Earnings Call: H1 2015

Aug 20, 2015

My name is Sonia. I work in the corporate finance and investor relations team at SOHO China Limited. We hosted our analyst and investor briefing this afternoon in Hong Kong, and considering that we have a lot of investors based around the world, right now we are hosting a 2015 interim results update call with our senior management. On the line here, we have the CEO of SOHO China Limited, Ms. Zhang Xin, and Ms. Yan Yan, president of the company, and our CFO, Mr. Jim Lam. First, we will have Mr. Jim Lam give us a financial presentation. This is based on the version that posted on our website this afternoon at 3:00 P.M. After that, our CEO, Zhang Xin, will go through 3Q and do a brief introduction of the new product we launched, and then we will open the floor to Q&A. Now I leave it to Jim. Welcome, everyone. I will start off with a brief update on the investment property portfolio of the company. As of the 30th of June 2015, we have a total of 12 projects, four investment property in Beijing and eight investment property in Shanghai. We did not have any completion in the first half of 2015, but we have two projects in Shanghai being completed in July and August respectively. Including these two new completion, 73% of the company's investment property portfolio in terms of GFA have been completed as of today. In 2016, we will have one more project being completed, and finally in 2018, we will have two more projects being completed, then the entire investment property portfolio with a total GFA of 1.8 million will be completed. In the first half of this year, we have done very well on our rental performance. In terms of the total rental income, we generated CNY 439 million, which represent a year-on-year growth of 169%. We have also achieved a major improvement in occupancy rate and rental income for each of the six completed investment property during the period. We will go through the numbers for each project one by one. First, we will start off with Qianmen Avenue. For this retail project, we have achieved occupancy rate of 88% as of today. For SOHO Century Plaza, the occupancy rate is currently 100%. For Wangjing SOHO Tower 3, the occupancy rate is 99%. For SOHO Fuxing Plaza, the occupancy rate is 98%. For SKY SOHO, the occupancy rate increased significantly from 7% at the end of last year to 52% in July. For Guanghua Lu SOHO, the occupancy rate also saw a significant improvement from 6% at the end of 2014 to 54% in July. Now I will move on to the financials of the company for the first half of 2015. During the period, we achieved a turnover of CNY 393 million, which comprised of rental income of CNY 439 million, and a negative turnover on the property development division of CNY 46 million. Gross profit margin for the period was 75%, which is a significant increase of 25 percentage point as compared with the same period in last year, and the much higher margin in this period represent the higher margin of the rental business as compared with the property development business. Revaluation gains period was relatively small at about CNY 140 million as compared with about CNY 2 billion a year ago, and the decrease in revaluation gain represent the fact that we do not have any project completion in the first half of this year and a stable office market in Beijing and Shanghai. Overall, we achieved a net profit of CNY 138 million. In terms of the interim dividend, we have announced that there will be no interim dividend for the period. We have also announced that we will adopt a new dividend policy whereby dividend will be announced once only each year at the time of the final result announcement, and the size of dividend will be based on the net profit attributable to equity shareholders of the company for that financial year, including the revaluation gain for the year. In terms of balance sheet, at the end of June 2015, we had cash of about CNY 9.8 billion. We had total debt of about CNY 19.9 billion, and the net gearing ratio was about 25%, which represent a small increase as compared with 19% at the end of the year, but still remains very low as compared with the other listed PRC property developers. On page 28 of your presentation, we have analyzed the impact of a RMB exchange rate depreciation on our P&L and balance sheet. First of all, we want to highlight that any depreciation of the RMB against the US dollar would have minimal impact on the P&L of SOHO China, as SOHO China has adopted Hong Kong dollar as the functional currency. As a result, any movement in the RMB exchange rate against the Hong Kong dollar or US dollar will be debited directly to the reserve of SOHO China. Moreover, we have sufficient liquidity to buffer any shortfall in refinancing in case of a substantial RMB depreciation. In the near to medium term, we will actively increase our onshore long-term operating loans as well as explore the Chinese domestic corporate bond and MTN. Our aim is to substantially increase the proportion of renminbi loan as compared with non-renminbi loan in the next two to three years. Hopefully, the percentage of renminbi loan will exceed that of US dollar or Hong Kong dollar loans within the next two years. In the first half of this year, we have successfully extended the maturity of our 2013 syndicated loan in order to smooth out the repayment towers over the next three years. As a result, the refinancing requirement in 2017 was substantially reduced from about $1.7 billion to $1 billion. In terms of our effective interest rate during the period, our interest rate was 5.8%. Again, it is substantially lower than most of the other listed listed PRC developers. Currently, our book NAV is about HKD 9.47 per share, and the estimated NAV per share is HKD 10.61 according to the brokers estimate. I will pass on to our CEO, Ms. Zhang Xin, to talk about the earnings profile of the company over the next several years. Good evening, everybody. Good morning. The most important thing for this earnings result is that this is obviously one of the worst earnings results for SOHO China since we went public in 2007. I think most of you have heard that we announced the transition of the company business model at physical. We moved from build and sold to build and hold. This finally is just reflecting in our earnings this season, that finally this earnings we have no contribution from sales of properties, and all of the earnings actually come from. Even though we have, by this month, completed 75% of construction portfolio, because many of the buildings are just entering into the leasing period, it still takes for the rental income to really, really increase our earnings. I think you will see by the end of this year that the income from leasing will be significantly up. I think it is worth pointing out that this earnings is the turning point for our business model. Really, this is the turning point from sales to leasing. It is unfortunately, it technically a skip, because leasing takes time and sales has dried up. But the good news is that from this moment onwards, we would only have earnings going upwards. Another thing is worth mentioning is that we have started a new business called SOHO 3Q, which is a sharing economy with one-stop co-working online to offline office space. We opened two centers, one in Beijing, one in Shanghai in February, and very quickly we have seen this product, the market loves it so much that we decided to open a lot more. By now, we have opened five centers in Shanghai. Those are very popular. We have decided to go at the full seat. By end of November, we will have 12 centers in Beijing and Shanghai in almost all of our buildings, which means that we have covered multiple locations in these two cities. This is exciting business that we started out with thousands of seats. By end of November, we will have close to 11,000 seats, and our plan is that in the next December, we will go up to 100,000 seats. So you could see that if we, by the end of the 100,000 seats, this business, SOHO 3Q revenue, will bypass our leasing business to become an even bigger part of our business. But because this is an asset-light business, our intention is that eventually we will spin it off. SOHO China will remain a REIT-like, asset-heavy company, and SOHO 3Q will be an asset-light company that leases space from SOHO China and creates this co-working space and lease it out. That is very hard to put this asset light and asset heavy two business into one entity. Therefore, a spin-off is planned. I think this is the main points we want to share with everybody for these earnings. I know that you may have a lot of questions. We are opening the floor to answer your questions. Can I please ask everyone, before you raise a question, you let us know your firm and your name? Hi, can I ask the first question? Sure. Please go ahead. Hi, this is Frank Lee from Meket VC. Thanks for taking my question. I have three questions in total. The first one is, can I ask why the Galaxy SOHO was returned? I mean, the negative revenue, why was that generated? Secondly, I want to ask about the offshore bond issuance. Is it that you currently have an unlisted offshore subsidiary for the offshore bond issuance? What's the size of this? My third question is on the unbooked sales. Is there any unbooked sales that would be recognized in the second half of this year or next year? Do you have other available resources that you are selling your assets? These are my questions. Thank you very much. Okay. For the first question, there were four returned units from a project called Galaxy SOHO. The reason why these four units were returned is because the purchasers of those units went into financial difficulty. As you know, when we pre-sold the units to the purchasers, the company would have to provide a guarantee to the bank if there's a mortgage provided by the bank to the purchasers. You're not allowed to- involve the company into the losses between the purchasers and the bank and ourselves. We decided that the easiest way is to return the units, to receive the returned units. On the back of that, we have also received some penalty payment from the purchasers. In any case, the amount involved is not very significant. I think in total, we're talking about CNY 8 million for the four units involved. Your second question, were you referring to onshore bond issuance instead of offshore bond issuance? I was referring to offshore. Onshore? Offshore. Offshore. Right. Indeed, we already have two offshore bonds, which were issued by the company in 2013. For the time being, we do not have plans to issue any more bonds in the offshore market. I see. How about onshore? We are exploring the issuance of bond in the onshore market, but we do not have a concrete timetable or the concrete idea on the size of the offering yet. I think it's worth noting that the company's decision, the direction, is to swap the USD debt into RMB debt. For us, the most important is to match our income, which is in RMB, and our debt also in RMB, so that we're not exposed to exchange rate risk. Given what we have seen the exchange rate fluctuation in the past few weeks, we have every intention to move our USD debt into RMB debt as soon as possible. I also want to mention one thing, because today at the end of this presentation, somebody asked our dividend policy. I know that we have announced that we are now, from now on, rather than paying every six months dividend, we'll be paying an annual dividend. I think we made that decision because we're no longer in the trading and cash business. We are already in a landlord business. Therefore, we feel that technically, as all of our debts are with the governance are on yearly basis, that it is better that we do a yearly dividend rather than six monthly. I want to mention that we are, as a company, we are absolutely committed to pay high dividend, as we have always been paying that. We have every intention to keep that as our dividend policy. Regarding your third question, the amount of unrecognized revenue is negligible, so you can just ignore it. We have about CNY 4 billion worth of property carry on the balance sheet under the category of property under development and completed property. Of the CNY 4 billion, about CNY 1.3 billion represented completed units that are available for sale. Since we have decided not to sell strata-titled unit anymore, all this strata-titled unit, which represented the unsold inventory of our projects, which were sold strata title before, we rented them out and are collecting rentals. We have no plan to sell them in the foreseeable future. Sorry, could I clarify a bit on that? You mean there is a CNY 4 billion development property assets that you do not plan to sell anymore, is it? Of the CNY 4 billion assets, CNY 1.3 billion represent completed property that can be sold if we want to. The rest represent properties under construction. Okay, and you do not plan to sell them, is it? For the property under development, if you look at most of that actually relate to one of the project, which is in joint venture, which is One SOHO, and that part represent the units that belong to the minority shareholders of the project. So we will basically dispose that part to the minority shareholders at cost. We do not pass this value to any. Oh, just one quick final follow-up question. Sorry. For the onshore entity, do you have an unlisted subsidiary already for the onshore domestic subsidiary? Do you have already? Well, we have a lot of unlisted domestic company. In terms of the corporate structure, each of the project run from a BVI company into a Hong Kong company and then to a WFOE. The WFOE is the project company. There would be a company under the WFOE that own the project company. So we have a lot of unlisted domestic companies in China. Okay. Thanks very much. That's all from me. Thank you. Thank you. Can we please take the second question? Hi. Jin Zhong from, Jin Zhong Zhu from Chrysler. Hi, Jin Zhong. Hi. Jin Zhong. Hi. Thanks for hosting this call. Just maybe just want to clarify a little bit on the presentation slide. Your slide page number 18, there are forecasts regarding your rental income and also the income from SOHO 3Q. I understand that the actual amount are not really specified here, but the chart seems to imply that starting from the end of 2016, your revenue coming out of SOHO 3Q is going to be higher than the revenue coming from the normal rental. Could you clarify if that's the case? That's my first question. The second question coming from slide page 19. For your current occupancy rate, obviously it's encouraging that your occupancy rate has been rising continuously. Just like to clarify, does this occupancy includes the space that internally you rented out to SOHO 3Q? Correct in some of the buildings? This page also shows that there seems to be a slight decline in the rental for SOHO Century Plaza. Could you elaborate the reason for that? That's my second question. The third question is going back to the dividend policy. I think a lot of investors previously have taken the company's word that there's going to be a fixed policy payout no matter what the net income is. Correct in the next several years. I don't know whether you imply just now that you're going to keep paying high dividends. Would that be saying that although your calculation of dividend policy will be based on the net profit going forward, but the absolute amount is going to be at least at that level previously promised? Jin, let's just go through one by one your questions. One is on the page that has the three lines. One is sales, which is the gray line that comes down to zero, this earnings. Second is the red line that goes up as the leasing line. Then the third one is the orange that goes up even surpass the leasing as the future revenue. That's from 3Q. It is correct that our plan is that this year we finish 11,000 seats for 3Q, and next year our plan is to do 40,000, and then we have a plan to do up to 100,000. But whether that's going to take two years or three years, we are slightly unsure about it. But you can see that we are basically doubling, tripling, quadrupling, in the next few years. Once we reach the number of 100,000 seats, I think we have a confidence that this earnings will surpass the leasing. That's on the 3Q. Your second question is on dividend. I think it's very hard for me to say, yes, we absolutely sign off how many cents per share. But I think you can take my word as in it is our intention, it is our dividend policy that we'll continue commit to pay high dividend. And I think you will see it by the end of the year. Jin, regarding your questions on the occupancy rate, I think, the answer is yes. When we calculate the occupancy rate, we did- Yes take into account that the 3Q space is assumed to be occupied. The 3Q pays SOHO China market rate, market rent. SOHO China does not give 3Q any discount. Whatever the rent that we put on the market is what 3Q pays. In terms of occupancy rate, yes, that also, the occupancy rate that we put on for each project includes the 3Q leasing. For SOHO Century Plaza, this project has been almost fully occupied ever since the end of 2014. The reason why there was a CNY 1 million decrease in rental in the first half of this year as compared with the second half of last year is because there was a tenant that left us at the beginning of the year and my replacement towards the end of June. As a result, there's a slight drop in the rental revenue for the first half of this year compared with the second half of last year. All right. Thank you. That's very clear. Thank you. Thank you, Jin Zhong. Can we please take the next question? Hello. Can I start now? Sure. Okay. This is Wilson from Macquarie. I have a few questions. The first one is regarding the turnover loss regarding some of the returned units. I am just wondering whether you expect any more cases of this kind of returning. The second question is about the Jingan Plaza. I am just wondering whether this project is recognized in the first half of the results. Also, my third question is that I noticed the reported gross margin for the rental. In the first half of 2014, it was 94%, but now in the first half 2015, it seems to have dropped below 80, if my calculation is correct. I am just wondering, can you explain what is the reason behind? Also, my last question is about the SOHO 3Q. If I interpret correctly, you are going to report a separate revenue item for this 3Q business. If that is the case, can you guide us on what would be the EBITDA margin for the 3Q business? Okay, that is all. For the first question, we do not anticipate to see any more units being returned from Galaxy SOHO, but we cannot foresee or predict whether any of the purchasers were actually going into financial difficulty in the future. In any case, the reason why we decided to take back these four units is because we think the price that we sold to these purchasers were actually below the current prevailing in the market price. As a result, we think it would be beneficial for our company to get back this unit from them. Besides, they would pay penalties on the return. Let me just emphasize on this. If any earlier clients of SOHO who bought the properties for any reason that they cannot continue to pay the mortgage, we have every intention to take it back at the price that we sold them. Because since we changed the business model to build and hold, we want to own properties. These are the properties that are of high quality. If anything, we regretted we sold most of them earlier. If there was any chance of us getting them back, especially at the price so low, which most of the prices we sold then are below the current market price, we absolutely want to keep them. Wilson, we did not catch your second question. Do you mind to repeat that? Oh. I remember there is a sale of the Jingan SOHO, if I am correct. Just wondering whether this project is recognized in the first half or whether at any other period. Yeah. No, the gain from the disposal of Jingan Plaza was built in the first half of this year. If you look at the other gains item, there is a gain of $122 million, which represented the gain on the Jingan transaction. Oh, I see. What is the loss on the investment in JV? JV. Yeah, I saw a CNY 7.9 million loss regarding the investment in JV. What does this refer to? Oh, I see. You know we have a 50% interest in 8-1 project, and that project is still under construction. As a result, there is some operating loss involved, because we have to just share our 50% share of loss. Oh, okay. Your third question is on- Oh, yes. the estimated EBITDA margin on the 3Q business, right? Yes. We are estimating that the EBITDA margin will range from between 40%-50%, assuming that we are getting what we are pricing for this product. For instance, Beijing, I think we are talking about CNY 1,300 for the office desk, and then CNY 1,000 for the open desk. Oh, okay. It's easy to get the 3Q numbers. First is the number of seats. This year, we will have 11,000. The price per seat is CNY 1,000 per week. If we are able to charge the CNY 1,000 per week, that represents an EBITDA of close to 50%, 49%. However, our plan is that in the first year of any 3Q center completed, we will give a heavy discount to quickly fill up the space, to create a community. We are pretty much foregoing the margin as a discount. You won't be seeing much of a profit. The plan is that we do one-year discount for each new 3Q that we open. Oh, I see. Okay. I also have one more question. That's about the gross margin of the investment property. I saw the segment for the rental income, the gross margin dropped below. That dropped below 80% in the first half of this year, compared to over 90% in the first half of 2014. Can you explain what's the reason for the decline in the gross margin? Okay. I think we are not comparing apple to apple. In general, we think the gross margin, assuming our property is fully leased out, we think the gross margin would be over 80%, because the only two items that would be deducted as cost of sales for rental income is property tax and business tax. But the reason why it is now below 80% in the first half of this year is because there are two out of the six major investment properties were not fully leased out yet. Because we added two new developments into this earnings. That's why. It represents new space coming up into the leasing business. Once these two newly on the market developments are fully leased, you'll be seeing the margin goes up, back to above 80%. Okay. I see. Okay. That's all for me. Thank you. Thank you. Next question. Hello? Hello. Hi. It's Charles Cartledge calling from Stan Robinson. May I Hi, Josephine. Charles. Hi, Josephine. First of all, thank you very much for this call. Secondly, there's a lot of background noise. I do not know, someone's in the kitchen. Maybe they could go on mute. As to the questions, why are you so reluctant to commit to a fixed CNY 0.25 payout? As I understand it, the profits you've guided for rental income, growth spaces are CNY 1 billion-CNY 1.2 billion. You're launching two properties which will presumably get revalued upwards on the balance sheet and the P&L, through the P&L in the second half, which, it's anyone's guess what that will be, but certainly historically, you've seen big uplifts when properties have been in a finished construction. To my mind, there's only enough P&L to pay a profit, to pay the CNY 0.25 dividend. Clearly you saw the stock price reaction today. I suspect it was mainly to do with the dividend. No, I think you are right. That is my guess, too. You will pay a dividend, but no one knows what it will be, so it is not really helping the market much. You are saying that can I tell the market that it is $0.25 by the end of the year? No, Charles, I think it is hard for me to say that. But the most important is that, I do not know how to make you feel more comfortable other than saying that we will be paying high dividends, we will continue. This has always been the company's dividend policy. We will continue to do that. In terms of the actual number, technically, we have to wait until the board approves it at the- Yeah end of the year. Yeah. But if I look back at your investor presentation just one month ago, there was a whole page on how you paid steady dividend. Then one month later, we just don't know. So, you can well understand why everyone's nervous. No, I understand that. Okay. Well, there's nothing you can do at the moment, it seems, on that. So I'll move on. The question asked just now about gross margin. Jim, the cost of sales, cost of goods sold are probably different business now. My understanding was that these were related to turnover, so they vary. So why wouldn't your gross margin be constant? Albeit, you're launching two new properties, but if there's less rental income, there's less tax paid. I don't understand. The tax authority in different cities in China actually allowed the developer or the landlord to select either to have the property tax calculated based on turnover, or to have the property tax based on the historic cost of the development. For most of our six existing investment properties, we have chosen to base the property tax based on the historic cost of development. As a result, as the occupancy rates improve, the margin would be higher. Okay. Understood. Thanks. My final question is on 3Q. You've got really ambitious plans, which is great. I'd love to see that Charles, actually, I just want you to know that, because I think you mentioned to me that I should go to see Workspace in London, which I did. Okay. I went to see them, and I checked it out. I also went to see another one called Second Home. So I'm fully aware of their product. Great. Excellent. I just wanted to ask, going from 11,000 seats this year to 100,000 seats in 2017, what underlies your confidence that this can work? It does seem I appreciate you've got the best brand in the industry, and you have the best buildings, and you have huge brand equity as people as well as a company. But couldn't anyone do this? Don't you expect competition? How can we be confident, or how is it that you're confident you can meet that target on a fully occupied basis? Right. First of all, I hope it's going to be 2017 for 100,000 seats, but I wouldn't be surprised if it goes to 2018 or I think it's going to be the next few years. We're doing physically as quickly as we can. We have the capacity because we have the portfolio of offices in Beijing and Shanghai that allows us to do it very quickly. The reason we have the confidence, because once we opened the two centers in Beijing and Shanghai, we have seen the tremendous reception. Startup companies just move in. Not only just the startup companies, and also some quite well-established companies that are renting our building, 10 floors of our building. Not all of them, but many of them have this kind of a short-term, flexible demand. Like Uber, for instance, moved into our Shanghai SOHO 3Q. They wanted to rent a floor on the Bund, but they also have an immediate need, so they decided to just rent 3Q for two years. I think we're seeing more. In Beijing, there's a company called Meituan, is the Chinese version of Groupon. They're now valued at $10 billion. They rented a lot of our space in Wangjing, and again, it takes their time to renovate, to design, and immediately they have a need for about 1,000 seats. They came to us and said they wanted to rent for a year. This has really made us realize that there are two types of users for SOHO 3Q. One is really the short-term ones who come in, have a few weeks or a few months, or maybe even to a year. Another is that the tenants who are already at the SOHO buildings, already occupying SOHO buildings, they themselves have these short-term needs. We have come to the point to realize that this is a new trend of working. People want to be in this very shared environment. It's a community they want to be in, and also it's just incredibly convenient. They do not worry about anything. They come in, they bring their computers, and they start working. We think that it would not surprise us that most of the buildings would have a few floors of this kind of a co-working space in the future. Now, once we have established that confidence, all we want to do is as quickly as possible to roll out as many SOHO 3Qs as possible. Now, of course, nobody in China has our portfolio of buildings that enable them to do it so quickly. When we have it, we want to do it very quickly. We do not want this market to be. When we know that once the market has a dominant brand, it is hard for others to come in. We want that brand to be ourself. We do not want to be slow, and then one or two years later realize there are so many competitors. That is what we do not want to see. Can I just follow up? When we discussed this before as a hypothetical situation, your current rental in central Shanghai might be CNY 10 Right per square meter per month, right? Right. It is actually the case for most buildings, probably with the exception of Sky and Hongkou. Most others are at 10. Okay. We think we know that on a mature basis, this business can have an EBITDA margin of 50%. That would suggest that you were charging the end consumer CNY 20 per square meter per month, which is fine, but you've not done that yet because you told us that you were giving a discount. We actually don't know how big this market is at the price point you want to charge. Is it not possible that these people are signing up long leases because you're giving them a really good price? When you try and move that price, that might impact occupancy. I think theoretically, hypothetically, maybe. But the reality is that, for any brand to be built up in such a short period of time, you have to give in something. You have to give something away. Right. Either you want to do a massive advertising, which we don't want to do. We're already doing a huge promotion online and through Mr. Pan's celebrity abilities to create all these events. That brings a lot of media attention, online attention. Also on the sales side, you got to make it so attractive that everybody wants to move in and they talk about it. If we fail to do that, we'll just let it very slowly grow. We are worried that we won't be able to create a brand so instantly. I think you did ask a good question. Now, we're giving the discount, therefore they all get filled up very quickly. Now, when we take away the discount, will the business drop? We don't know. It all depends on how big is the market and how willing people are willing to pay that extra. When you go in, you think that it shouldn't be such a big deal of one person paying CNY 1,000 a week. Yeah. Okay. Two more questions, and I'll let go. The first question is, when will you take off your first discount, and go to a full price? That will be the litmus test for whether the market will bear your targeted price. When will that happen? Secondly, you're talking about spinning this business out. When do you think that might be? What level of maturity would you be looking at? Would that be a 2017 event or 2018, something like that? Currently, our plan is to give a discount for a year. It doesn't mean that we'll give a flat discount for the whole year. We will obviously start with a deep discount when we first launch, and as it becomes filled up and the waiting list is there, then we will reduce the discount. We will very soon, by 1st of September, start reintroducing online sales. All the sales we want to do is online, and price will be bid up online. This, we will see. I think we'll have a better sense about a year later. In terms of spinning it off, this is an O2O business. This is an online to offline business. It makes no sense to stay within SOHO China. As soon as our number of seats gets to a significant size, we want to spin it off. Of course, this is also dependent on the market. The capital market is still there. This is one thing we don't know, because the market generally for China seems to be so volatile. Aside from that, the business itself, we know that it'll be rolled out very quickly. Assume that the market is normal, then I think we'll be able to spin it off in the next 2 to 3 years. Okay. Thank you very much. Thank you, Charles. Oh, yeah. Charles, one more thing. You should just from the App Store and just download SOHO 3Q app and just get on it, and you can book one and just get a sense of how's the user experience like. Yeah, I've done that already. Thank you. Oh, okay. Great. Thank you. We will take two more questions. Can I please ask the other people who are not asking questions to mute their lines? Hello. Hi. Hello. Sir, your name and- Hi, this is Lee from BNP Paribas. I have three quick questions about your results. Number one is about your operating expense, because I noticed there's an item which is called other operating expense. I just wonder what is a key component for this expense, and how do we forecast this item going forward since you are already transformed to be a landlord? Also, regarding your rental EBIT margin, what is the trend for the EBIT margin? My number two question is about your cash flow. Could you give me more update about your cash flow? Because I remember that you have around CNY 5 billion of LAT to be paid this year. I just wonder that, is it still the same? My number three question is about your SOHO 3Q. I understand that you have a target to expand to around 100,000 seats, maybe in 2017 or 2018. I just wonder that all of these seats, will all of them be located in the SOHO 3Q, or is it going to be in other buildings? Yeah. That's it. Thank you. Right. For the first question, other operating expenses, there are two major components. The first one is property management cost, and that amounts to about CNY 47 million in the first half of this year. The corresponding revenue for the property management business is about CNY 72 million in the first half of this year, meaning that we are making about CNY 20 million odd from the property management business. The second item under the other operating expenses is hotel operating cost, which amounts to about CNY 24 million. For the hotel, revenue is approximately the same amount, so we are almost break even on the hotel project. Your second question about the LAT. Yes, the outstanding amount was about CNY 5 billion. We haven't settled any of this CNY 5 billion as of today yet, but we think that is going to be split between this year, next year, or even the year after. But how much we're going to pay this year, we don't know. Okay. How about your CapEx in this year and the next year? Sure. We think we'll spend about CNY 2.7 billion on CapEx this year, and next year will be about CNY 2 billion. Okay. My last question is about the SOHO 3Q. I just wonder whether all of this maybe around 100,000 seats in 2017, 2018, will they all in your SOHO buildings or in other buildings? I think majority of it will be within SOHO buildings, but there will also be other people's buildings. Okay. In case that you are going maybe to occupy others' building, will you maybe lease from land, or are you considering to maybe buy the whole floor or something like that? Our current thinking is that we will collaborate with other developers rather than lease the space from them. We don't want to be encountering into a risk that is leasing from other developers space for long-term lease, and then our business is in a relatively shorter-term lease. We want to match the risk. Therefore, we think a better way of doing it outside of SOHO building is to work with the other developers, and then we will work out a profit-sharing scheme with each of them. Okay. Understood. Thank you. Thank you. Can we please take the next question? That's it. Thank you very much, everyone. Thank you for getting on the call. Any further questions, you can contact myself, Sonia, at the IR team, or just email ir@sohochina.com, and my new colleague, Teddy Zheng, he will also be able to pick up the questions. Thank you. All right. Good night. Good night. Bye.