RMB 1.53 billion, up approximately 144% year-on-year. The Company achieved rental income of approximately RMB 848 million. Adjusted for the effect of the disposals of Hongkou SOHO and Sky SOHO, rental income from retained properties increased by approximately 17% year-on-year. In the first half of 2017, the Company undertook a comprehensive revaluation of its investment properties, which produced significant valuation gains of approximately RMB 6.15 billion. This reflects the reduction in capitalization rates and a significant increase in rental rates since the previous valuation. In the Period, a valuation gain of approximately RMB 480 million was realized reflecting continued changes in the real estate market during 1H2018. Including valuation gains, net profit after tax attributable to the equity shareholders in the Period was approximately RMB 1.09 billion. Net debt was approximately 43% of equity attributable to shareholders, and the average cost of debt financing was approximately 4.4%. Offshore borrowing accounted for approximately 4% of the total debt.

In the first half of 2018, China’s economy saw moderate and improved performance. Grade-A office in Beijing and Shanghai has continued to see stable rental rates. As a result, SOHO China’s leasing business has enjoyed steady growth. The Company achieved rental income of approximately RMB 848 million during the period. Adjusted for the effect of the disposals of Hongkou SOHO and Sky SOHO, rental income from retained properties in the Period increased by approximately 17%. Newly launched SOHO Tianshan Plaza increased occupancy from 64% at the end of 2017 to 92%. The average occupancy of the Company’s entire portfolio soared to 97%. At present, SOHO China has two projects under construction, Leeza SOHO in Beijing and Gubei SOHO in Shanghai. The investment property portfolio is slated to reach completion by mid-2019 at which point the Company will introduce more supply of prime location, grade A office to the market.

SOHO China's Single-Asset-Operation model has achieved remarkable results. Each project has greatly improved leasing operations, property management, quality control, marketing, and profitability. Rental rates of new leases grew substantially across SOHO China projects. Guanghualu SOHO II in Beijing’s Central Business District of Beijing saw rents for new leases rise by approximately 25% in 1H2018. This reflects the value of properties held by SOHO China in core areas of Beijing and Shanghai, as well as the market’s recognition on SOHO China’s property management services.

As China’s leading co-working brand, SOHO 3Q expanded aggressively in the first half of 2018. By the end of June 2018, SOHO 3Q expanded to 7 cities in China, with over 30,000 seats in 31 centers. The brand has built presence in Beijing, Shanghai, Hangzhou, Nanjing, Shenzhen, Chengdu and Chongqing and has achieved 88% average occupancy across SOHO 3Q centers. The convenience and flexibility of SOHO 3Q’s coworking office space have attracted a vibrant community of innovative companies including Toutiao.com, Huawei, Mercedes-Benz, Little Red Book, Ping An Insurance, Dianping.com, Shouqi Limousine and Chauffeur. Tenants are attracted by SOHO 3Q’s dynamic evens featuring guest speakers such as French President Emmanuel Macron, Alibaba co-founder and executive chairman Jack Ma, JD.com founder Richard Liu, Xiaomi founder Lei Jun and former Google China President Kai-Fu Lee.

SOHO China has built a platform management system to ensure efficient asset management throughout the Company’s property portfolio and at SOHO 3Q. The latest innovation in technology development and industry standards are employed to enhance the quality of property management services. Firstly, the implementation of electronic signatures and electronic invoices have allowed for the creation of a database for leasing management while ensuring contract accuracy. Secondly, the establishment of an online equipment and facilities platform which oversees 300 thousand plus units of equipment and facilities, has significantly reduced energy consumption. Total energy saving among SOHO China projects reached 80 million kilowatts in the last year. Thirdly, the company’s design, construction, and all other management have been systematized via online platforms. This helps to maintain timely schedules, identify solutions to problems and to assign responsibilities to the correct personel. Fourth, the Company adopted public bidding to ensure transparency. This feature has helped to attract the world's best external suppliers, reduce costs, improve quality and eliminate corruption. Finally, the Company has established a quality control department, which publishes monthly rankings of mobile phone signals, network signals, landscaping conditions, cleaning services, and security services.

SOHO China continues to actively explore business model innovation. From June 2018, the Company successfully held five public bidding events to lease units of office property. These bidding events have helped to improve transparency and efficiency in leasing rates, discourage corruption in leasing deals, build trust in landlord -tenant relations, and attract the awareness of clients, tenants and other industry players. The innovative business model has boosted market recognition of SOHO China’s unique property value while highlighting the Company’s property management services. Going forward, SOHO China will expand the public bidding format to include a wider range of units for lease. The Company aims to provide a bidding list including 241 office property units and covering a total of 12,000 square meters.

SOHO China Chairman Pan Shiyi says, “Over the last 20 years SOHO China has gained wealth, experience and reputation. Traditional office leasing is still our Company’s primary business. In light of the increasing scarcity of commercial property in the core areas of Beijing and Shanghai, the continuous improvement of our property management services will lead to the steady growth of rental income for traditional office in our buildings. At the same time, SOHO 3Q will become the new motor for the Company’s future growth. We are confident about SOHO3Q’s potential for large-scale development."

For further information please contact:
Ashleigh Au
Director of Communications, SOHO China
ashleighau@sohochina.com
+1-647-501-5069

Chloe Shen
PR Manager, SOHO China
Shenchen1@sohochina.com
+86-134-7264-4101