00 Zhong An AR2014 cover_final_15.8mm

Transcription

1

2 Contents Pages Corporate Information 4 Chairman s Statement 8 Management Discussion and Analysis 19 Corporate Governance Report 39 Social Responsibility 59 Biographical Details of Directors and Senior Management 60 Directors Report 66 Independent Auditors Report 82 Consolidated Statement of Profit or Loss 84 Consolidated Statement of Comprehensive Income 85 Consolidated Statement of Financial Position 86 Consolidated Statement of Changes in Equity 88 Consolidated Statement of Cash Flows 89 Statement of Financial Position 91 Notes to Financial Statements 92 Properties Held for Investment 240 Properties Held for Development and/or Sale 242 Summary of Financial Information 248 1

3 Vancouver City

4 Dragon Bay

5 Corporate Information BOARD OF DIRECTORS Executive Directors Mr Shi Kancheng (alias Shi Zhongan) (Chairman and Chief Executive Officer) Mr Lou Yifei Ms Shen Tiaojuan Mr Zhang Jiangang Independent Non-executive Directors Professor Pei Ker Wei Dr Loke Yu (alias Loke Hoi Lam) Mr Zhang Huaqiao COMPANY SECRETARY Mr Lam Yau Yiu REGISTERED OFFICE Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands HEAD OFFICE IN THE PRC No. 996, Xiaoshao Road Xiaoshan District Hangzhou Zhejiang Province the PRC PRINCIPAL PLACE OF BUSINESS IN HONG KONG Room 4006, 40/F China Resources Building 26 Harbour Road Wanchai Hong Kong Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands Zhong An Real Estate Limited 2014 Annual Report

6 Corporate Information COMPANY S WEBSITE PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE Royal Bank of Canada Trust Company (Cayman) Limited 4th Floor, Royal Bank House 24 Shedden Road, George Town Grand Cayman KY Cayman Islands HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE Tricor Investor Services Limited Level 22, Hopewell Centre 183 Queen s Road East Wanchai Hong Kong PRINCIPAL BANKERS Agricultural Bank of China Bank of Communications China Construction Bank Corporation, Hong Kong Branch Heng Seng Bank Limited Industrial and Commercial Bank of China Ping An Bank LEGAL ADVISERS AS TO HONG KONG LAWS Chiu & Partners AUDITORS Ernst and Young Royal Bank of Canada Trust Company (Cayman) Limited 4th Floor, Royal Bank House 24 Shedden Road, George Town Grand Cayman KY Cayman Islands

7 International Office Centre

8 Hangzhou Qiandao Lake Run Zhou Resort Hotel

9 Chairman s Statement Shi Kancheng Dear shareholders, On behalf of Zhong An Real Estate Limited ( Zhong An or the Company ) and its subsidiaries (together the Group ), I am pleased to present the results of the Group for the year ended 31 December 2014 ( the year under review ). REVIEW OF RESULTS For the year ended 31 December 2014, the turnover of the Group was approximately RMB1.55 billion, representing a decrease of approximately 36% as compared with that of 2013; gross profit was approximately RMB391 million, representing a decrease of approximately 57% as compared with that of 2013; profit after tax was RMB402 million, a decrease of approximately 12% as compared with that of 2013; and basic earnings per share were RMB0.14. The board of directors of the Company ( the Board ) did not propose to declare a final dividend to the shareholders of the Company (2013: RMB1.8 cents per share) % % % Zhong An Real Estate Limited 2014 Annual Report

10 Chairman s Statement MARKET AND BUSINESS REVIEW During the first half of 2014, regulatory control remained the main theme of the PRC real estate market, the market was full of downturn atmosphere. In the second half of the year, numerous local governments started to abolish the regulatory control, and loosened home-purchase restrictions progressively. Later on, with the issue of the Notice on Further Improving Housing Financial Services by the China Banking Regulatory Commission and the interest rates reduction, market confidence was gradually recovered, and the sale volume of properties increased. The Group adhered to its prudent and stable business approach and maintained its focus on the Yangtze River Delta Region, timely adopting an operation and sales strategy which matched the market situation and launched products of high cost performance catering for end-users. For the year under review, the volume of contract sales was substantially the same as last year s under a fierce competitive environment For the year under review, two new residential projects were launched for sale (Jiarun Mansion and Chaoyang No. 8 high-rise apartment in Shushan Town) in Xiaoshan District, Hangzhou, Zhejiang Province. In 2014, the Group had twelve residential projects on sale located in seven cities and districts in the Yangtze River Delta Region and the overall sales result was basically in line with our expectation. For the year ended 31 December 2014, the Group recorded contracted sales of approximately RMB3.53 billion, which was substantially the same as compared with that of 2013, and contracted GFA sold of approximately 411,000 sq. m., representing a year-on-year increase of approximately 17%, with contracted average selling price of approximately RMB8,599 per sq. m., representing a yearon-year decrease of approximately 15% % 8, % 9

11 Chairman s Statement SPIN-OFF COMMERCIAL PROPERTIES, ESTABLISH A DIVERSIFIED BUSINESS COMBINATION Besides devoting in residential property development, the Group proceeded towards the development of commercial and investment properties in a steady progress as in the past, and spun-off the portion of commercial properties for inclusion beneath the flagship of, China New City Commercial Development Limited ( China New City ) after restructuring. China New City was successfully listed on the Stock Exchange of Hong Kong on 10 July China New City operated as an independent entity and it has brought in a professional management team to operate the commercial properties business, and developed urban complex to create value for cities as well as expanded distinctive property management and value-added services so as to build up a diversified business portfolio for enhancing the overall competitiveness as well as mitigating operational risks For the year under review, Holiday Inn of the Group in Xiaoshan, Hangzhou was in smooth operation with steady occupancy rate. Revenue from hotel operation was close to that of Currently, the Group has six high-end hotels under construction or in planning stage, including the two hotels managed under the Run Zhou brand in Huaibei, Anhui and Qiandao Lake, Hangzhou, as well as four other hotels to be managed by internationally renowned hotel operators, namely the Doubletree by Hilton in Yuyao, Ningbo, JW Marriott Suzhou in Jinjihu, Suzhou, Fairmount and Swissotel at Qianjiang Century Town in Hangzhou, which will be successively put into operation starting from late Meanwhile, the leasing of Highlong Plaza in Xiaoshan District, Hangzhou, the flagship project of the Group, was satisfactory for the year under review. The leasing rate for shopping centre and office buildings remained high, and revenue from leasing saw a slight increase compared to that of The Hidden Dragon Bay Project was completed in April There had been one full year s operation of the shopping mall and street shops. The overall leasing was good, leasing rate was increasing steadily, and began to contribute a stable cash flow for the Group. At present, the Group has four major investment properties under construction or planning. These include high-end shopping centres and grade A office buildings located in Yuyao of Ningbo, Jinjihu of Suzhou, Qianjiang Century Town of Hangzhou and the district centre of Xiaoshan District, Hangzhou, which will also be put into operation starting from JW Zhong An Real Estate Limited 2014 Annual Report

12 Chairman s Statement In 2014, subsequent to the advocation of the new urbanization development strategy by the government, the professional team of China New City led the Group into the land development market, which the Group considered to have huge growth potential. The Group cooperated with local governments to develop new towns and related infrastructures planning Besides, the Group also has engaged in developing overseas properties market, 11 townhouses will be developed in 2 phases in wealthy low-density residential area in Vancouver, Province of British Columbia, Canada. The development is expected to be completed by The site is located at prime location with about 20 minutes drive to downtown Vancouver City. It is expected that it can generate considerable return to the Group PRUDENT LAND ACQUISITION FOR REPLENISHING LAND BANK Adhering to the healthy financial policy, the Group persistently implements its prudent land replenishment strategy of acquiring high quality land which meets market demand at low cost at appropriate time, so as to optimize the structure of its land bank. On 25 March 2014, the Group acquired the land use right of a site in Shushan Town, Xiaoshan District, Hangzhou, Zhejiang Province for residential and commercial uses through open tender auction, at a total consideration of approximately RMB736 million. The land occupies a site area of approximately 46,703 sq. m. and a total gross floor area (GFA) of approximately 199,224 sq. m. (of which approximately 146,192 sq.m. is for residential and 53,032 sq.m. for commercial use). The average land cost is only approximately RMB3,696 per sq. m.. While bringing synergies to the Group s projects under construction in Hangzhou, the project enhances the Group s brand influence in the Yangtze River Delta Region ,703199, ,192 53,032 3,696 As of the date of this annual report, the Group had a land bank of approximately 6.61 million sq. m., which is scattered in nine cities and districts in the Yangtze River Delta Region. The land bank is expected to support its development in the next five years. The average land cost is approximately RMB1,051 per sq.m ,051 11

13 Chairman s Statement OUTLOOK AND DEVELOPMENT STRATEGY Looking forward to 2015, the Chinese economy will still face challenges with uncertainties in the global market, and the ongoing economic reforms and structural adjustments may hamper the growth momentum in the short term. It is expected that under appropriate regulatory control by the central government, the real estate market shall remain steady. The continued implementation of the new urbanization policy by the central government will provide room for continued growth of the real estate industry. Therefore, the demands for value-for-money and end-user s products with potential appreciation remain to persist. The Group will remain prudent in the near term and is optimistic in the long term, and will proactively seize market opportunities and adjust marketing and pricing strategies and product mix to maintain sustainable development of the Group and bring satisfactory return to our shareholders The Group will continue to promote its business model of acquiring land and selling products at a fair price; developing projects and collecting sales proceeds in quick process, and, through Zhong An, develop more quicksale products targeting end users and high value-added, low-density residential units in order to accelerate asset turnover. We will continue to fully leverage on our strong brand name and optimize marketing strategy with active marketing as the dominant mode for more rapid growth of sales. As regards its operational management, the Group will carry out internal reform and adjustment, implement a series of management policies, e.g. detailed planning management, hierarchical control and review at critical points, further improvements in the standardization of product, process and system, in order to enhance management and operational efficiency. At the same time, the Group will continue to steadily push forward the development of commercial and investment properties by China New City whose specialised management team will be in change of development of commercial properties, hotel management, leasing and management of investment properties and urbanization development that will lead to appropriate expansion in downstream services in real estate industry, thereby generating stable revenue and dispersing operational risks. 12 Zhong An Real Estate Limited 2014 Annual Report

14 Chairman s Statement As one of the main target regions for new urbanization and modern town development, the Yangtze River Delta Region will be set for building a world-class city cluster. A veteran developer in the Yangtze River Delta Region, Zhong An has accumulated extensive experience in the development of complex real estate projects in the region and has built up its own premium brand advantage. Therefore, the Group will continue its established development strategy of seeking investment opportunities in the affluent second and third-tier cities in the Yangtze River Delta Region and the Top 100 counties across the country, strengthen cooperation with its strategic partners to further expand its market share and maintain its competitive edge in the industry. The Group will continue to uphold a prudent financial policy. The spinoff of the commercial properties business, under China New City will expand the funding channels to support the development of commercial properties business. At the same time, the finance costs will be lowered and the debt structure will be optimized. These will maintain a stable and sufficient cash flow that can support the Group s development with ample funding and branding. By gradually building highly efficient investor relations management system, the Group can develop a long-lasting, interactive and favourable relation with the capital markets and the media, so as to enhance corporate transparency and corporate governance, and promote the understanding, recognition and support of the Group among the general public, thereby strengthening the shareholder base. Looking forward, the Group is committed to becoming one of the most competitive real estate developers in the Yangtze River Delta Region, as well as in China, and to building up a diversified and synergetic business and product portfolio, in order to maintain sustainable development, and maximize values and generate excellent return for our shareholders. ACKNOWLEDGEMENT On behalf of the Board, I would like to express sincere gratitude to the support and trust of our shareholders and business partners as well as the dedicated efforts of all our staff. Shi Kancheng Chairman The People s Republic of China, 24 March

15 Jade Mansion

16 Hidden Dragon Bay

17 Zhong An Times Square

18 Green Harbour

19 Ideal Bay

20 Management Discussion and Analysis RESULTS The audited consolidated revenue of the Group for 2014 was RMB1,550.1 million, representing a decrease of about 36.4% from that in The gross profit for 2014 was RMB390.5 million, representing a decrease of about 57.5% from that of The profit attributable to owners of the parent for 2014 was about RMB319.7 million, representing a decrease of about 24.0% from that in Net core loss (excluding fair value gains in investment properties, after tax) was RMB115.7 million whereas the net core profits (excluding fair value gains in investment properties, after tax) in 2013 was RMB220.2 million. The basic earnings per share was RMB0.14 (2013: RMB0.18). The Board did not propose to declare a final dividend for the year ended 31 December 2014 (2013: RMB1.8 cents per share). Industry Review In 2014, the real estate industry in China continued to be affected by the regulatory measures imposed by the central government. There were, however, signs of stabilizing, in the later part of the year, as the local governments started to gradually abolish the sale restriction and the People s Bank of China cut the interest rate. The property market seemed to improve and the confidence of the home buyers regained , % % % According to National Bureau of Statistics of China, the gross floor area (GFA) of residential properties sold in 2014 was recorded at about 1.21 billion sq. m., representing an increase of about 7.6% compared to that of 2013, which is lower than the increment of about 9.7% recorded in % % According to the portal site of ( ) in Hangzhou of Zhejiang Province, the GFA of residential properties sold in Hangzhou (including Xiaoshan and Yuhang Districts) was about 9.86 million sq. m., representing an increase of about 4.5% as compared to that of 2013, whereas the average selling price per sq. m. was RMB15,653, representing a decrease of about 8.6% as compared to that of According to Sina.com in Hefei ( the GFA of residential properties sold in Hefei of Anhui Province was about 9.30 million sq. m., representing a decrease of about 13.9% as compared to that of The average selling price per sq. m. was RMB7,755, representing an increase of about 11.0% as compared to that of According to the Bureau of Property Management of Huaibei, Anhui Province ( ), the GFA of residential properties sold in Huaibei of Anhui Province was about 1.76 million sq. m., representing a decrease of about 21.1% as compared to that of The average selling price per sq. m. was RMB5,262, representing a decrease of about 0.27% as compared to that of According to the portal site of ( ), the GFA of residential properties sold in Yuyao of Zhejiang Province was about 0.81 million sq. m., representing a decrease of about 1.2% as compared to that of The average selling price per sq. m. was RMB9,846, representing a decrease of about 19.29% as compared to that of ( % 15, % ( com.cn) % 7, % % 5, % ( % 9, % 19

21 Management Discussion and Analysis BUSINESS REVIEW Sales and earnings The GFA of properties sold and delivered by the Group in 2014 was about 137,653 sq. m. (2013: 263,987 sq. m.), representing a decrease of about 47.9% compared to that of The recognised average selling price per sq. m. achieved by the Group in 2014 was about RMB10,693, representing an increase of about 16.8% from RMB9,152 in the previous year. It is due to the fact that most of the recognised revenue was contributed by the sales of townhouses of Dragon Bay and Jade Mansion in Yuyao, Zhejiang Province with average selling price of RMB29,841 and 20,199 per sq. m., respectively in 2014 whereas that of 2013 was mainly contributed from the sales of serviced apartments of Hidden Dragon Bay in Hangzhou and residential apartments of Vancouver City in Huaibei with lower average selling prices of RMB8,659 and 4,729 per sq. m., respectively. During the year under review, the total recognised GFA sold for the major projects of the Group and the respective recognised revenue are as follows: , , % ,6939, % ,841 20, ,659 4,729 Recognised Recognised GFA revenue Projects sq. m. RMB million Hangzhou, Zhejiang Province Hidden Dragon Bay 8, Landscape Bay 19, Others # # 2, Yuyao, Zhejiang Province Dragon Bay 5, Jade Mansion 27, Hefei, Anhui Province Green Harbour 17, Huaibei, Anhui Province Vancouver City 56, Other * * 11.0 Total 137,653 1,472.0 # including: Landscape Garden, Guotai Garden, New White Horse Apartments, White Horse Noble Mansion and Yisheng Building Material Market. * Representing the sale of a plot of land of Amber Rise in Vancouver, Province of British Columbia, Canada. # * Amber Rise 20 Zhong An Real Estate Limited 2014 Annual Report

22 Management Discussion and Analysis The average cost of properties sold per sq. m. of the Group was about RMB7,939 in 2014, representing an increase of about 41.8% from about RMB5,597 in the previous year. It was due to the fact that most of the cost of properties sold was contributed from the sales of townhouses (Dragon Bay and Jade Mansion) with higher construction costs ,9395, % Progress of development on the major projects Hangzhou, Zhejiang Province Landscape Bay This is a residential project located on the south bank of Qiantang River, Xiaoshan District, Hangzhou, Zhejiang Province, which was completed in previous years, with a total GFA of about 300,012 sq. m.. The project includes island-style townhouses, high-rise apartments with river view, car park lots and clubhouse. The volume of sales of this project is within expectation. 300,012 Hidden Dragon Bay This is an integrated commercial complex in Wenyan Town, Xiaoshan District, Hangzhou, Zhejiang Province with a total GFA of about 241,695 sq. m.. The project includes low-rise luxurious leisure mansions for corporations, high-rise serviced apartments, a shopping mall, street shops and car park lots. The project was completed in April The volume of sales of this project is within expectation. 241, International Office Centre This is a large-scale integrated commercial project in Qianjiang Century Town (), Xiaoshan District, Hangzhou, Zhejiang Province with a total planned GFA of about 1,896,860 sq. m. in 3 phases, Phases A to C. Phase A of the International Office Centre includes two hotels, office buildings, a shopping mall, serviced apartments and underground car parking lots. The serviced apartments, a shopping mall and underground car parking lots of Plot A3 of Phase A, with a total GFA of about 328,367 sq. m., were completed in July As at 31 December 2014, the renovation works were in progress. Plots A1 and A2 of the International Office Centre are expected to be completed by December ,896,860 3A C A A3 328, A1 A

23 Management Discussion and Analysis White Horse Manor This is a residential project in Xiaoheshan, Yuhang District, Hangzhou, Zhejiang Province with a total GFA of about 243,497 sq. m.. It consists of high-rise residential buildings and low-density residential townhouses situated at a hilly terrain with beautiful scenery and green vegetation. The townhouse units are built with American architectural design and on the terrain with spacious view. The project is in proximity to local universities and Xixi Wetland. As at 31 December 2014, the construction was in progress. It is expected that the project will be completed in around October The result of the presale of the project during the year under review was within expectation. 243, Ideal Bay This is a residential project in Linping, Yuhang District, Hangzhou, Zhejiang Province with a total GFA of about 538,856 sq. m.. The project consists of townhouses in British architectural design and multi-storey apartment units. As at 31 December 2014, the construction was in progress. It is expected that the townhouse portion will be completed in around June 2015 whereas the high-rise residential portion will be completed in around early The presale of the project during the year under review was within expectation. 538, Chaoyang No. 8 8 This is a project with multi-storey residential apartments and commercial amenities in Shushan Town, Xiaoshan District, Hangzhou, Zhejiang Province and its total GFA is about 199,224 sq. m.. It is at the prime location with Hangzhou Metro Line No.2 terminal in the proximity. As at 31 December 2014, the construction is in progress. The project, as a whole, is expected to be completed in around May The presale was within expectation since its commencement from November , Hangzhou Qiandao Lake Run Zhou Resort Hotel This is a hotel project in Qiandaohu Town, Chunan County, Hangzhou, Zhejiang Province with a GFA of 46,580 sq. m.. This hotel will be built at the shore of Qiandao Lake with a beautiful lake view and natural habitat. As at 31 December 2014, the construction was in progress. It is expected that the project will be completed in around October , Zhong An Real Estate Limited 2014 Annual Report

24 Management Discussion and Analysis Yuyao, Zhejiang Province Dragon Bay This is a high-end low-density residential project in Yuyao, Zhejiang Province, which was completed in 2013, with a total GFA of 196,809 sq. m.. The project consists of French, European and Spanish-style low-rise residential buildings. The sale during the year under review was within expectation. 196, Jade Mansion This is a low-density residential project in Yuyao, Zhejiang Province with a total GFA of 292,807 sq. m.. The project consists of townhouses and residential apartments and it is next to the Dragon Bay. As at 31 December 2014, the construction of first phase of townhouse was completed and the second phase is in the planning stage. The construction of residential apartments will be completed in around June The presale of this project during the year under review was within expectation. 292, Zhong An Times Square This is a large-scale integrated commercial project in Yuyao, Zhejiang Province, with a total GFA of about 628,408 sq. m. in 2 phases. The project includes a hotel, offices, retail units, residential apartments, and underground car parking lots. It is next to the Dragon Bay and the Jade Mansion, which are projects spanning along a river. As at 31 December 2014, the construction of the project was in progress. It is expected to be completed in around November The presale of this project during the year under review was within expectation. 628, Zhong An Landscape Garden, Cixi This is a residential project with commercial portion which provides ancillary services to the local residents. The total GFA is about 494,138 sq. m.. It consists of multi-storey apartments and commercial block which will be constructed in phases. As at 31 December 2014, the first phase of apartments was under construction and it will be completed in around May The presale of the multi-storey apartments during the year under review was within expectation. 494,

25 Management Discussion and Analysis Hefei, Anhui Province Green Harbour This is a low-density residential project in Hefei, Anhui Province, which was completed in previous years. The presale of this project during the year under review was within expectation. Huaibei, Anhui Province Vancouver City This is a low density residential project in Huaibei, Anhui Province. The construction of Phase 3B to D with multi-storey apartment units and GFA of about 309,712 sq. m., was in progress as at 31 December The construction is expected to be completed by June The presale during the year under review was within expectation. The construction of a hotel, VC Hotel, with GFA of about 67,061 sq. m. in Phase 6D will be completed in the first half of B D 309, ,0616D 2016 Jiangsu Province Jia Run Square This is a large-scale integrated commercial project in Suzhou, Jiangsu Province and it is close to Jinji Lake. It consists of offices, shopping mall, serviced apartments and a hotel with a total GFA of about 251,391 sq. m.. The construction will be completed in around December , Overseas Amber Rise Amber Rise A project was set up in Vancouver, Province of British Columbia, Canada with a GFA of about 15,712 sq. m.. The site is located at wealthy district with about 20 minutes drive to downtown of Vancouver city. Totally 11 townhouses with individual swimming pools and deluxe design will be built in 2 phases. Construction will be commenced in April 2015 and it is expected that the entire project will be completed by end of , Zhong An Real Estate Limited 2014 Annual Report

26 Management Discussion and Analysis Contracted sales in As at 31 December 2014, the contracted GFA sold by the Group was about 410,848 sq. m. (2013: 351,952 sq. m.) with the amount of about RMB3,532.9 million (2013: RMB3,567.3 million). Set out below are the details of the contracted sales from the major projects: , ,952 3, ,567.3 Percentage of interest in the project attributable to the Group Contracted Contracted GFA sold amount (sq.m.) (RMB million) Hangzhou, Zhejiang Province Hidden Dragon Bay 12, % Ideal Bay 59, % Jiarun Mansion 8, % Landscape Bay 14, % Chaoyang No , %/65.8% White Horse Manor 76, % Others* * 2, ,722 2,104.2 Yuyao, Zhejiang Province Dragon Bay 3, % Jade Mansion 44, % Zhong An Times Square (Phase II) 12, /68.0% Zhong An Landscape Garden, Cixi 34, /65.8% 94, Hefei, Anhui Province Green Harbour 19, % Huaibei, Anhui Province Vancouver City 89, % Total 410,848 3,532.9 * Including: Landscape Garden, Guotai Garden, New White Horse Apartments, White Horse Noble Mansion and Yisheng Building Material Market * 25

27 Management Discussion and Analysis It is expected that the GFA available for sale from the projects to be completed in 2015 would be about 279,740 sq. m., the details of which are as follows: ,740 Percentage of interest in the project Expected GFA available attributable completion for sale to the Group date Usage (sq.m.) Hangzhou, Zhejiang Province Ideal Bay-townhouses June , % For sale White Horse Manor October ,497 90% For sale Total 279,740 Land bank As at 31 December 2014, the total GFA of the Group s land bank was about 6,611,428 sq. m., out of which the total unsold or undelivered GFA of the completed properties projects was about 594,523 sq. m.. As at 31 December 2014, the average acquisition cost of the Group s overall land bank was about RMB1,051 per sq. m ,611, , ,051 During the year under review, the GFA of properties of which the construction were newly commenced by the Group was about 392,274 sq. m.. 392,274 Other business development The Group strives to build up a diversified business portfolio so as to provide more stable income in the future and to mitigate operational risk. We will broaden the scope of property services which includes hotel operation, leasing, property management services, nursery stock and agricultural plantation, in order to extend the downstream services of our property development business and to maintain a steady and solid operation of our Group. 26 Zhong An Real Estate Limited 2014 Annual Report

28 Management Discussion and Analysis Hotel operation Holiday Inn Xiaoshan Hangzhou, a hotel of the Group, is located next to the Highlong Plaza in Xiaoshan District, Hangzhou, Zhejiang Province. It is managed by Holiday Inn (China) Co., Limited, a well-known international hotel brand within the InterContinental Hotels Group, and recorded a revenue of about RMB47.6 million for 2014, representing a decrease of about 14.7% compared to a revenue of about RMB55.8 million recorded in The occupancy rate was about 46.6% (2013: 49.8%) % 46.6% % The Group is planning to build a hotel within the large-scale commercial residential complex at Zhong An Times Square (Phase II) in Yuyao. The construction of the hotel was in progress as at 31 December The hotel will be managed by Hilton, an internationally-renowned hotel operator, and it is expected to commence operation in The Group has also had 2 hotels under construction as at 31 December They are Hangzhou Qiandao Lake Run Zhou Resort Hotel and VC Hotel which will be managed by the Group under its own Run Zhou brand and are expected to be completed in October 2015 and the first half of 2016, respectively. The operation of Hangzhou Qiandao Lake Run Zhou Resort Hotel and VC Hotel will expected to commence in the fourth quarter of 2015 and the second half of 2016, respectively The Group is also planning to build a hotel at Jia Run Square, Suzhou, Jiangsu Province. It will be managed by an affiliate of Marriott International, Inc.. The construction was in progress as at 31 December 2014 and is expected to be completed in around December The operation will commence in These new hotels above will, upon their commencement of operation, create a new income stream to the Group. 27

29 Management Discussion and Analysis Leasing The leasing revenue for 2014 was about RMB93.1 million, representing an increase of about 11.2% compared to RMB83.7 million in % Currently, Highlong Plaza provides the main source of leasing income. This plaza consists of office buildings, a shopping centre, a hotel, serviced apartments and underground car parking lots. The leasing rate of the shopping centre is about 95.2% (2013: 87.1%) and that of office buildings is about 86.0% (2013: 84.8%). Overall, a general increase was recorded as compared to those of % %86.0% % 2013 Upon the completion of the construction of Hidden Dragon Bay in April 2013, the retail units with GFA of about 24,328 sq. m. were for lease subsequently. The leasing rate was about 77.1% in 2014 (2013: 32.5%). A full year rental income in 2014 is the main factor that contributed to the increase in the property leasing income of the year under review , % % 2014 The Group has been launching various festival activities and promotion events to attract and boost customer flow. This has created a positive impact on tenants businesses and enhanced the overall rental value of the properties leased by the Group. The serviced apartments at Highlong Plaza were sublet to and managed by independent operators, Ningbo Sanbi Hotel and Hangzhou Youbang Hotel, during the year under review. The operation was highly satisfactory. Other investment properties also contributed to the leasing income of the Group. Property management The Group provides quality property management services to the communities located in properties developed by the Group and other developers. The services are further enhanced by inclusion of the provision of travel tours, housekeeping and nanny services etc.. This will further facilitate the Group in the corporate brand management. 28 Zhong An Real Estate Limited 2014 Annual Report

30 Management Discussion and Analysis Other services The Group is also developing nursery stock plantation for agricultural purposes and managing organic plantations for producing agricultural products. The customers are mainly the home-owners of the properties to which property management services are provided by the Group. Such value-added downstream services will form an integral part of the Group s property development and management businesses. Accordingly, the scope of services of the Group will be widened and the Group s corporate branding can be enhanced. Awards and recognitions The Group had received the following awards and accolades from the PRC government and recognized authorities during the year under review: Awarded by Awards Awarded parties/projects China Real Estate Research Association, China Real Estate Association, China Real Estate Appraisal Center China Real Estate Research Association, China Real Estate Association, China Real Estate Appraisal Center Xiaoshan 4th Internet Living Expo Committee, xsnet Housing Industrialization Promotion Center, Ministry of Housing and Urban-Rural Development Fang.com Keyhouse.com.cn HOUSE365.com 365 Top 100 Real Estate Listed Companies in China with Most Comprehensive Strengths Top 5 Most Innovative Real Estate Listed Companies in China Property with the most comprehensive ancillary facilities China Ecological-livable Supreme Estate 2014 Highest Cost Performance Property in China (Hangzhou) 2014 Hangzhou Property Market Annual Award-Most Investable Commercial Property 2015 Most Investable Estate 2015 Zhong An Real Estate Limited Zhong An Real Estate Limited Chaoyang No. 8 8 Phase 3 North, Vancouver City Zhongan Ideal Bay Jiarun Mansion Jiarun Mansion 29

31 Management Discussion and Analysis Human resources As at 31 December 2014, the Group employed a total of 2,225 staff (2013: 1,868). In 2014, the staff cost of the Group was about RMB134.3 million (2013: about RMB144.7 million), representing a decrease of about 7.2%. The decrease was mainly due to decrease in amortisation of share option expenses of about RMB22 million , , % 22 The employees remuneration policy was determined by reference to factors such as remuneration information in respect of the local market, the overall remuneration standard in the industry, inflation level, corporate operating efficiency and performance of the employees. The Group conducts performance appraisal on a yearly basis for its employees, the results of which are taken into account of in the annual salary review and promotion assessment. The Group s employees are considered for the entitlement of annual discretionary bonus according to certain performance conditions and appraisal results. To attract talented people and solidify the management, eligible participants (including employees of the Group) may be granted options to subscribe for shares in the Company pursuant to the share option scheme adopted by the Company. The Group also provides continuous learning and training programs to its employees to enhance their skills and knowledge, so as to maintain their competitiveness. Dividend policy The Board determines the dividend policy of the Company according to financial condition, operating results, capital requirements, shareholders equity, contractual restraint and other factors considered relevant by the Board. 30 Zhong An Real Estate Limited 2014 Annual Report

32 Management Discussion and Analysis FINANCIAL ANALYSIS Gross profit For the year ended 31 December 2014, the Group recorded audited gross profit of about RMB390.5 million, representing a decrease of about 57.5% compared to that of about RMB918.3 million in the previous year. The drop is due to the reduction in recognised revenue from the properties sold and delivered and the selling prices of townhouses of Dragon Bay and Jade Mansion were less than anticipated due to market causing a reduction in gross profit margin due to the market reasons in the year under review % Other income Other income increased by about 38.9% to about RMB43.6 million in 2014 from about RMB31.4 million in The increase was primarily due to increase in interest income earned from joint venture % Selling and distribution costs The selling and distribution expenses increased by about 6.0% to about RMB135.5 million in 2014 from about RMB127.8 million in This increase was primarily due to the increase in the marketing expenses spent for the presales of launched projects to counter greater competition in unfavourable market condition in The contracted sales of 2014 was achieved to similar level of that of % Administrative expenses The administrative expenses increased by about 1.8% to about RMB304.1 million in 2014 from about RMB298.6 million in This was primarily due to the increase in the number of staff and the one-off expenses incurred in connection with the listing of a subsidiary during the year under review % Other expenses The other expenses increased by about 118.8% to about RMB7.0 million in 2014 from about RMB3.2 million in 2013 which was due to the increase in charitable donation made during the year under review %

33 Management Discussion and Analysis Fair value gain upon transfer to investment properties The fair value gain increased by about 156.3% to about RMB656.8 million in 2014 from about RMB256.3 million in This was due to the valuation of the completed properties of International Office Centre A3 with GFA of 68,550 sq. m. which were classified as investment properties in 2014 whereas the valuation of the investment properties classified in 2013 and comprising at Hidden Dragon Bay with only 24,328 sq. m. is not of comparable scale % ,550 A ,328 Finance costs The finance costs increased by about 260.0% to about RMB37.8 million in 2014 from about RMB10.5 million in This increase was primarily due to increase in bank loans in % Income tax expenses The income tax expenses decreased by about 35.1% to about RMB237.7 million in 2014 from about RMB366.2 million in The decrease was due to the decrease in assessable profits in 2014 arising mainly from the decrease in recognised revenue of property business % Capital structure As at 31 December 2014, the Group had aggregate cash and cash equivalents and restricted cash of about RMB1,589.4 million (2013: RMB1,632.4 million). It was almost the same level of that in The current ratio was 0.94 (2013: 1.33) , , As at 31 December 2014, the bank loans and other borrowings of the Group repayable within one year and after one year were about RMB2,045.6 million and RMB4,920.6 million respectively (2013: RMB835.9 million and RMB4,620.4 million respectively). The increase was mainly due to increase in bank borrowings for the project developments in the year under review , , ,620.4 The consolidated interest expenses in 2014 amounted to about RMB37.8 million (2013: RMB10.5 million) in total. Interests in the amount of about RMB532.7 million (2013: RMB473.1 million) were capitalized during the year under review. Interest coverage (including amount of interests capitalized) was 0.02 times (2013: 1.20 times). As at 31 December 2014, the ratio of total liabilities to total assets of the Group was 0.66 (2013: 0.64) Zhong An Real Estate Limited 2014 Annual Report

34 Management Discussion and Analysis The ratio of bank loans and other borrowings to total assets was 0.34 (2013: 0.32). The net gearing ratio of the Group (defined as net debt divided by total equity) was 0.77 (2013: 0.62) (net debt is defined as total debt less cash and cash equivalent, and total restricted cash) Capital commitments As at 31 December 2014, the capital commitments of the Group were about RMB2,071.4 million (2013: RMB1,723.7 million), which were mainly capital commitments for construction costs. It is expected that the Group will finance such commitments from its own funds and external financing (such as bank loans) , ,723.7 Guarantees and contingent liabilities As at 31 December 2014, the contingent liabilities of the Group was about RMB2,520.8 million (2013: RMB2,094.3 million), which were mainly the guarantee given by the Group in favour of certain banks for the grant of mortgage loans to buyers of the Group s properties , ,094.3 Pledge of assets As at 31 December 2014, investment properties of the Group with carrying value of about RMB2,094.0 million (2013: RMB1,576.6 million), properties under development of about RMB2,658.7 million (2013: RMB2,134.9 million), completed properties of about RMB2,160.1 million (2013: 1,841.1 million) and property and equipment of about RMB153.7 million (2013: RMB31.5 million) were pledged to secure the banking facilities of the Group. There were time deposits of about RMB320.0 million being pledged as at 31 December 2014 (2013: million) , , , , , , Foreign exchange risk As the sales, purchase and bank borrowings of the Group in 2014 and 2013 were made mainly in Renminbi, the foreign exchange risk exposed by the Group was relatively minor. The Group did not use foreign exchange hedging instruments to hedge foreign exchange risks in 2014 and

35 Management Discussion and Analysis Interest rate risks The interest rates for certain portion of the Group s loans were floating. Upward fluctuations in interest rates will increase the interest cost of new loans and existing loans. The Group currently does not use derivative instruments to hedge its interest rate risks. Subsequent events There was no matter occurred that bears significant effect to the Group between the year end date and the date of this report. Prospects With the central government s advocation of urbanization and the steady economic growth, the demand for value-for-money and end-use residential properties is expected to remain strong and solid. With the relaxation of the regulatory measures on the real estate market, coupled with the recent interest rate cut imposed by the People s Bank of China amid slower economic growth, it is expected that there will be a stable real estate market in In line with the prudent approach adopted for years in acquiring land for development, the Group will continue to acquire land to develop more projects which will be sold at a fair price and lead to quick cash inflow. By doing so, it is expected that a quick asset turnover can be achieved gradually. In addition, the Group will continue to maintain sufficient cash flow and to achieve relative low finance cost through enhancing the financing structure of the Group. The Group will continue to focus on property development in cities, particularly, second-and third tier-cities with relatively high GDP per capita in the Yangtze River Delta. Together with the Group s quality property management and other value-added services to the communities of the properties developed by the Group, corporate branding will therefore be enhanced further. 34 Zhong An Real Estate Limited 2014 Annual Report

36 Management Discussion and Analysis Following the successful implementation by the Company of the spin-off of the commercial property section which was listed on the Stock Exchange on 10 July 2014, the Group has established two groups of companies with more defined business focus in residential and commercial properties development, respectively. This will enhance their respective brandings and provide investors and the public with greater investment focus for each group Eventually, the Group will achieve a more fast-paced growth in sales that leads to greater market share in the Yangtze River Delta. 35

37 Jia Run Square

38 White Horse Manor

39 Zhong An Landscape Garden, Cixi

40 Corporate Governance Report The board of directors (the Board ) of the Company is committed to maintaining good corporate governance in safeguarding the interests of the shareholders of the Company (the Shareholders ) and enhancing Shareholders value. (A) CORPORATE GOVERNANCE PRACTICES The Company has adopted, in so far as they are applicable, the code provisions (the Code Provisions ) of the Corporate Governance Code (the Code ) and certain recommended best practices contained in Appendix 14 to the Rules Governing the Listing of Securities (the Listing Rules ) on The Stock Exchange of Hong Kong Limited (the Stock Exchange ). (A) 14 During the year ended 31 December 2014 (the Year ), the Board has applied the principles of the Code Provisions contained in, and complied with, the Code with the exception of the deviation from the Code Provision A.2.1 (as the roles of the Chairman and the Chief Executive Officer of the Company were not separate and were both performed by Mr Shi Kancheng) A.2.1 The Board believes that the performance of the roles of the chairman and the chief executive officer by the same person provides the Company with consistent leadership and enables the Company to formulate its business strategies and implement its business plans and decisions efficiently. The Board will review the management structure of the Group from time to time and will adopt appropriate measures as may be desirable for future development of the operating activities or business of the Group. 39

41 Corporate Governance Report (B) DIRECTORS SECURITIES TRANSACTIONS The Company has adopted a code of conduct regarding securities transactions by directors of the Company (the Directors ) on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules (the Model Code ). (B) 10 Following specific enquiries by the Company, all Directors have confirmed with the Company that they have complied with the required standard set out in the Model Code and the Company s code of conduct regarding Directors securities transactions during the Year. (C) BOARD OF DIRECTORS The Directors during the Year were as follows: (C) Executive Directors Mr Shi Kancheng (alias Shi Zhongan) (Chairman and Chief Executive Officer) Mr Lou Yifei Ms Shen Tiaojuan (Re-elected on 19 May 2014) Mr Zhang Jiangang (Re-elected on 19 May 2014) Independent non-executive Directors Professor Pei Ker Wei (Re-elected on 19 May 2014) Dr Loke Yu (with professional qualification in accordance with Rule 3.10(2) of the Listing Rules) Mr Zhang Huaqiao (2) During the Year, the Board has at all times met the requirements of rules 3.10(1) and 3.10(2) of the Listing Rules relating to the appointment of at least three independent non-executive Directors with at least one independent non-executive Director possessing appropriate professional qualifications, or accounting or related financial management expertise. 3.10(1) 3.10(2) 40 Zhong An Real Estate Limited 2014 Annual Report