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1 Annual Report 2008 Stock Code: 0337

2 Fresh Thinking Quality Living SPG Land (Holdings) Limited ( SPG Land or the Group ): Hong Kong Stock Code: 337) is a reputable property developer that is principally engaged in the development of quality residential and hotel properties, headquartered in Shanghai. Since its incorporation, the Group has successfully developed three exemplar large-scale trophy projects in Shanghai: namely Cambridge Forest Newtown, Cambridge Waters and Cambridge Watertown (Oriental Garden), and established its reputable brand name. Since its listing in October 2006, SPG Land has strategically achieved in expanding its business to the cities in Yangtze River Delta; including Wuxi, Changshu, and Suzhou, as well as some emerging and developing cities, such as Huangshan, Kunming and Haikou. With our unique residential design, exquisite living environment and innovative architectural style and outstanding sales performance, we were awarded Shanghai Top Ten Foreign Property Developers in 18 years. Since our listing in the Main Board of The Hong Kong Stock Exchange, our profile in the international capital market has gradually enhanced. The Group was selected as a constituent stock of the 200-Stock Hang Seng Composite Index Series and Hang Seng Freefloat Index Series in March 2007, and obtained the renowned status as the Top 100 Property Developers in China in the same year. The sustained rapid growth of the PRC economy has accelerated its urbanization progress. With the increase in the disposal income of the urban population, in particular the middle-to-high income sector, the Group is committed to providing high quality products and distinctive services. Hence, the Group works with world renowned design teams for the development of its projects. Moreover, we adopt a prudent and selective approach in enlarging the scale of our quality land bank. Our management firmly believes that our focus on quality of products and selecting sites with growing potential are conductive to the healthy and sustainable development of the Group in the long run. To facilitate our business diversification and to enhance recurring income, besides the excellent track record in property development, the Group has also actively co-operated with leading hotel management groups and has achieved promising outcome. Currently, the hotel projects of the Group include the investment and international development of Peninsula Hotel on the Bund in Shanghai; Shanghai Cambridge Holiday Inn; and the Crowne Plaza Resort Hotel in the world-renowned scenic area of Huangshan. With regard to the development of the hotel business of the Group, all the above projects will benefit from the rapid development of tourism industry and 2010 World Expo in Shanghai. With the increase in recurrent income from hotel operations and investment properties, it will strengthen the business foundation of the development of SPG Land in the long run. Fresh Thinking, Quality Living is the corporate vision of SPG Land. With our international and professional background, SPG Land stands out itself from the China s real estate market. We believe that, with our professional management, superb product quality and prudent financial operation, we will be able to devote ourselves fully to building up the better future for cities in China, creating a harmonized and humane society whole-heartedly, and at the same time will maximise the returns to our stockholders and investors! 337 :

3 Contents 2 Financial Highlights 4 Key Events of the Year 5 Awards and Accolades 10 Chairman s Statement 14 Chief Executive s Review 22 Property Projects Portfolio 32 Management Discussion and Analysis 46 Corporate Governance Report 76 Directors and Senior Management Profiles 82 Report of the Board of Directors 105 Report of the Auditors 107 Consolidated Income Statement 108 Consolidated Balance Sheet and Company Balance Sheet 110 Consolidated Statement of Changes in Equity 111 Consolidated Statement of Cash Flows 113 Notes to the Consolidated Financial Statements 222 Summary of Consolidated Financial Information

4 Financial Highlights Results Highlights For the year ended 31 December RMB Million RMB Million Change (Restated) Revenue 1,395 1,715-19% Gross Profit % Profit from Operating Activities % Net Profit % Attributable to: Equity Holders of the Company % Minority Interests % Earnings per Share (RMB) Basic % Diluted % 2 SPG Land (Holdings) Limited // Annual Report 2008

5 Financial Highlights 2008 Revenue Analysis RMB Million RMB Million Change Sales of Property 1, , % Lease of Property % Property Management & Others % Total 1, , % As at 31 December RMB Million RMB Million Change (Restated) Total Assets 9, , % Total Liabilities 5, , % Total Equity 3, , % 2008 REVENUE ANALYSIS // 3

6 Key Events of the Year 2008 Acquired a project company in Haikou, Hainan Province with GFA of approximately 252,759 sq.m. in January ,759 Further acquired development land in Huangshan, Taiping Lake in June, project s overall site area reached 2,280,000 sq.m., aggregate planned GFA increased to 1,140,000 sq.m. 2,280,000 1,140,000 Signed MOU with Frasers Hospitality for the management of its Fraser Suites in Suzhou project in November Commenced the construction of Wuxi Xishuidong in December, making the renowned world-class city project brand name 4 SPG Land (Holdings) Limited // Annual Report 2008

7 Awards and Accolades 2008 SPG Land was awarded the Most Influential Brand Enterprise by SouFun.com 2008 Tiffany (Cambridge Waters Phase III) was awarded the Landmark Property Project by SouFun.com Oriental Garden (Cambridge Watertown) was awarded the Distinguished Villas in Yangtze River Delta by SouFun.com Oriental Garden (Cambridge Watertown) was awarded the Heroic Villas by Shanghai Loushi of Shanghai Real Estate Trading Center Recognised as one of the Top 100 Property Developers in China in SPG Land (Holdings) Limited was recognized as China s Brand Real Estate Enterprise Cambridge Watertown was recognized as a Top Twenty Classic Real Estate Developments in China 20 SPG Land was recognized as one of the Top Ten Real Estate Developers in Shanghai in Oriental Garden (Cambridge Watertown) was recognized as one of the Top Ten Best Living Property of China Municipal Classic Property Index System Sample Project Kunming SPG Land Grand City won Residential Housing Classic Award 2007 China Real Estate Golden Brick Award 2007 Kunming SPG Land Grand City won Show Flat Award at the 90 m 2 Housing Unit Creative Design Competition in Kunming 90m 2 // 5

8 Awards and Accolades 2006 National Trustworthy Property Developer in 2006 by the China Property Trustworthiness Research Centre Star Property Developer by four major Chinese media (Xinmin Wanbao, Wen Wei Pao, Beijing Wanbao, Dongfang Zaobao) 2006 Cambridge Watertown accredited BusinessWeek Architectural Record China Award and Tsingpu Region Model Project and The Best Community for the White Collar in Shanghai awards, by four major Chinese media (Xinmin Wanbao, Wen Wei Pao, Beijing Wanbao, Dongfang Zaobao) Shanghai New Independence House Property Management Co., Ltd. was given Shanghai Best Estate Property Management Award Shanghai New Independence House Property Management Co., Ltd. was awarded as the First Class Property Management Enterprise Award Shanghai New Independence House Property Management Co., Ltd. passed the ISO14001:2004, OHSAS18001:1999 Three-In-One Management System ISO14001:2004, OHSAS18001: SPG Land was recognized as one of the Top 10 Foreign Property Developers in Shanghai in 18 Years Accredited the Top Bank Credit Rating Enterprise in Shanghai: AAA AAA 6 SPG Land (Holdings) Limited // Annual Report 2008

9 Awards and Accolades 2004 Cambridge Watertown was recognized as Innovative Demonstration Project as Champion of New Chinese Resident 2004 Cambridge Forest Newtown was recognized as First Class Honour of Real Estate Developer 2003 Cambridge Forest Newtown received Shanghai Top Grade Villa Development Model and Best Potential Residence Award 2003 Cambridge Waters awarded China Residence Innovation Award Shanghai New Independence House Property Management Co., Ltd. passed the ISO9001:2000 Management System ISO9001: Cambridge Forest Newtown received Gold Awards in National Landscape and Environment Design Match Cambridge Forest Newtown received Most Stylish Residence of New Century Award, Shanghai s 10 Most Classic Urban Residence Award, and China s 10 Most Classic Residence Award Cambridge Forest Newtown received 2000 China House Design Award and Shanghai House Design Award by the Ministry of Construction 2000 // 7

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12 Chairman s Statement Mr. WANG Weixian Chairman 10 SPG Land (Holdings) Limited // Annual Report 2008

13 Chairman s Statement 2008 was a year of historical significance. The global financial system underwent drastic changes and almost all countries in the world faced tough economic challenges. China was no exception, and the country s property sector was fraught with difficulties. The sluggishness facing the sector is also a major challenge to SPG Land (Holdings) Limited Company ( SPG Land or the Group ). Fortunately, as it has been proved, the Group managed to maintain steady development and achieve satisfactory results through a range of effective measures which has been using all along, including focusing on developing and selling high quality properties, refraining from snapping up land sites at unreasonably high prices, adhering to a prudent financial approach, and maintaining a financial foundation with healthy cash flow. The trembling macro-economic environment and the numerous market challenges were among a variety of external factors that led to sales slowdown of the Group as compared with the previous year. During the year under review, we made an effort to seize opportunities brought about by market changes through adjusting selling prices of some projects reasonably, optimizing product structure and design, and adopting flexible sales strategies. With our experience in developing large-scale projects in Shanghai over the last decade, the Group continues to keep pace with market trends and accurately grasp consumer demand with a global vision. In addition, we have emphasized operational strategy to strengthen cost control measures, enhance operation efficiency and safeguard our unique competitive strengths. Apart from adjustment of project development and sales plans, SPG Land also upheld the development strategy of Headquartered in Shanghai, Establishing ourselves in Yangtze River Delta, Embarking on core cities in various economic zones and successfully expanded our business operations from Shanghai to the economically developed regions in the Yangtze Delta region, provincial cities, and the economic hubs in the southwest. These areas cover Huangshan, Wuxi, Changshu, Suzhou, Kunming and Haikou. During the year, SPG Land focused on developing high-quality and well-designed property // 11

14 Chairman s Statement projects. We also chose with care a broad range of cities with high growth potential to develop our business so as to diversify business risks, stabilize income and solidify the Group s financial position. During the year under review, SPG Land successfully transformed itself from purely residential property developer to comprehensive urban developer. For example, we have developed the Peninsula on the Bund, Wuxi Xishuidong and Suzhou Global 188. To keep with the growing demand for high quality properties in emerging areas, we have tied up with top-notched design teams to develop international comprehensive projects comprising hotels, office buildings, entertainment and shopping centers, and high-end serviced apartments. In the meantime, people s income level is constantly on the rise thanks to China s 30 years of economic reform, SPG Land has also started developing travel and leisure resorts, including the Huangshan Taiping Lake project and the Haikou project, which will effectively broaden the Group s sources of income. To promote business diversification and to generate more recurrent income, the Group has collaborated with internationally renowned hotel management groups in recent years and has achieved remarkable results in hotel development and management. At present, the Group s hotel portfolio under development includes the Peninsula Hotel on the Bund, Shanghai Cambridge Holiday Inn, Crowne Plaza in Huangshan, a world-famous sight-seeing destination, which is now under planning. We expect the hotel projects to be benefited from China s rapidly growing tourism sector as well as the Shanghai Expo in SPG Land can build a stronger revenue base from the recurrent income generated by the upcoming hotels and investment properties to grow on a healthier and more stable track. In 2009, with the global economy outlook remains uncertain, China s property market is anticipated to be volatile. Nonetheless, the Group firmly believes that government s various measures to stimulate the economy will continue to insert positive impacts on the sector. As a pillar industry supporting the national economy, the property industry is set to gradually rebound from the bottom. To promote steady, healthy and reasonable development of the property market, the central government adopted a series of measures to support the property sector in the fourth quarter last year. It also relaxed restrictions on financial loans and removed some constraints on certain type of property investment, including relaxing the mortgage policy for the second-home. All such measures have helped to mitigate the negative impact of the financial tsunami on the industry and also drive up demand for real estates SPG Land (Holdings) Limited // Annual Report 2008

15 Chairman s Statement Experiencing a year of drastic changes, SPG has become more sophisticated and weathered in identifying market trends, grasping the development pace, managing financial resources and implementing development strategies. At present, SPG Land has a land bank measuring approximately 3.47 million sq. m. and about 10 projects under development. We believe this excellent asset portfolio will enable us to seize market opportunities effectively and further enhance the Group s core competitive strengths As the living standard is improving, an increasing number of people are pursuing high quality properties and better lifestyle. This has opened up a huge potential for our business growth and we remain cautiously optimistic about the long-term prospect of China s property market. The Group has strategically and successfully diversified into some sophisticated and emerging markets. Three hotels under development are set to open one by one from late 2009 to early 2010, thus helping the Group to gradually diversify its business scope. Fresh Thinking, Quality Living has always been SPG Land s corporate vision. The Group s international background and professional attitude make us stand out. Leveraging on our professional development visions, excellent product quality and stable financial operation, SPG Land will fully devote to the urbanization process in China. We will also make continuous efforts to help create a more pleasant and harmonious society. On behalf of the Board of Directors, I would like to thank all shareholders, investors and business partners for their trust and support for the Group. We will continue to endeavor to build an even more solid business foundation for SPG Land and strive to create maximum returns for our shareholders. SPG Land (Holdings) Limited Chairman Wang Weixian Hong Kong, 23 April 2009 // 13

16 Chief Executive s Review Mr. Tse Sai Tung, Stones Group Managing Director & CEO 14 SPG Land (Holdings) Limited // Annual Report 2008

17 Chief Executive s Review It is my pleasure to report to shareholders on the efforts and progress the Group made during the 2008 financial year. In an operating environment that has become more challenging as the onset of credit crunch has thrown global economies into turmoil, the Group managed to deliver a solid result for the year ended 31 December The management has been working diligently and prudently to plan and execute our projects to accommodate the rapidly changing and highly competitive environment, while still leveraging opportunities for growth. During the year under review, SPG Land (Holdings) Limited (the Company ) and together with its subsidiaries (collectively the Group ) achieved a total revenue of approximately RMB1,395 million. Net profit of the Group for the year was approximately RMB188 million, declined by about 65% mainly because of the weaker macro environment, the sales slow-down, decrease in price levels and the absence of a one-off revaluation gain as recorded in the previous year. In return for our shareholders long-running support and trust, the Board of Directors recommends payment of final dividend of RMB4.97 cents per share. OPERATIONAL REVIEW 2008 was a year that posed a real test on the overall property industry in China as well as the Group s capability to tailor its strategies in response to the drastically changing operational landscape. The Central Government made a U-turn in policy directions toward the industry in 4Q2008, from a series of heavy-handed austerity measures to one-by-one supporting policy measures and aggressive rate cuts. Potential home buyers generally adopt a wait-and-see attitude as a result of gloomy economic outlook and high uncertainties. The credit and investment sentiment experienced a serious downturn, which will likely have repercussions for the next couple of years % 4.97 // 15

18 Chief Executive s Review Maintaining a firm ground for the Group s financial and operational soundness is emerged as an overriding priority in light of the challenges. To this end, the Group streamlined our operation to increase the cost effectiveness and organizational efficiencies. We have been able to keep our property sales at a reasonable pace, albeit slower than that in the previous euphoric periods. This was in turn translated into an ongoing steady stream of positive cash flow for the Group, enabling us stay well afloat in a consolidating environment. Sales Performance The Group focuses on developing high-quality and well-designed projects to target right customer segments, which has been materialized into a resilient sales performance despite the rugged industry environment. In Shanghai, the Group s home city, our wellknown Cambridge series of suburban, large-scale and multi-phase projects achieved steady contracted sales as a result of our sensible pricing strategies and innovative promotional programs. In addition, Cambridge Waters and Cambridge Watertown gained notable market popularity Cambridge Waters was awarded as the Flagship Project and Cambridge Watertown as the Featured Villa in Yangtze River Delta / Heroic villa by publications and media; Cambridge Watertown was among Top 3 best-selling villa projects in Shanghai. Sales of Cambridge Waters, Cambridge Forest Newtown and Cambridge Watertown remained the major revenue contributors in The Group s cross-district investments in other upcoming cities also began to yield harvests. Metropolitan in Kunming and Florea in Haikou started to contribute to the Group s revenues in 2008, laying a solid foundation for the Group s future expansion into other regions in China. 16 SPG Land (Holdings) Limited // Annual Report 2008

19 Chief Executive s Review Specifically, the Group s total contracted sales in 2008 amounted to RMB1,830 million, or GFA of approximately 187,099 sq.m. The Group s product quality and established brand name allow our projects to continue to enjoy pricing premiums over other projects in the same league. Project Development Progress During the period under view, the Group made a number of landmark achievements that boasted well with our highly flexible strategies in the challenging environment. We actively pursue transformation of our businesses from pure residential properties to mixed-use projects covering a wider geographic reach. During the year, the Group completed and delivered 115,134 sq.m. to our customers , ,134 Projects in Yangzhi River Delta Area: Peninsula on the Bund, Shanghai The crown-jewel project is a combination of high-end luxury residences, top-of-the-line hotel and an upscale shopping arcade, strategically located at the riverfront of the historic Bund, Shanghai. It occupies a site area of 13,898 sq.m. with total GFA of 92,520 sq.m. 13,898 92,520 This signature development is expected to be completed by the end of 2009, with the anticipated soft opening of Peninsula Hotel and shopping arcade in 4Q09. The Peninsula Residences will also be available for sales upon project completion. // 17

20 Chief Executive s Review Three Cambridge projects in Shanghai Thanks to its well-established reputation and strong track record, 3 residential projects under Cambridge brand are progressing well with a total GFA of 84,077 sq.m. completed and delivered to customers in These include Cambridge Forest Newtown with a GFA of about 9,149 sq.m., Cambridge Waters with a GFA of about 25,102 sq.m., and Cambridge Watertown with a GFA of about 49,826 sq.m. 84,077 9,149 25,102 49,826 The development of Shanghai Cambridge Holiday Inn was on track during FY2008 but with the target completion date extended to suit market environment. The apartment portion of the project is expected to start presale in 4Q09. Xishuidong, Wuxi Located at the heart of Wuxi downtown and next to the ancient canal, Xishuidong project has a site area of approximately 248,800 sq.m. and a total planned GFA of approximately 695,400 sq.m. The project is currently the largest city-core development of Wuxi, and will be designed as an integrated development comprising residential and commercial components. The architecture of the project will blend the flairs of east and west, providing the project at the industrial origin of China with a modern sense. The construction commenced last December and the presale will be launched in late , ,400 Global 188, Suzhou Suzhou Global 188 is a complex of high-graded office building, commercial spaces and serviced apartments. The project occupies a total site area of approximately 14,896 sq.m., with a total planned GFA of approximately 149,308 sq.m. The development is regarded as a hallmark project in Suzhou Industrial Park for its unmatched height and superior quality and design. The Group has also cooperated with Frasers Group of Singapore for the management of the serviced apartments of Suzhou project. The construction proceeded smoothly in 2008, and the presale will be launched in , , SPG Land (Holdings) Limited // Annual Report 2008

21 Chief Executive s Review Yushan La-Casa, Changshu Consisting of town houses, duplexes and low-rise apartments, the La-Casa has a site area of about 119,769 sq.m. and a total GFA of about 86,728 sq.m. The first phase of the project is well under construction in 2008 and will be ready for presale in mid ,769 86,728 Huangshan Taiping Lake Resort In June 2008, the Group further acquired through listing-for-sale a site of approximately 468,901 sq.m. in the northern part of Huangshan, close to the legendary scenic Taiping Lake, as a fourth successive addition to the Group s multi-phase resort project. After acquisition, the total site area of the entire resort project is about 2,283,733 sq.m. and has a buildable GFA of about 1,141,867 sq.m. While the construction progress of Crowne Plaza Hotel has been adjusted to suite market environment, the ancillary recreational facilities have been progressing well. A golf practicing facility designed by worldrenowned Gary Player is scheduled to trial run by the end of ,901 2,283,733 1,141,876 Gary Player Projects in Other Geographic Areas: The Metropolitan, Kunming As one of the landmark developments in local market, the Metropolitan occupies a site area of about 170,806 sq.m., and will be developed into a high quality multi-phase residential and commercial project with a total GFA of about 604,994 sq.m. During the year under review, the first two phases of the project, comprising about 168,226 sq.m. GFA, were under construction. The pre-sale of the project was also commenced in March , , ,226 The Florea, Haikou In January 2008, the Group acquired the entire equity interest of Haikou project. The acquired project has a site area of approximately 292,174 sq.m. and a GFA of approximately 252,759 sq.m., comprising Spanish-style residential and hotel developments. When acquired, phase I and II of the project was already under construction. In 2008, Florea was one of the best selling residential projects in Haikou. The acquisition has provided incoming cash flow and with a valid proof of the Group s capability of successfully taking over projects-inprogress. The first phase with GFA of 100,021 sq.m. was completed and delivered in June , , ,021 // 19

22 Chief Executive s Review Strategic Alliance with Partners In line with the Group s strategic alliances with international wellknown investors, we continue to cooperate with property funds to enhance our project profile and cash flow position. In May 2008, the Group reached an agreement with HCP Suzhou Newton Co. Ltd ( HCP ), a fund managed by Harvest Capital Partners, selling 40% of the total issued share capital of a subsidiary of the Group for an approximate consideration of RMB283.5 million, making HCP a coinvestor of the Group s Suzhou project. PROSPECTS Despite temporary market uncertainties, the Group s strategy is to deliver a long-term sustainable business growth and to maintain the soundness of our operational and financial management. The Group managed to maintain a positive cash flow with a firm momentum during a challenging year. This constitutes one of the fundamental building blocks for the Group s way to capture and take advantage of the opportunities from forthcoming recoveries in China s property industry. HCP Suzhou Newton Co. LtdHCP Harvest Capital Partners %HCP The creation of shareholder value is the underlying driver of every decision made by the Group. Group s management team is committed to improving shareholder value. With this in mind, the Group has adopted a very prudent approach in land bank replenishment under uncertain market condition. However, we will continue our monitoring efforts for any promising acquisition opportunities that might arise. While we are currently experiencing a difficult market environment and unclear direction for macro-economy in the next couple of years, the Group is exhibiting strong fundamentals with healthy financial position and revenue outlook. Our prudent acquisition and operation since IPO will start to bear fruits in 2009 and beyond, as Group s pipeline of projects entering into active phases of development. Among which, we will be excited about and anxious of seeing the Group s trophy project Peninsula on the Bund in Shanghai to be completed and opened by end We are glad to see noticeable recovery in volumes over 1Q09 and plans to launch projects in various cities with a total of approximately 800,000 sq.m. available for sale and will deliver about 380,000 sq.m. to our customers, both of which will be records in the Group s development history. 800, , SPG Land (Holdings) Limited // Annual Report 2008

23 Chief Executive s Review Looking ahead, we are determined to reprioritize the developments to adapt the market environments, deliver high-quality products to our customers, and maintain active yet prudent financial management. With these implementations in hand, we are confident to navigate our way smoothly out of the temporary correction in the operating environment and capture further growth opportunities in the coming years. Stones Tse Group Managing Director and CEO 23 April 2009 // 21

24 Property Projects Portfolio Kunming - The Metropolitan 22 SPG Land (Holdings) Limited // Annual Report 2008

25 - Suzhou - Global 188 Huangshan - Taiping Lake Resort Yangtze River Delta Shanghai - Cambridge Forest Newtown - Wuxi - Changshu - Xishuidong - Yushan La-Casa - Emerald Bay - Cambridge Watertown (Oriental Garden) - Cambridge Waters (Tiffany) - The Peninsula Shanghai Haikou - Shanghai Cambridge Holiday Inn - The Florea // 23

26 Property Projects Portfolio Shanghai Projects Cambridge Waters (Tiffany) 3 Outer Ring Villa d Ambre Outer Ring Inner Ring Inner Ring Gonghexing Highway Yanan Highway 4 Yanan Tunnel Yangpu Bridge Outer Ring 2 Cambridge Watertown (Oriental Garden) Huqingping Road Huqingping Highway Yangpu Bridge Shanghai Cambridge Holiday Inn 5 Outer Ring Cambridge Forest Newtown 1 Residential Projects 1. Cambridge Forest Newtown Site area (sq.m) 1,584,334 GFA (sq.m) 1,150,697 Brief Introduction One of the largest low-density residential developments in Shanghai Within 25 minutes driving distance to the city center 25 Phase I-V have been completed 24 SPG Land (Holdings) Limited // Annual Report 2008

27 Property Projects Portfolio 2. Cambridge Watertown (Oriental Garden) Site area (sq.m) 304,011 GFA (sq.m) 202,629 Brief Introduction The project has 700 houses; Located in Qingpu District, west of Shanghai; 25km from Hongqiao Airport Adjacent to ancient water town Zhujiajiao ; 1700-year history and a famous tourist site; excellent ecological area 1700 Lot I VII have been completed; Lot VIII is under planning and development 3. Cambridge Waters (Tiffany) Site area (sq.m) 439,667 GFA (sq.m) 579,696 Brief Introduction A large-scale property development comprising mainly residential properties targeted at middle class customers Within 5 minutes to the near Metro station and within 20 minutes to the city center through the subway 5 20 Phase I & II have been completed; Tiffany (Phase III) is under construction and started pre-sale in // 25

28 Property Projects Portfolio Hotel Projects 1. The Shanghai Peninsula on the Bund Site area (sq.m) 13,898 GFA (sq.m) 92,520 (Peninsula Residence occupied 13,800 sq.m) 13,800 Including Peninsula Hotel, Peninsula Residence, and the Peninsula Arcade Brief Introduction Peninsula Hotel has a total of 235 rooms; Peninsula Residences has a total of 39 units The Peninsula Hotel will have five F & B facilities, including the signature Peninsula lobby lounge, jazz bar, heli-lounge, Chinese restaurant and rooftop restaurant The signature development is expected to be completed by the end of 2009, with the anticipated soft opening of Peninsula Hotel and Arcade in 4Q 2009; The Peninsula Residences will be available for sale upon project completion Shanghai Cambridge Holiday Inn Site area (sq.m) 42,750 GFA (sq.m) 59,630 Brief Introduction The project is strategically located inside Cambridge Forest Newtown, close to the airport and the 2010 World Expo Site 2010 Has a total of 400 hotel rooms, apartments, restaurants, conference facilities and clubhouse 400 The project development is generally on track but with target completion date extended to suit market environment; The apartment portion is expected to start presale in 4Q SPG Land (Holdings) Limited // Annual Report 2008

29 Property Projects Portfolio Yangtze River Delta Projects 1. Suzhou Residential and Commercial Project Suzhou Global 188 Site area (sq.m) 14,896 GFA (sq.m) 149,308 Brief Introduction Located in the CBD of Suzhou Industrial Park, next to Jinji Lake, underground connected to the subway A landmark project consisting of serviced apartments and Grade A office towers with retail podium; probably the tallest building in the proximity The project is currently under development and will start pre-sale in mid- 2009; Overall project will be completed by Service Apartment / Office / // 27

30 Property Projects Portfolio 2. Wuxi Residential and Commercial Project Wuxi Xishuidong Site area (sq.m) 248,800 GFA (sq.m) 695,400 Brief Introduction Currently the largest city-core development project in Wuxi, and will be designed as an integrated development comprising residential and commercial components Located in the heart of Wuxi, and in close proximity to the central commercial and business district About two hours driving distance to Shanghai The first phase of the project is well under construction; And will start pre-sale in 4Q Changshu Residential Projects i. Yu Shan La-Casa Site area (sq.m) 119,769 GFA (sq.m) 86,728 Brief Introduction Situated at the fringe of Yu Mountain, facing the national park and with completed amenities and infrastructures To be developed into a prestigious project in the area consisting of townhouses, duplexes and low-rise apartment The first phase of the project is well under construction in 2008 and will be ready for presale in mid ii. Emerald Bay Site area (sq.m) 107,391 GFA (sq.m) 121,325 Brief Introduction Situated in the unique location and is adjoining the scenic Shang Lake to the north along with impressive mountain views The project is currently under planning and design 28 SPG Land (Holdings) Limited // Annual Report 2008

31 Property Projects Portfolio Kunming Residential Project The Metropolitan Site area (sq.m) 170,806 GFA (sq.m) 604,994 Brief Introduction To be one of the landmark developments in local market To be developed into a high quality multi-phase residential and commercial project Phase I & III are currently under construction and launched presale in March The overall project will be completed in phases by the end of Haikou Residential Project The Florea Site area (sq.m) 292,174 GFA (sq.m) 252,759 Brief Introduction Located at the first-tier waterfront in the northern part of Haikou, the Florea enjoys an unobstructed ocean view, comprising Spanish-style residential and hotel/retail development In 2008, the Florea was one of the best selling residential projects in Haikou 2008 In January 2008, SPG Land acquired the entire equity interest of Haikou project. When acquired, phase I and II of the project were already under construction Huangshan Resort Project Huangshan Taiping Lake Resort Site area (sq.m) 2,283,733 GFA (sq.m) 1,141,867 Brief Introduction Located in the northern part of Huangshan, close to the legendary scenic Taiping Lake While the construction progress of Huangshan Crowne Plaza Hotel has been adjusted to suit market environment, the ancillary recreational facilities has been progressing well A golf practicing facility designed by world-renowned Gary Player is scheduled to trial run by the end of 2009 Gary Player 2009 Chedi hotel is under planning Chedi // 29

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34 Management Discussion and Analysis BUSINESS REVIEW Results and Dividends During the year under review, the Group recorded total revenue of approximately RMB1,394,993,000 (2007: RMB1,714,507,000), representing a decrease of 18.6%. Net profit dropped 65.3% to approximately RMB188,005,000 (2007 (restated): RMB542,270,000) and the portion attributable to equity holders of the Company was approximately RMB151,499,000 (2007 (restated): RMB517,614,000), representing a decline of 70.7%. Basic and diluted earnings per share attributable to equity holders of the Company amounted to RMB0.146 and RMB0.146 (2007 (restated): RMB0.499 and RMB0.462) respectively for the twelve months ended 31 December The Board has recommended the payment of a final dividend of RMB4.97 cents per share. 1,394,993,000 1,714,507, % 65.3% 188,005, ,270, ,499, ,614, % Revenue booked from property sales dropped 21% to RMB1,269,102,000 (2007: RMB1,606,718,000). The decline was mainly attributable to the dramatically shrinking transaction volume during the second half year given the difficult macro market condition. Net profit was further battered by the absence of an one-off revaluation gain as in % 1,269,102,000 1,606,718, SPG Land (Holdings) Limited // Annual Report 2008

35 Management Discussion and Analysis Property Development During the year, while the Group generally adhered to its completion and delivery schedule as originally planned, it adjusted the development progress of some hotel projects to suit the market environment. Details of completed and delivered projects, aggregating a total GFA of 115,134 sq.m. (2007: 147,925 sq.m.) are highlighted in the following table: 115, ,925 Item Projects Completed and Delivered in 2008 Approximate Approximate GFA Sold GFA Completed Delivered Cambridge Forest Newtown Phase IV IV 223 Cambridge Forest Newtown Phase VC VC 1,394 Cambridge Forest Newtown Phase VD VD 1,586 Cambridge Forest Newtown Phase VE VE 2,583 Cambridge Forest Newtown Phase VF VF 3,363 Cambridge Forest Newtown The Hampton 4,805 Cambridge Waters Phase I I 126 Cambridge Waters Phase II II 17,740 24,976 Cambridge Watertown Villas 49,850 13,884 Cambridge Watertown Townhouses 19,751 35,942 Haikou Florea Phase I-A I-A 7,547 15,143 Haikou Florea Phase I-B I-B 5,935 15,914 Total 105, ,134 Property Sales Performance With regard to the property sales results, the Group s sales was lower than that in the same period of 2007 as a result of deteriorating market environment. Amid uncertainties surrounding stock markets and the overall China economy in wake of the outbreak of the global financial tsunami originated from the US sub-prime mortgage crisis, Group s sales activities subdued greatly in the second half of the year. In particular, transaction volume reached a trough in the third quarter. For the year under review, the total contracted sales area of the Group amounted to approximately 187,099 sq.m. (2007: 169,043 sq.m.), while total contracted sales value amounted to RMB1,829,771,000 (2007: RMB2,079,330,000). Among the Group s projects available for 187, ,043 1,829,771,000 2,079,330,000 // 33

36 Management Discussion and Analysis sale during the year, the Cambridge series of suburban, large-scale and multi-phase projects achieved steady contracted sales. The projects of Metropolitan in Kunming and Florea in Haikou were successfully launched during the year under review. Whereas sales of Cambridge Waters, Cambridge Forest Newtown and Cambridge Watertown remained the major revenue contributors of the Group, contracted sales of projects from districts outside Shanghai contributed 33% of the total contracted sales. 33% Project Approximate area sold and delivered in 2008 Approximate sales recognized in 2008 Average selling price (sq.m.) (RMB 000) (RMB/sq.m.) Cambridge Forest Newtown Phase IV IV 223 3,170 5,991 Cambridge Forest Newtown Phase VC VC 1,394 10,983 7,879 Cambridge Forest Newtown Phase VD VD 1,586 31,180 19,660 Cambridge Forest Newtown Phase VE VE 2,583 56,929 22,040 Cambridge Forest Newtown Phase VF VF 3, ,350 35,489 Cambridge Waters Phase I I ,065 Cambridge Waters Phase II II 24, ,923 9,806 Cambridge Watertown Villas 13, ,094 16,573 Cambridge Watertown Townhouses 35, ,391 11,001 Haikou Florea Phase I-A I-A 15,143 81,459 5,379 Haikou Florea Phase I-B I-B 15,914 94,858 5,961 Total 115,134 1,269,102 11,023 Strategic Cooperation In May 2008, the Group reached an agreement to cooperate with HCP Suzhou Newton Co. Ltd ( HCP ), a fund managed by Harvest Capital Partners Limited, by selling 40% of the entire issued share capital of a subsidiary of the Group for a consideration of RMB283.5 million, making HCP a co-investor of the Group s Suzhou project. The transaction contributed approximately a RMB61.1 million profit to the Group during the period under review and also strengthened the cash position of the Group. HCP Suzhou Newton Co. LtdHCP 283,500,000 40%HCP HCP Harvest Capital Partners Limited 61,100, SPG Land (Holdings) Limited // Annual Report 2008

37 Management Discussion and Analysis Hotel Development With a view to generating long-term recurrent income, the Group has invested in hotel properties and cooperated with reputable names in the industry, such as the Peninsula Group and the InterContinental Hotel Group. Following topping-out in March 2008, construction of ultra-luxurious Peninsula Hotel on the Bund in Shanghai progressed smoothly. The hotel portion is tentatively scheduled for a soft opening in September Meanwhile, the serviced apartment portion is also ready for launching into the market in late 2009/early As for the Holiday Inn Hotel complex in Pudong/Nanhui area, the project will proceed in strict adherence to the original blueprint but with the target completion date extended to suit market environment. The serviced apartment phase of this project will be available for presale in 4Q2009. In light of the rapidly changing market conditions, the development priority of the Huangshan project had been modified to the construction of ancillary recreational facilities and ultimately development of the hotel and residential apartments as the original blueprint prescribed. In November the Group signed a memorandum of understanding to appoint Frasers Hospitality to manage its 49-storey upscale serviced apartments located in the premium CBD area in the Suzhou Industrial Park. Investment Properties and Ancillary Services To generate stable and recurrent income, the Group also holds some of its properties for lease. As of 31 December 2008, the Group leased an aggregate GFA of approximately 92,035 sq.m. (2007: 91,420 sq.m.). The Group operates a post-secondary college (Shanghai Sipo Polytechnic) and a training centre (Shanghai Sipo Vocational Technical Training Centre). The Group also operates one of the most prestigious kindergartens in Shanghai (The China Welfare Institute Kindergarten), supplementing the Group s developments with quality educational business. Such investment properties and ancillary educational business constitutes a minor but stable operation income of the Group, representing approximately 6% of the Group s total revenue for the year under review ,03591,420 6% // 35

38 Management Discussion and Analysis Land Bank Replenishment It is the Group s strategy to maintain a portfolio of land bank that is sufficient to support the Group s development pipeline for the next four to five years. The Group continues to develop large-scale and multi-phase residential projects in the Yangtze River Delta and in provincial capital cities with regional economic importance, targeting middle to upper-income customers. Up to the date of this announcement, the Group had a quality land bank with a total GFA of approximately 3.47 million sq.m., of which approximately 88% of the land bank will be used for the development of mid to high end residential projects, approximately 5% for commercial property development, and the remaining 7% for hotel and recreational development. During the year under review, the Group has acquired approximately 487,000 sq.m. of GFA in new development projects, adding its land bank portfolio by 8% from 3.2 million sq.m. as at 31 December 2007 excluding those constructed and sold areas. Capital expenditures on land acquisitions amounted to approximately RMB560 million for the year under review. 3,470,000 88% 5%7% 487,000 3,200,000 8% 560,000,000 The Group has strategically and prudently expanded its land bank through a couple of acquisitions during the first half of the year under review: Haikou City, Hainan Province In January 2008, the Group acquired the entire equity interest of a project company in Haikou at a consideration of RMB417 million. The acquired project has a site area of approximately 292,174 sq.m. and a GFA of approximately 252,759 sq.m., comprising residential and hotel developments. The acquisition has provided a great opportunity to the Group in Hainan s property market, one of the most popular resort destinations in China. This is also in line with the Group s strategy to develop projects in provincial capitals. 417,000, , ,759 Huangshan City, Anhui Province In June 2008, the Group acquired a site in the northern part of Huangshan District, close to the legendary scenic Tai Ping Lake, through listing-for-sale. The acquired land, a fourth successive addition to the Group s multi-phase Huangshan project, has increased the aggregate site area of the project to approximately 2.28 million sq.m. with an aggregate floor area reaching 1.14 million sq.m. 2,280,000 1,140, SPG Land (Holdings) Limited // Annual Report 2008

39 Management Discussion and Analysis Given the uncertain market environment, the Group adopted a cautious and prudent approach in land bank replenishment during the second half of In light of the unclear market outlook, the Group will continue exercise with extreme caution in regard to future land acquisitions and conduct more thorough research and analysis before pulling any trigger. Property Management and Related Services During the year under review, Shanghai New Independence House, a subsidiary of the Group providing property management services, generated property management and related services income, after intra-group elimination, amounted to approximately RMB23,528,000, representing an increase of 19% when compared to the previous year. As of 31 December 2008, the total floor area under Group s management was around 1.22 million sq.m. Outlook Looking ahead, while we are still sanguine about the long-term growth prospect of the property industry, we will adopt a more cautious stance in the near term in the light of the uncertainties surrounding the global economy, effectiveness of various government supportive measures and regain of confidence on consumption and investments. 23,528,000 19% 1,220,000 We expect the market activities will return to the stabilized levels in the second half of 2009, as government policies in rescue of the sector and country s economy as a whole start to materialize. Until then we can introduce incremental increases in our sales programs to orchestrate a recovery path for the overall pricing trend. Despite the weak market sentiment, sales of Tiffany (Cambridge Waters Phase III) was encouraging in the fourth quarter of Such strong momentum continued in the first four months of our financial year 2009, which laid a solid foundation for more upbeat sales performance for III While the overall real estate market environment in China remains challenging throughout 2009, as the central government ploughs in an unprecedented amount of resources to avert the country from a recession, we continue to maintain a cautiously yet optimistic attitude toward the medium-to-long term prospects of the property market. With the Group s prudent land acquisition strategy, proven execution capabilities and professional management team, we will strive to generate satisfactory returns for our shareholders and develop more quality properties for our customers. // 37

40 Management Discussion and Analysis FINANCIAL ANALYSIS Revenue The total revenue for the Group for the year 2008 was RMB1,394,993,000. In terms of the overall unit selling price and volume of transactions, a table of analysis on the sales of properties is provided as follows: 1,394,993,000 Type GFA sold & delivered Average selling price Average selling price change % GFA sold & delivered Average selling price (sq.m) (RMB/sq.m) (sq.m) (RMB/sq.m) Villas 20,282 20,283 19% 49,613 17,033 Apartments and townhouses 94,852 9,043 17% 98,312 7,748 Total 115,134 11,023 1% 147,925 10,862 In 2008, the Group completed the development and delivered residential units in Phase IV and V of Cambridge Forest Newtown, Phase I and II of Cambridge Waters, Lots 2 6 of Cambridge Watertown and Phase I of Haikou Florea. Therefore, the total GFA delivered reached 115,134 sq.m. (2007: 147,925 sq.m.). IV VI II 2 6 I 115, , SPG Land (Holdings) Limited // Annual Report 2008

41 Management Discussion and Analysis Segmental Information The Group s business is currently categorized into four operating segments sales of property, lease of property, property management and other related services, and education. An analysis of the Group s revenue is as follows: Year ended 31 December Change Revenue Stream RMB 000 RMB 000 RMB 000 Sales of property 1,269,102 1,606,718 (337,616) Rental income 26,920 29,585 (2,665) Property management income & other related service 38,499 27,243 11,256 Education 60,472 50,961 9,511 Total 1,394,993 1,714,507 Sales of property remains the Group s core business activity representing 91% of the total revenue in 2008 while the growths in both the property management and related services and education (up 27% yoy) segments were improved over Rental income decreased by 9% from approximately RMB29.6 million to approximately RMB26.9 million. Cost of Sales Total cost of sales in 2008 decreased significantly by 20% from RMB1,072 million to RMB853 million, in line with the decrease in revenue. Gross Profit and Margin Gross profit decreased by 15.6% from RMB642 million in 2007 to RMB542 million in Gross profit margin for the full year improved from 37% in 2007 to 38.8% in 2008, as a result of unit selling price increase over the year. Other Operating Income In 2008, other operating income decreased by 64% to RMB3.3 million. 91% 27% 29,600,000 9% 26,900,000 20% 1,072,000, ,000, % 642,000, ,000,000 37%38.8% 64% 3,300,000 // 39

42 Management Discussion and Analysis Operating Expenses In 2008, the selling and marketing costs increased to RMB69 million from RMB66 million in In order to improve the sales, substantial marketing campaigns were launched and professional property agents were appointed in ,000,000 69,000,000 Administrative expenses increased from RMB152 million to RMB158 million, representing a rise of 4% over the year 2007, mainly because of more development projects were undertaken by the Group in ,000, ,000,0004% Other operating expenses decreased to RMB7.1 million from RMB9.1 million in Net Finance Expenses The net finance expenses of RMB130 million in 2008 compared to net finance expenses of RMB86 million in 2007 (restated). This significant increase over the previous year was mainly attributable to revaluation loss of convertible bonds. Share of Loss of Associates The Group continued to suffer a net loss from share of operating results of associates in 2008 that amounted to RMB12.7 million as compared to a net loss of RMB8.2 million in 2007 from the associates. This loss was mainly attributable to the loss arose from the Peninsula Waitan project which is currently under development. Revaluation Gain on Investment Properties The Group recorded a revaluation gain of RMB25 million for 2008, which was mainly due to the general appreciation of market value of the Group s investment properties such as Tian Runfa Hypermarket and British School during the year under review. Income Tax Income tax decreased by 32% from RMB252 million in 2007 to RMB172 million in 2008, while the effective income tax rate increased from 17% in 2007 to 25% in In 2008, most of the group subsidiaries such as Shanghai Cambridge, Shanghai Oriental and Shanghai Zhujia adopted the income tax rate of 25%. The reduction in tax amount was mainly attributable to lower sales volume. 9,100,000 7,100, ,000,000 86,000,000 12,700,000 8,200,000 25,000, ,000,000 32%172,000,000 17% 25% 25% 40 SPG Land (Holdings) Limited // Annual Report 2008

43 Management Discussion and Analysis Profit Attributable to Equity Holders of the Company The Group achieved a profit attributable to equity holders of RMB151 million (2007 (restated): RMB518 million), down RMB367 million over the previous year. Earnings per share declined by 71% to RMB0.146 from RMB0.499 in 2007 (restated). 151,000, ,000, ,000, % Net profit margin for the year under review narrowed from 32% in 2007 (restated) to 13% in 2008, which was mainly attributable to the fact that in 2007, the Company obtained a gain on the disposal of equity interest in subsidiaries and investment revaluation. Liquidity and Financial Resources The Group derived its sources of fund primarily from income generated from business operations, bank borrowings and cash proceeds raised from the issuance of the convertible bonds in late April 2007, which were used to finance its business operations and investment in development projects. Net gearing (total borrowings less cash and cash equivalents including restricted cash over total equity) stood at a level of 47% as at 31 December The Group had total cash and cash equivalents of RMB943 million, total borrowings of RMB2,751 million and the stronger equity base of RMB3,848 million as at 31 December 2008 (2007 (restated): RMB3,632 million). 32% 13% 47% 943,000,000 2,751,000,000 3,848,000,000 3,632,000,000 Of the total, RMB580 million was repayable within one year while RMB2,171 million was repayable after more than one year. The effective interest rate for 2008 was 6.93% (2007: 6.93%). Credit Policy Trade receivables mainly arose from sales and lease of properties. Receivables in respect of sales and lease of properties are settled in accordance with the terms stipulated in the sales and purchase agreements or lease agreements. Pledge of Assets As at 31 December 2008, the Group pledged properties and land use rights with carrying amount of RMB2,941,693,000 to secure bank facilities granted to the Group. The total outstanding secured loan balance as at 31 December 2008 amounted to RMB1,516,860, ,000,000 2,171,000, ,941,693,000 1,516,860,000 // 41

44 Management Discussion and Analysis Financial Guarantees As at 31 December 2008, the Group provided guarantees to banks for: As at 31 December 2008 RMB 000 As at 31 December 2007 RMB 000 Mortgage facilities granted to purchasers of property units 298, ,038 Capital Commitment RMB 000 RMB 000 Property development activities: Contracted but not provided for 3,281,935 3,872,228 Authorized but not contracted for 4,369,492 3,618,948 Total 7,651,427 7,491,176 Management of Proceeds from the 2007 Convertible Bond Issuance On 27 April 2007, the Company issued USD Settled Zero Coupon Convertible Bonds due in 2012 in the aggregate principal amount of RMB1,158,000,000. The Company had applied the proceeds in the existing as well as new development projects, land acquisitions as well as repayment of borrowings. The Convertible Bonds will mature and due for redemption in ,158,000,000 On 29 December 2008, the Company repurchased 1,000 units of Convertible Bonds with total nominal value of RMB100,000,000. These bonds were cancelled upon repurchase. The bonds were repurchased at a total consideration of US$5,858,946, which is equivalent to RMB40,000,000. This transaction helped the Group to reduce its debt in favorable terms and brought a gain of approximately RMB58,252,000 to the Group s consolidated income statement of , ,000,000 5,858,946 40,000,000 58,252, SPG Land (Holdings) Limited // Annual Report 2008

45 Management Discussion and Analysis SIGNIFICANT ACQUISITIONS AND DISPOSALS Save as disclosed in notes 3 and 4 of the consolidated financial statements, in 2008 the Group had not entered into other transactions involving substantial acquisitions or disposals of subsidiaries or associated companies. HUMAN RESOURCES As at 31 December 2008, the Group employed a total of 868 employees (2007: 731 employees). The Group has adopted a performance-based rewarding system to motivate its staff. In addition to a basic salary, year-end bonuses are offered to those staff with outstanding performance. Share option schemes were adopted to attract and retain talents to contribute to the Group. In relation to staff training, the Group also provides different types of programs for its staff to improve their skills and develop their respective expertise // 43

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