The principal activities consist of development, selling and management of properties, and holding of investment properties.

Business Review - For the year ended December 31, 2009

GROWTH IN PROPERTY SALES

During the reporting period, the Group took full advantage of the opportunities arising from the revival of the domestic real estate industry, and reaped record results in terms of contracted sales. A total GFA of 526,900 sq.m. was sold, representing an increase of 77% over the previous year, and reaching 117% of the target of 450,000 sq.m. for 2009. Contracted sales value amounted to HK$6.93 billion, an increase of 98% over the previous year and 139% of the HK$5 billion target for 2009. Average contract sales price reached HK$13,100 per sq.m., representing an increase of 12% over the previous year. Excluding Cong Hua Glade Village and Southern Le Sand, both of which are located in the suburbs, the average transaction price for the Group’s urban projects stood at HK$17,000 per sq.m., representing an increase of 41% over the previous year.

To improve product quality, the Group made great strides in optimizing the layout of our housing projects, which proved to be helpful in enhancing our competitive position and has resulted in strong sales at our projects: Starry Winking or Xing Hui Yun Jin achieved the sales target for the whole year within two months of launch in 2009, with sales of HK$1.8 billion and an average price of HK$24,200 per sq.m.; Jiang Nan New Mansion, Springland Garden and Ling Nan Riverside were launched during the Golden Week of the National Day and were all sold out within one day. The Group’s two major suburb projects, Southern Le Sand and Cong Hua Glade Village, recorded a year-on-year increase in contracted sales of 206% and 203% respectively.

EXPANSION IN LANDBANK

In line with the expansion plans of “home base in Guangzhou and strategic expansion nationwide”, the Group initiated strategic adjustment, optimized its structure, expanded its development scale and enhanced its sustainable development capability. During the reporting period, the Group won bids on parcels of land located in Guangzhou, Jiangmen, Zhongshan and Yantai. As a result, our expansion has begun to take shape, with the total GFA of quality residential sites acquired during the year amounting to almost 1.38 million square metres. Sites in Guangzhou University City were acquired to form large combined tracts of land, which should help create strategic value and economies of scale. The acquisition of the Yantai site also marked a pivotal step in pursuing strategic expansion in the Bohai Rim Economic Zone.

These sites were acquired at auction through Guangzhou City Construction & Development Co., Ltd., a 95% owned subsidiary of the Company.

The Group believes that not only do the acquisitions of the aforesaid sites reflect the Group’s intent to further consolidate its leading position in Guangzhou, where the majority of its operations are carried out, they are also consistent with the Group’s plans of strategic expansion nationwide. The main reasons for land acquisitions in cities other than Guangzhou are as follows:

The Jiangmen site, facing a planned country park to the south, possesses unique scenery. It is located in the municipal administrative office and central business area currently under development, which is the central focus of the urban development program in Jiangmen. With a population of 4.14 million, Jiangmen is a central city in the western Pearl River Delta. With the introduction of the “Reform & Development Plan of the Pearl River Delta (PRD) Region” initiative, the construction of the Hong Kong-Zhuhai-Macau Bridge and the commencement of operation of the Pearl River Delta Intercity Rail transport Joint Network in 2010, Jiangmen will become an increasingly prominent city and will be well positioned for greater real estate development.

The Yantai site is located in the centre of the old town in Zhifu District, Yantai City, Shandong Province, surrounded by well-developed infrastructure. Yantai City has a permanent population of about 6.50 million, and its GDP ranks among the top in Shandong Province. Yantai is a beautiful city with mild climate and is situated between mountains and sea. In 2005, it won a “United Nations Habitat Award” for being one of the most liveable cities in the world. Securing the Yantai Plot represents an important step in the Group’s expansion plans.

The Zhongshan site is located in the centre of the Southern District in Zhongshan City adjacent to the district government office. Zhongshan City is one of the key cities in the Pearl River Delta, with a permanent population of about 2.50 million and a GDP that ranks fifth in Guangdong Province. With the formation of a “Circle of cities accessible within one hour” with Guangzhou at the center, the commencement of construction of the Hong Kong-Zhuhai-Macao Bridge, and the opening of the Guangzhou-Zhuhai intercity rail network in 2010, the prospects of the real estate market in Zhongshan City are excellent.

PROJECT DEVELOPMENT

In response to intense competition, the Group accelerated the pace of project development. It took less than 17 months to go from the commencement of construction to pre-sale at the Starry Winking project, which met its pre-sale target two months ahead of schedule and was completed approximately 20% faster than previous developments. Key projects, including Jiang Nan New Mansion, Springland Garden and Ling Nan Riverside, also reached pre-sale targets one month ahead of schedule and nearly 1,800 more units were launched for sale during the Golden Week of the National Day with a total asset value of over HK$3 billion.

At the same time, the Company accelerated land requisition, planning and design, invitation for tenders and other key tasks to shorten the construction period. Design plans for projects such as B2-10, Pearl River New City were granted approval three months ahead of schedule, and the Jiangmen project completed its planning and design phase two months ahead of schedule. The rapid progress created favourable conditions for the smooth commencement of construction works.

MANAGEMENT OF INVESTMENT PROPERTIES

To enhance the quality of key investment properties including the Guangzhou International Finance Centre (“IFC”) and Fortune World Plaza, the Group strengthened cooperation with international professional firms. At the same time, the Group put greater efforts into the disposal of none-core investment properties so as to optimize our asset structure. The Group has engaged Jones Lang LaSalle to provide property management services and CB Richard Ellis to launch global promotion for office leasing at IFC. The Group also introduced top domestic and international brands, such as the Four Seasons Group and Guangzhou Friendship Store, to the IFC. Fortune World Plaza has been designed as a shopping centre combining a retail arcade with a wholesale market.

Investment properties as of 31 December 2009 amounted to approximately 990,000 sq.m., comprising approximately 37% in office properties, 35% in commercial properties, and 28% in car parks. Rental revenue from investment properties and property management fees amounted to approximately HK$692 million, representing an increase of 8.0% over the previous year. During the reporting period, the portfolio’s fair value appreciated by approximately HK$313 million to HK$8,506 million.

Part of the floor area at the IFC, destined to be a landmark building in Southern China, has been classified as investment property in accordance with the latest accounting standard since its topping-out in December 2008.

COST CONTROL

Through improving our tendering and sourcing processes, we have significantly reduced the cost of purchases. At the same time, through heightened scrutiny and enhanced evaluation of costs throughout the whole construction chain, we have either achieved better design solutions or effectively reduced construction costs.

PROGRESS IN SYSTEM REFORM

During the reporting period, the Group managed to reform its human resources management system, whereby all of its major subsidiaries engaged in real estate development had appointed professional consultants for human resources planning. As a result, corporate organizational structure, job position chart, staff appraisal system and remuneration & welfare system, etc. were modified and a more market-oriented employment mechanism was established.

In addition, the Group also made improvements in product standardization and research on energy-savings product features. A solid foundation was therefore laid for further product research and developments. Some of these research projects won partial sponsorship from the government.

BRAND REPUTATION

During the reporting period, the Group’s brand reputation continued to grow. The Group received a number of honours, such as placing 35th in the “Top 100 Real Estate Enterprises in China” announced by the China Industrial Information Issuing Centre under the National Bureau of Statistics, being selected as one of the “Top 20 Best-Seller Real Estate Enterprises in Guangzhou in 2009” rated by the China Real Estate Appraisal Centre, as well as being listed among the “Top 20 Most Creditworthy Real Estate Enterprises in Guangdong” by www.people.com.cn under the People’s Daily and the four state-owned commercial banks. In addition, our office tower project Victory Plaza received the “9th Zhan Tianyou Award on Civil Engineering Projects in China”.

OTHER BUSINESSES

In 2009, revenue from real estate supplementary businesses (mainly decoration and supermarket segments) amounted to HK$662 million, representing an increase of 3% over the previous year.

During the year, GZI Real Estate Investment Trust (“GZI REIT”) recorded satisfactory operating results and realized gross revenue of HK$532 million, representing an increase of 7.4% over the previous year. As the Group held 35.58% interest in the trust, it would receive a cash distribution of HK$89 million.

Source: Yuexiu Property (00123) Annual Results Announcement