China / Industry Focus HK Property Sector

Refer to important disclosures at the end of this report

DBS Group Research . Equity 18 July 2018 Connected to a better future HSI: 28,316 ANALYST

Jeff YAU CFA, +852 2820 4912 [email protected]  Buying opportunity emerging after the recent sell-off in the Ian CHUI +852 2971 1915 [email protected] sector amid challenges faced by developers from vacancy Jason LAM +852 29711773 [email protected] tax and new sales rules Recommendation & valuation  Office leasing demand remains in good shape Company T ick er Mk t Cap Price 12-m T P Recom  Upcoming mega transport infrastructure projects to give a HK$bn HK$ HK$ big boost to retail and hotel sectors, our preferred sectors Property Developers CK Asset Hldgs 1113 HK 226 61.15 77.00 BUY  Top picks: Wharf REIC (1997 HK), Sino Land (83 HK) and CSI Properties 497 HK 4 0.44 0.64 BUY New World (17 HK) Henderson Land 12 HK 181 41.20 52.25 BUY K.Wah Int'l 173 HK 13 4.36 6.24 BUY Market view. The government’s proposed vacancy tax and Kerry Props 683 HK 53 36.60 39.00 HOLD Lai Sun Development 488 HK 8 12.50 16.40 BUY new sales rules should not lead to any meaningful market MTR Corp 66 HK 262 42.90 47.40 BUY correction but pose challenges for developers when selling their New World Dev 17 HK 113 11.04 14.50 BUY residential projects. Office demand in Island East/ East Sino Land 83 HK 82 12.36 14.70 BUY is underpinned by decentralisation trend and consolidation SHKP 16 HK 346 119.50 148.80 BUY among multinational corporates while Central office market Tai Cheung 88 HK 5 8.85 10.70 BUY continues to be supported by -based banking and finance Wharf Holdings 4 HK 78 25.60 26.10 HOLD Wheelock & Co 20 HK 112 54.80 70.00 BUY tenants. The soon-to-be-commissioned infrastructure projects Wing Tai Props 369 HK 9 6.34 7.54 BUY such as Express Rail Link should greatly enhance transportation Property Investors connectivity between Hong Kong and Mainland China, giving a Hang Lung Prop 101 HK 71 15.68 19.28 BUY further boost to the recovering retail and hotel markets. HK Land @ HKL SP 17 7.13 8.57 BUY Hysan Dev 14 HK 44 42.40 51.15 BUY Stock recommendations. Trading opportunities have emerged Swire Properties 1972 HK 171 29.25 34.25 BUY for property developers following the recent sell-off. We like Wharf REIC 1997 HK 171 56.45 65.40 BUY Sino Land which has a strong project launch pipeline in the near Diversified Properties future. New World Development offers good long term value. Far East Consortium 35 HK 10 4.52 5.53 BUY Retail landlords, Wharf REIC and (14 HK), Great Eagle 41 HK 27 38.40 41.00 HOLD REITs & Business Trust stand to benefit from the favourable retail scene. We like Champion REIT 2778 HK 30 5.13 5.55 BUY Fortune REIT (778 HK) and Sunlight REIT (435 HK) for their Fortune REIT 778 HK 18 9.21 10.50 BUY steady growth. Although the valuation is not compelling Langham Hospitality 1270 HK 7 3.17 3.68 BUY enough, the current unit buyback program should support Link Link REIT 823 HK 159 74.00 72.00 HOLD REIT’s (823 HK) unit price performance. Interest rate movements Prosperity REIT 808 HK 5 3.16 3.61 BUY would dictate the performance in the REIT sector. Regal REIT 1881 HK 7 2.30 2.61 BUY Sunlight REIT 435 HK 9 5.29 5.83 BUY @ Denominated in USD Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”)

ed-TH JS KK/ sa- CS / AH

China / Hong Kong Industry Focus HK Property Sector

Table of Contents Investment summary 3 Residential 4 Office 14 Retail 20 Hotel 26 Property Developers 31 Property Investors 38 REITs 42 Appendix: Asset breakdown 49 Appendix: NAV sensitivities 51 Appendix: Stock repurchases 52 Appendix: Stake change by major shareholders 54 Stock Profiles 58 CK Asset Holdings (1113 HK) 58 CSI Properties Limited (497 HK) 60 Henderson Land Development Company Limited (12 HK) 62 K Wah International Holdings Limited (173 HK) 64 Kerry Properties Limited (683 HK) 66 Lai Sun Development Company Limited (488 HK) 68 MTR Corporation Limited (66 HK) 70 New World Development Company Limited (17 HK) 72 Sino Land Company Limited (83 HK) 74 Sun Hung Kai Properties Limited (16 HK) 76 Tai Cheung Holdings Limited (88 HK) 78 The Wharf Holdings Limited (4 HK) 80 Wheelock And Company Limited (20 HK) 82 Wing Tai Properties Limited (369 HK) 84 Hang Lung Properties Limited (101 HK) 86 Hongkong Land Holdings Limited (HKL SP) 88 Hysan Development Company Limited (14 HK) 90 Swire Properties Limited (1972 HK) 92 Wharf REIC (1997 HK) 94 Far East Consortium International Limited (35 HK) 96 Great Eagle Holdings Limited (41 HK) 98 Champion Real Estate Investment Trust (2778 HK) 100 Fortune Real Estate Investment Trust (778 HK) 102 Langham Hospitality Investment Limited (1270 HK) 104 Link Real Estate Investment Trust (823 HK) 106 Prosperity Real Estate Investment Trust (808 HK) 108 Regal Real Estate Investment Trust (1881 HK) 110 Sunlight Real Estate Investment Trust (435 HK) 112

Note: Prices used as of 6 July 2018 Covered photo (from left): Fleur Pavillia (New World Development); Cityplaza 3 and 4 (Swire Properties); TOP (Link REIT); Regal Hotel HK (Regal REIT)

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China / Hong Kong Industry Focus HK Property Sector

Investment summary Hotel Aided by the revival of overnight visitor arrivals from Mainland Residential China, hotel sector recovery has been gathering momentum. The recently announced new housing policies including the While Medium Tariff hotels continue to lead the market proposed vacancy tax and stricter sales rules should reduce recovery, High Tariff hotels are catching up. Overall, hoteliers developers’ flexibility in timing project launches and in turn achieved RevPAR growth of >10% YTD, primarily led by lessens their ability to maximise project margins. We expect increased room rates. The soon-to-be-commissioned Express developers to focus on clearing unsold completed inventory in Rail Link should improve connectivity between Mainland China the near term instead of pre-selling uncompleted projects. They and Hong Kong resulting in more overnight visitors from may offer minor price concessions to expedite inventory sales China. On the other hand, given buoyant commercial property to avoid the vacancy tax levy. That said, barring any external valuation, more hotels are expected to be redeveloped into shocks such as trade war escalating, we do not expect any commercial buildings to maximise property values. We meaningful market correction. We forecast residential prices to conclude that the hotel sector is on a multi-year uptrend. be stable in the coming 12 months after rising 12-13% in 1H18. Property Developers

Property developers under our coverage are trading at 47% Office discount to their respective current NAV estimates, which lies Office leasing market remains active, particularly in Island East at the low end of historical trading range. Despite policy noise, and Kowloon East where office demand is driven by we see trading opportunities emerging following the sector’s decentralisation and consolidation requirement among sell-off. Sino Land has potential to trade higher if the multinational firms. The soon-to-be-completed office projects upcoming project launches, Grand Central in particular, are such as One Taikoo Place in Quarry Bay is substantially pre- greeted with favourable response. We also like New World committed. Central office demand continued to be supported Development which offers good long-term value with its new by China-based banking and finance tenants. Given tight investments. vacancy in Central, they are also seeking office accommodation outside of Central. The resulting notable improvement in office vacancy should lend support to rental growth which is Property Investors estimated at c.5% in 2018. En bloc office transactions remain Property investors we cover are trading at 38% discount to our in the limelight with Swire Properties selling its interest in current NAV estimates on a weighted average basis, against its Cityplaza Three and Cityplaza Four in Island East to a China- 10-year average of 30%. Within the sector, we like Wharf REIC based investment company. and Hysan Development which stand to benefit the most from the favourable retail scene. We upgraded Swire Properties to BUY after the recent share price retreat. Low valuations should Retail cushion further downside risk on Hang Lung Properties’ share Thanks to the return of tourists, retail market staged a better- price. than-expected recovery led by sales of expensive luxury products. Positive wealth effect driven by buoyant property market also contributed to increased local consumption on big REITs/Business Trusts ticket items. Overall, we forecast retail sales value to grow by The seven REITs/business trust we cover are trading at 10% in 2018 and 8% in 2019. Increased tenants’ sales should prospective distribution yield of 4.2% on a weighted average translate into higher retail turnover rents and bodes well for basis. This translates to a sector yield spread of 2%, against the reversionary growth in the years ahead. Overall, we forecast average of 3.1%. While the current valuation is not compelling that rents for high-street shops are generally bottoming in enough, the unit buyback program should lend support to Link 2018. Prime shopping malls should see rental growth of 5-8% REIT’s unit price performance. We also like Fortune REIT and while suburban and community malls should rise 3-5%. The Sunlight REIT for their steady growth profile. Interest rate hikes upcoming commissioning of the Express Rail Link and Hong remain the key overhang for the sector. Kong-Zhuhai-Macau Bridge should further boost inbound tourism, thus sustaining the retail market growth.

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China / Hong Kong Industry Focus HK Property Sector

Residential

Major project launches 1H2018

Launch Projects Location Dev eloper T otal Units % sold ASP Units sold (HK$psf) Jan-18 St. Barths Ma On Shan SHKP 420 308 73% 18,000 Jan-18 Astro Sham Shui Po Private Developer 104 62 60% 20,600 Jan-18 Barbington Hill Mid-levels SHKP 79 15 19% 32,300 Jan-18 Novum Point North Point Lee Shau Kee 281 43 15% 27,300 Feb-18 City Hub To Kwa Wan Chevalier 175 105 60% 21,000 Mar-18 Malibu Tseung Kwan O Wheelock & Co. 1,600 1,540 96% 16,000 Mar-18 South Walk Aura Aberdeen Henderson Land 142 113 80% 23,500 Apr-18 Cristallo Ho Man Tin Grand Ming 18 1 6% 36,870 Apr-18 St. Moritz Shatin SHKP 59 10 17% 40,000 Apr-18 Le Cap Shatin Wing Tai Props consortium 69 11 16% 30,000 May-18 Mount Regency Tuen Mun SHKP 522 400 77% 15,500 Jun-18 Solaria Tai Po K. Wah 1,122 668 60% 18,400 Jun-18 Fleur Pavilia North Point New World 611 445 73% 28,000 Jun-18 Cetus Square Mile Tai Kok Tsui Henderson Land 514 396 77% 25,000 Jun-18 Enchantee Sham Shui Po Private Developer 76 27 36% 27,500 Source: Companies, local press, DBS HK

Wheelock is the best-selling developer. Wheelock & Co achieved contracted sales of c.HK$23bn in 1H18, exceeding its full-year sales target. The bulk came from selling Malibu (Lohas K.Wah’s Solaria attracted favourable demand. Since its initial Park Package 5) in Tseung Kwan O. Since its initial launch in launch in Jun-18, K.Wah International has pre-sold 668 units at Mar-18, Wheelock has sold 1540 units at Malibu at Solaria in Tai Po for c.HK$5.8bn or >HK$18,000psf on average, c.HK$16,000psf. This represented 96% of the total 1600 units. which exceeded our expectations. This represents c.60% of a Conveniently located next to Lohas Park MTR Station with total of 1122 units. public transportation facilities, Malibu contains mainly small- sized units, which contributed to its overwhelming market response. Elsewhere, inventory sales of One Kai Tak were also Luxury homes in demand. Luxury market remains in focus. making good progress. Cheung Kong Asset Holdings sold eight luxury houses at Stars by the Harbour in Hung Hom and two at 90 Repulse Bay Road via tender. New World expedited project sales. New World Development has been actively clearing its completed inventory since 2Q18 amid expectations of the government introducing a vacancy In Kau To, SHKP has sold ten luxury houses at St. Moritz for tax. The company expedited inventory sales at Mount Pavilia in c.HK$1.3bn, while a Wing Tai Properties consortium sold Sai Kung and put all the unsold houses at Park Villa in Yuen eleven units at Le Cap for >HK$700m. All of these reflect Long onto the market. As a result, Mount Pavilia is now strong demand for luxury homes among the affluent. substantially sold while Park Villa is fully taken up.

Overall, the primary market heated up after SHKP’s stronger- Capitalising on improved market sentiment, New World than-expected winning bid for the Tai Tak site in May-18. Yet, Development launched Fleur Pavilia in North Point in Jun-18 transaction volume in the primary market fell 22% to 7,591 and has since sold 445 units or 73% of total units. Coupled units. During the same period, transaction value dropped 17% with improving inventory sales at Park Hillcrest and Artisan to c.HK$112bn. House, New World has attained contracted sales of >HK$19bn in 1H18.

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China / Hong Kong Industry Focus HK Property Sector

Primary market transaction volume Secondary market more active than before. In 1H18, 24,422 secondary residential properties changed hands, representing 19% y-o-y increase. Total transaction value in the secondary No of units Jun-18 6M18 market surged 33.4% to c.HK$202bn mainly due to home 4,000 174.8% m-o-m -22.2% y-o-y price appreciation. 3,500 -10.8% y-o-y 3,000 2,500 Secondary market transaction volume 2,000

1,500 No of units Jun-18 6M18 1,000 14,000 -3% m-o-m 18.5% y-o-y 500 12,000 23.5% y-o-y 0 10,000

8,000

Jul-09

Jul-10

Jul-11

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Apr-17 Apr-18 6,000 Source: Centaline Property Agency 4,000

Yearly primary market transaction – volume 2,000

0 No. of units

1H 2H

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30,000 Source: Centaline Property Agency 25,000 20,000 15,000 Home price appreciation continued. In 1H18, residential prices 10,000 rose by another 13%, according to Centa-City Leading Index. 5,000 Prices for small-to medium sized units and large-sized units

0 rose 13% and 11% respectively to all-time highs in 1H18.

1997

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2016 2017 2018 Centa-City Leading index Source: Centaline Property Agency Home price growth 205 Yearly primary market transaction – value YTD 2018: +12.5% 185 2017: +14% 2016 :+7% HK$m 165 2015: +3% 1H 2H 2014: +11% 300,000 145 2013: +3% 125 2012: +21% 250,000 2011: +8% 105 2010: +19% 200,000 2009: +30% 85 150,000 65 100,000 45

50,000

Jul 07 Jul

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Jul 10 Jul

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1996 1997 1998 1999 2000 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2017 2018 2016 2002 Source: Centaline Property Agency

Source: Centaline Property Agency

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China / Hong Kong Industry Focus HK Property Sector

Centa-City Leading index – small/medium units gazettal of the Amendment Ordinance following the passing of the Amendment Bill in Legco. Home price growth 205 YTD 2018: +13% 185 2017: +14% 2016 :+7% 165 2015: +3% In our view, developers are not deliberately delaying project 2014: +12% launches. According to the government, 9,000 completed units 145 2013: +3% remained unsold as Mar-18. But at the same time, we estimate 125 2012: +23% developers have pre-sold some 18,000 units which have yet to 2011: +8% 105 2010: +19% be completed. On this perspective, “unsold” inventory should 2009: +31% not be a key factor leading to a price surge. 85 65

45 Completed but unsold units

Jul 07 Jul

Jul 08 Jul

Jul 09 Jul

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Jul 12 Jul

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Jan 07 Jan

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Jan 11 Jan

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Jan 16 Jan Jan 17 Jan Jan 18 Jan 6,000

Source: Centaline Property Agency 5,000

4,000 Centa-City Leading index – large units 3,000 Home price growth 205 YTD 2018: +11% 2,000 185 2017: +12% 2016 :+4% 1,000 165 2015: +5% 2014: +6% Completed but unsoldunits 145 - 2013: +1% 2011-2015 2016 2017 1Q2018 125 2012: +11% 2011: +7% Completion date 105 2010: +21% 2009: +27% 85 Source: HK Government 65 45

With the introduction of vacancy tax, we believe that

Jul 07 Jul

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Jan 17 Jan Jan 18 Jan developers would adjust their sales strategy, focusing more on clearing completed unsold inventory instead of selling Source: Centaline Property Agency uncompleted projects.

In response to spiralling residential prices, the government We do not rule out of the possibility that developers may offer introduced a new round of housing policies in late June. The some price concessions (<5% of property values) to move sales government has proposed Special Rates (referred here as of completed projects that are otherwise subject to vacancy vacancy tax) for residential flats that have been vacant for 12 tax. This could help cap or moderate the price growth. For months or more after the issuance of the occupation permit. super-luxury projects, affluent buyers usually prefer to make a decision after viewing the completed development. In other words, it is almost difficult for developers to pre-sell these types of projects before project completion (or the issue of The Special Rates would be twice the rateable value of the certificate of compliance). Given the scarcity of such upmarket units, which is equivalent to c.5% of property price. The aim is projects, buyers may bear part of the vacancy tax paid to the to spur developers to speed up project sales. The government government ultimately in form of higher prices. plans to introduce an Amendment Bill into the Legislative Council (Legco) during the 2018-19 legislative year to amend the Rating Ordinance. The Special Rates will take effect after

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China / Hong Kong Industry Focus HK Property Sector

SHKP to pre-sell new developments as well as clear completed unsold inventory. Among major developers, SHKP has more completed unsold residential inventory (c. 1800 units), concentrated in Cullinan West, Grand YOHO and Ultima. We estimate that these completed but unsold units have a combined market value of HK$35-40bn. Assuming they are all subject to vacancy tax, SHKP may have to suffer vacancy tax as much as HK$2bn. SHKP is expected to expedite inventory sales in the coming months to reduce the vacancy tax payment. Shortly after the government unveiled the vacancy tax, SHKP sold a completed luxurious house at Twelve Peaks on the Peak. Cullinan West should also be relaunched in 2H18.

SHKP is now launching St. Martin in Tai Po for sale. Scheduled for completion in 2H19, St Martin contains a total of 1,444 units with 0.9m sf GFA. Judging from the satisfactory response to the launch of K.Wah International’s Solaria in the neighborhood, we believe that St. Martin would be equally popular when it goes on sale.

Sino Land’s projects to take centre stage. In 2H18, Sino Land has a strong project launch pipeline. The company plans to launch a small project, Madison Park, in Sham Shui Po in Jul/Aug. This is a joint venture redevelopment project with Urban Renewal Authority (URA). This will be followed by the launch of Mayfair by the Sea 8 in Tai Po and Grand Central in Kwun Tong. In particular, the Grand Central project, another joint venture with URA, will be the highlight in the primary market. This sizeable redevelopment project is located next to Kwun Tong MTR Station, and offers convenient transportation accessibility. It contains about 2,000 residential units with GFA of 1.5m sf. Judging from the market response to project launches in urban locations such as Kai Tak, we believe that Grand Central should draw strong market interest when offered for sale.

New sales rules become effective. Developers are now required to offer to pre-sell at least 20% of total number of units subject to the relevant pre-sale consent each time when launching uncompleted projects, regardless of the sales methods. If the remaining unsold residential units are <20%, developers have to offer to sell all remaining units in one go. This requirement became effective in late Jun. This rule should inevitably lessen the flexibility of developers in selling their projects, which may affect their ability to maximise the margins. Since these new rules do not apply to projects redeveloped on sites held under old leases, Henderson Land, with sizeable urban redevelopment land, is least affected.

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China / Hong Kong Industry Focus HK Property Sector

Expected project launches in 2H18

Project/ Lot no Location Location Stak e (%) T otal no. Remark of units CKA H IL 8949 Ph 1 HK Mid-levels 100 115 Presale consent pending approval IL 8949 Ph 2 HK Mid-levels 100 66 Presale consent pending approval RBL 177 HK Repulse Bay 100 11 On sale SHKP IL 8963 HK Mid-levels 100 72 Presale consent pending approval Cullinan West Ph 5 Kln West Kowloon 100 1172 Presale consent pending approval KIL 11245 Kln To Kwa Wan 100 228 Presale consent pending approval St. Martin Ph 1 NT Tai Po 100 804 On sale St. Martin Ph 2 NT Tai Po 100 640 Presale consent obtained in Jun-18 Park Vista Ph 2C NT Yuen Long 100 538 Presale consent obtained in Apr-18 Mount Regency Ph 2 NT Tuen Mun 100 495 Presale consent obtained in Jun-18 TMTL 539 NT Tuen Mun 100 263 Presale consent pending approval New World Development Sheung Heung Road project Kln To Kwa Wan 100 294 JV with URA Waterloo Road project Kln Ho Man Tin 51 240 JV with Henderson Land YLTL 524 NT Yuen Long 79 524 JV with Henderson Land Henderson Land 57-69 Ma Tau Wai Road, 2-20 Bailey Street & 18A-30 Sung Chi Kln To Kwa Wan 100 551 Old lease 342-354 Un Chau Street Kln 100 176 Old lease Lot 1752 in DD 122 NT Yuen Long 100 16 Presale consent pending approval YLTL 524 NT Yuen Long 79 524 JV with New World Sino Land Madison Park Kln Sham Shui Po 100 100 Presale consent pending approval Mayfair by the Sea 8 NT Tai Po 100 528 Presale consent pending approval Grand Central Ph 1 Kln Kwun Tong 90 1,024 Presale consent pending approval Grand Central Ph 2 Kln Kwun Tong 90 975 Presale consent pending approval Kerry Properties NKIL 6532 Kln Kowloon Tong 100 45 Presale consent obtained in Mar-18 Lai Sun Development SIL 853 HK Sha Kei Wan 100 144 Presale consent obtained in Apr-18 Wing Tai Properties La Vetta NT Kau To 35 158 Presale consent obtained in Nov-17 TMTL 435 NT Tuen Mun 100 178 Presale consent pending approval T ai Cheung Nearly 110 Repulse Bay Road HK Repulse Bay 100 8 HKR Lot 385 RP in DD 352 & Exts NT Discovery Bay 50 196 Presale consent pending approval Nan Fung (unlisted) RBL1190 HK Island South 100 54 Presale consent obtained in Mar-17 Lohas Park Package 6 NT Tseung Kwan O 100 2,392 Presale consent pending approval China Overseas Land 5 Fei Ngo Shan Road NT Sai Kung 100 5 Presale consent pending approval Source: Lands Department, DBS HK

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China / Hong Kong Industry Focus HK Property Sector

Expected project launches in 2018

Project/ Lot no Location Location Stak e (%) T otal no. Remark of units Far East Consortium The Garrison NT Shatin 100 118 On sale Tan Kwai Tsuen NT Yuen Long 100 24 Presale consent pending approval Chinachem YLTL 512 NT Yuen Long 100 720 Presale consent pending approval Kowloon Development YTTL 42 Kln Yau Tomg 100 646 Presale consent pending approval Paliburg/Regal Hotels STTL 578 NT Kau To 100 160 Billion Development The Horizon NT Tai Po 667 Presale consent pending approval V ank e Le Pont NT Tuen Mun 1154 Presale consent pending approval Chuang's China TMTL 514 NT Tuen Mun 371 Presale consent pending approval Fullsun International KIL 2320 Kln Ho Man Tin 79 Presale consent pending approval Others 45 Tai Tam Road HK Tai Tam 7 Pre-sale consent obtained in Jun-17 L.Living 23 Kln Tai Kok Tsui 142 Presale consent pending approval The Woods NT Sai Kung 6 Pre-sale consent obtained in Apr 16 3 Clear Bay Road NT Sai Kung 8 T Plus NT Tuen Mun 356 Pre-sale consent obtained in Feb-18 L'Aquatique NT Tsing Lung Tau 198 Presale consent pending approval Royal Gem NT Yuen Long 8 Pre-sale consent obtained in Jan-18 TMTL 490 NT Tuen Mun 13 Presale consent pending approval STTL 605 NT Ma On Shan 148 Presale consent pending approval Source: Lands Department, DBS HK

Economic expansion to underpin housing demand. The local Real GDP growth in Hong Kong economy gathered steam. GDP grew 4.7% in 1Q18, which compared favourably with 4Q17’s 3.3% and 3Q17’s 3.6%. % During the same period, median household income posted 10 1Q18: 4.7% y-o-y 7.3% growth. Labour market remains favourable, and the 8 unemployment rate has further improved to 2.8% in the three 6 months ended May-18. Strong economic fundamentals should 4 well support demand for accommodation among locals. 2 0 (2) (4) (6) (8)

(10)

1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 1Q12 3Q11 Source: Census and Statistics Department, CEIC

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China / Hong Kong Industry Focus HK Property Sector

Unemployment rate Median household income growth

% Yoy, % (YoY,%) 9 Mar-18 -May-18:2.8% 15 1Q18: 7.3% Feb-18 -Apr-18: 2.8% 8 10 7 5 6 0 5 (5) 4 (10) 3 (15)

2

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Jan/16 Jan/17 Jan/18 Source: Census and Statistics Department, CEIC Source: HK Census and Statistics Department, CEIC

One-month HIBOR Housing affordability ratio – private households

% 120% Prime base HIBOR base 6.00 Jun-18 63.5% 63.5% 100% 5.00 May-18 61.7% 61.7% 80% 4.00 60% 3.00 40% 2.00 20% 1.00 0%

0.00

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1M HIBOR Prime base HIBOR base

Source: Bloomberg Finance L.P. Source: Centaline Property Agency

Interest rate hikes. -month HIBOR, under which HIBOR- based mortgages are benchmarked against, has shot up Assuming the effective mortgage rate rises by 50bps, we remarkably YTD. It exceeded 2% in late Jun before retreating estimate that housing affordability ratio would rise by c.3 ppts to the current 1.65%, against 1.19% at end-Dec 2017. This to c.66.5%. Other things being equal, home prices have to fall led to an increase in mortgage payments. As a combined result by c.4-5% for the affordability ratio to return to the current of home price hikes and increased mortgage rates, home level. Any improvement in household income, however, could affordability ratio rose c.63.5% in Jun-18, from 56.9% a year help neutralise the price impact of mortgage rate hikes. ago. Stable home prices expected. Overall, the introduction of While the US Fed raised the Fed Fund rate by 0.5ppts in 1H18, vacancy tax may moderate the home price growth but would the Hong Kong banks have yet to raise the prime rate. Effective not lead to any meaningful market correction. Barring any mortgage rates for some mortgage loans are currently capped external shocks such as trade wars escalating that would have at 2.15%, preventing home buyers from suffering even higher repercussions on global economic growth, we expect mortgage repayments temporarily. Having said that, with residential prices to be stable in the coming twelve months. continued hikes in one-month HIBOR, the Hong Kong banks are expected to increase prime rates in 2H18. This would exert further financial burden on home buyers.

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China / Hong Kong Industry Focus HK Property Sector

In 1H18, the government sold four residential or to give MTRC an undisclosed fixed lump sum and 25% of residential/retail sites via tender for HK$41.6bn in total. The development profits. In the coming nine months, MTRC plans winning bids were either at the high end of market consensus to offer three more projects for tender, including Ho Man Tin or ahead of market estimates. The bulk came from Kowloon, Station Package 2, Wong Chuk Hang Station Package 3 and Kai Tak in particular. It is expected that about 2,390 units will Lohas Park Package 11. be built on the sites sold. The URA granted the redevelopment rights to the Tung Chau The Kai Tak residential/retail lot was the highlight of the land Street project to Hong Kong Ferry at a consideration of market in 1H18. SHKP paid HK$25.16bn for this sizeable lot in HK$1.03bn. This marked the first site acquired by Hong Kong May-18, making the land deal the most expensive ever in Hong Ferry via public tender since it joined hands with Walter Kwok Kong. This translated into accommodation value of to purchase a Tuen Mun site in Aug-16. The redevelopment HK$17,777psf, a new high in the Kai Tak area. We believe its project is about 10-minute walk from both Nam Cheong MTR higher land price is mainly attributable to its superior location. Station and Sham Shui Po MTR Station. It will be developed Covering an area of 178,207sf, this site will provide total GFA into two residential towers with 209 units and a retail arcade. of 1.42m sf including 1.07m sf for residential use upon Total GFA is 144,345sf splitting into 97,845sf for residential completion. It is estimated about 1470 units will be built on use and 46,500sf for retail purpose. Upon completion, the the site. Since a portion of this development is expected for retail arcade will return to URA. Based on residential GFA, the retail use, SHKP, with strong retail management, should be in accommodation value stands at HK$10,519psf. If the proceeds better position to maximise the project’s development value from apartment sales exceed HK$1.8bn, URA is entitled to and hence the higher bid. share 20-50% of surplus proceeds. The project is in the proximity to Far East Consortium’s Astoria Crest which has The winning developer is required to build an underground been substantially sold out for HK$20,000psf. Overall, we retail link (GFA: 43,056sf) connecting to the neighbouring Kai estimate c.3,100 units could be built on sites sold via tenders Tak MTR Station and an elderly home. Including the by the government, MTRC and URA in 1H18. construction and financing costs, we estimate the all-in development costs at HK$28,000psf. Local developers bought land through private treaties. In 1Q18, Henderson Land and Wheelock & Co bought a total of Wharf back to the market. Wharf Holdings outbid nine other three residential sites in Kai Tak through private treaties from a developers to secure a Kowloon Tong site for HK$12.45bn China-based conglomerate for HK$22.32bn or c.HK$14,900psf through a government tender in Jan-18. This marked the first on average. This represents c.13% premium to those prices site Wharf acquired via public tender since 2010 and also the paid by this Chinese conglomerate in late 2016/early 2017. first land purchase in Hong Kong after the spin-off of its Hong Adding construction and financing costs, we estimate all-in Kong property investment arm Wharf REIC in Nov-17. The land development costs at HK$24,000psf, similar to the current cost worked out to be HK$28,531psf, 34% higher than that selling prices of comparable projects in Kai Tak. This reflects paid by Kerry Properties for another lot in the area. This serves that Henderson Land and Wheelock both hold positive views as an evidence of surging land prices. The encouraging land on future price appreciation potential in those locations. tender result should also facilitate the launch of Kerry Properties’ luxury project in late 2018. Henderson Land optimised its land portfolio. At the same time, Henderson Land sold its Tuen Mun residential site to Situated near Lion Rock Tunnel, this site is expected to be Evergrande Group for HK$6.6bn or HK$8404psf, 82% higher earmarked for luxury development with GFA of 436,000sf. than what it paid in the tender in Jun-15. At current selling Including construction and interest costs, we estimate total prices in the area, the purchaser may incur a slight loss. Overall, development cost at HK$38,000psf. Henderson Land has improved the quality of its development land bank through a series of site acquisitions and disposals. MTRC awarded the development right of residential project above Yau Tong Ventilation Building to a consortium Elsewhere, a growing number of China-based developers have comprising Sino Land and CSI Properties. This marked the sixth secured sites for development through acquiring old buildings site acquired by Sino Land since Jul-17 and CSI Properties’ first in urban areas. project awarded by MTRC. Scheduled for completion in 2025, this residential project will offer about 500 units with GFA of Converting private residential sites into public housing 0.33msf. Construction period will be longer than a typical purpose. order to better meet the need for more affordable residential development because it involves the relocation of housing, the government will re-designate a total of nine land existing ventilation building. Land premium is fixed at parcels originally earmarked for private residential HK$1.51bn or HK$4,657psf. In addition to being responsible developments into public housing use in the next four fiscal for land premium payment, the winning developer is required years. These sites are located at Anderson Road Quarry and Kai

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China / Hong Kong Industry Focus HK Property Sector

Tak in Kowloon East with 10,600 residential units involved. It is Land parcels for starter home scheme equivalent to 10-15% of annual private residential supply. This should make developers’ land bank replenishment more Fiscal Year Location Num. of plots Num. of units challenging than before. 2018/19 Anderson Road Quarry 1 1,400 2019/20 Kai Tak 3 5,400 2020/21 Anderson Road Quarry 2 1,500 2021/22 Anderson Road Quarry 3 2,300 T otal 9 10,600 Source: HK Government

Land Sales in 1H18

Date Project/Lot No Location Location Usage GF A Land Land Dev elopers Est. no Premium Premium of units (sf) (HK$m) (HK$psf)

Government Tender Jan-18 NKIL 6579 Kowloon Tong Kln R 436,400 12,451 28,531 Wharf 120 Jan-18 LN 1068 in survey district No.3 Kwun Tong Kln R 259,337 3,113 12,003 Chinachem Group 500 Apr-18 TYTL 192 Tsing Yi NT R 102,145 867 8,491 Wang On Group 300 May-18 NKIL 6568 Kai Tak Kln R/C 1,415,399 25,161 17,777 SHKP 1,470

Railway Project Tender May-18 Yau Tong Ventilation Building site Yau Tong Kln R 325,342 1,515 4,657 Sino Land/CSI consortium 500

URA T ender Jun-18 Tung Chau Street redevelopment Sha Shui Po Kln R/C 144,345 1,029 10,519 * Hong Kong Ferry 209 *based on residential GFA as the winning developer is required to return the retail portion to URA Source: Lands Department, Urban Renewal Authority, Local press

Public Engagement Exercise on land supply options. The root 18 land supply options for public comments. To help better cause for spiralling home prices lies with insufficient land consolidate public opinion on tackling the imminent land available for building both public and private residential flats. shortage problem in Hong Kong, the Task Force shortlisted 18 In response to the pressing land shortage problem alongside land supply options that are respectively grouped according to heated debates on land supply issues, the Task Force on Land estimated earliest possible time to deliver land (4 in the short- Supply (Task Force) is now launching a 5-month public to-medium term, 6 in the medium-to-long-term and 8 are engagement exercise to invite public opinion on 18 land supply conceptual options). The public consultation process will close options identified by the Task Force as potential solutions for in Sep-18. The Task Force will rank each option accordingly additional land in Hong Kong. Through the online platform, and compile a report for submission to the Government by the Task Force plans to consolidate the views of the public on December. The decision to be made by the government would the shortlisted options to facilitate the Task Force’s further play a crucial role in shaping the land supply in Hong Kong in action. the long term

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China / Hong Kong Industry Focus HK Property Sector

18 Land Supply options

Short-to-medium term options (additional land supply in around 10 years time) Tapping into Private Alternative Uses of Sites Relocation or Consolidation of Developing Brownfield Sites Agricultural Land Reserve in under Private Recreational Land-Extensive Recreational the leases Facilities Medium-to-long term options (additional land supply in 10-30 years time) Near-shore reclamation Developing the East Lantau Developing caverns and More new development areas outside Victoria Harbour Metropolis underground space in the New Territories Developing two pilot areas on Developing the River Trade the periphery of country Terminal Site parks Conceptual options Developing River Trade Increasing development Topside Development of Terminal Site and its Developing more areas on the Intensity of "Village Type Existing Transport surroundings in the Long periphery of country parks Development" Zone Infrastructure Term Utilising the Development Reclaiming part of Plover Topside Development of Relocation of Kwai Tsing Potential of Public Utilities Cove Reservoir for New Town Kwai Tsing Container Container Terminals Sites Development Terminals Source: HK Government

Page 13

China / Hong Kong Industry Focus HK Property Sector

Office Square in Kwun Tong to consolidate its back office operations currently scattered across Kwun Tong and Quarry Bay. Co- Active leasing market. Office leasing market has remained developed by Wong’s International and SHKP, Two Harbour buoyant YTD, according to Jones Lang Lasalle, with net Square is a 10-minute walk from Kwun Tong MTR Station and absorption in the overall market reaching 1.53m sf in 5M18. offers good sea views. Other committed tenants included This was reflected in improving office vacancy across the Naked Hub, a fast expanding co-working space operator, board. According to Jones Lang LaSalle, the Hong Kong’s which is occupying the highest two floors. Currently, Two overall vacancy stood at 4.3% in May-18, down from Dec-17’s Harbour Square is substantially let. 5.1% led by a noticeable improvement in Kowloon East. The leasing market in Kowloon East was active underpinned by Two Harbour Square tenant decentralisation and consolidation trend.

Office vacancy - overall

% 9.0 8.0 May-18: 4.3% 7.0 6.0 5.0 4.0 3.0 2.0 1.0

0.0

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17 Jan-18

Source:: Jones Lang LaSalle

Office vacancy – all submarkets Source:DBS HK %

12.0 Apr-18 May-18 11.0 11.0 10.2 US-based apparel, footwear and accessories company, VF 10.0 9.0 Corporation, has agreed to take up an additional 90,000sf of 8.0 7.0 office space at Mapletree Bay Point in Ngau Tau Kok to further 6.0 4.4 4.3 5.0 consolidate its operations nearby. This brings the company’s 4.0 2.3 2.5 2.3 total office area committed at the newly built office tower to 3.0 1.5 1.4 2.0 1.9 1.6 2.0 200,000sf. Including space previously let to WeWork 1.0 0.0 (renowned co-working space operator) and Mott MacDonald (UK-based consulting company), Mapletree Bay Point is over

Overall 50% let with monthly rents of HK$25-33psf. Key attraction of

Central HK East HK

Mapletree Bay Point lies with its close proximity to Ngau Tau

Tsimshatsui Bay

Kowloon East Kowloon Kok MTR Station which points to convenient transportation accessibility.

Wanchai/ Causeway Wanchai/ Source: Jones Lang LaSalle

Newly built office towers in Kowloon East made good leasing progress. In 1H18. DBS Bank committed seven office floors (197,000sf) on the low zone of newly built Two Harbour

Page 14

China / Hong Kong Industry Focus HK Property Sector

Mapletree Bay Point The Quayside

Source: DBS HK Source: DBS HK

FTLife committed 100,000sf of office space at newly As a result, office vacancy in Kowloon has improved completed Hong Kong Pacific Tower in Kowloon Bay at a remarkably to 10.2% in May-18 from Dec-17’s 12.5% monthly rent of HK$28psf, relocating from Tsim Sha Tsui. The office relocation should enable the insurer to save rental Office vacancy – Kowloon East expense by some 50%. Completed in late 2018, Hong Kong Pacific Centre built by a private developer offers total GFA of % 0.33m sf. It is in vicinity of Mega Box/Enterprise Square V and 30.0 Exchange Tower, and is about an 8-10 minute walk from May-18: 10.2% Kowloon Bay MTR Station. Our analysis indicates that this 25.0 office tower would offer initial yield on cost of 3.5%. 20.0

Anchor JP Morgan has decided to take up more space at The 15.0 Quayside, co-developed by Link REIT and Nan Fung, to consolidate its back offices. This investment bank will occupy 10.0 275,000 sf or 32% of total GFA of this office development 5.0 which is scheduled for completion in 1H19. Meanwhile, almost 50% of total office area at The Quayside has been pre- 0.0

committed.

Jul-08 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-09

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-15 Jan-16 Jan-17 Jan-18 Jan-14

Source: Jones Lang LaSalle

One Taikoo Place substantially pre-leased. Island East is another office submarket which has been in the spotlight. Multinational corporates have been expediting their office relocations to decentralised areas where office rents are more affordable. Ernst and Young decided to take up four floors at Swire Properties’ One Taikoo Place in Quarry Bay and another four

Page 15

China / Hong Kong Industry Focus HK Property Sector

floors at Oxford House in the neighbourhood. This makes it the Three last “Big Four” accounting firm to relocate out of Central. Targeted for completion in 4Q18, One Taikoo Place provides about 1m sf of Grade A office space. Other pre-committed tenants include MetLife Insurance, Facebook and Baker McKenzie. Meanwhile, this office building is >80% pre- committed. When fully let, One Taikoo Place is estimated to generate rental income of >HK$600m p.a. In May-18, office vacancy stood at a low of 2.3% in Island East, according to Jones Lang LaSalle.

Office vacancy – Island East

% 5.0 May-18: 2.3% 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

Source: DBS HK

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17 Jan-18

Source: Jones Lang LaSalle Lee Garden Three almost fully committed. Goldman Sachs decided to relocate its back-office operations to Lee Garden Three in from The Centre in Central after it was One Taikoo Place sold by Cheung Kong Assets Holdings. Its monthly rent stands at c.HK$60psf, implying rental savings of 25-30%. This has also brought the committed occupancy at Lee Garden Three to c.95%. Since the buyers of The Centre are believed to intend to re-sell The Centre on strata titled basis, we do not rule out the possibility of more existing tenants departing this office building in the years ahead.

Tight vacancy in Central. In Central, office vacancy continued to improve primarily supported by demand from Chinese firms especially in the banking and finance sectors. In May-18, vacancy was low at 1.4%, down from Dec-17’s 1.7%. Given tight vacancy on one hand and limited new supply on the other, Chinese firms have also opted to seek suitable office accommodation outside of Central.

Source: DBS HK

Page 16

China / Hong Kong Industry Focus HK Property Sector

Office vacancy – Central Cityplaza Three & Four

% May-18: 1.4% 6.0

5.0

4.0

3.0

2.0

1.0

0.0

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17 Jan-18

Source: Jones Lang LaSalle

One Hennessy in attracting China-based tenants. The Shanghai Pudong Development Bank and a China-based co-working space operator have pre-committed eight and seven floors at One Hennessy in Wan Chai, which altogether represents c.60% of total office space in the building. Overall, Source: DBS HK the building is c.80% pre-committed. Scheduled for completion in mid-2019, this Grade A office building is being developed by unlisted Chinachem. Swire Properties owns office space of 0.77m sf in total GFA in Cityplaza Three and Cityplaza Four which are connected to Modest office rental growth expected. Office rents in Central Taikoo MTR Station via Cityplaza (a regional shopping mall in remains on an uptrend. It grew some 2% in 5M18, largely in Island East) and has panoramic harbour views. We believe line with the broad market. According to Jones Lang LaSalle, Henglilong Investments bought these properties for investment overall office rents advanced 2.6% in 5M18 with Island East purpose. faring better. The office leasing market should remain in good shape. We forecast the overall office rentals to grow 5-6% in Based on the disposal prices and pre-tax net rental income for 2018. Central is expected to register similar rental growth. 2017, the exit yield is estimated at 2.3%. The exit yield, though Island East could see better rental growth as a result of slightly higher than that for 18 King Wah Road in North Point ongoing office decentralisation among cost conscious MNCs. (sold by Henderson Land earlier this year), remains attractive Under the Greater Bay Area initiative, Hong Kong could from the perspective of Swire Properties taking into account leverage on its strength in providing financial-related services. that 1) Cityplaza Three is not entirely owned by Swire This should be positive to the office demand growth in the Properties (10 floors are owned by the government): 2) medium term. investment sum is larger, and 3) the properties are aging. Comparing with The Centre, their exit yields are similar. En bloc office transaction remains in the limelight. Capitalising on buoyant office valuation, Swire Properties has agreed to sell Since these two properties (Cityplaza Three and Four) are not its interest in Cityplaza Three and Cityplaza Four in Taikoo linked with the Taikoo Place Office clusters, it makes sense for Shing to Henglilong Investments, a Chinese Investment holding Swire Properties to sell the two instead of the other properties company, for HK$15bn or HK$19,490psf in Jun-18. This was if it intends to unlock office value. We expect sales proceeds to the second en bloc office disposal made by Swire Properties be redeployed into new investments near its two key property within two years. In 2016, Swire Properties sold its Kowloon clusters, Pacific Place and Taikoo Place in future. Bay Office Development to a local investor. Octa Tower up for sale. Nan Fung intends to sell Octa Tower in Kowloon Bay. Completed in 2010, Octa Tower provides total GFA of 0.74m sf with occupancy of >90%. Major tenants include CSL and Wing Lung Bank. The property is far from the Kowloon Bay office cluster and MTR Station and hence

Page 17

China / Hong Kong Industry Focus HK Property Sector

commands lower rents. Reportedly, this office building was Sustained new office supply in Kowloon East. Goldin Group sold for HK$8bn to a consortium recently. will redevelop Goldin Financial Global Square, an industrial building in Kowloon Bay, into office use (GFA:0.36m sf) after Strata-titled sales of 38 Wai Yip Street went smoothly. paying land premium of HK$1.652bn or c.HK$4,600psf. The Unlisted Billion Development offered 38 Wai Yip Street, an property was acquired from Emperor International for office development in Kowloon Bay, for strata title sale in Mar- HK$850m in 2011. Located opposite to the newly built Hong 18. Market response has been encouraging. So far, about 40% Kong Pacific Centre and near Mega Box/Enterprise Square V, of office space has been pre-sold for >HK$3bn. The selling the property is about a 10-minute walk from Kowloon Bay price has averaged HK$13,000psf on saleable area basis. Billion MTR Station. In addition to green field office project in Kai Tak, Development has 40% stake in this office project and is the more industrial properties in Kowloon Bay/Kwun Tong are project manager. The balance is equally held by Sino Land and anticipated to be redeveloped into office use following the CSI Properties. The consortium acquired the site where 38 Wai conclusion of land premium negotiation in future years. This Yip Street is being built through a government tender in May- will sustain new office supply in Kowloon East. 15 for HK$3.04bn or HK$6,199psf. Superstructure works of this office project is well underway. Targeted for completion in Goldin Financial Global Square redevelopment site late 2018, this office project will provide GFA of 0.49m sf (or saleable area of 0.61msf). Our analysis suggests that this office development, when fully sold, should yield total pre-tax profit of >HK$3bn.

38 Wai Yip Street

Source: DBS HK

Source: DBS HK

Page 18

China / Hong Kong Industry Focus HK Property Sector

Major office supply

Project Location GF A (sf) Dev elopers 2018 33 Des Voeux Road West Sai Ying Pun 140,000 Nan Fung One Taikoo Place Quarry Bay 1,020,000 Swire Props South Island Place Wong Chuk Hang 382,500 Swire Props/China Motor Bus 54 Wong Chuk Hang Road Wong Chuk Hang 117,451 Multifield Int'l NKIL 6410 Cheung Sha Wan 193,535 First Group (Unlisted) Mapletree Bay Point Kwun Tong 660,301 Mapletree Investment

2019 One Hennessy Wan Chai 314,000 Chinachem 38 Wai Yip Street Kowloon Bay 490,188 Billion Dev/ Sino Land/ CSI Props 8 Bay East Kwun Tong 529,000 Wharf The Quayside Kwun Tong 797,998 Link REIT/ Nan Fung

2020 and beyond IL9051 Central 465,000 Henderson Land 218 Electric Road North Point 143,993 Henderson Land Kut Cheong Mansion Redevelopment Quarry Bay 487,500 New World Development Two Taikoo Place Quarry Bay 1,000,000 Swire Props 4 Yip Fat Street Wong Chuk Hang 140,000 SHKP AIL 462 Wong Chuk Hang 284,982 Sino Land/Empire Group STTL 617 Shatin 171,000 SHKP YTTL 532 Yuen Long 223,929 Sino Land KCTL 495 Kwai Chung 228,033 Hon Kwok Land KCTL 522 Kwai Chung 57,000 SHKP KCTL 517 Kwai Chung 123,505 First Group (Unlisted) 98 How Ming Street Kwun Tong 1,150,004 SHKP/Transportation International Goldin Financial Global Square Redevelopment Kowloon Bay 360,000 Goldin Financial NKIL 6557 Kai Tak 439,167 Lifestyle International NKIL 6556 Kai Tak 1,690,933 Nan Fung NKIL 6505 Cheung Sha Wan 998,201 New World Development NKIL 6582 Cheung Sha Wan 538,755 New World Development NKIL 6572 Cheung Sha Wan 371,096 New World Development Peel Street/Graham Street redevelopemnt Site C Central 310,000 Wing Tai Props/CSI Props Source: DBS HK, Lands Department, Local press

Page 19

China / Hong Kong Industry Focus HK Property Sector

Retail

Retail market recovery gaining momentum Expensive luxury items staging swift sales recovery. In 5M18, Year to date, retail sector recovery has been gaining steam and sales value of expensive luxury goods showed robust growth of run ahead of our expectations, driven by increased tourist 22.8% thanks to the return of tourists. Over the same period, spending and solid local consumption. In the first five months total number of visitor arrivals grew 9.6% to 25.9m led by of 2018 (5M18), total retail sales value in Hong Kong rose 12.7% increase in Mainland China tourists. 13.7% to HK$210bn, which compares favourably with 2.2% recorded in 2017. A notable improvement in luxury goods sales Monthly growth of retail sales value – luxury items* was the core factor in the overall retail sales increase. Yoy, % May-18: 23.8% y-o-y Monthly growth of total retail sales value 80 5M18: 22.8% y-o-y

60 Yoy, % May-18: 12.9% y-o-y 40 40 5M18: 13.7% y-o-y 30 20

20 0

10 (20)

0 (40)

(10)

Jul-09

Jul-13

Jul-17

Jun-08

Jun-12

Jun-16

Oct-08

Oct-12

Oct-16

Apr-10

Sep-11

Apr-14

Sep-15

Apr-18

Dec-10

Dec-14

Nov-09

Nov-13

Nov-17

Mar-09

Mar-13

Mar-17

Aug-10

Aug-14

May-11 May-15

(20)

Jan-Feb 08 Jan-Feb

Jan-Feb 12 Jan-Feb Jan-Feb 16 Jan-Feb

(30) Source: HK Census and Statistics Department, CEIC

* jewelry, watches, clocks and valuable gifts

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16 Jan-17 Jan-18 Visitor arrivals growth – overall Source: HK Census and Statistics Department, CEIC

Yoy, % May-18: 8% y-o-y Yearly growth of total retail sales value 50 5M18: 9.6% y-o-y 40 Yoy, % 30 25 20 20 10 15 0 10 (10) (20) 5 (30)

0

Jul/08

Jul/09

Jul/10

Jul/11

Jul/12

Jul/13

Jul/14

Jul/15

Jul/16

Jul/17

Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Jan/13

Jan/14

Jan/15

Jan/16 Jan/17 (5) Jan/18

(10) Source: HK Tourism Board, CEIC (15)

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016 2017 5M18 Source: HK Census and Statistics Department, CEIC

Page 20

China / Hong Kong Industry Focus HK Property Sector

Visitor arrivals growth – China Centa-City Leading Index

Home price growth Yoy, % 205 May-18: 10.6% y-o-y YTD 2018: +12.5% 60 5M18: 12.7% y-o-y 185 2017: +14% 50 2016 :+7% 40 165 2015: +3% 2014: +11% 30 145 2013: +3% 20 125 2012: +21% 10 2011: +8% 0 105 2010: +19% (10) 2009: +30% 85 (20) (30) 65

(40) 45

Jul/08

Jul/09

Jul/10

Jul/11

Jul/12

Jul/13

Jul/14

Jul/15

Jul/16

Jul/17

Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Jan/13

Jan/14

Jan/15

Jan/16

Jan/17

Jan/18

Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 13 Jul 14 Jul 16 Jul 17 Jul Jul 15 Jul

Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan Jan 12 Jan

Source: HK Tourism Board, CEIC Source: Centaline Property Agency

Positive wealth effect stimulates discretionary spending. The Median Household income growth local economic expansion is gathering pace. In 1Q18, the Hong Kong GDP grew 4.7% y-o-y, the strongest in seven years, and (YoY,%) medium household income expanded 7.3%. These drove up Yoy, % 15 1Q18: 7.3% the local consumption. YTD, home prices have risen c.12-13%, according to Centa-City Leading Index. The resulting positive 10 wealth effect has also given a boost to local consumer sentiment and supported discretionary spending. 5 0

Real GDP growth in Hong Kong (5)

(10) % 10 1Q18: 4.7% y-o-y (15) 8

6

Sep/03

Sep/04

Sep/05

Sep/06

Sep/07

Sep/08

Sep/09

Sep/10

Sep/11

Sep/12

Sep/13

Sep/14

Sep/15

Sep/16

Sep/17

Mar/03

Mar/04

Mar/05

Mar/06

Mar/07

Mar/08

Mar/09

Mar/10

Mar/11

Mar/12

Mar/13

Mar/14

Mar/15

Mar/16

Mar/17 Mar/18 4 2 Source: HK Census and Statistics Department, CEIC 0 (2) (4) In addition to expensive luxury goods, sales value of consumer (6) durable goods and department store items also registered (8) respective increases of 15.4% and 13.9% in 5M18,. (10)

Improving tenants’ sales at landmark malls YTD, there was a

1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 1Q12 3Q11 remarkable improvement in tenants’ sales across the board at landmark malls. Retail sales growth at Harbour City in Tsim Sha Source: Bloomberg Finance L.P. Tsui, Wharf REIC’s retail flagship, accelerated strongly to 37% in 1Q18, from 2017’s 9.1%, primarily led by sales of expensive luxury goods. in Causeway Bay and The Mall at Pacific Place in Admiralty recorded respective tenants’ sales growth of 23% and 25.9%, compared to 1.1% and 7.2% in 2017. In 5M18, Hysan Development’s retail portfolio in Causeway Bay also registered c.30% tenants’ sales growth (excluding Apple). Lee Gardens hub (which accommodates

Page 21

China / Hong Kong Industry Focus HK Property Sector

mainly luxury retailers) and Hysan Place fared better with 5%. Resilient demand for consumer staples bodes well for tenants’ sales growth exceeding 30% in total. Tenants’ sales at tenants’ sales of neighbourhood or community malls. Link MTRC’s Elements atop Kowloon Station, which features luxury REIT’s retail portfolio is a case in point. Average monthly gross brands, also expanded by more than 20% in 1Q18. sales growth of Link REIT’s retail tenants accelerated to 8% in FY18 from 1HFY18’s 7.2%. In particular, its food & beverage Quarterly retail sales growth – Harbour City trades recorded 11.9% growth in sales in FY18, outperforming the market. This reflects that Link REIT’s ongoing tenant mix optimisation is bearing fruit. The disposal of its 40% 37.0% underperforming non-core rental assets also contributed to an 30% improvement in tenants’ sales growth. 20% 17.0% Monthly growth of retail sales value – F&B, Tobacco 10% 6.7% 6.8% 12.5% 4.4% 0% 2.6% 1.4% (YOY%) -1.8% Yoy, % May-18: 5.9% y-o-y -4.9% -6.4%-3.8% -10% -9.6% 25 5M18: 7.2% y-o-y -9.7%-15.1% 20 -20% -18.4% -18.9% 15 -30% 10

5

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17 1Q18 0

(5) Source: Wharf REIC (1997.HK) (10) (15)

Unemployment rate in Hong Kong

Jul-09

Jul-13

Jul-17

Jun-08

Jun-12

Jun-16

Oct-08

Oct-12

Oct-16

Apr-10

Sep-11

Apr-14

Sep-15

Apr-18

Dec-10

Dec-14

Nov-09

Nov-13

Nov-17

Mar-09

Mar-13

Mar-17

Aug-10

Aug-14

May-11 May-15

%

Jan-Feb 08 Jan-Feb

Jan-Feb 12 Jan-Feb Jan-Feb 16 Jan-Feb 9 Feb-18 -Apr-18: 2.8% Jan-18 -Mar-18: 2.9% 8 Source: HK Census and Statistics Department, CEIC

7 Quarterly growth of total restaurant receipts

6 Yoy, % 1Q18: 10% y-o-y 5 18 16 4 14 3 12 10 2 8 6

4

Jan/01

Jan/02

Jan/03

Jan/04

Jan/05

Jan/06

Jan/07

Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Jan/13

Jan/14

Jan/15

Jan/16 Jan/17 Jan/18 2 Source: HK Census and Statistics Department, CEIC 0 (2)

1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 Resilient demand for consumer staples The labour market 1Q08 remains tight. Unemployment rate improved to 2.8% for the three months ended May 18. The median monthly domestic household income grew 7.3% in 1Q18 or 6.3% for those Source: HK Census and Statistics Department, CEIC living in public rental housing. All of these suggest steady demand for consumer staples or non-discretionary spending. Retail sales value of food, alcoholic drinks and tobacco rose 7.2% in 5M18 after growing 3.2% in 2017. Supermarket items recorded a slight 1.5% growth in retail sales value during the same period. Growth of total restaurant receipts accelerated to 10% in 1Q18, from 4Q17’s 6.7% and 3Q17’s

Page 22

China / Hong Kong Industry Focus HK Property Sector

Monthly growth of retail sales value – supermarkets If Rmb continues its depreciation against HK$, this would weigh on the cross-border spending by Mainland tourists. Yoy, % May-18: 2.7% y-o-y 20 5M18: 1.5% y-o-y All considered, we forecast total retail sales values to rise c.10% in 2018, after allowing for the higher comparison base 15 in 2H17. The growth should be mainly supported by improving tourist spending and local consumption on discretionary items. 10 Overall, we forecast that rents for high-street shops are 5 generally bottoming in 2018. Prime shopping malls should see 0 rental growth of 5-8% while suburban and community malls should rise 3-5%. (5)

Despite a swift recovery in the retail market, rents for high-

Jul-09

Jul-13

Jul-17

Jun-08

Jun-12

Jun-16

Oct-08 Oct-12

Oct-16 street shops were generally much lower upon lease renewals or

Apr-10

Sep-11

Apr-14

Sep-15

Apr-18

Dec-10

Dec-14

Nov-09

Nov-13

Nov-17

Mar-09

Mar-13

Mar-17

Aug-10

Aug-14

May-11 May-15

re-lettings as rents fell >43% between 2015 and 2017.

Jan-Feb 08 Jan-Feb

Jan-Feb 12 Jan-Feb Jan-Feb 16 Jan-Feb

Source: HK Census and Statistics Department, CEIC Selected retailers have decided to consolidate their high-street shop portfolios. Esprit is a case in point. Moreover, renowned Tenants’ sales growth – Link REIT international retail brands have reduced their reliance on high- street shops to showcase their products over the years. Instead, YoY%^ they prefer having their stores at well-managed shopping malls

14.0 such as Harbour City. For example, the US-based fashion

12.1 12.1 11.9 12.0 retailer Abercrombie & Fitch has opened a store at Harbour 10.6 City after terminating the operation of flagship store on Pedder

10.0

8.3 8.3

8.1 8

7.9 7.9 Street in Central in July 2017. 6.9

8.0 6.8

6.0 6.0

5.8 5.8

5.6 5.6 5.2

6.0 4.8

4.0

3.9 3.9

3.7 3.4 4.0 3.3 Esprit in Causeway Bay

2.0 0.8 0.0 Food & Supermarket General Overall Beverage & Foodstuff retail*

FY14 FY15 FY16 FY17 FY18

Source: Link REIT (823.HK)

Barring any external shocks such as trade wars escalating, the local economy should remain in good shape for the rest of this year thus supporting local consumer spending.

The Hong Kong-Zhuhai-Macau Bridge is expected to commence operations shortly while the Hong Kong section of Express Rail Link is scheduled to come into service in 3Q18. These infrastructure projects should greatly improve the connectivity between Mainland China and Hong Kong, and give a further boost to inbound tourism from China. This should in turn spice up tourist spending.

Source: DBS HK Having said that, currency fluctuation could potentially be a swing factor on the retail market recovery and is among the Prime shopping malls faring much better than high street key things to watch for. Recently, the local currency showed shops. Landmark malls such as Harbour City and Times Square signs of strengthening along with the US$ given the dollar peg. recorded single-digit rental reversions in 2018. Suburban mall

Page 23

China / Hong Kong Industry Focus HK Property Sector

operator Fortune REIT achieved 10-15% rental growth on T.O.P renewals. Link REIT has fared better with reversionary growth of >25%.

That said, some leases expiring this year were renewed before the retail sales rebound was evident. Hence reversionary growth could be largely neutral or even negative if retail landlords had already re-let space to new trades or tenants.

While retail reversionary growth appears mixed in 2018, a swift retail market recovery should inevitably give landlords more pricing power in future lease negotiations with tenants. To put it differently, this augurs well for reversionary growth in the years ahead.

New malls in focus. With the popularity of online retailing, a shopping mall is more than a place for just shopping and is providing shoppers with a unique retail experience. Thus retail landlords are placing increasing efforts to enhance shopping experience aided by introducing an appropriate trade mix. In recent years, pop up stores have become more common in Source: DBS HK major shopping malls as a means of enriching retail experience.

It is found to be mutually beneficial to landlords and retailers. Hysan Development’s Lee Garden Three also opened for Landlords are able to provide more variety of trades to attract business in late May with tenants gradually moving in. With shoppers while retailers are given an opportunity to gauge the GFA of c.100,000sf, the retail portion of Lee Garden Three is popularity of their products before opening any permanent currently c.90% committed. It features specialty F&B outlets store, thus reducing the business risks. (Starbucks Reserve), homeware and furniture retailers and

fashion brands. Lee Garden Three serves to complement the The newly opened TOP is a case in point. TOP is retail podium retail offering of Lee Garden One, Two and Five nearby to of Link REIT’s 700 Nathan Road. Situated in the heart of enhance the shopping experience. Mongkok, TOP is directly linked with Mongkok MTR Station.

Currently, commitment rate has reached 80%. It features Lee Garden Three mainly F&B outlets and fashion/lifestyle retailers. Anchor tenants include Korea-based fashion retailer Aland which occupies Basement 1 that is connected to Mongkok MTR Station. Besides, Link REIT has also earmarked about 10% of space for pop up stores. This should enable it to better cater for ever-changing retail demand from young shoppers who are the targeted customers.

Source: DBS HK

Developed by a consortium equally owned by Paliburg Holdings and Regal Hotels, WE Go Mall in Ma On Shan opened for business in May-18. With GFA of 164,364sf, it is four-

Page 24

China / Hong Kong Industry Focus HK Property Sector

storey suburban mall serving primarily the daily needs of residents living nearby. Tenants include supermarket, restaurant, ice-skating rinks, F&B outlets and convenience store and education tenants. Currently, the mall is 70% let. If fully leased, WE Go Mall is estimated to produce annual rental income of HK$84m. The site where WE Go Mall is built was acquired through government tender for HK$662m or HK$4028psf in Jun 2013. Including construction and financing costs, we estimated total development costs at HK$1.6bn. This implies initial yield on cost of c.5%.

A retail, entertainment and dining complex at . In May-18, New World Development secured the rights to develop and manage the commercial project at SKYCITY in Chek Lap Kok after defeating four other rivals. This commercial project will be built on sites A2 and A3 of SKYCITY. Located on the northeastern part of the airport island, SKYCITY is adjacent to No. 2 passenger terminal at the Hong Kong International Airport. It is connected to the Boundary Crossing Facilities Island of the Hong Kong-Zhuhai-Macau Bridge (HKZM) project which will be linked with the northwestern New Territories via Tuen Mun-Chek Lap Kok Link. Moreover, the third runway project is scheduled for completion in 2026. These new infrastructure projects should bring in strong customer flows to this commercial complex in the coming decade. Scheduled for phased completion in 2023-27, this commercial development will comprise retail, dining and entertainment facilities with total GFA of 3.77m sf. By office virtue of its strategic location, this sizeable project should attract both tourists and locals. The Airport Authority will grant New World Development on this commercial development for a term up to Sep 2066.

Pursuant to the agreement, New World Development will pay the Airport Authority the higher of guaranteed rental or 20% of gross rental income (which will adjust to 30% subsequently) throughout the lease term. Total development cost, mainly construction expenses, is estimated at HK$20bn. We estimate this integrated commercial development will offer rental yield of c.5.5% when the operation is ramped up.

Page 25

China / Hong Kong Industry Focus HK Property Sector

Hotel Chinese tourists. Overnight visitors and day-trippers from China are forecast to rise 7.4% and 11.8% respectively, which takes Inbound tourism from strength to strength Inbound tourism into account the opening of Express Rail Link (XRL) and Hong recovery, starting from early 2017, has continued to gather Kong-Zhuhai-Macau Bridge (HZMB). The long haul market momentum in 2018. Total visitor arrivals grew 9.6% to 25.9m should remain broadly stable. in 5M18, led by Mainland Chinese tourists. The number of Mainland tourists rose 12.7% to 20.1m, representing 78% of Due to the full-year effect of XRL and HZMB, we estimate total visitors. Overnight visitors and same day travelers from 11.5% growth in Mainland tourists in 2019. This should in turn Mainland China grew 8.9% and 15.2% respectively. The short lead to another 9.1% rise in overall tourist arrivals. Overall, we haul market registered a 1.7% fall in tourist arrivals, dragged project total visitor arrivals to post 3-year CAGR of 6.8% in by Taiwan and Southeast Asia. Among short haul markets, 2017-20, with the corresponding growth of 8.4% and 4.9% Japanese visitors showed 5.3% growth while those from South for day-trippers and overnight visitors. The increase would be Korea fell marginally primairly driven by Mainland Chinese visitors. We forecast day- trippers and overnight visitors from China to rise at a 3-year Visitors from long haul markets grew modestly by 3.2% in CAGR of 9.9% and 6.7% respectively. The corresponding 5M18. In particular, tourists from the US/Canada grew 5.4%. growth for day-trippers should be higher due to the completion of HZMB which would enhance the connectivity Visitor arrivals growth – overall between Hong Kong and Greater Bay Area.

Yoy, % Total visitor arrival May-18: 8% y-o-y 50 5M18: 9.6% y-o-y 40 30 80 20 70 10 60 0 50 (10) 40 (20)

(30) persons) (m 30

20

Jul/08

Jul/09

Jul/10

Jul/11

Jul/12

Jul/13

Jul/14

Jul/15

Jul/16

Jul/17

Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Jan/13

Jan/14

Jan/15

Jan/16 Jan/17 Jan/18 10 Source: HK Tourism Board, CEIC 0 2014 2015 2016 2017 2018F 2019F 2020F 2021F

Visitor arrivals growth – China Source: DBS HK

Yoy, % May-18: 10.6% y-o-y 60 5M18: 12.7% y-o-y 50 40 30 20 10 0 (10) (20) (30)

(40)

Jul/08 Jul/09 Jul/10 Jul/11 Jul/12 Jul/13 Jul/14 Jul/15 Jul/16 Jul/17

Jan/08 Jan/10 Jan/11 Jan/12 Jan/13 Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 Jan/09

Source: HK Tourism Board, CEIC

For the full year of 2018, we project that the total number of visitor arrivals will grow 7.6% to 62.9m, mainly driven by

Page 26

China / Hong Kong Industry Focus HK Property Sector

Hotel boom underway. Supported by 6% growth in overnight Hotel occupancy -overall visitors, the overall hotel occupancy increased 3 percentage points (ppts) to 91% in 5M18. The improvement was across (%) the board. High Tariff A hotels (five star-rated equivalent) saw 100 their occupancy rates rise by 5ppts to 89%. Occupancies of Medium Tariff hotels and High tariff B hotels grew 4ppts and 95 2ppts to 92% and 91% respectively. This was despite increased supply of hotel rooms. 90

Overnight visitor arrival growth per annum - overall 85

80 YOY% 25% 75

20% 70

Jul

Jan

Jun

Feb

Oct

Apr

Sep

Dec

Nov

Mar

Aug May 15% 2016 2017 2018

10% Source: HK Tourism Board, CEIC

5% Hotel occupancy – High Tariff A

0%

2008

2009

2010

2011

2012

2013

2014

2015

2016 2017 -5% 5M18 (%) 95 -10%

90 Source: HK Tourism Board, CEIC

85 Overnight visitor arrival growth per annum - China 80 YOY% 25% 75

20% 70

Jul

Jan

Jun

Feb

Oct

Apr

Sep

Dec

Nov

Mar Aug 15% May 2016 2017 2018

10% Source: HK Tourism Board, CEIC 5%

0%

2008 2009 2011 2012 2013 2014 2015 2016 2017 2010 -5% 5M18

-10%

Source: HK Tourism Board, CEIC

Page 27

China / Hong Kong Industry Focus HK Property Sector

Hotel occupancy – High Tariff B Hotel room rate - overall

(%) HK$/night 100 1600

95 1500 1400 90 1300 85 1200 80 1100

75 1000

70 900

Jul

Jul

Jan

Jan

Jun

Jun

Oct

Feb

Feb

Oct

Apr

Sep

Apr

Sep

Dec

Dec

Nov

Nov

Mar

Mar

Aug

Aug

May May

2016 2017 2018 2016 2017 2018

Source: HK Tourism Board, CEIC Source: HK Tourism Board, CEIC

Hotel occupancy – Medium Tariff Hotel room rate growth - overall

(%) (YOY%) 100 15% 10% 95 5% 90 0% -5% 85 -10% 80 -15% -20%

75

Jul-15 Jul-16 Jul-17 Jul-14

Jan-15 Jan-16 Jan-17 Jan-18

70 Jan-14

Jul

Jan

Jun

Feb

Oct

Apr

Sep

Dec

Nov

Mar Aug

May ARR: All Hotels

2016 2017 2018 Source: HK Tourism Board, CEIC Source: HK Tourism Board, CEIC

The hotel room rates continued on its recovery path with improving momentum. In 5M18, overall hotel room rates grew 7.9% to HK$1,359, compared to 3.2% in fourth quarter 2017. Medium tariff hotels continued to lead the market with 14.3% growth in room rates in the same period. High Tariff hotels are catching up. High Tariff B hotels showed 11.7% increase in room rate during the same period which compares favourably with 6.4% in fourth quarter 2017. Room rates of High Tariff A hotels grew modestly by 4% in 5M18, reversing the downtrend since 2015. .

Page 28

China / Hong Kong Industry Focus HK Property Sector

Hotel room rate growth – High Tariff A With higher occupancies on one hand and increased room rates on the other, the overall Revenue per available room (RevPAR) rose 11.6% largely led by increased room rates in (YOY%) 5M18. Medium Tariff hotels recorded a stronger RevPAR 15% increase of 19.5% followed by High Tariff B hotels (+14.2%) 10% and High Tariff A hotels (+10.2%). 5% 0% Hotel RevPAR (Jan-May 2018) -5% -10% (%)

-15% 25 -20%

20

Jul-14

Jul-15

Jul-16

Jul-17

Jan-14

Jan-15

Jan-16

Jan-17 Jan-18

ARR: HTA 15

Source: HK Tourism Board, CEIC 10

Hotel room rate growth – High Tariff B 5

(YOY%) 0 20% High Tariff A High Tariff B Med Tariff 15% 10% Source: HK Tourism Board, CEIC, DBS HK 5% 0% -5% As of May-18, there were 284 hotels with 79,321 guest rooms, -10% up 2.3% from a year earlier. High Tariff A and B hotels -15% accounted for 23.9% and 38.1% respectively. The balance -20% came primarily from Medium Tariff hotels. Between 2017 and -25% 2020, we project that total hotel room supply to increase at 3-

year CAGR of 3.9%.

Jul-15 Jul-16 Jul-17 Jul-14

Jan-15 Jan-16 Jan-17 Jan-18 Jan-14 ARR: HTB Breakdown of hotel rooms – May 2018

Source: HK Tourism Board, CEIC Unclassified High Tariff 7% A Hotel room rate growth – Medium Tariff 24%

(YOY%) Med Tariff 25% 31% 15%

5%

-5%

-15% High Tariff B -25% 38%

Source: HK Tourism Board

Jul-14 Jul-15 Jul-16 Jul-17

Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

ARR: Med Tariff

Source: HK Tourism Board, CEIC

Page 29

China / Hong Kong Industry Focus HK Property Sector

Based on our projection of the growth of overnight visitors and Harbourview Horizon Suite Hotel in Hung Hom into office hotel room supply, we estimate the overall hotel occupancy towers with 1.1msf of space. The company has submitted the will stand at c.91% on average in 2018-20. Given consistently application to the government for redevelopment of its high occupancy rates expected, there should be upward Harbourfront Horizon Suite Hotel in the neighbourhood into pressure on room rates as well as RevPAR in future years. We office buildings. These two sizeable hotels provide a total of forecast the overall RevPAR to grow 8-10% in each of 2018 3642 suite rooms, mainly for extended stay guests. Since the and 2019. lease provides for office development, no land premium is required if they are redeveloped into office use. In our view, it Redeveloping hotels into offices. Given the buoyant makes sense for Cheung Kong Assets Holdings to contemplate commercial property valuations, a growing number of well- to exploit the value of the site through office redevelopment located three or four star rated hotels are being or will be given surging valuation of trophy office assets. If redeveloped, redeveloped into commercial properties to maximise the site total hotel room inventory in Hong Kong would reduce by 4- value. J Plus is a case in point. A local investor bought this hotel 5%. from CSI Properties in early 2017 which is now being demolished for commercial redevelopment. This could Redevelopment of Mariners’ Club In Feb 2018, Empire Group, potentially dilute hotel room growth. controlled by Walter Kwok, secured the redevelopment and operation rights of Mariners’ Club through tender. Located in the heart of Tsim Sha Tsui, Mariners’ Club is in close proximity J Plus Hotel to Sheraton-Hong Kong Hotel, Victoria Dockside and a commercial tower built by Henderson Land. It will be redeveloped into a hotel with club house facilities. With GFA of c.0.35m sf, this hotel redevelopment is scheduled for completion in 2022. Including the land premium of HK$1.13bn, total investment cost is estimated at HK$6bn.

New hotels in Ap Lei Chau. In Feb 2018, Hong Kong Electric accepted the land premium offer from the government for redeveloping its former operational headquarters and carpark Building in Ap Lei Chau into a hotel property. Back in 2004, Hong Kong Electric had obtained approval from the Town Planning Board to redevelop the site into a 510-room hotel with GFA of 0.37msf. The land premium is set at HK$663m or HK$1815psf. Hong Kong Electric then entered into a framework agreement with its affiliate company Cheung Kong Asset Holdings in relation to this hotel development. Cheung Kong Asset Holdings and Hong Kong Electric will be responsible for paying land premium of HK$550m and HK$113m respectively

Source: DBS HK

A private local developer, Tai Hung Fai, bought the 90-room Butterfly on Waterfront in Sheung Wan for HK$810m or HK$9m/rm. The company will combine this with adjacent sites it already owns for office redevelopment. With c.0.3m sf GFA, this new office tower would offer good sea views. In the recent years, office prices in Sheung Wan have been surging. Offices at Shun Tak Centre are cases in point. Hence, this makes sense to exploit the property value by redeveloping hotels into office properties.

Cheung Kong Assets Holdings obtained the building plan approval from the Building Department to redevelop the

Page 30

China / Hong Kong Industry Focus HK Property Sector

Property Developers  Sun Hung Kai Properties (SHKP) made its foray into Kai Tak with a record-breaking acquisition of a sizeable residential/commercial site in May-18. The launch of St. Share price performance Barths in Ma On Shan and Mount Regency in Tuen Mun received encouraging market response. With low land Return costs, these two residential developments should bring in Name 1M 3M 6M YTD* 12M decent profit margins. With the proposed vacancy tax, we expect SHKP to expedite sales of completed unsold Dev elopers (%) (%) (%) (%) (%) inventory in the coming months. The stock is trading at CK Asset Holdings (9.1) (6.8) (13.6) (11.4) 2.6 49% discount to our assessed current NAV. Given Henderson Land (11.5) (11.1) (15.0) (12.9) 3.4 compelling valuations, we maintain our BUY call and K Wah Int'l (17.6) (14.5) (5.3) (1.9) (2.9) HK$148.8 TP. Kerry Props (11.7) 3.5 0.5 2.0 38.2  Cheung Kong Asset Holdings has been redeploying capital Lai Sun Dev (12.2) (0.5) (9.8) (7.7) (5.5) generated from asset divestments in Hong Kong/China MTR Corp (3.8) 1.0 (7.1) (7.3) (0.5) into new investments overseas. After completing the New World Dev (10.1) (0.8) (9.2) (5.7) 15.6 disposal of in Sheung Wan, Cheung Kong Sino Land (11.7) (1.7) (13.8) (9.2) 1.0 Asset Holdings acquired 5 Broadgate, an office building in Central London, for GBP1bn from British Land/GIC. Initial SHKP (6.5) (4.3) (11.0) (8.8) 3.2 yield is estimated at c.4% and should gradually improve. Tai Cheung (4.5) (1.5) (5.9) (4.1) 6.5 In addition, the company, together with CKI, CK Wharf (1.4) (2.2) (17.9) (8.8) n.a. Hutchison and Power Assets, submitted an indicative non- Wheelock & Co (8.4) (5.5) (8.1) (3.2) (4.6) binding conditional proposal to acquire APA, Australia- listed energy infrastructure company, for A$12.96bn. The Wing Tai Props (8.1) 4.3 17.2 17.2 21.3 stock is trading at 45% discount to our assessed current Market cap wt. (7.9) (4.1) (10.9) (8.3) 3.5 NAV. BUY with HK$77 TP.

Hang Seng Index (9.4) (5.1) (8.4) (7.4) 11.2  Henderson Land Development has been optimising its  YTD, share prices of property developers under our property portfolio. Proceeds from selling North Point office coverage fell 8% on a weighted average basis, and development and Tuen Mun residential site were recycled underperformed the landlords and the broader market, for acquisition of two Kai Tak sites which offer better price despite home price hikes. Small-to-mid cap developers appreciation potential. This lays down solid foundations delivered a better price performance than heavyweight for its long-term growth. Henderson Land has 50 urban counterparts. Wing Tai Properties gained 17% as the redevelopment projects (total attributable GFA of c.4msf) company crystallised the high value of W Square in Wan with >80% ownership secured. These projects are not Chai and increased dividends to reward shareholders. subject to the new stricter sales rules for uncompleted projects recently announced by the government, and gives  Property developers we cover are now trading at discounts the company more flexibility in project pre-sales over its of 18-74% to their respective NAV estimates. This competitors. The stock is trading at 51% discount to our translates into a sector discount of 47% on a weighted estimated current NAV. BUY with HK$52.25 TP. average basis, compared with its 10-year average of 29%. The current valuation is undemanding from a historical  New World Development was awarded the development perspective. While there are trading opportunities for the rights of an integrated commercial project at SKYCITY in sector, policy noises and interest rate hikes would Chek Lap Kok in May-18. The project is strategically inevitably place a cap on sector upside. Barring any located close to the Hong Kong International Airport and adverse external shocks, we prefer Sino Land which has a Hong Kong-Zhuhai-Macau Bridge that ensures strong robust project launch pipeline for the rest of the year. A tourist flow. The project will be a retail, dining, office and favourable sales response is a share price catalyst. We also entertainment destination with GFA of 3.77m sf. like New World Development which offers good long-term Elsewhere, the company expedited inventory sales in Hong value with its new investments. Kong in recent months. Mount Pavilia, Artisan House and Park Hillcrest are now substantially sold. The launch of Fleur Pavilia was greeted with favourable market response. The stock is trading at 56% discount to our assessed current NAV. BUY with HK$14.50 TP.

Page 31

China / Hong Kong Industry Focus HK Property Sector

 Sino Land has a strong project launch pipeline in 2H18. In in determining if Kerry can meet its full-year sales target. particular, Grand Central in the heart of Kwun Tong will Kerry Properties has higher exposure to the luxury market take centre stage. Situated adjacent to Kwun Tong MTR segment in Hong Kong than its peers. These projects may Station, this sizeable project will offer c.2,000 units with be subject to the proposed vacancy tax. The stock is GFA of 1.5msf upon scheduled completion in FY21. trading at 56% discount to our estimated current NAV. Judging from the demand for other urban projects, we HOLD with HK$39 TP. believe that this conveniently located residential development should draw strong market interest upon  MTRC has received good response to the launch of its pre-sale. This would make it an earnings engine for Sino projects at Lohas Park given improving sentiment in Land in the medium term. Expected favourable sales the housing market. While Wings at the Sea continues to response should improve the sentiment towards the stock. sell well, Malibu has been substantially pre-sold since its The counter is trading at 52% discount to our estimated initial launch in Mar-18. In May-18, MTRC tendered out current NAV. BUY with HK$14.7 TP. the Yau Tong Ventilation Building site to Sino Land-led consortium. The company is offering Wong Chuk Hang  Wheelock & Co’s Malibu in Tseung Kwan O is now almost Station Package 3 for tender, followed by two other sold out since its initial launch in Mar-18. As a result, the projects including Ho Man Tin Station Package 2 and company has achieved contracted sales of c.HK$23bn Lohas Park Package 11 in the coming months. This would YTD, significantly above its full-year sales target of lay down good foundations for future earnings growth. HK$10bn. With strong proceeds from residential sales, Tenants’ sales at MTRC’s retail portfolio grew >10% in Wheelock & Co should see no difficulty in funding the 1Q18, led by Elements. But, overall retail reversionary recent purchase of a Kai Tak site. We believe that the growth should remain largely neutral. The stock is trading company is financially sound for making further land at 18% discount to our estimated current NAV. BUY with acquisitions to replenish its land bank. There exists a HK$47.4 TP business overlap between Wheelock and its listed subsidiary Wharf. A move to optimise the group  K.Wah International achieved contracted sales of restructure would benefit Wheelock ultimately. The stock >HK$8bn including >HK$6bn from Hong Kong and is trading 39% below our estimated current NAV. BUY c.HK$2bn from China. The launch of Solaria in Tai Po met with HK$70 TP with satisfactory market response, which points to high development earnings visibility in the next couple of years.  Wharf’s contracted sales in China tumbled 73% to The Peak and Royal Creek in Nanjing, and Silver Cove Ph 3 Rmb1.6bn in 1Q18, representing 7% of its full-year sales in Dongguan continues to sell well. The launch of Uptown target of HK$22bn, due to the lack of new project in Huadu also received good response. Rental income is launches. Given the prevailing price restrictions in certain set to grow further aided by contributions from newly cities and low lock-in rate, it could be challenging for the added investment properties. The stock is trading at company to meet its full-year sales target. Newly opened 70% discount to our assessed current NAV. BUY with Changsha IFS Mall is 94% committed with tenants HK$6.24 TP. occupying 70% of space opening for business. With proactive land banking in Hong Kong/China and heavy  Wing Tai Properties launched Le Cap in Kau To for sale in equity investments YTD, Wharf is in net debt position with Apr-18 with favourable market response. A garden house estimated gearing of c.15%. While we believe that Wharf fetched the highest price in the area. This low-density could be a potential privatisation candidate given its luxury project should dominate the company’s near term business overlap with Wheelock, there is no near-term development earnings. The nearby La Vetta and The catalyst to narrow its discount of 47% to our appraised Carmel in Tuen Mun are expected to go on sale in late current NAV. Maintain HOLD at this stage with HK$26.10 2018 and early 2019. On the other hand, the Shau Kei TP. Wan waterfront project will be retained for long-term investment after completion in 2019. This should help  In 5M18, Kerry Properties generated sales proceeds of partially compensate for the rental income shortfall HK$4.7bn from Mantin Heights and Bloomsway in Hong following the disposals of W Square and Winner Godown Kong, both of which have been substantially taken up. Building. Flagship investment property Landmark East in This represented 52% of its full-year sales target in Hong Kwun Tong should see moderating reversionary growth Kong. During the same period, the company locked in just given rising expiring rents. The stock is trading 68% below 23% of its full-year targeted contracted sales from China our assessed current NAV. BUY with HK$7.54 TP. due to the lack of new project launches. The planned launch of Qianhai Kerry Centre would therefore be crucial

Page 32

China / Hong Kong Industry Focus HK Property Sector

 After Metropole Square in Shatin was virtually sold out, Tai redevelop its three adjacent properties at 100, 106 & 107 Cheung focused on selling the remaining five luxury Leadenhall Street into a 56-storey office tower with GFA houses at Plunkett’s Road project on the Peak. The interior of 1.098m sf. The company plans to commence the decoration works at its Repulse Bay luxury development is redevelopment when all existing leases expire in 2023. We almost completed. Commanding unmatched sea views, estimate this redevelopment could enhance its NAV by this superbly located luxury project should be a profit HK$2.66bn, and would be a key earnings catalyst in the bonanza in the medium term. With strong net cash medium term. The stock is trading at 68% discount to our holding of >HK$3bn, Tai Cheung is well positioned to assessed current NAV. BUY with HK$16.40 TP. maintain its generous dividend payout and pursue new land acquisitions. However, given growing market  With successful pre-sale or sale of COO Residence, Kau To uncertainties, the company will adopt a prudent approach Highland, 38 Wing Yip Street & 2-4 Shelly Street, CSI in land banking in the near term. The stock is trading at Properties has locked in >HK$1bn development profits. 62% discount to our appraised current NAV. Excluding its This has helped to increase the company’s earnings current net cash holding, the remaining stub is trading at visibility. CSI Properties plans to launch its luxury project at 83% discount. BUY with HK$10.70 TP. Jardine’s Lookout for sale in 4Q18. Any favourable market response could improve sentiment towards the stock  Lai Sun Development has obtained approval from the City which is trading at 74% discount to our assessed current of London’s Planning and Transportation Committee to NAV. BUY with HK$0.64 TP.

Valuation comparison (Property Developers)

Disc. to Mk t Last 12-m PE PE J un-19 J un-19 Yield Yield Company Code FYE Cap Price target Recom F Y18 F Y19 NAV NAV F Y18 F Y19 HK$bn HK$ HK$ x x HK$ % % % CK Asset Holdings 1113 HK Dec 226 61.15 77.00 BUY 6.9 8.4 115.3 (47) 2.9 3.1 CSI Property 497 HK Mar 4 0.44 0.64 BUY 4.3 4.0 1.8 (76) 3.2 3.2 Henderson Land 12 HK Dec 181 41.20 52.25 BUY 10.0 13.3 87.1 (53) 4.2 4.2 K Wah Int'l 173 HK Dec 13 4.36 6.24 BUY 3.8 3.5 15.6 (72) 4.4 4.4 Kerry Props 683 HK Dec 53 36.60 39.00 HOLD 9.7 8.6 86.8 (58) 3.8 3.8 Lai Sun Dev 488 HK Jul 8 12.50 16.40 BUY 89.4 7.2 41.0 (70) 0.8 0.8 MTR Corp 66 HK Dec 262 42.90 47.40 BUY 24.9 23.1 55.9 (23) 2.6 2.6 New World Dev 17 HK Jun 113 11.04 14.50 BUY 14.2 11.6 26.4 (58) 4.3 4.6 Sino Land 83 HK Jun 82 12.36 14.70 BUY 7.5 20.4 26.8 (54) 7.9 ^ 4.3 SHKP 16 HK Jun 346 119.50 148.80 BUY 11.8 10.7 248.0 (52) 3.7 4.0 Tai Cheung 88 HK Mar 5 8.85 10.70 BUY 15.4 8.7 23.8 (63) 4.0 4.0 Wharf 4 HK Dec 78 25.60 26.10 HOLD 11.8 12.3 52.2 (51) 3.1 3.1 Wheelock & Co. 20 HK Dec 112 54.80 70.00 BUY 9.7 8.6 100.0 (45) 2.6 2.7 Wing Tai Properties 369 HK Dec 9 6.34 7.54 BUY 7.1 11.9 21.5 (71) 4.3 3.8 Source: Thomson Reuters, DBS HK ^include proposed special dividend

Page 33

China / Hong Kong Industry Focus HK Property Sector

Cheung Kong Asset Holdings – Discount to NAV Cheung Kong Asset Holdings – Discount to NAV band

HK$ (25) 85 +2SD: -29% 80 -30% (30) 75 +1SD: -34% -37% (35) 70 65 Average: -40% (40) 60 -44% (45) 55 50 -51% (50) -1SD: -45% 45 -58% (55) 40 -2SD: -50% 35

(60)

Jun-15

Jun-16

Jun-17

Jun-18

Oct-15

Oct-16

Oct-17

Feb-16

Feb-17

Feb-18

Apr-16

Apr-17

Apr-18

Dec-15

Dec-16

Dec-17

Aug-15

Aug-16

Aug-17

Jun-15

Jun-16

Jun-17

Jun-18

Oct-15

Feb-16

Oct-16

Feb-17

Oct-17

Feb-18

Apr-16

Apr-17

Apr-18

Dec-15

Dec-16

Dec-17

Aug-15 Aug-16 Aug-17 Henderson Land – Discount to NAV Henderson Land – Discount to NAV band

% HK$ 30 120 20 18% 10 100 +2SD: -8% 0 -2% 80 (10) +1SD: -22% (20) 60 -23% (30) Average: -35% -43% (40) 40 (50) -1SD: -49% -63% (60) 20 -2SD: -62%

(70) 0

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16 Jan-17 Jan-18

K Wah International – Discount to NAV K Wah International – Discount to NAV band

% HK$ (35) 8.0 (40) -50% (45) 7.0 -58% (50) +2SD: -55% 6.0 (55) +1SD: -60% 5.0 (60) Average: -65% -66% (65) 4.0 -1SD: -70% -74% (70) -2SD: -75% 3.0 (75) -82% (80) 2.0

(85) 1.0

Jul-10

Jul-16

Jul-10

Jul-16

Oct-14

Feb-13

Sep-09

Apr-12

Feb-13

Oct-14

Dec-13

Sep-09

Apr-12

Dec-13

Mar-18

Mar-18

Aug-15

May-11

May-17

Aug-15 May-11 May-17 Source: Thomson Reuters, DBS HK

Page 34

China / Hong Kong Industry Focus HK Property Sector

Kerry Properties – Discount to NAV Kerry Properties – Discount to NAV band

% HK$ 40 120 20 +2SD: -6% 100 30% 0 80 +1SD: -26% 3% (20) - 60 -24% (40) Average: -47% 40 -50% (60) -1SD: -68% 20 -77% (80) -2SD: -89% 0

(100)

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16 Jan-17 Jan-18 MTR Corp – Discount to NAV MTR Corp – Discount to NAV band

% HK$ 10 62 5 57 7% 0 52 -2% (5) +2SD: 0% 47 -10% (10) +1SD: -6% (15) 42 -19% Average: -13% (20) 37 -27% (25) -1SD: -19% 32 (30) -2SD: -25% 27 (35)

22

Jul-12

Jul-16

Jan-12

Jan-16

Sep-10

Sep-14

Apr-10

Apr-14

Apr-18

Dec-12

Dec-16

Nov-09

Nov-13

Nov-17

Jul-12

Jul-16

Mar-11

Mar-15

Aug-11

Aug-15

May-09

May-13

May-17

Jan-12

Jan-16

Apr-10

Sep-10

Apr-14

Sep-14

Apr-18

Dec-12

Dec-16

Nov-09

Nov-13

Nov-17

Mar-11

Mar-15

Aug-11

Aug-15

May-09 May-13 May-17 New World Development – Discount to NAV New World Development – Discount to NAV band

% HK$ 0 35 (10) 30 (20) +2SD: -31% 25 (30) -22% +1SD: -41% (40) 20 Average: -52% -2% (50) 15 (60) -42% 10 (70) -1SD: -63% -61% (80) -2SD: -74% 5 -81% (90)

0

Jul-07 Jul-08 Jul-10 Jul-11 Jul-12 Jul-13 Jul-15 Jul-16 Jul-17 Jul-18 Jul-09 Jul-14

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Jan-07 Jan-08 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-09 Source: Thomson Reuters, DBS HK

Page 35

China / Hong Kong Industry Focus HK Property Sector

Sino Land – Discount to NAV Sino Land – Discount to NAV band

% HK$ 60 35 27% 40 30 2% 20 25 +2SD: -4% 0 20 -23% +1SD: -21% -23% (20) Average: -38% 15 -48% (40) 10 -1SD: -54% -73% (60) -2SD: -71% 5

(80) 0

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16 Jan-17 Jan-18 Sun Hung Kai Properties – Discount to NAV Sun Hung Kai Properties – Discount to NAV band

% HK$ 40 320 30% 20 270 +2SD: 4% 8% 0 220 +1SD: -14% -14% (20) Average: -32% 170 -36% (40) 120 -1SD: -50% -58% (60) 70 -2SD: -68%

(80) 20

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16 Jan-17 Jan-18 Tai Cheung – Discount to NAV Tai Cheung – Discount to NAV band

% HK$ (35) 16 -38% (45) 14 -49% 12 (55) +2SD: -49% 10 -61% +1SD: -55% (65) 8 Average: -62% -72% (75) 6 -1SD: -68% 4 -83% (85) -2SD: -75% 2

(95) 0

Jul-07

Jul-08

Jul-17

Jan-08

Jan-18

Jul-07

Jul-16

Jul-17

Jun-16

Feb-09

Feb-10

Oct-12

Oct-13

Sep-11

Apr-13

Dec-15

Dec-16

Nov-14

Jan-07

Jan-17

Mar-11

Mar-12

Jun-15

Aug-09

Aug-10

Oct-11

Oct-12

Feb-08

Feb-09

Feb-18

May-14

May-15

Sep-09

Sep-10

Apr-11

Apr-12

Dec-14

Dec-15

Nov-13

Mar-10

Aug-08 May-13 May-14 Source: Thomson Reuters, DBS HK

Page 36

China / Hong Kong Industry Focus HK Property Sector

Wheelock – Discount to NAV Wheelock – Discount to NAV band

% HK$ 20 120 10 +2SD: -6% 100 0 13% --2%2% (10) +1SD: -17% 80 -17% (20) Average: -29% 60 -32% -32% (30) -47% -1SD: -41% 40 -47% (40) (50) -2SD: -53% 20

(60) 0

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17 Jan-18

Wing Tai – Discount to NAV Wing Tai – Discount to NAV band

% (40) 11.0 -51% (45) 10.0 9.0 -57% (50) +2SD: -57% 8.0 (55) -63% +1SD: -62% 7.0 (60) -68%-68% 6.0 Average: -66% (65) 5.0 -74% -1SD: -70% (70) 4.0 -2SD: -74% (75) 3.0

(80) 2.0

Jul-13

Jul-18

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Jan-16

Jun-16

Oct-14

Feb-13

Feb-18

May-12

May-13

May-14

May-15

May-16

May-17

May-18

Apr-12

Sep-12

Apr-17

Sep-17

Dec-13

Nov-11

Nov-16

Mar-15 Aug-15 May-14

Property developers – Discount to NAV

% 30 20 10 +2SD: 0% 0 (10) +1SD: -15% (20) Average: -29% (30) (40) (50) -1SD: -44% (60) -2SD: -59%

(70)

Jul/07

Jul/08

Jul/09

Jul/10

Jul/11

Jul/12

Jul/13

Jul/14

Jul/15

Jul/16

Jul/17

Jul/18

Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Jan/13

Jan/14

Jan/15

Jan/16 Jan/17 Jan/18 Source: Thomson Reuters, DBS HK

Page 37

China / Hong Kong Industry Focus HK Property Sector

Property Investors The stock is trading 26% below our assessed current NAV. BUY with HK$65.4 TP.

Share price performance  The vacancy at Hongkong Land’s Central office portfolio tightened to <1% in Mar-18. Against this favourable 1M 3M 6M YTD 12M backdrop, positive rental growth was achieved upon lease Name (%) (%) (%) (%) (%) renewals or new lettings, and this trend should continue in Hang Lung Props (14.1) (14.3) (22.6) (18.4) (22.2) the year ahead. On the other hand, the effectively fully-let retail portfolio, however, saw mildly negative revision in HK Land @ (1.3) 2.9 (1.3) 0.7 (4.4) base rents. Office reversionary growth for Singapore Hysan Dev (9.3) (0.2) (3.8) 1.2 15.1 portfolio is envisaged to turn positive towards end-18. Swire Props (6.6) 7.0 7.5 14.9 10.6 Over time, residential sales earnings is becoming Wharf REIC (9.9) 6.6 n.a. 9.1 n.a. increasingly important to its bottomline. In Apr-18, Hongkong Land bought back its shares, the first share Market cap wt. (9.1) 2.2 (0.5) 4.7 0.4 repurchase it has made in more than 15 years. This Hang Seng Index (9.4) (5.1) (8.4) (7.4) 11.2 signalled its strong embedded value. The stock is trading Source: Bloomberg Finance L.P., DBS HK at 42% discount to our appraised current NAV. BUY with US$8.57 TP.

 YTD, property investors we cover staged a relatively better share price performance than property developers, REITs  Swire Properties agreed to dispose of its interest in as well as the Hang Seng Index. Swire Properties’ share Cityplaza Three and Cityplaza Four in Taikoo Shing to a price gained 15% as the company stands to benefit the China-based investment company for HK$15bn or most from the ongoing office decentralisation. As the HK$19,490psf. Exit yield is estimated at 2.3% which prime beneficiary of a swift recovery in the retail market, remains attractive to the company taking into account that Wharf REIC’s shares gained 9% YTD. On the other hand, the property is aging, and Cityplaza Three is not entirely share price performance of Hang Lung Properties owned by Swire Properties. The proceeds is expected to be remained lacklustre during the period especially after it redeployed into new investments near its key property acquired a site in Hangzhou. clusters, Pacific Place and Taikoo Place. But we do not rule of the possibility of distributing a special dividend to reward shareholders. Swire Properties is tapping the  Property investors are now trading at a 38% discount to growing demand for decentralised offices among our current NAV estimates on a weighted average basis. multinational corporates. The soon-to-be-completed One This compares with its 10-year average of 30%. Within Taikoo Place is over 80% pre-committed. The stock is the sector, we prefer Wharf REIC. The company stands to trading at 37% discount to our assessed current NAV. tap on the booming retail market which should receive a Upgraded to BUY with HK$34.25 TP further boost from the forthcoming completion of the Express Rail Link and Hong Kong Zhuhai Macau Bridge. By the same token, we also like Hysan Development which is  Tenants’ sales of Hysan Development’s retail portfolio trading at an attractive valuation. We upgraded Swire jumped c.30% in 5M18, led by Lee Gardens hub and Properties to BUY after the recent share price retreat. Hysan Place. Retail sales growth at Lee Theatre hub was Following the recent sell-off, low valuations should relatively slower at 7-8% during the same period. About cushion any further downside risks for Hang Lung 35% of retail floor area is scheduled for rental roll over. Properties. Some 20% of the area will be re-let to new tenants to enhance the shopping experience. Despite short term rental shortfall, this tenant remix should boost the  Supported by swift recovery in the retail market, Wharf portfolio’s long-term competitiveness. About 24% of REIC’s two landmark malls, Harbour City and Times office lease is scheduled for renewal in 2018 with Square, recorded spectacular tenants’ sales growth of reversionary growth expected to moderate to 5-6%. 37% and 23% respectively in 1Q18, mainly led by luxury Committed office occupancy of newly built Lee Garden products. This should translate into higher turnover rents has risen to 95%. Retail portion held a soft opening in immediately as well as underpin strong reversionary May-18 with commitment rate reaching c.90%. This growth in the years ahead, pointing to good retail revenue office/retail property should generate annual rental growth. Wharf REIC is converting its serviced apartments receipts of HK$300-350m p.a. The stock is trading at 44% at Hampton Court into office premises, and allow the discount to our assessed current NAV. BUY with HK$51.15 company to exploit the earnings potential of Harbour City. TP.

Page 38

China / Hong Kong Industry Focus HK Property Sector

 Hang Lung Properties made its foray into Hangzhou with Pre-leasing of Spring City 66 has been progressing well the acquisition of an office/retail site for Rmb10.7bn in with about 40% of space already pre-committed. Portfolio May-18. This marked its first land purchase in more than expansion and the completion of asset enhancement five years. Tenants’ sales growth at Plaza 66 remains initiatives should add momentum to the company’s rental healthy at mid-teens in 1Q18. Excluding , retail income growth from FY19/20 onwards. The stock is malls outside of Shanghai saw retail sales growth of trading at 54% discount to our assessed current NAV and c.10% with positive rental reversion. Office occupancies at offers dividend yield of 4.8-4.9% for FY18-19. Given low Plaza 66, Center 66 and Forum 66 have been picking up. valuations, we maintain BUY with HK$19.28 TP.

Peers Valuation

Disc. to Mk t Last 12-m PE PE J un-19 J un-19 Yield Yield Company Code FYE Cap Price target Recom F Y18 F Y19 NAV NAV F Y18 F Y19 HK$bn HK$ HK$ x x HK$ % % %

Hang Lung Props 101 HK Dec 71 15.68 19.28 BUY 16.2 15.8 35.1 (55) 4.8 4.9 HK Land @ HKL SP Dec 17 7.13 8.57 BUY 16.1 16.0 13.2 (46) 2.9 2.9 Hysan Dev 14 HK Dec 44 42.40 51.15 BUY 18.2 16.7 78.7 (46) 3.3 3.4 Swire Props 1972 HK Dec 171 29.25 34.25 BUY 22.3 8.2 48.9 (40) 2.6 2.6 Wharf REIC 1997 HK Dec 171 56.45 65.40 BUY 18.4 17.8 81.6 (31) 3.5 3.5 @ denominated in USD Source: Thomson Reuters, DBS HK

Page 39

China / Hong Kong Industry Focus HK Property Sector

Valuation – Property Investors

Property investors

Hang Lung Properties discount to NAV Hang Lung Properties discount to NAV band

% HK$ 40 60 +2SD: 15% 20 50 35% +1SD: -7% 0 40 13% Average: -28% (20) 30 -9% -1SD: -49% (40) 20 -37% (60) -2SD: -71% -61% 10 (80)

0

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16 Jan-17 Jan-18

Hongkong Land discount to NAV Hongkong Land discount to NAV band

% US$ 20 16 11% 10 +2SD: -5% 14 0 12 -7% (10) +1SD: -18% 10 -26% (20) Average: -31% 8 (30) -44% 6 (40) -62% (50) -1SD: -45% 4 2 (60) -2SD: -58%

(70) 0

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17 Jan-18

Hysan discount to NAV Hysan discount to NAV band

% HK$ 0 73 -10% (10) 63 (20) +2SD: -22% -25% 53 (30) +1SD: -31% Average: -40% 43 -40% (40) 33 -54% (50) -1SD: -49% 23 -69% (60) -2SD: -58% (70) 13

(80) 3

Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-17 Jul-18 Jul-07 Jul-16

Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18

Jan-07 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-16 Jan-17 Jan-18 Jan-08 Jan-15

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-08 Source: Thomson Reuters, DBS HK

Page 40

China / Hong Kong Industry Focus HK Property Sector

Property investors - Continued

Swire Properties discount to NAV Swire Properties discount to NAV band

% HK$ (5) 40 -13% (10) +2SD: -21% 35 (15) -23% (20) +1SD: -28% 30 (25) -32% (30) Average: -35% 25 -42% (35) -1SD: -42% (40) 20 -51% (45) (50) -2SD: -50% 15

(55)

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17

Apr-18

Jul-12

Jul-13

Jul-14

Jul-15 Jul-16

Jul-17

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17 Jan-18

Property investors sector discount to NAV

% 20 10 +2SD: 2% 0 (10) +1SD: -12% (20) Average: -30% (30) -1SD: -40% (40) (50) -2SD: -54% (60)

(70)

Jul-07

Oct-13

Sep-11

Dec-17 Nov-15 Aug-09 Source: Thomson Reuters, DBS HK

Page 41

China / Hong Kong Industry Focus HK Property Sector

REITs Hong Kong 10-year government bond yield

Share price performance % 3.5 1M 3M 6M YTD 12M 3.0 Jul-18: 2.19% Name (%) (%) (%) (%) (%) 2.5 Champion REIT (7.1) (7.4) (10.1) (12.3) (3.7) 2.0 Fortune REIT (2.2) (1.9) (5.2) (4.9) (1.9) 1.5 Langham Hosp (3.1) (6.2) (8.7) (8.2) (3.0) 1.0 Link REIT 2.3 10.9 (0.9) (1.4) 21.3 0.5 Prosperity REIT (2.5) (1.0) (6.6) (5.5) (3.8) 0.0

Regal REIT (3.8) (4.2) (5.4) (5.0) (0.9)

2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 Sunlight REIT (3.8) (2.0) (2.7) (1.3) 6.1 2011 HK 10Y Gov bond yield Market cap wt. (0.0) 5.3 (3.1) (3.6) 12.8 Hang Seng Index (9.4) (5.1) (8.4) (7.4) 11.2 Source: Bloomberg Finance L.P.

Source: Bloomberg Finance L.P.  The seven REITs/business trust we cover are trading at  Year-to-date, the unit performance of REITs and business prospective distribution yield of 4.2% on a weighted trust under our coverage has been mixed. Link REIT’s unit average basis. YTD, the yield of the Hong Kong 10-year price was largely stable mainly supported by unit Government Bond has risen to 2.2% in tandem with the buybacks. Others fell modestly. Overall, the sector US treasury bond yield. This translates into current sector performed better than the broad market and property yield spread of 2.0%, against the average of 3.1%. developers despite rising US treasury bond yields. The US Sector yield spread 10-year treasury bond yield edged up to 2.8% from 2.4% at the beginning of 2018. % 12.0

US 10-year treasury yield 10.0

8.0 % 4.0 Jul-18: 2.82% 6.0 +1sd 3.5 4.0 avg 3.0 2.0 2.5 -1sd 2.0 0.0 1.5 (2.0)

1.0

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16 Jan-17 0.5 Jan-18 0.0

Source: Bloomberg Finance L.P., DBS HK

2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

2016

2016

2017

2017

2018 2018

US 10Y Treasury yield  Encouraging tenants’ sales growth should bode well for Link REIT’s rental reversion in the years ahead. This, Source: Datastream coupled with steady AEI pipeline, should underpin Link REIT’s organic growth. Anchor tenant JP Morgan agreed to take up additional space at The Quayside, bringing the committed area to 275,000sf or 32% of total office space. Commitment rate of newly opened T.O.P, retail podium of

Page 42

China / Hong Kong Industry Focus HK Property Sector

700 Nathan Road, has reached c.80%. Tower portion is Sunlight REIT is trading at distribution yield of 5.1-5.2% 70% leased with the remaining space under lease for FY18-19. BUY with HK$5.83 TP. negotiation. Link REIT offers distribution yield of 3.6-3.9% for FY19-20. While current valuation does not sound  Prosperity REIT has proactively seeking replacement appealing, the ongoing unit buyback could lend support tenants for Canon which surrendered three floors at to unit price. HOLD with HK$72 TP. Metropolis Tower in Hung Hom after lease expiry in late Apr. Leasing response has been encouraging with half of  Within Fortune REIT’s retail portfolio, F&B tenants continue vacated space being re-let. The overall reversionary to perform well while home appliance retailers has shown growth, albeit being positive, shows signs of moderation. signs of improvement of late. Rental reversion is therefore At Prosperity Place, commercial tenants offer better expected to stay healthy at 10-15% in FY18. Following the reversionary growth than office counterparts. Despite the repayment of HK$1.1bn using the proceeds from rent void led by the departure of Canon, its distribution divestment of Provident Square, Fortune REIT’s gearing income should remain stable in FY18. Prosperity REIT improved to c.25%. Interest rate hedging ratio has edged trades at distribution yield of 5.6-5.8% for FY18-19. BUY down to 50% from Dec-17’s 60% with the expiry of with HK$3.61 TP. interest rate swap. With c.HK$900m cash on hand, Fortune REIT is exploring acquisition opportunity. But given  Langham Hospitality Investments benefits from the low market yield for retail asset, it may be challenging to prevailing hotel market upturn. Langham and Cordis pursue yield accretive acquisitions. Fortune REIT offers witnessed RevPAR growth of 9% in 4M18, primarily led by distribution yield of 5.6-5.7% for FY18-19. BUY with increased room rates. Eaton, however saw marginally HK$10.50 TP. lower RevPAR as the renovation works for F&B outlets and banqueting facilities dragged the room occupancy. The  Champion REIT's Three Garden Road continues to benefit renovation works will be fully completed when co-working from favourable reversionary growth as spot rates remain space becomes operational in 3Q18. Despite short term significantly above the current expiring rents. Tenants’ business disruption, the renovation should enable Eaton to sales at Langham Place Mall grew nicely to outperform the better capture millennial travellers and command higher overall market. This augurs well for future reversionary room rates over the long term. Langham Hospitality growth in addition to higher turnover rents. These two Investments offers distribution yield of 6.3-6.6% for FY18- properties remain the key catalysts for Champion REIT’s 19. BUY with HK$3.68 TP. revenue growth. On the other hand, Champion REIT has made no progress in its planned Langham Place Office  Aided by the revival of overnight visitor arrivals from Tower disposal. Champion REIT trades at distribution yield Mainland China, Regal REIT’s hotels witnessed solid of 4.7-4.9% for FY18-19. Upgraded to BUY with HK$5.55 RevPAR growth of >10% in 4M18, mainly led by increased TP. room rate. “Regal” branded hotels performed better than “iclub” branded hotels. Its parent Regal Hotels  Steady rental reversion is working its way through Sunlight International, through P&R Holdings, is developing iclub REIT’s office/retail portfolio, and should underpin its Mongkok Hotel and iclub SoHo Hotel which are income growth. The introduction of pop up store and anticipated to open for business in 2019. Acquisitions of tenant mix refinement has enriched the retail offering of these two limit service hotels could potentially add spice to Sheung Shui Centre Shopping Arcade which also benefits Regal REIT’s future distribution income. Regal REIT is from increased cross border spending. The replacement of trading at distribution yield of 6.5-6.8% for FY18-19. BUY chiller plants at Metro City Ph 1 property has been with HK$2.61 TP. With all debts being on floating rate completed, giving more flexibility in controlling energy basis, interest rate hike remains the major investment risk, consumption. With low gearing of 22%, Sunlight REIT amongst others. continues to explore accretive acquisition opportunities.

Page 43

China / Hong Kong Industry Focus HK Property Sector

Peers Valuation

Mk t Last 12-m Yield Yield REIT Code FYE Cap Price T arget Recom F Y18F F Y19F HK$m HK$ HK$ % % Champion REIT* 2778 HK Dec 29,933 5.13 5.55 BUY 4.7 4.9 Fortune REIT* 778 HK Dec 17,658 9.21 10.50 BUY 5.6 5.7 Hui Xian REIT@^ 87001 HK Dec 18,142 3.19 n.a. NR 8.4 8.6 Langham Hospitality* 1270 HK Dec 6,696 3.17 3.68 BUY 6.3 6.6 Prosperity REIT* 808 HK Dec 4,668 3.16 3.61 BUY 5.6 5.8 Regal REIT* 1881 HK Dec 7,492 2.30 2.61 BUY 6.5 6.8 Spring REIT^ 1426 HK Dec 4,200 3.32 n.a. NR 7.1 7.1 Sunlight REIT* 435 HK Jun 8,703 5.29 5.83 BUY 5.1 5.2 Link REIT* 823 HK Mar 159,209 74.00 72.00 HOLD 3.4 3.6

Yuexiu REIT*^ 405 HK Dec 15,741 5.20 6.46 BUY 7.7 8.5 @ denominated in RMB ^ DPU based on consensus Source: Thomson Reuters, *DBS HK

Page 44

China / Hong Kong Industry Focus HK Property Sector

REITs

Champion REIT book NAV band Champion REIT Historical Yield band

HK$ HK$ 8 10.00 0.74x 7 9.00 Ceiling: 3.9% 0.63x 6 8.00 7.00 5 0.51x 6.00 0.4x 4 5.00 3 0.29x 4.00 2 3.00 Mid: 14.2% 2.00 1 1.00 0 Floor: 24.4%

-

Jul/10

Jul/15

Jan/08

Jan/13

Jan/18

Sep/09

Sep/14

Nov/08

Nov/13

Mar/07

Mar/12

Mar/17

May/06

May/11

May/16

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

May-07

May-08

May-09

May-10

May-11

May-12

May-13

May-14

May-15

May-16 May-17 May-18

Fortune REIT book NAV band Fortune REIT Historical Yield band

HK$ HK$ 16 14.00 0.91x 14 12.00 Ceiling: 4.3% 0.76x 12 10.00 10 0.61x 8.00 8 0.47x 6 6.00

4 4.00 Mid: 13.7% 0.32x 2 2.00 0 Floor: 23%

-

Jul/06

Jul/07

Jul/08

Jul/09

Jul/10

Jul/11

Jul/12

Jul/13

Jul/14

Jul/15

Jul/16

Jul/17

Jul/18

Jan/06

Jan/07

Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Jan/13

Jan/14

Jan/15

Jan/16

Jan/17

Jan/18

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16 Jan-17 Jan-18

Link REIT book NAV band Link REIT Historical Yield band

HK$ HK$ 120 90.00 Ceiling: 3.3% 1.52x 80.00 100 1.33x 70.00 60.00 80 1.13x 50.00 60 0.93x 40.00 Mid: 5.3% 0.73x 30.00 40 20.00 Floor: 7.2% 20 10.00 -

0

Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Jul/06 Jul/07 Jul/08 Jul/09 Jul/10 Jul/13 Jul/14 Jul/15 Jul/16 Jul/17 Jul/18 Jul/11 Jul/12

Jan/06 Jan/07 Jan/08 Jan/09 Jan/10 Jan/11 Jan/12 Jan/13 Jan/15 Jan/16 Jan/17 Jan/18 Jan/14

Source: Thomson Reuters, DBS HK

Page 45

China / Hong Kong Industry Focus HK Property Sector

REITs (Continued)

Prosperity REIT book NAV band Prosperity REIT Historical Yield band

HK$ HK$ 5 4.50 0.77x 4 4.00 Ceiling: 4.8% 0.68x 4 3.50 0.59x 3 3.00 0.49x 2.50 3 0.4x 2.00 2 1.50 Mid: 2 1.00 13.2% 1 0.50 Floor: 21.5% 1 -

0

Nov-06

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

May-06

May-07

May-08

May-09

May-10

May-11

May-12

May-13

May-14

May-15

May-16

May-17

May-18

Nov/06

Nov/07

Nov/08

Nov/09

Nov/10

Nov/11

Nov/12

Nov/13

Nov/14

Nov/15

Nov/16

Nov/17

May/06

May/07

May/08

May/09

May/10

May/11

May/12

May/13

May/14

May/15

May/16 May/17 May/18

Sunlight REIT book NAV band Sunlight REIT Historical Yield band

HK$ HK$ 8 6.00 Ceiling: 5% 7 0.78x 5.00 6 0.67x 4.00 5 0.56x 3.00 4 0.45x 3 0.34x 2.00 Mid: 15.9% 2 1.00 1 Floor: 26.7% -

0

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jun/07

Jun/08

Jun/09

Jun/10

Jun/11

Jun/12

Jun/13

Jun/14

Jun/15

Jun/16

Jun/17

Jun/18

Dec/06

Dec/07

Dec/08

Dec/09

Dec/10

Dec/11

Dec/12

Dec/13

Dec/14

Dec/15 Dec/16 Dec/17

Source: Thomson Reuters, DBS HK

Page 46

China / Hong Kong Industry Focus HK Property Sector

REITs (Continued)

Langham Hospitality book NAV band Langham Hospitality Historical Yield band

HK$ HK$ 6.00 8.00 5.50 7.00 Ceiling: 4.1% 5.00 0.79x 6.00 5.00 4.50 0.7x 4.00 4.00 0.61x 3.00 3.50 Mid: 7.3% 0.52x 2.00 3.00 0.43x 1.00 2.50 Floor: 10.4% -

2.00

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

May-13

May-14

May-15

May-16

May-17

May-18

Nov/13

Nov/14

Nov/15

Nov/16

Nov/17

May/13

May/14

May/15

May/16 May/17 May/18

Regal REIT book NAV band Regal REIT Historical Yield band

HK$) HK$ 4.50 4.50 0.78x 4.00 4.00 Ceiling: 4.5% 3.50 0.65x 3.50 3.00 3.00 2.50 0.52x 2.50 2.00 1.50 0.4x 2.00 1.00 1.50 0.27x Mid: 14.4% 0.50 1.00 0.00 0.50 Floor: 24.3%

-

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17 Mar-18

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17 Mar-18

Source: Thomson Reuters, DBS HK

Page 47

China / Hong Kong Industry Focus HK Property Sector

Valuation comparison (Diversified Properties)

Disc. to Mk t Last 12-m PE PE J un-19 J un-19 Yield Yield Company Code FYE Cap Price target Recom F Y18 F Y19 NAV NAV F Y18 F Y19 HK$bn HK$ HK$ x x HK$ % % %

Far East Consortium 35 HK Mar 10 4.52 5.53 BUY 6.5 9.1 13.8 (67) 4.9 4.9 Great Eagle 41 HK Dec 27 38.40 41.00 HOLD 15.2 13.7 82.0 (53) 2.0 2.0 Source: Thomson Reuters, DBS HK

Great Eagle – Discount to NAV Great Eagle – Discount to NAV band

% HK$ (20) 70 (30) -29% +2SD: -39% 60 (40) +1SD: -47% 50 -42% (50) Average: -55% 40 -55% (60) -1SD: -64% 30 -68% (70) -2SD: -72% 20 (80) -82% 10 (90)

0

Jul-07

Apr-14

Dec-15

Nov-10

Mar-09

Aug-12

Aug-17

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16 Jan-17 Jan-18 Far East Consortium – Discount to NAV Far East Consortium – Discount to NAV band

% HK$ +2SD: -59% (60) 5.5 -60%-60% 5.0 -60% (65) +1SD: -63% 4.5 -66%-66% -66% Average: -67% 4.0 (70) -71% 3.5 -71% -1SD: -70% (75) 3.0 -76% 2.5 -76% -76% -2SD: -74% -82% (80) 2.0 -82% -82% 1.5

(85)

Jun-16

Jun-17

Jun-18

Oct-16

Feb-17

Oct-17

Feb-18

Apr-17

Apr-18

Dec-16

Dec-17

Aug-16

Aug-17

Jun-16

Jun-17

Jun-18

Oct-16

Oct-17

Feb-17

Feb-18

Apr-17

Apr-18

Dec-16

Dec-17 Aug-16 Aug-17

Source: Thomson Reuters, DBS HK

Page 48

China / Hong Kong Industry Focus HK Property Sector

Appendix: Asset breakdown

Property developers – GAV breakdown

GAV Breakdown (%) Cheung CSI Props Henderson K. Wah Kerry Props Lai Sun MTRC Kong Land Dev elopmen A ssets t Holdings HK 61 71 57 38 44 79 53 Residential 11 24 12 34 31 4 26 Office 15 23 16 1 6 34 6 Retail 11 10 17 3 5 25 19 Hotel 18 13 2 0 0 13 0 Industrial 4 2 1 0 0 0 0 Others 1 0 7 0 1 4 3 Farmland 0 0 3 0 0 0 0 China 11 17 16 46 46 0 0 Overseas 5 0 0 0 2 18 0 Listed subsidiaries. associates 27 16 5 0 & investments 5 12 3 Other assets 19 0 0 0 3 0 47 T otal 100 100 100 100 100 100 100

GAV Breakdown (%) New World Wharf Wing T ai Sino Land SHKP T ai Cheung Wheelock Dev Holdings Props

HK 51 89 78 96 24 21 94 Residential 11 28 26 56 23 18 22 Office 12 21 19 3 0 0 61 Retail 15 32 24 4 0 2 0 Hotel 11 2 5 32 0 0 8 Industrial 0 4 1 0 0 0 2 Others 1 2 2 0 1 0 0 Farmland 1 0 1 0 0 0 0 China 39 3 17 0 53 0 0 Overseas 0 6 1 4 0 4 4 Listed subsidiaries. associates 10 1 2 0 2 & investments 18 75 Other assets 0 1 2 0 4 0 0 T otal 100 100 100 100 100 100 100 Source: DBS HK

Page 49

China / Hong Kong Industry Focus HK Property Sector

Property investors – GVA breakdown

GAV Breakdown (%) Hang Lung Props Hongkong Land Hy san Swire Props Wharf REIC HK 55 67 93 80 97 Residential 9 0 14 4 4 Office 17 58 43 56 32 Retail 26 8 35 14 59 Hotel 0 1 0 3 3 Industrial 0 0 0 0 0 Others 2 0 1 2 0 Farmland 0 0 0 0 0 China 45 15 6 18 0 Overseas 0 18 0 3 0 Listed subsidiaries. associates & 0 0 1 0 3 investments Other assets 0 0 0 0 0 T otal 100 100 100 100 100 Source: DBS HK

Diversified properties – GVA breakdown

GAV Breakdown (%) Far East Consortium Great Eagle HK 35 17 Residential 5 10 Office 1 5 Retail 1 1 Hotel 28 0 Industrial 0 0 Others 0 0 Farmland 0 0 China 17 7 Overseas 45 27 Listed subsidiaries. associates & 44 investments 4 Other assets 0 5 T otal 100 100 Source: DBS HK

Page 50

China / Hong Kong Industry Focus HK Property Sector

Appendix: NAV sensitivities

Property developers – NAV sensitivities

% increase in NAV Cheung Kong CSI Props Henderson K.Wah Kerry Props Lai Sun MTRC if the following prices Asset Holdings Land Dev . rise by 10% Office -HK 1.5% 2.9% 1.9% 0.1% 0.7% 4.6% 0.6% Retail - HK 1.1% 2.5% 1.8% 0.5% 0.6% 3.1% 2.7% Residential - HK 0.8% 3.9% 1.3% 3.2% 2.8% 0.3% 2.5% Hotels - HK 1.7% 2.3% 0.1% 0.0% 0.0% 2.2% 0.0% ok ok ok ok ok

% increase in NAV New World Dev Sino Land SHKP T ai Cheung Wharf Wheelock & Wing T ai if the following prices Holdings Co Props rise by 10% Office -HK 1.8% 1.6% 2.2% 0.3% 0.0% 0.0% 8.0% Retail - HK 3.3% 2.9% 2.7% 0.3% 0.0% 0.3% 0.0% Residential - HK 0.9% 2.6% 2.7% 3.9% 2.7% 2.1% 3.1% Hotels - HK 1.5% 0.3% 0.6% 2.4% 0.0% 0.0% 1.2% Source: DBS HK

Property investors – NAV sensitivities

% increase in NAV Hang Lung Props Hongk ong Hy san Swire Props Wharf REIC if the following prices Land rise by 10% Office -HK 1.8% 6.2% 4.6% 6.0% 3.8% Retail - HK 2.7% 0.9% 3.8% 1.4% 7.1% Residential - HK 0.9% 0.0% 1.6% 0.5% 0.5% Hotels - HK 0.0% 0.1% 0.0% 0.3% 0.3% Source: DBS HK

Diversifies Property – NAV sensitivities

% increase in NAV F ar East Great Eagle if the following prices Consortium rise by 10% Office -HK 0.0% 0.6% Retail - HK 0.1% 0.1% Residential - HK 0.4% 1.1% Hotels - HK 3.9% 0.0% Source: DBS HK

Page 51

China / Hong Kong Industry Focus HK Property Sector

Appendix: Stock repurchases

Stock Repurchases (from Jan 2018)

Date No. of shares Avg price (HK$) Amount (HK$) FE CONSORT INTL (35) 24-Apr-18 352,000 4.49 1,580,300 23-Apr-18 350,000 4.51 1,577,900 20-Apr-18 300,000 4.51 1,352,200 19-Apr-18 300,000 4.51 1,352,000 18-Apr-18 200,000 4.48 896,800 17-Apr-18 300,000 4.50 1,349,500 16-Apr-18 300,000 4.51 1,354,400 13-Apr-18 300,000 4.53 1,360,200 12-Apr-18 300,000 4.52 1,357,100 11-Apr-18 300,000 4.55 1,365,000 10-Apr-18 300,000 4.54 1,363,300 9-Apr-18 168,000 4.51 757,600 6-Apr-18 300,000 4.41 1,324,400 4-Apr-18 30,000 4.34 130,200 3-Apr-18 300,000 4.33 1,298,500 29-Mar-18 900,000 4.33 3,897,200 HONGKONG LAND (HKL SP) 9-Apr-18 12,328,700 7 86,300,900 NEW WORLD DEV (17 HK) 11-Jul-18 1,454,000 10.89 15,832,160 10-Jul-18 1,000,000 11.13 11,125,040 9-Jul-18 1,000,000 11.16 11,156,100 20-Jun-18 2,000,000 11.46 22,917,040 SUNLIGHT REIT (435 HK) 12-Mar-18 151,000 5.33 804,830 9-Mar-18 297,000 5.30 1,573,209 8-Mar-18 100,000 5.30 530,000 6-Mar-18 400,000 5.29 2,114,400

1-Mar-18 102,000 5.31 541,620 Source: HKExnews, DBS HK

Page 52

China / Hong Kong Industry Focus HK Property Sector

Stock Repurchases (from Jan 2018) (Continues)

Date No. of shares Avg price (HK$) Amount (HK$) LINK REIT (823 HK) 13-Jul-18 1,160,000 75.17 87,201,144 12-Jul-18 1,330,000 74.98 99,718,745 11-Jul-18 1,330,000 73.16 97,305,460 10-Jul-18 1,380,000 74.78 103,200,126 9-Jul-18 2,000,000 75.23 150,462,200 6-Jul-18 2,000,000 73.45 146,909,000 5-Jul-18 987,500 72.00 71,098,300 23-Mar-18 971,500 66.94 65,032,016 22-Mar-18 1,348,000 68.30 105,934,386 21-Mar-18 1,551,000 68.28 126,633,049 20-Mar-18 1854500 68.86 28,165,581 16-Mar-18 2,000,000 68.56 137,116,600 15-Mar-18 430,000 68.19 29,321,786 14-Mar-18 767,500 68.30 52,423,627 13-Mar-18 1,060,000 68.33 72,433,404 12-Mar-18 985,000 67.97 66,946,609 9-Mar-18 1,230,000 67.55 83,082,687 8-Mar-18 119,000 67.49 8,030,953 7-Mar-18 1,526,000 66.54 101,533,783 6-Mar-18 1,160,000 66.73 77,405,176 5-Mar-18 1,690,000 67.40 113,903,127 2-Mar-18 2,305,000 68.42 157,699,341 1-Mar-18 177,500 67.11 11,912,132 9-Feb-18 1,640,000 64.67 106,058,144 8-Feb-18 1,000,000 66.29 66,292,600 7-Feb-18 1,500,000 66.33 99,493,350 6-Feb-18 44,000 66.00 2,904,000 2-Feb-18 1,300,000 67.97 88,362,820 1-Feb-18 516,500 68.99 35,635,866 31-Jan-18 224,000 69.06 15,469,194 30-Jan-18 700,000 69.75 48,825,630 29-Jan-18 1,986,000 70.01 139,002,274 26-Jan-18 1,497,000 70.49 105,493,672 25-Jan-18 1,655,000 70.47 116,632,981 22-Jan-18 1,782,000 70.31 125,286,005 19-Jan-18 1,007,000 70.48 70,971,346 18-Jan-18 73,000 70.46 5,143,500 17-Jan-18 1,919,000 70.45 135,153,529 16-Jan-18 1,862,000 70.50 28,410,009 15-Jan-18 403,000 70.48 131,202,243 Source: HKExnews, DBS HK

Page 53

China / Hong Kong Industry Focus HK Property Sector

Appendix: Stake change by major shareholders

Stake change by major shareholders (from Jan 2018)

CSI PROPERTIES (497 HK) Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent

CHUNG CHO YEE MICO 4,000,000 B 0.53 5,008,562,062 49.9 19-Apr-18 CHUNG CHO YEE MICO 25,000,000 B 0.54 5,004,562,062 49.86 18-Apr-18 CHUNG CHO YEE MICO 30,000,000 B 0.55 4,979,562,062 49.61 17-Apr-18 CHUNG CHO YEE MICO 10,000,000 B 0.55 4,949,562,062 49.31 16-Apr-18 CHUNG CHO YEE MICO 13,780,000 B 0.55 4,939,562,062 49.21 13-Apr-18 CHUNG CHO YEE MICO 6,480,000 B 0.54 4,925,782,062 49.08 12-Apr-18 CHUNG CHO YEE MICO 10,000,000 B 0.55 4,919,302,062 49.01 11-Apr-18 CHUNG CHO YEE MICO 6,000,000 B 0.54 4,909,302,062 48.91 10-Apr-18 CHUNG CHO YEE MICO 10,030,000 B 0.52 4,903,302,062 48.85 9-Apr-18 CHUNG CHO YEE MICO 10,000,000 B 0.51 4,893,272,062 48.75 6-Apr-18 CHUNG CHO YEE MICO 15,000,000 B 0.50 4,883,272,062 48.65 4-Apr-18 CHUNG CHO YEE MICO 15,000,000 B 0.48 4,868,272,062 48.5 3-Apr-18 CHUNG CHO YEE MICO 15,000,000 B 0.48 4,853,272,062 48.35 29-Mar-18 CHUNG CHO YEE MICO 19,520,000 B 0.49 4,838,272,062 48.2 28-Mar-18 CHUNG CHO YEE MICO 10,470,000 B 0.49 4,818,752,062 48 27-Mar-18

TAI CHEUNG HLDGS (88 HK) Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent

Chan Pun, David 1,000 B 8.77 180,139,045 29.17 13-Jul-18 Chan Pun, David 2,000 B 8.90 180,138,045 29.17 29-Jun-18 Chan Pun, David 1,000 B 8.69 180,136,045 29.17 27-Apr-18 Chan Pun, David 1,000 B 8.98 180,135,045 29.17 15-Mar-18 Chan Pun, David 2,000 B 9.00 180,134,045 29.17 8-Mar-18 Chan Pun, David 1,000 B 9.13 180,132,045 29.17 5-Mar-18 Chan Pun, David 1,000 B 9.11 180,131,045 29.17 28-Feb-18 Chan Pun, David 1,000 B 9.27 180,130,045 29.17 20-Feb-18 Chan Pun, David 1,000 B 9.51 180,129,045 29.17 6-Feb-18 Chan Pun, David 1,000 B 9.90 180,128,045 29.17 29-Jan-18 Chan Pun, David 1,000 B 9.97 180,127,045 29.17 25-Jan-18 Chan Pun, David 1,000 B 9.77 180,126,045 29.17 11-Jan-18

FE CONSORT INTL (35 HK) Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent

Chiu David 401,000 B 4.65 1,075,035,896 46.81 29-Jun-18 Chiu David 1,400,000 B 4.61 1,074,634,896 46.79 28-Jun-18 Chiu David 1,199,000 B 4.56 1,073,234,896 46.73 27-Jun-18 Chiu David 9,007,565 B 4.72 1,072,035,896 46.58 8-Feb-18

CHAMPION REIT (2778 HK) Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent

Lo Ka Shui 324,000 5.23 3,862,171,046 66.19 12-Jul-18 Lo Ka Shui 46,000 5.20 3,861,847,046 66.19 11-Jul-18 Lo Ka Shui 16,000 5.25 3,861,801,046 66.18 9-Jul-18 Lo Ka Shui 746,000 5.14 3,861,785,046 66.18 6-Jul-18 Lo Ka Shui 168,000 5.15 3,861,039,046 66.17 3-Jul-18 Lo Ka Shui 11,870,272 5.57 3,858,779,163 66.13 1-Mar-18 Source: HKExnews, DBS HK

Page 54

China / Hong Kong Industry Focus HK Property Sector

Stake change by major shareholders (from Jan 2018) (Continues)

HANG LUNG (101 HK) Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent

CHAN Adriel Wenbwo 282,000 B 16.16 2,583,896,340 57.45 29-Jun-18 CHAN Adriel Wenbwo 3,082,000 B 16.16 2,583,614,340 57.44 28-Jun-18 CHAN Adriel Wenbwo 1,432,000 B 16.25 2,580,532,340 57.37 27-Jun-18 CHAN Adriel Wenbwo 163,000 B 16.50 2,579,100,340 57.34 25-Jun-18 CHAN Adriel Wenbwo 2,000,000 B 16.64 2,578,937,340 57.34 22-Jun-18 CHAN Adriel Wenbwo 3,000,000 B 16.79 2,576,937,340 57.29 21-Jun-18 CHAN Adriel Wenbwo 2,094,000 B 16.74 2,573,937,340 57.23 20-Jun-18 CHAN Adriel Wenbwo 2,000,000 B 16.74 2,571,843,340 57.18 19-Jun-18 CHAN Adriel Wenbwo 1,620,000 B 17.19 2,569,843,340 57.14 15-Jun-18 CHAN Adriel Wenbwo 1,600,000 B 17.29 2,568,223,340 57.1 14-Jun-18 CHAN Adriel Wenbwo 579,000 B 17.60 2,566,623,340 57.07 13-Jun-18 CHAN Adriel Wenbwo 2,000,000 B 17.80 2,566,044,340 57.05 12-Jun-28 CHAN Adriel Wenbwo 2,273,000 B 17.96 2,564,044,340 57.01 11-Jun-18 CHAN Adriel Wenbwo 1,457,000 B 17.96 2,561,771,340 56.96 8-Jun-18 CHAN Adriel Wenbwo 313,000 B 17.89 2,560,314,340 56.92 1-Jun-18 CHAN Adriel Wenbwo 1,015,000 B 17.76 2,560,001,340 56.92 31-May-18 CHAN Adriel Wenbwo 407,000 B 17.80 2,558,986,340 56.9 30-May-18 CHAN Adriel Wenbwo 2,031,000 B 17.96 2,558,579,340 56.89 29-May-18 CHAN Adriel Wenbwo 25,000 B 18.16 2,556,548,340 56.84 24-May-18 CHAN Adriel Wenbwo 1,146,000 B 18.20 2,556,523,340 56.84 20-Apr-18 CHAN Adriel Wenbwo 1,095,000 B 18.18 2,555,377,340 56.82 18-Apr-18 CHAN Adriel Wenbwo 2,506,000 B 18.20 2,554,282,340 56.79 17-Apr-18 CHAN Adriel Wenbwo 1,857,000 B 18.34 2,551,776,340 56.74 16-Apr-18 CHAN Adriel Wenbwo 100,000 B 18.20 2,549,919,340 56.69 3-Apr-18 CHAN Adriel Wenbwo 1,294,000 B 18.26 2,549,819,340 56.69 29-Mar-18 CHAN Adriel Wenbwo 885,000 B 18.40 2,548,525,340 56.66 28-Mar-18 CHAN Adriel Wenbwo 144,000 B 18.28 2,547,640,340 56.64 23-Mar-18 CHAN Adriel Wenbwo 1,819,000 B 18.48 2,547,496,340 56.64 21-Mar-18 CHAN Adriel Wenbwo 1,700,000 B 18.47 2,545,677,340 56.6 20-Mar-18 CHAN Adriel Wenbwo 1,006,000 B 18.41 2,543,977,340 56.56 7-Mar-18 CHAN Adriel Wenbwo 958,000 B 18.50 2,542,971,340 56.54 5-Mar-18 CHAN Adriel Wenbwo 613,000 B 18.57 2,542,013,340 56.52 28-Feb-18 CHAN Adriel Wenbwo 520,000 B 18.48 2,541,400,340 56.51 22-Feb-18 CHAN Adriel Wenbwo 4,000,000 B 18.38 2,540,880,340 56.49 20-Feb-18 CHAN Adriel Wenbwo 1,738,000 B 18.49 2,536,880,340 56.41 15-Feb-18 CHAN Adriel Wenbwo 1,502,000 B 18.43 2,535,142,340 56.37 14-Feb-18 CHAN Adriel Wenbwo 201,000 B 18.39 2,533,640,340 56.33 13-Feb-18 CHAN Adriel Wenbwo 577,000 B 18.38 2,533,439,340 56.33 12-Feb-18 CHAN Adriel Wenbwo 50,000 B 18.50 2,532,862,340 56.32 9-Feb-18

LAI SUN DEV (488 HK) Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent

Lam Kin Ngok, Peter 4,318,800 B 12.40 340,023,572 56.1 9-Jul-18 Lam Kin Ngok, Peter 3,027,300 B 13.85 336,551,312 55.53 21-Jun-18 Lam Kin Ngok, Peter 804,600 B 13.89 333,524,012 55.03 20-Jun-18 Lam Kin Ngok, Peter 918,000 B 13.87 332,719,412 54.9 19-Jun-18 Lam Kin Ngok, Peter 219,900 B 13.90 331,801,412 54.75 15-Jun-18 Lam Kin Ngok, Peter 775,500 B 13.86 331,581,512 54.71 14-Jun-18 Lam Kin Ngok, Peter 196,200 B 13.90 330,806,012 54.58 13-Jun-18 Lam Kin Ngok, Peter 58,500 B 13.95 330,609,812 54.55 12-Jun-18 Lam Kin Ngok, Peter 182,100 B 14.15 330,551,312 54.54 5-Jun-18 Lam Kin Ngok, Peter 854,100 B 13.93 330,369,212 54.51 4-Jun-18 Lam Kin Ngok, Peter 431,100 B 13.83 329,515,112 54.37 1-Jun-18 Lam Kin Ngok, Peter 1,818,600 B 13.62 329,084,012 54.3 31-May-18 Lam Kin Ngok, Peter 3,714,300 B 13.58 327,265,412 54 30-May-18 Source: HKExnews, DBS HK

Page 55

China / Hong Kong Industry Focus HK Property Sector

Stake change by major shareholders (from Jan 2018) (Continues)

K WAH INTL HLDGS (173 HK) Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent

LUI Yiu Wah, Alexander 2,358,000 B 2.12 1,588,076,447 51.91 15-Jan-18

SHK PPT Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent

Kwong Siu Hing 16,000 B 117.50 762,707,761 26.33 29-Jun-18 Kwong Siu Hing 564,000 B 118.23 762,691,761 26.33 28-Jun-18 Kwong Siu Hing 641,000 B 119.07 762,127,761 26.31 27-Jun-18 Kwong Siu Hing 322,000 B 118.84 761,486,761 26.29 26-Jun-18 Kwong Siu Hing 400,000 B 120.41 761,164,761 26.27 25-Jun-18 Kwong Siu Hing 116,000 B 121.08 760,764,761 26.26 25-Apr-18 Kwong Siu Hing 197,000 B 121.86 760,648,761 26.26 23-Apr-18 Kwong Siu Hing 243,000 B 123.28 760,451,761 26.25 20-Apr-18 Kwong Siu Hing 300,000 B 123.57 760,208,761 26.24 17-Apr-18

GREAT EAGLE (41 HK) Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent

Lo Ka Shui 41,000 B 38.00 424,112,205 60.73 6-Jul-18 Lo Ka Shui 37,000 B 38.09 424,071,205 60.72 4-Jul-18 Lo Ka Shui 150,000 B 38.22 424,034,205 60.72 3-Jul-18 Lo Ka Shui 52,000 B 39.74 418,472,254 60.53 28-May-18 Lo Ka Shui 10,000 B 39.30 418,420,254 60.53 23-May-18 Lo Ka Shui 60,000 B 39.80 418,410,254 60.52 18-May-18 Lo Ka Shui 6,000 B 39.60 418,350,254 60.52 17-May-18 Lo Ka Shui 34,000 B 38.98 418,344,254 60.53 11-May-18 Lo Ka Shui 32,000 B 38.35 418,310,254 60.52 10-May-18 Lo Ka Shui 100,000 B 38.00 418,278,254 60.52 9-May-18 Lo Ka Shui 100,000 B 37.95 418,178,254 60.5 8-May-18 Lo Ka Shui 160,000 B 40.00 418,078,254 60.54 12-Apr-18 Lo Ka Shui 200,000 B 40.00 417,918,254 60.52 11-Apr-18 Lo Ka Shui 140,000 B 40.00 417,718,254 60.49 9-Apr-18 Lo Ka Shui 22,000 B 39.25 417,578,254 60.51 4-Apr-18 Lo Ka Shui 70,000 B 39.70 417,556,254 60.51 29-Mar-18 Lo Ka Shui 655,000 B 25.70 417,486,254 60.63 15-Mar-18 Lo Ka Shui 289,000 B 39.50 416,798,254 60.53 6-Mar-18

CK ASSET HOLDING (1113 HK) Name of substantial No. of shares Average price per No. of shares % of issued Date of relevant shareholder inv olv ed Buy /Sell share (HK$) interested share capital ev ent

Li Ka-Shing 792,000 B 64.98 1,185,456,010 32.06 19-Jun-18 Li Ka-Shing 5,499,000 B 65.55 1,184,664,010 32.03 15-Jun-18 Li Ka-Shing 2,615,500 B 65.63 1,179,165,010 31.89 14-Jun-18 Li Ka-Shing 1,434,000 B 66.96 1,176,549,510 31.82 25-Apr-18 Li Ka-Shing 2,042,000 B 67.44 1,175,115,510 31.78 24-Apr-18 Li Ka-Shing 1,113,500 B 66.76 1,173,073,510 31.72 17-Apr-18 Li Ka-Shing 844,000 B 66.50 1,171,960,010 31.69 16-Apr-18 Li Ka-Shing 950,500 B 66.94 1,171,116,010 31.67 13-Apr-18 Li Ka-Shing 2,775,000 B 66.47 1,170,165,510 31.64 12-Apr-18 Li Ka-Shing 3,281,000 B 66.18 1,167,390,510 31.57 11-Apr-18 Li Ka-Shing 2,206,000 B 65.97 1,164,109,510 31.48 10-Apr-18 Source: HKExnews, DBS HK

Page 56

China / Hong Kong Industry Focus HK Property Sector

STOCK PROFILES

Page 57

HK Property Sector CK Asset Holdings

Bloomberg: 1113 HK | Reuters: 1113.HK Refer to important disclosures at the end of this report

BUY Diversified earnings profile Last Traded Price (6 Jul 2018): HK$61.15 (HSI : 28,316) Price Target 12-mth: HK$77.00 (26% upside) (Prev HK$80.90)  Asset disposal proceeds redeployed into overseas Potential Catalyst: New acquisitions investments Where we differ: Market has similar earnings estimate for FY19.  Hidden value of Hutchison House to be unlocked Analyst  BUY with HK$77 TP Jeff YAU CFA, +852 2820 4912 [email protected] Asset disposal proceeds redeployed into overseas investments. Ian CHUI +852 2971 1915 [email protected] After divesting The Center in Sheung Wan, Cheung Kong Asset Holdings has been proactively exploring investment opportunities overseas. In Jun- Jason LAM +852 29711773 18, the company acquired 5 Broadgate in London for 1bn pounds from a [email protected] jv equally owned by British Land and GIC. Completed in 2015, this office

development has lettable area of c.0.7m sf. It is entirely leased to UBS as Price Relative its headquarters in the UK with the lease expiring only in 2035. Initial rental yield is estimated at 4% which will gradually improve given the step-up rent structure. The company has also acquired another office building in Europe in 1Q18. The property has a single tenant and offers a slightly higher rental yield of 5-6%. These overseas property investments should help compensate for the rental income shortfall led by the disposal of The Center and diversify its earnings base geographically. Elsewhere, Cheung Kong Asset Holdings has teamed up with CK Hutchison, CKI and Forecasts and Valuation Power Assets Holdings to submit an indicative, non-binding conditional FY Dec (HK$ m) 2016A 2017A 2018F 2019F proposal to acquire Australia-listed APA which owns and operates energy Turnover 69,300 57,546 47,186 72,515 assets and investments across Australia. EBITDA 27,208 29,665 26,576 37,372 Pre-tax Profit 27,174 38,127 44,256 36,914 Net Profit 19,415 30,125 32,670 26,858 Hidden value of Hutchison House to be unlocked. Despite a swift Underlying Profit 18,032 20,320 32,670 26,858 retail sales recovery, 1881 Heritage witnessed negative reversionary EPS (HK$) 4.72 5.50 8.84 7.26 growth led by high expiring rents. On the other hand, Wonderful World EPS Gth (%) 16.9 16.5 60.8 (17.8) of Whampoa has seen rising passing rents while is PE (X) 13.0 11.1 6.9 8.4 P/Cash Flow (X) 4.8 4.1 31.9 4.0 benefiting from favourable reversionary growth given tight vacancy. EV/EBITDA (X) 9.6 8.8 9.9 7.0 Hutchison House in Central is expected to be redeveloped after the expiry DPS (HK$) 1.53 1.70 1.80 1.87 of existing leases. This should be the most effective way to unlock the Div Yield (%) 2.5 2.8 2.9 3.1 site’s value. OP Mall in Tsuen Wan is expected to open for business in Net Gearing (%) 3 6 8 9 ROE (%) 7.3 10.7 10.7 8.1 2019 with pre-leasing activities to commence soon. Est. NAV (HK$) 111.2 115.3 Disc. to NAV (%) (45) (47) BUY with HK$77 TP. The stock is trading at 45% discount to our assessed current NAV. The company redeploys the capital generated from Earnings Rev (%): (7) (2) asset divestment in Hong Kong/China into overseas investments, property Consensus EPS (HK$): 6.62 7.19 Other Broker Recs: B:13 S:0 H:3 or non-property related. This should gradually lead to enhanced earnings quality over the long term and hence better valuations. KS Li raised has ICB Industry: Financials ICB Sector: Real Estate Holding & Development raised his stake in the company slightly, signaling its strong embedded Principal Business: Property development and investment, and hotel value. BUY with HK$77 TP. This is derived by applying a 40% discount to operation in Hong Kong, China, Singapore and the UK our estimated Jun-19 property valuations

Source of all data on this page: Company, DBS Bank (Hong Kong) At A Glance Limited (“DBS HK”) Thomson Reuters, HKEX Issued Capital (m shrs) 3,697 Mkt Cap (HK$m/US$m) 225,917 / 28,785 Major Shareholders (%) Li (Ka Shing) 29.3 Free Float (%) 70.7 3m Avg. Daily Val. (US$m) 39.0

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HK Property Sector CK Asset Holdings

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 69,300 57,546 47,186 72,515 Fixed Assets 159,001 171,335 149,116 154,626 EBITDA 27,208 29,665 26,576 37,372 Other LT Assets 25,031 85,026 129,015 171,891 Depr / Amort (779) (1,573) (1,699) (1,835) Cash & ST Invts 62,601 54,917 48,086 63,837 EBIT 26,429 28,092 24,877 35,537 Other Current Assets 150,203 142,061 156,585 136,610 Associates Inc 125 1,355 2,859 2,876 Total Assets 396,836 453,339 482,802 526,963 Interest (Exp)/Inc (645) (1,222) (1,300) (1,500) ST Debt 4,378 14,342 300 1,000 Exceptionals 1,265 9,902 17,820 0 Creditors 17,396 19,958 15,938 15,638 Pre-tax Profit 27,174 38,127 44,256 36,914 Other Current Liab 21,983 39,106 39,106 39,106 Tax (7,365) (7,239) (10,456) (9,067) LT Debt 65,798 57,650 73,692 92,992 Minority Interest (394) (763) (1,130) (988) Other LT Liabilities 11,007 13,103 13,103 13,103 Net Profit 19,415 30,125 32,670 26,858 Minority Interests 6,075 17,628 18,758 19,746 Underlying Profit 18,032 20,320 32,670 26,858 Shareholder’s Equity 270,199 291,552 321,905 345,378 Total Cap. & Liab. 396,836 453,339 482,802 526,963 Sales Gth (%) 21 (17) (18) 54 Share Capital (m) 3,824 3,697 3,697 3,697 Net Profit Gth (%) 13 55 8 (18) Net Cash/(Debt) (7,575) (17,075) (25,906) (30,155) EBITDA Margins (%) 39 52 56 52 Working Capital 169,047 123,572 149,327 144,702 EBIT Margin (%) 38 49 53 49 Net Gearing (%) 3 6 8 9 Tax Rate (%) 27 19 24 25

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 26,429 28,092 24,877 35,537 Revenues (HK$ m) Tax Paid (7,639) (6,761) (10,456) (9,067) Property sales 56,475 42,825 32,691 57,772 Depr/Amort 779 1,573 1,699 1,835 Property rental 7,316 7,689 7,180 7,090 Chg in Wkg.Cap 21,550 27,816 (17,644) 20,776 Hotels and serviced suites 4,823 4,774 4,978 5,200 Other Non-Cash (2,151) (1,130) 0 0 Property and project 500 511 537 563 Operating CF 38,968 49,590 (1,524) 49,080 management Others 186 1,747 1,800 1,890 Net Capex (69) 119 0 0 Assoc, MI, Invsmt (12,727) (55,252) 1,290 (44,000) Total 69,300 57,546 47,186 72,515 Investing CF (12,796) (55,133) 1,290 (44,000) Net Chg in Debt 1,613 975 2,000 20,000 Key Assumptions (%) 2018F 2019F New Capital 0 0 0 0 Residential price - HK 13 0 Dividend (5,974) (6,507) (6,397) (6,729) Office rental - HK 5 3 Other Financing CF (3,199) 2,511 (2,469) (2,869) Retail rental (High street shops) - HK 0 5 Financing CF (7,560) (3,021) (6,866) 10,402 Retail rental (Shopping centre) - HK 5 5 Chg in Cash 18,612 (8,564) (7,100) 15,482

Source: Company, DBS HK

Page 59

HK Property Sector CSI Properties

Bloomberg: 497 HK | Reuters: 0497.HK Refer to important disclosures at the end of this report

BUY Small but pretty Last Traded Price (6 Jul 2018): HK$0.44 (HSI : 28,316)  Smooth project sales enhances earnings visibility Price Target 12-mth: HK$0.64 (47.1% upside) Potential Catalyst: Asset divestments  Recent acquisition of Everest Building in Jordan Where we differ: n.a.  BUY with HK$0.64 TP

Analyst Strong project sales enhances earnings visibility. CSI Jeff YAU CFA, +852 2820 4912 Properties increased its property development activities in recent [email protected] years which should enhance its earnings visibility in the long

Ian CHUI+852 2971 1915 term. Successful sales/pre-sales of Kau To Highland, COO [email protected] Residence, 2-4 Shelly Street and 38 Wai Yip Street should enable CSI Properties to lock in >HK$1bn profits for FY19-20. Jason LAM +852 29711773 The company plans to launch its luxury project at Perkins Road [email protected] in Jardine’s Lookout in 3Q18, followed by the Peak Road refurbishment project in early 2019. Given the scarcity element, these projects should attract strong interest from affluent Price Relative buyers

Recent acquisition of Everest Building in Jordan. CSI Properties recently acquired Everest Building in Jordan for HK$1.9bn or HK$30,650psf. Located at the junction of Jordan Road and Nathan Road near Jordan MTR Station, this commercial/ retail building has a total GFA of c.62,000sf with current annual rental income of HK$34m. Tenants include banks and jewelry outlets on ground floors and mid-end office Forecasts and Valuation /commercial tenants on the higher floors. The company plans to FY Mar (HK$ m) 2017A 2018A 2019F 2020F refurbish and reposition the building and refine the tenant mix Turnover 1,868 3,969 3,937 2,800 within a new theme so as to enhance the rental yield which is EBITDA 1,567 935 1,805 1,379 currently at 1.8%. Pre-tax Profit 1,367 1,109 1,428 2,265 Net Profit 1,347 1,010 1,091 2,038 BUY with HK$0.64 TP. The stock is trading at a 74% discount EPS (HK cts) 13.42 10.06 10.87 20.30 to our assessed current NAV and PE of 2.1-4x for FY19-20. EPS Gth (%) (15.2) (25.0) 8.0 86.8 Valuation remains undemanding. The planned launch of its PE (X) 3.2 4.3 4.0 2.1 P/Cash Flow (X) (3.6) 1.7 2.6 (2.0) luxury residences on Perkins Road and Peak Road should unlock EV/EBITDA (X) 7.7 13.0 6.7 8.8 its NAV, thus providing upside on stock price. BUY with DPS (HK cts) 1.62 1.40 1.41 2.44 HK$0.64 TP. This is based on a 65% discount to our Jun-19 Div Yield (%) 3.7 3.2 3.2 5.6 NAV estimate. Net Gearing (%) 67 58 51 47 ROE (%) 13.2 8.4 7.9 13.4 Issued Capital (m shrs) 10,037 Est. NAV (HK$) 1.6 1.8 Mkt Cap (HK$m/US$m) 4,444 / 566 Disc. to NAV (%) (74) (76) Major Shareholders (%) Earnings Rev (%): Nil Nil Consensus EPS (HK$): 0.11 0.20 Chung (Cho Yee Mico) 49.9 Other Broker Recs: B:1 S:0 H:0 Value Partners Ltd. 7.4 Dalton Investments LLC 7.0 ICB Industry: Financials Free Float (%) 35.8 ICB Sector: Real Estate Holding & Development 3m Avg. Daily Val. (US$m) 0.6 Principal Business: Engaged primarily in trading and development of ICB Industry: Financials / Real Estate Investment & Services premium residential and commercial properties in Hong Kong, Macau and parts of Mainland China.

Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters, HKEX

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HK Property Sector CSI Properties

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Mar 2017A 2018A 2019F 2020F FY Mar 2017A 2018A 2019F 2020F Turnover 1,868 3,969 3,937 2,800 Fixed Assets 154 267 248 230 EBITDA 1,567 935 1,805 1,379 Other LT Assets 4,850 7,981 8,405 7,113 Depr / Amort (37) (19) (19) (19) Cash & ST Invts 5,902 4,459 4,935 4,557 EBIT 1,530 916 1,787 1,359 Other Current Assets 12,136 13,153 13,308 16,933 Associates Inc 58 467 6 1,431 Total Assets 23,041 25,860 26,896 28,832 Interest (Exp)/Inc (221) (275) (365) (525) ST Debt 2,142 1,359 1,359 1,359 Exceptionals 0 0 0 0 Creditors 941 1,107 1,147 1,187 Pre-tax Profit 1,367 1,109 1,428 2,265 Other Current Liab 539 1,141 1,141 1,141 Tax (21) (47) (202) (138) LT Debt 8,647 8,939 8,939 8,939 Minority Interest 1 (52) (135) (90) Other LT Liabilities 3 4 4 4 Net Profit 1,347 1,010 1,091 2,038 Minority Interests 14 28 73 73 Shareholder’s Equity 10,755 13,282 14,233 16,129 Total Cap. & Liab. 23,041 25,860 26,896 28,832 Sales Gth (%) (15) 112 (1) (29) Share Capital (m) 10,037 10,037 10,037 10,037 Net Profit Gth (%) (18) (25) 8 87 Net Cash/(Debt) (7,186) (7,718) (7,242) (7,621) EBITDA Margins (%) 84 24 46 49 Working Capital 14,415 14,005 14,596 17,803 EBIT Margin (%) 82 23 45 49 Net Gearing (%) 67 58 51 47 Tax Rate (%) 2 4 14 6

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Mar 2017A 2018A 2019F 2020F FY Mar 2017A 2018A 2019F 2020F EBIT 1,530 916 1,787 1,359 Revenues (HK$ m) Tax Paid (5) (47) (202) (138) Property rental income 281 307 327 342 Depr/Amort 37 19 19 19 Property sales income 1,587 3,662 3,609 2,457 Chg in Wkg.Cap (1,695) 1,781 (114) (3,585) Total 1,868 3,969 3,937 2,800 Other Non-Cash (1,077) (95) 15 15 Operating CF (1,210) 2,574 1,504 (2,330) Net Capex 1,256 0 0 0 Assoc, MI, Invsmt (1,666) (3,847) (507) 2,633 Investing CF (410) (3,847) (507) 2,633 Net Chg in Debt 1,894 0 0 0 Key Assumptions (%) 2018F 2019F New Capital 0 0 0 0 Residential price - HK 13 0 Dividend (198) (163) (141) (142) Office rental - HK 5 3 Other Financing CF (29) 441 (380) (540) Retail rental (High street shops) - HK 0 5 Financing CF 1,667 278 (521) (682) Retail rental (Shopping centre) - HK 5 5 Chg in Cash 47 (995) 477 (379) 0

Source: Company, DBS HK

Page 61

HK Property Sector Henderson Land

Bloomberg: 12 HK | Reuters: 12.HK Refer to important disclosures at the end of this report

BUY Urban land bank a hidden treasure Last Traded Price (6 Jul 2018): HK$41.20 (HSI : 28,316) Price Target 12-mth: HK$52.25 (27% upside) (Prev HK$53.82)  Improving property portfolio underpins long- Potential catalyst: Asset disposal term growth Where we differ: Market has higher earnings estimate for FY19.  Sizeable urban land bank for redevelopment an Analyst unrivalled advantage Jeff YAU CFA, +852 2820 4912 [email protected]  BUY with HK$52.25TP

Ian CHUI +852 2971 1915 [email protected] Improving property portfolio to underpin long-term

Jason LAM +852 29711773 growth. Henderson Land has been optimising its property [email protected] portfolio which paves way for future growth. Earlier this year, the company sold 18 King Wah Road, an office tower on the Price Relative North Point Harbourfront for HK$9.95bn and a residential site in Tuen Mun for HK$6.6bn. The disposals not only produce handsome gains to the company but also strengthen its war chest for new investments. The sales proceeds were then redeployed into two residential projects in Kai Tak which offer better price appreciation potential. This augurs well for the company’s long- term growth.

Urban redevelopment projects an advantage. Henderson

Land boasts urban development land of c.4m sf in GFA (in Forecasts and Valuation FY Dec (HK$ m) 2016A 2017A 2018F 2019F which it has >80% ownership) through acquiring ageing Turnover 25,568 24,453 18,963 25,708 properties. These redevelopment projects are held under the old EBITDA 10,309 8,931 8,775 11,354 lease terms and are not governed by recently introduced stricter Pre-tax Profit 16,383 22,228 20,290 16,212 Underlying Profit 14,169 19,557 18,164 13,619 sales rules which apply to those uncompleted projects subject to EPS (HK$) 3.22 4.44 4.13 3.09 pre-sale consent scheme. To put it differently, Henderson Land EPS Gth (%) 28.6 38.0 (7.1) (25.0) continues to have full flexibility in launching its redevelopment PE (X) 12.8 9.3 10.0 13.3 P/Cash Flow (X) 24.9 (337.0) 94.4 14.3 projects. Moreover, the average land cost of these EV/EBITDA (X) 23.5 27.1 27.6 21.4 redevelopment project is low at HK$8,300psf, significantly DPS (HK$) 1.28 1.55 1.71 1.71 lower than those sold through tenders. This should give Div Yield (%) 3.1 3.8 4.2 4.2 Henderson Land a cost advantage over its competitors in future. Net Gearing (%) 13 19 17 16 ROE (%) 5.5 7.0 6.1 4.4 Est. NAV (HK$) 83.4 87.1 BUY with HK$52.25 TP. The stock is trading at 51% discount Disc. to NAV (%) (51) (53) to our appraised current NAV. With ever improving asset quality, the company is well poised for solid long-term growth. Earnings Rev (%): 20 14 This leads to our positive stance over its long-term share price Consensus EPS (HK$): 2.93 3.49 performance. BUY with HK$52.25 TP, based on 40% discount Other Broker Recs: B:11 S:3 H:6 to our Jun-19 NAV estimate. ICB Industry: Financials ICB Sector: Real Estate Holding & Development At A Glance

Principal Business: Property development and investment in Hong Issued Capital (m shrs) 4,401 Kong & China with stakes in three listed associates including Hong Mkt Cap (HK$m/US$m) 181,332 / 23,105 Kong & China Gas Major Shareholders (%) Lee (Shau Kee) 72.8 Source of all data on this page: Company, DBS Bank (Hong Kong) Free Float (%) 27.2 Limited (“DBS HK”) Thomson Reuters, HKEX 3m Avg. Daily Val. (US$m) 21.9

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HK Property Sector Henderson Land

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 25,568 24,453 18,963 25,708 Fixed Assets 133,269 173,023 170,563 172,409 EBITDA 10,309 8,931 8,775 11,354 Other LT Assets 104,253 116,843 120,299 123,063 Depr / Amort (106) (94) (96) (98) Cash & ST Invts 24,255 27,006 32,246 32,829 EBIT 10,203 8,837 8,679 11,256 Other Current Assets 93,721 94,720 103,073 103,430 Associates Inc 4,478 5,493 6,196 5,306 Total Assets 355,498 411,592 426,182 431,731 Interest (Exp)/Inc (555) (204) (200) (350) ST Debt 14,392 23,506 23,906 24,306 Exceptionals 2,257 8,102 5,616 0 Creditors 21,223 23,355 23,255 23,155 Pre-tax Profit 16,383 22,228 20,290 16,212 Other Current Liab 6,846 3,137 3,137 3,137 Tax (1,810) (1,877) (1,526) (1,963) LT Debt 36,248 55,629 57,229 54,329 Minority Interest (404) (794) (600) (630) Other LT Liabilities 7,488 7,353 7,353 7,353 Underlying Profit 14,169 19,557 18,164 13,619 Minority Interests 5,767 5,487 5,985 6,511 Shareholder’s Equity 263,534 293,125 305,317 312,940 Total Cap. & Liab. 355,498 411,592 426,182 431,731 Sales Gth (%) 8 (4) (22) 36 Share Capital (m) 4,401 4,401 4,401 4,401 Net Profit Gth (%) 29 38 (7) (25) Net Cash/(Debt) (33,434) (55,631) (52,391) (49,308) EBITDA Margins (%) 40 37 46 44 Working Capital 75,515 71,728 85,021 85,661 EBIT Margin (%) 40 36 46 44 Net Gearing (%) 13 19 17 16 Tax Rate (%) 11 8 8 12

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 10,203 8,837 8,679 11,256 Revenues (HK$ m) Tax Paid (1,219) (1,572) (1,526) (1,963) Sales of property 17,679 16,522 10,864 17,399 Depr/Amort 106 94 96 98 Rental Income 5,559 5,678 5,771 5,901 Chg in Wkg.Cap (164) (8,866) (7,653) 493 Hotel operation 78 0 0 0 Other Non-Cash (2,596) (287) 800 800 Department store operation 871 834 867 902 Operating CF 6,330 (1,794) 395 10,684 Others 1,381 1,419 1,462 1,505 Net Capex (2,491) (24,573) (244) (243) Total 25,568 24,453 18,963 25,708 Assoc, MI, Invsmt 3,014 18,265 12,690 2,542 Investing CF 523 (6,308) 12,446 2,299 Net Chg in Debt 4,342 23,330 2,000 (2,500) Key Assumptions (%) 2018F 2019F New Capital 0 0 0 0 Residential Price - HK 13 0 Dividend (6,348) (6,598) (7,801) (7,800) Office rental - HK 5 3 Other Financing CF 155 (1,652) (1,800) (2,100) Retail Rental (High Street Shops) - HK 0 5 Financing CF (1,851) 15,080 (7,601) (12,400) Retail Rental (Shopping Center) - HK 5 5 Chg in Cash 5,002 6,978 5,240 583

Source: Company, DBS HK

Page 63

HK Property Sector K.Wah International

Bloomberg: 173 HK | Reuters: 0173.HK Refer to important disclosures at the end of this report

BUY High earnings visibility Last Traded Price (6 Jul 2018): HK$4.36 (HSI : 28,316) Price Target 12-mth: HK$6.24 (43% upside) (Prev HK$6.45)  Encouraging sales response to the Solaria launch

Potential Catalyst: Project sales  Growing rental income led by portfolio expansion Where we differ: Market has slightly higher earnings estimate for FY18.  BUY with HK$6.24 TP Analyst Jeff YAU CFA, +852 2820 4912 Encouraging sales response to the Solaria launch. YTD, K.Wah [email protected] International has generated contracted sales of >HK$6bn in Hong Kong. Ian CHUI +852 2971 1915 The bulk came from selling Solaria with the balance from inventory sales [email protected] at K.City and The Spectra. K.Wah offered Solaria in Tai Po for pre-sales Jason LAM +852 29711773 in Jun-18. Market response has been very encouraging. The company [email protected] has sold 668 units, or 60% of total units, for c.HK$5.8bn or Price Relative HK$18,400psf. Solaria contains 1,122 units, mainly small-sized. HK$ Relative Index Superstructure works are in progress with project completion targeted 6.2 212 5.7 192 for 2019. The company acquired the site where Solaria is being built 5.2 172 4.7 152 through government tender for HK$3.03bn in Sep-15. Adding 4.2 132 construction and finance costs, we estimate total development costs at 3.7 112 3.2 92 HK$10,900psf on saleable area basis. Full sales of Solaria units should 2.7 72 2.2 52 bring in pre-tax earnings of c.HK$4bn to K.Wah International. With Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 successful pre-sales of K.City and Solaria, we estimate the company has K.Wah International (LHS) Relative HSI (RHS) locked in >HK$5.5bn development earnings from Hong Kong. This Forecasts and Valuation FY Dec (HK$ m) 2016A 2017A 2018F 2019F points to lower earnings risks for the years ahead. Turnover 9,620 11,294 16,237 16,881 Growing rental income, portfolio expansion. In China, K.Wah EBITDA 3,720 4,778 4,915 5,272 Pre-tax Profit 5,072 6,735 4,904 5,351 achieved contracted sales of c.HK$2bn. The Peak and Royal Creek, both Net Profit 3,182 3,906 3,510 3,849 in Nanjing, continued to sell smoothly. K.Wah launched Uptown in Underlying Profit 2,808 2,517 3,510 3,849 Huadu in Apr-18 with satisfactory response. About 60% of total 348 EPS (HK$) 0.95 0.83 1.15 1.26 EPS Gth (%) 104.8 (13.0) 38.9 9.7 units have been sold at an average selling price (ASP) of PE (X) 4.6 5.3 3.8 3.5 Rmb17,000psm. Take-up rate at Silver Cove Ph 3 in Dongguan has P/Cash Flow (X) 3.2 (4.2) 11.3 9.3 increased to c.70% from Dec-17’s 25%. In 2H18, the company plans to EV/EBITDA (X) 7.5 5.9 5.7 5.3 launch Windermere in Shanghai. Rental earnings are set to further DPS (HK$) 0.18 0.18 0.19 0.19 Div Yield (%) 4.1 4.1 4.4 4.4 improve driven by increased contributions from new investment Net Gearing (%) 15 36 31 24 properties including Stanford Residences Xu hui and Palace Lane in ROE (%) 13.5 12.9 9.5 9.5 Shanghai, J Town in Dongguan and retail arcade at Twin Peaks in Hong Est. NAV (HK$) 14.5 15.6 Disc. to NAV (%) (70) (72) Kong. The company is developing K.Wah Plaza in Huadu and an office project at Suhe Creek of Shanghai. These should further strengthen its Earnings Rev (%): (0) 28 rental portfolio. Consensus EPS (HK$): 1.44 1.17 Other Broker Recs: B:4 S:0 H:0 BUY with HK$6.24 TP The stock is trading 70% below our assessed

ICB Industry: Financials current NAV. Valuation sounds undemanding in view of improved ICB Sector: Real Estate Holding & Development financial health and enhanced earnings visibility following the Principal Business: Property development & investment in Hong Kong encouraging sales of Solaria. This should provide room for further share & China price upside. BUY with HK$6.24 TP, premised on a 60% discount to our Source of all data on this page: Company, DBS Bank (Hong Kong) Jun-19 NAV estimate. Limited (“DBS HK”) Thomson Reuters, HKEX At A Glance

Issued Capital (m shrs) 3,060 Mkt Cap (HK$m/US$m) 13,343 / 1,700 Major Shareholders (%) Lui (Che Woo) 53.4 Polymate Company Limited 8.4 Free Float (%) 38.2 3m Avg. Daily Val. (US$m) 2.3

ed-KK/ sa- CS /AH

HK Property Sector K.Wah International

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 9,620 11,294 16,237 16,881 Fixed Assets 8,752 13,062 13,661 14,291 EBITDA 3,720 4,778 4,915 5,272 Other LT Assets 8,003 19,237 19,237 18,519 Depr / Amort (37) (31) (31) (31) Cash & ST Invts 8,577 8,015 8,726 10,493 EBIT 3,684 4,747 4,884 5,240 Other Current Assets 25,141 32,192 34,638 37,042 Associates Inc 893 194 0 121 Total Assets 50,473 72,507 76,262 80,344 Interest (Exp)/Inc 41 60 20 (10) ST Debt 3,080 812 2,000 2,001 Exceptionals 454 1,734 0 0 Creditors 7,497 9,944 10,024 10,104 Pre-tax Profit 5,072 6,735 4,904 5,351 Other Current Liab 3,260 4,920 4,920 4,920 Tax (1,846) (2,218) (1,309) (1,420) LT Debt 7,933 17,667 16,479 16,478 Minority Interest (44) (611) (85) (82) Other LT Liabilities 1,576 2,147 1,990 1,824 Net Profit 3,182 3,906 3,510 3,849 Minority Interests 1,767 2,014 2,335 2,665 Underlying Profit 2,808 2,517 3,510 3,849 Shareholder’s Equity 25,360 35,003 38,515 42,352 Total Cap. & Liab. 50,473 72,507 76,262 80,344 Sales Gth (%) 104 17 44 4 Share Capital (m) 2,957 3,055 3,055 3,055 Net Profit Gth (%) 133 23 (10) 10 Net Cash/(Debt) (3,764) (12,630) (11,919) (10,153) EBITDA Margins (%) 39 42 30 31 Working Capital 19,881 24,532 26,421 30,509 EBIT Margin (%) 38 42 30 31 Net Gearing (%) 15 36 31 24 Tax Rate (%) 36 33 27 27

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 3,684 4,747 4,884 5,240 Revenues (HK$ m) Tax Paid (1,083) (860) (1,309) (1,420) Sale of properties 9,125 10,724 15,570 16,153 Depr/Amort 37 31 31 31 Rental income 393 463 557 615 Chg in Wkg.Cap 1,877 (6,570) (1,786) (1,693) Hotel operation 103 107 110 113 Other Non-Cash (531) (478) (640) (720) Total 9,620 11,294 16,237 16,881 Operating CF 3,983 (3,130) 1,180 1,438 Net Capex (9) (9) 0 0 Assoc, MI, Invsmt 5 (5,035) 80 918 Investing CF (4) (5,044) 80 918 Net Chg in Debt (1,605) 7,347 0 0 Key Assumptions (%) 2018F 2019F New Capital 1 42 0 0 Residential price - HK 13 0 Dividend (125) (170) (549) (591) Office rental - HK 5 3 Other Financing CF 320 (423) 0 0 Retail rental (High street shops) - HK 0 5 Financing CF (1,409) 6,796 (549) (591) Retail rental (Shopping centre) - HK 5 5 Chg in Cash 2,570 (1,378) 711 1,766

Source: Company, DBS HK

Page 65

HK Property Sector Kerry Properties

Bloomberg: 683 HK | Reuters: 683.HK Refer to important disclosures at the end of this report

HOLD (Downgrade from BUY) New rules pose challenges Last Traded Price (6 Jul 2018): HK$36.60 (HSI : 28,316) Price Target 12-mth: HK$39.00 (7% upside)  Mantin Heights and Bloomsway largely sold Potential Catalyst: Project sales in Hong Kong & China  Low sales lock-in rates in China Where we differ: Market has similar earnings estimate for FY18-19.  HOLD with HK$39 TP Analyst Jeff YAU CFA, +852 2820 4912 [email protected] Mantin Heights and Bloomsway largely sold. In 5M18, Kerry Properties achieved contracted sales of HK$4.7bn from inventory Ian CHUI +852 2971 1915 sales of Mantin Heights and Bloomsway. This represents 52% of [email protected] its full-year sales target in Hong Kong. The ASP for Mantin Heights has risen to HK$27,600psf from 2017’s HK$24,900psf. Jason LAM +852 29711773 This points to better profitability. Meanwhile, about 85% and [email protected] 90% of total units at Mantin Heights and Bloomsway have been

sold. Continued sales of these two residential developments Price Relative would support near term earnings. Compared to other developers, Kerry Properties has a greater exposure to the luxury market segment. Two low-density upmarket projects in Beacon Hill are cases in point. The proposed introduction of Special Rates for units that are vacant for 12 months or more after the issuance of occupation permit could pose challenges to Kerry Properties as its luxury projects are usually offered for sale after the issuance of certificate of compliance and are likely to be subject to vacancy tax. Elsewhere, the new sales rules may Forecasts and Valuation reduce the company’s flexibility in selling its upmarket projects. FY Dec (HK$ m) 2016A 2017A 2018F 2019F Turnover 12,989 35,548 19,818 23,271 Low sales lock-in rates in China. Without launching any new EBITDA 5,948 9,560 8,888 10,868 projects for sale in China, Kerry Properties has locked in c.23% of Pre-tax Profit 6,428 10,321 9,095 10,824 its full-year target of HK$7bn from China as at May. The Underlying Profit 3,670 6,652 5,488 6,217 company plans to offer Qianhai Kerry Centre in Shenzhen for EPS (HK$) 2.54 4.61 3.77 4.27 EPS Gth (%) 5.6 81.2 (18.1) 13.3 pre-sale in 2H18, which, if fully sold, should generate sales PE (X) 14.4 7.9 9.7 8.6 revenue of c.Rmb5.5bn. Hence, its sales progress should play a P/Cash Flow (X) 11.2 3.6 14.8 5.4 crucial role in determining if the company is able to meet its full- EV/EBITDA (X) 15.3 9.5 10.2 8.4 year sales target for 2018. Kerry Properties continues to explore DPS (HK$) 1.10 1.50 1.40 1.40 land acquisition opportunities in first tier and key second tier Div Yield (%) 3.0 4.1 3.8 3.8 cities with emphasis on mixed-use developments in which it has a Net Gearing (%) 35 26 28 24 niche. ROE (%) 4.5 7.5 5.7 6.2 Est. NAV (HK$) 83.2 86.8 Disc. to NAV (%) (56) (58) HOLD with HK$39 TP. The stock has outperformed the sector and broad market YTD. Meanwhile, the shares are trading at Earnings Rev (%): 3 17 56% discount to our appraised current NAV. The new sales rules Consensus EPS (HK$): 3.77 4.04 Other Broker Recs: B:8 S:3 H:8 and proposed vacancy tax may pose challenges to Kerry Properties. Downgrade to HOLD with HK$39 TP. This is based on ICB Industry: Financials 55% discount to our Jun-19 NAV estimate. ICB Sector: Real Estate Holding & Development Principal Business: Property development and investment in Hong Kong & China At A Glance Issued Capital (m shrs) 1,455 Source of all data on this page: Company, DBS Bank (Hong Kong) Mkt Cap (HK$m/US$m) 53,249 / 6,785 Limited (“DBS HK”) Thomson Reuters, HKEX Major Shareholders (%) Kerry Group Ltd. 58.5 Free Float (%) 41.5 3m Avg. Daily Val. (US$m) 9.0

ed-JS/ sa- CS /AH

HK Property Sector Kerry Properties

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 12,989 35,548 19,818 23,271 Fixed Assets 87,994 94,913 95,442 95,925 EBITDA 5,948 9,560 8,888 10,868 Other LT Assets 24,731 32,979 34,285 35,806 Depr / Amort (555) (468) (515) (566) Cash & ST Invts 16,487 13,159 12,939 17,580 EBIT 5,393 9,092 8,373 10,302 Other Current Assets 43,433 32,253 37,576 39,251 Associates Inc 1,144 1,317 1,042 1,021 Total Assets 172,646 173,304 180,242 188,562 Interest (Exp)/Inc (110) (88) (320) (500) ST Debt 3,856 8,903 4,001 4,002 Exceptionals 0 0 0 0 Creditors 20,534 15,764 15,784 15,804 Pre-tax Profit 6,428 10,321 9,095 10,824 Other Current Liab 6,544 2,093 2,093 2,093 Tax (1,952) (2,713) (2,577) (3,137) LT Debt 36,825 29,119 36,021 38,020 Minority Interest (806) (956) (1,030) (1,469) Other LT Liabilities 9,668 9,713 9,874 10,036 Underlying Profit 3,670 6,652 5,488 6,217 Minority Interests 12,474 13,362 14,392 15,862 Shareholder’s Equity 82,744 94,349 98,077 102,745 Total Cap. & Liab. 172,646 173,304 180,242 188,562 Sales Gth (%) 25 174 (44) 17 Share Capital (m) 1,443 1,447 1,447 1,447 Net Profit Gth (%) 5 81 (17) 13 Net Cash/(Debt) (28,852) (24,870) (27,091) (24,450) EBITDA Margins (%) 46 27 45 47 Working Capital 28,986 18,652 28,637 34,931 EBIT Margin (%) 42 26 42 44 Net Gearing (%) 35 26 28 24 Tax Rate (%) 30 26 28 29

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 5,393 9,092 8,373 10,302 Revenues (HK$ m) Tax Paid (1,329) (2,057) (2,577) (3,137) Property rental 4,051 4,541 4,728 4,854 Depr/Amort 555 468 515 566 Property sales 7,204 29,089 13,040 16,266 Chg in Wkg.Cap (328) 11,567 (5,219) (855) Logistic operations 0 0 0 0 Other Non-Cash (2,130) (7,986) (1,578) (1,882) Hotel opeation 1,734 1,918 2,051 2,152 Operating CF 2,162 11,084 (487) 4,995 Property & project 0 0 0 0 Net Capex (1,356) (88) (400) (400) management Assoc, MI, Invsmt (2,036) (4,372) 313 82 Total 12,989 35,548 19,818 23,271 Investing CF (3,392) (4,460) (87) (318) Net Chg in Debt 12,062 (3,223) 2,000 2,000 Key Assumptions (%) 2018F 2019F New Capital (52) 90 0 0 Residential price - HK 13 0 Dividend (1,683) (1,804) (2,243) (2,036) Office rental - HK 5 3 Other Financing CF (3,097) (6,111) 0 0 Retail rental (High street shops) - HK 0 5 Financing CF 7,229 (11,048) (243) (36) Retail rental (Shopping centre) - HK 5 5 Chg in Cash 5,998 (4,423) (817) 4,641

Source: Company, DBS HK

Page 67

HK Property Sector Lai Sun Development

Bloomberg: 488 HK | Reuters: 0488.HK Refer to important disclosures at the end of this report

BUY Redevelopment of London properties Last Traded Price (6 Jul 2018): HK$12.50 (HSI : 28,316) prompts value enhancement Price Target 12-mth: HK$16.40 (31% upside) Potential Catalyst: Stake increase by key shareholders  Planning consent obtained for redevelopment of Where we differ: n.a. its London properties

Analyst  Conditional cash offer made to acquire eSun shares Jeff YAU CFA, +852 2820 4912 it does own [email protected]  BUY with HK$16.40 TP

Ian CHUI +852 2971 1915 Planning approval obtained for redevelopment of London [email protected] properties. The company has obtained the approval from the City of Jason LAM +852 29711773 London’s Planning and Transportation Committee to redevelop its [email protected] three adjacent properties at 100, 106 & 107 Leadenhall Street into a 56-storey office tower with GFA of 1.098m sf. The company plans to Price Relative commence the redevelopment when all existing leases expire in 2023. We estimate this redevelopment could enhance its NAV by HK$2.66bn, and would be a key earnings catalyst in the medium term

Conditional cash offer to acquire eSun shares. In May-18, Lai Sun Development made a conditional cash offer to acquire the shares of eSun it does not own at HK$1.30/sh, which is at 80% discount to its book NAV. Lai Sun Development currently owns 36.94% in eSun, which in turn holds 50.6% in Lai Fung. If approved by independent

shareholders of Lai Sun Development and Lai Sun Garment, the offer Forecasts and Valuation will become unconditional once Lai Sun Development owns >50% of FY Jul (HK$ m) 2016A 2017A 2018F 2019F Turnover 1,868 1,704 1,703 3,691 eSun shares. If not less than 90% of minority shareholders accept the EBITDA 635 481 487 978 offer within four months of the cash offer, Lai Sun Development would Pre-tax Profit 1,237 2,204 202 1,208 seek compulsory acquisition of the remaining shares and apply for the Net Profit 1,148 2,094 85 1,055 withdrawal of eSun’s listing. Assuming all minority shareholders accept Underlying Profit 330 251 85 1,055 the offer, the exercise would cost the company c.HK$1.3bn. If the EPS (HK$) 0.65 0.42 0.14 1.74 offer becomes unconditional, Lai Sun Development will hold >50% of EPS Gth (%) (10.0) (36.3) (66.3) 1,147.6 eSun, and pursuant to the chain principle of the Takeovers Code, Lai PE (X) 19.2 30.1 89.4 7.2 Sun Development will be required to make an unconditional P/Cash Flow (X) (284.7) 19.6 (20.1) 35.7 EV/EBITDA (X) 24.3 32.1 31.7 15.8 mandatory cash offer to acquire the shares in Lai Fung that it does not DPS (HK$) 0.10 0.10 0.10 0.10 own. The offer price is HK$5.22/sh. In our view, the exercise allows Lai Div Yield (%) 0.8 0.8 0.8 0.8 Sun Development to raise its stake in eSun, whose asset value stems Net Gearing (%) 23 25 30 30 mainly from Lai Fung, at an attractive cost and give it more flexibility in ROE (%) 4.9 8.2 0.3 3.9 consolidating its control over eSun in future when opportunity knocks. Est. NAV (HK$) 38.6 41.0 Disc. to NAV (%) (68) (70) BUY with HK$16.40 TP The stock is trading at 68% discount to our appraised current NAV. We maintain our BUY call at this stage with Earnings Rev (%): Nil Nil Consensus EPS (HK$): 0.14 1.74 HK$16.40 TP. This is based on a 60% discount to our Jun-19 NAV Other Broker Recs: B:1 S:0 H:0 estimate.

ICB Industry: Financials At a glance ICB Sector: Real Estate Holding & Development Issued Capital (m shrs) 606 Principal Business: Engaged in property business in Hong Kong, Mkt Cap (HK$m/US$m) 7,576 / 965 China and media & entertainment through eSun Holdings Major Shareholders (%) Source of all data on this page: Company, DBS Bank (Hong Kong) Lai Sun Garment International Ltd 56.1 Limited (“DBS HK”) Thomson Reuters, HKEX Yu (Cheuk Yi) 15.8 Free Float (%) 28.1 3m Avg. Daily Val. (US$m) 0.9 ICB Industry: Financials / Real Estate Investment & Services

ed-JS/ sa- CS /AH

HK Property Sector Lai Sun Development

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Jul 2016A 2017A 2018F 2019F FY Jul 2016A 2017A 2018F 2019F Turnover 1,868 1,704 1,703 3,691 Fixed Assets 18,152 20,501 21,203 21,520 EBITDA 635 481 487 978 Other LT Assets 13,522 14,248 14,801 15,868 Depr / Amort (63) (78) (82) (223) Cash & ST Invts 2,355 2,878 1,898 1,550 EBIT 572 403 405 756 Other Current Assets 524 814 814 814 Associates Inc 788 1,015 11 642 Total Assets 34,553 38,441 38,716 39,752 Interest (Exp)/Inc (173) (165) (214) (190) ST Debt 127 2,889 1,233 650 Exceptionals 52 950 0 0 Creditors 461 452 452 452 Pre-tax Profit 1,237 2,204 202 1,208 Other Current Liab 132 119 119 119 Tax (58) (76) (77) (111) LT Debt 7,985 6,748 8,604 9,187 Minority Interest (31) (34) (40) (41) Other LT Liabilities 957 1,128 1,128 1,128 Net Profit 1,148 2,094 85 1,055 Minority Interests 534 505 545 586 Underlying Profit 330 251 85 1,055 Shareholder’s Equity 24,358 26,600 26,635 27,630 Total Cap. & Liab. 34,553 38,441 38,716 39,752 Sales Gth (%) 21 (9) 0 117 Share Capital (m) 506 604 605 605 Net Profit Gth (%) (43) 82 (96) 1,148 Net Cash/(Debt) (5,541) (6,690) (7,870) (8,217) EBITDA Margins (%) 34 28 29 27 Working Capital 2,160 232 907 1,143 EBIT Margin (%) 31 24 24 20 Net Gearing (%) 23 25 30 30 Tax Rate (%) 5 3 38 9

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Jul 2016A 2017A 2018F 2019F FY Jul 2016A 2017A 2018F 2019F EBIT 572 403 405 756 Revenues (HK$ m) Tax Paid (88) (76) (77) (111) Property Dev & Sales 469 89 0 1,485 Depr/Amort 63 78 82 223 Property Investment 702 687 704 720 Chg in Wkg.Cap (274) 243 (542) (425) Hotel & Rest. operations 672 894 965 1,452 Other Non-Cash (294) (264) (243) (230) Others 26 34 34 34 Operating CF (22) 385 (375) 212 Net Capex (802) (1,062) (784) (539) Assoc, MI, Invsmt (76) (356) 40 40 Total 1,868 1,704 1,703 3,691 Investing CF (879) (1,418) (744) (499) Net Chg in Debt 1,430 1,467 200 0 Key Assumptions (%) 2018F 2019F New Capital 913 0 0 0 Residential price - HK 13 0 Dividend (48) (48) (60) (61) Office rental - HK 5 3 Other Financing CF (99) (79) 0 0 Retail rental (High street shops) - HK 0 5 Financing CF 2,195 1,340 140 (61) Retail rental (Shopping centre) - HK 5 5 Chg in Cash 1,294 307 (980) (348)

Source: Company, DBS HK

Page 69

HK Property Sector MTR Corporation

Bloomberg: 66 HK | Reuters: 0066.HK Refer to important disclosures at the end of this report

BUY Property in focus Last Traded Price (6 Jul 2018): HK$42.90 (HSI : 28,316) Price Target 12-mth: HK$47.40 (10% upside) (Prev HK$47.65)  Residential launches received favourable response; Potential Catalyst: Project sales and tender more project tenders in the pipeline Where we differ: Market has slightly higher earnings estimate for FY18- 19 .  Retail portfolio sees improving tenants’ sales  BUY with HK$47.4 TP Analyst Jeff YAU CFA, +852 2820 4912 [email protected] Residential launches received favourable response, more project tenders in the pipeline. The launch of Malibu (Lohas Park Package 5), Ian CHUI +852 2971 1915 a jv with Wheelock & Co, has received encouraging market response. [email protected] Since its initial launch in Mar-18, over 95% of a total of 1600 units

have been pre-sold for HK$16,000psf on average. Another Jason LAM +852 29711773 [email protected] development, Wings at the Sea (Lohas Park Package 4), is also substantially sold with profit expected to be recognised in 2H18. In Price Relative May-18, MTRC tendered out the Yau Tong Ventilation Building site to Sino Land-led consortium. This project will provide 500 units upon scheduled completion in 2025. Currently, MTRC is offering Wong Chuk Hang Station Package 3 for tender. This package provides residential GFA of 1msf with a 0.5m sf shopping mall. Land premium is fixed at HK$13bn. Besides, Ho Man Tin Station Package 2, and Lohas Park Package 11 will also be up for tender in the coming nine months.

Retail portfolio sees improving tenants’ sales. Tenants’ sales of retail portfolio grew by 10-15% in 1Q18, in line with the overall retail Forecasts and Valuation market. The growth was led by Elements where tenants’ sales jumped FY Dec (HK$ m) 2016A 2017A 2018F 2019F >20% in the same period driven by luxury products. Yet, rental Turnover 45,189 55,440 49,528 51,156 EBITDA 17,313 19,991 17,693 18,271 reversion at Elements remains negative given the high expiring rents Pre-tax Profit 11,633 13,889 12,348 13,322 contracted three years ago. Overall, reversionary growth is largely Underlying Profit 9,446 10,515 10,347 11,163 neutral. The renovation of previous cinema space at Maritime Square is EPS (HK$) 1.61 1.77 1.72 1.86 currently underway with completion targeted for end-2018. It will be EPS Gth (%) (13.9) 10.0 (2.6) 7.9 used to host higher paying general retail trades after renovation. For PE (X) 26.7 24.3 24.9 23.1 Two IFC, the lease with anchor tenant UBS expires in mid-19. P/Cash Flow (X) 12.8 12.1 14.4 14.0 Favourable rental growth is expected upon lease renewal. EV/EBITDA (X) 16.9 14.6 16.5 16.0 DPS (HK$) 3.27 3.32 1.12 1.12 Div Yield (%) 7.6 7.7 2.6 2.6 BUY with HK$47.4 TP. The stock is trading at 18% discount to our Net Gearing (%) 20 21 19 17 assessed current NAV. Continued residential launches at Lohas Park ROE (%) 5.9 6.7 6.1 6.4 should attract favourable demand from home buyers while the Est. NAV (HK$) 52.1 55.9 Disc. to NAV (%) (18) (23) upcoming project tenders should draw strong interest from developers. Maintain BUY with HK$47.4. This is derived by applying 30% and 25% Earnings Rev (%): (24) 0 discount to our Jun-19 estimated valuation of investment and Consensus EPS (HK$): 1.78 1.88 Other Broker Recs: B:5 S:4 H:3 development properties. The construction issue surrounding the Shatin- Central Link, however, is an overhang on the stock. ICB Industry: Financials ICB Sector: Real Estate Holding & Development Principal Business: Operate pre-dominantly a rail-based transportation Issued Capital (m shrs) 6,104 system in HK with exposure to residential and commercial markets Mkt Cap (HK$m/US$m) 261,846 / 33,363 Source of all data on this page: Company, DBS Bank (Hong Kong) Major Shareholders (%) Limited (“DBS HK”) Thomson Reuters, HKEX Financial Secretary Inc. 72.7 Free Float (%) 27.3 3m Avg. Daily Val. (US$m) 20.8 ICB Industry: Financials / Real Estate Investment & Services

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HK Property Sector MTR Corporation

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 45,189 55,440 49,528 51,156 Fixed Assets 201,942 209,772 210,048 210,363 EBITDA 17,313 19,991 17,693 18,271 Other LT Assets 25,014 22,516 27,657 33,611 Depr / Amort (4,127) (4,855) (4,979) (5,117) Cash & ST Invts 20,660 18,797 20,771 22,764 EBIT 13,186 15,136 12,714 13,154 Other Current Assets 9,724 12,683 12,583 12,483 Associates Inc 535 494 555 590 Total Assets 257,340 263,768 271,059 279,222 Profit prop. development 311 1,097 2,191 2,970 Var cost to KCRC (1,787) (1,933) (2,012) (2,092) ST Debt 1,350 329 4 4 Interest (Exp)/Inc (612) (905) (1,100) (1,300) Creditors 30,896 28,166 30,228 32,370 Exceptionals 0 0 0 0 Other Current Liab 13,487 3,757 3,757 3,757 Pre-tax Profit 11,633 13,889 12,348 13,322 LT Debt 38,589 41,714 42,039 42,039 Tax (2,093) (3,318) (1,946) (2,101) Other LT Liabilities 23,462 23,376 23,339 23,298 Minority Interest (94) (56) (56) (60) Minority Interests 95 122 178 238 Underlying Profit 9,446 10,515 10,347 11,163 Shareholder’s Equity 149,461 166,304 171,514 177,516 Total Cap. & Liab. 257,340 263,768 271,059 279,222 Sales Gth (%) 8 23 (11) 3 Share Capital (m) 5,905 5,905 5,905 5,905 Net Profit Gth (%) (13) 11 (2) 8 Net Cash/(Debt) (30,265) (34,305) (32,294) (30,260) EBITDA Margins (%) 38 36 36 36 Working Capital (15,349) (772) (635) (884) EBIT Margin (%) 29 27 26 26 Net Gearing (%) 20 21 19 17 Tax Rate (%) 18 24 16 16

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 13,186 15,136 12,714 13,154 Revenues (HK$ m) Tax Paid (2,626) (1,408) (1,946) (2,101) HK transportation 17,655 18,201 18,737 19,500 Depr/Amort 4,127 4,855 4,979 5,117 operations HK station commercial 5,544 5,975 5,975 6,171 business HK Property rental and Chg in Wkg.Cap 1,661 217 150 150 4,741 4,900 4,976 5,178 management business Mainland China and Other Non-Cash 787 803 0 0 14,826 23,986 17,188 17,532 International subsidiaries Operating CF 17,135 19,603 15,897 16,320 Other business 2,423 2,378 2,651 2,775 Net Capex (11,939) (8,523) (5,708) (5,856) Assoc, MI, Invsmt (5,179) 9,423 (750) (750) Total 45,189 55,440 49,528 51,156 Investing CF (17,118) 900 (6,458) (6,606) Net Chg in Debt 12,872 0 0 0 Key Assumptions (%) 2018F 2019F New Capital 845 341 0 0 Residential price - HK 13 0 Dividend (18,616) (15,460) (6,678) (6,731) Office rental - HK 5 3 Other Financing CF 5,991 912 (9,625) (991) Retail rental (High street shops) - HK 0 5 Financing CF 1,092 (14,207) (16,303) (7,721) Retail rental (Shopping centre) - HK 5 5 Chg in Cash 1,109 6,296 (6,864) 1,993

Source: Company, DBS HK

Page 71

HK Property Sector New World Development

Bloomberg: 17 HK | Reuters: 0017.HK Refer to important disclosures at the end of this report

BUY Recurrent income boost Last Traded Price (6 Jul 2018): HK$11.04 (HSI : 28,316) Price Target 12-mth: HK$14.50 (31% upside) (Prev HK$13.90)  New rental properties to boost recurrent earnings  Encouraging project sales to lock in earnings Potential Catalyst: Improving leasing response at Victoria Dockside Where we differ: Market has similar earnings estimate for FY18.  BUY with HK$14.50 TP

Analyst Jeff YAU CFA, +852 2820 4912 New rental properties to boost recurrent earnings. K 11 Musea, [email protected] the retail portion of Victoria Dockside, is c.50% pre-committed and has achieved rents of HK$110-130psf. The mall will be handed over Ian CHUI +852 2971 1915 to tenants in late 2018 with grand opening targeted for 3Q19. [email protected] Committed office occupancy of K 11 Atelier has exceeded 70% while Rosewood hotel is scheduled to open for business in early Jason LAM +852 29711773 2019. Excluding hotel portion, we estimate that this mixed use [email protected] project will bring in rental earnings of c.HK$1.5bn p.a. to the

company when it is fully operational. New World Development Price Relative secured the development rights of the integrated commercial project at SKYCITY in Chek Lap Kok. It is adjacent to the Hong Kong International Airport and also close to the Boundary Crossing Facilities Island of the Hong Kong-Zhuhai Macau Bridge. Total investment cost is estimated at c.HK$20bn. Scheduled for phased completion in 2023-27, this integrated development will comprise of retail, dining, office and entertainment facilities with a maximum GFA of 3.77ms sf. Given its strategic location, it is set to become a new destination among local and tourists and give a boost to the Forecasts and Valuation company’s recurrent earnings. FY Jun (HK$ m) 2016A 2017A 2018F 2019F Turnover 59,570 56,629 54,568 69,335 Encouraging project sales to lock in earnings. New World EBITDA 11,751 11,911 13,315 15,821 Development has expedited the sales of Mount Pavilia in Sai Kung Pre-tax Profit 18,707 15,230 13,291 15,964 Underlying Profit 6,893 7,133 7,788 9,721 since Apr-18, and has sold c.580 units, or 85% of total. Inventory EPS (HK$) 0.75 0.75 0.78 0.95 sales at Parkhill Crest and Artisan House are proceeding well. In EPS Gth (%) (2.2) (0.9) 4.1 22.5 addition, its 40%-owned Fleur Pavilia in North Point was launched PE (X) 14.6 14.8 14.2 11.6 P/Cash Flow (X) 8.2 12.5 7.0 7.3 for sale to positive response in Jun-18. Over 70% of a total of 611 EV/EBITDA (X) 18.4 18.2 16.3 13.7 units have been snapped up. Overall, the company recorded DPS (HK$) 0.44 0.46 0.48 0.51 contracted sales of HK$24bn in FY18, exceeding its sales target of Div Yield (%) 4.0 4.2 4.3 4.6 Net Gearing (%) 43 39 35 34 HK$10bn. Near-term visibility of development income from Hong ROE (%) 4.8 4.1 3.8 4.5 Kong is therefore high. Est. NAV (HK$) 25.1 26.4 Disc. to NAV (%) (56) (58) BUY with HK$14.50 TP. The stock, trading at 56% discount to our

Earnings Rev (%): (2) 5 assessed current NAV, remains inexpensive. With a string of new Consensus EPS 0.77 0.88 investments, the company has laid down solid foundations for long- Other Broker Recs: B:13 S:0 H:4 term growth which could improve the valuations over time. BUY ICB Industry: Financials with HK$14.50 TP, based on a 45% discount to our Jun-19 NAV ICB Sector: Real Estate Investment & Services estimate. Principal Business: Engaged in property and hotel businesses in Hong Kong and China, service and infrastructure operations and department At A Glance s tore Source of all data on this page: Company, DBS Bank (Hong Kong) Issued Capital (m shrs) 10,215 Limited (“DBS HK”) Thomson Reuters, HKEX Mkt Cap (HK$m/US$m) 112,778 / 14,370 Major Shareholders (%) Chow Tai Fook Enterprises, Ltd. 44.4 Free Float (%) 55.6 3m Avg. Daily Val. (US$m) 19.2

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HK Property Sector New World Development

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Jun 2016A 2017A 2018F 2019F FY Jun 2016A 2017A 2018F 2019F Turnover 59,570 56,629 54,568 69,335 Fixed Assets 112,402 138,283 154,039 156,194 EBITDA 11,751 11,911 13,315 15,821 Other LT Assets 124,652 119,923 121,727 122,693 Depr / Amort (1,929) (1,953) (2,109) (2,277) Cash & ST Invts 55,171 67,107 73,069 79,290 EBIT 9,822 9,959 11,207 13,544 Other Current Assets 99,884 111,744 113,212 117,097 Associates Inc 2,661 3,925 3,268 4,815 Total Assets 392,109 437,056 462,046 475,274 Interest (Exp)/Inc (537) (446) (1,935) (2,394) ST Debt 20,090 21,225 33,220 33,220 Exceptionals 6,761 1,792 752 0 Creditors 26,770 33,184 33,134 33,084 Pre-tax Profit 18,707 15,230 13,291 15,964 Other Current Liab 19,663 25,092 25,092 25,092 Tax (6,424) (4,756) (3,060) (3,679) LT Debt 114,842 121,757 114,762 119,762 Minority Interest (3,617) (2,799) (2,443) (2,564) Other LT Liabilities 9,848 14,854 14,854 14,854 Net Profit 8,666 7,676 7,788 9,721 Minority Interests 21,322 25,402 26,344 27,406 Underlying Profit 6,893 7,133 7,788 9,721 Shareholder’s Equity 179,573 195,543 214,641 221,856 Total Cap. & Liab. 392,109 437,056 462,046 475,274 Sales Gth (%) 8 (5) (4) 27 Share Capital (m) 9,388 9,815 9,815 9,815 Net Profit Gth (%) (55) (11) 1 25 Net Cash/(Debt) (77,049) (76,870) (75,908) (74,687) EBITDA Margins (%) 20 21 24 23 Working Capital 88,532 99,350 94,835 104,991 EBIT Margin (%) 16 18 21 20 Net Gearing (%) 43 39 35 34 Tax Rate (%) 34 31 23 23

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Jun 2016A 2017A 2018F 2019F FY Jun 2016A 2017A 2018F 2019F EBIT 9,822 9,959 11,207 13,544 Revenues (HK$ m) Tax Paid (4,359) (5,276) (3,060) (3,679) Property Investment 2,492 2,411 2,696 3,041 Depr/Amort 1,929 1,953 2,109 2,277 Property Development 28,528 25,968 23,093 36,533 Chg in Wkg.Cap 1,344 (3,007) 1,682 (335) Services 19,904 20,556 20,864 21,177 Other Non-Cash (731) (472) 752 0 Infrastrcture 2,444 2,411 2,435 2,459 Operating CF 8,006 3,156 12,689 11,807 Hotels 1,762 1,422 1,440 1,898 Net Capex (8,921) (16,158) (2,000) (2,000) Department Stores & Others 4,440 3,862 4,041 4,228 Assoc, MI, Invsmt 9,529 4,073 2,829 5,254 Total 59,570 56,629 54,568 69,335 Investing CF 608 (12,085) 829 3,254 Net Chg in Debt 20,384 20,335 5,000 5,000 Key Assumptions (%) 2018F 2019F New Capital 4 208 0 0 Residential price - HK 13 0 Dividend (1,882) (1,485) (6,056) (6,439) Office rental - HK 5 3 Other Financing CF (31,030) (2,126) (6,500) (7,400) Retail rental (High street shops) - HK 0 5 Financing CF (12,525) 16,932 (7,556) (8,839) Retail rental (Shopping centre) - HK 5 5 Chg in Cash (3,911) 8,003 5,962 6,221

Source: Company, DBS HK

Page 73

HK Property Sector Sino Land

Bloomberg: 83 HK | Reuters: 83.HK Refer to important disclosures at the end of this report

BUY Harvest season on the horizon Last Traded Price (6 Jul 2018): HK$12.36 (HSI : 28,316) Price Target 12-mth: HK$14.70 (19% upside) (Prev HK$15.84)  Major project launches ahead  Remains on acquisition mode Potential Catalyst:Project sales Where we differ: Market has higher earnings estimate for FY19 .  BUY with HK$14.7 TP

Analyst Jeff YAU CFA, +852 2820 4912 Major project launches ahead. In 2H18, Sino Land plans to [email protected] launch a small residential project in Sham Shui Po, a JV with Urban Renewal Authority (URA). This will be followed by the Ian CHUI +852 2971 1915 launches of Mayfair by the Sea 8 in Tai Po and Grand Central in [email protected] Kwun Tong. In particular, Grand Central, another JV with URA, Jason LAM +852 29711773 will be the highlight in the primary market. This sizeable [email protected] redevelopment project is located next to Kwun Tong MTR

Station, and hence offers convenient transportation accessibility. Price Relative It contains about 2,000 residential units with GFA of 1.5msf. Judging from the encouraging market response to the project launches in urban areas, we believe that Grand Central should draw strong market interests when offered for sale. This project should be a profit bonanza with attributable pre-tax earnings estimated at c.HK$8bn when fully sold.

Remains on acquisition mode. Sino Land has continued to add Forecasts and Valuation new sites to its development land bank. In May-18, Sino Land FY Jun (HK$ m) 2016A 2017A 2018F 2019F teamed up with CSI Properties to secure the development rights Turnover 10,804 18,334 11,065 6,789 EBITDA 4,258 7,372 4,264 3,069 of Yau Tong Ventilation Building site through MTRC tender after Pre-tax Profit 5,968 8,574 12,797 4,569 outbidding four other developers. Upon scheduled completion in Underlying Profit 5,351 5,527 10,832 3,999 2025, the residential development will provide 500 units with EPS (HK$) 0.87 0.89 1.64 0.61 GFA of 0.43msf In addition to land premium of HK$1.5bn, the EPS Gth (%) (0.4) 2.2 84.9 (63.1) PE (X) 14.2 13.9 7.5 20.4 consortium has to pay MTRC an undisclosed lump sum and 25% P/Cash Flow (X) 8.2 11.9 35.0 (22.2) of development profits. Since Jul-17, Sino Land has acquired six EV/EBITDA (X) 14.4 8.3 14.4 20.0 development sites with total attributable GFA of c.1.3m sf DPS (HK$) 0.51 0.53 0.98 0.53 Div Yield (%) 4.1 4.3 7.9 4.3 through public tenders. This has laid down a strong foundation Net Gearing (%) CASH CASH CASH CASH for future development earnings growth. Despite increased land ROE (%) 4.4 4.4 8.2 3.0 banking activities, Sino Land remains in net cash position Est. NAV (HK$) 25.6 26.8 Disc. to NAV (%) (52) (54) BUY with HK$14.70 TP. The stock, trading at 52% discount to Earnings Rev (%): (2) 3 our appraised current NAV, is attractively valued. The upcoming Consensus EPS (HK$): 0.88 0.78 project launches, especially Grand Central, if greeted with Other Broker Recs: B:12 S:2 H:7 favourable market response, should improve the sentiment towards the counter. BUY with HK$14.7 TP, based on a 45% ICB Industry: Financials discount to our Jun-19 NAV estimate. ICB Sector: Real Estate Holding & Development Principal Business: Property development and investment, hotel operations, primarily in Hong Kong At A Glance Issued Capital (m shrs) 6,603 Source of all data on this page: Company, DBS Bank (Hong Kong) Mkt Cap (HK$m/US$m) 81,614 / 10,399 Limited (“DBS HK”) Thomson Reuters, HKEX Major Shareholders (%) Tsim Sha Tsui Properties Ltd 52.7 Free Float (%) 47.3 3m Avg. Daily Val. (US$m) 7.7

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HK Property Sector Sino Land

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Jun 2016A 2017A 2018F 2019F FY Jun 2016A 2017A 2018F 2019F Turnover 10,804 18,334 11,065 6,789 Fixed Assets 61,398 63,497 64,936 66,408 EBITDA 4,258 7,372 4,264 3,069 Other LT Assets 29,373 30,823 43,881 48,531 Depr / Amort (82) (98) (100) (102) Cash & ST Invts 27,450 33,153 26,307 15,367 EBIT 4,176 7,273 4,164 2,967 Other Current Assets 30,837 27,793 26,141 32,982 Associates Inc 1,498 1,003 1,474 1,449 Total Assets 149,058 155,266 161,265 163,289 Interest (Exp)/Inc 295 298 324 154 ST Debt 0 3,875 577 578 Exceptionals 0 0 6,835 0 Creditors 5,765 4,535 4,585 4,635 Pre-tax Profit 5,968 8,574 12,797 4,569 Other Current Liab 11,884 11,640 11,640 11,640 Tax (553) (2,474) (1,925) (530) LT Debt 4,442 2,046 5,345 5,344 Minority Interest (64) (573) (40) (40) Other LT Liabilities 4,292 3,844 3,844 3,844 Underlying Profit 5,351 5,527 10,832 3,999 Minority Interests 543 971 971 971 Shareholder’s Equity 122,131 128,354 134,303 136,277 Total Cap. & Liab. 149,058 155,266 161,265 163,289 Sales Gth (%) (51) 70 (40) (39) Share Capital (m) 6,165 6,165 6,165 6,165 Net Profit Gth (%) 1 3 96 (63) Net Cash/(Debt) 23,000 27,221 20,376 9,436 EBITDA Margins (%) 39 40 39 45 Working Capital 40,638 40,896 35,646 31,496 EBIT Margin (%) 39 40 38 44 Net Gearing (%) CASH CASH CASH CASH Tax Rate (%) 9 29 15 12

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Jun 2016A 2017A 2018F 2019F FY Jun 2016A 2017A 2018F 2019F EBIT 4,176 7,273 4,164 2,967 Revenues (HK$ m) Tax Paid (604) (1,566) (1,925) (530) Property sales 5,760 13,185 5,795 1,351 Depr/Amort 82 98 100 102 Property rental 2,963 3,069 3,147 3,247 Chg in Wkg.Cap 5,534 (718) (8,768) (6,751) Hotel operations 859 840 849 882 Other Non-Cash (445) (217) 6,835 0 Property management and 1,156 1,122 1,156 1,190 Operating CF 8,743 4,870 407 (4,213) other Investments services in securities 64 86 70 70 Net Capex 945 (269) (100) (100) Financing 3 32 48 48 Assoc, MI, Invsmt (12,455) (4,660) (590) (2,708) Total 10,804 18,334 11,065 6,789 Investing CF (11,510) (4,929) (690) (2,808) Net Chg in Debt (1,610) 1,480 0 0 Key Assumptions (%) 2018F 2019F New Capital (47) (8) 0 0 Residential price - HK 13 0 Dividend (2,123) (1,503) (6,362) (3,540) Office rental - HK 5 3 Other Financing CF (836) (565) (200) (380) Retail rental (High street shops) - HK 0 5 Financing CF (4,616) (595) (6,562) (3,920) Retail rental (Shopping Centre) - HK 5 5 Chg in Cash (7,383) (654) (6,846) (10,940)

Source: Company, DBS HK

Page 75

HK Property Sector Sun Hung Kai Properties

Bloomberg: 16 HK | Reuters: 16.HK Refer to important disclosures at the end of this report

BUY Compelling valuations Last Traded Price (6 Jul 2018): HK$119.50 (HSI : 28,316) Price Target 12-mth: HK$148.8 (25% upside) (Prev HK$158)  Maiden foray into the Kai Tak market  Expected to focus more on clearing completed Potential Catalyst: project sales inventory Where we differ: Market has similar earnings estimate for FY18-19 Analyst  BUY with HK$148.8 TP Jeff YAU CFA, +852 2820 4912 [email protected] Maiden foray into the Kai Tak market. In May-18, Sun Hung Kai Properties (SHKP) acquired a residential/commercial site in Kai Tai Ian CHUI +852 2971 1915 [email protected] through government tender at a record breaking HK$25.2bn. This translated into an accommodation value of HK$17,777psf, a new high Jason LAM +852 29711773 in the area. This project provides total GFA of 1.42m sf, of which [email protected] 1.07m sf is earmarked for residential use. The balance is mainly for Price Relative retail purpose and will be retained for long-term investment after completion. An underground shopping street will be built to connect to the neighbouring Kai Tak Station. Since SHKP excels in retail management, this explains why the company had put in a higher bid than its competitors. Including construction and interest expense, we estimate all-in costs at HK$28,000psf for the residential portion. With direct link to Kai Tak MTR Station, residential apartments are expected to command higher prices than others in the area.

Forecasts and Valuation To focus more on clearing completed inventory. SHKP launched FY Jun (HK$ m) 2016A 2017A 2018F 2019F Turnover 91,184 78,207 87,782 93,015 St. Barths in Ma On Shan and Mount Regency in Tuen Mun for pre-sale EBITDA 30,806 31,465 36,839 41,585 in 1H18 and market response was favourable. Over 70% of the Pre-tax Profit 30,228 32,211 36,838 40,917 respective units have been taken up. Given the low land costs, both Underlying Profit 24,170 25,965 29,286 32,297 EPS (HK$) 8.37 8.96 10.11 11.15 projects are estimated to offer decent pre-tax development margins of EPS Gth (%) 18.4 7.1 12.8 10.3 >40%. Overall, SHKP has met its FY18 contracted sales target of PE (X) 14.3 13.3 11.8 10.7 HK$36bn.The company is currently offering St. Martin (1444 units) in P/Cash Flow (X) 17.0 8.9 (43.6) 26.0 EV/EBITDA (X) 12.9 12.6 10.8 9.5 Tai Po. SHKP has relatively more completed unsold inventory than its DPS (HK$) 3.85 4.10 4.45 4.75 peers. With the introduction of vacancy tax, we expect SHKP to focus Div Yield (%) 3.2 3.4 3.7 4.0 on clearing these inventories instead of selling uncompleted projects. Net Gearing (%) 11 7 13 15 ROE (%) 5.3 5.3 5.7 6.0 Est. NAV (HK$) 234.3 248.0 BUY with HK$148.8 TP. Trading at 49% discount to our assessed Disc. to NAV (%) (49) (52) current NAV with estimated dividend yield of 3.7% for FY18, the stock is attractively valued. Even allowing for the reduced flexibility in project Earnings Rev (%): (0) (0) Consensus EPS (HK$): 10.38 11.17 sales led by new round of housing measures, we maintain BUY call Other Broker Recs: B:16 S:0 H:5 with HK$148.8 TP, premised on a 40% discount to Jun-19 NAV

ICB Industry: Financials estimate.

ICB Sector: Real Estate Holding & Development Principal Business: A leading property developer and investor in HK, At A Glance with exposure to hotel, logistics, telecom, construction and Issued Capital (m shrs) 2,897 transportation infrastructure business Mkt Cap (HK$m/US$m) 346,192 / 44,110 Source of all data on this page: Company, DBS Bank (Hong Kong) Major Shareholders (%) Limited (“DBS HK”) Thomson Reuters, HKEX HSBC Trustee (C.I.) Ltd. 26.2 Thriving Talent Ltd. 6.7 Rosy Result Ltd. 6.5 Asporto Ltd. 6.5 Free Float (%) 54.1 3m Avg. Daily Val. (US$m) 53.3 ICB Industry: Financials / Real Estate Investment & Services

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HK Property Sector Sun Hung Kai Properties

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Jun 2016A 2017A 2018F 2019F FY Jun 2016A 2017A 2018F 2019F Turnover 91,184 78,207 87,782 93,015 Fixed Assets 343,963 364,957 368,840 372,696 EBITDA 30,806 31,465 36,839 41,585 Other LT Assets 68,922 77,721 81,405 87,684 Depr / Amort (1,950) (1,939) (1,997) (2,057) Cash & ST Invts 31,166 32,072 10,766 5,220 EBIT 28,856 29,526 34,841 39,528 Other Current Assets 170,464 164,666 210,145 239,185 Associates Inc 3,053 3,360 3,596 3,289 Total Assets 614,515 639,416 671,155 704,786 Interest (Exp)/Inc (2,055) (1,709) (1,600) (1,900) ST Debt 17,486 5,390 10,086 10,087 Exceptionals 374 1,034 0 0 Creditors 27,493 26,908 27,108 27,308 Pre-tax Profit 30,228 32,211 36,838 40,917 Other Current Liab 14,092 18,674 18,674 18,674 Tax (5,348) (5,616) (6,316) (7,526) LT Debt 63,275 61,936 67,240 77,239 Minority Interest (710) (630) (1,236) (1,094) Other LT Liabilities 17,661 19,145 19,145 19,145 Underlying Profit 24,170 25,965 29,286 32,297 Minority Interests 5,801 5,238 6,278 7,177 Shareholder’s Equity 468,707 502,125 522,624 545,155 Total Cap. & Liab. 614,515 639,416 671,155 704,786 Sales Gth (%) 37 (14) 12 6 Share Capital (m) 2,895 2,895 2,895 2,895 Net Profit Gth (%) 22 7 13 10 Net Cash/(Debt) (50,713) (36,052) (67,358) (82,904) EBITDA Margins (%) 34 40 42 45 Working Capital 142,559 145,766 165,042 188,336 EBIT Margin (%) 32 38 40 42 Net Gearing (%) 11 7 13 15 Tax Rate (%) 18 17 17 18

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Jun 2016A 2017A 2018F 2019F FY Jun 2016A 2017A 2018F 2019F EBIT 28,856 29,526 34,841 39,528 Revenues (HK$ m) Tax Paid (5,038) (3,817) (6,316) (7,526) Property sales 40,790 35,962 38,693 46,723 Depr/Amort 1,950 1,939 1,997 2,057 Rental income 17,240 17,970 19,008 19,768 Chg in Wkg.Cap (9,803) 7,876 (44,779) (28,291) Hotel operation 4,031 4,166 4,316 4,938 Other Non-Cash (669) (562) 0 0 Others 29,123 20,109 25,765 21,587 Operating CF 15,296 34,962 (14,256) 5,769 Net Capex (6,954) (11,699) (2,500) (2,500) Assoc, MI, Invsmt 1,133 2,003 (88) (2,990) Total 91,184 78,207 87,782 93,015 Investing CF (5,821) (9,696) (2,588) (5,490) Net Chg in Debt (1,147) (13,249) 10,000 10,000 Key Assumptions (%) 2018F 2019F New Capital 1,910 112 0 0 Residential price - HK 13 0 Dividend (10,517) (11,964) (12,362) (13,375) Office rental - HK 5 3 Other Financing CF (287) 7,088 (2,100) (2,450) Retail rental (High street shops) - HK 0 5 Financing CF (10,041) (18,013) (4,462) (5,825) Retail rental (Shopping centre) - HK 5 5 Chg in Cash (566) 7,253 (21,306) (5,546)

Source: Company, DBS HK

Page 77

HK Property Sector Tai Cheung

Bloomberg: 88 HK | Reuters: 88.HK Refer to important disclosures at the end of this report

BUY One of a kind Last Traded Price (6 Jul 2018): HK$8.85 (HSI : 28,316) Price Target 12-mth: HK$10.70 (21% upside)  Luxury home sales taking centre stage Potential Catalyst: Project sales  Unrivalled balance sheet strength Where we differ: n.a.  BUY with HK$10.70 TP Analyst Jeff YAU CFA, +852 2820 4912 Luxury home sales taking centre stage. After Metropole [email protected] Square in Shatin was virtually sold out, Tai Cheung is now focused

Ian CHUI +852 2971 1915 on selling its Plunkett’s Road development on the Peak to [email protected] capitalise on the improving luxury market sentiment. The company sold one house for c.HK$400m in 2011 with the other five still Jason LAM +852 29711773 unsold. We estimate that this luxury house development, if fully [email protected] sold, could generate sales proceeds of >HK$1.8bn and pre-tax earnings of c.HK$1.4bn, thus providing a boost to earnings. The Price Relative company is also applying for certificate of compliance for its Repulse Bay house project. Commanding unparalleled sea views, this super-luxurious development has eight houses with GFA of 42,000sf. This development should attract favourable demand from affluent buyers when offered for sale, and would be the company’s medium-term key earnings catalyst.

Unrivalled balance sheet strength. Net cash improved to HK$3.05bn in Mar-18 from Sep-17’s HK$2.87bn as a result of Forecasts and Valuation accelerated strata-titled sales of Metropole Square. Besides, the FY Mar (HK$ m) 2017A 2018A 2019F 2020F company has outstanding sales receivables of HK$640m. The Turnover 743 1,104 1,065 734 planned sales of its Plunkett’s Road project should further bolster EBITDA 47 183 545 464 its balance sheet strength. Sitting on a huge cash pile, Tai Cheung Pre-tax Profit 205 386 724 643 is well positioned to raise dividends to reward shareholders and Net Profit 196 355 630 564 pursue new investments. The company participated in the EPS (HK$) 0.32 0.57 1.02 0.91 government tender at the Anderson Road site in Jan-18. Given EPS Gth (%) (13.3) 80.8 77.6 (10.5) rising market uncertainty ahead, we believe the company will PE (X) 27.9 15.4 8.7 9.7 P/Cash Flow (X) (93.1) 8.2 5.6 8.7 adopt a more conservative approach in land banking in the near EV/EBITDA (X) 51.4 13.2 4.4 5.2 term. DPS (HK$) 0.32 0.35 0.35 0.35 Div Yield (%) 3.6 4.0 4.0 4.0 BUY with HK$10.70 TP. The stock is trading at 62% discount to Net Gearing (%) CASH CASH CASH CASH our appraised current NAV. Excluding its net cash holding, its ROE (%) 2.8 5.1 8.6 7.4 remaining stub is trading at a huge 83% discount which is Est. NAV (HK$) 23.1 23.8 appealing. A favourable response to the sales launch at Plunkett’s Disc. to NAV (%) (62) (63) Road should be a share price catalyst. BUY with HK$10.70,

Earnings Rev (%): Nil Nil premised on 55% discount to our Jun-19 NAV estimate . Consensus EPS (HK$): 1.02 0.91 Other Broker Recs: B:1 S:0 H:0 At a glance Issued Capital (m shrs) 618 ICB Industry: Financials Mkt Cap (HK$m/US$m) 5,465 / 696 ICB Sector: Real Estate Holding & Development Major Shareholders (%) Principal Business: Engaged primarily in property development and hotel operation in Hong Kong Chan (Pun David) 29.2 Chan (Poon Wai Kuen) 15.6 Source of all data on this page: Company, DBS Bank (Hong Kong) Free Float (%) 55.3 Limited (“DBS HK”) Thomson Reuters, HKEX 3m Avg. Daily Val. (US$m) 0.2 ICB Industry: Financials / Real Estate Investment & Services

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HK Property Sector Tai Cheung

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Mar 2017A 2018A 2019F 2020F FY Mar 2017A 2018A 2019F 2020F Turnover 743 1,104 1,065 734 Fixed Assets 12 12 11 10 EBITDA 47 183 545 464 Other LT Assets 256 205 205 205 Depr / Amort (1) (1) (1) (1) Cash & ST Invts 2,669 3,275 4,092 4,585 EBIT 46 182 544 463 Other Current Assets 4,534 4,328 3,923 3,776 Associates Inc 139 145 152 160 Total Assets 7,470 7,820 8,231 8,575 Interest (Exp)/Inc 19 39 28 20 ST Debt 189 0 0 0 Exceptionals 0 20 0 0 Creditors 157 419 416 413 Pre-tax Profit 205 386 724 643 Other Current Liab 64 63 63 63 Tax (9) (32) (94) (80) LT Debt 0 230 230 230 Minority Interest 0 0 0 0 Other LT Liabilities 116 32 32 32 Net Profit 196 355 630 564 Minority Interests 0 0 0 0 Shareholder’s Equity 6,944 7,075 7,489 7,837 Total Cap. & Liab. 7,470 7,820 8,231 8,575 Sales Gth (%) 26 49 (3) (31) Share Capital (m) 617 617 617 617 Net Profit Gth (%) (13) 81 78 (11) Net Cash/(Debt) 2,480 3,045 3,862 4,355 EBITDA Margins (%) 6 17 51 63 Working Capital 6,792 7,121 7,536 7,885 EBIT Margin (%) 6 17 51 63 Net Gearing (%) CASH CASH CASH CASH Tax Rate (%) 4 8 13 12

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Mar 2017A 2018A 2019F 2020F FY Mar 2017A 2018A 2019F 2020F EBIT 46 182 544 463 Revenues (HK$ m) Tax Paid (59) (32) (94) (80) Property development and 730 1,090 1,051 719 Depr/Amort 1 1 1 1 leasing Property management 13 14 14 14 Chg in Wkg.Cap (91) 446 402 145 Total 743 1,104 1,065 734 Other Non-Cash (15) 39 28 20 Operating CF (118) 636 881 549 Net Capex (1) 0 0 0 Assoc, MI, Invsmt 157 173 152 160 Investing CF 156 173 152 160 Net Chg in Debt 61 0 0 0 Key Assumptions (%) 2018F 2019F New Capital 0 0 0 0 Residential price - HK 13 0 Dividend (185) (204) (216) (216) Office rental - HK 5 3 Other Financing CF 0 0 0 0 Retail rental (High street shops) - HK 0 5 Financing CF (124) (204) (216) (216) Retail rental (Shopping centre) - HK 5 5 Chg in Cash (86) 606 817 493

Source: Company, DBS HK

Page 79

HK Property Sector Wharf

Bloomberg: 4 HK | Reuters: 4.HK Refer to important disclosures at the end of this report

HOLD Lacks near-term catalysts Last Traded Price (6 Jul 2018): HK$25.60 (HSI : 28,316) Price Target 12-mth: HK$26.10 (2% upside) (Prev HK$26.70)  Challenges in meeting sales target in China Potential Catalyst: Corporate activities  New property to boost rental Where we differ: Market has higher earnings estimate for FY19.  HOLD with HK$26.10 TP Analyst Jeff YAU CFA, +852 2820 4912 [email protected] Challenges in meeting sales target in China. Wharf achieved only Rmb1.6bn contracted sales in 1Q18, down 76% y-o-y mainly Ian CHUI +852 2971 1915 due to the lack of major new project launches. The company [email protected] plans to launch more new projects in 2H18 including Jinan Jason LAM +852 29711773 Garden in Shanghai. But given housing price restrictions in certain [email protected] cities, it appears challenging for the company to meet its full-year sales target of Rmb22bn. In Jan/Feb 2018, Wharf acquired ten Price Relative development sites in China, primarily in Hangzhou, Suzhou and Guangzhou, and a luxury lot in Hong Kong for c.HK$28bn. Coupled with HK$25bn in equity investments since the demerger with Wharf REIC, Wharf has turned into a net debt position with estimated gearing of c.15%

Expanded rental portfolio in China. Changsha IFS Mall held a soft opening in May-18. This 2.6m sf mall is 94% committed with Forecasts and Valuation 70% of shops already opened for business. The office portion FY Dec (HK$ m) 2016A 2017A 2018F 2019F should also be completed soon followed by Niccolo Changsha. Turnover 46,627 43,273 19,982 19,489 EBITDA 18,011 21,100 6,759 8,210 This sizeable mixed-used should add to the company’s recurrent Pre-tax Profit 18,082 23,835 8,740 10,225 income when it is in full operation. Retail sales at Chengdu IFS Underlying Profit 13,754 15,718 6,619 6,336 Mall grew >10% in 1Q18 after rising 30% in 2017. This should EPS (HK$) 4.54 5.16 2.17 2.08 EPS Gth (%) 25.4 13.7 (57.9) (4.3) underpin continued reversionary growth which is expected to be PE (X) 5.6 5.0 11.8 12.3 >10% in FY18. With rising income from Chengdu IFS and maiden P/Cash Flow (X) 2.4 9.5 (8.0) 12.4 contributions from Changsha IFS, we project Wharf’s rental EV/EBITDA (X) 4.0 3.4 10.7 8.8 portfolio in China to post c.20% income growth in FY18. DPS (HK$) 2.15 1.59 0.80 0.80 Div Yield (%) 8.4 6.2 3.1 3.1 Net Gearing (%) 8 CASH 20 17 HOLD with HK$26.10TP. The stock is trading at 47% discount ROE (%) 4.4 6.9 4.6 4.2 to our assessed current NAV. There is business overlaps between Est. NAV (HK$) 48.0 52.2 Disc. to NAV (%) (47) (51) Wharf and its parent Wheelock & Co. Hence it makes sense for Wheelock to take Wharf private or merge with Wharf in the long Earnings Rev (%): 3 6 term. Nevertheless, due to the lack of near-term catalysts, we Consensus EPS (HK$): 2.29 2.46 Other Broker Recs: B:4 S:2 H:11 maintain our HOLD rating at this stage with HK$26.10 TP, based on a 50% discount to our Jun-19 NAV estimate ICB Industry: Financials ICB Sector: Real Estate Holding & Development At A Glance Principal Business: Engaged in property investments, property developments, container terminal operations and communication, Issued Capital (m shrs) 3,047 media and entertainment businesses. Mkt Cap (HK$m/US$m) 77,991 / 9,937 Source of all data on this page: Company, DBS Bank (Hong Kong) Major Shareholders (%) Limited (“DBS HK”) Thomson Reuters, HKEX Wheelock and Co Ltd 63.0 Free Float (%) 37.0 3m Avg. Daily Val. (US$m) 14.1 ICB Industry: Financials / Real Estate Investment & Services

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HK Property Sector Wharf

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 46,627 43,273 19,982 19,489 Fixed Assets 340,033 95,329 96,726 97,998 EBITDA 18,011 21,100 6,759 8,210 Other LT Assets 38,321 51,120 74,846 74,732 Depr / Amort (1,406) (938) (657) (670) Cash & ST Invts 36,957 45,697 17,604 23,675 EBIT 16,605 20,162 6,102 7,540 Other Current Assets 28,516 30,501 47,993 50,862 Associates Inc 2,906 4,289 3,227 3,226 Total Assets 443,827 222,647 237,169 247,266 Interest (Exp)/Inc (901) (553) (590) (540) ST Debt 15,178 10,142 10,100 9,200 Exceptionals (528) (63) 0 0 Creditors 43,182 26,065 26,115 26,115 Pre-tax Profit 18,082 23,835 8,740 10,225 Other Current Liab 1,968 2,872 2,872 2,872 Tax (4,084) (7,395) (1,835) (2,832) LT Debt 45,616 26,267 36,309 41,209 Minority Interest (244) (722) (285) (1,057) Other LT Liabilities 12,477 11,830 11,830 11,830 Underlying Profit 13,754 15,718 6,619 6,336 Minority Interests 8,612 3,497 2,982 3,239 Shareholder’s Equity 316,794 141,974 146,960 152,801 Total Cap. & Liab. 443,827 222,647 237,169 247,266 Sales Gth (%) 14 (7) (54) (2) Share Capital (m) 3,032 3,034 3,034 3,034 Net Profit Gth (%) 25 14 (58) (4) Net Cash/(Debt) (23,837) 9,288 (28,805) (26,734) EBITDA Margins (%) 39 49 34 42 Working Capital 5,145 37,119 26,510 36,350 EBIT Margin (%) 36 47 31 39 Net Gearing (%) 8 CASH 20 17 Tax Rate (%) 23 31 21 28

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 16,605 20,162 6,102 7,540 Revenues (HK$ m) Tax Paid (3,464) (3,052) (1,835) (2,832) Investment Property 15,121 14,473 3,123 3,793 Depr/Amort 1,406 938 657 670 Hotels 1,587 1,487 174 179 Chg in Wkg.Cap 14,406 (12,754) (17,292) (2,669) Logistics 2,748 2,817 2,803 2,924 Other Non-Cash 131 (86) (740) (740) Communications, media and 3,082 872 0 0 Operating CF 29,084 5,208 (13,108) 1,968 enterta Developmentinment Property 23,275 22,608 12,835 11,547 Net Capex (14,077) (5,368) 0 0 Investment and others 814 1,016 1,046 1,046 Assoc, MI, Invsmt 11,599 42,038 (20,498) 3,340 Total 46,627 43,273 19,982 19,489 Investing CF (2,478) 36,670 (20,498) 3,340 Net Chg in Debt (9,605) (23,701) 10,000 4,000 Key Assumptions (%) 2018F 2019F New Capital 52 225 0 0 Residential price - HK 13 0 Dividend (6,440) (6,995) (4,486) (3,237) Office rental - HK 5 3 Other Financing CF (48) (344) 0 0 Retail rental (High street shops) - HK 0 5 Financing CF (16,041) (30,815) 5,514 763 Retail rental (Shopping centre) - HK 5 5 Chg in Cash 10,565 11,063 (28,093) 6,071

Source: Company, DBS HK

Page 81

HK Property Sector Wheelock & Co

Bloomberg: 20 HK | Reuters: 0020.HK Refer to important disclosures at the end of this report

BUY Brisk residential sales Last Traded Price (6 Jul 2018): HK$54.80 (HSI : 28,316) Price Target 12-mth: HK$70.00 (28% upside) (Prev HK$71.30)  Strong response to the Malibu launch Potential Catalyst: Higher valuation of Wharf REIC  Land bank replenishment continues Where we differ: Market has slightly higher earnings estimate for FY18-  BUY with HK$70 TP 19.

Analyst Overwhelming response to the Malibu launch. Capitalising Jeff YAU CFA, +852 2820 4912 on improved sentiment in residential market, Wheelock & Co [email protected] has already attained contracted sales of c.HK$23bn, exceeding

Ian CHUI +852 2971 1915 its full-year sales target of HK$10bn. New launch of Malibu [email protected] (Lohas Park Package 5), a joint-venture (JV) with MTRC, was well received. Since its initial launch in Mar-18, Wheelock has Jason LAM +852 29711773 sold 1,540 units, representing 96% of total units, for HK$14bn [email protected] or HK$16,000psf. The company was awarded the development Price Relative rights of Malibu in Nov-14. Based on our estimated development cost of HK$7,600psf, we forecast that sales of Malibu units would generate pre-tax development earnings of >HK$4.5bn taking into account the company’s profit sharing arrangement with MTRC. Elsewhere, continuing sales of Oasis Kai Tak has proceeded with improving selling prices. About 88% of total 648 units have been pre-sold.

Land bank restocking continues. To replenish its Forecasts and Valuation development land bank, Wheelock acquired a residential site in FY Dec (HK$ m) 2016A 2017A 2018F 2019F Turnover 60,579 70,953 45,138 47,241 Kai Tak through private treaty for HK$6.36bn or HK$14,950psf. EBITDA 21,823 24,675 20,416 24,199 This project will provide GFA of 0.43msf. Foundation works are Pre-tax Profit 22,386 27,032 22,092 25,804 in progress with completion targeted for 2022/23. Given strong Underlying Profit 11,811 11,989 11,566 13,080 EPS (HK$) 5.80 5.86 5.65 6.39 proceeds from selling Malibu and Oasis Kai Tak, the company EPS Gth (%) 11.4 0.9 (3.5) 13.1 sees no difficulty in funding this land purchase. In our view, PE (X) 9.4 9.4 9.7 8.6 there is scope for the company to gear up further for land P/Cash Flow (X) 3.1 5.1 34.5 6.3 acquisitions in future when opportunities knock. EV/EBITDA (X) 14.5 12.8 15.5 13.1 DPS (HK$) 1.30 1.43 1.43 1.50 Div Yield (%) 2.4 2.6 2.6 2.7 BUY with HK$70 TP. The stock is trading at 39% discount to Net Gearing (%) 24 24 39 38 our appraised current NAV. Valuation sounds attractive. Its ROE (%) 5.7 5.2 4.6 5.0 listed property investment arm Wharf REIC should benefit from Est. NAV (HK$) 89.7 100.0 Disc. to NAV (%) (39) (45) the retail sector upturn. Moreover, there are business overlaps between the company and Wharf. Further rationalisation of Earnings Rev (%): 10 1 group restructuring could benefit Wheelock over the long term. Consensus EPS (HK$): 6.19 7.27 Other Broker Recs: B:8 S:0 H:0 BUY with HK$70 TP, premised on 30% discount to our Jun-19 NAV estimate. ICB Industry: Financials ICB Sector: Real Estate Holding & Development At A Glance Principal Business: Engaged in property business in Hong Kong with Issued Capital (m shrs) 2,047 c.76% stake in Wheelock Properties and c.61% stake in Wharf Mkt Cap (HK$m/US$m) 112,195 / 14,295 Source of all data on this page: Company, DBS Bank (Hong Kong) Major Shareholders (%) Limited (“DBS HK”) Thomson Reuters, HKEX HSBC Trustee (C.I.) Ltd. 48.6 Woo (Kwong Ching) 12.9 Free Float (%) 38.5 3m Avg. Daily Val. (US$m) 7.4

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HK Property Sector Wheelock & Co

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 60,579 70,953 45,138 47,241 Fixed Assets 349,813 368,214 378,378 386,055 EBITDA 21,823 24,675 20,416 24,199 Other LT Assets 46,583 73,920 101,545 105,281 Depr / Amort (1,412) (984) (1,004) (1,024) Cash & ST Invts 44,393 56,649 35,441 40,617 EBIT 20,411 23,691 19,412 23,175 Other Current Assets 79,646 70,889 91,035 100,063 Associates Inc 3,174 4,425 3,427 3,376 Total Assets 520,435 569,672 606,400 632,017 Interest (Exp)/Inc (760) (988) (747) (747) ST Debt 25,886 35,170 13,800 20,700 Exceptionals (439) (96) 0 0 Creditors 28,881 32,314 32,564 32,414 Pre-tax Profit 22,386 27,032 22,092 25,804 Other Current Liab 34,015 20,681 20,681 20,681 Tax (4,668) (7,863) (4,037) (5,437) LT Debt 69,055 79,021 120,391 123,491 Minority Interest (5,907) (7,180) (6,489) (7,287) Other LT Liabilities 13,078 14,663 14,663 14,663 Underlying Profit 11,811 11,989 11,566 13,080 Minority Interests 134,155 146,139 147,974 149,166 Shareholder’s Equity 215,365 241,684 256,326 270,902 Total Cap. & Liab. 520,435 569,672 606,400 632,017 Sales Gth (%) 5 17 (36) 5 Share Capital (m) 2,035 2,035 2,035 2,035 Net Profit Gth (%) 11 2 (4) 13 Net Cash/(Debt) (50,977) (57,717) (98,925) (103,749) EBITDA Margins (%) 36 35 45 51 Working Capital 35,257 39,373 59,431 66,886 EBIT Margin (%) 34 33 43 49 Net Gearing (%) 24 24 39 38 Tax Rate (%) 21 29 18 21

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 20,411 23,691 19,412 23,175 Revenues (HK$ m) Tax Paid (3,685) (4,451) (4,037) (5,437) Investment Property 15,485 16,373 17,230 18,445 Depr/Amort 1,412 984 1,004 1,024 Development Property 36,539 47,836 21,500 22,211 Chg in Wkg.Cap 14,185 (2,169) (18,596) (7,829) Hotels 1,587 1,686 2,170 2,275 Other Non-Cash (687) (822) (1,747) (1,797) CME 3,082 874 0 0 Operating CF 31,636 17,233 (3,964) 9,136 Logistics 2,748 2,817 2,803 2,803 Net Capex (9,674) (8,039) (1,500) (1,500) Investment and others 1,138 1,367 1,435 1,507 Assoc, MI, Invsmt 3,785 (7,613) (24,498) (660) Total 60,579 70,953 45,138 47,241 Investing CF (5,889) (15,652) (25,998) (2,160) Net Chg in Debt (10,885) 19,647 20,000 10,000 Key Assumptions (%) 2018F 2019F New Capital 0 0 0 0 Residential Price - HK 13 0 Dividend (5,415) (5,979) (11,245) (11,800) Office rental - HK 5 3 Other Financing CF 113 158 0 0 Financing CF (16,187) 13,826 8,755 (1,800) Chg in Cash 9,560 15,407 (21,208) 5,176

Source: Company, DBS HK

Page 83

HK Property Sector Wing Tai Properties

Bloomberg: 369 HK | Reuters: 0369.HK Refer to important disclosures at the end of this report

BUY Luxury homes in demand Last Traded Price (6 Jul 2018): HK$6.34 (HSI : 28,316) Price Target 12-mth: HK$7.54 (19% upside) (Prev HK$7.13)  Good initial response to Le Cap launch Potential Catalyst: project sales Where we differ: n.a.  Landmark East sees moderating reversionary growth Analyst  BUY with HK$7.54 TP Jeff YAU CFA, +852 2820 4912 [email protected] Good initial response to Le Cap launch. Wing Tai Properties has sold eleven luxury units at newly built Le Cap in Kau To for >.HK$700m since Ian CHUI +852 2971 1915 its initial launch in late Apr. This development includes a garden house [email protected] which fetched c.HK$50,000psf, a record high in the area. This sets the Jason LAM +852 29711773 price benchmark for the other 23 houses of this upmarket development. [email protected] Le Cap is expected to form the mainstay of the company’s development earnings in the near term. Elsewhere, nearby La Vetta is also anticipated Price Relative to go on sale in late 2018/early 2019. Wing Tai Properties is also applying for the pre-sale consent for The Carmel in Tuen Mun.

Landmark East sees moderating reversionary growth. Occupancy at Landmark East remains firm at 98% but reversionary growth is moderating. The space to be vacated by two departing tenants has been largely filled with anchor tenants seeking in-house expansion. The single- block residential tower on the Shau Kei Wan waterfront will be retained for long-term investment after the completion of interior furnishing works in 2019. This should help to partially offset the shortfall in rental Forecasts and Valuation income led by the disposal of W Square/Winner Godown Building. In FY Dec (HK$ m) 2016A 2017A 2018F 2019F London, the company has commenced the pre-leasing for the Cavendish Turnover 1,104 1,064 906 2,101 EBITDA 517 493 443 640 Square property where extensive renovation will be completed in Jul or Pre-tax Profit 1,260 2,101 1,329 867 Aug. Elsewhere, occupancy at the Brook Street property is improving. Net Profit 1,147 1,982 1,208 715 EPS (HK$) 0.85 1.47 0.90 0.53 BUY with HK$7.54 TP. The stock is trading at 68% discount to our EPS Gth (%) 4.1 72.5 (39.1) (40.8) assessed current NAV. Despite the share price rally YTD, the valuation PE (X) 7.4 4.3 7.1 11.9 remains inexpensive from a historical viewpoint. With improved financial P/Cash Flow (X) (5.9) 7.5 9.7 (7.5) strength following the disposal of W Square and Winner Godown EV/EBITDA (X) 27.2 28.6 31.8 22.0 Building, the company is well positioned to pursue new acquisitions for DPS (HK$) 0.18 0.27 0.27 0.24 long-term growth. BUY with HK$7.54 TP, based on 65% discount to our Div Yield (%) 2.8 4.3 4.3 3.8 Jun-19 NAV estimate. Net Gearing (%) 14 21 6 8 ROE (%) 4.8 7.8 4.5 2.6 At A Glance Est. NAV (HK$) 19.8 21.5 Disc. to NAV (%) (68) (71) Issued Capital (m shrs) 1,349 Mkt Cap (HK$m/US$m) 8,554 / 1,090 Earnings Rev (%): (6) Nil Major Shareholders (%)

Wing Tai Holdings Ltd 23.8 ICB Industry: Financials ICB Sector: Real Estate Holding & Development Sun Hung Kai Properties Ltd 13.6 Principal Business: Property development, property investment and Wing Tai Corporation Ltd. 13.5 management, and hotel investment and management Brave Dragon Ltd. 10.5 Farnham Group Limited 7.5 Source of all data on this page: Company, DBS Bank (Hong Kong) Free Float (%) 31.1 Limited (“DBS HK”) Thomson Reuters, HKEX 3m Avg. Daily Val. (US$m) 0.1 ICB Industry: Consumer Goods / Personal Goods

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HK Property Sector Wing Tai Properties

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 1,104 1,064 906 2,101 Fixed Assets 22,027 19,396 17,373 17,464 EBITDA 517 493 443 640 Other LT Assets 2,753 7,354 6,899 5,992 Depr / Amort (4) (5) (5) (5) Cash & ST Invts 1,683 654 4,544 4,053 EBIT 513 488 438 635 Other Current Assets 4,313 8,092 7,689 9,501 Associates Inc 81 108 248 327 Total Assets 30,776 35,496 36,505 37,010 Interest (Exp)/Inc (43) (39) (80) (95) ST Debt 477 1,402 1,236 1,236 Exceptionals 710 1,544 724 0 Creditors 634 952 952 952 Pre-tax Profit 1,260 2,101 1,329 867 Other Current Liab 49 69 69 69 Tax (111) (99) (54) (84) LT Debt 4,708 4,783 4,948 4,948 Minority Interest (3) (21) (68) (68) Other LT Liabilities 597 482 482 482 Net Profit 1,147 1,982 1,208 715 Minority Interests 4 1,520 1,587 1,655 Shareholder’s Equity 24,309 26,290 27,231 27,669 Total Cap. & Liab. 30,776 35,496 36,505 37,010 Sales Gth (%) 9 (4) (15) 132 Share Capital (m) 1,343 1,343 1,343 1,343 Net Profit Gth (%) 4 73 (39) (41) Net Cash/(Debt) (3,502) (5,530) (1,640) (2,131) EBITDA Margins (%) 47 46 49 30 Working Capital 4,837 6,324 9,976 11,298 EBIT Margin (%) 46 46 48 30 Net Gearing (%) 14 21 6 8 Tax Rate (%) 9 5 4 10

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 513 488 438 635 Revenues (HK$ m) Tax Paid (87) (82) (54) (84) Property development 213 140 0 1,231 Depr/Amort 4 5 5 5 Property investment and 737 776 757 718 Chg in Wkg.Cap (1,953) 612 403 (1,813) management Hospitality investment and 131 127 127 131 Other Non-Cash (120) (126) (80) (95) management Operating CF (1,643) 897 711 (1,352) Investing 22 22 22 22 Net Capex 447 239 2,839 (10) Assoc, MI, Invsmt (494) (4,248) 703 1,234 Total 1,104 1,064 906 2,101 Investing CF (47) (4,009) 3,542 1,224 Net Chg in Debt 1,509 842 0 0 Key Assumptions (%) 2018F 2019F New Capital 0 1,478 0 0 Residential price - HK 13 0 Dividend (202) (247) (364) (364) Office rental - HK 5 3 Other Financing CF 42 7 0 0 Retail rental (High street shops) - HK 0 5 Financing CF 1,350 2,080 (364) (364) Retail rental (Shopping centre) - HK 5 5 Chg in Cash (340) (1,032) 3,890 (491)

Source: Company, DBS HK

Page 85

HK Property Sector Hang Lung Properties

Bloomberg: 101 HK | Reuters: 101.HK Refer to important disclosures at the end of this report

BUY Decent yields Last Traded Price (6 Jul 2018): HK$15.68 (HSI : 28,316) Price Target 12-mth: HK$19.28 (23% upside) (Prev HK$23.20)  China rental portfolio sees continued improvement Potential Catalyst: Improving rental operations in China  Marching into Hangzhou Where we differ: Market has slightly higher earnings estimate for FY18-19.  BUY with HK$19.28 TP Analyst Jeff YAU CFA, +852 2820 4912 China rental portfolio sees continued improvements. In [email protected] Shanghai, the renovated Plaza 66 saw mid-teens growth in Ian CHUI +852 2971 1915 tenants’ sales led by luxury products. At Grand Gateway 66, [email protected] renovation works of the annex building has been completed with re-opening targeted for late-18. The revamped area has largely Jason LAM +852 29711773 [email protected] been taken up. Excluding Forum 66, other malls outside Shanghai recorded c.10% tenants’ sales growth in 1Q18 with positive Price Relative rental reversion. Pre-leasing of retail mall at Spring City 66 in has been progressing smoothly with some 40% of space already pre-committed. The company has also commenced the pre-leasing of Heartland 66 in Wuhan. Office occupancy at Plaza 66 has recovered to >90%, while those at Centre 66 and Forum 66 improved further to 90% and 85%.

Marching into Hangzhou. In May-18, Hang Lung Properties acquired a commercial site in Hangzhou for Rmb10.73bn or Forecasts and Valuation c.Rmb55,285psm. This marked its first land purchase in China FY Dec (HK$ m) 2016A 2017A 2018F 2019F since Feb-13. Upon scheduled completion in 2024, this Turnover 13,059 11,199 9,791 10,201 development will provide GFA of 194,100sm, which splits into EBITDA 8,373 7,837 6,591 6,850 Pre-tax Profit 8,264 7,278 5,961 6,121 106,800sm for office use and 87,300sm for retail purpose. Based Underlying Profit 6,341 5,530 4,364 4,471 on budgeted investment costs of Rmb16bn (excluding interest EPS (HK$) 1.41 1.23 0.97 0.99 costs) and assumed average daily rents of Rmb10psm and EPS Gth (%) 44.3 (12.8) (21.1) 2.4 Rmb20psm (on lettable area basisi) for office and retail portions, PE (X) 11.1 12.8 16.2 15.8 P/Cash Flow (X) 9.1 6.8 9.8 9.5 the company estimates the initial yield on costs to be 4-5%. In EV/EBITDA (X) 9.5 10.1 12.0 11.6 our view, this would largely depend on its capability to secure a DPS (HK$) 0.75 0.75 0.75 0.77 cluster of luxury brands as tenants. Div Yield (%) 4.8 4.8 4.8 4.9 Net Gearing (%) 2 2 9 16 BUY with HK$19.28 TP. Following the recent retreat, the stock is ROE (%) 5.0 4.2 3.2 3.2 trading at 54% discount to our assessed current NAV. The Est. NAV (HK$) 33.9 35.1 Disc. to NAV (%) (54) (55) projected dividend yields for FY18-19 have reached 4.8-4.9%. The current low valuation should offer downside risk protection. Earnings Rev (%): (5) (4) The completion of asset enhancement initiatives and portfolio Consensus EPS (HK$): 1.07 1.03 expansion should lift its rental earnings from FY19/20 onwards. Other Broker Recs: B:10 S:3 H:6 This suggests improving earnings quality. BUY with HK$19.28 TP, ICB Industry: Financials based on a 45% discount to our Jun-19 NAV estimate. ICB Sector: Real Estate Holding & Development Principal Business: Property investment in Hong Kong and China At A Glance Issued Capital (m shrs) 4,498 Source of all data on this page: Company, DBS Bank (Hong Kong) Mkt Cap (HK$m/US$m) 70,524 / 8,986 Limited (“DBS HK”) Thomson Reuters, HKEX Major Shareholders (%) Hang Lung Group Ltd 56.8 First Eagle Investment Management, L.L.C. 6.0 Free Float (%) 37.2 3m Avg. Daily Val. (US$m) 9.9 ICB Industry: Financials / Real Estate Investment & Services

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HK Property Sector Hang Lung Properties

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 13,059 11,199 9,791 10,201 Fixed Assets 143,030 156,256 169,228 184,048 EBITDA 8,373 7,837 6,591 6,850 Other LT Assets 1,261 1,362 1,387 1,412 Depr / Amort (53) (43) (43) (43) Cash & ST Invts 24,325 22,106 14,664 6,272 EBIT 8,320 7,794 6,548 6,807 Other Current Assets 6,291 3,862 3,457 3,253 Associates Inc 61 53 63 64 Total Assets 174,907 183,586 188,736 194,984 Interest (Exp)/Inc (117) (569) (650) (750) ST Debt 568 2,112 2,000 2,000 Exceptionals 0 0 0 0 Creditors 6,327 6,673 6,566 6,459 Pre-tax Profit 8,264 7,278 5,961 6,121 Other Current Liab 932 504 604 704 Tax (1,520) (1,353) (1,192) (1,224) LT Debt 26,514 22,708 24,820 26,820 Minority Interest (403) (395) (404) (426) Other LT Liabilities 8,421 9,344 9,344 9,344 Underlying Profit 6,341 5,530 4,364 4,471 Minority Interests 5,580 6,087 6,357 6,626 Shareholder’s Equity 126,565 136,158 139,045 143,031 Total Cap. & Liab. 174,907 183,586 188,736 194,984 Sales Gth (%) 46 (14) (13) 4 Share Capital (m) 4,498 4,498 4,498 4,498 Net Profit Gth (%) 45 (13) (21) 2 Net Cash/(Debt) (2,757) (2,714) (12,156) (22,548) EBITDA Margins (%) 64 70 67 67 Working Capital 22,789 16,679 8,951 362 EBIT Margin (%) 64 70 67 67 Net Gearing (%) 2 2 9 16 Tax Rate (%) 18 19 20 20

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 8,320 7,794 6,548 6,807 Revenues (HK$ m) Tax Paid (1,002) (1,776) (1,192) (1,224) Property sales 5,322 3,420 1,685 1,685 Depr/Amort 53 43 43 43 Property leasing 7,737 7,779 8,106 8,516 Chg in Wkg.Cap (729) 2,792 605 605 Total 13,059 11,199 9,791 10,201 Other Non-Cash 93 (296) 0 0 Operating CF 6,735 8,557 6,004 6,230 Net Capex (2,666) (4,216) (10,849) (11,661) Assoc, MI, Invsmt 4,279 (10,107) 638 639 Investing CF 1,613 (14,323) (10,211) (11,022) Net Chg in Debt (5,051) (3,245) 2,000 2,000 Key Assumptions (%) 2018F 2019F New Capital 7 0 0 0 Residential price - HK 13 0 Dividend (3,702) (3,685) (3,777) (3,844) Office rental - HK 5 3 Other Financing CF (1,287) (1,157) (1,457) (1,757) Retail rental (High street shops) - HK 0 5 Financing CF (10,033) (8,087) (3,234) (3,601) Retail rental (Shopping centre) - HK 5 5 Chg in Cash (1,685) (13,853) (7,442) (8,392)

Source: Company, DBS HK

Page 87

HK Property Sector Hongkong Land

Bloomberg: HKL SP | Reuters: HKLD.SI Refer to important disclosures at the end of this report

BUY Strong asset backing Last Traded Price (6 Jul 2018): US$7.13 (STI : 3,191) Price Target 12-mth: US$8.57 (20% upside) (Prev US$8.53)  Office portfolio in good shape Potential Catalyst: stronger rental earnings  Residential sales earnings become increasingly crucial Where we differ: Market has similar earnings estimate for FY19.  BUY with US$8.57 TP Analyst Jeff YAU CFA, +852 2820 4912 Office portfolio in good shape. Vacancy rate of Central office [email protected] portfolio improved further to 0.9% in Mar-18 from Dec-17’s 1.4%, with continued positive rental reversion. This should push up average Ian CHUI +852 2971 1915 office rents which stood at HK$108psf in 2017. According to Jones [email protected] Lang LaSalle, Central office rents edged up c.2% in 5M18 after

Jason LAM +852 29711773 rising c.16% in the previous two years. Hence, office reversionary [email protected] growth should stay favourable in the year ahead, underpinning rental income growth. Retail portfolio in Central was effectively fully Price Relative leased in Mar-18. However, rental reversion turned mildly negative, despite improving retail sales, luxury items in particular. This could partially offset the income growth from the office portfolio. In Singapore, office portfolio vacancy remained tight at 0.4% in Mar- 18. Reversionary growth, though still negative, is expected to turn positive later this year given continued market recovery. WF Central, a newly opened luxury retail complex in Beijing, performed in line with expectations.

Residential sales earnings increasingly crucial. In China, the Forecasts and Valuation company achieved attributable contracted sales of US$300m in FY Dec (US$ m) 2016A 2017A 2018F 2019F 1Q18, up 4.5% y -o-y. In Singapore, the substantially sold Sol Acres Turnover 1,994 1,960 2,460 2,046 project was completed in Apr-18. Lake Grande, due for completion EBITDA 971 911 1,002 998 in 2019, has become fully sold. Elsewhere, Margaret Ville is expected Pre-tax Profit 1,019 1,128 1,243 1,254 to be launched shortly. Overall, residential sales are becoming Underlying Profit 848 970 1,041 1,050 EPS (US$) 0.36 0.41 0.44 0.45 increasingly crucial to the company’s earnings. Due to the payment EPS Gth (%) (6.3) 14.4 7.3 0.9 for previously committed land acquisitions, the company’s net debt PE (X) 19.8 17.3 16.1 16.0 has risen modestly since the beginning of 2018. P/Cash Flow (X) 13.6 17.9 16.2 15.3 EV/EBITDA (X) 19.9 21.3 19.3 19.4 BUY with US$8.57 TP The stock is now trading at 42% discount to DPS (US$) 0.19 0.20 0.21 0.21 our estimated current NAV. Given sustained demand from Chinese Div Yield (%) 2.7 2.8 2.9 2.9 firms, tight vacancy and limited new supply, Central office market Net Gearing (%) 6 7 9 11 should remain in good shape. This augurs well for Hongkong Land’s ROE (%) 2.8 2.8 2.7 2.6 rental income expansion. In Apr-18, Hongkong Land repurchased Est. NAV (HK$) 12.4 13.2 12.3m shares at US$7/share in the open market. This marked its first Disc. to NAV (%) (42) (46) share repurchase in more than 15 years and signaled the strong Earnings Rev (%): (1) 0 embedded value of the stock. Maintain BUY with US$8.57 TP, based Consensus EPS (US$): 0.43 0.45 on 35% discount to our Jun-19 NAV estimate. Other Broker Recs: B:10 S:3 H:1 At A Glance ICB Industry: Financials Issued Capital (m shrs) 2,353 ICB Sector: Real Estate Holding & Development Mkt Cap (US$m) 16,776 Principal Business: A leading property investment, management and Major Shareholders (%) development group with the majority of earnings derived from rentals HSBC Holdings PLC 62.1 in the core CBD of HK. Source of all data on this page: Company, DBS Bank (Hong Kong) Free Float (%) 37.9 Limited (“DBS HK”) Thomson Reuters, HKEX 3m Avg. Daily Val. (US$m) 12.69

ICB Industry: Financials / Banks

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HK Property Sector Hongkong Land

Income Statement (US$ m) Balance Sheet (US$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 1,994 1,960 2,460 2,046 Fixed Assets 27,757 32,588 34,239 35,631 EBITDA 971 911 1,002 998 Other LT Assets 4,582 5,698 6,026 6,372 Depr / Amort (3) (3) (3) (3) Cash & ST Invts 1,909 1,622 804 476 EBIT 967 908 999 995 Other Current Assets 2,707 3,044 4,350 5,386 Associates Inc 117 299 339 358 Total Assets 36,955 42,952 45,418 47,865 Interest (Exp)/Inc (69) (78) (95) (100) ST Debt 221 191 500 300 Exceptionals 3 0 0 0 Creditors 1,490 1,695 1,720 1,745 Pre-tax Profit 1,019 1,128 1,243 1,254 Other Current Liab 80 114 114 114 Tax (168) (157) (199) (197) LT Debt 3,696 3,980 3,921 4,621 Minority Interest (3) (1) (4) (7) Other LT Liabilities 154 164 164 164 Underlying Profit 848 970 1,041 1,050 Minority Interests 20 35 32 33 Shareholder’s Equity 31,294 36,774 38,968 40,889 Total Cap. & Liab. 36,955 42,952 45,418 47,865 Sales Gth (%) 3 (2) 26 (17) Share Capital (m) 2,353 2,353 2,353 2,353 Net Profit Gth (%) (6) 14 7 1 Net Cash/(Debt) (2,008) (2,549) (3,617) (4,445) EBITDA Margins (%) 49 46 41 49 Working Capital 2,825 2,667 2,820 3,703 EBIT Margin (%) 49 46 41 49 Net Gearing (%) 6 7 9 11 Tax Rate (%) 17 14 16 16

Cash Flow Statement (US$ m) Segmental Breakdown (US$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 967 908 999 995 Revenues (US$ m) Tax Paid (141) (137) (199) (197) Rental income 859 912 979 1,015 Depr/Amort 3 3 3 3 Service and mgmt charges 131 140 163 170 Chg in Wkg.Cap 253 8 151 221 Sale of trading properties 1,004 908 1,317 862 Other Non-Cash 13 19 (116) (120) Total 1,994 1,960 2,460 2,046 Operating CF 1,096 800 838 902 Net Capex (91) (108) (30) (30) Assoc, MI, Invsmt (154) (839) (1,400) (1,200) Investing CF (245) (947) (1,430) (1,230) Net Chg in Debt 6 239 250 500 Key Assumptions (%) 2018F 2019F New Capital 0 0 0 0 Dividend (448) (447) (477) (500) Office rental - HK 5 3 Other Financing CF 0 15 0 0 Retail rental (High street shops) - HK 0 5 Financing CF (442) (193) (227) 0 Retail rental (Shopping centre) - HK 5 5 Chg in Cash 409 (340) (818) (328)

Source: Company, DBS HK

Page 89

HK Property Sector Hysan Development

Bloomberg: 14 HK | Reuters: 0014.HK Refer to important disclosures at the end of this report

BUY Creating a better shopping experience Last Traded Price (6 Jul 2018) HK$42.40 (HSI : 28,316) Price Target 12-mth: HK$51.15 (21% upside)  Riding on retail market upturn

Potential Catalyst: Stronger retail market  Offices at Lee Garden Three largely committed Where we differ: Market has similar earnings estimate for FY19  BUY with HK$51.15 TP Analyst Jeff YAU CFA, +852 2820 4912 Riding on the retail market upturn. In 5M18, the overall tenants’ sales [email protected] (excluding Apple) grew strongly by c.30% led by Lee Gardens hub and Ian CHUI +852 2971 1915 Hysan Place, both of which showed remarkable retail sales growth of [email protected] >30%. Lee Theatre hub, however, posted growth of just 7-8%, below

Jason LAM +852 29711773 the market average, dragged by certain tenants. Turnover rents should [email protected] receive a boost from sharply improved tenants’ sales. This should help offset the income shortfall led by the departure of high paying Ralph Price Relative Lauren. The majority of space surrendered by Ralph Lauren has been re- let. In 2018, about 35% of lease is scheduled for expiry in terms of floor area. Of this, 80% has been or will be renewed at slightly higher rents. The remaining premises will be re-let. Despite potentially negative rental reversion, the trade mix refinement should enhance customers shopping experience. Lee Garden Three retail arcade had a soft opening in late May with commitment rate of c.90%. It hosts mainly lifestyle and F&B tenants.

Offices at Lee Garden Three largely committed. Office occupancy Forecasts and Valuation remains firm at 97%. About 24% of office floor area is scheduled for roll FY Dec (HK$ m) 2016A 2017A 2018F 2019F Turnover 3,535 3,548 3,800 4,081 over in 2018. Reversionary growth is expected to moderate to 5-6% on EBITDA 2,910 3,135 3,033 3,326 higher expiring rents. With Goldman Sachs taking up five floors for its Pre-tax Profit 2,991 3,205 3,044 3,312 back office operations, the office portion of the newly built Lee Garden Underlying Profit 2,369 2,491 2,437 2,660 Three is 95% committed with a significant portion of tenants relocating EPS (HK$) 2.26 2.38 2.33 2.54 from Central/Admiralty. Residential portfolio, mainly Bamboo Grove, EPS Gth (%) 5.3 5.3 (2.2) 9.1 should see positive reversionary growth but occupancy has yet to recover PE (X) 18.7 17.8 18.2 16.7 partly due to renovation works. P/Cash Flow (X) 13.3 15.3 14.6 13.3 EV/EBITDA (X) 17.5 16.2 16.8 15.3 DPS (HK$) 1.35 1.37 1.38 1.44 BUY with HK$51.15 TP. The stock is trading at 44% discount to our Div Yield (%) 3.2 3.2 3.3 3.4 assessed current NAV. From a historical viewpoint, valuation is Net Gearing (%) 5 5 5 4 inexpensive. The company is benefitting from the prevailing retail market ROE (%) 3.5 3.6 3.4 3.6 upturn. Continued trade/tenant mix optimisation could enhance the Est. NAV (HK$) 76.3 78.7 shopping experience. Despite short-term earnings drag, this should boost Disc. to NAV (%) (44) (46) the portfolio’s long-term competitiveness. BUY with HK$51.15 TP. This is premised on 35% discount to our Jun-19 NAV estimate. Earnings Rev (%): Nil Nil Consensus EPS (HK$): 2.72 2.59 At A Glance Other Broker Recs: B:10 S:3 H:3 Issued Capital (m shrs) 1,046 ICB Industry: Financials Mkt Cap (HK$m/US$m) 44,359 / 5,652 ICB Sector: Real Estate Holding & Development Major Shareholders (%) Principal Business: Property leasing with core focus in Causeway Bay Company Ltd 41.4 Silchester International Investors, L.L.P. 8.0 Source of all data on this page: Company, DBS Bank (Hong Kong) First Eagle Investment Management, L.L.C. 5.0 Limited (“DBS HK”) Thomson Reuters, HKEX Free Float (%) 45.6 3m Avg. Daily Val. (US$m) 5.1 ICB Industry: Financials / Real Estate Investment & Services

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HK Property Sector Hysan Development

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 3,535 3,548 3,800 4,081 Fixed Assets 70,353 73,221 74,545 76,000 EBITDA 2,910 3,135 3,033 3,326 Other LT Assets 5,396 5,501 5,906 6,523 Depr / Amort (22) (22) (22) (22) Cash & ST Invts 2,630 2,662 2,626 3,206 EBIT 2,888 3,113 3,011 3,304 Other Current Assets 1,642 738 723 708 Associates Inc 231 209 208 223 Total Assets 80,021 82,122 83,801 86,437 Interest (Exp)/Inc (128) (117) (175) (215) ST Debt 1,180 150 300 300 Exceptionals 0 0 0 0 Creditors 935 736 721 706 Pre-tax Profit 2,991 3,205 3,044 3,312 Other Current Liab 778 875 875 875 Tax (463) (484) (461) (502) LT Debt 5,113 6,035 5,785 5,685 Minority Interest (159) (230) (146) (150) Other LT Liabilities 1,330 1,323 1,323 1,323 Underlying Profit 2,369 2,491 2,437 2,660 Minority Interests 3,195 3,048 3,148 3,291 Shareholder’s Equity 67,490 69,955 71,648 74,257 Total Cap. & Liab. 80,021 82,122 83,801 86,437 Sales Gth (%) 3 0 7 7 Share Capital (m) 1,046 1,046 1,046 1,046 Net Profit Gth (%) 4 5 (2) 9 Net Cash/(Debt) (3,663) (3,523) (3,459) (2,779) EBITDA Margins (%) 82 88 80 81 Working Capital 1,379 1,639 1,453 2,033 EBIT Margin (%) 82 88 79 81 Net Gearing (%) 5 5 5 4 Tax Rate (%) 15 15 15 15

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 2,888 3,113 3,011 3,304 Revenues (HK$ m) Tax Paid (407) (410) (461) (502) Property rental income 3,535 3,548 3,800 4,081 Depr/Amort 22 22 22 22 Total 3,535 3,548 3,800 4,081 Chg in Wkg.Cap 411 15 0 0 Other Non-Cash 5 (250) 0 0 Operating CF 2,919 2,490 2,573 2,824 Net Capex (847) (2,140) (622) 0 Assoc, MI, Invsmt (639) 2,186 (152) (349) Investing CF (1,486) 46 (774) (349) Net Chg in Debt (250) (130) (100) (100) Key Assumptions (%) 2018F 2019F New Capital 1,285 0 0 0 Dividend (1,524) (1,539) (1,514) (1,535) Office rental - HK 5 3 Other Financing CF (161) (200) (220) (260) Retail rental (High street shops) - HK 0 5 Financing CF (650) (1,869) (1,834) (1,895) Retail rental (Shopping centre) - HK 5 5 Chg in Cash 783 667 (36) 580

Source: Company, DBS HK

Page 91

HK Property Sector Swire Properties

Bloomberg: 1972 HK | Reuters: 1972.HK Refer to important disclosures at the end of this report

BUY (Upgrade from HOLD) Aiming high Last Traded Price (6 Jul 2018): HK$29.25 (HSI : 28,316) Price Target 12-mth: HK$34.25 (17% upside)  Cityplaza Three and Four sold Potential Catalyst: Continued office decentralisation  Soon-to-be completed One Taikoo Place largely Where we differ: Market has slightly higher earnings estimate for FY18. committed Analyst  BUY with HK$34.25 TP Jeff YAU CFA, +852 2820 4912 [email protected] Cityplaza Three and Four sold. Swire Properties agreed to sell its Ian CHUI +852 2971 1915 interest in Cityplaza Three and Four to Henglilong Investments, a [email protected] Chinese investment holding company, for HK$15bn or c.HK$19,490psf. Swire Properties expects to record a disposal gain of Jason LAM +852 29711773 c.HK$14bn (on an underlying basis). Based on the disposal price and [email protected] pre-tax net rental income of HK$343m for FY17, the implied exit yield is estimated at 2.3%. Completed in early 90s, Cityplaza Three and Price Relative Four are not directly linked with the Taikoo Place office cluster and thus have less synergies. Moreover, Cityplaza Three is not entirely owned by Swire Properties and it makes sense for Swire Properties to realise the high value of these assets in this buoyant office market. Capital generated from divestments will be redeployed into new investments particularly those near its two key property clusters, Pacific Place and Taikoo Place. Having said that, we do not rule out the possibility of the company distributing a special dividend to reward shareholders.

Forecasts and Valuation FY Dec (HK$ m) 2016A 2017A 2018F 2019F Soon-to-be completed One Taikoo Place largely pre-leased. Turnover 16,792 18,558 13,918 13,960 Office rental reversion at the fully-let Pacific Place accelerated to 21% EBITDA 9,296 9,913 8,573 8,906 in 1Q18 from FY17’s 15%. Swire Properties is benefitting from Pre-tax Profit 8,312 9,253 8,943 22,168 Underlying Profit 7,112 7,834 7,682 20,864 accelerating office decentralisation among multinational firms. Pre- EPS (HK$) 1.22 1.34 1.31 3.57 commitment rates at One Taikoo Place in Island East has exceeded EPS Gth (%) 0.5 10.1 (1.9) 171.6 80%. Scheduled for completion in 4Q18, this office tower, if fully PE (X) 24.1 21.8 22.3 8.2 leased, should yield annual rental income of >HK$600m p.a. The P/Cash Flow (X) 15.9 12.5 20.0 17.6 EV/EBITDA (X) 22.4 21.0 24.3 23.4 Mall at Pacific Place registered robust retail sales growth of 25.9% in DPS (HK$) 0.71 0.77 0.77 0.77 1Q18, up from 2017’s 7.2%, which should translate into higher Div Yield (%) 2.4 2.6 2.6 2.6 turnover rents. Pre-leasing of South Island Place in Wong Chuk Hang Net Gearing (%) 16 14 12 8 ROE (%) 3.2 3.2 2.9 7.7 and Tung Chung commercial development have commenced. When Est. NAV (HK$) 46.5 48.9 completed in late 2018, they will further enlarge the company’s Disc. to NAV (%) (37) (40) investment property portfolio.

Earnings Rev (%): 0 0 Upgraded to BUY with HK$34.25 TP. Following the recent share Consensus EPS (HK$): 1.39 1.40 Other Broker Recs: B:12 S:0 H:3 price retreat, the stock, trading 37% below our assessed current NAV, becomes attractively valued again. Upgraded to BUY with HK$34.25 ICB Industry: Financials ICB Sector: Real Estate Holding & Development TP, based on a 30% discount to our Jun-19 NAV estimate.

Principal Business: Property investment and development in Hong At A Glance Kong, China & US Issued Capital (m shrs) 5,850 Source of all data on this page: Company, DBS Bank (Hong Kong) Mkt Cap (HK$m/US$m) 171,113 / 21,802 Limited (“DBS HK”) Thomson Reuters, HKEX Major Shareholders (%) Swire Pacific Ltd 82.0 Free Float (%) 18.0 3m Avg. Daily Val. (US$m) 10.0 ICB Industry: Financials / Real Estate Investment & Services

ed-JS/ sa- CS /AH

HK Property Sector Swire Properties

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 16,792 18,558 13,918 13,960 Fixed Assets 243,839 275,902 279,252 276,418 EBITDA 9,296 9,913 8,573 8,906 Other LT Assets 27,550 25,056 25,759 26,328 Depr / Amort (374) (426) (447) (470) Cash & ST Invts 1,681 1,708 5,695 15,513 EBIT 8,922 9,487 8,126 8,436 Other Current Assets 8,638 11,643 10,991 10,892 Associates Inc 437 591 706 875 Total Assets 281,708 314,309 321,697 329,150 Interest (Exp)/Inc (1,050) (875) (1,090) (1,170) ST Debt 7,499 8,337 7,955 7,955 Exceptionals 3 50 1,201 14,027 Creditors 7,845 7,820 6,714 6,914 Pre-tax Profit 8,312 9,253 8,943 22,168 Other Current Liab 279 638 638 638 Tax (1,162) (1,415) (1,196) (1,235) LT Debt 29,559 28,718 29,100 29,100 Minority Interest (38) (4) (66) (69) Other LT Liabilities 9,301 9,418 9,418 9,418 Underlying Profit 7,112 7,834 7,682 20,864 Minority Interests 1,856 1,997 1,963 1,931 Shareholder’s Equity 225,369 257,381 265,909 273,194 Total Cap. & Liab. 281,708 314,309 321,697 329,150 Sales Gth (%) 2 11 (25) 0 Share Capital (m) 5,850 5,850 5,850 5,850 Net Profit Gth (%) 0 10 (2) 172 Net Cash/(Debt) (35,377) (35,347) (31,360) (21,542) EBITDA Margins (%) 55 53 62 64 Working Capital (5,304) (3,444) 1,379 10,897 EBIT Margin (%) 53 51 58 60 Net Gearing (%) 16 14 12 8 Tax Rate (%) 14 15 13 6

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 8,922 9,487 8,126 8,436 Revenues (HK$ m) Tax Paid (1,413) (1,044) (1,196) (1,235) Property Investment 10,902 11,380 11,845 12,497 Depr/Amort 374 426 447 470 Property trading 4,760 5,833 675 0 Chg in Wkg.Cap 1,693 3,787 (28) 799 Hotels 1,130 1,345 1,398 1,464 Other Non-Cash (951) (900) (1,211) (1,365) Total 16,792 18,558 13,918 13,960 Operating CF 8,625 11,756 6,138 7,105 Net Capex (6,430) (5,977) 2,755 7,317 Assoc, MI, Invsmt (197) (910) (301) 0 Investing CF (6,627) (6,887) 2,454 7,317 Net Chg in Debt 4,190 1,889 0 0 Key Assumptions (%) 2018F 2019F New Capital 0 0 0 0 Residential price - HK 13 0 Dividend (4,226) (4,464) (4,605) (4,605) Office rental - HK 5 3 Other Financing CF (4,568) (2,329) 0 0 Retail rental (High street shops) - HK 0 5 Financing CF (4,604) (4,904) (4,605) (4,605) Retail rental (Shopping centre) - HK 5 5 Chg in Cash (2,606) (35) 3,987 9,817

Source: Company, DBS HK

Page 93

HK Property Sector Wharf REIC

Bloomberg: 1997 HK | Reuters: 1997.HK Refer to important disclosures at the end of this report

BUY Riding on rising retail consumption Last Traded Price (6 Jul 2018): HK$56.45 (HSI : 28,316) Price Target 12-mth: HK$65.40 (16% upside) (Prev HK$64.70)  Robust retail sales growth to boost turnover rents Potential Catalyst: stronger retail market  Usage conversion to exploit earnings potential of Where we differ: Market has similar earnings estimate for FY18 Harbour City Analyst  BUY with HK$65.40 TP Jeff YAU CFA, +852 2820 4912 [email protected] Robust retail sales growth to boost turnover rents. Benefitting Ian CHUI +852 2971 1915 from improved tourist spending and increased local consumption, [email protected] Wharf REIC’s two landmark shopping malls recorded notable increases in tenants’ sales. Retail tenants’ sales growth at Harbour Jason LAM +852 29711773 City in Tsim Sha Tsui accelerated to 37% in 1Q18, from 2017’s [email protected] 9.1%. Times Square showed encouraging retail sales growth of 23% Price Relative in the same period, and this compares favourably with 1.1% in 2017. Both malls outperformed the overall Hong Kong retail sector. Key contributor to robust tenants’ sales was luxury product sector thanks to an upswing in inbound tourism. Electronics/audio visual sector also posted a solid performance, reversing the previous downtrend. Spectacular retail sales improvement should boost the turnover rents which stood at HK$738m or 8% of the company’s retail revenue in FY17. Moreover, this also underpins stronger reversionary growth in the years ahead. Overall, we forecast Harbour Forecasts and Valuation City and Times Square to show 5-6% growth in retail income in FY Dec (HK$ m) 2017A 2018F 2019F FY18 led by notably higher turnover rents and favourable rental Turnover 20,904 15,992 16,641 EBITDA 15,495 12,448 13,007 reversion. Pre-tax Profit 14,433 11,254 11,651 Underlying Profit 9,500 9,330 9,638 Usage conversion to exploit the earnings potential of Harbour EPS (HK$) 3.13 3.07 3.17 City. Wharf REIC is converting the serviced apartments at Hampton EPS Gth (%) 11.4 (1.8) 3.3 Court into office premises. Conversion works are expected to be PE (X) 18.0 18.4 17.8 completed in 3Q19. In view of higher rental yields for office, this DPS (HK$) 0.95 1.96 2.00 Div Yield (%) 1.7 3.5 3.5 initiative should be value accretive despite the minor income shortfall Net Gearing (%) 20 19 18 during the period of usage conversion. The Murray, a Niccolo hotel ROE (%) 4.7 4.4 4.3 converted from an ex-government building, opened for business Est. NAV (HK$) 76.6 81.6 early this year. Although the inbound tourism recovery has been Disc. to NAV (%) (26) (31) gathering momentum, this luxury hotel is not expected to make any Earnings Rev (%): 1 1 meaningful contributions initially due to depreciation and Consensus EPS (HK$): 3.05 3.25 amortisation expenses (c.HK$140m p.a.) Other Broker Recs: B:9 S:0 H:6 BUY with HK$65.40 TP. The stock is trading at 26% discount to ICB Industry: Financials ICB Sector: Real Estate Holding & Development our appraised current NAV. With strong foothold in the retail Principal Business: Engaged mainly in property investments and hotel property market, Wharf REIC should stand to benefit the most from operations in Hong Kong. Owns a 72% stake in Harbour Centre the retail market upturn. From this perspective, we see further Development (51.HK). upside potential for its share price. BUY with HK$65.40TP, based on Source of all data on this page: Company, DBS Bank (Hong Kong) 20% discount to our Jun-19 NAV estimate. Limited (“DBS HK”) Thomson Reuters, HKEX

At A Glance

Issued Capital (m shrs) 3,036 Mkt Cap (HK$m/US$m) 171,395 / 21,838 Major Shareholders (%) Wheelock and Co Ltd 61.6 Free Float (%) 38.4 3m Avg. Daily Val. (US$m) 21.1 ICB Industry: Financials / Real Estate Investment & Services

ed-JS/ sa- CS /AH

HK Property Sector Wharf REIC

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2017A 2018F 2019F FY Dec 2017A 2018F 2019F Turnover 20,904 15,992 16,641 Fixed Assets 262,376 271,203 277,662 EBITDA 15,495 12,448 13,007 Other LT Assets 6,408 6,608 6,758 Depr / Amort (144) (288) (300) Cash & ST Invts 3,076 3,179 3,290 EBIT 15,351 12,160 12,707 Other Current Assets 815 1,770 2,550 Associates Inc 67 200 150 Total Assets 272,675 282,760 290,261 Interest (Exp)/Inc (985) (1,106) (1,206) ST Debt 20,800 1,500 4,900 Exceptionals 0 0 0 Creditors 8,805 9,005 8,805 Pre-tax Profit 14,433 11,254 11,651 Other Current Liab 2,829 2,829 2,829 Tax (4,267) (1,824) (1,898) LT Debt 24,752 43,052 38,652 Minority Interest (666) (99) (116) Other LT Liabilities 2,521 2,521 2,521 Underlying Profit 9,500 9,330 9,638 Minority Interests 5,650 5,449 5,265 Shareholder’s Equity 207,318 218,403 227,288 Total Cap. & Liab. 272,675 282,760 290,261 Sales Gth (%) 24 (23) 4 Share Capital (m) 3,036 3,036 3,036 Net Profit Gth (%) 12 (2) 3 Net Cash/(Debt) (42,476) (41,373) (40,262) EBITDA Margins (%) 74 78 78 Working Capital (28,543) (8,385) (10,694) EBIT Margin (%) 73 76 76 Net Gearing (%) 20 19 18 Tax Rate (%) 30 16 16

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2017A 2018F 2019F FY Dec 2017A 2018F 2019F EBIT 15,351 12,160 12,707 Revenues (HK$ m) Tax Paid (1,745) (1,824) (1,898) Investment Property 13,334 13,731 14,275 Depr/Amort 144 288 300 Development Property 5,907 0 0 Chg in Wkg.Cap (3,282) (1,410) (1,460) Hotels 1,403 1,996 2,096 Other Non-Cash (820) (136) (136) Others 260 265 271 Operating CF 9,648 9,077 9,513 Total 20,904 15,992 16,641 Net Capex (2,507) (1,500) (1,500) Assoc, MI, Invsmt (10,106) 0 0 Investing CF (12,613) (1,500) (1,500) Net Chg in Debt 41,170 (1,000) (1,000) Key Assumptions (%) 2018F 2019F New Capital 1,000 0 0 Dividend (10,374) (6,160) (6,312) Office rental - HK 5 3 Other Financing CF (31,319) 0 0 Retail rental (High street shops) - HK 0 5 Financing CF 477 (7,160) (7,312) Retail rental (Shopping centre) - HK 5 5 Chg in Cash (2,488) 417 702

Source: Company, DBS HK

Page 95

HK Property Sector Far East Consortium

Bloomberg: 35 HK | Reuters: 0035.HK Refer to important disclosures at the end of this report

BUY Hotels are a bright spot Last Traded Price (6 Jul 2018): HK$4.52 (HSI : 28,316) Price Target 12-mth: HK$5.53 (22% upside)  Local hotels going from strength to strength

Potential Catalyst: Improving hotel market and successful project sales  Overseas investments to drive long-term Where we differ: Market.has higher earnings estimate for FY19-20 growth

Analyst  BUY with HK$5.53 TP Jeff YAU CFA, +852 2820 4912 [email protected]

Ian CHUI +852 2971 1915 Local hotels going from strength to strength. Supported by the [email protected] return of overnight visitors, Far East Consortium’s (FEC) hotels in Hong Jason LAM +852 29711773 Kong have recorded sequential operational improvements. RevPAR [email protected] growth in 2HFY18 (Oct-17 to Mar-18) improved by 13.5% from

Price Relative 1HFY18’s 8.3% as room rate growth accelerated. In addition to the revival of overnight visitor arrivals from China, FEC has attracted a diversified base of international travelers, particularly from South Korea and South East Asia. Opened for business in Jan-17, Silka Tsuen Wan has rapidly ramped up its operations. With a portfolio of nine three-to- four star hotels (2868 rooms) spread across Hong Kong, FEC should continue to benefit from the hotel market upturn. Given improving hotel asset valuations, we do not rule out the possibility of the company crystallising the hidden value of its hotels via disposal if opportunity Forecasts and Valuation knocks. FY Mar (HK$ m) 2017A 2018A 2019F 2020F Turnover 5,005 5,831 6,117 6,622 Overseas investments to drive long-term growth. In recent EBITDA 1,694 2,220 2,203 2,157 months, FEC turned positive on the prospects of Singapore’s high-end Pre-tax Profit 1,567 2,156 1,604 1,533 Net Profit 1,118 1,567 1,142 1,144 residential market. Since Mar-18, the company has acquired four EPS (HK$) 0.51 0.69 0.50 0.50 residential lots/properties in Singapore through different channels. They EPS Gth (%) 40.7 34.4 (28.0) 0.1 will altogether provide attributable saleable area of 0.3m sf. Total PE (X) 8.8 6.5 9.1 9.1 P/Cash Flow (X) 8.4 82.6 (5.2) 2.2 attributable land cost was S$562m. FEC has also expanded its footprint EV/EBITDA (X) 9.5 7.2 7.3 7.4 into the gaming sector with the acquisition of Trans World Corporation DPS (HK$) 0.19 0.22 0.22 0.22 and 4.99% stake in The Star Entertainment to complement its “Asian Div Yield (%) 4.1 4.9 4.9 4.9 Wallet“ strategy. Even allowing for these recent overseas investments, Net Gearing (%) 31 29 37 27 ROE (%) 10.7 13.2 8.6 8.2 its financial risk should remain manageable. Est. NAV (HK$) 12.7 13.8 Disc. to NAV (%) (64) (67) BUY with HK$5.53 TP. The stock is trading at 64% discount to our assessed current NAV with dividend yield of 4.9% for FY19. Valuation is Earnings Rev (%): Nil Nil by no means expensive. The company is currently riding on the Consensus EPS (HK$): 0.67 0.74 prevailing hotel market upcycle in Hong Kong. Moreover, it is Other Broker Recs: B:3 S:0 H:0 proactively pursuing overseas investments, which could serve as share ICB Industry: Financials price catalyst if they bear fruit. BUY with HK$5.53 TP, premised on 60% ICB Sector: Real Estate Holding & Development Principal Business: Engages in property development & investment, discount to our Jun-19 NAV estimate. hotel investment & operations, and car park and facility mangement operations across different cities

Source of all data on this page: Company, DBS Bank (Hong Kong) At A Glance Limited (“DBS HK”) Thomson Reuters, HKEX Issued Capital (m shrs) 2,297 Mkt Cap (HK$m/US$m) 10,336 / 1,317 Major Shareholders (%) Chiu (Tat Cheong David) 46.8 Chiu (Te Ken Deacon) 6.8 Value Partners Ltd. 6.0 Free Float (%) 40.4 3m Avg. Daily Val. (US$m) 0.4

ed-JS/ sa- CS /DL

HK Property Sector Far East Consortium

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Mar 2017A 2018A 2019F 2020F FY Mar 2017A 2018A 2019F 2020F Turnover 5,005 5,831 6,117 6,622 Fixed Assets 10,483 11,404 11,946 12,381 EBITDA 1,694 2,220 2,203 2,157 Other LT Assets 2,025 2,403 2,453 2,508 Depr / Amort (324) (355) (370) (384) Cash & ST Invts 4,186 4,609 2,469 5,158 EBIT 1,370 1,865 1,834 1,772 Other Current Assets 11,705 16,073 20,824 18,838 Associates Inc (4) 10 10 15 Total Assets 28,400 34,489 37,691 38,885 Interest (Exp)/Inc (158) (212) (240) (254) ST Debt 2,755 6,194 6,194 6,194 Exceptionals 359 494 0 0 Creditors 889 1,725 2,025 2,325 Pre-tax Profit 1,567 2,156 1,604 1,533 Other Current Liab 2,536 2,364 2,614 2,864 Tax (434) (571) (446) (380) LT Debt 10,507 10,161 12,161 12,161 Minority Interest (15) (19) (15) (10) Other LT Liabilities 768 902 902 902 Net Profit 1,118 1,567 1,142 1,144 Minority Interests 152 173 183 188 Shareholder’s Equity 10,792 12,971 13,613 14,252 Total Cap. & Liab. 28,400 34,489 37,691 38,885 Sales Gth (%) 25 16 5 8 Share Capital (m) 2,238 2,302 2,302 2,302 Net Profit Gth (%) 52 40 (27) 0 Net Cash/(Debt) (7,646) (8,260) (10,923) (8,233) EBITDA Margins (%) 34 38 36 33 Working Capital 9,710 10,399 12,460 12,613 EBIT Margin (%) 27 32 30 27 Net Gearing (%) 31 29 37 27 Tax Rate (%) 28 26 28 25

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Mar 2017A 2018E 2019F 2020F FY Mar 2017A 2018A 2019F 2020F EBIT 1,370 1,865 1,834 1,772 Revenues (HK$ m) Tax Paid (275) (571) (446) (380) Property Development 2,937 3,431 3,570 3,952 Depr/Amort 324 355 370 384 Property Investment 55 66 68 69 Chg in Wkg.Cap (556) (2,047) (4,201) 2,536 Hotel Operations 1,309 1,538 1,602 1,670 Other Non-Cash 38 (49) 1 1 Car Park Operations 641 666 696 731 Operating CF 901 (447) (2,443) 4,314 Others 64 130 182 200 Net Capex 80 (183) (911) (819) Assoc, MI, Invsmt (870) (35) (35) (35) Total 5,005 5,831 6,117 6,622 Investing CF (789) (218) (946) (854) Net Chg in Debt (450) 500 2,000 0 Key Assumptions (%) 2018F 2019F New Capital 2,309 0 0 0 Residential price - HK 13 0 Dividend (53) (422) (505) (510) Office rental - HK 5 3 Other Financing CF (363) (229) (246) (260) Retail rental (High street shops) - HK 0 5 Financing CF 1,443 (151) 1,249 (770) Retail rental (Shopping centre) - HK 5 5 Chg in Cash 1,555 (816) (2,140) 2,689 Hotel RevPAR 8 8

Source: Company, DBS HK

Page 97

HK Property Sector Great Eagle

Bloomberg: 41 HK | Reuters: 0041.HK Refer to important disclosures at the end of this report

HOLD Ongoing family dispute Last Traded Price (6 Jul 2018): HK$38.40 (HSI : 28,316) Price Target 12-mth: HK$41.00 (7% upside)  Hotels in Toronto and London to drive overseas Potential Catalyst: Stake increase by Chairman hotel earnings Where we differ: Market has slightly lower earnings estimate for FY18.  Champion REIT and Langham Hospitality Analyst Investments are key earnings contributors Jeff YAU CFA, +852 2820 4912 [email protected]  HOLD with HK$41 TP

Ian CHUI +852 2971 1915 [email protected] Hotels in Toronto and London to drive overseas hotel earnings growth. Chelsea Hotel in Toronto continues to be a bright spot with Jason LAM +852 29711773 [email protected] >20% RevPAR growth in 1Q18 led by occupancy gains. Other North American hotels, excluding Langham Boston, also recorded modest Price Relative RevPAR growth on improved occupancy. Profitability of Langham London improved during the same period on better RevPAR. Hotels in Australia/New Zealand delivered mixed performances. Benefiting from increased room rates, Langham Melbourne and Langham Sydney saw higher RevPAR. On the other hand, the repositioning exercise has dragged the performance of Cordis Auckland. While higher occupancy drove >10% RevPAR growth at Langham Xintiandi, Cordis Hongqiao is still in the ramping up stage and remains loss making. Cordis Washington is scheduled to open for business in 3Q18. Elsewhere, Great Eagle will carry out renovation program at Langham Boston and Langham Forecasts and Valuation Melbourne in late 2018 and 2019 respectively. FY Dec (HK$ m) 2016A 2017A 2018F 2019F Turnover 6,261 6,188 6,573 6,976 Champion REIT and Langham Hospitality Investments are key EBITDA 2,634 2,294 2,167 2,391 earnings contributors. Champion REIT and Langham Hospitality Pre-tax Profit 2,563 1,894 1,850 2,053 Underlying Profit 2,023 1,900 1,740 1,923 Investments should altogether contribute earnings of >HK$1.5bn p.a. to EPS (HK$) 2.99 2.77 2.53 2.80 Great Eagle in the years ahead and remain the company’s bread and EPS Gth (%) 11.5 (7.4) (8.4) 10.5 butter. Construction works at the Pak Shek Kok residential project is PE (X) 12.9 13.9 15.2 13.7 currently underway with project pre-sale expected in 2019. The nearby P/Cash Flow (X) 8.3 9.5 14.1 12.1 projects such as Solaria attracted favourable demand when offered for EV/EBITDA (X) 10.4 12.0 12.7 11.5 sale recently. Given low land costs (HK$3300psf), this residential project DPS (HK$) 1.25 1.78 0.78 0.78 should be a profit bonanza. Div Yield (%) 3.3 4.6 2.0 2.0

Net Gearing (%) 38 34 36 36 ROE (%) 3.7 3.2 2.7 2.9 HOLD with HK$41 TP. The counter is trading at 51% discount to our Est. NAV (HK$) 78.4 82.0 appraised current NAV, against its 10-year average of 50%. The current Disc. to NAV (%) (51) (53) valuation is not particularly attractive from the historical perspective. Hence we maintain our HOLD call at this stage with HK$41TP. This is Earnings Rev (%): (1) 2 based on a 50% discount to our Jun-19 NAV estimate. That said, Consensus EPS (HK$): 2.44 2.49 Chairman KS Lo has been raising his stake in Great Eagle which could Other Broker Recs: B:1 S:1 H:1 limit any downside risk on share price. And investors should keep an eye ICB Industry: Financials on the family dispute. ICB Sector: Real Estate Holding & Development Principal Business: Engaged in hotel operation and holds c.63% stake At A Glance in Champion REIT and c.61% of Langham Hospitality Trust Issued Capital (m shrs) 698 Source of all data on this page: Company, DBS Bank (Hong Kong) Mkt Cap (HK$m/US$m) 26,817 / 3,417 Limited (“DBS HK”) Thomson Reuters, HKEX Major Shareholders (%) Lo (Ka Shui) 60.5 Lo (Ying Sui Archie) 5.3 Free Float (%) 34.1 3m Avg. Daily Val. (US$m) 0.6

ed-JS/ sa- CS AH

HK Property Sector Great Eagle

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Turnover 6,261 6,188 6,573 6,976 Fixed Assets 91,658 103,716 104,594 104,948 EBITDA 2,634 2,294 2,167 2,391 Other LT Assets 2,755 2,852 2,826 2,822 Depr / Amort (153) (178) (192) (204) Cash & ST Invts 6,779 8,464 7,391 6,992 EBIT 2,480 2,116 1,975 2,187 Other Current Assets 5,137 5,971 7,125 8,279 Associates Inc (20) (26) (26) (4) Total Assets 106,329 121,004 121,936 123,040 Interest (Exp)/Inc (92) (69) (99) (129) ST Debt 2,495 1,656 4,721 4,721 Exceptionals 194 (127) 0 0 Creditors 3,476 3,731 3,720 3,710 Pre-tax Profit 2,563 1,894 1,850 2,053 Other Current Liab 431 439 439 439 Tax (531) 5 (101) (121) LT Debt 25,694 28,966 25,901 25,901 Minority Interest (9) 1 (9) (9) Other LT Liabilities 1,304 1,383 1,383 1,383 Underlying Profit 2,023 1,900 1,740 1,923 Minority Interests 17,081 20,360 20,369 20,379 Shareholder’s Equity 55,847 64,469 65,402 66,508 Total Cap. & Liab. 106,329 121,004 121,936 123,040 Sales Gth (%) 11 (1) 6 6 Share Capital (m) 677 689 689 689 Net Profit Gth (%) 14 (6) (8) 11 Net Cash/(Debt) (21,410) (22,158) (23,231) (23,630) EBITDA Margins (%) 42 37 33 34 Working Capital 5,513 8,609 5,636 6,401 EBIT Margin (%) 40 34 30 31 Net Gearing (%) 38 34 36 36 Tax Rate (%) 21 N/A 5 6

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F EBIT 2,480 2,116 1,975 2,187 Revenues (HK$ m) Tax Paid (562) (452) (101) (121) Rental income 244 228 224 228 Depr/Amort 153 178 192 204 Building management fee 0 0 0 0 Chg in Wkg.Cap (322) (681) (1,164) (1,164) income Hotel operation 3,715 3,958 4,336 4,645 Other Non-Cash 838 1,173 863 963 Income from Champion REIT 1,797 1,558 1,560 1,640 Operating CF 2,587 2,333 1,766 2,068 / LanghamOther operations Hospitality Trust 505 445 454 463 Net Capex (2,441) (1,062) (1,012) (498) Assoc, MI, Invsmt 3,517 (180) 1,649 71 Total 6,261 6,188 6,573 6,976 Investing CF 1,076 (1,242) 637 (427) Net Chg in Debt 1,371 2,038 0 0 Key Assumptions (%) 2018F 2019F New Capital 108 112 0 0 Residential price - HK 13 0 Dividend (3,464) (1,630) (1,307) (1,319) Office rental - HK 5 3 Other Financing CF (1,199) (702) (691) (721) Retail rental (High street shops) - HK 0 5 Financing CF (3,183) (181) (1,998) (2,040) Retail rental (Shopping Centre) - HK 5 5 Chg in Cash 479 910 405 (399)

Source: Company, DBS HK

Page 99

HK Property Sector Champion REIT

Bloomberg: 2778 HK | Reuters: 2778.HK Refer to important disclosures at the end of this report

BUY (Upgrade from HOLD) Riding on commercial property Last Traded Price (6 Jul 2018): HK$5.13 (HSI : 28,316) upcycle Price Target 12-mth: HK$5.55 (8% upside) Potential Catalyst: Stronger office and retail market  Robust reversionary growth for Three Garden Road Where we differ: Market has slightly higher DPU estimate for FY18-19 continues Analyst  Strong retail sales to raise turnover rents at Langham Jeff YAU CFA, +852 2820 4912 Place Mall [email protected]  Upgraded to BUY with HK$5.55 TP Ian CHUI +852 2971 1915 [email protected] Robust reversionary growth for Three Garden Road continues. Occupancy at Three Garden Road has inched up to 95-96% currently Jason LAM +852 29711773 from Dec-17’s 94.2%. Leasing demand from Chinese firms show no [email protected] signs of slowing down, and some China-based tenants have been

looking for in-house expansion. New tenants include The Executive Price Relative Centre which is renting two floors surrendered by Citibank in 2017. Spot rent stands at HK$110psf on average with small office units commanding >HK$120psf. With expiring rents at

Strong retail sales to lift turnover rents at Langham Place Mall. Tenants’ sales at the fully-let Langham Place Mall has expanded 18- Forecasts and Valuation 20% in 4M18, outperforming the overall market. Beauty/skin care FY Dec (HK$ m) 2016A 2017A 2018F 2019F Gross Revenue 2,557 2,700 2,794 2,958 segments continue to be a bright spot. This augurs well for future Net Property Inc 2,026 2,166 2,246 2,382 reversionary growth. In addition, this should translate into higher Net Profit 3,182 11,140 1,358 1,418 turnover rents which is driving the mall’s rental income growth. About Distribution Inc 1,331 1,413 1,418 1,483 28% of leases at the mall is scheduled for expiry in 2018. Champion DPU (HK$) 0.23 0.24 0.24 0.25 REIT has renewed most of the expiring leases or re-let space to new DPU Gth (%) 16 6 0 4 Div Yield (%) 4.5 4.7 4.7 4.9 tenants at slightly higher rents. Occupancy of Langham Place Office Gross Gearing (%) 22 19 18 18 Tower remains at 97%. More high-paying beauty & lifestyle-related Book Value (HK$) 8.72 10.36 10.72 11.09 tenants have taken up leases at Langham Place Office Tower with P/Book Value (x) 0.6 0.5 0.5 0.5 spot rents exceeding HK$50psf. Despite positive rental reversion, Langham Place Office Tower could possibly see slightly lower income Earnings Rev (%): Nil NIl Consensus DPU (HK$): 0.25 0.26 in FY18 due to lower average occupancy. In 2019, >40% of leases is Other Broker Recs: B:6 S:0 H:11 scheduled for expiry or subject to rent review including the lease of key tenant Sears. Champion REIT has commenced the lease renewal ICB Industry: Financials ICB Sector: REITs (HK) negotiation with tenants. . The REIT has made no progress in the Principal Business: Leasing of Three Garden Road and Langham planned Langham Office Tower disposal. Place in Hong Kong Source of all data on this page: Company, DBS Bank (Hong Kong) Upgrade to BUY with HK$5.55 TP. Champion REIT offers Limited (“DBS HK”) Thomson Reuters, HKEX distribution yields of 4.7-4.9% for FY18-19F. The valuation has become attractive following the recent sell-off. Three Garden Road and Langham Place Mall will benefit from the office and retail market upcycles. Upgraded to BUY with TP of HK$5.55.

At A Glance Issued Capital (m shrs) 5,835 Mkt Cap (HK$m/US$m) 29,933 / 3,814 Major Shareholders (%) Great Eagle Holdings Ltd 65.8 Free Float (%) 34.2 3m Avg. Daily Val. (US$m) 1.6 ICB Industry: Financials / Real Estate Investment Trusts

ed-JS/ sa- CS /AH

HK Property Sector Champion REIT

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Gross revenue 2,557 2,700 2,794 2,958 Fixed Assets 66,842 76,704 79,044 81,453 Property expenses (531) (534) (548) (576) Other LT Assets 254 257 257 257 Net Property Income 2,026 2,166 2,246 2,382 Cash & ST Invts 958 1,190 1,211 1,284 Other expenses (266) (281) (291) (308) Other Current Assets 320 301 301 301 Interest (Exp)/Inc (336) (331) (376) (425) Total Assets 68,373 78,453 80,814 83,296 Exceptionals 2,002 9,850 0 0 ST Debt 0 0 4,150 0 Pre-Tax Profit 3,427 11,405 1,579 1,648 Creditors 1,280 1,338 1,338 1,338 Tax (245) (265) (221) (231) Other Current Liab 1,321 1,423 1,408 1,440 Non-Controlling Interests 0 0 0 0 LT Debt 14,739 14,785 10,635 14,785 Net Profit 3,182 11,140 1,358 1,418 Other LT Liabilities 498 556 556 556 Distribution income 1,331 1,413 1,418 1,483 Non-Controlling Interests 0 0 0 0 Unitholders’ funds 50,535 60,351 62,727 65,177 Revenue Gth (%) 12 6 3 6 Total Capital 68,373 78,453 80,814 83,296 NPI Gth (%) 14 7 4 6 Share Capital (m) 5,798 5,823 5,849 5,876 Dist. Inc Growth (%) 16 6 0 5 Gross Debt (14,841) (14,841) (14,841) (14,841) DPU Growth (%) 16 6 0 4 Working Capital (1,323) (1,269) (5,383) (1,193) Book NAV (HK$) 8.72 10.36 10.72 11.09 Gross Gearing (%) 22 19 18 18

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Pre-Tax Income 3,427 11,405 1,579 1,648 Revenues (HK$ m) Tax Paid (179) (237) (221) (231) Rental income 2,224 2,351 2,424 2,572 Depr/Amort 0 0 0 0 Carpark income 43 45 48 51 Chg in Wkg.Cap. (57) 142 0 0 Building management fee 258 269 286 297 Other Non-Cash (1,817) (9,703) 118 126 income Rental related income 32 35 36 38 Operational CF 1,373 1,607 1,476 1,544 Net Capex (57) (12) (39) (38) Total 2,557 2,700 2,794 2,958 Assoc, MI, Invsmt 14 20 17 17 Investment CF (43) 8 (22) (21) Net Chg in Debt 250 0 0 0 Key Assumptions (%) 2018F 2019F New issues/Unit Buyback 0 0 0 0 Distribution Paid (1,230) (1,378) (1,433) (1,450) Office rental - HK 5 3 Other Financing CF (86) (4) 0 0 Retail rental (High street shops) - HK 0 5 Financing CF (1,066) (1,382) (1,433) (1,450) Retail rental (Shopping centre) - HK 5 5 Chg in Cash 265 233 21 72

Source: Company, DBS HK

Page 101

HK Property Sector Fortune REIT

Bloomberg: 778 HK | Reuters: 0778.HK Refer to important disclosures at the end of this report

BUY Unlocking mall’s value Last Traded Price (6 Jul 2018): HK$9.21 (HSI : 28,316) Price Target 12-mth: HK$10.50 (14% upside)  Enhancement works to unlock property value Potential Catalyst:Healthy rental reversion  Steady reversionary growth to sustain Where we differ: Market has slightly higher DPU estimate for FY18-19.  BUY with HK$10.50 TP Analyst Jeff YAU CFA, +852 2820 4912 [email protected] Enhancement works to unlock property value. Fortune REIT has just embarked on asset enhancement works on the west Ian CHUI +852 2971 1915 block of Fortune Kingswood in Tin Shui Wai, which is carried out [email protected] in three phases with completion targeted for early 2020. Total capex is estimated at HK$150m. The supermarket tenant, which Jason LAM +852 29711773 occupies c.57,000sf, will be downsized. Fortune REIT has secured [email protected] tenants for a large part of the revamped area. Despite the income

shortfall during the period of renovation, this initiative should Price Relative help turn Fortune Kingswood into a regional mall in the long run, enhancing its competitiveness.

Steady reversionary growth to sustain. F&B tenants continue to perform well while home appliance retailers have shown signs of improvement of late. Rental reversion is therefore expected to stay healthy at 10-15% in FY18. Following the loan repayment of HK$1.1bn using the proceeds from divestment of Provident Square, Fortune REIT’s gearing has improved to c.25%. Interest Forecasts and Valuation rate hedging ratio has edged down to 50% from Dec-17’s 60% FY Dec (HK$ m) 2016A 2017A 2018F 2019F with the expiry of interest rate swap. With c.HK$900m cash on Gross Revenue 1,975 2,030 2,048 2,105 hand, Fortune REIT is exploring acquisition opportunities. But Net Property Inc 1,410 1,457 1,467 1,507 given low market yield for retail assets, it could be challenging to Net Profit 1,258 3,201 1,776 874 pursue yield accretive acquisitions. Distribution Inc 935 971 987 1,011 DPU (HK$) 0.49 0.51 0.51 0.52 DPU Gth (%) 5 3 1 2 BUY with HK$10.50 TP. Fortune REIT offers distribution yields of Div Yield (%) 5.3 5.5 5.6 5.7 5.6-5.7% for FY18-19. Valuation is attractive taking into account Gross Gearing (%) 29 27 24 23 steady reversion growth and rental uplift led by asset Book Value (HK$) 12.90 14.05 15.12 15.72 enhancement initiative at Fortune Kingswood. BUY with DDM- P/Book Value (x) 0.7 0.7 0.6 0.6 based TP of HK$10.50. Interest rate hikes remains a key overhang on unit price. Earnings Rev (%): Nil Nil Consensus DPU (HK$): 0.52 0.53 At A Glance Other Broker Recs: B:6 S:2 H:4 Issued Capital (m shrs) 1,917 ICB Industry: Financials Mkt Cap (HK$m/US$m) 17,658 / 2,250 ICB Sector: REITs (HK) Major Shareholders (%) Principal Business: Leasing of retail properties in Hong Kong Source of all data on this page: Company, DBS Bank (Hong Kong) Focus Eagle Investments Ltd. 21.5 Limited (“DBS HK”) Thomson Reuters, HKEX Ballston Profits Ltd. 5.9 Free Float (%) 72.6 3m Avg. Daily Val. (US$m) 2.1

ed-JS/ sa- CS /AH

HK Property Sector Fortune REIT

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Gross revenue 1,975 2,030 2,048 2,105 Fixed Assets 36,368 37,751 38,103 39,567 Property expenses (566) (573) (581) (598) Other LT Assets 51 20 20 20 Net Property Income 1,410 1,457 1,467 1,507 Cash & ST Invts 585 516 1,105 1,008 Other expenses (127) (129) (132) (137) Other Current Assets 67 1,335 1,336 1,337 Interest (Exp)/Inc (282) (267) (270) (282) Total Assets 37,071 39,622 40,564 41,933 Exceptionals 469 2,360 921 0 ST Debt 630 1,497 0 4,355 Pre-Tax Profit 1,470 3,420 1,985 1,088 Creditors 1,218 1,490 1,291 1,299 Tax (212) (219) (209) (214) Other Current Liab 16 11 11 11 Non-Controlling Interests 0 0 0 0 LT Debt 10,230 9,286 9,683 5,328 Net Profit 1,258 3,201 1,776 874 Other LT Liabilities 432 450 450 450 Distribution income 935 971 987 1,011 Non-Controlling Interests 0 0 0 0 Unitholders’ funds 24,545 26,888 29,128 30,489 Revenue Gth (%) 5 3 1 3 Total Capital 37,071 39,622 40,564 41,933 NPI Gth (%) 6 3 1 3 Share Capital (m) 1,902 1,914 1,927 1,940 Dist. Inc Growth (%) 6 4 2 2 Gross Debt (10,860) (10,783) (9,683) (9,683) DPU Growth (%) 5 3 1 2 Working Capital (1,212) (1,147) 1,139 (3,320) Book NAV (HK$) 12.90 14.05 15.12 15.72 Gross Gearing (%) 29 27 24 23

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Pre-Tax Income 1,470 3,420 1,985 1,088 Revenues (HK$ m) Tax Paid (184) (193) (209) (214) Base rent & other income 1,633 1,681 1,697 1,741 Depr/Amort 0 0 0 0 Charge-out collections 342 349 351 364 Chg in Wkg.Cap. 85 35 (201) 5 Total 1,975 2,030 2,048 2,105 Other Non-Cash (78) (1,980) (536) 401 Operational CF 1,292 1,282 1,039 1,280 Net Capex (73) (52) (100) (100) Assoc, MI, Invsmt 2 1 1,990 0 Investment CF (71) (52) 1,890 (100) Net Chg in Debt (190) (108) (1,102) 0 Key Assumptions (%) 2018F 2019F New issues/Unit Buyback 0 0 0 0 Distribution Paid (914) (953) (970) (994) Other Financing CF (243) (236) (270) (282) Retail Rental (High Street Shops) - HK 0 5 Financing CF (1,347) (1,297) (2,343) (1,276) Retail Rental (Shopping Center) - HK 5 5 Chg in Cash (125) (67) 587 (96)

Source: Company, DBS HK

Page 103

HK Property Sector Langham Hospitality Investments

Bloomberg: 1270 HK | Reuters: 1270.HK Refer to important disclosures at the end of this report

BUY Facelift at Eaton to boost Last Traded Price (6 Jul 2018): HK$3.17 (HSI : 28,316) Price Target 12-mth: HK$3.68 (16% upside) competitiveness Potential Catalyst: Improving hotel market Where we differ: Market has similar DPU estimate for FY18.  Renovation allows Eaton to better cater to Analyst targeted travelers Jeff YAU CFA, +852 2820 4912 [email protected]  Higher RevPAR at The Langham and Cordis

Ian CHUI +852 2971 1915  BUY with HK$3.68 TP [email protected]

Jason LAM +852 29711773 [email protected] Renovation to allow Eaton better capture targeted travelers. The renovation at Eaton’s hotel entrance has been completed and the food hall at the basement is already Price Relative operating. The co-working space is targeted to be completed in Aug-18 . The retail shops would be leased to F&B tenants. Hence, F&B and retail income from Eaton is expected to recover gradually from 2Q18 onwards. In Mar-18, Langham Hospitality Investments commenced its room renovation programme at Eaton, to be carried out in four phases. This would reduce the number of rooms available in the meantime, thus diluting room revenue. Despite the short term income shortfall, this initiative Forecasts and Valuation should enable the hotelier to better tap the demand from FY Dec (HK$ m) 2016A 2017A 2018F 2019F millennial travelers and enhance the long-term competitiveness Gross Revenue 706 694 708 762 of Eaton. Net Property Inc 594 581 592 638 Net Profit 410 1,146 356 378 Higher RevPAR at The Langham and Cordis. Aided by the Distribution Inc 501 437 420 447 revival of overnight visitor arrivals, The Langham in Tsim Sha Tsui DPU (HK$) 0.26 0.22 0.20 0.21 DPU Gth (%) 4 (15) (7) 5 and Cordis in Mongkok registered RevPAR growth of c.9% in Div Yield (%) 8.0 6.8 6.3 6.6 4M18, primarily led by better room rates. F&B revenue grew in Gross Gearing (%) 36 35 33 32 the mid-single digits. This should lead to higher gross operating Book Value (HK$) 5.65 5.93 6.32 6.54 P/Book Value (x) 0.6 0.5 0.5 0.5 profits. On the other hand, despite higher room rates, RevPAR of Eaton in Yau Ma Tei was marginally lower, dragged by reduced Earnings Rev (%): (6) (3) occupancy as a result of ongoing renovation works. Consensus DPU (HK$): 0.20 0.20 Other Broker Recs: B:1 S:1 H:1 BUY with HK$3.68 TP Langham Hospitality Investments offers distribution yields of 6.3-6.6% for FY18-19. With a portfolio of ICB Industry: Financials ICB Sector: Equity Investment Instruments three strategically located hotels in Kowloon, Langham Principal Business: Hotels Hospitality Investments should be well placed to riding on the Source of all data on this page: Company, DBS Bank (Hong Kong) hotel sector upturn led by improving inbound tourism. Despite Limited (“DBS HK”) Thomson Reuters, HKEX the short term business disruption, the renovation should allow Eaton to boost its long-term competitiveness. BUY with DDM- based TP of HK$3.68

At A Glance

Issued Capital (m shrs) 2,099 Mkt Cap (HK$m/US$m) 6,696 / 853 Major Shareholders (%) Great Eagle Holdings Ltd 62.5 Free Float (%) 37.5 3m Avg. Daily Val. (US$m) 0.3 ICB Industry: Financials / Real Estate Investment Trusts

ed-JS/ sa- CS /AH

HK Property Sector Langham Hospitality Investments

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Gross revenue 706 694 708 762 Fixed Assets 18,432 19,373 20,422 21,084 Property expenses (113) (113) (116) (124) Other LT Assets 32 28 28 28 Net Property Income 594 581 592 638 Cash & ST Invts 238 101 20 3 Other expenses (11) (9) (9) (9) Other Current Assets 121 115 120 125 Interest (Exp)/Inc (118) (153) (178) (195) Total Assets 18,824 19,618 20,590 21,241 Exceptionals 28 805 0 0 ST Debt 0 0 0 6,791 Pre-Tax Profit 493 1,223 405 435 Creditors 78 97 96 95 Tax (83) (77) (49) (57) Other Current Liab 33 24 24 24 Non-Controlling Interests 0 0 0 0 LT Debt 6,739 6,757 6,774 0 Net Profit 410 1,146 356 378 Other LT Liabilities 297 329 329 329 Distribution income 501 437 420 447 Non-Controlling Interests 0 0 0 0 Unitholders’ funds 11,677 12,411 13,367 14,002 Revenue Gth (%) 4 (2) 2 8 Total Capital 18,824 19,618 20,590 21,241 NPI Gth (%) 5 (2) 2 8 Share Capital (m) 2,067 2,088 2,110 2,133 Dist. Inc Growth (%) 5 (13) (4) 6 Gross Debt (6,800) (6,800) (6,800) (6,800) DPU Growth (%) 4 (15) (7) 5 Working Capital 249 96 20 (6,781) Book NAV (HK$) 5.65 5.94 6.33 6.56 Gross Gearing (%) 36 35 33 32

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Pre-Tax Income 493 1,223 405 435 Revenues (HK$ m) Tax Paid 0 (55) (49) (57) Base rent 225 225 225 225 Depr/Amort 25 18 17 17 Variable rent 476 468 481 535 Chg in Wkg.Cap. (7) 10 (6) (6) Rental income from retail 6 1 2 2 Other Non-Cash 42 (734) 69 76 Total 706 694 708 762 Operational CF 552 463 436 465 Net Capex (65) (119) (80) (50) Assoc, MI, Invsmt 62 2 2 2 Investment CF (3) (118) (78) (48) Net Chg in Debt (72) 0 0 0 Key Assumptions (%) 2018F 2019F New issues/Unit Buyback 0 0 0 0 RevPAR 8 8 Distribution Paid (483) (483) (440) (434) Other Financing CF 0 0 0 0 Financing CF (555) (483) (440) (434) Chg in Cash (6) (137) (81) (17)

Source: Company, DBS HK

Page 105

HK Property Sector Link REIT

Bloomberg: 823 HK | Reuters: 823.HK Refer to important disclosures at the end of this report

HOLD Buyback to support unit prices Last Traded Price (6 Jul 2018): HK$74.00 (HSI : 28,316) Price Target 12-mth: HK$72.00 (3% downside)  Retail reversionary growth going from strength to strength Potential Catalyst: unit buyback & new acquisitions  Good leasing progress for new investment properties Where we differ: Market has slightly higher DPU estimate for FY20.  HOLD with HK$72 TP Analyst Jeff YAU CFA, +852 2820 4912 Retail reversionary growth going from strength to strength. [email protected] Retail reversionary growth is going from strength to strength and Ian CHUI +852 2971 1915 reached 29% in FY18. Average monthly gross sales growth of retail [email protected] tenants on a psf basis accelerated further to 8% in FY18 from Jason LAM +852 29711773 1HFY18’s 7.2%. It was led by food and beverage trades which [email protected] registered 11.9% growth in FY18. Rent-to-sales ratio, albeit slightly Price Relative higher than FY17’s 11.9%, stayed healthy at 12.9% in FY18. This augurs well for future rental reversion which should stay above 20% in the years ahead. AEI pipeline remains steady. Link REIT is carrying out ten AEI project with total capex estimated at HK$912m. These should underpin Link REIT’s income expansion.

Good leasing progress for new investment properties. The recently opened retail podium at 700 Nathan Road in Mongkok (branded TOP) has been c.80% committed. It features mainly lifestyle and fashion retailers, F&B outlets and beauty tenants. Link REIT also Forecasts and Valuation introduced pop up stores which help to enrich the retail experience. FY Mar (HK$ m) 2017A 2018A 2019F 2020F The tower portion is now 70% let. Key tenants include a co-working Gross Revenue 9,255 10,023 10,284 11,113 Net Property Inc 6,994 7,663 8,003 8,742 space operator and medical clinics. Link REIT is in lease negotiations Net Profit 17,711 47,761 5,912 6,282 with prospective medical tenants for the remaining space. JP Morgan Distribution Inc 5,075 5,431 5,790 6,160 recently agreed to take up an additional 25,000sf of office space at DPU (HK$) 2.28 2.50 2.69 2.87 The Quayside in Kowloon East. This brought the committed area to DPU Gth (%) 11 9 8 6 275,000sf or 32% of total office space at this development which is Div Yield (%) 3.1 3.4 3.6 3.9 Gross Gearing (%) 16 12 12 11 targeted for completion in early 2019. These two new investment Book Value (HK$) 62.47 83.06 88.53 95.28 properties would add spice to Link REIT’s revenue growth in the next P/Book Value (x) 1.2 0.9 0.8 0.8 couple of years.

Earnings Rev (%): Nil NIl HOLD with HK$72 TP Link REIT offers distribution yield of 3.6-3.9% Consensus DPU (HK$): 2.70 2.97 for FY19-20. This translates into yield spread of 1.5-1.7% against its Other Broker Recs: B:11 S:1 H:8 average of 2.2% since listing. While the current valuation does not ICB Industry: Financials appear compelling from the historical viewpoint, the ongoing unit ICB Sector: REITs (HK) repurchase should lend support to its unit price. Link REIT would Principal Business: Leasing of retail and car park facilities primarily repurchase up to 80m more units to neutralise the DPU dilution in Hong Kong and engaging in property development arising from the divestment of 17 assets. Elsewhere, unit price Source of all data on this page: Company, DBS Bank (Hong Kong) performance could also be dictated by news flow on new acquisition Limited (“DBS HK”) Thomson Reuters, HKEX as well as interest rate movements. All considered, we keep our HOLD call at this stage with DDM-based TP of HK$72.

At A Glance

Issued Capital (m shrs) 2,151 Mkt Cap (HK$m/US$m) 159,209 / 20,286 Major Shareholders (%) State Street Global Advisors Asia Ltd. 5.8 Capital Research Global Investors 5.4 APG Asset Management 5.3 Free Float (%) 83.5 3m Avg. Daily Val. (US$m) 44.8 ICB Industry: Financials / Real Estate Investment Trusts

ed-JS/ sa- CS /AH

HK Property Sector Link REIT

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Mar 2017A 2018A 2019F 2020F FY Mar 2017A 2018A 2019F 2020F Gross revenue 9,255 10,023 10,284 11,113 Fixed Assets 172,998 202,111 215,091 230,608 Property expenses (2,261) (2,360) (2,281) (2,371) Other LT Assets 1,677 1,791 1,791 1,791 Net Property Income 6,994 7,663 8,003 8,742 Cash & ST Invts 685 11,689 11,456 11,463 Other expenses (342) (417) (467) (509) Other Current Assets 580 813 823 833 Interest (Exp)/Inc (563) (646) (351) (598) Total Assets 175,940 216,404 229,161 244,696 Exceptionals 12,881 42,799 0 0 ST Debt 300 2,589 4,819 5,819 Pre-Tax Profit 18,970 49,399 7,185 7,635 Creditors 1,870 2,462 2,452 2,442 Tax (1,057) (1,420) (1,273) (1,352) Other Current Liab 1,876 2,174 2,204 2,234 Non-Controlling Interests (202) (218) 0 0 LT Debt 27,197 23,196 21,966 21,966 Net Profit 17,711 47,761 5,912 6,282 Other LT Liabilities 6,200 6,915 6,915 6,915 Distribution income 5,075 5,431 5,790 6,160 Non-Controlling Interests 256 474 474 474 Unitholders’ funds 138,241 178,594 190,331 204,846 Revenue Gth (%) 6 8 3 8 Total Capital 175,940 216,404 229,161 244,696 NPI Gth (%) 7 10 4 9 Share Capital (m) 2,213 2,175 2,150 2,150 Dist. Inc Growth (%) 10 7 7 6 Gross Debt (27,497) (25,785) (26,785) (27,785) DPU Growth (%) 11 9 8 6 Working Capital (2,781) 5,277 2,804 1,801 Book NAV (HK$) 62.47 82.11 88.53 95.28 Gross Gearing (%) 16 12 12 11

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Mar 2017A 2018A 2019F 2020F FY Mar 2017A 2018A 2019F 2020F Pre-Tax Income 18,970 49,399 7,185 7,635 Revenues (HK$ m) Tax Paid (858) (904) (1,273) (1,352) Retail and commercial 6,914 7,554 7,854 8,537 Depr/Amort 27 20 20 20 properties Car parks 1,940 2,046 1,992 2,123 Chg in Wkg.Cap. 243 (50) 10 10 Other revenues 401 423 438 453 Other Non-Cash (12,305) (41,980) (95) 368 Total 9,255 10,023 10,284 11,113 Operational CF 6,077 6,485 5,847 6,680 Net Capex 450 20,951 (625) (625) Assoc, MI, Invsmt (28) (12,864) (417) (417) Investment CF 422 8,087 (1,042) (1,042) Net Chg in Debt 928 (1,760) 1,000 1,000 Key Assumptions (%) 2018F 2019F New issues/Unit Buyback (1,697) (4,349) 0 0 Distribution Paid (4,898) (5,254) (5,627) (5,972) Other Financing CF (624) (599) (411) (658) Retail rental (High street shops) - HK 0 5 Financing CF (6,291) (11,962) (5,038) (5,630) Retail rental (Shopping centre) -HK 5 5 Chg in Cash 208 2,610 (234) 8

Source: Company, DBS HK

Page 107

HK Property Sector Prosperity REIT

Bloomberg: 808 HK | Reuters: 0808.HK Refer to important disclosures at the end of this report

BUY Steady progress Last Traded Price (6 Jul 2018): HK$3.16 (HSI : 28,316) Price Target 12-mth: HK$3.61 (14% upside) (Prev HK$3.72)  Good progress in securing replacement tenants for Canon Potential Catalyst: steady reversionbary growth  Growing exposure of commercial tenants at Where we differ: Market has higher DPU estimate for FY20. Prosperity Place over time Analyst  BUY with HK$3.61 TP Jeff YAU CFA, +852 2820 4912 [email protected] Good progress in securing replacement tenants for Canon. Ian CHUI +852 2971 1915 [email protected] Portfolio occupancy softened slightly to c.96% from Dec-17’s 97.7% mainly due to Canon’s departure in late Apr. Prosperity Jason LAM +852 29711773 REIT has been proactively searching for replacement tenants and [email protected] has subdivided one floor at Metropolis Tower that was previously occupied by Canon into smaller units. So far, about 50% of three Price Relative floors or 55,000sf of space surrendered by Canon has been re-let at slightly higher rents. Another floor is now under lease negotiation with a prospective tenant. About 46% of leases are scheduled for expiry in 2018. Prosperity REIT has concluded lease renewals with most of the larger tenants excluding Canon. Reversionary growth though still positive, is expected to moderate to 4-5% from FY17’s 7.6%.

Growing exposure of commercial tenants at Prosperity Forecasts and Valuation Place over time. At Prosperity Place, commercial tenants, which FY Dec (HK$ m) 2016A 2017A 2018F 2019F altogether occupy c.45% of floor area currently, are paying Gross Revenue 453 446 443 464 Net Property Inc 358 354 347 366 similar rents to office counterparts on high zone but have Net Profit 565 748 198 206 stronger reversionary growth. Therefore, Prosperity REIT intends Distribution Inc 258 262 263 273 to gradually increase the proportion of commercial tenants at this DPU (HK$) 0.18 0.18 0.18 0.18 DPU Gth (%) 1 0 (1) 2 conveniently located property over the long term. Prosperity REIT Div Yield (%) 5.6 5.6 5.6 5.8 is currently changing one chiller at each of Prosperity Millennia Gross Gearing (%) 26 21 21 21 Plaza and Prosperity Place, and renovating the washrooms for the Book Value (HK$) 5.17 5.48 5.54 5.60 remaining five floors at Metropolis Tower. This should enhance P/Book Value (x) 0.6 0.6 0.6 0.6 the long-term competitiveness of its property portfolio. Earnings Rev (%): Nil Nil Consensus DPU (HK$): 0.18 0.20 BUY with HK$3.61 TP. Prosperity REIT offers distribution yields Other Broker Recs: B:2 S:0 H:1 of 5.6-5.8% for FY18-19. Given its inexpensive valuation and ICB Industry: Financials steady distribution, we maintain our BUY call with DDM-based TP ICB Sector: REITs (HK) of HK$3.61. Principal Business: Leasing of office and industrial properties in Hong Kong At A Glance Source of all data on this page: Company, DBS Bank (Hong Kong) Issued Capital (m shrs) 1,477 Limited (“DBS HK”) Thomson Reuters, HKEX Mkt Cap (HK$m/US$m) 4,668 / 595 Major Shareholders (%) CK Asset Holdings Limited 18.6 Free Float (%) 81.4 3m Avg. Daily Val. (US$m) 0.5 ICB Industry: Financials / Real Estate Investment Trusts

ed-JS/ sa- CS /AH

HK Property Sector Prosperity REIT

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Gross revenue 453 446 443 464 Fixed Assets 10,183 10,490 10,700 10,914 Property expenses (95) (93) (96) (97) Other LT Assets 38 20 20 20 Net Property Income 358 354 347 366 Cash & ST Invts 74 363 354 349 Other expenses (69) (61) (63) (64) Other Current Assets 633 10 10 10 Interest (Exp)/Inc (76) (82) (46) (55) Total Assets 10,929 10,884 11,085 11,293 Exceptionals 391 577 0 0 ST Debt 20 0 0 0 Pre-Tax Profit 603 788 238 247 Creditors 213 186 189 191 Tax (38) (40) (41) (41) Other Current Liab 172 152 153 158 Non-Controlling Interests 0 0 0 0 LT Debt 2,833 2,304 2,304 2,304 Net Profit 565 748 198 206 Other LT Liabilities 176 188 201 214 Distribution income 258 262 263 273 Non-Controlling Interests 0 0 0 0 Unitholders’ funds 7,516 8,054 8,238 8,426 Revenue Gth (%) 3 (1) (1) 5 Total Capital 10,929 10,884 11,085 11,293 NPI Gth (%) 4 (1) (2) 6 Share Capital (m) 1,454 1,470 1,487 1,505 Dist. Inc Growth (%) 2 1 1 4 Gross Debt (2,890) (2,340) (2,340) (2,340) DPU Growth (%) 1 0 (1) 2 Working Capital 303 36 23 10 Book NAV (HK$) 5.17 5.48 5.54 5.60 Gross Gearing (%) 26 21 21 21

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Pre-Tax Income 603 788 238 247 Revenues (HK$ m) Tax Paid (24) (26) (28) (28) Rental income 370 366 358 377 Depr/Amort 0 0 0 0 Carpark income 27 28 30 31 Chg in Wkg.Cap. 1 4 2 2 Rental-related income 56 52 55 55 Other Non-Cash (262) (445) 98 109 Operational CF 318 322 311 329 Others Net Capex (13) 860 (12) (12) Total 453 446 443 464 Assoc, MI, Invsmt 0 5 3 3 Investment CF (13) 865 (9) (9) Net Chg in Debt 23 (550) 0 0 Key Assumptions (%) 2018F 2019F New issues/Unit Buyback 0 0 0 0 Distribution Paid (261) (261) (262) (268) Office rental - HK 5 3 Other Financing CF (59) (86) (49) (58) Financing CF (297) (897) (311) (326) Chg in Cash 9 290 (9) (5)

Source: Company, DBS HK

Page 109

HK Property Sector Regal REIT

Bloomberg: 1881 HK | Reuters: 1881.HK Refer to important disclosures at the end of this report

BUY Room to grow Last Traded Price (6 Jul 2018): HK$2.30 (HSI : 28,316) Price Target 12-mth: HK$2.61 (13% upside)  Hotel RevPAR headed higher

Potential Catalyst: Improving hotel makret  Potential acquisitions to spice up distributions Where we differ: n.a.  BUY with HK$2.61 TP Analyst Jeff YAU CFA, +852 2820 4912 [email protected] Hotel RevPAR headed higher. Aided by the revival of overnight visitor arrivals from Mainland China, Regal REIT’s hotels Ian CHUI+852 2971 1915 witnessed solid RevPAR growth of >10% in 4M18, mainly led by [email protected] higher room rates. The “Regal” branded hotels performed better Jason LAM +852 29711773 than “iclub” branded hotels. Given positive operating leverage, [email protected] we forecast gross operating profit from initial hotel portfolio to

be c.9% higher in FY18. As a result, initial hotel portfolio should Price Relative see remarkable growth in variable rents in addition to 2.5% increase in base rents. This, coupled with the full-year rental contributions from newly acquired iclub Ma Tau Wai Hotel, should more than offset the income shortfall from iclub Sheung Wan Hotel and iclub Fortress Hill Hotel, and increased cash finance costs. Potential acquisitions to spice up distributions. Its parent

Regal Hotels International, through P&R Holdings, is developing Forecasts and Valuation FY Dec (HK$ m) 2016A 2017A 2018F 2019F iclub Mongkok Hotel and iclub SoHo Hotel which are anticipated Gross Revenue 973 958 1,020 1,094 to open for business in 2019. They are located near Mongkok Net Property Inc 944 927 988 1,062 and Sheung Wan MTR stations, pointing to convenient Net Profit 564 2,488 493 514 Distribution Inc 502 472 486 510 transportation accessibility. Potential acquisitions of these two DPU (HK$) 0.15 0.15 0.15 0.16 limited service hotels could add spice to Regal REIT’s future DPU Gth (%) 0 (6) 3 5 distribution income. Div Yield (%) 6.7 6.3 6.5 6.8 Gross Gearing (%) 37 38 36 34 BUY with HK$2.61 TP. Regal REIT is trading at distribution Book Value (HK$) 4.13 4.75 5.19 5.52 yields of 6.5-6.8% for FY18-19. The new mega infrastructure P/Book Value (x) 0.6 0.5 0.4 0.4 projects including the Express Rail Link and Hong Kong-Zhuhai- Earnings Rev (%): Nil Nil Macau should improve the connectivity between Hong Kong and Consensus EPS (HK$): 0.15 0.16 Mainland China, and should stimulate the growth of inbound Other Broker Recs: B:2 S:0 H:0 tourism. This augurs well for Regal REIT’s growth prospects. ICB Industry: Financials Potential yield-accretive acquisitions could add to its investment ICB Sector: REITs (HK) appeal. BUY with HK$2.61 TP. With all debts on floating rate Principal Business: Owns and operates hotels in HK basis, interest rate hike remains the major investment risk. Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”) Thomson Reuters, HKEX At A Glance Issued Capital (m shrs) 3,257 Mkt Cap (HK$m/US$m) 7,492 / 955 Major Shareholders (%) Regal Hotels International Holdings Ltd 74.6 Nuveen LLC 10.5 Free Float (%) 14.9 3m Avg. Daily Val. (US$m) 0.2 ICB Industry: Financials / Real Estate Investment Trusts

ed-JS/ sa- CS /DL

HK Property Sector Regal REIT

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Gross revenue 973 958 1,020 1,094 Fixed Assets 21,632 25,136 26,558 27,670 Property expenses (30) (31) (32) (32) Other LT Assets 590 656 659 662 Net Property Income 944 927 988 1,062 Cash & ST Invts 122 102 113 134 Other expenses (115) (153) (129) (135) Other Current Assets 33 64 70 72 Interest (Exp)/Inc (235) (224) (248) (289) Total Assets 22,377 25,958 27,400 28,538 Exceptionals 91 2,044 0 0 ST Debt 170 2,823 2,603 1,625 Pre-Tax Profit 685 2,595 612 638 Creditors 62 99 99 99 Tax (121) (106) (119) (124) Other Current Liab 98 68 68 68 Non-Controlling Interests 0 0 0 0 LT Debt 8,104 6,931 7,150 8,128 Net Profit 564 2,488 493 514 Other LT Liabilities 505 553 589 626 Distribution income 502 472 486 510 Non-Controlling Interests 0 0 0 0 Unitholders’ funds 13,438 15,485 16,890 17,991 Revenue Gth (%) (3) (2) 6 7 Total Capital 22,377 25,958 27,400 28,538 NPI Gth (%) (3) (2) 7 7 Share Capital (m) 3,257 3,257 3,257 3,257 Dist. Inc Growth (%) 0 (6) 3 5 Gross Debt (8,274) (9,753) (9,753) (9,753) DPU Growth (%) 0 (6) 3 5 Working Capital (175) (2,824) (2,588) (1,587) Book NAV (HK$) 4.13 4.75 5.19 5.52 Gross Gearing (%) 37 38 36 34

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F Pre-Tax Income 685 2,595 612 638 Revenues (HK$ m) Tax Paid (75) (124) (83) (87) Rental revenue 940 923 983 1,055 Depr/Amort 8 9 9 9 Hotel revenue 34 35 37 39 Chg in Wkg.Cap. (18) 28 0 0 Total 973 958 1,020 1,094 Other Non-Cash (43) (2,015) (6) (2) Operational CF 556 493 531 558 Net Capex (62) (102) (49) (51) Assoc, MI, Invsmt (17) (1,364) 0 0 Investment CF (78) (1,467) (49) (51) Net Chg in Debt 45 1,452 0 0 Key Assumptions (%) 2018F 2019F New issues/Unit Buyback 0 0 0 0 Distribution Paid (502) (502) (472) (486) Hotel RevPAR 8 8 Other Financing CF 0 0 0 0 Financing CF (457) 950 (472) (486) Chg in Cash 21 (24) 10 21

Source: Company, DBS HK

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Bloomberg: 435 HK | Reuters: 0435.HK Refer to important disclosures at the end of this report

BUY Steady climb up Last Traded Price (6 Jul 2018): HK$5.29 (HSI : 28,316) Price Target 12-mth: HK$5.83 (10% upside) (Prev HK$5.70)  Rental operations in good shape  Still on the lookout for acquisitions Potential Catalyst: Steady rental reversion Where we differ: Market has slightly higher DPU estimate for FY18-19.  BUY with HK$5.83 TP

Analyst Rental operations in good shape. Spot rents at its office Jeff YAU CFA, +852 2820 4912 [email protected] flagship, Sunlight Tower in Wan Chai, currently stand at c.HK$41psf, above expiring rents. This should sustain its healthy Ian CHUI+852 2971 1915 rental reversion of 8-10%. Its Sheung Wan portfolio remains [email protected] Jason LAM +852 29711773 the preferred choice among those seeking affordable office accommodation with steady rental reversion of 5-10% [email protected] expected. Chong Hing Bank will decide whether or not to exercise the option of renewing its office lease for Fung Shun Price Relative Commercial Building in Mongkok shortly. The introduction of pop up stores and recruitment of new trades or tenants have enriched the retail offering at Sheung Shui Centre Shopping Arcade which is benefitting from the recovery of cross border spending. Metro City Ph I property which serves the daily needs of residents nearby should continue to register steadily rising passing rents. Sunlight REIT has completed the replacement of chiller plants at Metro City Ph 1 property costing HK$16m with estimated ROI of >10%. Forecasts and Valuation FY Jun (HK$ m) 2016A 2017A 2018F 2019F Still on the lookout for acquisitions. In Feb 18, Sunlight REIT Gross Revenue 770 788 822 865 entered into 3-year interest rate swap arrangement for a Net Property Inc 608 623 648 683 notional amount of HK$300m, bringing the hedging ratio to Net Profit 825 744 473 419 over 70%. There is HK$1.25bn worth of interest rate swaps Distribution Inc 398 540 444 455 DPU (HK$) 0.24 0.33 0.27 0.28 expiring before the end of 2018. Sunlight REIT is contemplating DPU Gth (%) 10 36 (18) 2 the appropriate hedging ratio. With gearing at a low of 22%, Div Yield (%) 4.6 6.2 5.1 5.2 Sunlight REIT is exploring acquisition opportunities in the Gross Gearing (%) 22 21 22 21 commercial market. Book Value (HK$) 8.26 8.49 8.93 9.21 P/Book Value (x) 0.6 0.6 0.6 0.6 BUY with HK$5.83 TP. Sunlight REIT offers distribution yields of 5.1-5.2% for FY18-19. In view of its steady distribution growth, Earnings Rev (%): 0 (1) we maintain our BUY call with DDM-based TP of HK$5.83. Consensus DPU (HK$): 0.28 0.29 Other Broker Recs: B:2 S:0 H:0 At A Glance ICB Industry: Financials Issued Capital (m shrs) 1,645 ICB Sector: REITs (HK) Mkt Cap (HK$m/US$m) 8,703 / 1,109 Principal Business: Leasing of office and retail properties in Hong Kong Major Shareholders (%) Source of all data on this page: Company, DBS Bank (Hong Kong) Shau Kee Financial Enterprise Ltd. 22.7 Limited (“DBS HK”) Thomson Reuters, HKEX Silchester International Investors, L.L.P. 15.7 Henderson Land Development Co Ltd 8.7 Henderson Sunlight Asset Management Limited 7.7 Free Float (%) 45.2 3m Avg. Daily Val. (US$m) 0.3 ICB Industry: Financials / Real Estate Investment Trusts

ed-JS/ sa- CS /AH

HK Property Sector Sunlight REIT

Income Statement (HK$ m) Balance Sheet (HK$ m) FY Jun 2016A 2017A 2018F 2019F FY Jun 2016A 2017A 2018F 2019F Gross revenue 770 788 822 865 Fixed Assets 16,651 17,062 18,614 19,161 Property expenses (161) (165) (174) (181) Other LT Assets 105 108 108 108 Net Property Income 608 623 648 683 Cash & ST Invts 1,135 1,086 666 659 Other expenses (98) (100) (105) (110) Other Current Assets 34 41 41 41 Interest (Exp)/Inc (119) (96) (62) (80) Total Assets 17,925 18,298 19,430 19,969 Exceptionals 504 384 62 0 ST Debt 0 0 0 600 Pre-Tax Profit 894 812 542 493 Creditors 69 63 63 63 Tax (69) (68) (69) (74) Other Current Liab 276 279 284 289 Non-Controlling Interests 0 0 0 0 LT Debt 3,896 3,902 4,227 3,627 Net Profit 825 744 473 419 Other LT Liabilities 166 154 154 154 Distribution income 398 540 444 455 Non-Controlling Interests 0 0 0 0 Unitholders’ funds 13,518 13,899 14,701 15,236 Revenue Gth (%) 2 2 4 5 Total Capital 17,925 18,298 19,430 19,969 NPI Gth (%) 4 2 4 5 Share Capital (m) 1,636 1,638 1,646 1,655 Dist. Inc Growth (%) 11 36 (18) 2 Gross Debt (3,896) (3,902) (4,227) (4,227) DPU Growth (%) 10 36 (18) 2 Working Capital 824 784 360 (252) Book NAV (HK$) 8.26 8.49 8.93 9.21 Gross Gearing (%) 22 21 22 21

Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions FY Jun 2016A 2017A 2018F 2019F FY Jun 2016A 2017A 2018F 2019F Pre-Tax Income 894 812 542 493 Revenues (HK$ m) Tax Paid 81 (64) (69) (74) Rental income 618 634 655 690 Depr/Amort 0 0 0 0 Carpark income 29 31 34 36 Chg in Wkg.Cap. (139) 13 5 5 Rental-related income 123 123 133 139 Other Non-Cash (341) (244) 46 128 Total 770 788 822 865 Operational CF 496 517 524 553 Net Capex 791 (34) (654) (30) Assoc, MI, Invsmt (68) 147 11 12 Investment CF 723 114 (643) (18) Net Chg in Debt (32) 0 325 0 Key Assumptions (%) 2018F 2019F New issues/Unit Buyback (55) (36) 0 0 Distribution Paid (385) (401) (552) (449) Office rental - HK 5 3 Other Financing CF (90) (106) (74) (92) Retail rental (High street shops) - HK 0 5 Financing CF (562) (543) (301) (542) Retail rental (Shopping centre) - HK 5 5 Chg in Cash 657 87 (420) (7)

Source: Company, DBS HK

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DBS HK recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 18 Jul 2018 09:29:38 (HKT) Dissemination Date: 18 Jul 2018 18:45:43 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

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ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in CK Asset Holdings (1113 HK), Henderson Land Development Company Limited (12 HK), Mtr Corporation Limited (66 HK), New World Development Company Limited (17 HK), Sino Land Company Limited (83 HK), Sun Hung Kai Properties Limited (16 HK), The Wharf Holdings Limited (4 HK), Fortune Real Estate Investment Trust (778 HK), Langham Hospitality Investment Limited (1270 HK), Link Real Estate Investment Trust (823 HK) and Prosperity Real Estate Investment Trust (808 HK) recommended in this report as of 16 Jul 2018.

DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in Hongkong Land Holdings Limited (HKL SP) recommended in this report as of 30 Jun 2018.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in Fortune Real Estate Investment Trust (778 HK), Langham Hospitality Investment Limited (1270 HK) and Prosperity Real Estate Investment Trust (808 HK) recommended in this report as of 16 Jul 2018.

4. DBS Bank Ltd, DBS HK, DBSVS, DBS Vickers Securities (USA) Inc (“DBSVUSA”), or their subsidiaries and/or other affiliates beneficially own a total of 1% of the issuer's market capitalization of Fortune Real Estate Investment Trust (778 HK) and Langham Hospitality Investment Limited (1270 HK) as of 16 Jul 2018. 5. Compensation for investment banking services: DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Csi Properties Limited (497 HK), Lai Sun Development Company Limited (488 HK), Mtr Corporation Limited (66 HK), Wharf REIC (1997 HK), Far East Consortium International Limited (35 HK), Champion Real Estate Investment Trust (2778 HK), Link Real Estate Investment Trust (823 HK), China Overseas Land & Investment Limited (688 HK) and Regal Hotels International Holdings Limited (78 HK) as of 30 Jun 2018.

6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Csi Properties Limited (497 HK), Wharf REIC (1997 HK), Far East Consortium International Limited (35 HK), Champion Real Estate Investment Trust (2778 HK) and China Overseas Land & Investment Limited (688 HK) in the past 12 months, as of 30 Jun 2018.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

7. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946. DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. United This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority

Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, International Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

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United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. United States This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank (Hong Kong) Limited 18th Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong Tel: (852) 2820-4888, Fax: (852) 2521-1812

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DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS Bank (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 2820 4888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2521 1812 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] e-mail: [email protected] Company Regn. No. 196800306E

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

At a Glance

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