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Longfor Properties ramps up development pipeline

Longfor Properties Co. Ltd. is accelerating its development pipeline of shopping malls and apartments and expects to own 47 malls by 2020 and deliver 50,000 rental apartments in 2018, executives said during a March 23 earnings briefing.

"The company will accelerate the construction of investment properties to boost recurring income," CFO Zhao Yi said. "We are confident our total rental income can exceed 6 billion yuan by 2020."

Longfor CEO Shao Mingxiao said the company has increasingly realized the importance of recurring income for its credit ratings and long-term development.

In 2017, Longfor's rental income, excluding tax, rose 35.6% to 2.59 billion yuan.

Longfor plans to expand its shopping mall portfolio to 47 malls in the next three years from the current 24 in order to embrace China's “consumption upgrade" trend, in which shoppers are drawn to higher-quality properties.

The company had 14 new shopping malls under construction at the end of 2017, with a total gross floor area of 2.58 million square meters. The assets are in major Chinese cities such as Beijing, Chengdu and Shanghai.

Besides malls, Shao said the company is putting a lot of effort into developing rental apartments under its rental brand Champion Apartments.

The company is still conducting early stage investment in the sector, but the business is already close to break-even, he said. "We hope to achieve 15% in net profit and 20% in [internal rate of return] in the future for rental apartment business," Shao said.

Longfor has set a contracted residential sales target of 200 billion yuan for 2018, representing growth of 28% from its 2017 sales. Shao expects contracted sales to total 44 billion yuan in the first quarter.

Home-buying demand is still robust in China, as the urbanization process continues, Shao said. However, the company's residential sector gross margin is likely to remain flat, at approximately 30%, given Chinese government efforts to cool off the overheated market, he added.

As of March 23, US$1 was equivalent to 6.31 yuan.