Soho China, a mainland developer reported to be the subject of buyout talks with US giant Blackstone, reported a 31 percent drop in profit from its core business in 2019, citing lower revenue after the company had sold off assets in 2018.
In an announcement on Wednesday to the Hong Kong stock exchange, the Beijing-based firm announced a net profit attributable to shareholders of RMB 1.33 billion ($187 million), which was an increase of about 8 percent from 2018 when excluding rental income lost following the 2018 sale of buildings in its Sky Soho project in Shanghai.
The Hong Kong-listed company posted an overall annual profit of RMB 1.32 billion, compared to RMB 1.94 billion in 2018. Soho China’s stock was up nearly 3.5 percent today, following the earnings announcement, to finish the day at HK$3.6 per share.
The announcement comes as Soho China is reportedly considering a $4 billion buyout offer from Blackstone. The deal would be the fund management behemoth’s biggest investment ever in China’s real estate sector – an industry where the fund manager has previously invested billions of dollars in residential, retail and logistics developers.
In its 2019 report, Soho China posted a gross profit margin of approximately 82 percent, compared with roughly 75 percent in 2018. The company also said average occupancy for its stabilized investment properties was at approximately 90 percent.
According to the report, growth in rental income slowed to 5.6 percent year on year in 2019, compared with an 18 percent expansion a year earlier and 11 percent growth in 2017.
Soho China was first reported to be looking for a major exit in October of last year, well before the coronavirus hobbled the mainland economy, with Blackstone mentioned at the time as a leading candidate to buy an $8.6 billion portfolio of commercial assets from the company controlled by real estate power-couple Pan Shiyi and Zhang Xin.
The developer said in this week’s report that it would pay close attention to the development of the COVID-19 outbreak and evaluate the impact on its financial position. The company said it “was not aware of material adverse effects on the financial statements as a result of the COVID-19 outbreak”.
In 2018, the developer sold two buildings in its Sky Soho project in Shanghai’s Hongqiao area to Gaw Capital for $798 million. It had sold a 100,000 square metre (1.07 million square foot) piece of the Sky Soho complex to Chinese travel portal C-Trip in 2013.
Silence Over Blackstone Deal
The potential buyout is also reported to involve Blackstone taking over Soho China’s debt, which totalled RMB 32.68 billion at the end of June last year, according to the developer’s interim report.
The 2019 report said the ratio of net debt-to-equity attributable to shareholders was approximately 43 percent, average funding cost approximately 4.8 percent, and offshore borrowings approximately 4.2 percent of its total debt.
Soho China has eight investment properties in its portfolio, with four office buildings each in Shanghai and Beijing. Known for commissioning high profile architects such as Zaha Hadid and Kohn Pedersen Fox, Soho’s office assets total 825,851 square metres (8.9 million square feet) according to company figures.
Earlier this month, the company, which is led by husband and wife team Zhang Xin and Pan Shiyi, cautioned that no decision had been made to proceed with the potential sale. Blackstone has also declined to comment on the reported deal.