Dear Friends,

Looking back, we find 2009 has been a memorable year for all of us. Hand in hand, we have ultimately ridden out the unprecedented financial turbulence, but the alarm of the crisis continues to ring in our ears. In early 2009, the unprecedented financial turmoil of historic proportions put our system, mindset and all other things at stake. It brought together leaders and governments from around the world to engage in discussions and solutions. Unlike the conflicts, wars, and indifference that humanity has experienced so frequently, dialogue and collaborations of
such scale and intensity are rare and particularly valuable. The financial crisis has triggered people to unite unlike ever before. In the midst of crisis, we prepare ourselves for
another difficult yet resolute step into a new world. In the second half of the year, the world economy began to pick up. Especially in China’s real estate sector, we experienced a roller-coaster of market ups and downs. In such a complex market, SOHO China achieved record high performance results, out-performing the targets we set at the beginning of the year.

In 2009, SOHO China exceeded its initial annual targets for sales, project construction, acquisition, and financial results.

For the first time in its history, in 2009 SOHO China’s contract sales amount surpassed RMB 10 billion. The Company’s sales
team stood the test of tough market conditions in late 2008 and in early 2009 became even more competent. With RMB 13.7 billion of total contract sales, SOHO China became the champion player in terms of market share in Beijing. Sanlitun SOHO Phase I, which includes five office towers and three shopping malls in the northern district, with a total GFA of approximately 240,000 square meters, was completed and delivered by end of 2009. The project’s total sales of nearly RMB 16 billion were partially booked in 2009, and the remainder will significantly contribute to the Company’s 2010 turnover.

The year 2009 also marked the Group’s much anticipated entry into Shanghai’s commercial property market. The acquisition of
The Exchange-SOHO in Shanghai served the Group’s strategy of developing commercial properties in the business centers of Beijing and Shanghai. It has been another successful case of converting non-performing assets into profitable projects. In the same spirit, we acquired the SOHO Nexus Centre in Beijing. Compared with land acquisitions, completed properties are relatively less costly to purchase, less risky and capital turnover is usually faster. Both The Exchange-SOHO and Nexus Centre have generated strong sales, and both have attracted new and diversified regional clients for the Group. These are milestones in the Group’s expansion campaign into new markets. In 2009, the Group’s acquisition amount increased by 65% over the previous year, and the total acquired GFA increased by 50%. This has not only laid a solid foundation for the Company’s future growth, but has also prepared the Group to better respond to potential market changes.

SOHO China has been keeping a prudent and healthy finance structure. In 2009, the Group secured RMB 20 billion credit facility from Bank of China and China Merchant Bank. We issued convertible bonds at the coupon of 3.75%. Through acquisition and other means, the Group’s gradually increased its leverage ratio while keeping adequate cash in hand for potential acquisition opportunities.

In the past two years, the financial crisis has significantly impacted the global economic and financial order. Its influence on the global economy is far from being over. But thanks to the crisis, we are witnessing the emergence of a new economic order that is more inclusive and equitable. It is favorable to China’s growth. Under this new economic order, China’s property market has greater upside potential.

Urbanization is inevitable in China for the coming years. This nationwide process will provide great prospects for the real estate industry. Urbanization prompts demand for both residential buildings and commercial properties. Properties should offer a balanced mix to satisfy people’s needs for residence, office, work, and recreation. The past few years have seen tremendous investments by the government and private sector in residential properties, while office and retail properties serving local enterprises in Beijing and Shanghai have been relatively under-supplied. This is evidenced by a far higher investment return from commercial properties.

While recognizing the enormous potential that lies within China’s real estate industry, we need to remain sober-minded and prepare ourselves to respond to the aftermath of the financial crisis and issues arising from government stimulus policies. These policies, while boosting China’s economy, have complicated the overcapacity problem in literally all industries. The Chinese economy today is largely sustained by government policies rather than market forces; this is particularly true of the property sector. Investment is a major driver in China’s growth. Sizeable investment in the property market has caused prices to skyrocket across China. In some places, residential property prices more than doubled in 2009. However consumption power did not rise step by step and the real sector remains weak. The gap between the growth of the real sector and the property industry is the underlying cause of high vacancy rates.

Our views on the market are that industry cycles are becoming shorter, and policy has great impact on market volatility. In order to control residential prices and the asset bubble, the government has tightened credit for property since the beginning of 2010, which will be a year of uncertainty for the property market. The Company will remain cautious in acquisitions, and is well-equipped with over RMB 40 billion worth of property supply for the next three years. If the market is favorable, we have properties to sell; otherwise, we have cash to acquire.

Healthy growth and sustainability are the long term goals of the Company. In 2010 and in the foreseeable future, and if China’s economy experiences policy induced volatilities, the Company will continue to follow the “Zhong Yong” philosophy to pursue healthy corporate development and build up its capacity against market risks and turbulences.

The full recovery of the real economy will take a much longer time. The remedies so far are all material, depending largely on monetary supply. Without spiritual guidance spiritual we would not be able to get through the crisis. In a year of extraordinary turbulence, we are grateful to our faith, which has provided us with peace, strength, aims, and direction. Wherever we go and whatever we do, we will reflect on whether it is conducive to our personal growth, to the
Company’s growth, and to social progress.

On this note, let us move forward.

Pan Shiyi
Chairman
11 March 2010

Back to Top