SOHO China Announces 2020 Interim Results

Achieves Revenue of RMB 1,453 Million; Rental and Occupancy Rates Gradually Recover as the Pandemic Moderates

• Achieved revenue of approximately RMB 1,453 million in the Period, representing an increase of approximately 63% from the same period of 2019; achieved rental income of approximately RMB 782 million, representing a decrease of approximately 12% from the same period of 2019.
• Due to the impact of COVID-19 pandemic, the average occupancy for the Group’s stabilized investment properties was approximately 78% as at 30 June 2020.
• During the Period, valuation gains on investment properties were nil, mainly due to the absence of projects under development. Valuation gains on investment properties were approximately RMB 553 million in the same period of 2019, mainly attributable to the construction progress of Gubei SOHO and Leeza SOHO.
• During the Period, net profit was approximately RMB 205 million, as compared with approximately RMB 567 million (including valuation gains on investment properties) in the same period of 2019. Excluding valuation gains on investment properties (net of tax), net profit was approximately RMB 148 million in the same period of 2019, and net profit during the Period represented an increase of approximately 39% from the same period of 2019.
• As at 30 June 2020, net gearing ratio of the Group was approximately 42%, average funding cost approximately 4.8%, and offshore borrowings approximately 4.1% of the total debt.

SOHO China Limited (Hereafter referred to as “SOHO China” or the “Company”) announces today the Company’s unaudited 2020 interim results.

During the Period, SOHO China achieved revenue of approximately RMB 1,453 million, an increase of approximately 63% year on year. This growth was contributed mainly by the sales revenue of parking space. Impacted by COVID-19 pandemic, as at June 30, 2020, the Company has achieved approximately 78% average occupancy for stabilized investment properties, with rental income of approximately RMB 782 million. During the Period, net profit was approximately RMB 205 million, as compared with approximately RMB 567 million (including valuation gains on investment properties) in the same period of 2019. Excluding valuation gains on investment properties (net of tax), net profit was approximately RMB 148 million in the same period of 2019, and net profit during the Period represented an increase of approximately 39% from the same period of 2019. With solid and steady financial strategies, SOHO China has maintained a healthy balance sheet. As at 30 June 2020, net gearing ratio of the Group was approximately 42%, average funding cost approximately 4.8%, and offshore borrowings approximately 4.1% of the total debt.

The sudden outbreak of COVID-19 in early 2020 had an unprecedented and massive global impact on all industries and sectors with many industries brought to a standstill. Many businesses have faced increased cash flow pressure and have made the difficult decision to reduce office space as a way to cut back corporate spending. Such challenging macro and micro economic circumstances have led the office leasing market to face a severe test: rental demand has weakened, vacancy rates have been on the rise, and rental rates have faced downward pressure.

According to Cushman & Wakefield market reports, as of June 30, 2020, Grade A office vacancy rates reached 16.2% in Beijing and 20.9% in Shanghai, while average rent in Beijing and Shanghai declined year over year and quarter over quarter. However, with the pandemic contained and economic activity returning to normal in China, net absorption improved in the second quarter of this year, and cumulative rental demand from the end of 2019 and the first quarter of 2020 began to show positive results in the latter half of the second quarter. During the period, the average rent of SOHO China's mature properties remained stable; although average occupancy declined with the market during the pandemic, it has recently begun to pick up.

Despite COVID-19’s negative impact on the office leasing market, office property continues to be the most sought-after type of commercial real estate asset investment. In a market environment of rising uncertainty and numerous challenges, office property has demonstrated its unparalleled advantage as its asset value remained stable throughout the pandemic period. In Mainland China, Beijing and Shanghai have been the most active markets with the highest value of deals. In the first half of 2020, the total value of office property transactions in Beijing and Shanghai accounted for over 80% of all of China’s en-bloc office property transaction. SOHO China’s investment portfolio of office properties at prime locations in Beijing and Shanghai are risk resistant and outstanding in terms of maintaining asset value.

As Beijing and Shanghai’s largest Grade A office real estate developer and property management service provider faced with the “Big Test” of the pandemic, SOHO China managed to excel at pandemic prevention for the office by building on its mature office property management system and delivered a set of effective preventative measures for office building management, including building access management, daily disinfection, air conditioning system operation, and waste disposal management. There has not been a single confirmed or suspected case of COVID-19 in all 4.3 million sq.m. of commercial properties managed by SOHO China in Beijing and Shanghai. The Company has shared these preventative measures as best practices with industry peers from across China and around the world, and looks forward to post COVID-19 recovery in all industries globally.

The pandemic has already profoundly impacted the concept of a healthy work environment. During the pandemic, companies have experimented with rotating office usage, working from home, video conferencing, and other methods to continue working life. We believe that in the long-term, online tools can alleviate the temporary inconveniences to business communications brought about by pandemic, but effective people-to-people communications will continue to demand offline, face-to-face interaction. Face-to-face communication has unique advantage of provoking real-time feedback, and encouraging maximum inspiration and creativity. In the future, the way people work and create in the office will not fundamentally change. What will change is the demand people place on the office environment. Office space will need to be safer, more private, more open, healthier, and smarter. Therefore, safety management and green health will become important factors that determine competitiveness in the office market.

Mr. Pan Shiyi, Chairman of SOHO China says: “The more challenging the situation, the more we should see hope. The pandemic will eventually pass, and although it has brought us many difficulties, it has also brought us the opportunity to unite and forge ahead together. Looking forward, with our portfolio of high quality prime location properties, and our commitment to continuously improve operational management, SOHO China will most certainly continue to win the trust and favor of tenants.”