Shimao Property : 2016 Interim Results Announcement

(30 August 2016, Hong Kong) - Shimao Property Holdings Limited ("Shimao Property" or "the Group"; Stock Code: 813.HK) is pleased to announce its interim results for 6 months ended 30 June 2016.

In the first half of 2016, the Group achieved recognized revenue of RMB30.016 billion, representing a year-on-year increase of 2.8%. Gross profit and gross profit margin were RMB8.467 billion and 28.2% respectively. Profit attributable to shareholders was RMB3.028 billion. To demonstrate its appreciation for the Group's shareholders' unstinting support, the board declared the payment of an interim dividend of HK26 cents per share and a special dividend of HK6 cents per share, totalling HK32 cents per share (2015 interim: HK30 cents).

Commenting on the Group's interim results, Mr. Hui Wing Mau, Chairman of Shimao Property, said, "The real estate market continued to rebound nationwide and started a new upward trend in the first half of 2016, on the back of the positive drive from government policies and the unleashing of the cumulative demand. For the first half of the year, property prices on a nationwide basis demonstrated an upward trend in general. In second- and third-tier cities, the rate of year-on-year growth in property prices continued to increase, and the growth rate in some second-tier cities already exceeded that in first-tier cities such as Beijing and Guangzhou. However, in some third- and fourth-tier cities, the real estate market remained sluggish due to high inventory and weak demand. The divergent market performance rendered it a normal industry practice to have differing policies being applied in different cities. As such, in the first half of the year, the Group continued to adjust the timing and structure of supply by strictly adhering to the principle of "sales-based production" in third and fourth-tier cities and focusing on first- and second-tier cities. "

Sales Performance

At the beginning of 2016, the Group set its annual contracted sales target at RMB67.0 billion. With record-high monthly contracted sales achieved in June, the Group realized contracted sales of RMB34.46 billion in the first half of the year, representing approximately 51.4% of the annual target. The total sales area amounted to 2,428,000 sq.m., with an average selling price of RMB14,192 per sq.m. during the period, up from RMB12,011 per sq.m. in the corresponding period in 2015. This has laid a good foundation for the Group's stable growth in profit margin in future.

In terms of cities, the sales in Nanjing were more than RMB5.0 billion, while the sales in Beijing, Xiamen and Hangzhou were more than RMB1.5 billion. In terms of projects, the sales of Nanjing Shimao Bund New City, Xiamen Xiang'an project, Nanjing Pukou Royal Real and Nanjing Straits City were RMB2.657 billion, RMB1.312 billion, RMB1.190 billion and RMB1.003 billion, respectively. In addition, the prices of the above projects were upward adjusted in the first half of the year by more than 30% in general, some of which even increased by 65%. Both sales volume and prices increased and the Group performed well in the market.

In respect of inventory clearance, the inventory sales of the Group in the first half of the year were RMB21.9 billion, representing an increase of RMB7.9 billion from the corresponding period of the previous year. Inventory-to-sales ratio increased by 19%. With respect of inventory sales strategy, pricing was strategically adjusted to boost the sales of inventory in third- and fourth-tier cities with relatively low demand, with particular focus on pricing adjustments for longer aged inventories. As a result, a strong business foundation was laid by optimizing the inventory structure, increasing the cash collection ratio and enhancing the competitiveness. As of 30 June 2016, inventories of first- and second-tier cities accounted for 69%, up 6% from the beginning of the year. Inventory clearance in third- and fourth-tier cities has been effective.

Based on our judgment on the future market trend, the Group has enlarged the supply in first- and second-tier cities of higher gross profit margin and lower risk of high inventory since last year. The supply focused on first- and second-tier cities while the supply in third- and fourth tier cities was controlled strictly in accordance with the principle of "sale-based production" to avoid high inventory of low margin properties. The Group will increase its supply to first- and pre-first-tier cities to 54% of total value in the second half of the year. Following the implementation of product standardization and the addition of attractions on products, supporting facilities as well as education, the competitiveness and the premium pricing of the Group's projects were improved. Addressing customers' mindset, the Group established a system which supported the particular needs of customers, radically enhanced the land nature and precisely focused on themes of community life, which constituted key selling points apart from the layout of units. The Group is confident that, with its continuous efforts to meet the market's demand, its performance will be better in the second half of the year.

Prudent Replenishment of Land Reserves

In the first half of 2016, there was a trend of developers re-steering their focus on first- and second-tier cities, causing fierce competition for land resources, soaring land prices and in turn many cases of "land king lots" transacted at exceptionally high prices, and thus continually squeezing future gross profit of the industry. The Group upheld its prudent strategy and adopted a more cautious approach in replenishing land reserves. In the first half of 2016, the Group acquired land reserves of 1.10 million sq.m. (before interests) in Fuzhou, Yinchuan, Beijing, Nanjing and Wuhan. Currently, Shimao Property has 116 projects with a total area of 31.85 million sq.m. (attributable interests) of quality land in 41 cities in China. In particular, the Group entered into an agreement with another developer to acquire Beijing Shangzhuang project, which transaction is expected to be completed before April 2017. This enables the Group to acquire quality land at reasonable costs, which effectively reduces the capital requirement and cost of project operation, and thereby alleviates the financial pressure on the Group. Meanwhile, the Group also acquired the Jianye project by way of public auction in Nanjing, at RMB16,296 per sq.m. of floor area, for the development of commercial, office and residential projects, which explain the lower land costs compared to land for sole residential development.

Promoting Light Asset Operation

From the opening of MiniMax Hotel at the end of 2014 to the launch of the 52+ Mini Mall series at the end of 2015, the Group has been launching new products in a systematic and orderly manner. Mini Hotel and Mini Mall, which are the two major projects of the "Mini" series, are known for their compact scale which distinguishes them from traditional luxury hotels and large-scale shopping malls. As the Group's brands under the asset-light strategy, they offer customized products to address specific needs. They are able to enter or exit the market nimbly and their products can be replicated easily. The "Mini" series is the Group's key commercial product. With the operation of new business models including the "Mini" series, the Group will be able to attract more investors and lower the proportion of internal capital investment in order to increase the return on assets held by the Group. Moreover, in July, Shimao Hotels and Resorts entered into entrusted management arrangements for the first hotel - MiniMax Hotel Linyi Binhe in respect of the export of hotel management, and the hotel is expected to officially commence operation in the middle of 2017. This also signifies the implementation of the "light asset" strategic transformation of Shimao Hotels and Resorts.

1. Recognized Sales Revenue

   The Group generates its revenue primarily from property development, property investment and hotel operations. As at 30 June 2016, revenue of the Group reached RMB30.016 billion, an increase of 2.8% when compared to RMB29.193 billion for the corresponding period in 2015. During the period, revenue from property sales amounted to RMB28.589 billion, accounting for 95.2% of the total revenue and representing an increase of 3.1% over the corresponding period in 2015. The average recognized selling price increased by 9.2% to RMB12,108 per sq.m. in the first half of 2016, from RMB11,092 per sq.m. for the corresponding period in 2015. The number of projects recognized by the Group in the first half of 2016 totalled 66, higher than the 59 projects recognized in the corresponding period in 2015, of which Nanjing Straits City achieved great results with recognized sales revenue of RMB3.937 billion; Nanjing Shimao Bund New City, the first runner-up, with recognized sales revenue of RMB1.680 billion; and Wuhan Shimao Splendid River, the second runner-up, with recognized sales revenue of RMB1.541 billion.

2. Steady Sales Growth

   With respect to property sales, the Group's contracted sales amounted to RMB34.46 billion in the first half of 2016, representing 51.4% of its annual target. The aggregate sales area reached 2,428,000 sq.m., with an average selling price of RMB14,192 per sq.m.. Benefited from adequate liquidity and easing of the regulatory policies, in the first half of 2016, the Group achieved satisfactory sales and its inventory clearance work progressed well as expected. In terms of overall sales results, the performance of first-tier cities maintained strong. Attributable to the meticulous regional marketing plans and customized sales strategies based on local characteristics, certain second- and third-tier cities also recorded improvement in sales. Looking forward to the second half of 2016, the Group will launch saleable areas of approximately 3.73 million sq.m.. Together with the existing saleable areas of approximately 3.14 million sq.m. as at 30 June 2016, the Group's total saleable areas in the second half of 2016 will be approximately 6.87 million sq.m..

3. Completion of Development Projects and Plans as Scheduled

   The Group made proactive adjustments to strategy of inventory supply and construction plans, put off or cancelled the supply of certain products of same quality and exerted efforts in clearing up projects with higher inventory level in the first half of 2016. During the first half of 2016, floor area under

   construction reached 12.95 million sq.m. The aggregate GFA completed by the Group was approximately 3.11 million sq.m., 19.8% lower than the 3.88 million sq.m. completed in the corresponding period of last year. Looking forward to the second half of 2016, the GFA planned for completion of the Group for the whole year will be approximately 7.20 million sq.m., a decrease of 4.8% from 7.56 million sq.m. for the corresponding period in 2015.

4. Expansion of Land Bank for Long-term Sustainable Development

To support its sustainable development, the Group adopts an active but prudent policy toward land acquisition. In the first half of 2016, the Group acquired approximately 1.10 million sq.m. of land bank in Fuzhou, Yinchuan, Beijing, Nanjing and Wuhan. Currently, Shimao Property possesses 116 projects in 41 cities in the country, with a high-quality land bank of 31.85 million sq.m. (attributable interests). The premium land resources and relatively low land cost provide continued support to Shimao Property's results in the major markets nationwide in the next few years.

Geographically, the majority of the newly-acquired land parcels by Shimao Property in the first half of 2016 were situated in first- and second-tier cities at provincial capital level, which have enormous potential for development and markets of which have not yet reached saturation, assuring the projects of adequate room for development and capability to resist risks. The average floor price of the new land reserves was approximately RMB10,968 per sq.m. in terms of land cost. The Group holds sensible attitude, increases its land reserves by following its longstanding prudent policy and strives to strike a balance between development opportunity and risk control. As at 30 June 2016, the Group's average land cost was RMB3,017 per sq.m.. The relatively low land cost provides effective assurance for the Group to achieve a higher profit margin in the future.

Property Investment

With respect to commercial properties, Shimao Property develops commercial properties through Shanghai Shimao Co., Ltd. ("Shanghai Shimao"), a 58.92%-owned subsidiary, which is primarily engaged in the development and operation of commercial properties. Besides actively grasping development opportunities in the domestic commercial property market, Shanghai Shimao provides diversified commercial properties along with high quality related services by carrying out strategies on professional exploitation and operation of commercial properties. It continues to work on achieving greater integration for increased competitiveness, and aims to become a highly successful professional developer and operator of commercial properties.

During the reporting period, the annual work plan of the Shanghai Shimao was implemented accordingly. On 12 May, Shanghai Shimao disposed of 100% equity interest in Beijing Fortune Times Property Co., Ltd. and Beijing Baiding New Century Business Management Co., Ltd. to Leshi Holdings (Beijing) Co., Ltd. at a consideration of RMB2.972 billion according to the agreement. The share transaction fully reflected the strategic mindset of Shanghai Shimao in managing assets of commercial properties. The partial disposal of commercial properties which had become matured further enhanced the structure of commercial assets of Shanghai Shimao and achieved capital appreciation of commercial properties. On 16 July, Xiamen Shimao Emall Shopping Centre was grandly opened after years of preparation. Located in between the twin towers of Xiamen Shimao Straits Mansion, the shopping centre is home to various shops on light luxurious goods, trendy stuffs, food, entertainment, harbour-view cinema and waterfront gym rooms. Combining the humanity theme of the locality and the can-do spirit under the Minnan culture, it paves way for the "room for literary creation" with unique character, seeking to build an integrated, multi-dimensional space of city experience encompassing shopping, tourism, commerce, culture, recreation etc. Further, Shanghai Shimao's brand realignment initiatives targeted at its various commercial malls are aimed to uplift the overall brand attainments of the malls, and to couple with the improved and enriched internal management and property services at the malls to foster the ongoing enhancement in the shopping experience of consumers.

- More -