HIP21090022e Project Candy AP - hkexnews.hk

You should read the following discussion and analysis in conjunction with ourcombined financial information and accompanying notes thereto in “Appendix I –Accountants’ Report” and our selected historical combined financial informationand operating data included elsewhere in this Document. We have prepared ourcombined financial information in accordance with IFRS.

The following discussion and analysis contain certain forward-lookingstatements that reflect our current views with respect to future events and ourfinancial performance. These statements are based on assumptions and analysesmade by us in light of our experience and perception of historical trends, currentconditions and expected future developments, as well as other factors we believeare appropriate under the circumstances. However, whether actual outcomes anddevelopments will meet our expectations and predictions depends on a number ofrisks and uncertainties over which we do not have control. See “Risk Factors” and“Forward-looking Statements” for discussions of these risks and uncertainties.

OVERVIEW

We are a leading investor and manager of premium, sustainable, commercialproperties in the PRC, with one of the largest portfolios of commercial properties inShanghai and growing presence in other high-growth cities in the country. We have threeprincipal business segments:

(i) Property Investment, comprising investment, ownership and operation ofcommercial properties and provision of other rental-related services;

(ii) Property Management, comprising commercial and residential propertymanagement services; and

(iii) Asset Management, comprising commercial asset management services.

In addition, we also derive revenue from other business activities, includingproperty sales, which primarily comprise sales of carpark inventories, and other servicessuch as workstation and incubation services.

As at 30 June 2021, we have a portfolio of a total of 2,005,209 sqm GFA ofcommercial properties (including self-use properties), approximately of which 52.7% arelocated in Shanghai. As of the same date, the total value of our commercial properties(including self-use properties) based on independent valuation amounted to RMB53,135million, of which 71.9% are located in Shanghai. Additionally, we also have obtainedrights to acquire from Shui On Land approximately 1.3 million sqm total GFA of thePipeline Commercial Properties, approximately 85.7% of which are located in Shanghai.

In 2018, 2019, 2020 and the six months ended 30 June 2020 and 2021, our revenuewas RMB2,393 million, RMB2,580 million, RMB2,358 million, RMB1,112 million andRMB1,377 million, respectively. In 2018, 2019 and the six months ended 30 June 2021,we recorded a net profit of RMB681 million, RMB584 million and RMB474 million,respectively. In 2020 and the six months ended 30 June 2020, we recorded a net loss ofRMB263 million and RMB885 million, respectively, primarily due to a decrease in fairvalue of investment properties of RMB1,111 million and RMB1,311 million, respectively,on account of the COVID-19 outbreak. Our underlying net profit attributable to

FINANCIAL INFORMATION

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READIN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT

shareholders of our Company in 2018, 2019, 2020 and the six months ended 30 June2020 and 2021 amounted to RMB238 million, RMB357 million, RMB304 million, RMB82million and RMB324 million, respectively. For details, see “– Non-IFRS FinancialMeasures”.

BASIS OF PRESENTATION

In preparation for the [REDACTED], we had undergone a reorganisation. See“History, Reorganisation and Corporate Structure – Reorganisation”, the Companybecame the holding company of the companies now comprising the Group subsequentto the end of the Track Record Period. The companies now comprising the Group wereunder the common control of Shui On Land before and after the Reorganisation.Accordingly, for the purpose of this report, our financial information has been preparedon a combined basis by applying the principles of merger accounting as if theReorganisation had been completed at the beginning of the Track Record Period.

Our combined statements of profit or loss, statements of comprehensive income,statements of changes in equity and statements of cash flows for the Track RecordPeriod, include the results and cash flows of all companies and businesses nowcomprising the Group from the earliest date presented or since the date when thesubsidiaries and/or the businesses first came under the common control of Shui OnLand, where this is a shorter period. Our combined statements of financial position as at31 December 2018, 2019 and 2020 and 30 June 2021 have been prepared to present theassets and liabilities of the subsidiaries and/or businesses using the existing bookvalues from the Shui On Land’s perspective. No adjustments are made to reflect fairvalues or recognise any new assets or liabilities as a result of the Reorganisation.

Equity interests in subsidiaries and/or businesses held by parties other than ShuiOn Land, and changes therein, prior to the Reorganisation are presented as non-controlling interests in equity in applying the principles of merger accounting. Allintra-group transactions and balances have been eliminated on combination.

PRINCIPAL FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our results of operations and financial condition have been and will continue to beaffected by various factors including:

Economic conditions and market cyclicality in the PRC

Our results of operations and financial condition are significantly affected by theeconomic conditions in the PRC, particularly in Shanghai and to a certain extent, Wuhan,Nanjing, Foshan and Chongqing, which affect the demand for our properties in theseregions. In particular, consumer discretionary spending and confidence can affect thelevel of rental income from our retail portfolio, as the majority of our retail leasingcontracts contain rent provision with a turnover component based on a percentage of thetenant’s monthly income. In addition, during the Track Record Period, uncertainties inthe US-China trade negotiations and the COVID-19 outbreak had reduced the demandfor traditional office space and accelerated the transition to more flexible andcollaborative open office space, according to Knight Frank.


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Our results of operations have been, and will continue to be, affected by the cyclicalnature of the retail and office property industry in the PRC. All of our rental income wasgenerated from operations in the PRC during the Track Record Period. Rental rates aregenerally cyclical in nature and are affected by, among other factors, supply and demanddynamics, the rate of economic growth in the PRC, the shift in consumption trends fromnecessity to discretionary expenditure as well as interest rates, inflation, cyclicalchanges in the PRC real estate industry and other economic developments in the PRC.Furthermore, regulatory developments or policy changes affecting the PRC real estateindustry or the industries our tenants operate in could result in significant fluctuations inour operating results.

Rental rates and occupancy rates

Our rental income depends principally on our rental rates and occupancy rates.Factors affecting the rental rates for tenancies include the competitiveness, quality andlocation of our premises, supply of and demand for comparable premises, the floor areaoccupied by individual tenants, the trade sectors in which tenants operate, generalmacroeconomic conditions (including inflation rates), transportation infrastructure at ourpremises and occupancy rates across the market. In addition, occupancy rates largelydepend on the supply and demand for comparable properties and our ability to minimisethe time intervals between lease expiries (or terminations) and the entry into new leases.In addition, occupancy rates of a new property tend to be lower during an initial ramp-upperiod after opening.

The following table sets forth the average effective rent per leased square meter perday at the retail and office premises of our properties (including the Demerger Assets) forthe periods indicated.

Year ended 31 December

Sixmonths

ended30 June

2018 2019 2020 2021

Average effective rent (RMB/sqm/day)

RetailShanghai Xintiandi . . . . . . . 16.53 19.36 18.57 20.26Xintiandi Style II . . . . . . . . . 9.41 9.70 8.93 8.02Xintiandi Plaza . . . . . . . . . . 8.49 9.12 6.99 7.32Hubindao . . . . . . . . . . . . . . . 4.75 4.93 4.93 5.53The Hub . . . . . . . . . . . . . . . . 2.62 2.97 2.68 3.16KIC . . . . . . . . . . . . . . . . . . . 5.06 5.32 5.17 5.90INNO KIC(1) . . . . . . . . . . . . . N/A 3.33 5.49 5.43Wuhan Xintiandi . . . . . . . . . 6.40 6.55 4.91 6.49South Hall of Horizon . . . . . 2.87 2.79 2.37 3.05North Hall of Horizon(2) . . . N/A 2.49 1.90 1.87Nanjing IFC(3) . . . . . . . . . . . N/A N/A N/A 10.25Lingnan Xintiandi . . . . . . . . 3.12 3.31 3.03 3.58Foshan NOVA . . . . . . . . . . . 2.67 3.29 3.44 3.74Chongqing Xintiandi, A Hall

and B Hall of Jialing Malland 2 Corporate AvenueRetail, Chongqing . . . . . . 0.78 1.18 1.19 1.40


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Sixmonths

ended30 June

2018 2019 2020 2021

Average effective rent (RMB/sqm/day)

OfficeShanghai Xintiandi . . . . . . . 9.19 9.64 9.36 8.14Shui On Plaza . . . . . . . . . . . 10.72 10.57 10.23 9.715 Corporate Avenue . . . . . . 9.61 9.97 11.41 11.04The Hub . . . . . . . . . . . . . . . 5.80 6.03 6.20 6.31KIC . . . . . . . . . . . . . . . . . . . 4.29 4.50 4.48 4.51INNO KIC(1) . . . . . . . . . . . . . N/A 2.57 4.10 4.23Nanjing IFC(3) . . . . . . . . . . . N/A N/A N/A 4.57Foshan Lot E office . . . . . . 1.77 1.89 1.86 1.90

Note:

(1) INNO KIC commenced operation in April 2019.

(2) North Hall of Horizon commenced operation in November 2019.

(3) We completed the acquisition of Nanjing IFC in February 2021.

The average effective rent of our retail and office properties varies depending onthe location of the specific premises. Our premises located in the city centres ofShanghai, such as Shanghai Xintiandi, Xintiandi Style II, Shui On Plaza and XintiandiPlaza and 5 Corporate Avenue and Hubindao, generally command higher averageeffective rents than our premises located in other areas, such as The Hub, KIC and INNOKIC.

Average effective rent of our properties generally increased from 2018 to 2019 aswe successfully optimised the tenant mix of our properties. Average effective rent of ourproperties remained relatively resilient from 2019 to 2020, except for lower averageeffective rent from (i) our properties in Wuhan due to the impact of the COVID-19outbreak and (ii) properties that had undergone an AEI or experienced loss of certaintenants. See “Business – Effects of the COVID-19 Outbreak”. Average effective rent ofour properties generally increased from 2020 to the first six months ended 30 June 2021,driven by recovery from the COVID-19 outbreak.


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The following table sets forth the period-end occupancy rates at the retail and officepremises of our properties (including the Demerger Assets) as at the dates indicated.

As at 31 DecemberAs at

30 June

2018 2019 2020 2021

%

RetailShanghai Xintiandi . . . . . . . 99.7 84.2 97.3 98.7Xintiandi Style II . . . . . . . . . 100.0 95.8 82.9 73.7Xintiandi Plaza . . . . . . . . . . 81.9 94.2 91.4 97.0Hubindao . . . . . . . . . . . . . . . 96.4 87.9 94.8 94.9The Hub . . . . . . . . . . . . . . . . 88.5 97.9 94.0 96.0KIC . . . . . . . . . . . . . . . . . . . 93.2 92.5 94.9 94.6INNO KIC(1) . . . . . . . . . . . . . N/A 32.4 79.4 82.1Wuhan Xintiandi . . . . . . . . . 84.3 96.4 93.0 96.6South Hall of Horizon . . . . . 88.7 91.3 87.9 86.1North Hall of Horizon(2) . . . N/A 96.8 89.1 85.9Nanjing IFC(3) . . . . . . . . . . . N/A N/A N/A 63.8Lingnan Xintiandi . . . . . . . . . 91.7 94.7 88.7 88.4Foshan NOVA . . . . . . . . . . . 99.3 99.3 99.2 98.4Chongqing Xintiandi, A Hall

and B Hall of Jialing Malland 2 Corporate AvenueRetail, Chongqing . . . . . . 75.6 71.9 84.4 79.6

OfficeShanghai Xintiandi . . . . . . . 100.0 100.0 100.0 100.0Shui On Plaza . . . . . . . . . . . 89.9 88.3 84.9 96.45 Corporate Avenue . . . . . . 99.2 90.7 88.8 84.2The Hub . . . . . . . . . . . . . . . 95.7 99.7 93.7 98.0KIC . . . . . . . . . . . . . . . . . . . 97.1 96.6 93.2 96.9INNO KIC (1) . . . . . . . . . . . . N/A 12.2 83.2 86.8Nanjing IFC (3) . . . . . . . . . . N/A N/A N/A 66.5Foshan Lot E office . . . . . . 89.9 95.8 89.1 92.1

Note:

(1) INNO KIC commenced operation in April 2019.

(2) North Hall of Horizon commenced operation in November 2019.

(3) We completed the acquisition of Nanjing IFC in February 2021.

During the Track Record Period, the period-end occupancy rates for our retail andoffice premises at some properties were lower than those at our other properties as atthe end of certain periods. Upon completion of new properties and commencement oftheir operations, there is typically an initial lease-up period during which the occupancyrate tends to be lower. For example, INNO KIC commenced operation in April 2019 andrecorded a period-end occupancy rate of 32.4% and 12.2% for its retail and officeproperties as at 31 December 2019, respectively.


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Additionally, we may acquire properties with relatively low occupancy rate with aview to improving their occupancy level. Nanjing IFC was acquired by us through a jointventure arrangement with Grosvenor Asia Pacific in February 2021. Nanjing IFCrecorded a period-end occupancy rate of 63.8% and 66.5% for its retail and officeproperties as at 30 June 2021, respectively.

Additionally, we may also experience lower occupancy rate when we undertake orplan to undertake an AEI or renovations. For example,

• we completed an AEI for the retail space of Shui On Plaza in late 2018 andre-opened the premise as Xintiandi Plaza in May 2019, which resulted in aperiod-end occupancy rate of 81.9% for the retail properties at Xintiandi Plazaas at 31 December 2018. The period-end occupancy rate of the retailproperties at Xintiandi Plaza subsequently increased to 94.2% as at 31December 2019;

• we conducted renovation and temporarily closed down a large portion of thefood court in Hubindao in 2019, which resulted in a period-end occupancy rateof 87.9% as at 31 December 2019, which subsequently increased to 94.8% asat 31 December 2020; and

• we are also currently planning to undertake an AEI at Xintiandi Style II afterSeptember 2021 and began vacating tenants since the first half of 2020, whichresulted in a lower period-end occupancy rate of 82.9% and 73.7% for theretail properties at Xintiandi Style II as at 31 December 2020 and 30 June2021, respectively.

Moreover, during the Track Record Period, we experienced a lower period-endoccupancy rate for Chongqing Xintiandi, A Hall and B Hall of Jialing Mall and 2 CorporateAvenue Retail, Chongqing, primarily due to the termination of tenancy with a food andbeverage tenant in B Hall of Jialing Mall. We are in the process of repositioning thepremise to be leased to future tenants. See “Risk Factors – Risks Relating to theBusiness – We derive a significant portion of our revenue from the rental operation of ourcommercial property portfolio, the performance of which depends on a number offactors.”

Furthermore, the COVID-19 outbreak had a negative impact on the averageeffective rent and period-end occupancy rate of our commercial properties, as certain ofour properties were temporarily closed due to outbreak and we had offered temporaryrent concessions to certain tenants. For details, see “Business – Effects of theCOVID-19 Outbreak”.

Scheduled lease expiries and rent reviews

Our leases are generally for terms of 12 to 36 months for retail properties and 12 to60 months for office properties with rent escalation and renewal provisions which are inline with the general practice in the PRC property market for retail and office tenancies.Certain major tenants are granted options to renew their tenancies at expiry, based onprevailing market rates at the time of renewal. Our retail lease contracts generallycontain a base rent provision and in certain cases a turnover rent provision based onagreed schedule. We also have a right to terminate the leases upon occurrence ofcertain events, including the non-payment of rent or breach of covenants by the tenant.Our ability to negotiate lease terms and rental escalation provisions as well as re-lease


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premises upon lease expiry or termination and the rental terms we are able to achievewill have an impact on our results of operations. For details of the periods of leaseexpiries for our commercial properties, see “Business – Our Commercial PropertyPortfolio”.

Access to and cost of financing

During the Track Record Period, our main sources of funding were (i) internalresources, (ii) offerings of debt securities, (iii) bank loans and (iv) capital contributionsfrom our joint venture partners. For details, see “– Indebtedness” and “Business –Financing”. Given the level of our indebtedness, any changes in interest rates may affectour cost of financing and our results of operations, as may the general availability ofcredit. In 2018, 2019 and 2020 and the six months ended 30 June 2020 and 2021, ourfinance costs amounted to RMB710 million, RMB595 million, RMB420 million, RMB327million and RMB236 million, respectively.

We intend to settle outstanding amounts due to fellow subsidiaries of non-tradenature prior to the [REDACTED]. Based on our strong financial position, we do notforesee any difficulties in obtaining external funding in the future.

Valuation of our investment property portfolio

Our investment properties which we hold to earn rental income and/or capitalappreciation include only completed properties. Our investment properties are stated attheir fair value on our balance sheet as non-current assets as at each balance sheet datebased on valuations by a qualified independent professional valuer. Gains or lossesarising from changes in the fair value of our investment properties are accounted for asprofit or loss in our combined statements of profit or loss. In 2018, 2019 and the sixmonths ended 30 June 2021, increase in fair value of our investment properties wasRMB705 million, RMB431 million and RMB20 million, respectively, which represents asignificant portion of our net profit for 2018 and 2019, while in 2020 and the six monthsended 30 June 2020, decrease in fair value of investment properties was RMB1,111million and RMB1,311 million, respectively, which contributed significantly to our netlosses for the same periods. The bases and assumptions which the valuer used for thevaluation typically included references to values realised in comparable precedenttransactions in the market for properties of similar size, character and location, themarket rents of all lettable units of properties by reference to the rentals of similarproperties in the neighbourhood, as well as the yield observed by the valuer for similarproperties in the locality. For more details, see note 14 to the Accountants’ Report setforth in Appendix I.

Expansion of commercial property portfolio

Growth of our commercial property portfolio directly impacts our financial condition,results of operations and prospects. On [●], we [entered] into the Business TransferAgreement, pursuant to which we agree to obtain ownership, operating rights andeconomic benefits of (i) South Hall and North Hall of Horizon in Wuhan TiandiCommunity and (ii) Chongqing Xintiandi, A Hall and B Hall of Jialing Mall and 2Corporate Avenue Retail, Chongqing, collectively comprising a total GFA of 321,145sqm, after the [REDACTED] following the completion of the Demerger. Until suchtransfer is completed, under the Business Transfer Agreement, we have the right tooccupy, use and generate income from such properties. In addition, on [●], we [entered]into the Non-Competition Deed which grants us rights to acquire interest in Pipeline


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Commercial Properties and jointly invest in or acquire interest in future pipelineproperties. For details, see “Relationship with our Controlling Shareholders – PipelineCommercial Properties”. The acquisitions of the Demerger Assets, the PipelineCommercial Properties and other future commercial properties are subject to variousconditions. For details, see “History, Reorganisation and Corporate Structure –Reorganisation – Execution of the Business Transfer Agreements”.

Our ability to grow multiple sources of stable income

Our business is affected by our ability to optimise our business mix and grow ourmultiple sources of income from our property investment, property management andasset management businesses. Our different businesses vary in pricing and marketingstrategies, target customers and cost structures, and thus have different operating profitmargins. We believe that our diversified business segments and revenue sources enableus to capitalise on changes in market conditions and customer demand in a timelymanner, and we have made continuous effort to optimise our business mix during theTrack Record Period.

For the commercial properties we hold on our balance sheet under our propertyinvestment business, we earn stable and recurring rental income and rental relatedincome from leasing such properties to tenants. Majority of the lease contracts containboth a base rent provision and a turnover component, which offer us downward volatilityprotection while allowing us to capture the upward growth of our tenant’s income. Wealso capture the appreciation in value of such commercial properties. For our propertymanagement business and asset management business, we also earn recurringmanagement fee and other income. Certain fees, such as management service fee andenhancement service fee, are paid over a period of time while other fees, such as leaseservice fees, are paid at certain points of time for every lease signed or renewed. Fordetails, see “Business – Our Business”.

In addition to revenue from our property investment business, our revenue growthalso depends on our ability to grow our asset management and property managementbusinesses. During the Track Record Period, the GFA of our property managementbusiness increased from 7.1 million sqm as at 31 December 2018 to 8.4 million sqm asat 30 June 2021, representing a CAGR of 7.0%, while the AUM of our asset managementbusiness increased from RMB18.0 billion as at 31 December 2018 to RMB25.6 billion asat 30 June 2021, representing a CAGR of 15.1%. In 2018, 2019, 2020 and the six monthsended 30 June 2020 and 2021, our revenue from asset management segment andproperty management segment collectively contributed 18.8%, 19.4%, 20.0%, 20.8%and 21.8% of our total revenue, respectively. Accordingly, our business and results ofoperations depend on our ability to maintain and grow our AUM and GFA undermanagement which, in turn, is affected by our ability to renew existing and secure newasset management and property management service contracts.

Competition

The commercial property market in the cities in the PRC where we operate arehighly competitive. Our ability to retain or expand our market share depends on ourability to compete effectively against our competitors. For details, see “Risk Factors –Increasing competition in the PRC commercial property market may adversely affect ourbusiness and financial position” and “Industry Overview – Competitive Landscape”.


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Fluctuations in foreign exchange rates

All of our revenue is denominated in Renminbi. However, we have certain bankbalances and debt obligations that are denominated in Hong Kong dollars and USdollars. The following table sets forth the carrying amounts of our foreign currencydenominated monetary assets and liabilities at the end of periods indicated.


30 June

2018 2019 2020 2021

(RMB million)

HKDAssets . . . . . . . . . . . . . . . . . 38 48 94 79Liabilities . . . . . . . . . . . . . . . 942 963 905 894

USDAssets . . . . . . . . . . . . . . . . . 89 99 124 114Liabilities . . . . . . . . . . . . . . . 817 1,493 1,396 1,382

Consequently, fluctuations in foreign currency exchange rates may have an impacton our combined financial information. For details, see “– Qualitative and QuantitativeDisclosures About Market Risks – Currency risks”.

SELECTED HISTORICAL FINANCIAL INFORMATION

Combined Statements of Profit or Loss

Year ended 31 DecemberSix months ended

30 June

2018 2019 2020 2020 2021

(unaudited)(RMB million)

Revenue . . . . . . . . . . . . . . . . . . . 2,393 2,580 2,358 1,112 1,377Cost of sales . . . . . . . . . . . . . . . . (814) (823) (696) (294) (337)

Gross profit . . . . . . . . . . . . . . . . 1,579 1,757 1,662 818 1,040Selling and marketing expenses . (33) (41) (37) (24) (23)General and administrative

expenses . . . . . . . . . . . . . . . . . (296) (334) (342) (189) (206)

Operating profit . . . . . . . . . . . . . 1,250 1,382 1,283 605 811Increase/(decrease) in fair value

of investment properties . . . . . 705 431 (1,111) (1,311) 20Other income . . . . . . . . . . . . . . . . 56 71 86 30 28Other gains and (losses) . . . . . . . (112) (109) (5) (4) 31


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30 June

2018 2019 2020 2020 2021


Finance costs, inclusive ofexchange difference. . . . . . . . . (710) (595) (420) (327) (236)

Share of profits and losses ofassociates and joint ventures . – 51 (16) (4) 14

Profit/(loss) before tax . . . . . . . 1,189 1,231 (183) (1,011) 668

Taxation . . . . . . . . . . . . . . . . . . . . (508) (647) (80) 126 (194)

Profit/(loss) for theyear/period . . . . . . . . . . . . . . . 681 584 (263) (885) 474

Attributable to:Shareholders of the Company . . 474 369 (385) (953) 404Other non-controlling

shareholders of subsidiaries . . 207 215 122 68 70

681 584 (263) (885) 474

DESCRIPTION OF CERTAIN INCOME STATEMENT ITEMS

Revenue

During the Track Record Period, we generated revenue from property investment,property management, asset management and other services. The following table setsout a breakdown of our revenue by business activities for the periods indicated.

Year ended 31 December Six months ended 30 June

2018 2019 2020 2020 2021

(unaudited)(RMB

million) %(RMB

million) %(RMB

million) %(RMB

million) %(RMB

million) %

Property investment . . . . . 1,826 76.3% 1,977 76.6% 1,836 77.9% 871 78.3% 1,067 77.5%Property management . . . . 414 17.3% 437 16.9% 405 17.2% 191 17.2% 244 17.7%Asset management . . . . . 36 1.5% 64 2.5% 67 2.8% 40 3.6% 56 4.1%Others(1) . . . . . . . . . . 117 4.9% 102 4.0% 50 2.1% 10 0.9% 10 0.7%

Total . . . . . . . . . . . . 2,393 100.0% 2,580 100.0% 2,358 100.0% 1,112 100.0% 1,377 100.0%

Note:

(1) Other revenue consists primarily of income from property sales (which mainly include sales ofcarpark inventories) and other services such as workstation and incubation services. During theTrack Record Period, contribution from others has steadily decreased as we emphasised ourcore businesses of property investment, property management and asset management.


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Our revenue from property investment primarily consists of income from the leasingof our investment properties (including the Demerger Assets), which includes rentalincome and rental related income. The following table sets out a breakdown of revenuefrom property investment for the periods indicated.


30 June

2018 2019 2020 2020 2021


Property investmentRental income . . . . . . . . . . . . . . . . . 1,591 1,724 1,601 784 928

Retail properties– Shanghai Taipingqiao

Community(1) . . . . . . . . . . . . . . 411 424 363 163 236– The Hub . . . . . . . . . . . . . . . . . . . . 131 149 136 65 83– KIC . . . . . . . . . . . . . . . . . . . . . . . . 123 129 119 52 71– Other properties(2) . . . . . . . . . . . . 335 417 377 188 227

Subtotal . . . . . . . . . . . . . . . . . . . . . . 1,000 1,119 995 467 617

Office properties– Shanghai Taipingqiao

Community(1) . . . . . . . . . . . . . . 122 114 98 64 50– The Hub . . . . . . . . . . . . . . . . . . . . 184 193 195 98 99– KIC . . . . . . . . . . . . . . . . . . . . . . . . 276 282 268 137 133– Other properties(2) . . . . . . . . . . . . 10 16 45 17 29

Subtotal . . . . . . . . . . . . . . . . . . . . . . 591 605 606 317 311

Rental related income. . . . . . . . . . . 235 253 235 87 139

Total . . . . . . . . . . . . . . . . . . . . . . . . 1,826 1,977 1,836 871 1,067

Note:

(1) Shanghai Taipingqiao Community includes (a) Shanghai Xintiandi, (b) Xintiandi Style II and (c)Shui On Plaza and Xintiandi Plaza.

(2) Other properties include INNO KIC, Wuhan Xintiandi, South Hall and North of Horizon, LingnanXintiandi, Foshan NOVA and Lot E office, and Chongqing Xintiandi, A Hall and B Hall of JialingMall and 2 Corporate Avenue Retail, Chongqing.

We provide property management services for commercial and residentialproperties through our wholly-owned subsidiary, Feng Cheng Property ManagementLimited. During the Track Record Period, we charged property management fees on ourmanaged properties on lump sum basis and commission basis. See “Business – OurBusiness – Property Management Business”.


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We provide asset management services for certain investment properties within ourportfolio, properties owned by joint venture vehicles set up by us and third-partyproperties that we leased, including Nanjing INNO. We generally charge fees dependingon the nature of our services rendered, including management service fee, performancefee, lease service fee and enhancement service fee. See “Business – Our Business –Asset Management Business”.

Cost of sales

Cost of sales consists primarily of (i) property tax for our investment properties, (ii)sales and marketing expenses and staff cost for our investment properties and (iii) costof building management. The table below sets out a breakdown of cost of sales bybusiness segment and other activities for the periods indicated.


2018 2019 2020 2020 2021

(unaudited)(RMB

million) %(RMB

million) %(RMB

million) %(RMB

million) %(RMB

million) %

Property investment . . . . . . . 389 47.8% 387 47.0% 308 44.3% 136 46.3% 152 45.1%Property management . . . . . . 331 40.7% 351 42.6% 318 45.7% 148 50.3% 171 50.7%Asset management . . . . . . . 24 2.9% 20 2.5% 18 2.5% 5 1.7% 8 2.4%Others(1) . . . . . . . . . . . . 70 8.6% 65 7.9% 52 7.5% 5 1.7% 6 1.8%

Total . . . . . . . . . . . . . . 814 100.0% 823 100.0% 696 100.0% 294 100.0% 337 100.0%

Note:

(1) Others consists primarily of construction cost of carpark and other costs.

Selling and marketing expenses

Our selling and marketing expenses consist primarily of staff costs and promotionexpenses, excluding sales and marketing expenses incurred for our investmentproperties, which are recorded under cost of sales. The following table sets out abreakdown of selling and marketing expenses for the periods indicated. In 2018, 2019,2020 and the six months ended 30 June 2020 and 2021, selling and marketing expensesrepresented 1.4%, 1.6%, 1.6%, 2.2% and 1.7% of our revenue, respectively.


30 June

2018 2019 2020 2020 2021


Staff costs . . . . . . . . . . . . . . . . . . 31 38 36 23 22Promotion. . . . . . . . . . . . . . . . . . . 2 3 1 1 1

Total . . . . . . . . . . . . . . . . . . . . . . . 33 41 37 24 23


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General and administrative expenses

Our general and administrative expenses consist primarily of staff costs,professional and consulting, audit fees, rental expenses, tax, employee activities andcorporate culture expenses, excluding staff costs attributable to our investmentproperties, which is recorded under cost of sales. The following table sets out abreakdown of general and administrative expenses for the periods indicated. In 2018,2019, 2020 and the six months ended 30 June 2020 and 2021, general andadministrative expenses represented 12.4%, 12.9%, 14.5%, 17.0% and 15.0% of ourrevenue, respectively.


30 June

2018 2019 2020 2020 2021


Staff costs . . . . . . . . . . . . . . . . . . 182 215 232 139 156Professional and consulting,

audit fees . . . . . . . . . . . . . . . . . 23 19 17 9 7Depreciation and amortisation(1). 34 39 39 19 20Others(2) . . . . . . . . . . . . . . . . . . . . 57 61 54 22 23

Total . . . . . . . . . . . . . . . . . . . . . . . 296 334 342 189 206

Note:

(1) Our depreciation and amortisation expenses consist primarily of (i) depreciation of property andequipment and (ii) depreciation of right-of-use assets.

(2) Others include rental expenses, tax, employee activities and corporate culture expenses,telephone and fax fee, building management fee, travelling and transportation, dailyconsumables and low cost necessities, repairs and maintenance fee and cleaning and securitycharges, provision for doubtful debts and bad debts written off, bank charges, donations andinsurance and other expenses.


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Operating profit and operating profit margin

The following table sets out a breakdown of our operating profit and operating profitmargin by business segments and other activities as well as corporate expenses that arenot attributable to our business segments for the periods indicated.


2018 2019 2020 2020 2021

(unaudited)(RMB million, except for percentages)

Amount

Operatingprofit

margin Amount

Operatingprofit

margin Amount

Operatingprofit

margin Amount

Operatingprofit

margin Amount

Operatingprofit

margin

Property investment . . . . . 1,280 70.1% 1,395 70.6% 1,348 73.4% 636 73.0% 812 76.1%Property management . . . . 49 11.8% 51 11.7% 53 13.1% 25 13.1% 53 21.7%Asset management . . . . . 13 36.1% 32 50.0% 24 35.8% 16 40.0% 23 41.1%Others . . . . . . . . . . . 26 22.2% 19 18.6% (16) N/A (4) N/A (3) N/ACorporate expenses(1) . . . . (118) N/A (115) N/A (126) N/A (68) N/A (74) N/A

Total . . . . . . . . . . . . 1,250 52.2% 1,382 53.6% 1,283 54.4% 605 54.4% 811 58.9%

Note:

(1) Corporate expenses that cannot be attributed to individual business segments.

Increase/(decrease) in fair value of investment properties

Investment properties are carried at fair values and are generally valued semi-annually. All of our investment properties (including the Demerger Assets) are valued byour independent valuer, Knight Frank. The revaluation of the investment properties hasin the past resulted, and in the future may continue to result, in significant fluctuations inour profit or loss for the period. For details, see “Appendix III – Property Valuation”.

In 2018, 2019 and the six months ended 30 June 2021, we recorded an increase infair value of investment properties of RMB705 million, RMB431 million and RMB20million, respectively. In 2020 and the six months ended 30 June 2020, we recorded adecrease in fair value of investment properties of RMB1,111 million and RMB1,311million, respectively.


– 174 –


Other income

Other income consists primarily of (i) interest income from banks, (ii) interestincome from a loan to a joint venture, (iii) grants received from local government, (iv)interest income from related parties and (v) others. The table below sets out abreakdown of other income for the periods indicated.


30 June

2018 2019 2020 2020 2021


Interest income from banks. . . . . 36 38 48 21 14Interest income from a loan to a

joint venture . . . . . . . . . . . . . . . 7 – – – –Grants received from local

government* . . . . . . . . . . . . . . . 10 22 23 1 9Interest income from related

parties . . . . . . . . . . . . . . . . . . . . – 5 10 6 1Others . . . . . . . . . . . . . . . . . . . . . 3 6 5 2 4

Total . . . . . . . . . . . . . . . . . . . . . . . 56 71 86 30 28

Note:

* Our government grants mainly represent financial subsidies received from local governmentsrelating to business operations as an incentive for business development and innovation,sustainability initiatives and subsidies during the COVID-19 outbreak.

Other gains and losses

Other gains and losses primarily include (i) decrease in fair value of derivativefinancial instrument, (ii) increase in financial assets measured at fair value, (iii) costarising from hedging activities, (iv) impairment loss on financial assets, net and (v)others. In 2018, 2019, 2020 and the six months ended 30 June 2020, other lossesamounted to RMB112 million, RMB109 million, RMB5 million and RMB4 million,respectively. In the six months ended 30 June 2021, we recorded other gains of RMB31million.


– 175 –


The table below sets out a breakdown of other gains and losses for the periodsindicated.


30 June

2018 2019 2020 2020 2021

(RMB million)

Decrease in fair value of derivativefinancial instrument . . . . . . . . . . . (99) (99) – – –

Increase in financial assetsmeasured at fair value. . . . . . . . . – – – – 36

Cost arising from hedgingactivities . . . . . . . . . . . . . . . . . . . . – (4) – – –

Impairment loss on financialassets, net . . . . . . . . . . . . . . . . . (8) (2) – (1) (1)

Others . . . . . . . . . . . . . . . . . . . . . . . (5) (4) (5) (3) (4)

Total . . . . . . . . . . . . . . . . . . . . . . . . (112) (109) (5) (4) 31

Finance costs

Finance costs consist primarily of interest costs and net exchange (gain)/loss onbank borrowings. Interest costs are derived from (i) bank borrowings and (ii) leaseliabilities. The table below sets out the components of finance costs for the periodsindicated.


30 June

2018 2019 2020 2020 2021


Interest on borrowings . . . . . . . . . . 710 567 536 280 244Interest expenses from lease

liabilities . . . . . . . . . . . . . . . . . . . . 6 6 6 2 3

Total interest costs . . . . . . . . . . . . 716 573 542 282 247

Less: Amount capitalised toinvestment properties underconstruction or development . . . (85) (3) – – –

Interest expenses charged toprofit or loss. . . . . . . . . . . . . . . . 631 570 542 282 247

Net exchange (gain)/loss on bankborrowings and other financingactivities . . . . . . . . . . . . . . . . . . . . 64 15 (131) 40 (12)

Others . . . . . . . . . . . . . . . . . . . . . . . 15 10 9 5 1

Total . . . . . . . . . . . . . . . . . . . . . . . . 710 595 420 327 236


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Share of profits and losses of associates and joint ventures

Our share of profits and losses of associates and joint ventures are mainly derivedfrom our (i) 44.55% interest in the Top Fountain Limited, the holding company of 5Corporate Avenue and Hubindao, and (ii) 50.0% interest in Sino Profit DevelopmentLimited, the holding company of Nanjing IFC. In 2019 and the six months ended 30 June2021, we recorded share of profit of associates and joint ventures of RMB51 million andRMB14 million, respectively. In 2020 and the six months ended 30 June 2020, werecorded share of loss of associates and joint ventures of RMB16 million and RMB4million, respectively.

Taxation

We are subject to income tax on an entity basis on profits arising in or derived fromthe tax jurisdictions in which members of our Group are domiciled and operate. Duringthe Track Record Period, we derived all of our revenue from our subsidiaries operatingin the PRC, which are generally subject to the PRC EIT rate of 25%.

In addition, pursuant to the PRC EIT law, a 10% withholding tax is levied ondividends declared to companies incorporated in BVI from the foreign investmententerprises established in the PRC effective from January 1, 2008. A withholding tax rateof 5% is applied to Hong Kong resident companies. As at 31 December 2018, 2019 and2020 and 30 June 2021, deferred tax was provided for in respect of the temporarydifferences attributable to such profits.

Other than income tax, we are also subject to LAT in the PRC which is also includedin our current tax provision. PRC LAT has been provided at ranges of progressive ratesof the appreciation value, with certain allowable deductions including land costs,borrowing costs and the relevant property development expenditures.

The table below sets out the components of tax expenses/(credits) for theyears/periods indicated.


30 June

2018 2019 2020 2020 2021


PRC enterprise income tax . . . . . 149 322 115 29 79PRC withholding tax . . . . . . . . . . 8 3 8 4 3PRC land appreciation tax . . . . . 19 14 (2) – –Deferred tax . . . . . . . . . . . . . . . . . 332 308 (41) (159) 112

Total . . . . . . . . . . . . . . . . . . . . . . . 508 647 80 (126) 194

Our effective tax rate, being the tax expenses divided by the profit before tax for thesame period, was 42.7%, 52.6% and 29.0% in 2018, 2019 and the six months ended 30June 2021, respectively. We recorded a loss before tax of RMB183 million in 2020 anda tax credit of RMB126 million in the six months ended 30 June 2020.


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Profit attributable to non-controlling interests

We own certain investment properties through joint venture arrangements withcertain non-controlling investors. In 2018, 2019, 2020 and the six months ended 30 June2020 and 2021, our profit attributable to non-controlling interests was RMB207 million,RMB215 million, RMB122 million, RMB68 million and RMB70 million, respectively.

NON-IFRS FINANCIAL MEASURE

Underlying net profit attributable to shareholders of the Company

The following table sets forth a reconciliation of our underlying net profit attributableto shareholders of the Company to our profit/(loss) for the year/period indicated.

For the year ended31 December

For the sixmonths ended

30 June

2018 2019 2020 2020 2021


Profit/(loss) for the year/periodattributable to shareholders ofthe Company . . . . . . . . . . . . . . 474 369 (385) (953) 404

– Effect of (increase)/decreasein fair value of investmentproperties, net of tax . . . . . . . . (544) (331) 823 1,007 (27)

– Effect of changes in fair valueof investment properties ofassociates and joint ventures . – (46) 13 – –

– Effect of changes in fair valueof call option, net of tax . . . . . . 99 99 – – –

– Net effect of changes in fairvalue of financial assets, netof tax . . . . . . . . . . . . . . . . . . . . . – – – – (36)

– Effect of exchange (gain)/loss . 64 15 (131) 40 (12)– Tax effect on disposals of

subsidiaries . . . . . . . . . . . . . . . – 180 – – –– Non-controlling interests . . . . . 145 71 (16) (12) (5)

Underlying net profitattributable to shareholdersof the Company . . . . . . . . . . . 238 357 304 82 324

Underlying net profit attributable to shareholders of the Company is a non-IFRSfinancial measure and has not been calculated in accordance with IFRS and should beconsidered in addition to or as a substitute for, or superior to, IFRS results. In addition,underlying net profit attributable to shareholders of the Company should not beconstrued as indicators of our operating performance, liquidity or cash flows generatedby operating, investing and financing activities, as there may be significant factors ortrends that they fail to address. We caution investors that non-IFRS financial


– 178 –


information, by its nature, departs from traditional accounting conventions. Therefore, itsuse can make it difficult to compare our current results with our results from otherreporting periods and with the results of other companies.

Our management uses non-IFRS financial measure in conjunction with IFRSfinancial measures, as an integral part of managing our business and to, among otherthings: (i) monitor and evaluate the performance of our business operations and financialperformance; (ii) facilitate internal comparisons of the historical operating performanceof our business operations; (iii) facilitate external comparisons of the results of ouroverall business to the historical operating performance of other companies that mayhave different capital structures and debt levels; (iv) review and assess the operatingperformance of our management team; (v) analyse and evaluate financial and strategicplanning decisions regarding future operating investments; and (vi) plan for and preparefuture annual operating budgets and determine appropriate levels of operatinginvestments.

RESULTS OF OPERATIONS

Six month ended 30 June 2021 compared to six month ended 30 June 2020

Revenue

Our revenue increased by 23.8% to RMB1,377 million in the six months ended 30June 2021 from RMB1,112 million in the same period of 2020, due to increases inrevenue from all our business segments.

Property investment business

Revenue from our property investment business increased by 22.5% to RMB1,067million in the six months ended 30 June 2021 from RMB871 million in the same period of2020, primarily due to substantial growth in rental income and rental related income fromour existing properties and reopened properties, such as Shanghai Xintiandi, as wecompleted an AEI on a portion of its commercial properties in the second half of 2020. Inaddition, we have successfully recovered from the reduced revenue in the six monthsended 30 June 2020 due to the impact of the COVID-19 outbreak, which is demonstratedby general increases in period-end occupancy rate of our properties, such as ShanghaiXintiandi and The Hub as well as other retail properties in our portfolio.

Property management business

Revenue from our property management business increased by 27.7% to RMB244million in the six months ended 30 June 2021 from RMB191 million in the same period of2020, primarily due to the successful offering of our Shui On WORKX solutions whichcontributed to enhanced tenant experience and, together with recovery from theCOVID-19 outbreak, resulted in an increase in occupancy rate for office properties underour management.

Asset management business

Revenue from our asset management business increased by 40.0% to RMB56million in the six months ended 30 June 2021 from RMB40 million in the same period of2020, primarily due to additional management income from Nanjing IFC which we beganmanaging since February 2021.


– 179 –


Others

Other revenue remained relatively stable at RMB10 million in the six months ended30 June 2020 and 2021.

Cost of sales

Our cost of sales increased by 14.6% to RMB337 million in the six months ended 30June 2021 from RMB294 million in the same period of 2020, due to increases in the costof sales of all reporting segments and others.


Cost from property investment increased by 11.8% to RMB152 million in the sixmonths ended 30 June 2021 from RMB136 million in the same period of 2020, primarilydue to an increase of RMB16 million increase in rental and related cost as we recordedhigher sales of food and beverages in line with the recovery from the COVID-19 outbreakin the six months ended 30 June 2021.


Cost from property management increased by 15.5% to RMB171 million in the sixmonths ended 30 June 2021 from RMB148 million in the same period of 2020, primarilydue to an increase in cost of building management which is in line with the growth of ourproperty management revenue.


Cost from asset management increased by 60.0% to RMB8 million in the six monthsended 30 June 2021 from RMB5 million in the same period of 2020, primarily due to anincrease in sales and marketing expenses for the asset management business as weenhanced our marketing efforts following the recovery from the COVID-19 outbreak.

Others

Cost from others remained relatively stable at RMB6 million and RMB5 million in thesix months ended 30 June 2021 and 2020.


Our selling and marketing expenses remained relatively stable at RMB24 millionand RMB23 million in the six months ended 30 June 2020 and 2021, respectively.


General and administrative expenses increased by 9.0% to RMB206 million in thesix months ended 30 June 2021 from RMB189 million in the six months ended 30 June2020, primarily due to increased overhead cost, staff costs and business trip expensesin line with the recovery from the COVID-19 outbreak.


– 180 –



As a result of the foregoing, our operating profit increased by 34.0% to RMB811million in the six months ended 30 June 2021 from RMB605 million in the six monthsended 30 June 2020. Our operating profit margin increased to 58.9% in the six monthsended 30 June 2021 from 54.4% in the six months ended 30 June 2020, primarily due tohigher operating profit margin achieved by property investment, property managementand asset management businesses. Our operating profit margin of property investmentbusiness increased to 76.1% in the six months ended 30 June 2021 from 73.0% in the sixmonths ended 30 June 2020. Our operating profit margin of property managementbusiness increased to 21.7% in the six months ended 30 June 2021 from 13.1% in the sixmonths ended 30 June 2020. Our operating profit margin of the asset managementbusiness increased to 41.1% in the six months ended 30 June 2021 from 40.0% in the sixmonths ended 30 June 2020.


We recorded an increase in fair value of investment properties of RMB20 million inthe six months ended 30 June 2021 compared to a decrease in fair value of investmentproperties of RMB1,311 million in the six months ended 30 June 2020, primarily due toenhanced occupancy rate and average rent on account of recovery from the COVID-19outbreak.


We recorded other gains of RMB31 million in the six months ended 30 June 2021compared to other losses of RMB4 million in the six months ended 30 June 2020,primarily due to an increase in financial assets measured at fair value of RMB36 millionin the six months ended 30 June 2021, mainly attributable to our financial investment inOstara China Real Estate Fund L.P., a fund registered in the Cayman Islands whichfocuses on investments in the retail sector in China.

Other income

Our other income decreased by 6.7% to RMB28 million in the six months ended 30June 2021 from RMB30 million in the six months ended 30 June 2020, primarily becausea decrease in interest income from banks and related parties, partially offset by anincrease in grants received from local government as we received a subsidy from thelocal district government in the six months ended 30 June 2021.

Finance costs

Our finance costs decreased by 27.8% to RMB236 million in the six months ended30 June 2021 from RMB327 million in the six months ended 30 June 2020, primarily dueto (i) a net exchange gain on bank borrowings and other financial activities of RMB12million in the six months ended 30 June 2021 compared to a net exchange loss on bankborrowings and other financing activities of RMB40 million in the six months ended 30June 2020, which reflect a decline in the exchange rate of US dollar and Hong Kongdollar, and (ii) a decrease in interest on borrowings of RMB36 million which is in line withthe decrease in our bank borrowings to RMB8,546 million in 30 June 2021 fromRMB8,794 million in 31 December 2020 and the decrease in interest rate.


– 181 –



We recorded a share of profit of associates and joint ventures of RMB14 million inthe six months ended 30 June 2021 compared to a share of loss of associates and jointventures of RMB4 million in the six months ended 30 June 2020, primarily due to ourshare of profit of Top Fountain in the six months ended 30 June 2021, as compared withour share of loss of Top Fountain recorded in the six months ended 30 June 2020.

Profit/(loss) before tax

As a result of the foregoing, we recorded a profit before tax of RMB668 million in thesix months ended 30 June 2021 compared to a loss before tax of RMB1,011 million in thesix months ended 30 June 2020.

Taxation

We recorded a tax expense of RMB194 million in the six months ended 30 June2021 compared to a tax credit of RMB126 million in the six months ended 30 June 2020,which is in line with the growth of our profit before tax during the same period.

Profit/(loss) for the period

As a result of the foregoing, we recorded a profit for the period of RMB474 millionin the six months ended 30 June 2021 compared to a loss for the period of RMB885million in the six months ended 30 June 2020.

Profit/(loss) attributable to shareholders of the Company

As a result of the foregoing, we recorded a profit attributable to shareholders of theCompany of RMB404 million in the six months ended 30 June 2021 compared to a lossattributable to shareholders of the Company of RMB953 million in the six months ended30 June 2020.

2020 compared to 2019

Revenue

Our revenue decreased by 8.6% to RMB2,358 million in 2020 from RMB2,580million in 2019, primarily due to the decreases in revenue from our property investmentbusiness and property management business, partially offset by an increase in revenuefrom our asset management business.


Revenue from our property investment business decreased by 7.1% to RMB1,836million in 2020 from RMB1,977 million in 2019, mainly due to a decrease of RMB123million in rental income from our commercial properties, primarily due to the impact fromthe COVID-19 outbreak as we offered rental concessions to tenants of certainproperties, temporarily closed some properties, particularly in Wuhan, and faced theloss of certain tenants, all of which contributed to lower period-end occupancy rate andaverage effective rent across almost all of our commercial properties. For details of themeasures we adopted during the COVID-19 outbreak and its impact on our businessoperation, see “Business – Effects of the COVID-19 Outbreak”.


– 182 –



Revenue from our property management business decreased by 7.3% to RMB405million in 2020 from RMB437 million in 2019, primarily due to the impact from theCOVID-19 outbreak as we offered discounts on management fees to our customersacross properties under our management as well as recorded lower period-endoccupancy rate for almost all of our commercial properties.


Revenue from our asset management business increased by 4.7% to RMB67million in 2020 from RMB64 million in 2019, primarily due to additional revenue from themanagement of Nanjing INNO in 2020.

Others

Our other revenue decreased by 51.0% to RMB50 million in 2020 from RMB102million in 2019, primarily due to the decrease of RMB51 million in property sales, whichcomprises sales of carpark inventories.

Cost of sales

Our cost of sales decreased by 15.4% to RMB696 million in 2020 from RMB823million in 2019, primarily due to decreases in cost of sales of all reporting segments andothers.


Cost from property investment decreased by 20.4% to RMB308 million in 2020 fromRMB387 million in 2019, primarily due to a decrease of RMB93 million in rental cost,partially offset by an increase of RMB13 million in rental related cost, which was mainlyattributed to an increase in cost of lease of stadium for KIC. The decrease in rental costmainly reflected (i) a decrease in property tax which reflected reduced revenue andreceipt of COVID-19-related government relief, (ii) a decrease in sales and marketingexpenses in relation to promotion activities conducted on our commercial properties,and (iii) a decrease in staff cost and overhead, which resulted from the reduced businessactivities on account of the COVID-19 outbreak.


Cost from property management decreased by 9.4% to RMB318 million in 2020from RMB351 million in 2019, primarily due to a decrease of RMB33 million in cost ofbuilding management as we incurred less cleaning and security charges due to thereduced business activities in and temporary closures of our managed properties, bothon account of the COVID-19 outbreak.


Cost from asset management decreased by 10.0% to RMB18 million in 2020 fromRMB20 million in 2019, primarily due to a combination of decreases in sales andmarketing expenses for leasing and utility, cleaning and security charges, all of whichresulted from the reduced business activities on account of the COVID-19 outbreak.


– 183 –


Others

Cost from others decreased by 20.0% to RMB52 million in 2020 from RMB65 millionin 2019, primarily due to decrease in cost of property sales, which comprised sales ofcarpark inventories.


Our selling and marketing expenses decreased by 9.8% to RMB37 million in 2020from RMB41 million in 2019, primarily due to a lower level of sales and promotionalactivities on account of the COVID-19 outbreak.


General and administrative expenses remained relatively stable at RMB342 millionin 2020 and RMB334 million in 2019.


As a result of the foregoing, our operating profit decreased by 7.2% to RMB1,283million in 2020 from RMB1,382 million in 2019. Our operating profit margin increased to54.4% in 2020 from 53.6% in 2019, primarily due to increases in operating profit marginsof our property investment and property management businesses, partially offset by adecrease in operating profit margin of asset management business. The operating profitmargin of our property investment business increased to 73.4% in 2020 from 70.6% in2019. Our operating profit margin of property management business increased to 13.1%in 2020 from 11.7% in 2019. The operating profit margin of our asset managementbusiness decreased to 35.8% in 2020 from 50.0% in 2019. We did not record operatingprofit margin for others in 2020, compared to an operating profit margin of 18.6% in 2019.


We recorded a decrease in fair value of investment properties of RMB1,111 millionin 2020, compared to an increase of RMB431 million in 2019, primarily due to decreasesin fair value of our properties in Wuhan Tiandi Community, Foshan Lingnan TiandiCommunity and Chongqing Tiandi Community on account of the COVID-19 outbreak.

Other income

Other income increased by 21.1% to RMB86 million in 2020 from RMB71 million in2019, primarily due to (i) an increase of RMB10 million in interest income from banks;and (ii) an increase of RMB5 million in interest income from related parties. The increasein interest income from banks mainly reflected our income from short-term investmentsas part of our cash management strategies.


Other losses decreased significantly to RMB5 million in 2020 from the losses ofRMB109 million in 2019, mainly as a result of the sale of the call option and the impactof the call option’s fair value movements in relation to 5 Corporate Avenue and Hubindaoin June 2019 which resulted in the call option being subsequently removed from ourcombined financial statement.


– 184 –


Finance costs

Our finance costs decreased by 29.4% to RMB420 million in 2020 from RMB595million in 2019, primarily due to: (i) RMB131 million in net exchange gain on bankborrowings and other financing activities compared to a net exchange loss of RMB15million in 2019, which was due to appreciation of Renminbi against US dollar and HongKong dollar; and (ii) a decrease of RMB31 million in interest on borrowings, whichreflected decreases in the amount of bank borrowings and effective interest rate.


We recorded a share of loss of associates and joint ventures of RMB16 million in2020 compared to a share of profit of associates and joint ventures of RMB51 million in2019, primarily due to the decrease in fair value of the investment properties in 5Corporate Avenue and Hubindao.

Profit/(loss) before tax

As a result of the foregoing, we recorded a loss before tax of RMB183 million in2020 compared to a profit before tax of RMB1,231 million in 2019.

Taxation

Our taxation decreased by 87.6% to RMB80 million in 2020 from RMB647 million in2019, primarily due to our loss before tax of RMB183 million in 2020.

Profit/(loss) for the year

As a result of the foregoing, we recorded a loss for the year of RMB263 million in2020 compared to a profit for the year of RMB584 million in 2019.

Profit/(loss) attributable to shareholders of the Company

As a result of the foregoing, we recorded a loss attributable to shareholders of theCompany of RMB385 million in 2020 compared to a profit attributable to shareholders ofthe Company of RMB369 million in 2019.

2019 compared to 2018

Revenue

Our revenue increased by 7.8% to RMB2,580 million in 2019 from RMB2,393 millionin 2018, primarily due to increases in revenue from our property investment business,property management business and asset management business, partially offset by adecrease in revenue from others.


Revenue from our property investment business increased by 8.3% to RMB1,977million in 2019 from RMB1,826 million in 2018, primarily due to (i) an increase ofRMB133 million in rental income and (ii) an increase of RMB18 million in rental relatedincome. The increase in rental and related income was primarily due to (i) sustainedrental growth from our existing properties as demonstrated by increases in occupancy


– 185 –


rate and average effective rent across almost all of our retail and office properties, and(ii) additional rental income from newly completed properties, such as INNO KIC andNorth Hall of Horizon, as well as properties that had undergone AEI, such as XintiandiPlaza.


Revenue from our property management business increased by 5.6% to RMB437million in 2019 from RMB414 million in 2018, primarily due to (i) the expansion of ourGFA under management from 7.1 million sqm as at 31 December 2018 to 7.4 million sqmfrom both commercial and residential properties, and (ii) an increase in occupancy ratefor retail and office properties under our management.


Revenue from our asset management business increased by 77.8% to RMB64million in 2019 from RMB36 million in 2018, primarily due to the successful launch of ouroffice brand INNO in late 2018, with Nanjing INNO as the first project. Since its launch,the revenue from Nanjing INNO increased year over year from RMB6 million in 2018 toRMB16 million in 2019.

Others

Other revenue decreased by 12.8% to RMB102 million in 2019 from RMB117million in 2018, primarily due to the decrease of RMB25 million in revenue from propertysales, which mainly includes carpark sales, partially offset by an increase of RMB10million in others, which mainly reflected our increased revenue from the leasing ofworkstation and incubation services.

Cost of sales

Our cost of sales remained relatively stable at RMB823 million in 2019 and RMB814million in 2018.


Cost from property investment decreased by 0.5% to RMB387 million in 2019 fromRMB389 million in 2018, primarily due to a decrease of RMB6 million in rental relatedcost which was in line with the growth of our property investment revenue, partially offsetby an increase of RMB4 million in rental cost. The decrease in rental related cost mainlyreflected an decrease in cost of lease of stadium for KIC. The increase in rental cost alsoresulted from the expansion of our property investment portfolio, such as the opening ofNorth Hall of Horizon and Xintiandi Plaza in 2019, and the corresponding increase indaily operating cost.


Cost from property management increased by 6.0% to RMB351 million in 2019 fromRMB331 million in 2018, primarily due to an increase of RMB20 million in cost of buildingmanagement, which consists of daily operating cost such as cleaning and securitycharges, as result of the opening of new properties in 2019 which resulted in us incurringcertain property-related costs upfront during the ramp-up phase.


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Cost from asset management decreased by 16.7% to RMB20 million in 2019 fromRMB24 million in 2018, primarily due to a decrease in sales and marketing expenses forour managed properties.

Others

Cost from others decreased by 7.1% to RMB65 million in 2019 from RMB70 millionin 2018, primarily due to decrease in cost of property sales of our Foshan project, whichmainly reflected sales of carpark inventories.


Our selling and marketing expenses increased by 24.2% to RMB41 million in 2019from RMB33 million in 2018, primarily due to a higher level of sales and promotionalactivities for the new opening of properties.


Our general and administrative expenses increased by 12.8% to RMB334 million in2019 from RMB296 million in 2018, primarily due to an increase in staff costs atheadquarter-level which resulted from the expansion of commercial property portfolioand properties under management.


As a result of the foregoing, our operating profit increased by 10.6% to RMB1,382million in 2019 from RMB1,250 million in 2018. Our operating profit margin increased to53.6% in 2019 from 52.2% in 2018, due to increases in the operating profit margin of ourproperty investment business and asset management business. The operating profitmargin of our property investment business increased to 70.6% in 2019 from 70.1% in2018. The operating profit margin of our asset management business increased to50.0% in 2019 from 36.1% in 2018. Our operating profit margin of property managementremained relatively stable at 11.7% in 2019 and 11.8% in 2018.


We recorded an increase in fair value of investment properties of RMB431 million in2019, compared to an increase in fair value of investment properties of RMB705 millionin 2018. The fair value gain in 2018 and 2019 was mainly contributed by completedinvestment properties, which recorded increases of fair value of RMB456 million andRMB383 million in 2019 and 2018, respectively, mainly contributed from Shanghaiproperties, especially in KIC. In addition, the fair value gain in 2018 also contributed byinvestment properties under construction or development at fair value of RMB330million, as we completed the AEI at Xintiandi Plaza in 2018 and commenced theoperation of Xintiandi Plaza in 2019.


– 187 –


Other income

Our other income increased by 26.8% to RMB71 million in 2019 from RMB56 millionin 2018, primarily due to (i) an increase of RMB12 million in grants received from localgovernment; and (ii) an increase of RMB5 million in interest income from related parties,partially offset by a decrease of RMB7 million in interest income from a loan to jointventure.


Our other losses remained relatively stable at RMB109 million in 2019 and RMB112million in 2018.

Finance costs

Our finance costs decreased by 16.2% to RMB595 million in 2019 from RMB710million in 2018, primarily due to (i) a decrease of RMB143 million in interest onborrowings and (ii) a decrease of RMB49 million in net exchange loss on bankborrowings and other financing activities, partially offset by a decrease of RMB82 millionin amount capitalised to investment properties under construction, as we completed theAEI at Shui On Plaza and construction of North Hall of Horizon.


We recorded a share of profit of associates and joint ventures of RMB51 million in2019 compared to nil in 2018, primarily because we acquired China Life’s interest in 5Corporate Avenue and Hubindao in June 2019.

Profit before tax

As a result of the foregoing, our profit before tax remained relatively stable atRMB1,231 million in 2019 and RMB1,189 million in 2018.

Taxation

Our taxation increased by 27.4% to RMB647 million in 2019 from RMB508 million in2018, which primarily reflected tax effect associated with the deemed disposal of asubsidiary in relation to 5 Corporate Avenue and Hubindao.

Profit attributable to shareholders of the Company

As a result of the foregoing, our profit attributable to shareholders of the Companydecreased by 22.2% to RMB369 million in 2019 from RMB474 million in 2018.

DESCRIPTION OF SELECTED BALANCE SHEET LINE ITEMS

Investment properties

During the Track Record Period, our investment properties consisted of completedinvestment properties, investment properties under construction or development andinvestment properties-sublease of right-of-use assets and included the DemergerAssets. We rent out all the investment properties under operating leases which are heldby us for investment, recurring rental income and capital appreciation purposes.


– 188 –


The following table breaks down the fair value of our investment properties as at thedates indicated.


30 June

2018 2019 2020 2021

(RMB million)

Completed investment properties . 42,059 43,064 43,106 43,139Investment properties under

construction or development . . . 1,460 1,044 – –Investment properties-sublease of

right-of-use assets . . . . . . . . . . . 95 132 118 112

Total . . . . . . . . . . . . . . . . . . . . . . . . 43,614 44,240 43,224 43,251

For details of our commercial properties (including our properties for self use witha total valuation of RMB448 million as at 30 June 2021), see “Appendix III – PropertyValuation”. The increase from 31 December 2018 to 31 December 2019 was primarilydue to (i) an increase of RMB431 million in fair value of investment properties in 2019,and (ii) additions to investment properties of RMB195 million, mainly from theconstruction of investment properties, including Shanghai Xintiandi and INNO KIC.

The decrease from 31 December 2019 to 31 December 2020 was primarily due toa decrease of RMB1,111 million in fair value of the investment properties recognised inprofit or loss, which reflects the impact from the COVID-19 outbreak, partially offset byadditions to investment properties of RMB169 million, mainly from certain investmentproperties in Shanghai Xintiandi which completed an AEI.

The fair value of our investment properties remained relatively stable from 31December 2020 to 30 June 2021.

Interest in an associate and a joint venture

The following table sets forth details of our interests in an associate and a jointventure as at the dates or for the periods indicated.


30 June

2018 2019 2020 2021

(RMB million)

Interest in an associate . . . . . . . . . – 1,870 1,886 1,927Interest in a joint venture . . . . . . . . 25 – 661 683


– 189 –


Our interests in associates increased from nil as at 31 December 2018 toRMB1,870 million as at 31 December 2019, increased to RMB1,886 million as at 31December 2020, and further increased to RMB1,927 million as at 30 June 2021. Suchincreases were primarily due to our investment in Top Fountain since 2019.

As at 31 December 2018, our interests in joint ventures represented the investmentin Shanghai Yong Lin Investment Management Co, Ltd., amounted to RMB25 millionwhich was liquidated in 2019. As at 31 December 2020, our interest in joint ventures wasRMB661 million, which represented the loan to Sino Profit Limited, as the acquisition ofNanjing IFC was completed in February 2021. The increase in our interest in jointventures to RMB683 million as at 30 June 2021 resulted from our acquisition of andadditional investment in Nanjing IFC in the six months ended 30 June 2021.

Receivables, deposits and prepayments

Receivables, deposits and prepayments consist of trade receivables and otherdeposits, prepayments and receivables. The following table sets forth details of ourreceivables, deposits and prepayments as at the dates indicated.


30 June

2018 2019 2020 2021

(RMB million)

Trade receivables (Due after oneyear or more)– Rental receivables(1) . . . . . . . 246 199 264 230

Trade receivables (Due within oneyear) . . . . . . . . . . . . . . . . . . . . . . 137 170 178 202– Goods and services . . . . . . . . . 3 22 21 32– Operating lease receivables . . 22 17 14 20– Rental receivables(1) . . . . . . . 112 131 143 150

Other deposits, prepayments andreceivables . . . . . . . . . . . . . . . . . 146 92 94 113

Total . . . . . . . . . . . . . . . . . . . . . . . . 529 461 536 545

Note:

(1) These amounts represent the rent receivable attributable to the rent free period and have beencalculated and amortised on a straight line based over the lease terms.


– 190 –


Our trade receivables comprise (i) rental receivables based on straight-linecalculation, (ii) goods and services relating to our property management business, assetmanagement business and other services and (iii) operating lease receivables relatingto our property investment business.


30 June

2018 2019 2020 2021

(RMB million)

Not past due . . . . . . . . . . . . . . . . . . 1 5 – 4Less than 1 year. . . . . . . . . . . . . . . 22 31 34 481 to 2 years. . . . . . . . . . . . . . . . . . . 1 2 – –2 to 3 years. . . . . . . . . . . . . . . . . . . 1 1 1 –

Total . . . . . . . . . . . . . . . . . . . . . . . . 25 39 35 52

We perform impairment analysis on our trade receivables using a provision matrixto measure the expected credit losses and on other receivables using periodic individualassessment at the end of each reporting period. The provision rates are estimated basedon days past due for groupings of various customer segments with similar loss patternsbased on the types of services we provided or types of customers. The calculationreflects the probability-weighted outcome, the time value of money and reasonable andsupportable information that is available at the reporting date about past events, currentconditions and forecasts of future economic conditions.

During the track period, we recognised impairment loss for trade receivables ofRMB2 million, RMB2 million, RMB0 million, RMB1 million and RMB1 million based on theprovision matrix and recognised and RMB6 million, RMB0 million, RMB0 million, RMB0million and RMB0 million of impairment loss for other receivables based on periodicindividuals assessment in 2018, 2019, 2020 and the six months ended 30 June 2020 and2021, respectively.

Property and equipment

Property and equipment consist mainly of our land and buildings, furniture, fixtures,equipment and motor vehicles. The following table sets forth details of our property andequipment at cost as at the dates indicated.


30 June

2018 2019 2020 2021

(RMB million)

Land and buildings . . . . . . . . . . . 292 296 371 371Furniture, fixtures, equipment

and motor vehicles . . . . . . . . . . 249 259 285 287

Total . . . . . . . . . . . . . . . . . . . . . . . 541 555 656 658


– 191 –


Our property and equipment remained relatively stable as at 31 December 2018and 2019.

The increase form 31 December 2019 to 31 December 2020 was primarily due totransfer of certain properties from investment properties to property and equipment inrelation to properties for our self-use.

Our property and equipment remained relatively stable as at 31 December 2020and 30 June 2021.

Accounts payable, deposits received and accrued charges

The following table sets forth details of our accounts payable, deposits receivedand accrued charges as at the dates indicated.


30 June

2018 2019 2020 2021

(RMB million)

Trade payables . . . . . . . . . . 295 202 200 162Retention payables . . . . . . . 6 7 1 1Property tax and other tax

payables . . . . . . . . . . . . . . 77 60 56 42Deposits received and

receipt in advance forrental of investmentproperties . . . . . . . . . . . . . 748 787 809 886

Value-added tax payables. . 20 11 21 1Other payables and

accrued charges. . . . . . . . 280 319 316 303

Total . . . . . . . . . . . . . . . . . . . 1,426 1,386 1,403 1,395

The decrease from 31 December 2018 to 31 December 2019 was primarily due toa decrease in trade payables which mainly reflects the settlement of project constructioncosts for the AEIs undertaken in Xintiandi Plaza, partially offset by an increase in otherpayables and accrued charges which reflect amounts held on behalf of owners’committee relating to residential properties under our management.

The increase from 31 December 2019 to 31 December 2020 was primarily due to anincrease in deposits received and receipt in advance for rental of investment propertieswhich mainly reflects the lease-out of certain portions of commercial properties atShanghai Xintiandi after completion of AEI.

Our accounts payable, deposits received and accrued charges remained relativelystable at 31 December 2020 and 30 June 2021.


– 192 –


Receipts under securitisation arrangements

Our receipts under securitisation arrangements primarily consist of receipts issuedby our wholly owned subsidiary with an aggregate principal amount of RMB770,000,000at 100% of face value. For details, see “– Indebtedness – Receipts under securitisationarrangements”.

Amount due to fellow subsidiaries

Our amounts due to fellow subsidiaries primarily consist of amounts due tosubsidiaries of Shui On Land. Our amount due to fellow subsidiaries increased fromRMB515 million as at 31 December 2018 to RMB603 million as at 31 December 2019,and further increased to RMB731 million as at 31 December 2020, primarily due to thetransfer of operating funds during the ordinary course of business. Our amount due tofellow subsidiaries remained relatively stable at RMB731 million and RMB737 million asat 31 December 2020 and 30 June 2021, respectively. We intend to settle all outstandingamounts due to fellow subsidiaries prior to the [REDACTED].

Loans from a non-controlling shareholder of subsidiaries

Our loans from a non-controlling shareholder of subsidiaries primarily consist of theinterest free and repayable on demand loans solely owing to Wisdom Forever LimitedPartnership after 31 December 2018, which is ultimately owned by China Life CapitalInvestment Co. Ltd.

Our loans from a non-controlling shareholder of subsidiaries remained relativelystable at RMB1,710 million as at 31 December 2018 and RMB1,716 million as at 31December 2019.

Our loans from a non-controlling shareholder of subsidiaries decreased fromRMB1,716 million as at 31 December 2019 to RMB1,476 million as at 31 December2020, primarily due to the repayment of loan to China Life, which had been previouslyobtained in relation to our investment in KIC. For details, see “History, Reorganisationand Corporate Structure”.

Our loans from a non-controlling shareholder of subsidiaries decreased fromRMB1,476 million as at 31 December 2020 to RMB1,444 million as at 30 June 2021,primarily due to the repayment of loan to China Life.

Deferred tax liabilities

Our deferred tax liabilities primarily consist of accelerated tax depreciation andrevaluation of investment properties, particularly derived from our subsidiaries, namelyBright Power Enterprise Limited, Marble Way Ltd, Rimmer Investments Ltd and ShineFirst Ltd.

Our deferred tax liabilities increased from RMB5,608 million as at 31 December2018 to RMB5,909 million as at 31 December 2019, primarily due to the accelerated taxdepreciation and the revaluation gain on investment properties.

Our deferred tax liabilities decreased from RMB5,909 million as at 31 December2019 to RMB5,797 million as at 31 December 2020, primarily due to a revaluation losson investment properties.


– 193 –


Our deferred tax liabilities increased from RMB5,797 million as at 31 December2020 to RMB5,899 million as at 30 June 2021, primarily due to the effect of acceleratedtax depreciation.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Historically, we have funded our working capital primarily from (i) internal resources(including cash generated from our operations), (ii) offerings of debt securities, (iii) bankloans and (iv) capital contributions from our joint venture partners. After the completionof the [REDACTED], we intend to finance our future capital requirements through thesame sources of funds as above and equity issuances. For details of material covenantsand undertaking in relation to our borrowings, see “Business – Financing”. We do notanticipate any material changes to the availability of financing to fund our operations andto our capital structure in the future.

As at 30 June 2021, we had bank balances and cash of RMB3,119 million.

Our Directors are of the view that, taking into account the [REDACTED] from the[REDACTED] and the financial resources available to us, including cash and cashequivalents, our available banking facilities and cash flows from operating activities, wehave sufficient working capital for our present requirements, that is at least 12 monthsfrom the date of this Document.

The following discussion of liquidity and capital resources principally focuses on ourcombined statements of cash flows, assets and liabilities, and indebtedness.

Cash flow

The following table sets forth selected cash flow statement information for theperiods indicated.


For the six monthsended

30 June

2018 2019 2020 2020 2021

(RMB million)(unaudited)

Net cash generated from/(used in)operating activities . . . . . . . . . . . . 1,038 1,292 1,167 (9) 481

Net cash (used in)/generated frominvesting activities . . . . . . . . . . . . . (205) (179) (700) 138 (16)

Net cash used in financing activities . . (123) (1,436) (867) (370) (302)


– 194 –



For the six monthsended

30 June

2018 2019 2020 2020 2021


Net Increase/(decrease)in cash and cash equivalents . . . . 710 (323) (400) (241) 163

Cash and cash equivalents at thebeginning of the year/period . . . . . . 3,012 3,727 3,407 3,407 2,957

Effect of foreign exchange ratechanges, net . . . . . . . . . . . . . . . . 5 3 (50) 10 (1)

Cash and cash equivalents at theend of the year/period . . . . . . . . . 3,727 3,407 2,957 3,176 3,119

Net cash generated from/(used in) operating activities

During the Track Record Period, our cash inflow from operating activities wasprincipally from cash generated from operations including our rental income and feeincome from our property management and asset management business. Our cashoutflow from operating activities was principally for cost and expenses in relation to ourinvestment properties, property management business, asset management businessand taxes paid.

Our net cash generated from operating activities in the six months ended 30 June2021 was RMB481 million, resulting from our cash generated from operations ofRMB800 million, partially offset by tax paid of RMB319 million. Our cash generated fromoperations comprised of profit before tax of RMB668 million, primarily adjusted by (i)finance costs of RMB236 million, partially offset by an increase in financial assetsmeasured at fair value of RMB36 million, which reflects our financial investment inOstara China Real Estate Fund L.P.

Our net cash generated from operating activities in 2020 was RMB1,167 million,resulting from our cash generated from operations of RMB1,333 million, partially offsetby tax paid of RMB166 million. Our cash generated from operations comprised of lossbefore tax of RMB183 million, primarily adjusted for (i) a decrease in fair value ofinvestment properties of RMB1,111 million, (ii) finance costs of RMB421 million, partiallyoffset by an increase in receivables, deposits and prepayments of RMB74 million, whichmainly reflects an increase in rental receivables based on straight-line calculation and(iii) a decrease in properties held for sale of RMB36 million.

Our net cash generated from operating activities in 2019 was RMB1,292 million,resulting from our cash generated from operations of RMB1,437 million, partially offsetby tax paid of RMB145 million. Our cash generated from operations comprised of profitbefore tax of RMB1,231 million, adjusted primarily for finance cost of RMB596 million,partially offset by (i) an increase in amounts due from fellow subsidiaries of RMB56million and (ii) an increase in fair value of investment properties of RMB431 million.


– 195 –


Our net cash generated from operating activities in 2018 was RMB1,038 million,resulting from our cash generated from operations of RMB1,199 million, partially offsetby tax paid of RMB161 million. Our cash generated from operations comprised of profitbefore tax of RMB1,190 million, primarily adjusted for (i) finance costs of RMB710 millionand (ii) a decrease in properties held for sale of RMB89 million, partially offset by anincrease in fair value of investment properties of RMB705 million and an increase inamounts due from fellow subsidiaries of RMB33 million.

Net cash (used in)/generated from investing activities

During the Track Record Period, our cash outflow from investing activities wasprincipally for investment in joint ventures such as the acquisition of interest in NanjingIFC and additions to our investment properties. Our cash inflow from investing activitieswas principally from repayments from a joint venture, interest income from our financialinstruments and bank balances and proceeds from settlement of derivative financialinstruments.

Our net cash used in investing activities in the six months ended 30 June 2021 wasRMB16 million, primarily resulting from investments in a joint venture of RMB20 million,which mainly reflects our investment in Sino Profit Development, which owns NanjingIFC, partially offset by interest received of RMB14 million.

Our net cash used in investing activities in 2020 was RMB700 million, primarilyresulting from (i) investment in a joint venture of RMB661 million, which reflects ourinvestment in Nanjing IFC, and (ii) additions to investment properties of RMB169 million,partially offset by (i) a disposal of financial assets at fair value of RMB160 million, whichreflects disposal of certain short-term cash management investment products wepurchased in 2019, and (ii) interest received of RMB47 million.

Our net cash used in investing activities in 2019 was RMB179 million, primarilyresulting from (i) additions to investment properties at fair value of RMB191 million and(ii) additions of financial assets at fair value of RMB160 million relating to short-terminvestment for cash management purposes, partially offset by (i) proceeds fromsettlement of derivative financial instrument of RMB144 million, relating to the call optionfor 5 Corporate Avenue and Hubindao.

Our net cash used in investing activities in 2018 was RMB205 million, primarilyresulting from (i) net cash outflow on acquisition of a subsidiary of RMB542 million inrelation to INNO KIC and (ii) additions to investment properties of RMB336 million inrelation to INNO KIC and North Hall of Horizon in Wuhan Tiandi Community, partiallyoffset by repayment from a joint venture of RMB661 million, which reflects our previousinvestment in Shanghai Yong Lin Investment Management Co, Ltd.

Net cash used in financing activities

During the Track Record Period, our cash outflow from financing activities wasprincipally from repayment of bank borrowings and interest paid as well as repayment ofloans from fellow subsidiaries and holding companies. Our cash inflow from financingactivities was principally for drawdown of bank borrowings and loans from fellowsubsidiaries and holding companies.


– 196 –


Our net cash used in financing activities in the six months ended 30 June 2021 wasRMB302 million, primarily resulting from (i) repayments of bank borrowings and receiptsunder securitisation arrangements of RMB240 million and (ii) interest paid of RMB237million, partially offset by equity loans from fellow subsidiaries and intermediate holdingcompanies of RMB185 million.

Our net cash used in financing activities in 2020 was RMB867 million, primarilyresulting from (i) repayments of bank borrowings and receipts under securitisationarrangements of RMB523 million, (ii) interests paid of RMB532 million and (iii)repayments to non-controlling shareholders of subsidiaries of RMB237 million, partiallyoffset by equity loans from fellow subsidiaries and intermediate holding companies ofRMB370 million.

Our net cash used in financing activities in 2019 was RMB1,436 million, primarilyresulting from (i) repayments of bank borrowings and receipts under securitisationarrangements of RMB2,553 million, (ii) repayments to fellow subsidiaries andintermediate holding companies of RMB1,077 million and (iii) interests paid of RMB563million, partially offset by drawdown of bank borrowings of RMB2,621 million.

Our net cash used in financing activities in 2018 was RMB123 million, primarilyresulting from (i) repayments of bank borrowings of RMB822 million, (ii) interest paid ofRMB715 million and (iii) payment of dividends of RMB317 million, partially offset bydrawdown of bank borrowings of RMB788 million, issue of receipts under securitisationarrangements of RMB769 million and equity loans from fellow subsidiaries andintermediate holding companies of RMB146 million.

Net current liabilities

The table below sets out our current assets, current liabilities, and net currentliabilities as at the dates indicated.


30 JuneAs at

31 July

2018 2019 2020 2021 2021


Current assetsProperties held for sale. . . . . . . . . . . . . 215 167 130 129 129Receivables, deposits and prepayments . . 283 262 272 315 293Amounts due from fellow subsidiaries . . . . 218 203 211 199 197Amount due from an associate . . . . . . . . – – – 3 6Amount due from a joint venture . . . . . . . 1 – – 2 2Bank balances and cash . . . . . . . . . . . . 3,727 3,407 2,957 3,119 3,155Prepaid taxes . . . . . . . . . . . . . . . . . . 19 19 – – –Financial asset at fair value through profit

or loss . . . . . . . . . . . . . . . . . . . . . . – 160 – – –

Total current assets . . . . . . . . . . . . . . 4,463 4,218 3,570 3,767 3,782

Current liabilitiesContract liabilities . . . . . . . . . . . . . . . . 20 1 – – –Accounts payable, deposits received and

accrued charges . . . . . . . . . . . . . . . 1,426 1,386 1,403 1,395 1,414Bank borrowings – due within one year . . . 3,231 1,029 325 362 943


– 197 –



30 JuneAs at

31 July

2018 2019 2020 2021 2021


Receipts under securitisationarrangements . . . . . . . . . . . . . . . . . 5 7 11 752 –

Tax liabilities . . . . . . . . . . . . . . . . . . . 406 599 568 334 309Loans from/amounts due to non-controlling

shareholders of subsidiaries . . . . . . . . 1,718 1,726 1,489 1,453 10Amount due to a joint venture . . . . . . . . – – – 3 3Amount due to fellow subsidiaries . . . . . . 515 603 731 737 1,464Lease liabilities . . . . . . . . . . . . . . . . . 11 10 12 13 13

Total current liabilities . . . . . . . . . . . . 7,332 5,361 4,539 5,049 4,156

Net current liabilities . . . . . . . . . . . . . (2,869) (1,143) (969) (1,282) (374)

Our net current liabilities decreased by 60.2% from RMB2,869 million as at 31December 2018 to RMB1,143 million as at 31 December 2019, primarily due to adecrease of RMB2,202 million in bank borrowings due within one year as a result of ourrepayment of bank borrowings.

Our net current liabilities decreased by 15.2% from RMB1,143 million as at 31December 2019 to RMB969 million as at 31 December 2020, primarily due to (i) adecrease of RMB704 million in bank borrowings due within one year as a result of ourrepayment of bank borrowings and (ii) a decrease of RMB237 million in loansfrom/amounts due to non-controlling shareholders of subsidiaries, partially offset by (i) adecrease of RMB450 million in bank balances and cash and (ii) a decrease of RMB160million in financial asset at fair value from profit or loss.

Our net current liabilities increased by 32.3% from RMB969 million as at 31December 2020 to RMB1,282 million as at 30 June 2021, primarily due to an increase ofRMB741 million in receipts under securitisation arrangements due within one year,partially offset by (i) a decrease of RMB234 million in tax liabilities and (ii) an increase ofRMB162 million in bank balances and cash.

Our net current liabilities decreased by 70.8% from RMB1,282 million as at 30 June2021 compared to RMB374 million as at 31 July 2021, primarily due to decrease of loansfrom a non-controlling shareholder of subsidiaries of RMB1,444 million.

INDEBTEDNESS

Bank borrowings

Our bank borrowings primarily consist of short-term and long-term loans fromcommercial banks. As at the Latest Practicable Date, we had unused bank facilities ofRMB150 million.

Our bank borrowings are secured by pledge of assets, including certain of ourinvestment properties and the Demerger Assets. See “Risk Factors – Risks relating toour business – Our acquisition of the Demerger Assets pursuant to the Business


– 198 –


Transfer Agreement is subject to the Demerger and other closing conditions anduncertainties.” The table below sets out certain assets which are pledged to banks ascollateral to obtain certain banking facilities as of the dates indicated.


30 June

2018 2019 2020 2021

(RMB million)

Investment properties . . . . . . . . . . 31,007 30,079 31,592 31,371Property and equipment. . . . . . . . . 55 63 57 60Right-of-use assets . . . . . . . . . . . . 7 6 6 6Receivables . . . . . . . . . . . . . . . . . . 39 37 77 59

Total . . . . . . . . . . . . . . . . . . . . . . . . 31,108 30,185 31,732 31,496

Our bank borrowings carry variable interest rates ranging from 80% to 125% of thePBOC prescribed interest rate per annum, or 3.9% to 4.7% per annum over the LoanPrime Rate, or 2.9% to 3.8% per annum over HIBOR, or 2.85% to 5.25% per annum overLIBOR.

The bank borrowings remained relatively stable at RMB9,345 million as at 31December 2018 and RMB9,447 million as at 31 December 2019. Our bank borrowingsdecreased to RMB8,794 million as at 31 December 2020 and further decreased toRMB8,546 million as at 30 June 2021 as we repaid our bank borrowings and increasinglyrelied on cash generated from operations to fund our business activities. Our bankborrowing decreased to RMB8,529 million as at 31 July 2021 primarily due to therepayment of a portion of our bank borrowings.

The table below sets forth the maturity profiles of our bank borrowings as at thedates indicated.


30 JuneAs at

31 July

2018 2019 2020 2021 2021


On demand or within one year . . . 3,231 1,029 325 362 943More than one year but not

exceeding two years . . . . . . . . 1,141 988 2,742 2,861 2,270More than two years but not

exceeding five years . . . . . . . . 1,351 3,849 3,084 2,709 2,709More than five years . . . . . . . . . 3,622 3,581 2,643 2,614 2,607

Total . . . . . . . . . . . . . . . . . . . 9,345 9,447 8,794 8,546 8,529


– 199 –


Our bank borrowings are denominated in Renminbi, Hong Kong dollars and USdollars. The table below sets forth the carrying amounts of our bank borrowings bydenominated currency as at the dates indicated.


30 JuneAs at

31 July

2018 2019 2020 2021 2021


Denominated in RMB . . . . . . . . . 7,595 7,026 6,527 6,295 6,278Denominated in HKD . . . . . . . . . 942 950 896 888 888Denominated in USD . . . . . . . . . 808 1,471 1,371 1,363 1,363

Total . . . . . . . . . . . . . . . . . . . 9,345 9,447 8,794 8,546 8,529

Our bank borrowings carry interest at prevailing market rates. As at 31 December2018, 2019 and 2020 and 30 June 2021, the weighted average effective interest rate onthe bank borrowings was 5.2%, 5.1%, 4.4% and 4.5%, respectively.


30 JuneAs at

31 July

2018 2019 2020 2021 2021

(unaudited)

Denominated in RMB . . . . . . . . . . 4.9% 4.9% 4.9% 4.9% 4.9%Denominated in HKD. . . . . . . . . . . 6.1% 6.5% 3.1% 3.0% 3.0%Denominated in USD. . . . . . . . . . . 6.5% 5.1% 3.4% 3.4% 3.4%

The interest rate of our bank borrowings denominated in US dollar declined from 31December 2018 to 30 June 2021, which is in line with the decreases of the LIBOR duringthe same period. The interest rate of our bank borrowings denominated in Hong Kongdollar declined from 31 December 2019 to 30 June 2021, which is in line with thedecreases of the HIBOR during the same period.

Receipts under securitisation arrangements

Our receipts under securitisation arrangements primarily consist of receipts issuedby Foshan An Ying Property Development Co., Ltd (the “Foshan An Ying”), our whollyowned subsidiary which operates NOVA and Lot E office in the Foshan Lingnan TiandiCommunity. Issued on 27 November 2018, such receipts have an aggregate principalamount of RMB770,000,000 at 100% of face value and are listed on the Shanghai StockExchange. The net proceeds of the receipts under securitisation arrangements, afterdeduction of arrangement fee, amounted to RMB769 million. For details, see note 33 tothe Accountants’ Report set forth in Appendix I.


– 200 –


The receipts under securitisation arrangements are asset-backed securitisationcollateralised by certain commercial assets held by Foshan An Ying and its certain futurerental income. The following table sets forth details of our receipts under securitisationarrangements as at the dates indicated.


30 JuneAs at

31 July

2018 2019 2020 2021 2021


Receipts under securitisationarrangements

– Amount due within one year(shown under current liabilities) . 5 7 11 752 –

– Amount due after one year . . . . . 764 757 747 – –

Total . . . . . . . . . . . . . . . . . . . . . 769 764 758 752 –

The amount of receipts under securitisation arrangements decreased during theTrack Record Period as we gradually repaid the principal of such receipts. We have fullyredeemed all of such receipts as at 31 July 2021.

Loans from/amounts due to non-controlling shareholders of subsidiaries

Our loans from a non-controlling shareholder of subsidiaries primarily consist of theinterest free and repayable on demand loans solely owing to Wisdom Forever LimitedPartnership after 31 December 2018, which is ultimately owned by China Life CapitalInvestment Co. Ltd. Loans from/amounts due to non-controlling shareholders ofsubsidiaries were RMB1,718 million, RMB1,726 million, RMB1,489 million, RMB1,453million and RMB1,454 million as at 31 December 2018, 2019, 2020 and 30 June 2021and 31 July 2021, respectively. For details, see “– Description of Selected BalanceSheet Line Items – Loans from non-controlling shareholders of subsidiaries”.

Amount due to joint venture

Our amount due to joint venture was nil, nil, nil, RMB3 million and RMB3 million asat 31 December 2018, 2019, 2020 and 30 June 2021 and 31 July 2021, respectively.

Amounts due to fellow subsidiaries

Our amounts due to fellow subsidiaries primarily consist of amounts due tosubsidiaries of Shui On Land. Our amounts due to fellow subsidiaries were RMB515million, RMB603 million, RMB731 million, RMB737 million and RMB1,464 million as at31 December 2018, 2019, 2020 and 30 June 2021 and 31 July 2021, respectively. Fordetails, see “– Description of Selected Balance Sheet Line Items – Amounts due to fellowsubsidiaries”.

As at 31 July 2021, other than as disclosed above, we did not have any otherborrowings, charges, mortgages, debentures or debt securities issued or outstanding, orauthorised or otherwise created but unissued, or other similar indebtedness, hirepurchase and finance lease commitments, liabilities under acceptance, acceptancecredits, any guarantees or other material contingent liabilities.


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CERTAIN EQUITY ITEM

Equity loans from fellow subsidiaries and intermediate holding companies

Our amounts due to an intermediate holding company mainly consist of shareholderloans from Shui On Land, which are non-trade nature, unsecured, interest free and notdemanded for payments by the fellow subsidiaries and intermediate holding companiesunless our subsidiaries are in a position to repay and to be mutually agreed between oursubsidiaries, the fellow subsidiaries and intermediate holding companies, or upon thewinding up of our subsidiaries. As at 31 December 2018, 2019 and 2020 and 30 June2021, our loans from fellow subsidiaries and holding companies amounted toRMB10,074 million, RMB8,998 million, RMB9,368 million and RMB9,552 million,respectively.

OFF-BALANCE SHEET TRANSACTIONS

During the Track Record Period, we did not have any material off-balance sheetarrangements or any variable interest in any unconsolidated entity that providesfinancing, liquidity, market risk or credit support for us. As at the Latest Practicable Date,we had not entered into any off-balance sheet transactions.

KEY FINANCIAL RATIOS

The following table sets forth our key financial ratios as at the dates or for theperiods indicated:

As at and for the year ended31 December

As atand forthe six

monthsended

30 June

2018 2019 2020 2021

Profitability ratiosOperating profit margin (%)(1) . . . . 52.2% 53.6% 54.4% 58.9%Net profit margin (%)(2) . . . . . . . . . 28.5% 22.6% N/A 34.4%Return on total assets (%)(3) . . . . . 1.4% 1.1% N/A 1.9%Return on equity (%)(4). . . . . . . . . . 2.3% 1.9% N/A 3.0%

Liquidity ratiosNet gearing ratio (%)(5) . . . . . . . . . 21.9% 22.3% 21.6% 19.8%Current ratio(6) . . . . . . . . . . . . . . . . 0.6 0.8 0.8 0.7

Notes:

1. Operating profit margin is calculated as operating profit divided by revenue for the respectiveyear/period. For details, see “– Results of Operations”.

2. Net profit margin is calculated as profit for the year/period divided by revenue for the respectiveperiod.

3. Return on total assets is calculated by dividing profit for the year/period by total assets as at theend of the year/period and multiplying the resulting value by 100%. The calculation of the returnon assets for the six months ended 30 June 2021 have been annualised by multiplying half yearfigures by two to be comparable to those of prior periods but are not indicative of actual results.


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4. Return on equity is calculated by dividing profit for the year/period by total equity as at the end ofthe year/period and multiplying the resulting value by 100%. The calculation of the return onequity for the six months ended 30 June 2021 have been annualised by multiplying half yearfigures by two to be comparable to those of prior periods but are not indicative of actual results.

5. Net gearing ratio is calculated by dividing the excess of sum of bank borrowings and receiptsunder securitisation arrangements net of bank balances and cash by total equity and multiplyingthe resulting value by 100%.

6. Current ratio is calculated by dividing total current assets by total current liabilities.

Return on total assets

Our return on total assets decreased from 1.4% in 2018 to 1.1% in 2019, primarilydue to a decrease in net profit as a result of a reduction in increase in fair value ofinvestment properties. We recorded a return on total assets of 1.9% in the six monthsended 30 June 2021 (annualised) as we recovered from a net loss in 2020 which wasprimarily on account of the COVID-19 outbreak.

Return on equity

Our return on equity decreased from 2.3% in 2018 to 1.9% in 2019, primarily due toa decrease in net profit as a result of a reduction in increase in fair value of investmentproperties. We recorded a return on equity of 3.0% in the six months ended 30 June 2021(annualised) as we recovered from a net loss in 2020 which was primarily on account ofthe COVID-19 outbreak.

Net gearing ratio

Our net gearing ratio was 21.9%, 22.3%, 21.6% and 19.8% in 2018, 2019, 2020 andthe six months ended 30 June 2021. The continuous decrease during the Track RecordPeriod was primarily due to reduction in the amount of our bank borrowings.

Current ratio

Our current ratio increased from 0.6 as at 31 December 2018 to 0.8 as at 31December 2019 and 2020, primarily due to a decrease in bank borrowings due withinone year as result of our repayment of bank borrowings in 2019. Our current ratiodecreased from 0.8 as at 31 December 2020 to 0.7 as at 30 June 2021, primarily due toan increase in receipts under securitisation arrangements due within one year in the firsthalf of 2021.

CONTINGENT LIABILITIES

We did not have any material contingent liabilities as at 31 December 2018, 2019and 2020 and 30 June 2021.


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CAPITAL EXPENDITURE

The following table sets forth our capital expenditures for the period indicated.


Six monthsended

30 June

2018 2019 2020 2021

(RMB million)

Shanghai . . . . . . . . . . . . . . . . . 360 120 143 10Outside Shanghai . . . . . . . . . . . 29 90 27 21

Total. . . . . . . . . . . . . . . . . . . . 389 210 170 31

During the Track Record Period, we incurred capital expenditure primarily for AEIs,renovation and regular maintenance of our commercial properties.

We estimate that our capital expenditures for the year ending 31 December 2021will be approximately RMB151 million, which we will use primarily for renovation andmaintenance costs for The Hub and the Wuhan Tiandi Community as well as costs of AEIfor Xintiandi Style II. We expect to fund these capital expenditures with a combination ofcash generated from our operations, bank loans and debt. Our project capitalexpenditures may be subject to revision due to any future change in our business plans,results of operations and financial conditions, economic conditions and regulatoryenvironment.

COMMITMENTS

Operating lease commitments

We lease various premises for our operations, primarily offices for self-use andoperation. Lease terms are negotiated on an individual basis and contain a wide rangeof different terms and conditions.

As at 31 December 2018, 2019 and 2020 and 30 June 2021, we had an outstandinglease for office that had not yet commenced as the construction work had not yetcompleted. Such lease has a non-cancellable period of fifteen years, excluding periodunder extension options. The total future undiscounted cash flows over the non-cancellable period amounted to RMB462 million.


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Capital and other commitments

The table below sets forth our capital and other commitments as at the datesindicated:


30 June

2018 2019 2020 2021

(RMB million)

Contracted but not provided for:Development costs for investment

properties under construction ordevelopment . . . . . . . . . . . . . . . . . . . 116 63 80 79

Investment in a joint venture . . . . . . . . – – 142 142

RELATED PARTY TRANSACTIONS

We enter into transactions with related parties from time to time, in particular withShui On Land and its subsidiaries and its joint ventures which, as at 31 December 2018,2019 and 2020 and 30 June 2021, controlled our Company with 100% of its shares.

Our Directors are of the view that each of the related party transactions set out innote 36 to the Accountants’ Report set forth in Appendix I was conducted in the ordinarycourse of business on an arm’s length basis and with normal commercial terms betweenthe relevant parties. Our Directors are also of the view that our related party transactionsduring the Track Record Period would not distort our results during the Track RecordPeriod or render our results during the Track Record Period not reflective of its futureperformance.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS

Currency risk

All of our revenue is denominated in RMB. However, we have certain bank balancesand debt obligations that are denominated in foreign currency. As a result, we areexposed to fluctuations in foreign exchange rates.

We are mainly exposed to the currency of Hong Kong dollar and US dollar. Thefollowing table details our sensitivity to a 5% increase and decrease in RMB against therelevant foreign currency. 5% is the sensitivity rate used when reporting foreign currencyrisk internally to key management personnel and represents management’s assessmentof the reasonably possible change in foreign exchange rates.


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The sensitivity analysis includes only outstanding foreign currency denominatedmonetary items assuming the balances at the end of the reporting period outstanding forthe whole year/period and adjusts their translation at the year/period end for a 5%change in foreign currency rates. A positive number below indicates an increase in profitwhere RMB strengthen 5% against the relevant currency. For a 5% weakening of RMBagainst the relevant currency, there would be an equal and opposite impact on the profit,and the balances below would be negative.


30 June

2018 2019 2020 2021

(RMB million)

HKD profit or loss(1) . . . . . . . 43 44 39 39USD profit or loss(2) . . . . . . . 69 66 61 60

Notes:

1. This is mainly attributable to the exposure outstanding on bank balances and cash and bankborrowings denominated in HKD not subject to hedges at the end of each of year or period.

2. This is mainly attributable to the exposure outstanding on bank balances and cash, bankborrowings denominated in USD not subject to hedges at the end of each of year or period

In our management’s opinion, the sensitivity analysis is unrepresentative of theinherent foreign exchange risk as the year end exposure does not reflect the exposureduring the Track Record Period.

We follow a clearly defined hedging strategy in respect of our foreign exchangeexposures. All foreign exchange-related asset and liability mismatches are reviewed bythe management, and appropriate foreign exchange hedges are in place to ensure thatour foreign exchange exposures are maintained at acceptable levels. We manage ourforeign currency exposure within approved policy parameters by utilising currencyforward contracts or currency capped forward contracts. In 2018, we recorded a lossarising from currency forward contract (reclassified from hedge reserve) of RMB28million. In 2019, we recorded a profit arising from currency forward contracts(reclassified from hedge reserve) of RMB4 million. We did not utilise such currencyforward contracts in 2020 and the six months ended 30 June 2021.

Interest rate risk

Our operating profit and operating cash flows are substantially independent ofchanges in market interest rates. Our exposure to the risk of changes in market interestrates relates primarily to our bank balances and restricted bank balances and bankborrowings at variable rates. Our fair value interest rate risk relates primarily to fixed ratebank borrowings. Our cash flow interest rate risk is mainly concentrated on thefluctuation of HIBOR, LIBOR and LPR/PBOC prescribed interest rate arising from ourHong Kong dollar, US dollar and Renminbi denominated loans and amounts due torelated parties.


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Credit risk

Our credit risk is primarily attributable to receivables arising from contracts withcustomers, amounts due from related companies and cash deposits with bank. Ourmaximum exposure to credit risk which will cause a financial loss to us due to failure todischarge an obligation by the counterparties and financial guarantees provided by us isarising from the carrying amount of the respective recognised financial assets as statedin the combined statement of financial position and the amount in relation to financialguarantee issued by us. For details, see note 38 to the Accountants’ Report set forth inAppendix I.

Liquidity risk

Our objective is to maintain a balance between continuity of funding and flexibilitythrough the use of bank borrowings. We also manage liquidity risk by monitoring thecurrent and expected liquidity requirements and our compliance with lending covenantsto ensure we maintain sufficient working capital and adequate committed lines of fundingto meet our liquidity requirement. For details, see note 38 to the Accountants’ Report setforth in Appendix I.

DIVIDEND POLICY

In 2018, 2019 and 2020 and the six months ended 30 June 2021, we have paiddividends of RMB317 million, nil, RMB59 million and nil, respectively.

Our principal business activity is to operate a large portfolio of premium andsustainable commercial properties in order to deliver a stable and growing rentalincome. As a result, we intend to distribute approximately 80% of our profit attributableto shareholders in each financial year as dividend, taking into account the amount ofunderlying net profit attributable to shareholders of the Company. For the year ending 31December 2021, we intend to declare a dividend which reflects the results of the Groupfor the six months ending 31 December 2021.

The Board will review our dividend distribution from time to time to take intoconsideration potential changes in our operations, capital requirement, economicconditions and other material factors that may impact our businesses, income and/or ourcashflow.

There can be no assurance that any dividends will be paid. See “Risk Factors – Wemay not declare dividends on our Shares in the future”.

As at 30 June 2021, we had retained earnings of RMB15,020 million under IFRS asreserves available for distribution to our shareholders.

[REDACTED]


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[REDACTED]

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

We have identified certain accounting policies that are significant to the preparationof our combined financial statements. Our significant accounting policies, judgmentsand estimates that are important to understand our financial condition and results ofoperations, are set out in detail in note 3 to the Accountants’ Report set forth in AppendixI.

We set forth below those accounting policies that we believe involve the mostsignificant estimates and judgments used in preparing of our financial statements.

Revenue recognition

Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of goods orservices is transferred to the customers at an amount that reflects the consideration towhich we expect to be entitled in exchange for those goods or services.

When the consideration in a contract includes a variable amount, the amount ofconsideration is estimated to which we will be entitled in exchange for transferring thegoods or services to the customer. The variable consideration is estimated at contractinception and constrained until it is highly probable that a significant revenue reversal inthe amount of cumulative revenue recognised will not occur when the associateduncertainty with the variable consideration is subsequently resolved.

When the contract contains a financing component which provides the customerwith a significant benefit of financing the transfer of goods or services to the customer formore than one year, revenue is measured at the present value of the amount receivable,discounted using the discount rate that would be reflected in a separate financingtransaction between us and the customer at contract inception. When the contractcontains a financing component which provides us with a significant financial benefit formore than one year, revenue recognised under the contract includes the interestexpense accreted on the contract liability under the effective interest method. For acontract where the period between the payment by the customer and the transfer of thepromised goods or services is one year or less, the transaction price is not adjusted forthe effects of a significant financing component, using the practical expedient in IFRS15.


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Revenue from lease

Rental income is recognised on a time proportion basis over the lease terms.Variable lease payments that do not depend on an index or a rate are recognised asincome in the accounting period in which they are incurred.

Revenue from property management services

Revenue from property management services provided is recognised over time andthe progress is measured using the output method. We bill a fixed amount for servicesprovided on a monthly or quarterly basis and recognises as revenue in the amount towhich we have a right to invoice and that corresponds directly with the value of theperformance completed.

For property management services income from properties managed on a lumpsum basis, where we are primary responsible for providing the property managementservices to the property owners, we recognise the fee received or receivable fromproperty owners as its revenue and all related property management costs as its cost ofservice.

For property management services income from properties managed on acommission basis, where we recognise the commission, which is calculated by apre-determined amount of the property management fee received or receivable from theproperty units as its revenue for arranging and monitoring the services as provided byother suppliers to the property owners.

Revenue from asset management services

Revenue from asset management services provided is recognised over time andthe progress is measured using the output method. The asset management service feesare billed to the clients periodically (either a monthly or quarterly billing period).

Other income

Interest income is recognised on an accrual basis using the effective interestmethod by applying the rate that exactly discounts the estimated future cash receiptsover the expected life of the financial instrument or a shorter period, when appropriate,to the net carrying amount of the financial asset.

Dividend income is recognised when the shareholders’ right to receive payment hasbeen established, it is probable that the economic benefits associated with the dividendwill flow to us and the amount of the dividend can be measured reliably.

Revenue from the sale of properties is recognised at the point in time when thepurchasers obtained the physical possession or the legal title of the completed propertyand we has present right to payment and the collection of the consideration is probable.

Investment properties

Investment properties are interests in land and buildings (including the leaseholdproperty held as a right-of-use asset which would otherwise meet the definition of aninvestment property) held to earn rental income and/or for capital appreciation, ratherthan for use in the production or supply of goods or services or for administrative


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purposes, or for sale in the ordinary course of business. Such properties are measuredinitially at cost, including transaction costs. After initial recognition, investmentproperties are stated at fair value, which reflects market conditions at the end of the eachof the Track Record Period.

Gains or losses arising from changes in the fair values of investment properties areincluded in the statement of profit or loss in the year in which they arise. Any gains orlosses on the retirement or disposal of an investment property are recognised in thestatement of profit or loss in the year of the retirement or disposal.

For a transfer from investment properties to owner-occupied properties orinventories, the deemed cost of a property for subsequent accounting is its fair value atthe date of change in use. If a property occupied by us as an owner-occupied propertybecomes an investment property, we account for such property in accordance with thepolicy for owned property or account for such property in accordance with the policy forproperty held as a right-of-use asset up to the date of change in use, any difference atthat date between the carrying amount and the fair value of the property is accounted foras a revaluation. For a transfer from inventories to investment properties, any differencebetween the fair value of the property at that date and its carrying amount is recognisedin the statement of profit or loss.

Investments in an associate and a joint venture

An associate is an entity in which we have a long-term interest of generally not lessthan 20% of the equity voting rights and over which it is in a position to exercisesignificant influence. Significant influence is the power to participate in the financial andoperating policy decisions of the investee but is not control or joint control over thosepolicies.

A joint venture is a type of joint arrangement whereby the parties that have jointcontrol of the arrangement have rights to the net assets of the joint venture. Joint controlis the contractually agreed sharing of control of an arrangement, which exists only whendecisions about the relevant activities require the unanimous consent of the partiessharing control.

Our investments in associate and joint venture are stated in the combinedstatement of financial position at our share of net assets under the equity method ofaccounting, less any impairment losses. Adjustments are made to bring into line anydissimilar accounting policies that may exist.

Our share of the post-acquisition results and other comprehensive income ofassociate and joint venture is included in the combined statement of profit or loss andcombined other comprehensive income, respectively. In addition, when there has beena change recognised directly in the equity of the associate or joint venture, we recogniseour share of any changes, when applicable, in the combined statement of changes inequity. Unrealised gains and losses resulting from transactions between us and ourassociates or joint ventures are eliminated to the extent of our investments in theassociates or joint ventures, except where unrealised losses provide evidence of animpairment of the assets transferred. Goodwill arising from the acquisition of associatesor joint ventures is included as part of our investments in associates or joint ventures.


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If an investment in an associate becomes an investment in a joint venture or viceversa, the retained interest is not remeasured. Instead, the investment continues to beaccounted for under the equity method. In all other cases, upon loss of significantinfluence over the associate or joint control over the joint venture, we measure andrecognise any retained investment at its fair value. Any difference between the carryingamount of the associate or joint venture upon loss of significant influence or joint controland the fair value of the retained investment and proceeds from disposal is recognisedin profit or loss.

Leases – Group as a lessor

When we act as a lessor, it classifies at lease inception (or when there is a leasemodification) each of its leases as either an operating lease or a finance lease.

Leases in which we do not transfer substantially all the risks and rewards incidentalto ownership of an asset are classified as operating leases. When a contract containslease and non-lease components, we allocate the consideration in the contract to eachcomponent on a relative stand-alone selling price basis. Rental income is accounted foron a straight-line basis over the lease terms and is included in revenue in the statementof profit or loss due to its operating nature. Initial direct costs incurred in negotiating andarranging an operating lease are added to the carrying amount of the leased asset andrecognised over the lease term on the same basis as rental income. Contingent rents arerecognised as revenue in the period in which they are earned.

Leases that transfer substantially all the risks and rewards incidental to ownershipof an underlying asset to the lessee are accounted for as finance leases.

When we are an intermediate lessor, a sublease is classified as a finance lease oroperating lease with reference to the right-of-use asset arising from the head lease.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production ofqualifying assets, for example, assets that necessarily take a substantial period of timeto get ready for their intended use or sale, are capitalised as part of the cost of thoseassets. The capitalisation of such borrowing costs ceases when the assets aresubstantially ready for their intended use or sale. Investment income earned on thetemporary investment of specific borrowings pending their expenditure on qualifyingassets is deducted from the borrowing costs capitalised. All other borrowing costs areexpensed in the period in which they are incurred. Borrowing costs consist of interestand other costs that an entity incurs in connection with the borrowing of funds.

Any specific borrowing that remain outstanding after the related asset is ready forits intended use or sale is included in the general borrowing pool for calculation ofcapitalisation rate on general borrowings. Investment income earned on the temporaryinvestment of specific borrowings pending their expenditure on qualifying assets isdeducted from the borrowing costs eligible for capitalisation.


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Income tax

Income tax comprises current and deferred tax. Income tax relating to itemsrecognised outside profit or loss is recognised outside profit or loss, either in othercomprehensive income or directly in equity. Current tax assets and liabilities aremeasured at the amount expected to be recovered from or paid to the tax authorities,based on tax rates (and tax laws) that have been enacted or substantively enacted by theend of each of the Track Record Period.

Deferred tax is provided, using the liability method, on all temporary differences atthe end of each of the Track Record Period between the tax bases of assets andliabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• when the deferred tax liability arises from the initial recognition of goodwill oran asset or liability in a transaction that is not a business combination and, atthe time of the transaction, affects neither the accounting profit nor taxableprofit or loss; and

• in respect of taxable temporary differences associated with investments insubsidiaries, associates and joint ventures, when the timing of the reversal ofthe temporary differences can be controlled and it is probable that thetemporary differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expectedto apply to the period when the asset is realised or the liability is settled, based on taxrates (and tax laws) that have been enacted or substantively enacted by the end of eachof the Track Record Period.

Deferred tax assets and liabilities are offset when there is a legally enforceable rightto set off current tax assets against current tax liabilities and when they relate to incometaxes levied to the same taxable entity by the same tax authority.

Foreign currencies

Our financial statements are presented in RMB, which is our functional currency.Each entity in we determine its own functional currency and items included in theHistorical Financial Information of each entity are measured using that functionalcurrency. Foreign currency transactions recorded by the entities in the Group are initiallyrecorded using their respective functional currency rates prevailing at the dates of thetransactions. Monetary assets and liabilities denominated in foreign currencies aretranslated at the functional currency rates of exchange ruling at the end of each of yearor period. Differences arising on settlement or translation of monetary items arerecognised in the statement of profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreigncurrency are translated using the exchange rates at the dates of the initial transactions.Non-monetary items measured at fair value in a foreign currency are translated using theexchange rates at the date when the fair value was measured. The gain or loss arisingon translation of a non-monetary item measured at fair value is treated in line with the


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recognition of the gain or loss on change in fair value of the item (for example, translationdifference on the item whose fair value gain or loss is recognised in other comprehensiveincome or profit or loss is also recognised in other comprehensive income or profit orloss, respectively).

In determining the exchange rate on initial recognition of the related asset, expenseor income on the derecognition of a non-monetary asset or non-monetary liabilityrelating to an advance consideration, the date of initial transaction is the date on whichwe initially recognise the non-monetary asset or non-monetary liability arising from theadvance consideration. If there are multiple payments or receipts in advance, wedetermine the transaction date for each payment or receipt of the advanceconsideration.

The functional currency of certain overseas subsidiaries is HKD. As at the end ofeach year or period, the assets and liabilities of these entities are translated into RMB atthe exchange rates prevailing at the end of the year or period and their statements ofprofit or loss are translated into RMB at the weighted average exchange rates for theyear.

The resulting exchange differences are recognised in other comprehensive incomeand accumulated in equity under the heading of “Exchange reserve” (attributed tonon-controlling interests as appropriate). On disposal of a foreign operation, thecomponent of other comprehensive income relating to that particular foreign operation isrecognised in the statement of profit or loss.

Derivative financial instruments

In previous years, we disposed of its entire equity interest in a subsidiary (the“Disposed Subsidiary”), that indirectly owned a 99% interest in an investment propertylocated in Shanghai, the PRC, to an independent third party for a cash consideration ofRMB3,364 million.

In accordance with the relevant sale and purchase agreement entered into inprevious years, we were granted a call option in respect of repurchase of all the equityinterest of the Disposed Subsidiary within two months before the fifth anniversary or theseventh anniversary of the completion of the disposal (i.e. 18 December 2013), at a cashconsideration that represented the original consideration plus a premium per annum.

The call option measured at fair value as at 31 December 2018 is grouped underLevel 3. Level 3 fair value measurements are those derived from inputs that areunobservable for the asset or liability.

An increase in the property valuation would result in an increase in the fair value ofthe call option, and vice versa. If the property valuation is 3% higher and lower while allother variables are held constant, the carrying amount of the call option would increaseto approximately RMB382,000,000 and decrease to approximately RMB136,000,000respectively.

During the year ended 31 December 2019, an associate of the Group, TopFountain, purchased the entire equity interest of the Disposed Subsidiary from theindependent third party and the call option from us, which lead to the derecognition of thecall option.


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[REDACTED]


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NO MATERIAL ADVERSE CHANGE

Save as disclosed above in this section, our Directors confirm that there has notbeen any material adverse change in our financial or trading position since 30 June2021, being the date as at which our latest audited combined financial statements wereprepared as set out in the Accountants’ Report set forth in Appendix I.

DISCLOSURE REQUIRED UNDER THE LISTING RULES

Our Directors have confirmed that as at the Latest Practicable Date, there were nocircumstances which, had they been required to comply with Rules 13.13 to 13.19 of theListing Rules, would have given rise to a disclosure requirement under Rules 13.13 to13.19 of the Listing Rules.


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