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Soho China Sells Shanghai Buildings Amid Deepening Office Glut

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Lujiazui District of Shanghai
Pedestrians walk past commercial buildings in the Lujiazui district of Shanghai. Photographer: Tomohiro Ohsumi/Bloomberg

Feb. 28 (Bloomberg) -- Soho China Ltd., the biggest developer in Beijing’s central business district, will sell two office buildings in Shanghai as an office glut deepens in the country’s financial center.

The company signed an agreement with Financial Street Holdings Co., a developer of Beijing’s central business area, to sell its entire equity stake in Soho Hailun Plaza and related loans, and Soho Jing’an Plaza for about 5.23 billion yuan ($853 million), it said in a statement to the Hong Kong stock exchange today.

“We’ll optimize our assets by selling some projects at relatively non-prime locations and buy better ones at an appropriate time,” said Chairman Pan Shiyi in an e-mailed statement today. “The company’s long-term strategy of holding and operating office buildings Shanghai and Beijing’s prime locations will not change.”

About 2 million square meters (21.5 million square feet) of grade-A offices will be added in Shanghai between 2014 and 2015, more than double the supply in the previous two years, according to broker Savills Plc. About 70 percent will be in non-prime locations including near Shanghai’s smaller airport in the city’s west and the area where the World Expo was held in 2010, it said.

Tallest Building

Lujiazui, on the east side of the Huangpu River in Pudong, is the main financial district in Shanghai, housing the 632-meter (2,074-feet) Shanghai Tower, China’s tallest building when completed next year.

Soho China in 2012 changed to what it called a build-and-hold model from a build-and-sell model to take advantage of more stable and predictable rental income rather than sales proceeds.

“The company shouldn’t hold on to too many buildings at non-prime locations if it aims for more rental gains,” said Johnson Hu, a Hong Kong-based property analyst at CIMB-GK Securities Research who rates Soho’s stock a hold. “But the question remains whether it’s able to buy good quality assets after the sales.”

Office rents in Shanghai fell 0.3 percent to 8.41 yuan per square meter per day in the third quarter, the first quarterly drop since 2010, according to Savills.

Soho shares gained 0.5 percent to HK$5.94 as of 9:46 a.m. in Hong Kong trading, trimming their loss this year to 11 percent. The benchmark Hang Seng Index added 0.2 percent and is down 1.9 percent this year.

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at bcao4@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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