04 June 2015 Asia Pacific/Hong Kong Equity Research Real Estate Management & Development

Cheung Kong Property

(1113.HK / 1113 HK) Rating OUTPERFORM* [V] Price (03 Jun 15, HK$) 74.10 INITIATION Target price (HK$) 86.00¹ Upside/downside (%) 16.1 Mkt cap (HK$ mn) 286,002 (US$36,887) Property giant with quality Enterprise value (HK$ mn) 333,663 Number of shares (mn) 3,859.68 Free float (%) 69.8 ■ We initiate coverage on CKP with an OUTPERFORM rating and HK$86 52-week price range 74.1 - 74.1 target price (16% potential upside), based on 21% target discount to FY15E ADTO - 6M (US$ mn) 832.5 NAV of HK$109.1/share – narrower than the current sector average of 32%. *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. CKP is one of the largest property companies in the world in terms of NAV and ¹Target price is for 12 months. market cap. 27% of CKP's assets are in HK investment properties (IP), and it [V] = Stock considered volatile (see Disclosure Appendix). is the second-largest Central office landlord. While the sector is currently on Research Analysts an upcycle, CKP has more upside than its peers, in our view, given the room Joyce Kwock for NAV accretion via upgrade, redevelopment or divestment of its Central 852 2101 7496 [email protected] office portfolio. Jinsong Du ■ CKP in China warrants a narrower discount to NAV. According to the 852 2101 6589 [email protected] updated proprietary study by Credit Suisse on HK developers in China, first published in January 2014, CKP stands out from HK peers, as its property exposure in China is heavily geared towards development properties (DP), which deserve a narrower discount. It also stands out from its China peers given its lower fundraising risk and margin volatility, while it has an equally long-established track record and geographical diversity in its China operation. ■ 17% IRR from HK$10 bn annual landbanking in HK. With low gearing and strong recurring income base, as well as its absence from the land sale market in HK for the past 2.5 years, CKP is ready to gear itself to replenish its landbank. By spending HK$10 bn per year on landbanking to regain its market share in HK, 17% IRR can be generated—assuming a 25% margin. ■ Investment risks. The key risks to our view are: (1) the interest rate trend that drives the cap rate and the HK residential market's sentiment and (2) the volatility of China property market driven by economy and policies.

Share price performance Financial and valuation metrics

Year 12/14A 12/15E 12/16E 12/17E Price (LHS) Rebased Rel (RHS) Revenue (HK$ mn) 46,606.0 64,929.2 77,956.0 90,742.3 10 120 EBITDA (HK$ mn) 20,974.0 26,156.8 35,575.3 37,762.2 8 110 EBIT (HK$ mn) 20,345.0 25,527.8 34,946.3 37,133.2 100 Net attributable profit (HK$ mn) 19,304.0 21,844.4 25,988.1 27,648.8 6 90 EPS (CS adj.) (HK$) 5.00 5.66 6.73 7.16 4 80 Change from previous EPS (%) n.a. Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Consensus EPS (HK$) n.a. — — — The price relative chart measures performance against the EPS growth (%) n.a. 13.2 19.0 6.4 HANG SENG INDEX which closed at 27657.47 on 03/06/15 P/E (x) 14.8 13.1 11.0 10.3 On 03/06/15 the spot exchange rate was HK$7.75/US$1 Dividend yield (%) 3.4 3.8 4.5 4.8 EV/EBITDA (x) 12.9 12.8 9.7 9.2 Performance over 1M 3M 12M ROE (%) 8.7 9.0 9.7 9.9 Absolute (%) 2.3 13.0 26.2 Net debt/equity (%) Net cash 18.0 21.3 20.9

Relative (%) 3.9 -1.4 7.4 NAV per share (HK$) — 109 — —

Disc./(prem.) to NAV (%) — 32.1 — — Source: Company data, Thomson Reuters, Credit Suisse estimates.

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access

04 June 2015 Focus charts and tables

Figure 1: Breakdown of HK$420 bn property valuation by Figure 2: CKP is the 2nd largest office landlord in geography as at 28 February 2015 Central—and the Central office is on an up-cycle now 6.0 5.2 Overseas 5.0 HK$13bn 3% 4.0 China 3.2 HK$138bn 33% 3.0 2.2 1.9 Hong Kong 2.0 1.6 HK$269bn 64% 1.0

0.0 HK Land CKP Swire SHKP / Champion REIT Henderson

Source: Company data Source: Company data, Credit Suisse estimates Note: The chart illustrates the Central office portfolio GFA in mn sq ft, by the major Central office landlords

Figure 3: CKP deserves a narrower discount to its HK Figure 4: CKP's landbanking history in China—lower fund- peers, with its substantial exposure to China business raising and inventory risks, and profit margin volatility 25.0 avg land cost 120 Most aggressive at only RMB 19.7 landbanking in 20.0 238psf 100 17.4 2004- 2007 80 15.0 11.7 10.2 60 10.0 early landbanking 6.6 5.5 history 40 5.0 3.4 20 0.0

0

CKP

NWD

Kerry Wharf

SHKP 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 HKLand

Henderson Total landbank balance New land acquisitions during the year

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Note: the chart illustrates development landbank in China in mn sq m, by major HK property companies

Figure 5: 17% IRR for CKP's HK$10 bn landbanking in HK Figure 6: CKP's major earnings contributor and growth driver is property sales; a comparison with SHKP (in HK$mn) Year 0 Year 1 Year 2 Year 3 (EBIT HK$mn) 3Y (2015-17E) 5Y (2015-19E) Sales Proceeds 0 0 18,182 4,545 Property Sales as % of total CAGR as % of total CAGR Land cost -10,000 0 0 0 CKP 71% 35% 74% 27% SHKP 56% 32% 64% 29% Construction cost 0 -2,121 -2,121 -2,121 Property rental Financing cost 0 -800 -200 0 CKP 21% 13% 18% 12% Marketing cost and others 0 0 -818 0 SHKP 40% 2% 33% 2% Cashflow -10,000 -2,921 15,042 2,424 Hotel operation Discounted cashflow -10,000 -2,730 13,139 1,979 CKP 9% 9% 8% 7% NAV accretion 2,387 SHKP 4% 10% 4% 8% IRR 17% Total CKP 100% 23% 100% 19% SHKP 100% 18% 100% 17% Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 2 04 June 2015 Property giant with quality More upside than other Central office landlords CKP is one of the largest property companies in Hong Kong-China and globally in terms of CKP is one of the largest net asset value (NAV) and market cap. It has a leading market share in Hong Kong, strong property companies in Hong penetration in China, and projects in Singapore and the UK. CKP has a HK$420 bn Kong-China and globally in property portfolio, and stakes in listed REITs that are worth HK$16 bn. terms of net asset value (NAV) and market cap. It 27% of CKP's assets are in HK investment properties, including four Grade-A office has a HK$420 bn property buildings located in Central, making CKP the second-largest Central office landlord after portfolio, and stakes in listed Hongkong Land. While the sector is currently on an upcycle, CKP has more upside than REITs that are worth HK$16 its peers, given the potential for NAV accretion via asset enhancement initiatives (AEI), bn. redevelopment or the divestment of Hutchison House and China Building. We assign a 15% target discount to CKP's HK IP while deriving our SOTP-based target price. CKP in China warrants a narrower discount to NAV CKP has been in the China property business since the 1980s and has approximately 210 mn According to our updated sq ft landbank in the country. The company stands out from HK peers, as its property proprietary study on Hong exposure in China is heavily geared towards DP, which deserves a narrower discount. Kong developers in China, CKP has an early According to the updated proprietary study by Credit Suisse on Hong Kong developers in landbanking history in China China, first published in January 2014, CKP has an early landbanking history in China since 2001, and the average since 2001, and the average land cost is only Rmb238 psf—this also warrants CKP a land cost is only Rmb238 stronger holding power against cyclicality. CKP also has virtually no fundraising risk, given psf its strong balance sheet. We assign a 20% target discount to CKP's China property assets, while deriving our SOTP-based target price. Plans to spend HK$10 bn in HK land sale market According to the CS proprietary study on residential supply analysis, first published in We believe CKP will resume November 2014, CKP was almost absent from the land sale market in Hong Kong since its substantial market share 2013 by having only acquired a land site that provided 845 units, and having only 2% in the land sale market by market share since then, versus SHKP, which snapped up over 22,000 units or 23% of the spending HK$10 bn per landbank during the period. year, with an IRR of 17%, assuming a 25% margin. We believe CKP will resume its substantial market share in the land sale market by spending HK$10 bn per year, with an IRR of 17%, assuming a 25% margin. We assign a 25% target discount to CKP's HK DP assets while deriving our target price. Initiate with OUTPERFORM We initiate coverage on CKP with an OUTPERFORM rating and target price of HK$86.00, We initiate coverage on implying 16% potential upside to the current share price; based on 21% target discount to CKP with an FY15E NAV of HK$109.1/share. This target discount is narrower than the HK property OUTPERFORM rating and sector average of 32%, primarily driven by the narrower discounts applied to: (1) China DP target price of HK$86, and (2) Hong Kong IP. based on 21% target discount to FY15E NAV of Catalysts include: (1) strong imminent launching pipeline in Hong Kong in 3Q15; (2) HK$109.1/share. prominent presence in the land sale market in Hong Kong; (3) project launch at Chelsea UK in 4Q15+; (4) share purchase by CKP Chairman K.S. Li. Investment risks include: (1) interest rate outlook that drives cap rate trends and sentiment of HK residential market; (2) volatility of China property market driven by the economy and policies.

Cheung Kong Property (1113.HK / 1113 HK) 3 04 June 2015 Key financials

Figure 7: CKP—profit and loss forecasts 2014A 2015E 2016E 2017E 2018E 2019E (Pro-forma) (Pro-forma) Property Sales 33,679 51,650 64,165 76,585 79,514 90,455 Property rental 6,821 7,040 7,229 7,390 7,391 7,392 Hotel and serviced apartments 5,564 5,670 5,964 6,140 6,498 6,535 Property and project management 542 569 598 627 659 692 Revenue from subsidiaries 46,606 64,929 77,956 90,742 94,061 105,074 Property Sales 10,602 15,192 24,188 26,019 30,698 35,443 Property rental 6,002 6,219 6,378 6,520 6,521 6,522 Hotel and serviced apartments 2,185 2,484 2,666 2,793 3,015 3,077 Property and project management 175 184 193 203 213 223 Operating Profit from subsidiaries 18,964 24,078 33,424 35,535 40,447 45,265 Investment and other income 1,381 1,450 1,523 1,599 1,679 1,763 Interest and finance cost -2,360 -1,720 -1,720 -1,720 -1,720 -1,720 Disposal gains/losses 5,181 0 0 0 0 0 Other expenses -103 -108 -114 -119 -125 -131 Share of net profit of associates & JV 1,045 3,546 426 434 443 451 PBT 24,108 27,246 33,539 35,728 40,723 45,628 Taxation -3,739 -4,683 -6,923 -7,478 -9,053 -9,979 MI -1,065 -719 -628 -602 -1,160 -4,219 Core profits attrib. to shareholders 19,304 21,845 25,988 27,649 30,510 31,429 Net effect of property reval. 33,683 0 0 0 0 0 Reported profits 52,987 21,845 25,989 27,649 30,510 31,429 Core EPS 5.0 5.7 6.7 7.2 7.9 8.1 Reported EPS 13.7 5.7 6.7 7.2 7.9 8.1 DPS 2.5 2.8 3.4 3.6 4.0 4.1 Dividend-payout ratio 50% 50% 50% 50% 50% 50% Source: Company data, Credit Suisse estimates

Figure 8: CKP—FY15E NAV breakdown and sum-of-the-parts target price HK$ mn HK$/share % of GAV Target discount Target Price Development properties 237,954 61.7 52% 21% 48.5 - HK 105,829 27.4 23% 25% 20.6 - China 121,835 31.6 26% 20% 25.3 - Others 10,290 2.7 2% 0% 2.7 Investment Properties 135,968 35.2 30% 15% 29.8 - HK 125,365 32.5 27% 15% 27.6 - China and others 10,603 2.7 2% 20% 2.2 Hotel / service suites 70,127 18.2 15% 20% 14.5 - HK 68,176 17.7 15% 20% 14.1 - China and others 1,951 0.5 0% 30% 0.4 Interests in REITs 16,389 4.2 4% 20% 3.4 - Fortune REIT 4,126 1.1 1% 20% 0.9 - Prosperity REIT 777 0.2 0% 20% 0.2 - Hui Xian REIT 10,812 2.8 2% 20% 2.2 - ARA Asset Mgt 674 0.2 0% 20% 0.1 GAV 460,438 119.3 100% 19% 96.2 Net debt -39,400 -10.2 -9% 0% -10.2 NAV 421,038 109.1 21% 86.0 Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 4 04 June 2015

Sector valuation summary

Figure 9: Valuation summary—HK Property sector under Credit Suisse coverage Company RIC Rat- Mkt Daily Share Target +/- FY15 (Disc)/ Avg Core PE (x) Yield P/B Net ing cap T/O price price NAV Prem Disc (%) (x) gearing (US$ bn) (US$ mn) ($) ($) (%) ($/sh) (%) (%) FY15 FY16 FY17 FY15 FY15 FY15 Hong Kong - Developers Cheung Kong Prop 1113.HK O 37 100 74.1 86.0 16% 109.1 -32% n.a. 13 11 10 3.8% 1.08 18% Sun Hung Kai Prop 0016.HK O 50 70 134.0 152.3 14% 205.8 -35% -14% 17 13 12 2.4% 0.83 10% Henderson Land 0012.HK O 24 28 63.3 68.3 8% 89.9 -30% -21% 19 19 18 1.7% 0.79 net cash New World Dev 0017.HK N 11 8 42.7 43.1 1% 56.9 -25% -33% 8 9 9 2.5% 0.43 27% Wheelock 0020.HK O 12 30 10.5 10.4 -2% 19.9 -47% -49% 13 12 13 4.0% 0.55 27% Sino Land 0083.HK O 10 9 13.3 15.6 17% 23.0 -42% -30% 16 15 13 3.8% 0.71 net cash Kerry Prop 0683.HK O 6 9 33.3 33.2 0% 69.2 -52% -33% 13 11 7 2.5% 0.59 24% Hong Kong - Investors / REITs 21 20 20 Wharf 0004.HK N 21 54 54.5 62.0 14% 100.0 -46% -32% 14 13 15 3.3% 0.53 19% Swire Properties 1972.HK N 20 11 26.6 27.4 3% 33.8 -21% -32% 22 22 21 2.4% 0.73 17% Hongkong Land (US$) HKLD.SI O 21 19 8.7 9.7 11% 12.1 -28% -21% 23 26 22 2.1% 0.74 9% Hang Lung Props 0101.HK N 14 26 24.6 25.0 2% 34.7 -29% -20% 18 19 23 3.0% 0.82 net cash Link REIT 0823.HK U 14 41 45.7 39.9 -13% 41.7 10% 16% 29 23 22 3.8% 1.09 7% Hysan 0014.HK U 5 9 35.5 29.6 -17% 61.6 -42% -33% 16 15 15 3.7% 0.56 3% Hopewell Holdings 0054.HK O 3 2 30.1 34.9 16% 49.9 -40% -40% 21 14 18 3.7% 0.62 4% Champion REIT 2778.HK O 3 4 4.5 4.9 8% 7.0 -35% -42% 27 26 25 3.9% 0.56 28% Great Eagle 0041.HK U 2 2 29.5 21.9 -26% 73.0 -60% -43% 10 10 10 2.5% 0.36 24% Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 5 04 June 2015 More upside than other Central office landlords The second-largest office landlord in Central CKP owns 57 rental properties in Hong Kong, four of which are Grade-A office buildings With 3.2 mn sq ft of Central located in Central—namely Cheung Kong Center, The Center, Hutchison House and office portfolio on hand, China Building—accounting for 3.2 mn sq ft GFA and HK$58 bn of valuation as at CKP is the second largest February 2015 or half of its IP portfolio already. office landlord in Central With 3.2 mn sq ft of Central office portfolio on hand, CKP is the second largest office landlord in Central, just after Hongkong Land (5.2 mn sq ft GFA) and has a bigger presence in Central than the SHKP-Henderson Consortium that owns One & Two IFC (est. 1.9 mn sq ft GFA), Swire Properties (est. 2.2 mn sq ft GFA) and Champion REIT (est. 1.6 mn sq ft GFA).

Figure 10: CKP is the 2nd largest office landlord in Central, which is currently on an up- cycle (GFA: mn sq ft) 6.0 5.2 5.0

4.0 3.2 3.0 2.2 1.9 2.0 1.6

1.0

0.0 HK Land CKP Swire SHKP / Champion REIT Henderson

Source: Company data, Credit Suisse estimates

Figure 11: Half of CKP's IP portfolio is Central office properties (in terms of property valuation), making it the best alternative to Central office landlords, which have had a strong run YTD Property Usage GFA (sq ft) DTZ DTZ Monthly Monthly DTZ DTZ passing occupancy passing rent passing rent valuation valuation cap rate rate (HK$ mn) (HK$/psf) (HK$ mn) (HK$psf) The Center Office 1,218,162 4.9% 97.0% 69.8 57.3 17,735 14,559 Hutchison House Office 503,723 5.0% 94.0% 30.3 60.2 7,772 15,430 Cheung Kong Center Office 1,263,371 5.7% 98.0% 126.1 99.8 27,000 21,371 China Building Office 258,756 5.1% 94.0% 22.3 86.2 5,531 21,375 Central office 3,244,011 5.1% 96.7% 248.5 76.6 58,038 17,890 Other IPs 10,558,745 59,729 5,657 Total IPs 13,802,756 117,767 8,532 Source: Company data, DTZ, Credit Suisse estimates Central office is on an up-cycle now Central office market has started its recovery mildly in 2014 and is now at the stage of rental boom. The strong stock market turnover has been boosting the leasing momentum in Central office. YTD, the average daily turnover of Hong Kong stock market has been up 75% YoY, thanks to the strong southbound liquidity into Hong Kong. Central office leasing activity has a high correlation to the stock market activity.

Cheung Kong Property (1113.HK / 1113 HK) 6 04 June 2015

According to JLL, Central vacancy dropped further to 2.5% by the end of April 2015—the lowest level since the global financial crisis, driven by the robust leasing demand from Chinese banks and financial institutions, which accounted for over 20% of the take-up in April. Given its high sensitivity to vacancy rate, office rent has registered a robust growth of +1.3% QoQ. We expect the rents at the mid-end market to grow more obviously at the mid stage of recovery, following the uptrend in the top-end market since 2014, which has already recorded double-digit growth in rents.

Figure 12: Central office vacancy—dropped to 5Y low Figure 13: Trend of Central office rent—going into a upon higher financial industry activities booming stage in 2015, according to CS forecast

6.0% 140 CS 2015 est.+15% 2.5% as of since 4Q13 +4% 5.0% 120 Apr-15 +60% 100 -17% 4.0% +548% -43% 80 3.0% 60 -57% +78 2.0% 40 -63%

1.0% 20

0

0.0%

Dec-00 Dec-03 Dec-11 Dec-14 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-01 Dec-02 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-12 Dec-13 Dec-15

Jun-08 Jun-11 Jun-14 Jun-07 Jun-09 Jun-10 Jun-12 Jun-13 Jun-15

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-07 Source: JLL data, Credit Suisse estimates Source: JLL data, Credit Suisse estimates More upside than other Central office landlords: Room for upgrade or even re-development China Building

Figure 14: China Building Figure 15: China Building is leasing at 28% below LHT Tower

IFC

The Center

Exchange Square

LHT Tower China Building The Landmark Hutchison House

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research China Building is one of the landmarks in Central since its first generation completed in 1924. Hutchison Whampoa bought and redeveloped the building in 1978 and Cheung Kong was headquartered there before the completion of Cheung Kong Center in 1999. Office space in China Building is currently leasing at HK$72/sq ft/mth (spot rent), which is 28% below the HK$100/sq ft/mth of the neighbouring LHT Tower (completed in 2011) and 45% below the HK$130/sq ft/mth of CCB Tower (completed in 2012).

Cheung Kong Property (1113.HK / 1113 HK) 7 04 June 2015

We see potential for CKP to renovate, or even divest the property, so as to capture a rental uplift of 80% to HK$130/sq ft/mth, which is the rent currently fetched by York House and Charter House. Hutchison House

Figure 16: Hutchison House (red box) located at the Figure 17: Hutchison House is next to CCB Tower and AIA seafront Central but leasing at 45% lower than the two

IFC

Exchange Square

CCB Tower AIA Central Hutchison House The Landmark

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research Hutchison House is a 24-storey Grade A office building in Central, offering a total GFA of 503,723 sq ft of office and retail space. The building houses the headquarters of Hutchison Whampoa and many other financial institutions and MNCs. Completed in 1974, Hutchison House was granted the approval on the building plan to re- develop it into a 41-storey building in 2008 and 2012. With the total GFA the same as before, the newer and taller building is expected to charge a much higher rental rate, given more office area would be able to enjoy the panoramic view as well as the improvement to the office quality. Currently, the passing rent in Hutchison House is HK$78/sq ft/mth. it is expected to rise to at least HK$130/sq ft/mth— the level of the neighbouring CCB Tower. Unique IP portfolio compared with other developers Compared with the major developer peers in Hong Kong, such as Henderson Land, SHKP and Sino Land, CKP's IP portfolio: (1) is smaller in value; (2) has higher concentration in the few key properties; and (3) has higher concentration in prime and sizeable office buildings in Central. CKP has disposed of most of its non-core investment properties to listed REITs, namely Fortune REIT for the retail properties, and Prosperity REIT for office properties. We see possibilities of further disposals of investment properties into the listed REITs, including those completed properties currently on CKP's balance sheet, and those currently under development as part of the mixed-use residential projects owned by CKP. 15% target discount for CKP's IP assets We assign a target discount of 15% to CKP's IP portfolio in Hong Kong in the SOTP target discount calculation, vs the target discount of 20% that we apply to Hongkong Land and Swire Properties.

Cheung Kong Property (1113.HK / 1113 HK) 8 04 June 2015

While the detailed analysis on CKP's IP portfolio is done in the previous sections, we believe:

■ Positive datapoints on Central office sector (on rent and vacancy rate) should be a positive to CKP, as it is the second largest office landlord in Central

■ Central office landlords are currently trading at an average 25% discount to NAV

■ On top of that, we see more room for NAV growth for Cheung Kong's Central office portfolio, given the ample AEI, redevelopment or even divestment potentials with Hutchison House and China Building in Central.

■ We also see room for NAV accretion for other major IPs owned by CKP - Divestment of other non-core properties to REITs at a premium valuation - Conversion of Hutchison Logistics Centre

Figure 18: Central office landlords trading at an weighted average of 26% discount to NAV (while we apply 20% target discount to Hongkong Land and Swire Properties) Company RIC Share Target NAV BVPS Target Current Current price price discount discount P/B Hongkong Land HKLD.SI 8.7 9.7 12.1 11.7 -20% -28% 0.74 Swire Properties 1972.HK 26.6 27.4 33.8 36.0 -19% -21% 0.73 Champion REIT 2778.HK 4.5 4.9 7.0 8.2 -30% -35% 0.56 Source: Company data, Credit Suisse estimates

Figure 19: Valuation table for HK office landlords and other landlords Company RIC Rating Share Target +/- Mkt Avg daily FY15 (Disc)/ Core Yield P/B Net price price cap T/O NAV Prem P/E (x) (%) (x) gearing ($) ($) (%) (US$ bn) (US$ mn) ($/sh) (%) FY15 FY16 FY17 FY15 FY15 FY15 CKP 1113.HK O 74.1 86.0 16% 36.9 n.a. 109.1 -32% 13 11 10 3.8% 1.08 18% Hong Kong – Office Landlords 7% 44.0 4.2 -25% 23 24 15 0.72 Swire Properties 1972.HK N 26.6 27.4 3% 20.1 8.3 33.8 -21% 22 22 7 2.4% 0.73 17% Hongkong Land (US$) HKLD.SI O 8.7 9.7 11% 20.6 1.7 12.1 -28% 23 26 22 2.1% 0.74 9% Champion REIT 2778.HK O 4.5 4.9 8% 3.3 2.5 7.0 -35% 27 26 25 3.9% 0.56 28% Hong Kong – Other Landlords 1% 59.7 17.8 -29% 19 17 18 0.72 Wharf 0004.HK N 54.3 62.0 14% 21.2 41.1 100.0 -46% 14 13 15 3.3% 0.53 19% Hang Lung Props 0101.HK N 24.6 25.0 2% 14.2 18.1 34.7 -29% 18 19 23 3.1% 0.82 net cash Link REIT 0823.HK U 45.6 39.9 -12% 13.5 37.2 41.7 9% 29 23 22 3.9% 1.09 7% Hysan 0014.HK U 35.6 29.6 -17% 4.9 6.9 61.6 -42% 16 16 15 3.7% 0.56 3% Hopewell Holdings 0054.HK O 30.6 34.9 14% 3.4 2.1 49.9 -39% 22 14 18 3.6% 0.63 4% Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 9 04 June 2015 CKP in China warrants a narrower discount to NAV Early landbanking history in China CKP has been in the PRC business since the 1980s and has ~210 mn sq ft landbank in China. CKP stands out from HK peers as its property exposure in China (28% of GAV) is heavily geared towards DP, which deserves a narrower discount. According to the updated proprietary study by Credit Suisse on Hong Kong developers in China first published in January 2013, CKP has an early landbanking history in China since 2001, and the average land cost is only Rmb238 psf—and this also warrants CKP a stronger holding power against cyclicality. An early landbanking history in China: Lower land cost, less margin volatility and lower risk on impairment provision Landbanking in China by Hong Kong developers, including CKP, has a number of characteristics:

■ Early presence prior to 2006: This applies particularly well to Cheung Kong/Hutch group, followed by Wharf (especially in 2006) and Kerry.

■ Most aggressive banking in 2007: This includes SHKP, Henderson, Kerry, New World, Wharf and Sino.

■ Slowed landbanking during 2008-09, along with the economic slowdown in China and globally. Exceptions were Henderson Land and Wharf, which remained active in landbanking during the period.

■ Selective landbanking during 2010-11: This applies to all HK developers in general.

■ Not much participation during 2012-14: despite a hot land sale market in China bidded up by the local developers.

Figure 20: New landbank acquisition by HK developers in China (mn sq ft) 300

250 HLP 200 Wharf Kerry 150 NWD Cheung Kong 100 SHKP 50 Henderson Land

0 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Company data, Credit Suisse estimates HK developers started landbanking much earlier than their China peers Some of the HK developers started nearly ten years ago. This might lead to, in our view: (1) Much lower land costs; (2) High holding power; (3) Higher LAT payable, when these are developed, sold and completed; (4) Balance sheet tied to the idle landbank.

Cheung Kong Property (1113.HK / 1113 HK) 10 04 June 2015

HK developers have been quite selective in landbanking, especially since 2012 Given the ample landbank on hand, HK developers, compared with their China peers, were much more selective in landbanking in 2012 and 2013. As much of the land acquired in 2012 and 2013 will be launched for pre-sale in 2015, the margin difference between HK developers and China peers will be more evident in 2015.

Figure 21: Early landbanking history in China by CKP avg land cost 120 Most aggressive at only RMB landbanking in 238psf 100 2004- 2007 80

60 early landbanking history 40

20

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total landbank balance New land acquisitions during the year

Source: Company data, Credit Suisse estimates CKP: Standing out from HK peers as a pure developer in China CKP stands out from not just from SHKP, but also other HK property companies with heavy exposure to China, such as Wharf, Hang Lung and Kerry Properties. In the chart below, we have classified the following Hong Kong developers by different strategies in China. While there is limited disclosure on the purpose of the current landbank under development (i.e. to be kept as investment properties or to be sold as trading properties), we assume the bulk of the non-residential landbank under development would be for rental purpose in the future, and the bulk of the residential landbank under development would be for trading purpose in the future.

■ As a developer: CKH, Henderson Land, Sino (but with little presence in China)

■ As a landlord: Hang Lung Prop, Swire Properties, SHKP

■ Hybrid between developer and landlord: Wharf, NWD, Kerry

Cheung Kong Property (1113.HK / 1113 HK) 11 04 June 2015

Figure 22: Landbank under development in China by Hong Kong developers (in estimated mn sq ft GFA) as developers as landlords 20 100% 18 90% 16 80% 14 70% 12 60% 10 50% 8 40% 6 30% 4 20% 2 10% 0 0%

Resid Non-resid Non-resid as % of total landbank - RHS

Source: Company data, Credit Suisse estimates Strong track record of contracted sales in China CKP has an early track record of landbanking in China, and has ramped up its property launches in the country starting from 2007, riding on the strong momentum in the market.

Figure 23: CKP's track record in China DP—in terms of Figure 24: CKP's track record in China DP—in terms of contracted sales (Rmb mn) recognised sales (Rmb mn) 25,000 25,000 22,093 22,129 20,517 20,000 20,000 18,589

15,000 15,000 12,323 11,184 11,441 11,870 9,694 10,000 10,000 8,965

5,282 5,000 5,000 1,124 0 0 FY11 FY12 FY13 FY14 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates CKP, compared with the HK peers, has a higher market share in terms of contracted sales. The two more comparable ones are Wharf and NWCL. While CK and Hutch (prior to the restructuring exercise) have set the contracted sale target of Rmb8 bn in China in FY15, we see the chance of the company exceeding that target substantially in FY15, given the strong momentum in the sector.

Cheung Kong Property (1113.HK / 1113 HK) 12 04 June 2015

Figure 25: CKP has a prominent presence in China DP compared with HK 25,000 22,093 20,517 20,000

15,000 11,184 9,694 10,000

5,000

0 FY11 FY12 FY13 FY14

CKP Wharf NWCL Henderson SHKP Kerry HK Land

Source: Company data, Credit Suisse estimates

Figure 26: CKP ranks No. 16 among Chinese peers and No. 2 among HK peers in terms of contracted sales in 2012-14 (Rmb mn) 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000

0

CKP

Agile

COLI

KWG Kerry

Kaisa

Wharf

SHKP

Vanke Sunac

NWCL

COGO

Shimao

Longfor

GZ R&F GZ

Glorious

HK Land HK

CR Land CR

Franshion

Greentown Henderson

Evergrande

Poly Property Poly Country Garden Country Sino-Ocean Land Sino-Ocean Source: Company data, Credit Suisse estimates Launching pipeline in China: Strong momentum YTD According to various property agents and news sources, we have identified a number of projects being actively launched / to be launched by CKP in China in the past 12 months. Notwithstanding the tough market conditions in 2014, CKP (under both brands of Cheung Kong and Hutch) managed to achieve a high sell-through rate and sales momentum, when we examine them by projects. 2015 YTD, CKP's projects have kept up with the sales momentum, and it has been the top seller in various cities.

Cheung Kong Property (1113.HK / 1113 HK) 13 04 June 2015

Figure 27: 2015 Launching pipeline of CKP in China—some that have been launched are the city's bestsellers Property Chinese Name City Source Launch status Remarks La Grande Ville P3&4 誉天下(温榆府) Beijing Soufun Launching Sold 150 units for Rmb1.5b n in 2014; 1Q15 bestseller in Beijing villa market Hupan Mingdi 湖畔名邸 Shanghai Soufun, Fangdi Launching 2015 YTD sold 25 units; sold 400 units for Rmb1 bn in 2014 Regency Garden 御沁园 Shanghai Soufun Launching 4-years best sellers in Shanghai villa market Riviera Palace 泷湾 Shanghai 商机在线 Not launched yet Soft launching now; Expect to continue the hot response from Regency Garden Yuhu Mingdi P2&3 御湖名邸 Guangzhou qq House, Not launched yet P1 of 127 units sold out for Rmb1 bn; P2 will be launched Soufun soon Cape Coral P4 珊瑚湾畔 4 期 Guangzhou Soufun Launching Sold 150 units on 1st day of launch; P3B cleared 80% on first day of launch in Sep-2014 Laguna Verona 海逸豪庭 Dongduan Soufun Not launched yet New batches will be launched shortly Regency Hills 重慶御峰 Chongqing Soufun Launching 300-570 sqm; 1st batch of 120 units cleared in 1 hour Regency Lakeview 珊瑚水岸 Chongqing Soufun Launching Le Parc P5B 南城都汇 Chengdu Soufun Not launched yet New batches will be launched soon ; bestseller in Chengdu in 2014 Emerald City 涟城 Nanjing Soufun Launching Tower G1 largely sold out within 1 month; Tower G2 to be launched; 2015 YTD bestseller in Nanjing Regency Cove 御翠湾(觀湖園) Changchun Soufun Launching Regency Park P4 御翠園 4 期 Changchun Soufun Not launched yet New batches will be launched shortly The Harbourfront 晓港名城领海 Qingdao Soufun Launching New batches will be launched shortly; first batch launched in March 2015, well received by the market The Greenwich 逸翠園 Xian 商机在线 Launching P3 launching; P4 will be launched shortly Source: Company data, Credit Suisse, Soufun 20% target discount to CKP's China assets We apply a 20% discount to NAV, to CKP's China DP assets and IP assets, which is in line with the average target discounts applied to Vanke, COLI and CRLand, to reflect the quality of CKP's China franchise, in terms of: (1) Healthy gearing of CKP overall, which would lower the financing cost, the risk of refinancing, and the risk of equity fundraising that would dilute existing shareholders' interest; (2) Low carrying cost of the landbank on hand, which would lead to lower risk of profit margin in challenging times; (3) Big market cap of CKP, which would give lower risk on going concern, and would lead to lower financing cost; (4) Long-established presence of CKP in China property market and the diversity of its operation over 49 cities in China, which will lower policy or economic risks at local levels.

Figure 28: Gearing ranking of Chinese developers—those Figure 29: Valuation comp of Chinese developers (ranked with healthiest gearings rewarded with narrower discount by gearing) 140% CS Net Share Price TP 12M NAV BVPS Target disc Current disc P/B Company RIC Rating Gearing ($) ($) ($/sh) ($/sh) (%) (%) (x) 120% China Vanke H 2202.HK O 16% 20.2 23.0 23.0 9.5 0% -12% 2.13 weighted avg. target disc of 15% was rewarded to the 100% COLI 0688.HK N 18% 28.2 29.0 32.2 16.6 -10% -13% 1.70 Chinese property developers with healthy gearing SOHO China 0410.HK O 29% 5.3 8.0 11.4 7.4 -30% -54% 0.71 80% CR Land 1109.HK O 44% 24.9 29.7 34.6 18.3 -14% -28% 1.36 Sunac 1918.HK O 47% 9.0 7.8 14.2 6.0 -45% -36% 1.51 60% COGO 0081.HK O 50% 4.3 5.3 9.6 6.4 -45% -56% 0.66 40% Country Garden 2007.HK N 59% 3.7 2.9 5.3 3.3 -45% -31% 1.09 Shimao 0813.HK O 60% 16.8 20.0 28.6 15.3 -30% -41% 1.09 20% KWG 1813.HK N 63% 7.7 5.7 10.4 7.6 -45% -26% 1.00 0% Franshion 0817.HK N 66% 3.1 3.3 7.3 3.3 -55% -58% 0.92 Sino Ocean Land 3377.HK N 71% 5.5 4.8 8.7 5.8 -45% -37% 0.95

Greentown 3900.HK O 72% 11.0 12.8 15.0 12.7 -15% -27% 0.87 COLI

COGO Agile 3383.HK U 72% 6.1 3.1 7.8 10.3 -60% -21% 0.59

GZR&F

CRLand Franshion

Greentown Poly Property 0119.HK O 84% 4.3 3.9 9.8 9.1 -60% -56% 0.47

SinoOcean

SOHO China GloriousPpty

SunacChina Guangzhou R&F 2777.HK N 91% 9.8 7.5 13.6 12.9 -45% -29% 0.75

KWGProperty

AgileProperty Country Garden

ChinaVanke A - Glorious 0845.HK U 126% 1.1 0.7 1.8 2.0 -60% -35% 0.56

Poly(Hong Kong) ShimaoProperties Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 14 04 June 2015

Figure 30: Ranking by current discount to NAV among Figure 31: Ranking of discount to NAV by market cap— Chinese developers—those trading at narrower discount bigger ones are trading at narrower discounts have healthy gearings -70% -70% -60% -60% -50% -50% -40% -40% -30% -30% -20% -20% -10% -10% 0%

0%

COLI

COGO

GZR&F

COLI

CRLand

Franshion

COGO

Greentown

GZR&F

SinoOcean

CRLand

Franshion

SOHO China

GloriousPpty

SunacChina

Greentown

KWGProperty

AgileProperty

SinoOcean

Country Garden

SOHO China

GloriousPpty

SunacChina

KWGProperty

Poly(Hong Kong)

AgileProperty

ShimaoProperties Country Garden

ChinaVanke A - Poly(Hong Kong) ShimaoProperties Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 15 04 June 2015 Plans to spend HK$10 bn in HK land sale market CKP needs to replenish landbank in Hong Kong, according to CS proprietary study

Figure 32: Since 2013, CKP has bought even less Figure 33: CKP used to snap up one-fifth of HK land sale landbank than some Chinese developers in Hong Kong (during 2008-12), but has dropped to 2% since 2013 16,000 2008 - 2012 Since 2013 14,000 No. of units Market share No. of units Market share SHKP 17,475 28% 9,566 23% 12,000 Wheelock 2,133 3% 4,725 11% 10,000 NWD 7,485 12% 3,957 9% 8,000 Henderson 6,756 11% 3,617 9% 6,000 Sino Land 4,221 7% 2,406 6% 4,000 Kerry 2,036 3% 1,375 3% COLI 828 1% 1,145 3% 2,000 CKP 11,299 18% 845 2% -

Others 9,107 15% 14,458 34%

CKP

COLI Kerry

NWD Total 61,340 100% 42,097 100% SHKP

Others

Wheelock Sino Land Sino Henderson Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates In our report first published on 17 November 2014, we have carried out a proprietary and rigorous analysis on the upcoming residential supply in Hong Kong for 2015-20E, where one of the analyses was on the residential supply, by land acquisition years and developers. CKP has almost been absent from HK land sale market during 2013-1H15, and had only bought a residential site in Shum Shui Po in December 2014 that will provide 845 residential units. In the updated analysis below, CKP has only acquired landbank for 845 residential units since 2013, accounting for a merely 2% of the landbank sold during the period. On the other hand, its key competitor SHKP has snapped up landbanks for ~10,000 residential units during the period, accounting for 23% of the landbank sold during the period.

Figure 34: CS proprietary study on land acquisition—by years and developers Land acquisition year CKP Henderson Kerry NWD Wheelock SHKP Sino Swire COLI Others Total % of total <2007 279 1,776 0 662 0 56 0 0 0 5,521 8,295 9.1% 2008 0 0 0 0 0 0 0 127 0 0 127 0.1% 2009 118 2 0 0 0 0 548 197 0 569 1,434 1.6% 2010 1,421 1,198 0 1,313 0 3,034 0 0 255 2,232 9,453 10.4% 2011 1,971 312 495 848 78 10,023 439 18 10 480 14,674 16.2% 2012 3,117 863 1,044 891 1,251 2,446 1,194 0 282 3,553 14,641 16.1% 2013 0 1,380 1,269 1,057 2,495 941 566 2 1,145 3,853 12,708 14.0% 2014 845 1,787 0 2,900 2,230 6,126 1,780 0 0 7,428 23,096 25.5% 2015 YTD 0 450 106 0 0 2,500 60 0 0 3,177 6,293 6.9% TOTAL 7,751 7,768 2,914 7,672 6,054 25,126 4,587 344 1,692 26,813 90,721 100.0% Source: Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 16 04 June 2015

Market share in residential completion to drop significantly in FY19-22E CKP had a prominent market share in the Hong Kong residential market in the past ten years with an average of 25% during 2005-14. That market share, nevertheless, will drop significantly to 0% beyond 2018, once CKP has depleted its landbank in Hong Kong, according to our analysis below. This underscores the need (and motivation) for CKP to replenish its landbank in Hong Kong.

Figure 35: Upcoming private residential completion by developers (on attributable basis) No. of units 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total (2015-2022) SHKP 1,526 980 2,350 3,615 4,948 4,146 2,944 3,632 4,340 1,500 0 25,126 Cheung Kong 1,239 2,070 5,290 1,899 2,078 544 3,229 0 0 0 0 7,751 Henderson 193 2,619 1,585 1,068 761 1,182 886 728 2,337 403 403 7,768 NWD 981 1,060 2,628 997 901 167 2,196 0 256 0 3,411 7,928 Sino Land 1,385 16 1,511 937 686 292 912 250 60 1,530 0 4,667 Kerry 1,249 119 97 389 1,150 1,269 106 0 0 0 0 2,914 Wheelock 0 66 738 78 1,001 1,385 1,360 630 1,600 0 0 6,054 Swire 110 130 0 324 18 2 0 0 0 0 0 344 COLI 28 253 0 423 1,269 0 0 0 0 0 0 1,692 Others 3,440 937 1,501 3,540 2,524 3,500 6,869 2,969 2,423 2,570 4,836 29,231 TOTAL 10,150 8,250 15,700 13,272 15,335 12,487 18,502 8,210 11,016 6,003 8,650 93,475

% of total 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total (2015-2022) SHKP 15% 12% 15% 27% 32% 33% 16% 44% 39% 25% 0% 27% Cheung Kong 12% 25% 34% 14% 14% 4% 17% 0% 0% 0% 0% 14% Henderson 2% 32% 10% 8% 5% 9% 5% 9% 21% 7% 5% 9% NWD 10% 13% 17% 8% 6% 1% 12% 0% 2% 0% 39% 8% Sino Land 14% 0% 10% 7% 4% 2% 5% 3% 1% 25% 0% 5% Kerry 12% 1% 1% 3% 7% 10% 1% 0% 0% 0% 0% 3% Wheelock 0% 1% 5% 1% 7% 11% 7% 8% 15% 0% 0% 7% Swire 1% 2% 0% 2% 0% 0% 0% 0% 0% 0% 0% 0% COLI 0% 3% 0% 3% 8% 0% 0% 0% 0% 0% 0% 2% Others 34% 11% 10% 27% 16% 28% 37% 36% 22% 43% 56% 25% TOTAL 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Source: Company data, Credit Suisse estimates To resume its prominent presence in land sale market by spending HK$10 bn per year CKP used to have a prominent presence in the land sale market. During 2008-12, it snapped up landbank that provided ~11,000 residential units, representing 19% of the total land supply during the period, and ranked just behind SHKP. Prior to 2007, CKP has, in some years, almost dominated the land sale market. The absence of CKP from the land sale market in Hong Kong coincided with its active acquisitions in non-property areas overseas. With the new mandate of CKP focussing only on the property business upon listing, we expect CKP to be more active in submitting land tenders in Hong Kong. We estimate that CKP may spend HK$10 bn per year in landbanking in Hong Kong in order to restore its 25% market share in the land sale market in Hong Kong, with the analysis as below:

Cheung Kong Property (1113.HK / 1113 HK) 17 04 June 2015

Figure 36: CKP to spend HK$10 bn per year on landbanking in Hong Kong Government forecast of annual private residential supply (no. of units) 15,000 Assumed market share by CKP 25% Assumed landbanking by CKP (no. of units) 3,750 Assumed avg unit size (NFA in sq ft) 500 Avg landbanking by CKP per year (NFA in sq ft) 1,875,000 Assumed AV (HK$ psf) 5,500 Annual CAPEX by CKP in landbanking (HK$mn) 10,313 Source: Company data, Credit Suisse estimates 17% IRR on HK landbanking In the IRR analysis below, we assume: (1) 25% margin (vs current average margin of 30%+ in the sector); (2) average construction period of 36 months after land acquisition (which is the current market average); (3) average pre-sale of 1.5 years prior to construction completion (which is of the current industry practice). For every HK$10 bn of annual capex spent on HK landbanking, it would contribute to CKP with:

■ HK$4.5 bn before-tax profit to the group

■ IRR of 17%

■ NAV accretion by HK$2.4 bn

Figure 37: IRR and NAV analysis—if CKP spends HK$10 bn per year on landbanking (in HK$ mn) Year 0 Year 1 Year 2 Year 3 Sales Proceeds 18,182 4,545 Land cost (10,000) Construction cost (2,121) (2,121) (2,121) Financing cost (800) (200) Marketing cost and others (818) Cash flow (10,000) (2,921) 15,042 2,424 Discount factor 1.00 1.07 1.14 1.23 Discounted cash flow (10,000) (2,730) 13,139 1,979 NAV accretion 2,387 IRR 17% Source: Company data, Credit Suisse estimates

Figure 38: Profitability analysis—if CKP spends HK$10 bn per year on landbanking HK$ psf HK$ mn Land cost 5,500 10,000 Construction cost 3,500 6,364 Financing cost 550 1,000 Marketing cost and others 450 818 All-in cost 10,000 18,182 Assumed margin 20% 20% ASP / Revenue 12,500 22,727 Profit 2,500 4,545 Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 18 04 June 2015

Company analysis A property giant in Greater China CKP is one of Hong Kong's largest property companies with a leading market share in Hong Kong, strong penetration in the PRC, and an international presence in Singapore and the UK. CKP has a total attributable landbank of 21.3 mn sq m in development properties, 1.5 mn sq m in rental properties, and more than 14,600 hotel rooms, which are worth HK$420 bn as at February 2015.

Figure 39: CKP is the 2nd largest property co in HK-China Figure 40: CKP is the 2nd largest property co in HK-China in terms of CS 12M NAV (US$ bn) in terms of the current market cap (US$ bn) 90 60 80 76 50 50 70 40 60 56 54 40 37 36 50 41 27 39 38 30 24 40 35 33 22 21 28 20 20 30 26 23 20 20 14 14 12 18 15 15 15 11 11 10 20 13 12 12 10 8 9 8 8 8 10 6 5 5 10 6 6 6 6 6 6 5 4 4 4 4 3 3 3

0 0

Sino

Sino

CKP CKP

COLI COLI

NWD

NWD

Wharf Wharf

SHKP SHKP

Hysan Hysan Sunac

Sunac

Wanda

Wanda

Shimao Shimao

ShuiOn

GZR&F

HL Prop HL GZR&F Prop HL

HKLand

HKLand

CRLand

CRLand

Hopewell Hopewell

Wheelock REIT Link REIT Link Wheelock

Franshion Franshion

KerryProp KerryProp

SwireProp SwireProp

Greentown

Evergrande

Evergrande

Sino Ocean

Sino Ocean

GreatEagle

ChinaVanke

SOHOChina SOHOChina

HendersonLd

HendersonLd

ChinaA Vanke

SZ International SZ

ChampionREIT CountryGarden ChampionREIT CountryGarden Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates CKP is mainly engaged in:

■ Development properties: with landbank in Hong Kong and China of 10 mn sq ft and 19.7 mn sq m, respectively.

■ Investment properties: mainly in Hong Kong with the four franchise office properties in Central (Cheung Kong Center, The Center, Hutchison House and China Building) already accounting for HK$58 bn valuation and contributing HK$3 bn of annual rental revenue as at FY14.

■ Hotels and serviced suites: mainly in Hong Kong with the four hotels and suites in Hung Hom in Kowloon East of Hong Kong already accounting for HK$27.7 bn of valuation as at FY14.

Figure 41: Revenue contribution from major businesses Figure 42: EBIT contribution from major businesses as at as at FY14 (HK$ mn) FY14 (HK$ mn)

Source: Company data Source: Company data

Cheung Kong Property (1113.HK / 1113 HK) 19 04 June 2015

On top of the property business at the subsidiary level, CKH also owns 8-46% stake in listed REITs, namely, Fortune REIT, Prosperity REIT, Hui Xian REIT and ARA Asset Management. The contributions from them are captured as investment and other income in the Profits and Loss Accounts, and had contributed HK$1.4 bn of profit as at FY14, accounting for 6% of the profit-before-tax of the year. CKP's attributable interest in these four REITs amounted to HK$24 bn as at the time of writing this report. Geographically, Hong Kong and China are the major focus of CKP, though its track record has also shown its flexibility towards investment opportunities overseas, especially Singapore and the UK.

Figure 43: Breakdown of HK$420 bn property valuation by Figure 44: Breakdown of HK$420 bn property valuation by asset class as at 28 February 2015 geography as at 28 February 2015

Hotels Overseas HK$66bn HK$13bn 16% 3% China Development HK$138bn Properties 33% Investment HK$231bn Hong Kong Properties 55% HK$269bn HK$123 64% 29%

Source: Company data Source: Company data CKP runs four key lines of businesses This session would be analysing the five key business lines by CKP: (1) Property development in Hong Kong, which accounts for 23% of CKP's FY15E GAV; (2) Rental business in Hong Kong, which accounts for 27% of CKP's FY15E GAV; (3) Property development in China, which accounts for 26% of CKP's FY15E GAV; (4) Hotel and serviced suites in Hong Kong, which accounts for 15% of CKP's FY15E GAV; (5) Other property interests: stakes in REITs, rental business in China, and overseas property developments, which on aggregate account for 9% of CKP's FY15E GAV. Property development in Hong Kong Cheung Kong has not replenished its landbank in Hong Kong since 2012, and hence its residential landbank is expected to be depleted by 2018. The key sizeable projects under development by Cheung Kong include The Zumurud and Stars by the Harbour (182 and 321 units, respectively – both to be completed in 2015); Borrett Road project (estimated 200 units – to be completed in 2017); and Tsuen Wan West 5 Bayside (estimated 2,384 units – to be completed in 2018).

Cheung Kong Property (1113.HK / 1113 HK) 20 04 June 2015

Figure 45: CKP's HK DP portfolio as at March 2015—relatively short landbank amid the absence from land sale market in the last few years Status Project GFA (sq ft) DTZ valuation (HK$mn) Completed inventories Hemera 1,369,425 7,302 Completed inventories Mont Vert P1 288,626 2,708 Completed inventories City Point 451,393 2,230 Under dev Borrett Road 435,134 14,930 Under dev Tsuen Wan Station TW5 Bayside 2,234,314 11,120 Under dev Star by the Harbour 365,614 5,500 Under dev The Zumurud 394,139 5,035 Under dev Ma Tau Wai Road 38,489 3,960 Under dev 90 Repulse Bay 71,156 3,200 Under dev Lok Wo Sha project 561,963 3,140 Under dev The Beaumount II 548,760 2,736 Under dev 41 Heung Yip Road 323,865 2,405 Under dev Graham Street project 191,420 1,861 Sub-total 7,274,298 66,127 Others 21,172 Total 87,299 Source: Company data, DTZ, Credit Suisse estimates Strong track record of execution; well-known as a volume player CKP's predecessor Cheung Kong and Hutchison have been in the Hong Kong property market for over four decades, and CKP benefits from its long and successful track record. With over 40 years of refinement, CKP has become one of the largest developers of residential, office, retail, industrial and hotel properties in Hong Kong. While CKP's strategic focus has been on property development in Hong Kong, it expanded its business to China in the 1980s and overseas in the 1990s. CKP has developed a property and project management business to support its development and investment properties. Leveraging on its expertise and strength in property development and investment, CKP developed its business scope to include hotel and serviced apartment operations and has interests in listed REITs. In the past ten years (2005-14), we estimate that CKP has sold HK$190 bn worth of properties, or accounted for 17% market share in Hong Kong. Some of the renowned projects developed by CKP in the recent history include:

■ Mont Vert I and II: 1,350 units in total, launched in 2014 and completed in 2014 and 2015, fetched for HK$7 bn proceeds

■ Festival City I, II and III: 4,264 units in total, launched in 2010 and 2011 and completed in 2010-11, fetched for HK$31 bn proceeds

■ Beaumount I and II: 2,649 units in total, launched in 2012 and 2015 and completed in 2013 and 2016, fetched for HK$8 bn proceeds

■ Lohas Parks IIA, IIB: 2,584 units in total, launched in 2009 and completed in 2011 and 2012, fetched for HK$12 bn proceeds

■ Celestial Heights I and II: 939 units in total, launched in 2008 and 2009 and completed in 2009, fetched for HK$26 bn proceeds

Cheung Kong Property (1113.HK / 1113 HK) 21 04 June 2015

Figure 46: CKP's contracted sales in HK in past ten years (in HK$ mn) 35,000 35% 30% 30,664 30,000 30% 25,308 24% 25,000 23,034 25% 19% 20% 20,611 19,578 19% 20,000 18,305 18,205 20% 16,754 16% 14% 14% 15,000 12,285 12% 15%

10,000 5% 10% 4,773 5,000 5%

0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

CKP Market share

Source: Company data, Credit Suisse research

Figure 47: CKP's major launches in past ten years Year Primary residential CKP contracted Major launches transaction (HK$ mn) sales (HK$ mn) 2005 97,109 18,305 The Legend, Metro Town I, Caribbean Coast III 2006 59,952 12,285 Metro Town II, Sausalito, The Apex, Caribbean Coast III 2007 123,492 16,754 The Legend, Central Park, Sausalito, Caribbean Coast IV 2008 76,964 23,034 Celestial Heights I, Lohas Park P1 2009 119,212 19,578 Lohas Park IIA, IIB, Celestial Heights II 2010 129,467 30,664 Festival City I, Oceanaire, Lohas Park IIB, Celestial Heights II 2011 133,324 18,205 Festival City II, Lohas Park IIB, Uptown 2012 131,809 25,308 Festival City III, The Beaumount, Kennedy Park At Central 2013 92,272 4,773 One West Kowloon, Th Rise 2014 177,826 20,611 City Point, Mont Vert I, II, Trinity Towers Source: Company data, Credit Suisse estimates Strong launching pipeline in the next 18 months In 2015, CKP would have a strong launch pipeline with 4,500 units fetching close to HK$37 bn proceeds, with a mix of mass- and large-scale projects (Hemera, La Lumiere, Beaumount II) and high-end projects in urban locations (Stars by the Harbour and The Zumurud). Going into 2016, we estimate that CKP would have ~1,300 units for launch, but since the product mix would be shifted to the luxurious segment, we estimate that these 1,300 units can fetch HK$47 bn proceeds to CKP. Oil Street Project in North Point, Borrett Road project at Mid-levels and Peel Street project at Central would all of be market focus.

Cheung Kong Property (1113.HK / 1113 HK) 22 04 June 2015

Figure 48: Launching pipeline in FY15/16 Project Name District No. of Attrib Stake Est. ASP Est. Expected Expected Remarks units GFA (sq % (HK$ proceeds launch completion ft) /nsf) (HK$ mn) date Hemera TKO 1,648 1,383,637 100% 9,000 12,417 Apr-2015 Dec-2014 LAUNCHED IN APR-2015: 3-4 bedroom units; sold out in 3 weeks La Lumiere Hung Hom 216 104,802 100% 16,000 1,487 Mar-2015 Dec-2016 LAUNCHED IN MAR-2015: 2 bedroom units; sold out in 6 weeks Beaumount II TKO 872 549,000 100% 11,000 4,831 May-2015 Sep-2016 LAUNCHED IN MAY-2015: 2-3 bedroom units Stars by the Harbour Hung Hom 321 365,750 100% 18,000 5,486 Jun-2015 Jun-2016 3-4 bedroom + 9 houses; ASP reference to West Kowloon The Zumurud Hung Hom 182 315,428 80% 24,300 6,119 Jun-2015 Jun-2016 4 bedroom units; High-end project comparable to SHKP's Ultima Yuen Long project Yuen Long 1,129 664,139 100% 10,600 5,645 2H15 2016 2-3 bedroom units; at least 800 units <430nsf Ma Tau Wai project Kowloon City 75 39,000 100% 19,000 618 2H15 2016 1-2 bedroom units Ping Shan project Yuen Long 41 65,402 100% 10,000 545 2H15 2015 4 bedroom houses Total - 2015 4,484 3,487,158 37,148 Repulse Bay Road Southern 20 71,182 100% 50,000 2,847 2016 2016 Houses; traditional luxury district Ngau Tam Mei Yuen Long 40 101,085 100% 18,750 1,516 2016 2016 Houses; next to SHKP's La project Vineyard Choi Sha Street, Lok Ma On Shan 440 562,171 100% 14,500 6,521 2016 2016 Apartments; next to Double Cove; Wo Sha CITIC bought adjacent site at record-high AV Oil Street project North Point 400 755,633 100% 21,875 13,224 2016 2017 Include 800 hotel rooms; next to SHKP's Harbour North; bought in 2011 at below-market est. AV Borrett Road project Mid-levels 200 435,296 100% 56,250 19,588 2016 2017 Luxury land site bought in 2011 at below-market est. AV; 5 blocks of 20-storey towers Peel Street/ Graham Central 177 159,490 100% 28,875 3,684 2016 2017 Retail area to be returned to URA Street (Site B) Total - 2016 1,277 2,084,858 47,381 Source: Company data, Credit Suisse estimates Rental business in Hong Kong CKP owns 57 rental properties in Hong Kong. Nevertheless, the eight key properties are already worth HK$101 bn and account for 86% of the DTZ valuation. Out of the eight key properties, four are Grade-A office buildings located in Central, namely Cheung Kong Center, The Center, Hutchison House and China Building, accounting for 3.2 mn sq ft GFA and HK$58 bn of valuation as at Feb-2015 (14% of total property valuation). CKP is the second largest office landlord in Central just after Hongkong Land (5.2 mn sq ft GFA) and has a bigger presence in Central than SHKP-Henderson Consortium that owns IFC (est. 1.9 mn sq ft GFA), Swire Properties (est. 2.2 mn sq ft GFA) and Champion REIT (est. 1.6 mn sq ft GFA).

Cheung Kong Property (1113.HK / 1113 HK) 23 04 June 2015

Figure 49: CKP is the 2nd largest office landlord in Central (GFA: mn sq ft) 6.0 5.2 5.0

4.0 3.2 3.0 2.2 1.9 2.0 1.6

1.0

0.0 HK Land CKP Swire SHKP / Champion REIT Henderson

Source: Company data, Credit Suisse estimates

Figure 50: CKP's HK IP portfolio as at March 2015—eight biggest properties already account for 80% of the total value Property Usage GFA (sq ft) DTZ passing DTZ Monthly Monthly DTZ DTZ cap rate occupancy passing rent passing rent valuation valuation rate (HK$ mn) (HK$/psf) (HK$ mn) (HK$psf) The Center Office 1,218,162 4.9% 97.0% 69.8 57.3 17,735 14,559 Hutchison House Office 503,723 5.0% 94.0% 30.3 60.2 7,772 15,430 Cheung Kong Center Office 1,263,371 5.7% 98.0% 126.1 99.8 27,000 21,371 1881 Heritage Retail 140,180 6.1% 100.0% 69.4 495.3 13,634 97,261 Whampoa Garden Retail 1,714,006 5.1% 95.0% 52.4 30.6 12,847 7,495 Office Tower 1 &2, The Harbourfront Office 862,993 3.7% 98.0% 19.3 22.3 6,462 7,488 China Building Office 258,756 5.1% 94.0% 22.3 86.2 5,531 21,375 Hutchison Logistics Centre Logistics 4,705,181 5.7% 99.0% 45.7 9.7 9,738 2,070 Top 8 Rental properties 10,666,371 5.0% 97.6% 435.3 40.8 100,720 9,443 Others 3,136,385 17,047 5,435 Total 13,802,756 117,767 8,532 Source: Company data, Credit Suisse estimates Property development in China CKP has been in the PRC business since the 1980s and has ~210 mn sq ft landbank in China. CKP stands out from HK peers, as its property exposure in China (28% of GAV) is heavily geared towards DP, which deserves a narrower discount.

Figure 51: CKP's China landbank under development as at Feb-2015 (GFA: sq m)

Beijing, 843,927, 4%

Shanghai, 1,916,765, 8% Chongqing & Chengdu, 6,357,483, Wuhan, 2,645,775, 28% 11%

Guangdong Province, 5,276,561, 23% Others, 6,023,176, 26%

Source: Company data

Cheung Kong Property (1113.HK / 1113 HK) 24 04 June 2015

Figure 52: CKP has presence in 21 cities in China as at February 2015

Source: Company data

Figure 53: CKP's China DP portfolio—mainly in a handful of sizeable projects and the landbanks were acquired in early days City Project name Planned GFA Pre-sold GFA DTZ valuation CS Est. land CS est. ASP CS est. all-in CS est. (sq m) (sq m) (RMB mn) acqn date (RMB psm) cost margin (RMB psm) Nanjing Emerald City 527,344 66,977 5,882 2010 24,500 13,159 26% Chengdu Le Parc 1,729,653 9,790 7,276 2004 9,200 4,919 24% Chongqing Regency Hills 4,121,781 89,020 3,649 2007 8,800 5,755 15% Qingdao The Harbourfront 785,227 21,332 5,983 2007 16,400 8,665 29% Shanghai Upper West Shanghai 1,148,900 102,461 8,534 2007 28,000 19,771 10% Wuhan Millennium Waterfront 707,368 62,277 8,297 2005 22,000 6,994 49% Sub-total 9,282,269 351,857 41,261 Others 13,162,575 383,709 64,717 Total 22,444,844 735,566 105,978 Source: Company data, DTZ, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 25 04 June 2015

Figure 54: CKP is one of HK's largest developers with abundant landbank in China (GFA: mn sq m) 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0

0.0

CKP

Agile

COLI

KWG Kerry

Wharf

SHKP

Vanke Sunac

PolyA

NWCL

COGO

Shimao

HKLand

GZR&F

CRLand

PolyPpty

Franshion

Greentown Henderson

Evergrande

Sino-Ocean GloriousPpty

CountryGarden Source: Company data, Credit Suisse estimates

Figure 55: CKP is one of the HK's largest developers with Figure 56: CKP is one of the HK's largest developers with abundant landbank in China (GFA: mn sq m) abundant landbank in China (GFA: mn sq m) 160.0 25.0 140.0 19.7 20.0 120.0 17.4 100.0 15.0 80.0 11.7 60.0 10.2 10.0 40.0 6.6 5.5 20.0 5.0 3.4 0.0

CKP 0.0

Agile

COLI

KWG

Vanke Sunac

PolyA

NWCL

COGO

Shimao

GZR&F

CRLand

PolyPpty

CKP

Franshion

NWD

Kerry

Wharf

Greentown

SHKP

Evergrande

Sino-Ocean

HKLand

GloriousPpty

Henderson CountryGarden

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Hotel and suites in Hong Kong CKP owns 14 hotels and serviced suites in Hong Kong, or amount to 6.9 mn sq ft GFA and 12,600 rooms. The major geographical exposure is to Hung Hom, TST, North Point and Tsing Yi. The four hotels and suites in Hung Hom account for 5,000 rooms (40% of total) and are valued at HK$32 mn (50% of total).

Cheung Kong Property (1113.HK / 1113 HK) 26 04 June 2015

Figure 57: CKP's HK hotel portfolio—mainly in Hung Hom, followed by TST and North Point Hotel name District GFA (sq ft) No. of rooms DTZ valuation DTZ valuation (HK$ mn) (HK$ mn per room) Harbourview Horizon Hunghom 119,280 1980 11,450 5.8 Harbourfront Horizon Hunghom 107,444 1662 11,140 6.7 Harbour Plaza Metropolis Hunghom 42,857 821 5,074 6.2 Harbour Grand Kowloon Hunghom 47,467 555 4,647 8.4 The Kowloon Hotel Tsim Sha Tsui 30,610 736 7,778 10.6 Sheraton Hong Kong Tsim Sha Tsui 61,950 782 3,990 5.1 Harbour Plaza North Point North Point 31,873 669 2,757 4.1 JV stake in Harbour Grand Hong Kong North Point 41,341 828 4,440 5.4 The Apex Horizon Kwai Chung 21,190 360 1,053 2.9 Rambler Garden Hotel Tsing Yi 19,613 800 1,817 2.3 Rambler Oasis Hotel Tsing Yi 19,810 822 1,900 2.3 Harbour Plaza 8 Degrees To Kwa Wan 21,420 704 2,394 3.4 Harbour Plaza Resort City Tin Shui Wai 61,513 1102 2,816 2.6 Horizon Suite Hotel Ma On Shan 56,000 831 2,652 3.2 Total 12,652 63,908 5.1 Source: Company data, DTZ Two growth drivers: AEI and new additions CKP has already committed to various AEI programmes with its serviced suites portfolio, as entailed below. These would be the key revenue growth drivers for FY15-18E.

Figure 58: Upside from active AEI programme Hotel name District No. of AEI programme rooms Harbourview Horizon Hunghom 1980 AEI in 2014 to replace air-conditioning of all suites; to complete in 2015 Harbour Grand Kowloon Hunghom 555 Extension work in 2014 to add 360 rooms; to complete in 2018; existing rooms to start AEI in 2016 and to complete in 2017 The Kowloon Hotel Tsim Sha Tsui 736 AEI in 2013 to upgrade its shopping arcade Sheraton Hong Kong Tsim Sha Tsui 782 AEI in 2013 (P1) on 396 rooms and on the lobby and Sky Lounge; in 2014 (P2) on remaining 382 rooms Harbour Plaza North Point North Point 669 AEI to start in 2015 to convert 30 suites into 60 rooms Horizon Suite Hotel Ma On Shan 831 AEI in 2014 to replace furniture, fixtures and electronic appliances, to complete in 2016 Source: Company data Other property interests 1. Stakes in listed REITs CKP has been actively divesting its non-core investment properties into the three REITs, all of whom are managed by ARA Asset management, which is 7.8% own by CKP. We believe the active divestment of non-core assets into REITs can: (1) Unlock shareholders' interest (2) Lead to more scope of future divestment in HK; (3) Lead to more scope of future divestment in China, though there are only two major existing rental properties in China—Westgate Mall in Shanghai and Century Place in Shenzhen—there would be more upcoming IP completion by CKP in China and they can be the divestment objects.

Cheung Kong Property (1113.HK / 1113 HK) 27 04 June 2015

Figure 59: CKP's stake in listed REITs spun off by CKP REITs and Asset mgt CKP's CKP's Total NAV CKP's attrib. No. of Listing status companies stake attrib. as at NAV as at properties value (HK$ 31/12/2014 31/12/2014 in portfolio mn) (HK$ mn) (HK$ mn) Fortune REIT 28.0% 4,126 22,376 6,265 18 Listed in SG in Aug 2003 / Listed in HK in Apr 2010 Prosperity REIT 19.3% 777 6,672 1,288 8 Listed in HKEx in Dec 2005 Hui Xian REIT 46.2% 10,812 35,419 16,374 2 Listed in HKEx in Apr 2011 ARA Asset Management 7.8% 674 1,948 153 N.A. Listed in SG in Nov 2007 Total 16,389 66,416 24,080 Source: Company data, Credit Suisse estimates 2. Rental business in China As compared with its HK peers, CKP does not have much exposure with the completed rental properties in China—except Westgate Mall in Shanghai and Century Place in Shenzhen, which are valued at Rmb2.78 bn and Rmb1.22 bn, respectively. Most of the rental properties originally developed and owned by CKP have been divested either to Hui Xian REIT, which is currently 46% owned by CKP (such as Oriental Plaza in Beijing), or to third parties (such as Oriental Financial Center in Shanghai). 3. Overseas business CKP has three residential projects outside Hong Kong-China, with the landbank acquired in 2000-14. We expect the one at Chelsea in the UK to be launched in 2H15.

Figure 60: CKP's overseas projects under development Property Country Stake Date of Total GFA Land cost Land cost Expected DTZ Remarks acquisition (sq ft) (HK$mn) (HK$/sq ft) completion valuation (HK$ mn) Upper Serangoon Rd Singapore 100% Nov-2014 326,063 1,650 5,060 2020 1,508 About 340 units Convoys Wharf UK 100% May-2005 3,148,811 1,440 457 2024 1,496 3,500 units + commercial Chelsea Waterfront UK 95% Mar-2000 880,080 1,121 1,273 2018 5,856 706 units + commercial Source: Company data, Credit Suisse estimates Upper Serangoon Road: The land parcel was acquired in Nov-2014 for S$277 mn or S$849/sq ft (around HK$1,650 mn or HK$5,060/sq ft). The residential site is conveniently located near the Kovan MRT station. It has a total GFA of 326,063 sq ft and is expected to offer about 340 units. Convoys Wharf: Previously known as the first Royal dockyards (built in 1513), it was acquired in May 2005 from News International with a profit-sharing agreement on the sales of luxury homes. The masterplan was approved by the Mayor of London in March 2014, which planned to offer 3,500 units (including 500 affordable flats) in the total GFA of 3.1 mn sq ft. The total investment cost of the project is expected to be around £1 bn (around HK$13 bn). Chelsea Waterfront: Previously known as the Lots Road Power Station, it is another redevelopment project of CKP in the UK. The project was acquired in March 2000 and February 2006 at around HK$1 bn or HK$457/sq ft. The Mayor of London approved the £1 bn project (around HK$12 bn) in September 2013. The project will offer a total of 706 units, together with shops, restaurants, health club and public squares.

Cheung Kong Property (1113.HK / 1113 HK) 28 04 June 2015

CKP's 'trade-ability': How does it score among peers? Market cap CKP is the third-largest property company in HK-China in terms of market cap, just behind SHKP and Wanda. CKP ranks the fifth globally, just behind Simon Property, SHKP, Wanda and American Tower.

Figure 61: CKP is the 3rd largest property co. in HK-China Figure 62: CKP is the 3rd largest property co in HK-China in terms of CS 12M NAV (US$ bn) in terms of the current mkt cap (US$ bn) 90 60 80 76 50 50 70 40 60 56 54 40 37 36 50 41 27 39 38 30 24 40 35 33 22 21 28 20 20 30 26 23 20 20 14 14 12 18 15 15 15 11 11 10 20 13 12 12 10 8 9 8 8 8 10 6 5 5 10 6 6 6 6 6 6 5 4 4 4 4 3 3 3

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ChinaVanke

SOHOChina SOHOChina

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SZ International SZ

ChampionREIT CountryGarden ChampionREIT CountryGarden Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Note: assuming CKP to trade at 25% disc to NAV (SHKP: 36%)

Figure 63: CKP ranks No. 5 among property companies in the world—in terms of market cap 70.0

60.0 57.3

49.7 50.0

40.3 39.8 40.0 36.9 35.8 33.7 30.3 28.3 30.0 27.5

20.0

10.0

- Simon SHKP Wanda American CKP COLI Public Mitsubishi Mitsui Crown Ppty Tower Storage Estate Fudosan Castle

Source: Company data Free float and trading volume As the major shareholder, K.S. Li owns 30.15% of CKP upon listing by way of introduction; CKP would have public free float of 70%, which is higher than its closest peer SHKP, which has 51% public free float. In terms of percentage, CKP ranks the second among HK property stocks, just behind Link REIT. Nevertheless, in terms of dollar amount, CKP would rank the first among HK property companies. In our view, the higher public free float by CKP will make it appeal more to the investors, especially when compared with some peers with much lower free float such as Henderson Land (est. 30%) and Swire Properties (est. 18%).

Cheung Kong Property (1113.HK / 1113 HK) 29 04 June 2015

Figure 64: Free float ranking—among HK property Figure 65: Free float ranking—among HK property companies (as %) companies (in HK$ bn) 120 30.0 100 25.8 25.2 100 25.0

80 70 20.0 65 64 62 59 58 13.9 60 51 50 15.0 47 47 45 42 39 38 37 9.8 9.8 40 31 10.0 7.5 7.1 6.8 5.1 18 4.5 3.7 20 5.0 2.9 2.5 2.3 1.3 0.9 0.3 0.2

0 0.0

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KerryProp

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GreatEagle

SpringREIT

SpringREIT

HendersonLd

HendersonLd ChampionREIT ChampionREIT Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 66: Free float ranking—among HK + China Figure 67: Free float ranking—among HK + China property companies (as %) property companies (in HK$ bn) 100 95 93 30.0 90 25.8 79 25.0 80 70 70 59 20.0 18.317.5 60 56 55 53 47 14.6 50 45 43 15.0 40 37 40 36 36 35 35 35 32 32 31 28 30 10.0 7.3 20 4.1 4.1 3.8 3.4 3.2 5.0 2.7 2.3 1.9 10 1.3 1.2 1.2 1.2 1.1 1.1 0.8 0.5 0.4

0 0.0

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Greentown

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ChinaA Vanke

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ChinaH Vanke

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SZ International SZ

SZ International SZ

CountryGarden

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GuangzhouR&F

Guangzhou Guangzhou R&F Sino OceanLand Sino OceanLand Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 68: Hong Kong property companies—free float and their major shareholders Company Free float (%) Major shareholder Holding by major shareholder (%) Link REIT 99.8 The Capital Group 9.9 CKP 69.85 Li Ka-Shing 30.15 Hopewell 65.1 Wu Ying Sheung Gordon 27.9 Midland 63.6 Wong Kin Yip, Freddie 27.9 Spring REIT 62.3 RCA Fund 31.1 Hysan 59.1 Lee Hysan 40.7 NWD 57.0 Cheng Yu Tung Family 43.0 SHKP 51.5 Kwok's Family 45.4 HK Land 49.8 Jardines Strategic 50.0 HL Prop 46.7 Chan Tan Ching Fen 54.0 Sino 46.6 Ng Chee Siong 53.3 Wharf 43.0 Wheelock 57.0 Kerry Prop 41.7 Kerry Group Limited 56.9 Wheelock 39.4 Woo Kwong Ching Peter 60.7 Champion REIT 34.5 Great Eagle 65.5 Great Eagle 37.3 Lo Ka Shui 56.8 Henderson 30.0 Lee Shau Kee 70.1 Swire Prop 18.0 John Swire & Sons 82.0 Source: HKEx, the BLOOMBERG PROFESSIONAL™ service

Cheung Kong Property (1113.HK / 1113 HK) 30 04 June 2015

Figure 69: 6M daily trading volume (US$ mn) ranking— Figure 70: 6M daily trading volume (US$ mn) ranking— among HK property companies among HK and China property companies 80 120 70 100 60 80 50 60 40 30 40 20 20 10 -

-

Sino

CKH

Agile

COLI

KWG

NWD

Wharf

Sunac

SHKP

Wanda

Sino

Shimao

CKH

NWD

HLProp

Wharf

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Hysan

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Wheelock

KerryProp

Greentown

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Swire Prop

Evergrande

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Hopewell

SinoOcean

LinkREIT

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KerryProp

Henderson

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PolyProperty

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ChinaVanke H

SZInternational

Country Garden

GuangzhouR&F ChampionREIT

6M Avg Daily T/O Adjusted 6M Avg Daily T/O 6M Avg Daily T/O Adjusted 6M Avg Daily T/O

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Note: CS-adjusted trading volume was derived by excluding major Note: CS-adjusted trading volume was derived by excluding major capital market activities such as placement and right issue. capital market activities such as placement and right issue. CKP vs SHKP Apart from comparing the market cap and free float between CKP and SHKP in the previous session, we dedicate a section here comparing CKP with SHKP. In terms of the GAV allocation, and hence the recurring income base, CKP and SHKP share rather similar features, including roughly half of the assets from their rental properties (inclusive of the hotel properties).

Figure 71: CKP—FY15E GAV allocation Figure 72: SHKP—FY15E GAV allocation

Others, Others, 20,615, 3% 16,389, 4% Hotels, Hotels, 13,080, 2% 70,127, 15% Property Sales, 196,896, Property 31% Sales, 237,954, Property 52% Rental, Property 135,968, Rental, 29% 413,476, 64%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 73: CKP—EBIT split as at FY14 Figure 74: SHKP—EBIT split businesses as at FY14

Others, 789 Others, 175 , 3% Hotels, , 1% Hotels, 2,185 , 1,026 , 5% 11%

Property Sales, Property Property 9,679 , 42% Rental, Sales, 6,002 , 32% 10,602 , Property 56% Rental, 11,413 , 50%

Source: Company data Source: Company data

Cheung Kong Property (1113.HK / 1113 HK) 31 04 June 2015

Figure 75: Comparison of recurring income assets Gross Asset Value (HK$mn) CKP SHKP Investment Properties 135,968 413,476 Hotels 70,127 13,080 REITs 16,389 n.a. Recurring income base 222,484 426,556 Source: Company data, Credit Suisse estimates

Figure 76: Comparison of revenue and profit forecast between CKP and SHKP Property Sales (revenue) 2014A 2015E 2016E 2017E 2018E 2019E 3Y CAGR 5Y CAGR CKP 33,679 51,650 64,165 76,585 79,514 90,455 32% 22% SHKP 33,607 28,453 48,859 47,556 79,823 74,909 12% 17%

Property rental (revenue) 2014A 2015E 2016E 2017E 2018E 2019E 3Y CAGR 5Y CAGR CKP 6,821 7,040 7,229 7,390 7,391 7,392 3% 2% SHKP 14,977 16,138 16,520 16,742 17,183 17,615 4% 3%

Hotel operation (revenue) 2014A 2015E 2016E 2017E 2018E 2019E 3Y CAGR 5Y CAGR CKP 5,564 5,670 5,964 6,140 6,498 6,535 3% 3% SHKP 3,930 4,127 4,333 4,549 4,777 5,016 5% 5%

Property Sales (EBIT) 2014A 2015E 2016E 2017E 2018E 2019E 3Y CAGR 5Y CAGR CKP 10,602 15,192 24,188 26,019 30,698 35,443 35% 27% SHKP 9,679 11,191 18,414 22,299 33,892 35,092 32% 29%

Property rental (EBIT) 2014A 2015E 2016E 2017E 2018E 2019E 3Y CAGR 5Y CAGR CKP 6,002 6,219 6,378 6,520 6,521 6,522 13% 12% SHKP 11,413 11,999 12,188 12,270 12,502 12,831 2% 2%

Hotel operation (EBIT) 2014A 2015E 2016E 2017E 2018E 2019E 3Y CAGR 5Y CAGR CKP 2,185 2,484 2,666 2,793 3,015 3,077 9% 7% SHKP 1,026 1,231 1,293 1,357 1,425 1,497 10% 8%

Profit before tax 2014A 2015E 2016E 2017E 2018E 2019E 3Y CAGR 5Y CAGR CKP 24,108 27,246 33,539 35,728 40,723 45,628 14% 14% SHKP 26,644 27,855 36,092 39,142 52,146 53,006 14% 15%

Profit from associate / JV 2014A 2015E 2016E 2017E 2018E 2019E 3Y CAGR 5Y CAGR CKP 1,045 3,546 426 434 443 451 -25% -15% SHKP 2,979 2,711 3,122 1,782 2,437 1,085 -16% -18%

Core Profit 2014A 2015E 2016E 2017E 2018E 2019E 3Y CAGR 5Y CAGR CKP 19,304 21,845 25,988 27,649 30,510 31,429 13% 10% SHKP 21,415 21,617 27,819 30,624 38,513 37,889 13% 12% Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 32 04 June 2015 Initiate with OUTPERFORM We initiate coverage on CKP with an OUTPERFORM rating and target price set at HK$86, implying 16% potential upside to the current share price. Our target price of HK$86 is based on a 21% target discount to FY15E NAV of HK$109.1/share. Such target discount is narrower than the HK property sector average of 32%, primarily driven by the narrower discounts based on: (1) China DP: at a target discount of 20%; (2) Hong Kong IP: at a target discount of 15%; (3) Hong Kong DP: at a target discount of 25%, which is the average target discount applied to SHKP, Henderson Land and Wheelock; (4) Hotels and others: we apply 20-30% target discount for the other assets of CKP.

Figure 77: CKP—FY15E NAV breakdown and sum-of-the-parts target price HK$ mn HK$/share % of GAV Target discount Target Price Development properties 237,954 61.7 52% 21% 48.5 - HK 105,829 27.4 23% 25% 20.6 - China 121,835 31.6 26% 20% 25.3 - Others 10,290 2.7 2% 0% 2.7 Investment Properties 135,968 35.2 30% 15% 29.8 - HK 125,365 32.5 27% 15% 27.6 - China and others 10,603 2.7 2% 20% 2.2 Hotel / service suites 70,127 18.2 15% 20% 14.5 - HK 68,176 17.7 15% 20% 14.1 - China and others 1,951 0.5 0% 30% 0.4 Interests in REITs 16,389 4.2 4% 20% 3.4 - Fortune REIT 4,126 1.1 1% 20% 0.9 - Prosperity REIT 777 0.2 0% 20% 0.2 - Hui Xian REIT 10,812 2.8 2% 20% 2.2 - ARA Asset Mgt 674 0.2 0% 20% 0.1 GAV 460,438 119.3 100% 19% 96.2 Net debt -39,400 -10.2 -9% 0% -10.2 NAV 421,038 109.1 21% 86.0 Source: Company data, Credit Suisse estimates China DP asset deserves a narrow discount We apply a 20% discount to NAV, to CKP's China assets, which is in line with the average target discounts applied to Vanke, COLI and CR Land, to reflect the quality of CKP's China franchise in terms of: (1) Healthy gearing of CKP overall, which would lower the financing cost, the risk of refinancing, and the risk of equity fundraising that would dilute existing shareholders' interest; (2) Low carrying cost of the landbank on hand, which would lead to lower risk of profit margin in challenging times; (3) Big market cap of CKP, which would give lower risk on going concern, and would lead to lower financing cost; (4) Long-established presence of CKP in China property market and the diversity of its operations over 49 cities in China, which will lower the policy risk or economic risk at local levels.

Cheung Kong Property (1113.HK / 1113 HK) 33 04 June 2015

CKP's HK IP: Offers better upside than other Central office landlords We assign a target discount of 15% to CKP's IP portfolio in Hong Kong in the SOTP target discount calculation, which is narrower than the target discount of 20% that we apply to Hongkong Land and Swire Properties. While the detailed analysis on CKP's IP portfolio is done in the previous sections, we believe:

■ Positive datapoints on the Central office sector (on rent and vacancy rate) will be a positive to CKP, as it is the second largest office landlord in Central.

■ We see more room for NAV growth for Cheung Kong's Central office portfolio, given the ample AEI, redevelopment or even divestment potential with Hutchison House and China Building in Central.

■ We also see room for NAV accretion for other major IPs owned by CKP - Divestment of other non-core properties to the REITs at a premium valuation, - Conversion of Hutchison Logistics Centre into redevelopment landbank in the longer term. Conservative book value

Figure 78: CKP's book value breakdown as at 2014 HK$ mn HK$/shr Development Properties 162,125 42.0 Investment Properties 119,398 30.9 Hotels 17,985 4.7 Associates and JVs 14,957 3.9 Others -21,710 -5.6 Net Debt -66,169 -17.1 Net Assets 226,586 58.7 Source: Company data, Credit Suisse estimates

Figure 79: CKP's 2014 pro-forma book value vs valuer's valuation and CS 12M valuation (HK$mn) Book value Valuation per listing CS valuation document Development properties 162,125 230,404 237,954 - HK 87,299 105,829 - China 131,100 121,835 - Others 12,006 10,290 Investment Properties 119,398 123,320 135,968 - HK 117,767 125,365 - China and others 5,552 10,603 Hotel / service suites 17,985 66,115 70,127 - HK 63,908 68,176 - China and others 2,208 1,951 Interests in REITs 14,957 16,456 16,389 - Fortune REIT 4,152 4,126 - Prosperity REIT 791 777 - Hui Xian REIT 10,824 10,812 - ARA Asset Mgt 689 674 GAV 314,465 436,296 460,438 Net debt -87,879 -39,400 -39,400 NAV 226,586 396,896 421,038 Note: Net debts in the column of 'Book value' has included the net balance of account receivable / payables Source: Company data, DTZ, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 34 04 June 2015

HK office properties in Central By using passing cap rate of 4.9-5.7% for its three office buildings in Central, and implying merely a valuation of HK$14,600-21,400/sq ft. This is more conservative than the valuation by Champion REIT (cap rate 3.3%) and Hongkong Land (cap rate 4%). 1881 Heritage By using passing cap rate of 6.1% and implying HK$97,000/sq ft of valuation. The conservative valuation provides a cushion against any downside of retail rent along Canton Road. Hotels While the hotel portfolio in Hong Kong (comprising 12,652 keys) is valued at HK$64 bn or HK$5.1 mn/key or HK$16.6/share, on the book where the hotels are recorded at depreciated historical cost, the book value is merely HK$13 bn or HK$1 mn/key or HK$3/share. Development properties in China and the UK While the carried value on the balance sheet does not distinguish between those in HK and those in China, the carrying cost of the landbank in China is merely at HK$297/sq ft, or HK$6,109 mn, according to Hutchison's FY14 annual report and our calculations. Likewise, while the landbank in the UK was only recorded at HK$636/sq ft as they were bought in 2000 and 2005, the current market price is HK$6000-18,000/sq ft. Catalysts We see the following events for CKP to happen in the next 6-12 months that should serve as positive catalysts for CKP: Launching pipeline in HK Riding on the strong sale momentum YTD with successful launches of Hemera, La Lumiere and Beaumount II, we see strong pipeline coming up, including Stars by the Harbour (321 units), The Zumurud (182 units), and three other projects in Yuen Long (1,129 units), Ma Tau Wai (75 units) and Ping Shan (41 units). Please refer to the previous section for more details. Launching pipeline in China Riding on the strong sale momentum YTD in China, we expect CKP to resume its active launch in China, which would then lead to a strong contracted sale number when it reports its interim FY15 results in late July. Launching pipeline in UK CKP owns two projects in the UK and we expect one of them, Chelsea Waterfront, to be launched in 2H15. While it is a sizeable project comprising 706 residential units and a commercial portion, we estimate average ticket size of £1 mn (HK$13 mn) there. Given the very low land cost of the project, we expect it to be a highly lucrative one when it is launched in 2H15. Room for upgrading key investment properties Given the relatively low maintenance of key investment properties such as China Building and Hutchison House, we see huge room for an imminent plan for an upgrade for rental and NAV accretion. Room for asset disposal into REITs For the non-core investment properties, we believe CKP would continue to actively look for investment opportunities, either to the affiliated REITs or to the third parties.

Cheung Kong Property (1113.HK / 1113 HK) 35 04 June 2015

Key investment risks Risk from property market CKP is a property development and investment company, involved in various roles in the property market. Any adverse change in the property market, including housing demand, demographics, economic conditions and governments measures (macroeconomic, monetary, or housing), may hurt operations, financial condition or growth prospects of the company. Risk from landbanking CKP's property development business requires continuing landbank replenishment in the future. It may be difficult to obtain land in Hong Kong, China and other places at reasonable cost due to increasing competition from other developers and the scarcity of undeveloped land. Risk from rising cost of construction As a result of economic growth and infrastructure development in Hong Kong and China, prices for construction materials and wages for skilled workers have been increasing in recent years. Furthermore, the improvement of living standards and the China government's policies on increasing the wages of migrant workers are likely to continue the trend of rising cost of construction. Risk from sales of properties CKP generate significant portion of its income from the sale of properties, which depends on the market demand for CKP's properties, schedule of property development and the timing of property sales. Risk from rental properties CKP's investment properties compete for quality tenants at preferential lease terms, which is subject to the competition from new supply and the business cycle of the tenants. If CKP is unable to retain the existing tenants or secure tenants for replacement, occupancy rates may decline and rental rates may be affected. Risk from policy changes in China and Hong Kong CKP mainly focuses on the HK and China property markets, in particular, Shanghai, Wuhan and Chengdu. The business might be sensitive to the changes in policies, demographics and economies in these areas and other related countries. In HK, property measures launched by the government might distort the property market, while the domestic financial condition is tied to housing demand. In China, the slowdown of China economy, macroeconomic and monetary policies, and regulatory changes might distort the property market. Risk from interest rate changes Globally, the normalisation of US monetary policies and the currencies rally might affect homebuyers' behaviour or the local government policies' stance.

Cheung Kong Property (1113.HK / 1113 HK) 36 04 June 2015 Financial statements

Figure 80: CKP profit and loss forecasts HK$ mn 2014A 2015E 2016E 2017E 2018E 2019E (Pro-forma) (Pro-forma) Property Sales 33,679 51,650 64,165 76,585 79,514 90,455 Property rental 6,821 7,040 7,229 7,390 7,391 7,392 Hotel and serviced apartments 5,564 5,670 5,964 6,140 6,498 6,535 Property and project management 542 569 598 627 659 692 Revenue from subsidiaries 46,606 64,929 77,956 90,742 94,061 105,074 Property Sales 10,602 15,192 24,188 26,019 30,698 35,443 Property rental 6,002 6,219 6,378 6,520 6,521 6,522 Hotel and serviced apartments 2,185 2,484 2,666 2,793 3,015 3,077 Property and project management 175 184 193 203 213 223 Operating Profit from subsidiaries 18,964 24,078 33,424 35,535 40,447 45,265 Investment and other income 1,381 1,450 1,523 1,599 1,679 1,763 Interest and finance cost -2,360 -1,720 -1,720 -1,720 -1,720 -1,720 Disposal gains/losses 5,181 0 0 0 0 0 Other expenses -103 -108 -114 -119 -125 -131 Share of net profit of associates & JV 1,045 3,546 426 434 443 451 PBT 24,108 27,246 33,539 35,728 40,723 45,628 Taxation -3,739 -4,683 -6,923 -7,478 -9,053 -9,979 MI -1,065 -719 -628 -602 -1,160 -4,219 Core profits attrib. to shareholders 19,304 21,845 25,988 27,649 30,510 31,429 Net effect of property reval. 33,683 0 0 0 0 0 Reported profits 52,987 21,845 25,989 27,649 30,510 31,429 Core EPS 5.0 5.7 6.7 7.2 7.9 8.1 DPS 2.5 2.8 3.4 3.6 4.0 4.1 Dividend-payout ratio 50% 50% 50% 50% 50% 50% Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 37 04 June 2015

Figure 81: CKP cash flow forecast HK$ mn 2014A 2015E 2016E 2017E 2018E 2019E (Pro-forma) (Pro-forma) Profit before tax 24,108 27,246 33,539 35,728 40,723 45,628 Adjustments -3,237 -1,197 1,923 1,915 1,906 1,898 Change in Working Capital -2,838 2,950 -5,429 3,410 7,931 20,007 Dividend from associates / JV 828 828 828 828 828 828 Dividend from investments 209 250 250 250 250 250 Interest received 481 500 500 500 500 500 Interest and other finance costs -3,361 -1,720 -1,720 -1,720 -1,720 -1,720 Profits tax paid -9,123 -4,683 -6,923 -7,478 -9,053 -9,979 Cash flow from operations 7,067 24,175 22,969 33,434 41,366 57,412 (Inc)/Dec in subsidiaries 6,531 -750 -750 -750 -750 -750 (Inc)/Dec in associates / JV -108 0 0 0 0 0 Disposal proceeds 914 0 0 0 0 0 Capex -683 -20,000 -20,000 -20,000 -20,000 -20,000 Cash flow from investment 6,654 -20,750 -20,750 -20,750 -20,750 -20,750 New Borrowings 7,807 55,000 10,000 10,000 10,000 10,000 Repayment of borrowings -4,966 0 -10,000 -10,000 -10,000 -10,000 Inc/(Dec) in amounts to CKH 0 -81,725 0 0 0 0 (Inc)/Dec in funding from CKH -6,436 26,725 0 0 0 0 (Inc)/Dec in funding from MI -1,192 -719 -628 -602 -1,160 -4,219 Dividend paid to shareholders -9,511 -10,922 -12,994 -13,824 -15,255 -15,715 Cash flow from financing -14,298 -11,641 -13,622 -14,426 -16,415 -19,934 Net change in cash -577 -8,217 -11,403 -1,742 4,201 16,728 Beginning cash balance 32,935 32,358 24,141 12,738 10,995 15,196 Ending cash balance 32,358 24,141 12,738 10,995 15,196 31,924 Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 38 04 June 2015

Figure 82: CKP balance sheet forecast HK$ mn 2014A 2015E (Pro-forma) (Pro-forma) 2016E 2017E 2018E 2019E Non-current assets 162,539 184,628 203,597 222,574 241,560 260,554 Fixed assets 17,985 37,356 56,727 76,098 95,469 114,840 Investment Properties 119,398 119,398 119,398 119,398 119,398 119,398 Associates and JV 14,957 17,675 17,273 16,879 16,494 16,117 Other investments and advances 7,353 7,353 7,353 7,353 7,353 7,353 Long term loan receivables 2,846 2,846 2,846 2,846 2,846 2,846 Current assets 253,501 193,257 187,282 182,129 178,399 175,119 Properties under development 162,125 159,175 164,603 161,193 153,262 133,254 Debtors, deposits and prepayments 9,613 9,613 9,613 9,613 9,613 9,613 Tax prepaid 328 328 328 328 328 328 Amounts due from Other Group Companies 49,077 0 0 0 0 0 Bank balances and deposits 32,358 24,141 12,738 10,995 15,196 31,924 Current liabilities 139,235 37,743 37,743 37,743 37,743 37,743 Creditors and accruals 29,177 29,177 29,177 29,177 29,177 29,177 Amounts due to Other Group Companies 101,492 0 0 0 0 0 Borrowings 5,277 5,277 5,277 5,277 5,277 5,277 Provision for taxation 3,289 3,289 3,289 3,289 3,289 3,289 Non-current liabilities 50,219 75,909 75,909 75,909 75,909 75,909 Borrowings 11,525 66,525 66,525 66,525 66,525 66,525 Loans from Other Group Companies 29,310 0 0 0 0 0 Other non-current liabilities 9,384 9,384 9,384 9,384 9,384 9,384 Net assets 226,586 264,233 277,227 291,051 306,306 322,021

Share capital 3,860 30,585 30,585 30,585 30,585 30,585 Reserves 219,166 230,088 243,082 256,907 272,162 287,876 Shareholders' funds 223,026 260,673 273,667 287,492 302,747 318,461 MI 3,560 3,560 3,560 3,560 3,560 3,560 Total Equity 226,586 264,233 277,227 291,052 306,307 322,021 Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 39 04 June 2015 Appendix I - Group Structure

Figure 83: Simplified shareholding structure and property interests

Source: Company data

Cheung Kong Property (1113.HK / 1113 HK) 40 04 June 2015 Appendix II: Land sale schedule in Fiscal Year 2015-16 The Hong Kong government announced the FY15/16 Land Sale Programme on 26 February 2015, following the delivery of the Budget Speech on 25 February. 29 residential sites are included in the Land Sale Programme, providing a total of 16,000 units. Together with the MTRC tenders and URA tenders, the total land supply of the fiscal year is to exceed 24,000 units or approximately HK$100 bn in value.

Figure 84: Land sale schedule in April 2015—March 2016 Disposal Type Location District Est. GFA Est. no. of Est. land cost Est. land cost (sq ft) units (HK$ mn) (HK$/sq ft) Gov Tender Chong San Road, Pak Shek Kok, Tai Po Tai Po 662,632 800 1,988 3,000 Gov Tender So Kwun Wat Road, Area 56, Tuen Mun Tuen Mun 1,743,768 1,744 6,626 3,800 Gov Tender Kwun Chui Road, Area 56, Tuen Mun Tuen Mun 1,588,766 1,589 5,561 3,500 Gov Tender Hoi Wing Rd and Hang Fu St, Tuen Mun Tuen Mun 312,005 480 936 3,000 Gov Tender Chong San Road, Pak Shek Kok, Tai Po Tai Po 1,112,136 1,112 3,336 3,000 Gov Tender Fo Yin Road, Pak Shek Kok, Tai Po Tai Po 418,117 836 1,254 3,000 Gov Tender Fuk Wa St / Camp St, Cheung Sha Wan Sham Shui Po 307,388 615 1,537 5,000 Gov Tender Yin Ping Road, Tai Wo Ping, Kowloon Kowloon Tong 791,632 792 7,125 9,000 Gov Tender Lo Fai Road, Tai Po Tai Po 264,019 330 1,056 4,000 Gov Tender Lo Fai Road, Tai Po Tai Po 124,174 155 497 4,000 Gov Tender Au Tau, Yuen Long Yuen Long 122,494 122 367 3,000 Gov Tender Fa Peng Road, Cheung Chau Lantau 27,529 28 55 2,000 Gov Tender Ngau Tam Mei, Yuen Long Yuen Long 37,631 38 207 5,500 Gov Tender Castle Peak Bay, Tuen Mun Tuen Mun 557,360 557 2,620 4,700 Gov Tender Sai Shan Road, Tsing Yi Kwai Tsing 400,421 501 1,722 4,300 Gov Tender Wong Ma Kok Road, Stanley, Hong Kong Southern 246,065 123 6,890 28,000 Gov Tender Wong Ma Kok Road, Stanley, Hong Kong Southern 41,657 21 1,333 32,000 Gov Tender Castle Peak Road, Tai Lam, Tuen Mun Tuen Mun 452,088 452 1,718 3,800 Gov Tender Tai Po Road, Tai Po Kau, Tai Po Tai Po 610,319 407 2,563 4,200 Gov Tender Tsing Ha Lane, Castle Peak Bay, Tuen Mun Tuen Mun 393,962 394 1,418 3,600 Gov Tender So Kwun Wat Road, Area 56, Tuen Mun Tuen Mun 472,109 472 1,794 3,800 Gov Tender Sheung Shing Street, Ho Man Tin, Kowloon Ho Man Tin 440,786 551 5,510 12,500 Gov Tender Shan Tong Road, Lai Chi Shan, Tai Po Tai Po 1,152,000 1,646 5,184 4,500 Gov Tender Lung Cheung Road, Beacon Hill Kowloon Tong 234,655 156 4,928 21,000 Gov Tender Whitehead, Ma On Shan, Sha Tin Sha Tin 76,152 76 419 5,500 Gov Tender To Shek Street, Sha Tin Sha Tin 470,925 589 1,884 4,000 Gov Tender Tai Po Road, Sha Tin Heights, Sha Tin Sha Tin 65,553 66 393 6,000 Gov Tender Lai Ping Road, Kau To, Sha Tin Sha Tin 275,305 275 1,927 7,000 Gov Tender Shung Shun Street, Yau Tong Kwun Tong 857,595 1,072 4,288 5,000 MTR Tender Lohas Park Phase 7 TKO 1,235,277 1,250 3,887 3,147 MTR Tender Lohas Park Phase 8 TKO 1,235,000 1,250 3,705 3,000 MTR Tender Lohas Park Phase 9 TKO 2,866,000 2,900 8,598 3,000 MTR Tender Yuen Long West Rail Station Yuen Long 1,467,133 1,880 4,401 3,000 URA Tender Ma Tau Kok Road Kowloon City 259,628 490 1,298 5,000 URA Tender Pak Tai Street Kowloon City 17,545 160 88 5,000 URA Tender Kowloon City Road Kowloon City 134,076 190 670 5,000 Total 21,473,903 24,118 97,784 4,554 Source: Company data, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 41 04 June 2015 Appendix III: Hong Kong office market boom In our office sector 2015 outlook report published in November 2014, we were expecting 2015 to be a year of rental boom in Central office market. Our analysis showed that once the vacancy rate drops below 3.5%, Central office rent can grow significantly by 9-23% QoQ. As we expect the vacancy rate to further trend down in 2015, we expect the office rent to go up by +15% in 2015. Furthermore, we expect a buoyant financial market, and hence further new demand for Central office space in 2015, thanks to the HK-SH through train scheme implemented since November 2014, and an active IPO market in 2015. Credit Suisse proprietary study on Central Grade-A office (published in November 2014) supports the rental boom story. We selected 14 major Grade-A buildings in Central, covering a GFA of 10 mn sq ft, and looked into their lease information: (1) most of the key leases expiring in 2014 were renewed, providing a favourable backdrop for a rental boom in 2015; (2) there is no building under study that has a heavy expiry profile, which again favours rental growth; (3) there are no major expiring leases in 2015 that have confirmed their plan to exit Central. According to JLL, Central vacancy had dropped to 2.5% by the end of April 2015—the lowest level since the global financial crisis, driven by the robust leasing demand from Chinese banks and financial institutions, which accounted for over 20% of the take-up in April. Given its high sensitivity to vacancy rate, office rent has registered robust growth of +1.3% QoQ. In the meantime, the average daily turnover of the Hong Kong stock market has been up 75% YoY YTD, thanks to the strong southbound liquidity into Hong Kong. As central office leasing activity has a high correlation to the stock market activity, we expect the robust leasing demand seen YTD to continue. We expect the rents at the mid-end market to grow more obviously at the mid stage of recovery, following the uptrend in the top-end market since 2014, which has already recorded double-digit growth in rents.

Figure 85: In last 3 property cycles, when vacancy rate hit Figure 86: Active stock market in FY15-17E should below 3.5%, Central office rent hiked by 9-23% QoQ provide a boost to Central office rent 30% 2007-08: rent +9-18% 2010-11: rent +9% 0% 120 140,000 1993: rent +11-23% QoQ when vacancy QoQ when vacancy QoQ when vacancy @ 3.4% @ 3.6% 2% 120,000 20% @ 3.5% 100 4% 100,000 10% 6% 80 80,000 8% 60 0% 10% 60,000 40 -10% 12% 40,000 14% 20 20,000 -20% 16% 0 0

-30% 18%

2010 2011 2012 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2013 2014

91 93 95 97 99 01 03 05 07 09 11 13 15 1994

2015E 2016E 2017E

Central: Rent QoQ% (LHS) Central: Vacancy rate (RHS) Avg daily turnover (RHS) (HK$mn) Central office rent (HK$/sf/mth)

Source: JLL, Credit Suisse estimates Source: JLL, CEIC, Credit Suisse estimates

Cheung Kong Property (1113.HK / 1113 HK) 42 04 June 2015

Figure 87: Cap rate of an asset class is not only tied to Figure 88: CS proprietary study on Central office interest rate, but also to demand-supply profile

7.00 8.00 Landlord Building Est. 2015 2016 2017 2018 + GFA 6.00 7.00 (mn) Hutchison CK Center 1.24 22% 12% 32% 34% 6.00 5.00 HK Land Gloucester Tower 0.50 19% 25% 40% 16% 5.00 HK Land Exchange Square 1.52 22% 25% 13% 40% 4.00 4.00 HK Land Jardine House 0.73 17% 16% 30% 36% 3.00 HK Land Chater House 0.53 19% 8% 51% 23% 3.00 SHKP / HLD etc One IFC 0.74 17% 14% 22% 47% 2.00 2.00 SHKP / HLD etc Two IFC 1.72 15% 17% 15% 51% Swire Pacific Place 1 0.76 13% 37% 26% 24% 1.00 1.00 Swire Pacific Place 2 0.57 17% 30% 23% 30% 0.00 0.00 Swire Pacific Place 3 0.54 16% 27% 10% 44%

Champion REIT Citibank Tower 0.80 9% 39% 13% 23%

Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14

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-00 Champion REIT ICBC Tower 0.58 18% 14% 19% 36% US 10Y bond yield (LHS) Hongkong Land office cap rate Hongkong Land retail cap rate Total 10.2 17% 22% 22% 36%

Source: Company data, CEIC, Credit Suisse estimates Source: Company data, Credit Suisse

Cheung Kong Property (1113.HK / 1113 HK) 43 04 June 2015 Appendix IV: Major development properties in China Emerald City Project in Nanjing The Emerald City Project is a development located in Ying Tian Avenue of Jianye District, Nanjing, which faces the Nan River on the east and the Olympic Stadium on the west. CKP commenced the construction in March 2012 and expects it to complete in November 2015. The land premium for this project has been fully paid. The Emerald City Project is a mixed-use development that is expected to comprise retail space, residential buildings (1,168 units), townhouses (346 units) and one office building. According to the latest master layout plan, the Emerald City Project is expected to comprise a total GFA of 527,344 sq m upon completion.

The Harbourfront Project in Qingdao The Harbourfront Project is a development project located in Shi Bei District, Qingdao, along the Jiaozhou Bay coastline. CKP commenced the construction in December 2006 and it is expected to complete in 2017. The project is jointly developed by CKP and an independent JV partner. The land premium for this project has been fully paid. The Harbourfront Project is a mixed-use development that is expected to comprise a total GFA of 1,094,634 sqm of residential and commercial area, together with various recreational spaces, including a 940-metre waterfront and a 463-metre man-made waterway. As at the end of 2014, the 12 residential buildings comprising 2,706 units and 53 townhouses at The Harbourfront Project were under development, while the serviced apartments and the retail space under development are expected to be up for sale upon completion.

Le Parc in Chengdu The Le Parc Project is a development located in Chengdu High-Tech Zone, south of Chengdu, which is near the Hi-Tech Station of the Chengdu metro line. The development commenced in December 2005 and is expected to complete in 2018. The land premium for this project has been fully paid. The Le Parc Project is a mixed-use development that is expected to comprise residential units and a shopping street, Xin Jie Li. The latest master layout plan shows a total GFA of 3,040,422 sq m upon completion. As at the end of 2014, the 170 residential buildings comprising 8,077 units at the Le Parc Project were under development, while the shopping street is expected to be for sale upon completion.

Regency Hills in Chongqing The Regency Hills Project is a development located in Nanan District, which is near the Yangtze River. Construction commenced in December 2007 in phases, and is expected to complete in 2023. The land premium for this project has been fully paid.

Cheung Kong Property (1113.HK / 1113 HK) 44 04 June 2015

The Regency Hills is a large scale residential complex, with a range of commercial and community facilities, and is expected to comprise a total GFA of 4,121,781 sq m. As of the end of 2014, the 98 residential building comprising 25,722 units, 117 semi-detached houses, 716 townhouses and 3,137 duplex-on-duplex row houses were under development.

Cheung Kong Property (1113.HK / 1113 HK) 45 04 June 2015

Companies Mentioned (Price as of 03-Jun-2015) ARA Asset Management (ARAM.SI, S$1.775) Agile Property (3383.HK, HK$6.1) Champion Real Estate Investment Trust (2778.HK, HK$4.51) Cheung Kong Property (1113.HK, HK$74.1, OUTPERFORM[V], TP HK$86.0) China Overseas Grand Oceans Group Ltd. (0081.HK, HK$4.26) China Overseas Land & Investment (0688.HK, HK$28.15) China Resources Land Ltd (1109.HK, HK$24.9) China Vanke Co Ltd (2202.HK, HK$20.15) China Vanke Co Ltd-A (000002.SZ, Rmb15.05) Country Garden Holdings Company Limited (2007.HK, HK$3.65) Dalian Wanda Commercial Properties Co., Ltd. (3699.HK, HK$68.95) Evergrande Real Estate Group Ltd (3333.HK, HK$5.05) Fortune REIT (0778.HK, HK$7.92) Franshion Properties (China) Limited (0817.HK, HK$3.06) Glorious Property Holdings Limited (0845.HK, HK$1.13) Great Eagle Hdg. (0041.HK, HK$29.5) Greentown China Holdings Limited (3900.HK, HK$11.0) Guangzhou R&F Properties Co Ltd (2777.HK, HK$9.75) Hang Lung Properties (0101.HK, HK$24.6) Henderson Land Dev (0012.HK, HK$63.3) Hongkong Land Holdings (HKLD.SI, $8.68) Hopewell Holdings (0054.HK, HK$30.1) Hui Xian REIT (87001.HK, Rmb3.49) Hutchison Whampoa (0013.HK^F15, HK$115.0) Hysan Development Co. (0014.HK, HK$35.5) KWG Property Holding Limited (1813.HK, HK$7.68) Kerry Properties (0683.HK, HK$33.3) Link REIT (0823.HK, HK$45.7) New World Development (0017.HK, HK$10.52) Poly Property Group Co., Ltd (0119.HK, HK$4.26) Prosperity REIT (0808.HK, HK$2.81) SOHO China Ltd (0410.HK, HK$5.26) Shenzhen International Holdings Limited (0152.HK, HK$13.3) Shimao Property Holdings Ltd (0813.HK, HK$16.76) Shui On Land Limited (0272.HK, HK$2.31) Sino Land (0083.HK, HK$13.34) Sino-Ocean Land Holdings Ltd (3377.HK, HK$5.5) Sun Hung Kai Properties (0016.HK, HK$134.0) Sunac China Holdings Ltd. (1918.HK, HK$9.01) Swire Properties Limited (1972.HK, HK$26.6) Wharf Holdings (0004.HK, HK$54.45) Wheelock and Company Limited (0020.HK, HK$42.7)

Disclosure Appendix

Important Global Disclosures I, Joyce Kwock, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attra ctive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as Europ ean ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.

Cheung Kong Property (1113.HK / 1113 HK) 46 04 June 2015

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 42% (53% banking clients) Neutral/Hold* 39% (50% banking clients) Underperform/Sell* 16% (44% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and- analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Cheung Kong Property (1113.HK) Method: Our target price of HK$86 for Cheung Kong Property is based on 21% target discount to FY15E NAV (net asset value) of HK$109.1/share. This target discount is narrower than the HK property sector average of 32%, primarily driven by the narrower discounts applied in our SOTP (sum-of-the-parts) valuation to: (1) China DP and (2) HK IP. Risk: Risks that could impede achievement of our HK$86 target price for Cheung Kong Property include: (1) interest rate outlook that drives cap rate trends and sentiment of HK residential market; (2) volatility of China property market driven by economy and policies.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (2778.HK, 0004.HK, 0823.HK, 0054.HK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (0823.HK) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (0823.HK) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (1113.HK, 2778.HK, 0004.HK, 0823.HK, 0054.HK) within the next 3 months. As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (0004.HK).

Cheung Kong Property (1113.HK / 1113 HK) 47 04 June 2015

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683. Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (1113.HK, HKLD.SI, 1972.HK, 2778.HK, 0004.HK, 0101.HK, 0823.HK, 0014.HK, 0054.HK) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse (Hong Kong) Limited ...... Joyce Kwock ; Jinsong Du

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

Cheung Kong Property (1113.HK / 1113 HK) 48 04 June 2015

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