Soho China Plans To Sell

Soho China Plans To Sell A Portion Of Its Office Portfolio

CHINA –In a bid to take advantage of the early signs of recovery in the COVID-hit property market, office landlord Soho China is selling a part of its commercial properties in Beijing and Shanghai at hefty discounts, reported the South China Morning Post (SCMP) on Thursday evening (10 March, SGT).

Its Chairman Pan Shiyi said in a presentation that the commercial property developer plans to unload 34,4445.13 sq ft from its portfolio in the two Chinese cities at a 30 percent discount.

The size translates to under 4 percent of its overall assets collectively spanning about 8.94 million sq ft across 9 office projects and serviced apartments as of the end of June 2021, based on the firm’s interim report published in August 2021.

“All the proceeds will be used to cut debt,” said Pan in response to market concerns about Soho China’s asset-sale plan and debt burden. To expedite the divestment, the company intends to raise the agent commission fee to 4 percent of the deal value, he added.

Pan, who together with his wife Zhang Xin holds 63.9 percent of stake in the Beijing-based property developer, is attempting the sale after 2 failed attempts to divest their holdings to US private equity giant Blackstone Group at a valuation of US$3.34 billion.

Notably, Blackstone offered HK$5 per Soho share in June 2021, which represents a premium to its market price of around 32 percent. The private equity giant axed the deal last September before China’s antitrust regulator completed its review of the transaction.

As of 30 June 2021, Soho China had an overall debt of 18.5 billion yuan (US$2.9 billion), including 1.2 billion yuan due within 12 months and another 1.6 billion yuan due by June 2023. At present, its net gearing ratio stands at 43 percent.

Moreover, the firm’s interim report revealed the local commercial property market has rebounded after a lacklustre 2020. In fact, the average occupancy level of its commercial properties increased to 90 percent in 2021 from 78 percent during the 2020.

However, the steep discount being offered by Soho China suggests that the market is at risk from the new stock coming in the next few years. The vacancy level of Grade A office buildings in Beijing also remained high at 17.5 percent, while that in Shanghai is at 18.8 percent. The firm estimated that roughly 86.1 million sq ft of new office stock will be completed in Beijing and Shanghai by 2025.

The Beijing office market is expected to see a peak supply of up to 16.15 million sq ft in 2022, forecasted property consultancy DTZ.

“The discount sale shows its eagerness to generate cash flow,” said Raymond Cheng, Research Head for China and Hong Kong at CGS-CIMB Securities.

In a buyers’ market coupled with sufficient supply of office space, Soho needs to offer competitive selling prices to pique the interest of would-be buyers, he added.

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