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Real Estate Development and Sales

For many years, the Group has always been actively participating in large-scale quality residential and commercial development projects in the Pearl River Delta region, particularly focusing on the development of projects in Shenzhen, through which it has established a renowned brand name and enjoyed a leading position. In May 2017, the Group was again awarded the honour of “Trustworthy (Quality) Enterprises in Shenzhen’s Real Estate Development Industry” by Shenzhen Real Estate Association and has ranked as the “Top 10 Shenzhen Real Estate Development Enterprises in terms of Comprehensive Strength” for seven years in a row; Huazhou LVGEM Real Estate Development Co., Ltd. was awarded the honour of “Caring Enterprise” in Maoming Alleviation Day 2016; Shenzhen LVGEM Property Management Co., Ltd. was honoured as the “Top 30 Shenzhen Index (Sampling survey)” in the “2016 Owner Satisfaction in Property Management”; Shenzhen LVGEM Jinjiang Hotel was awarded the Top 20 Local Brand Hotel of Shenzhen in 2016 and the Most Popular Hotel of the 2016 Tourism Popularity Rankings, reflecting the industry’s high recognition of the Group and the LVGEM brand and demonstrating its excellent strengths.

The Group is one of the pioneers in the field of urban renewal and has accumulated over 20 years of experience in urban rehabilitation and urban renewal. By adopting the strategy of dual-core layout of “Focusing on Core Cities and Cities’ Core Areas” as its development focus, the Group’s major development projects are all situated in the core areas of the core cities. Currently, the Group’s development projects are situated mainly in the core areas of economically developed cities such as Shenzhen, the Pearl River Delta region and Hong Kong. As the government promotes the development and planning of city cluster in the Guangdong-Hong Kong-Macao Greater Bay Area with an aim to rank the top among global bay areas in 2030 and emulate into the bay area with the highest total GDP in the world, the Group is confident that it will be able to maintain the rapid growth and risk tolerance of its businesses.

The Group adopted a two-way expansion model for land acquisition so as to acquire land resources by way of both public auction in the market and urban renewal. Moreover, the Group has successfully developed a set of comprehensive and standardised land-acquisition models which will at the same time continuously provide the Group with abundant land supply that is able to deliver high gross profit and sustainable growth at low cost through the cooperation with the parent company. In addition, the Group adopted various refined cost control measures, with a view to achieve effective cost reduction through whole-process management with control before, during and after the implementation of process, which will in turn enable the Group to maintain a relatively high gross profit margin and profitability in the future.

Real estate development and sales were the core businesses of the Group. The Group’s on-hand projects included Phase II of LVGEM International Garden, LVGEM Hongwan Project, LVGEM Mangrove Bay No. 1, LVGEM Liguang Project, LVGEM Meijing Project, Suzhou LVGEM • NEO Project, and the Lau Fau Shan development project located in Hong Kong, expecting the total gross floor area to be approximately 2,000,000 square meters. In terms of land reserve, other than land reserves that are already owned by the Group, through cooperation with the Group’s parent company is also a major source of the Group’s land reserves. The Group has participated in a number of urban renewal projects in Shenzhen and core cities in the Pearl River Delta, involving an estimated development area of over 12 million square meters. At present, several urban renewal projects are on track and the Group’s parent company plans to inject land resources into the Group within these two years, which will be sufficient to support the Group’s development needs over the coming few years. Meanwhile, the Group also actively seeks high quality resources in Hong Kong and oversea through merging, cooperation and other methods.

LVGEM International Garden is located in Huazhou, Maoming of Guangdong Province. It is located in a well-developed and traditional residential area with rich natural resources and is in proximity to Juzhou Park. It is well-served by a public transport network and is approximately a 10 minutes’ drive from the city centre. The total investment of the project will be over RMB8.0 billion. Of which, zone B1 of the residential project was first launched for sale during Labour Day holidays in 2017 and the market response was overwhelming. Sell-through rate was almost 94% for this project. The Group further plans to launch zone B2 units in the fourth quarter of 2017.

LVGEM Hongwan Project is located in the central business district of Futian District, Shenzhen. The project comprises five high-rise quality residential buildings, two residential apartments and Hongwan Zoll Centre. It occupies a site area of 32,785 square meters and total gross floor area of 367,605 square meters. The project was completed by the end of 2015. All units were completed and launched to the market in batches. Units of Phase I have been launched for sale in 2015. The residential apartments have been launched for sale in July 2017 with an estimated average selling price of RMB79,500 per square meter. LVGEM Hongwan Project is the first “zero defect” occupation project of the Group. Currently, the units of Phase I were successfully delivered to and occupied by owners and attained a high level of customer satisfaction of 99%.

LVGEM Mangrove Bay No. 1 is recently the largest urban upgrade and redevelopment project of the Group. The project comprises three quality residential buildings and comprehensive and high-quality buildings of Grade A offices, hotels and apartments. The project is located in the southeast corner of the intersection of Shazui Road and Jindiyi Road in the central business district of Futian District, Shenzhen. Having easy access to public transport and strategically located in the proximity to both Futian Port and Huanggang Port, Beijing-Hong Kong-Macao Expressway and Metro Line 3, 4 and 7, the project occupies a site area of 24,424 square meters and a planned total gross floor area of 305,450 square meters. Among which, the residential portion has a gross floor area of approximately 118,687 square meters. The whole project is expected to be completed in 2017. Pre-sale of certain residential units is planned to commence in the fourth quarter of 2017.

LVGEM Meijing Project is another urban upgrade and redevelopment project positioned to serve the high-income group, from white-collar to golden-collar, in Shenzhen. This project has an integrated model zone for new mixed-used industrial town which will be mainly used for industrial research and development and industrial ancillary services, complemented by other functions such as apartments, commerce and offices. The project is located at south of Beihuan Road, north of Qiaoxiang Road, east of the intersection of Qiaoxiang Road and Beihuan Road as well as west of Qiaochengfang in Shenzhen. The project occupies a site area of 10,862 square meters and a planned above-ground gross floor area of 97,214 square meters. As the project is strategically located in the sub-district of Overseas Chinese Town, it enjoys rich scenic resources. It has commenced construction at the end of 2016 and is expected to be completed by the end of 2020.

Suzhou NEO (綠憬商務廣場) is situated in Wuzhong District, Suzhou and is a serviced apartment embracing the scenic view of the prosperous Suzhou Bay with a gross floor area of approximately 81,851.5 square meters. The project was launched for sale in July 2017, receiving positive market response.

LVGEM Liguang Project is located next to Sili Road, Old Village, Liguang Community, Longhua New District, Shenzhen. It occupies a site area of 271,202 square meters and is used for commercial and residential purposes. Phase I has a construction site area of 42,666 square meters and a plot ratio-based gross floor area of 156,300 square meters. Special planning for Phase I of the project has been approved. The demolition and relocation plan of the project will be completed in the first half of 2018 and the construction will commence in mid-2018.

Lau Fau Shan Project is located in Deep Bay Road, Lau Fau Shan, Hong Kong. It is the first outbound and Hong Kong quality property development project of the Group, which represents a new milestone of the internationalisation of “LVGEM” brand. The project occupies a site area of 82,400 square meters of a scarce and quality land parcel and is planned to build 116 low density waterfront villas. It is expected that the construction will commence in 2018.

Commercial Properties Investment and Operation

The Group operates commercial properties represented by two commercial brands, namely “NEO” and “Zoll”, including NEO Urban Commercial complex, Hongwan Zoll Centre, Xiangsong Zoll Centre, 1866 Zoll Centre and other shops and investment properties, with a total gross floor area of approximately 420,239 square meters. In January 2017, the grand opening of LVGEM Hongwan Zoll Centre was held, attracting bustling foot traffic and enjoying wide popularity among consumers and tenants. The LVGEM Huazhou Zoll Centre and LVGEM Mangrove Bay No. 1 Zoll Centre are expected to open for business at the end of 2017 and in 2018, respectively.Approximately 14% increase as compared to the same period last year and contributing stable investment revenue and rental return to the Group.

NEO Urban Commercial complex is strategically located in the western region of central Futian District of the core central business district in Shenzhen and was elected as one of the ten key landmarks of Shenzhen. It is a key urban and commercial landmark in Shenzhen. It has easy access to public transport located at the intersection of four Metro Lines 1, 7, 9 and 11. NEO Urban Commercial complex has a total gross floor area of approximately 252,539 square meters and a total lettable area of approximately 105,870 square meters. The high-quality corporate tenants of the Grade A office building include offices and branches of several Fortune Global 500 companies, banks, telecommunications corporations and other state-owned enterprises. As of 30 June 2017, the average occupancy rate of NEO Urban Commercial complex was about 100%.

Suzhou NEO (綠憬商務廣場) is located in the core area of Yuexi development zone, Wuzhong, Suzhou. It is situated at the west corner of Tayun Road, north corner of Su Street and east corner of Yuelaixi, with a direct connection to Metro Line 4 under planning. The project occupies a site area of 14,592 square meters and has a planned total gross floor area of 81,841 square meters. It is positioned as mid-to-high-end offices and street-level boutique business, together with lake-view apartments.

Zoll Centre is a famous fashion and comprehensive shopping centre. The Group currently owns and operates Xiangsong Zoll Centre, 1866 Zoll Centre and LVGEM Hongwan Zoll Centre. In the first half of 2017, the average occupancy rate was about 97%. The occupancy rate continued to rise steadily, successfully establishing the brand image and market positioning, which attracted a number of retailers as tenants and maintained stable relationships with numerous famous quality brands. LVGEM Hongwan Zoll Centre was opened for business in January 2017 with 77 contracted store tenants; the occupancy rate reached a high level of 99%. Huazhou Zoll Centre is expected to open for business at the end of 2017. LVGEM Mangrove Bay No. 1 Zoll Centre is expected to open for business in 2018, which will contribute more stable rental income to the Group by the time.

Comprehensive Services

The Group provides comprehensive services to customers and tenants of its residential and commercial properties. These comprehensive services include property management services, hotel operations and others. For the six months ended 30 June 2017, comprehensive services of the Group generated revenue of RMB120.9 million, representing an increase of approximately 12% as compared with the same period in 2016.

The Group operates and manages the LVGEM Jinjiang Hotel, which is located in the central business district of Futian district, Shenzhen. The hotel has a total gross floor area of 25,751 square meters. It is strategically located and has over 330 rooms, 2 multi-functional meeting rooms, 1 banquet hall and video conference room. In the first half of 2017, its average occupancy rate was approximately 76%.

Vanllee Hotel is located in Covina, California, the United States. The acquisition marked an expansion of the Group’s international business. The hotel occupies a site area of approximately 22,652 square meters and is currently under renovation. The hotel has approximately 258 guest rooms with a function space of over 9,000 square feet. It is expected that the construction will be completed in 2018, which will contribute stable hotel operation income to the Group by the time.

The Group provided comprehensive property management services for most of its property development projects through its wholly-owned subsidiaries, namely 深圳市綠景紀元物業管理服務有限公司 (Shenzhen LVGEM Jiyuan Property Management Service Co., Ltd.#) and 深圳市 綠景物業管理有限公司 (Shenzhen LVGEM Property Management Co., Ltd.#). The comprehensive services provided by the Group ranged from security services, property maintenance and management of ancillary facilities. Shenzhen LVGEM Property Management Co., Ltd. obtained the ISO9001:2008 certification for its quality system of property management services and the level A property management qualification.

Financial investment

On 24th Oct, 2016, Zhengxinglong Real Estate (Shenzhen) Co., Ltd. (“Zhengxinglong”, a company established in the People’s Republic of China, which is a wholly-owned subsidiary of the Company) participated in the promotion and establishment of 一帶一路財產保險股份有限公司 (Belt and Road Property Insurance Co., Ltd.*) (as named tentatively) as organized by China International Council for the Promotion of Multinational Corporations (中國國際跨 國公司促進會) (“CICPMC”). Zhengxinglong proposed to contribute RMB290 million for the subscription of 10% of shares in Belt Road Insurance. All subscription monies will be fully paid within three months upon approval of the regulatory authorities. The major scope of business of Belt Road Insurance is proposed to include corporate safety and production liability insurance, technology insurance, intellectual property insurance, property insurance, catastrophe insurance, agricultural hazard insurance, third party liability insurance for education funds, employment insurance for university graduates, liability insurance, insurance for major construction projects, insurance for mines and third parties, logistics insurance, freight insurance, carrier liability insurance, credit insurance, guarantee insurance, vehicle and vessel insurance, food and drug insurance, personal accident insurance, short-term health insurance and automobile insurance, reinsurance of the aforesaid insurances; insurance funds utilisation as permitted by laws and regulations of the PRC. The purpose of Zhengxinglong’s participation in the promotion and establishment of Belt Road Insurance is to allow the Company to take advantage of the opportunities arisen from its development in the insurance market by supporting the implementation of various national strategies, such as the construction under the State’s “One Belt, One Road” initiative, the synergic development of Beijing-Tianjin-Hebei region and the development of Yangtze River Economic Belt. Upon its inception, Belt Road Insurance will take a customer-focused and market-oriented approach. Operating in compliance with laws and regulations, it will offer a variety of products and quality services to customers. It will continue to innovate in various aspects such as product research and development, sales channels, internal control management and cost control. With the edges of its location, shareholders and subsequent development, Belt Road Insurance will gradually realize its core competitiveness and enhance its profitability. Accordingly, the Company believes that the participation in the promotion of Belt Road Insurance represents a good investment opportunity with huge growth potential. Meanwhile, the proposed place of registration for Belt Road Insurance is Tianjin Free Trade Zone, where the company will be benefited from special policies under the national strategy of “Synergic Development of Beijing-Tianjin-Hebei Region” and the relevant policies enjoyed by Tianjin Free Trade Zone as a pilot financial zone in China, which is expected to provide positive support to Zhengxinglong’s results.

On 29th Aug 2016, Zhengxinglong Real Estate (Shenzhen) Co., Ltd. (正興隆房地產(深圳)有限公司), a wholly-owned subsidiary of the Group, issued non-public domestic corporate bonds of up to RMB 2.6 billion fixed at 6.5% per annum, with tenure of 5 years. The purpose of the issuance of such bonds was to replenish the Group’s general liquidity, so as to provide additional general working capital resources to support the development of the Group. The Group will continue to seek various means of financing as to optimize cash flow and debt structure.

On 15th Aug 2017. Gemstones International Co., Ltd (碧璽國際有限公司), a wholly-owned subsidiary of the Group, issued 225 Million USD 3 year corporate bond at coupon rate 8.5%. This public bond offering was oversubscribed for 2 times, and performed well in the secondary market, achieving further breakthrough in building a bilateral capital financing platform.

Future Prospect

Having engaged in the real estate market for over twenty years, the Group has always upheld the development strategy of “Focusing on Core Cities and Cities’ Core Areas” and cherished “sincerely and constantly improving the city life” as its corporate mission. With a strong presence across various cities, our brand image is already deeply rooted in people’s minds, and our high-quality projects are highly recognised by all sectors of the society. Despite the current uncertainties associated with economic growth and the real estate market in the PRC, the Group is confident in the prospect of the real estate market in the Mainland China and the tremendous development potential of the Greater Bay Area.

Looking forward, the Group will continue to grasp various opportunities in the market, align with the national development policy and continuously enhance its competitiveness to cater to the demands of the market and customers. Meanwhile, the Group will strive for the vision and goal of “being the most respected city value-creator in China” with an aim to further strengthen its market position in and brand influence over the development of the Greater Bay Area and build a better future.

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