Soho China 1st-Half Core Profit Doubles on Property Sales

Soho China Ltd., the biggest developer in Beijing’s central business district, said underlying profit in the first half more than doubled with increased earnings from property sales.

Profit excluding revaluations climbed to 537 million yuan ($88 million), from 233 million yuan a year earlier, according to a statement to the Hong Kong stock exchange today. Revenue doubled to 2.5 billion yuan.

Chief Executive Officer Zhang Xin last year steered the company toward 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’s earnings rose because it has sold more properties left over from last year to book in the period,” Alan Jin, a Hong Kong-based property analyst at Mizuho Securities Asia Ltd., said before the results. “But a lot of uncertainty remains with this company because it will take at least four or five years for its new model to take effect and Soho doesn’t have a good track record for holding properties,” he said, rating the stock at underperform.

Grade-A office rents in Beijing fell 2.2 percent in the second quarter from the previous three months to 387 yuan per square meter (10.76 square feet) each month, the first quarterly decline in almost four years, as the country’s economy slowed, according to property broker Knight Frank LLP.

Fully Confident

“We are fully confident about the development potential of the office markets in Beijing and Shanghai,” Chairman Pan Shiyi said in today’s statement. Demand for prime office buildings in the two centers “remained robust, whereas the supply in these two cities remained constrained in prime locations.”

Including property revaluations, net income more than tripled to 2.1 billion yuan, or 0.4 yuan a share in the first half of the year, from 613 million yuan, or 0.12 yuan, a year earlier.

Soho shares rose 0.3 percent to HK$6.42 at the close of trading in Hong Kong, reversing an earlier decline of as much as 1.4 percent following the results. The stock has gained 3.2 percent this year, compared with the Hang Seng Index’s 3 percent loss.

The company said it will pay an interim dividend of 0.12 yuan per share.

As it moves to the new business strategy, Soho will hold most of the unsold properties under development as self-owned investment properties and will also finish selling the “leftover” properties that were put on the market before it changed the model, it said.

The developer said it leasing performance improved in the first half, with SOHO Century Plaza, its first wholly-owned investment property in Shanghai fully leased.

— With assistance by Bonnie Cao

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