By Joyce Li
HONG KONG (Dow Jones)--Mainland commercial property developer SOHO China Ltd. (0410.HK) is eyeing more than 10 projects in Beijing and Shanghai, and expects to acquire some of its targets within the next few months, Chief Executive Zhang Xin said.
With more than CNY10 billion (US$1.46 billion) in cash, Beijing-based SOHO China plans to strengthen its foothold in Beijing and tap the Shanghai market via acquisitions.
The majority of the targets are completed projects that belong to "desperate" foreign funds, including those from Japan, the U.S. and Australia, Zhang told Dow Jones Newswires in a recent interview.
SOHO China is in negotiations for at least 10 projects that fulfill the company s requirements, Zhang said, without naming the properties or the companies it is in talks with.
The commercial properties "satisfy our conditions - cheap price, great location, large scale, and located in Beijing and Shanghai."
These acquisition opportunities didn t exist one-and-a-half years ago when global economies were still booming. But prices plunged 50% from their peak in 2007 due the global financial crisis, as funds sought to increase liquidity.
"The foreign funds are eager, desperate. Their parent companies are in trouble. The funds need to be liquidated."
SOHO China is in advanced talks for most of the projects, which have already been completed, Zhang said.
The company expects to clinch some deals within the next few months, she said, adding that completed projects are more attractive because they carry the same price tags as unfinished projects or even empty land parcels.
An oversupply of commercial properties in Beijing and Shanghai also means it isn t viable to create new office or retail space.
"The overall theme is oversupply, so the need for building more is not that immediate," Zhang said.
However, Beijing and Shanghai will likely continue to be the main hubs for economic activities, Zhang said, adding that she doesn t see second-tier cities, such as Chongqing or Qingdao, catching up anytime soon.
"I think the key is, even when the occupancy rate is lower, we still believe that (since) the value has dropped that low, it s still worth doing it," she said, referring to the company s planned acquisitions.
SOHO China doesn t have to wrestle with competitors for these distressed projects, because many don t have sufficient funding or because some, including Hong Kong developers, are being too cautious and have a pessimistic economic outlook, Zhang added.
HSBC, which has an overweight rating on the stock, said the developer is one of the few Hong Kong-listed Chinese property companies that could see potential net asset value upside from acquisitions.
"We believe SOHO is well placed to capitalize on property value as prices stabilize and transaction volume picks up in the second half of this year," HSBC said in a research note.
The property developer listed in Hong Kong in 2007, and would be interested in listing in Shanghai once listing rules in the mainland allow, Zhang said.
"There s a mismatch of what SOHO China is in China to what SOHO China is in Hong Kong. That s why our stocks are not trading the way that we hoped. So I think an A-share (listing) will ultimately be the answer for that."
The mainland s securities regulations don t allow red chip companies, or firms incorporated and listed in Hong Kong but controlled by Chinese shareholders, to list in China.
Beijing recently announced plans to launch real estate investment trusts this year, but Zhang said the company isn t interested in launching REITs.
"I don t see this happening," Zhang said.
"China is all about assets going up - the rental yield is not that high," Zhang said. "So if you only focus on the rental yield, which is the cashflow, and forget about asset appreciation, that s not the story of China."
