Soho China 2012 Underlying Profit Doubles as More Sales Booked

Soho China Ltd., the biggest developer in Beijing’s central business district, said 2012 underlying profit rose 1.4 times as more properties were delivered during the year.

Profit excluding revaluations climbed to 3.34 billion yuan ($537 million), from 1.42 billion yuan a year earlier, according to a statement to the Hong Kong exchange. That compares with the 3.64 billion yuan median estimate of analysts surveyed by Bloomberg News. Revenue rose 1.7 times to 15.3 billion yuan.

Chief Executive Officer Zhang Xin last year steered the company, which traditionally sold most of its projects, toward what it called a build-and-hold model, away from a build-and-sell model, to take advantage of more stable and predictable rental income rather than sales proceeds.

“A good earnings result wouldn’t be a surprise simply because of the low base figures last year, and they were able to deliver more properties from previous years,” Philip Tse, a Hong Kong-based property analyst at ICBC International Research Ltd., who rates the company a sell, said before today’s release. “But what worries investors is their strategy changing as investment projects is not the model they used to be good at.”

Office rental growth in China will decelerate this year because of the overall economic slowdown, according to property broker Cushman & Wakefield Inc. Average rents for Beijing’s grade-A offices increased by 0.4 percent in the fourth quarter last year from the previous three-month period, signaling they are approaching a mid-term peak after three years of rapid growth, according to property broker Knight Frank LLP.

Acquisition Mode

Beijing-based Soho expects 2013 will be an attractive year for acquisition opportunities and will focus on buying land and projects in Shanghai and Beijing, Chairman Pan Shiyi said in today’s statement.

“Despite the differences in the growth rates of the two cities during various periods, the steady overall rise in both markets laid a solid foundation for our new development model and strategy,” he said. “In China, this solid foundation exists only in Beijing and Shanghai and is not present in second-tier cities.”

The company will reduce the retail exposure in its portfolio in response to the growth of Internet shopping, according to the statement. Retail facilities included in its projects will mainly be so-called concept stores, it said.

Soho posted 9.47 billion yuan of contracted sales in 2012. Developers are required to obtain permits from local governments prior to selling properties.

Including property revaluations, net income rose 172 percent to 10.6 billion yuan, or 1.897 yuan a share, from 3.9 billion yuan, or a restated 0.716 yuan, a year earlier.

Soho shares jumped 5 percent to HK$6.12 as of 1:01 p.m. in Hong Kong. The stock has lost 1.1 percent this year, compared with the Hang Seng Index’s 0.4 percent gain.