CHAIRMAN’S STATEMENT

On behalf of our board of directors (“the Board”), I have the pleasure in presenting the results of Sino-Ocean Group Holding Limited (“Sino-Ocean Group”, or the “Company”) and its subsidiaries (together referred to as “our Group”, the “Group” or “We”) for the twelve months ended 31 December 2018.

RESULT OF 2018

For the twelve months ended 31 December 2018, the Group recorded RMB41,422 million in revenue, a decrease of 10% compared to the previous year. Profit attributable to owners of the Company and earnings per share decreased to RMB3,574 million and RMB0.473, respectively, decreasing by 30% compared to the previous year.

Based on the profit attributable to owners of the Company in 2018, the Board is pleased to propose a final dividend of HKD0.073 per share for the year ended 31 December 2018. Together with the interim dividend of HKD0.140 per share, total dividend per share for 2018 was HKD0.213 (2017: HKD0.322), representing a dividend payment ratio of 40% (2017: 40%). The payment of the 2018 final dividend would be subject to the shareholders’ approval of the shareholders of the Company (the “Shareholders”) at the Company’s annual general meeting (the “AGM”).

2018 BUSINESS REVIEW

It was the Group’s 25th anniversary in 2018 and a year of rapid expansion. Operating in a complicated and changeable external environment, the Group pursued its tasks in a ‘progressive and enterprising’ manner, maintained user-oriented and never lost the fighting spirit. The visible growth in performance and capabilities laid a solid foundation for the perfect finale of the fourth phase of strategic development in 2019.

• Accelerating growth in principal business, optimizing investment planning

In 2018, the Group’s principal business gained perceptible advancement in scale, turnover rate and investment planning. Despite an ever more competitive environment and downward market outlook, the Group’s contracted sales broke through RMB100 billion for the first time, up by about 55% year-on-year and a record high, achieving a compound annual growth rate of about 40% from 2015 to 2018, a remarkable growth rate in the industry.

In 2018, the Group proposed a fast turnover request called ‘368’ (construction to commence 3 months after acquisition of land, sale to start in 6 months and sales of 50% of first batch in 8 months). All business departments acted swiftly to compress construction cycle of all new projects in the year, step up the pace of the Company’s principal business considerably and bring about ample cash resources.

In 2018, the Group persevered in the deep cultivation of key city clusters, optimization of city planning and expansion of investment scale. During the year, we acquired a total of 61 projects in 30 cities and a new land bank of about 10.18 million sq.m. for a total saleable value cost of approximately RMB180 billion. Entries were made in 11 cities including Chuzhou, Changzhou, Taizhou, Shaoxing, Wenzhou, Zhangzhou, Zhanjiang, Maoming, Xi’an, Yantai and Jinan, all situated in key clusters with good urban fundamentals. Currently we have presence in 45 cities throughout the country, land reserve in excess of 40 million sq.m. with the saleable resources of RMB237.3 billion in 2019, providing a solid foundation for future developments.

• Ever-innovative financing channels, robust and stable management of finance

To facilitate the sustainable development of the principal business in a shrinking external finance environment, the Group actively extended financing channels to acquire funds innovatively. In 2018, the Group completed a variety of capital market finance initiatives including medium-term notes, corporate bonds, USD bonds, supply chain asset-backed securities and commercial property REITs. There were two issuances of the medium-term notes for a total of RMB6 billion, floating rate guaranteed notes for USD700 million, corporate bonds for RMB2 billion at a coupon rate of 4.7%, the lowest rate for any real estate corporate bond in 2018 at the time of issuance.

As at the end of 2018, the Group’s cash resources were maintained at more than RMB42 billion, and net gearing ratio was 0.73, higher than that for 2017 but still notably below industry level, demonstrating robust and stable management of finance.

• Breakthrough in asset securitization, continual optimization of asset structure

The Group on the one hand ensured the steady growth of income from investment properties, on the other continued to optimize asset structure and enhance liquidity through asset securitization and building the core property fund. Based on the commercial properties in Beijing and Tianjin, a REITs product ‘GSUM First Seafront Sino-Ocean No.1 Asset-backed Specific Plan’ was issued, a remarkable progress in asset securitization. An investment property fund was set up to acquire the holding company of properties in the Beijing core districts. Through asset securitization, a breakthrough of an innovative business operation of investment properties is achieved. The closed capital modus operandi of ‘invest, operate, appreciate, exit’ applicable to investment properties was gradually shaping.

• Strategic new businesses stepped up to a new level, business model maturing

In 2018, while ensuring the steady and speedy expansion of its principal business, the Group was vigilant in developing strategic new businesses and their integration with the principal business, proactively encouraging the former to help grow the latter. The year saw a balanced development in all new businesses and outstanding performance in strategic investment, operation management and nation-wide planning.

For senior living business, the Group acquired 40% shareholdings of Meridian Senior Living, LLC, a subsidiary of the US MeriStar Group by capital injection and reached agreements to have close collaboration in various areas. At the same time Sino-Ocean’s senior living brand Senior Living L’Amore launched the product line Care-based Nursing (CBN), a high quality care product for the aged after Continuing Life Retirement Community (‘CLRC’), Care Building (‘CB’) and Care Center (‘CC’), thus completing the 4C product configuration. Besides, the senior living business consolidated its nationwide planning and entered Chongqing in 2018, completing the location planning of key cities in five major city clusters. For long-term rental apartments, Boonself continued to push forward in the Beijing-Tianjin-Hebei, South China and East China regions with presence in Beijing, Shanghai, Guangzhou, Shenzhen and Hangzhou, all tier-one and core tier-two cities that the principal business is cultivating. In co-working space business, the Group strengthened co-operation with WeWork from the US to build a modern collaborative workspace for tenants in Beijing, Chengdu and Shenzhen to serve the dual purpose of enhancing product quality for mutual benefit, and to develop more regions such as the Mid-west and the Guangdong-Hong Kong-Macau Greater Bay Area. As regards logistics real estate, the complete closed circuit of ‘invest, finance, manage, exit’ was gradually taking shape. The Group completed the investment in Juma Logistics and led series C financing for YMDD Tracking and FineEx. Construction work of the Group’s first logistics real estate project, The Sino-Ocean Spring Asia Jiaxing Nanhu Automobile Components, Finance and Logistics Park, officially commenced in Jiaxing. The Group formally signed a strategic co-operation agreement with the Jiangjin Comprehensive Bonded Zone in Chongqing to jointly invest and build the largest comprehensive controlled temperature industry park in the western region.

• Implementation of building health continued, customer satisfaction record high

In 2018, the Group made tremendous progress in promoting and implementing the concept of "Building - Health". Through IWBI (The International WELL Building Institute) Elite Palace in Guangzhou was the world’s first project registered WELL MFR gold-class, and selected to be ‘a real estate case-study for the country’s senior high schools’. Subsequent to its renovation, the Sino-Ocean Group head office has applied for WELL platinum-class certification. When it is successfully registered in 2019, it is expected to be the largest office in China with the highest WELL standard registration. In addition, Lize Business District Project E06 in Beijing and Hangzhou Ocean International Center were also registered gold-class. After three years of research and implementation, the Group has used over 1,000 sets of tested data to develop the ‘SinoOcean Healthy Building System 1.0’ based on three principal fundamental theories, four-dimensional directives containing a total of 71 pertinent points. This system is promoted and implemented in 59 projects nation-wide, showcasing the Group's brand concept of "Building - Health".

At the same time, the Group never lost sight of the ‘user-oriented’ principle, paying attention not only to customers’ needs, following through the concept of health and elevating product standards, but also to provision of services to raise customer satisfaction. This philosophy gave rise to Sino-Ocean’s ‘400 Service Center’. It is firmly orientated to customer satisfaction, providing one-stop round-the-clock services with a view to becoming customers’ trusted ‘master housekeeper’, and giving powerful support to our mission of ‘creating a superb environment for mid to high-end city dwellers and high-end business clients’. These measures raised the Group’s customer satisfaction to a new height in 2018.

• Opening up to external collaboration, synergy mechanisms going from strength to strength

During the year, the Group continued to strengthen collaboration with premier financial institutions, other real estate enterprises and industry resources, as well as major Shareholders. We also signed strategic co-operation agreements with numerous enterprises to actively consolidate resources and complement one another for mutual benefits. In 2018, the Group signed a long-term healthcare insurance framework agreement with one of the major Shareholders, China Life, to provide brand promotion services, business expansion, collaboration services, standard benchmarking and so on. We will explore an innovation business model of “Insurance & Senior Living” together. Meanwhile, we also signed a strategic cooperation agreement with another major Shareholder, AnBang Insurance to found Sino-Ocean Bangbang Zhiye Company Limited in joint equity, to handle and manage AnBang’s real estate. Currently all projects under management are making progressive achievements. As the Group enjoys a steady growth, synergy between the principal business and diversified businesses develops and strategic planning intensifies, its collaboration with other enterprises will also strengthen. Extensive exploration and intensive co-operation in various areas help to create a mutually beneficial and codeveloping situation that is favourable for the Group’s future development.

2018 MARKET REVIEW

In 2018, China’s economy and real estate industry experienced numerous complications and changes. As the Sino-US trade war escalated, financial risks accumulated and domestic reforms intensified, the country’s economy moved on steadily, GDP grew by 6.6%, structure adjustment and transformation continued, and development quality was rising all the time.

Following the trend of ‘steady growth, controlled risk’, the Central Government was determined to solve the problems in the real estate market, adhering firmly to the principle of ‘housing is for accommodation not speculation’, making it clear that there would not be ‘any relaxation of measures’ and encouraging market sentiments to be rational. In these circumstances, local authorities continued the highly controlling measures of 2016 and 2017, applying differentiating policies to cities according to situations and intensifying market regulation in the second half of the year. To generate more profound effect the Central Government accelerated the formation of long-term regulatory mechanisms, encouraged the re-structuring of housing supply, actively supported rental housing and joint-ownership housing. The real estate market in China is silently undergoing changes.

Faced with stringent macro measures, GFA sold and sales amount of commodity housing nation-wide in 2018 were record high. GFA sold was 1.72 billion sq.m., up by 1.3% year-on-year; sales amount RMB15,000 billion, increased by 12%. In the first half of the year, demands in emerging tier-two and tier-three cities caused the market to be buoyant, but since the meeting of the Central Politburo on 31 July motioned to ‘adamantly curb housing prices’, the market sentiments of ‘bullish outlook’ and ‘cyclical turnover’ were gradually knocked back. As the effect of the measures emerged, many property markets in urban areas dipped. From September onwards, growth rate of commodity housing GFA sold nationwide turned negative. Meanwhile, differentiation among regions and cities became even more complicated with individual cities having varying market conditions and performances.

The land market saw distinct differences in the two halves of the year. In the first six months, property enterprises acquired land plots earnestly while in the rest of the year they became more cautious as expected changes emerged. There were increased cases of aborted auction and withdrawal of land plot sale, pushing land premium to a record low. In addition, huge supply of joint-ownership residential sites and rental land plots, as well as collective rental sites created a new model for land use and hence far-reaching changes in the land market.

The stringent finance environment in 2018 caused total finance to shrink and cost to rise. Property enterprises in general firmly believed cash is king and therefore sped up turnover, encouraged sales and cash proceeds dynamically to maintain liquidity. In a complex circumstance of sluggish market outlook, more fierce competition and increased difficulty in finance, concentration of the industry continued to rise.

2019 MARKET OUTLOOK

It is the 70th anniversary of new China in 2019 and a critical year for the country to build a moderately prosperous society nation-wide. In view of the complex domestic and foreign environment and unrelenting downward pressure on the economy, economic efforts will be executed according to the principle of ‘six stabilities’ — stable employment, stable finance, stable foreign trade, stable foreign capital, stable investment, stable expectations’. Looking ahead, policies for the industry will continue to be severe and stable, local authorities will become regulatory bodies. Under the main theme of ‘housing for accommodation not speculation’ they will regulate precisely by ‘one city one policy’. Meanwhile the longterm mechanisms to regulate the property market are expected to be implemented. The connection of short-term regulation and long-term mechanisms will restore the industry to a stable and healthy state for high quality growth.

The medium to long-term view is, urbanization in China will push ahead and the aggregation effect of the five major city clusters will expand. Core and key cities will attract people from near and afar throughout the country and hence give rise to continuous housing demands. Existing residents’ needs for upgrading cannot be neglected either. Both new housing demands and existing housing upgrade will ensure the industry’s growth. As the driving forces of economy in China are changing the government hopes to generate growth through releasing domestic demands. The Central Economic Work Conference proposed accelerated development in the service sector including education, nursery, senior living, medicines and public health, culture and tourism. As many of these are closely linked to their principal business, property developers will reap dividends from this policy and can look forward to a promising future.

2019 COMPANY STRATEGIES

2019 will be a critical year as the real estate industry in China goes through some profound changes. As the long-term mechanisms of the property market progress steadily, times are changing for the industry. Maintaining a high operation scale but slowing down of growth rate is to be expected. It is also the year in which our fourth phase of strategic development comes to a closure and the fifth phase starts off. The Group will carry out its tasks adhering to the principle of "Crafting meticulously - Getting strong and fit". We will build our inner strength seriously, raise and streamline management standard, professionalism and effectiveness, shape our core competitiveness and seek high quality growth.

• Focusing on principal business, seeking high quality and sustainable development
  

Regardless of a chaotic and complex external environment, the Group is firmly confident and will continue to build inner strength, further streamline the traditional residential development while improving synergy between the diversified businesses and the principal business to help the latter grow. For traditional development business, we are fully aware that to survive an enterprise must accentuate its edge in scale of the principal business. The Group will boost sales and raise profitability, speed up disposal of low yield assets, put in best efforts to get cash proceeds and cash flow, and be resolute in achieving quick turnaround. We will adhere to the strategy of investment for value and deep city penetration, target city clusters and metropolitan areas as the main development arena, focus on core cities and districts. We are steadfast in investing rationally and acquiring quality land cautiously to provide for quality and sustainable expansion. Meanwhile, the Group will implement the concept of "Building - Health" with even better commitment, with a view to satisfying customers’ needs, infusing ‘health’ into investment, design, sales and property services, providing products and services that live up to the ‘health’ standard. As for the diversified businesses, the Group will grasp the changes in policies and industries to explore and fine-tune the business model and profitability model for all businesses, to encourage synergy between the new businesses and traditional development business, consolidate internal resources to complement one another and brace ourselves for the new era.

• Implement budget management in all areas, streamline operation management capability

The Group is fully aware that it is essential for an enterprise to build core competitiveness if it is to grow. Future competition in real estate will evolve to be competition in streamlining of operation management. Only through effectively streamlined and professional management can enterprises realize quality and sustainable growth. The Group will take a grip on total budget management and whole cycle planning, go deep into the capillaries of operation to identify the real problems, analyse them and make improvements to raise operational quality and efficiency. We will fortify our business-oriented information platform to boost management prowess. The Group will also suppress costs in all areas of the principal business by standardizing products and cost control, and raise purchasing quality. We will also use multiple means to control finance cost, selling and administrative expenses, and continue to step up operation capabilities in commercial properties, offices, long-term rental apartments and senior living for higher returns.

• Advocate pragmatic work methodology, reinforce operator awareness

The Group advocates a pragmatic approach to work attitude and methodology. Faced with a downward cycle, the Group will pay special attention to the fundamentals and basics, raise awareness as an operator of the importance of professionalism and effectiveness in all aspects of management. Using a financial effectiveness angle, we will try to identify factors affecting operation excellence and efficiency, improve on the basics, encourage units at the low level to increase capabilities, drive overall management to be more pragmatic and effective and ultimately on track to streamlined and high quality development.

APPRECIATION

On behalf of the Board, I would like to extend my deepest gratitude to all Shareholders, investors, local authorities, business partners and customers who have been most supportive; also to our directors, management and the entire staff for their dedicated hard work. Our sustainable and stable development could not be achieved without their unreserved support.

LI Ming
Chairman

Hong Kong, 20 March 2019