Somerley Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult 14.63 your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or (2)(b) other professional adviser. 14A.58 If you have sold or transferred all your shares in Great Eagle Holdings Limited (the ‘‘Company’’), you (3)(b) should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes 14.58(1) no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any 14.88 loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. 14A.59(1) This circular does not constitute an offer or invitation to acquire, purchase or subscribe for securities nor is it calculated to invite any such offer or invitation.

A1B.1

(Stock Code: 41)

Financial advisor to Great Eagle Holdings Limited

Independent financial advisor to the Independent Board Committee and the Shareholders

SOMERLEY LIMITED

A letter from Somerley Limited, the independent financial advisor to the independent board committee and shareholders of the Company, is set out on pages 38 to 61 of this circular. A notice convening the special general meeting (‘‘SGM’’) of the Company to be held at the Penthouse, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong on Wednesday, 10 May 2006 at 3 p.m. is set out in this circular. Whether or not you intend to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s principal office at 33rd Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or any adjourned meeting should you so wish.

24 April 2006 EXPECTED TIMETABLE

2006 Despatch date of this circular ************************************** 24 April Last day for dealing in Shares cum-entitlement to the Preferential Offering 2 May First day for dealing in Shares ex-entitlement to the Preferential Offering** 3 May Latest time for lodging transfers of Shares cum-entitlement to the Preferential Offering ***************************************************** 4 p.m. on 4 May Latest time for return of proxy forms in respect of the SGM ************ 3 p.m. on 8 May Record Date for determining the entitlement to the Preferential Offering*** 8 May Register of members of the Company closes on *********************** 8 May Register of members of the Company re-opens on ********************* 9 May SGM********************************************************** 3 p.m. on 10 May All times refer to Hong Kong local time. Please note that the above timetable is subject to change. If there are changes to the above timetable, the Company will publish an announcement as soon as possible.

i CONTENTS

Page Expected Timetable ********************************************************** i Contents ******************************************************************** ii Definitions ****************************************************************** 1 Parties Involved in the Proposed Spin-off *************************************** 9 Letter from the Board Introduction**************************************************************** 11 Background**************************************************************** 12 Information on Champion REIT *********************************************** 13 Proposed Spin-off*********************************************************** 15 Listing and Dealings ******************************************************** 20 Preferential Offering********************************************************* 20 Closure of Register of Members of the Company ********************************* 21 Reorganization ************************************************************* 21 Relationship with the Group ************************************************** 26 Financial and Trading Prospects of the Group ************************************ 29 Unaudited Financial Information of the Property********************************** 30 Financial Effects of the Proposed Spin-off*************************************** 30 Management Discussion and Analysis on the Remaining Group ********************* 31 SGM ********************************************************************* 35 Recommendations*********************************************************** 35 Additional information******************************************************* 36 Letter from the Independent Board Committee ********************************** 37 Letter from Somerley Limited ************************************************* 38

Appendix I Property Valuation Report ******************************** I-1 Appendix II Financial Information of the Group ************************ II-1 Appendix III Unaudited Pro forma Financial Information of the Remaining III-1 Group************************************************ Appendix IV General Information ************************************* IV-1 Notice of Special General Meeting ********************************************* (I) Attached document Form of proxy for special general meeting

ii DEFINITIONS

In this circular, unless the context otherwise requires, the following terms shall have the following meanings: Annual Distributable Income has the meaning given to it in the sub-paragraph headed ‘‘Distribution policy’’ under the paragraph headed ‘‘Information on Champion REIT’’ of this circular Application Form(s) the WHITE application form(s), YELLOW application form(s), and BLUE application form(s) or where the context so requires, any of them Appraised Value the value of the Property, as of 28 February 2006, as appraised by the Independent Property Valuer as set out in Appendix I to this circular Assured Entitlement the entitlement of Qualifying Shareholders to apply for Reserved Units under the Preferential Offering on the basis of an assured entitlement of one Reserved Unit for every whole multiple of 4 Shares held by each Qualifying Shareholder as of the close of business on Record Date. For the avoidance of doubt, a Qualifying Shareholder is not entitled to any Reserved Unit in respect of any holding of fewer than 4 Shares Authorisation the authorisation of Champion REIT by the SFC under section 104 of the SFO Board the board of Directors BVI British Virgin Islands CCASS the Central Clearing and Settlement System established and operated by HKSCC Champion REIT Champion Real Estate Investment Trust, a collective investment scheme which will be constituted as a unit trust and which will be subject to authorisation by the SFC under section 104 of the SFO Charge-Out Collections in respect of a real estate property, and in relation to any financial year or part thereof, all items of air-conditioning charges, management fees, promotional charges, government rates, government rent, utility charges, cleaning and other charges to the extent the same are payable by tenants or licensees to the Trustee or the relevant Special Purpose Vehicle, as the case may be Cojoin Properties Reorganization the reorganization agreement to be entered into between, among Agreement others, Elegant Mark International Limited and the Trustee for the sale and purchase of the entire issued share capital of Cojoin Properties Limited, a company incorporated in the BVI and which indirectly, through its wholly-owned subsidiaries, owns a portion of the Property Company Great Eagle Holdings Limited, a company incorporated in Bermuda with limited liability, whose shares are listed on the Main Board of the Stock Exchange (Stock Code: 41) Connected Transaction the Reorganization, pursuant to which Units will be issued to KP Holder, a wholly-owned subsidiary of Kerry Properties (a connected person of the Company by virtue of being a substantial shareholder of certain of the Company’s subsidiaries)

1 DEFINITIONS

Deeds of Tax Covenant the deeds of tax covenant to be entered into between the relevant Vendor Company and the relevant guarantor(s) in favour of the Trustee and the relevant Holding Company and its subsidiaries Director(s) director(s) of the Company Distribution Waiver the proposed waiver by each of GE Holder (together with the Company as guarantor), KP Holder (together with Kerry Properties as guarantor) and Wing Tai (together with the Company as guarantor) of its entitlement to receive any distributions payable by Champion REIT (a) for the FY06 Distribution Period with respect to all of the Units it holds as of the Listing Date; (b) for the FY07 Distribution Periods with respect to 55% of the Units it holds as of the Listing Date; and (c) for the FY08 Distribution Periods with respect to 20% of the Units it holds as of the Listing Date, each such portion of the distributions waived being available for distribution to holders of Units with respect to which distributions have not been waived DMC Manager the manager appointed under the deed of mutual covenant relating to Citibank Plaza, which is currently Longworth Management Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of the Company DPU distribution(s) per Unit East Power Reorganization the reorganization agreement to be entered into between, among Agreement others, Elegant Mark International Limited and the Trustee for the sale and purchase of the entire issued share capital of East Power Limited, a company incorporated in the BVI and which indirectly, through its wholly-owned subsidiaries, owns a portion of the Property Facility the secured credit facility for the aggregate amount of HK$7,200 million extended to the Finance Company, for a term of five years from the Listing Date, comprising a term loan facility in the amount of HK$7,000 million and a HK$200 million revolving credit facility Final FY07 Distribution Period the period from 1 July 2007 to 31 December 2007 Final FY08 Distribution Period the period from 1 July 2008 to 31 December 2008 Finance Company CP Finance Limited, a company incorporated in Hong Kong with limited liability Fuscastus Reorganization the reorganization agreement to be entered into between, among Agreement others, Shuster Limited and the Trustee for the sale and purchase of the entire issued share capital of Fuscastus Limited, a company incorporated in the BVI and which indirectly, through its wholly- owned subsidiaries, owns a portion of the Property FY06 Distribution Period the period from the Listing Date to 31 December 2006 FY07 Distribution Periods the Interim FY07 Distribution Period and the Final FY07 Distribution Period FY08 Distribution Periods the Interim FY08 Distribution Period and the Final FY08 Distribution Period

2 DEFINITIONS

GE Holder Top Domain International Limited, a company incorporated in the BVI with limited liability and a wholly-owned subsidiary of the Company Global Offering the Hong Kong Public Offering and the International Offering (including the Preferential Offering) Gross Property Revenue in respect of a real estate property, and in relation to any financial year or part thereof, the amount equivalent to the Gross Revenue less the Charge-Out Collections for that financial year or part thereof Gross Revenue all income accruing or resulting from the operation of real estate property for that financial year or part thereof, including but not limited to base rental income, turnover rent, licence fees, compensations, Charge-Out Collections and other sums (after deduction for all rebates, refunds, credits or discounts and rebates for rent free periods) due from tenants, licensees and concessionaires, business interruption insurance payments, carpark income, atrium income, interest income, advertising and other income attributable to the operation of such real estate property, but shall exclude the following: (a) proceeds delivered or arising from the sale and/or disposal of the real estate property and/or the operating equipment, or any part thereof; (b) all proceeds from insurances taken out (but excluding business interruption insurance payments which shall form part of Gross Revenue); (c) all rental and other refundable security deposits; and (d) all goods and services or value added taxes (whether in force at present or in the future), charged to tenants, licensees and users of the real estate property for the sale or supply of services or goods, which taxes are accountable by the relevant Special Purpose Vehicle to the tax authorities Group the Company and its subsidiaries Harvest Star Reorganization the reorganization agreement to be entered into between, among Agreement others, Horana Limited and the Trustee for the sale and purchase of the entire issued share capital of Harvest Star Limited, a company incorporated in the BVI and which indirectly, through its wholly- owned subsidiaries, owns a portion of the Property HKSCC Hong Kong Securities Clearing Company Limited Holding Companies (a) Cojoin Properties Limited, (b) East Power Limited, (c) Fuscastus Limited, (d) Harvest Star Limited, (e) Portion A (BVI) Limited and (f) Portion B (BVI) Limited, each a company incorporated in the BVI, and ‘‘Holding Company’’ means any one of them Holding Company Shares the shares comprising the entire issued share capital of the Holding Companies Hong Kong Public Offering the proposed offering of Units to the public in Hong Kong at the Offer Price, on and subject to the terms and conditions to be described in the Offering Circular and the Application Forms

3 DEFINITIONS

Implied Purchase Price the aggregate initial consideration paid by Champion REIT for the acquisition of the Holding Company Shares, and the acquisition of the indebtedness due from the Holding Companies to the Vendor Companies as at the time immediately before completion of the Reorganization, pursuant to the Reorganization Agreements, as adjusted for the IPO Adjustment Independent Board Committee Professor Wong Yue Chim, Richard and Mrs. Lee Pui Ling, Angelina, both being independent non-executive Directors, who have been appointed as the members of the independent board committee of the Company to advise the Shareholders on how to vote on the resolutions to approve the Proposed Spin-off and any related matters Interim FY07 Distribution Period the period from 1 January 2007 to 30 June 2007 Interim FY08 Distribution Period the period from 1 January 2008 to 30 June 2008 Interim Report the interim report of the Company for the six months ended 30 June 2005 and dated 7 September 2005 International Offering the proposed offering of Units for cash at the Offer Price to institutional, professional and other investors to be described in the Offering Circular IPO Adjustment the adjustment to the initial share consideration in respect of all of the Holding Companies, as described and calculated in the manner set out in the section headed ‘‘Letter from the Board — Reorganization — Adjustments — (a) IPO Adjustment’’ in this circular Kerry Properties Kerry Properties Limited, a company incorporated in Bermuda with limited liability, whose shares are listed on the Main Board of the Stock Exchange (Stock Code: 683) KP Holder Fortune Mega Investments Limited, a company incorporated in the BVI with limited liability and a wholly-owned subsidiary of Kerry Properties Latest Practicable Date 21 April 2006, being the latest practicable date for the purpose of ascertaining certain information contained in this circular Listing Approval the approval by the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Units on the Main Board of the Stock Exchange Listing Committee listing committee of the Stock Exchange

Listing Date the date on which the Units are first listed and from which dealings 14.58(3) are permitted to take place on the Stock Exchange Listing Rules the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited Main Board the stock exchange (excluding the option market) operated by the Stock Exchange which is independent from and operated in parallel with the Growth Enterprise Market operated by the Stock Exchange Manager Eagle Asset Management (CP) Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of

4 DEFINITIONS

the Company, and which is the proposed manager of Champion REIT New Property Companies (a) CP (SH) Limited, (b) CP (MC) Limited, (c) CP (PH) Limited, (d) CP (WC) Limited, (e) CP (A1) Limited and (f) CP (B1) Limited, and ‘‘New Property Company’’ means any one of them Offer Price the final Hong Kong dollar price per Unit (exclusive of brokerage of 1%, Stock Exchange trading fee of 0.005% and SFC transaction levy of 0.005%) at which the Units are to be issued and allotted pursuant to the Global Offering, to be determined as further described in the Offering Circular Offering Circular the offering circular to be issued by the Manager (as manager of Champion REIT) in connection with the Hong Kong Public Offering, if the Global Offering proceeds Over-allotment Option the option proposed to be granted by GE Holder (together with the Company as guarantor), KP Holder (together with Kerry Properties as guarantor) and Wing Tai to the international underwriters pursuant to the over-allotment agreement to be entered into by such parties with the international underwriters to require such parties to make available up to an agreed number of Units to be offered to investors as part of the International Offering solely to cover the over-allotment of Units, if any Overseas Shareholders Shareholders whose addresses on the register of members of the Company are outside Hong Kong as of the close of business on the Record Date and who will be excluded from the Preferential Offering on the account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place which the Directors, after making reasonable enquiries, consider such exclusion to be necessary or expedient PN 15 Practice Note 15 of the Listing Rules Portion A (BVI) Reorganization the reorganization agreement to be entered into between, among Agreement others, Accumate Assets Limited and the Trustee for the sale and purchase of the entire issued share capital of Portion A (BVI) Limited, a company incorporated in the BVI and which indirectly, through its wholly-owned subsidiaries, owns a portion of the Property Portion B (BVI) Reorganization the reorganization agreement to be entered into between, among Agreement others, Accumate Assets Limited and the Trustee for the sale and purchase of the entire issued share capital of Portion B (BVI) Limited, a company incorporated in the BVI and which indirectly, through its wholly-owned subsidiaries, owns a portion of the Property Predecessor Property Companies (a) CP (Portion A) Limited, (b) CP (Portion B) Limited, (c) Maple Court Limited, (d) Panhy Limited, (e) Shine Hill Development Limited and (f) Well Charm Development Limited, and ‘‘Predecessor Property Company’’ means any one of them

5 DEFINITIONS

Preferential Offering the proposed preferential offering to the Qualifying Shareholders for subscription of the Reserved Units at the Offer Price on and subject to the terms and conditions to be described in the Offering Circular and in the BLUE Application Form Property Citibank Plaza located at 3 Garden Road, Central, Hong Kong, with the exception of the 3rd Floor (other than the circulation area) and the whole of the 4th, 5th and 6th Floors of Citibank Tower owned by the Financial Secretary Incorporated and the whole of the 34th, 36th and 37th Floors of Citibank Tower and Private Parking Spaces Nos. 39, 40 and 41 owned by Fair Page Limited, a wholly-owned subsidiary of Kerry Properties Property Companies the Predecessor Property Companies and the New Property Companies, and ‘‘Property Company’’ means any one of them Property Management Agreement the property management agreement to be entered into between the Manager and the Property Manager in respect of the provision of certain property management, lease management and marketing services in respect of all the properties of Champion REIT located in Hong Kong Property Manager Eagle Property Management (CP) Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of the Company Property Sale and Purchase the property sale and purchase agreements to be entered into Agreements between the relevant Predecessor Property Company and the relevant New Property Company Proposed Spin-off the proposed spin-off of Champion REIT comprising the Global Offering and the Separate Listing Qualifying Shareholders holders of Shares (other than the Overseas Shareholders and other than certain members of the family of Mr. Lo Ying Shek, the Chairman of the Company, and/or their related trusts and companies which together were interested in approximately 63.9% of the issued share capital of the Company as at the Latest Practicable Date) whose names appear on the register of members of the Company as of the close of business on the Record Date Record Date 8 May 2006 (or such other date as the Board may determine), being the record date for ascertaining the Assured Entitlements and entitlement to vote at the SGM REIT real estate investment trust REIT Code the Code on Real Estate Investment Trusts published by the SFC as amended, supplemented or otherwise modified for the time being Registrar Computershare Hong Kong Investor Services Limited Relevant Shareholders LO Ka Shui (who was interested in 33,275,593 Shares as at the Latest Practicable Date), LO Kai Shui (who was interested in 15,707,022 Shares as at the Latest Practicable Date), LO Ying Sui, Archie (who was interested in 37,128,142 Shares as at the Latest Practicable Date), HSBC International Trustee Limited (which was interested in 51,003,009 Shares as at the Latest Practicable Date), Powermax Agents Limited (which was interested in

6 DEFINITIONS

143,082,768 Shares as at the Latest Practicable Date), Surewit Finance Limited (which was interested in 39,972,012 Shares as at the Latest Practicable Date) and Springtime Int’l Limited (which was interested in 40,139,456 Shares as at the Latest Practicable Date) being members of the family of Mr. LO Ying Shek, the Chairman of the Company, and/or their related trust and companies, and being a closely allied group of Shareholders who together were interested in more than 50% of the Shares as at the Latest Practicable Date Remaining Group the Group excluding Champion REIT and the companies controlled by it

Reorganization the proposed internal reorganization of part of the Company’s real 14A.59 estate portfolio pursuant to which Champion REIT will, prior to the (2)(a) Proposed Spin-off, acquire the beneficial ownership of the Property through the acquisition of the Holding Company Shares Reorganization Agreements (a) the Cojoin Properties Reorganization Agreement, (b) the East Power Reorganization Agreement, (c) the Fuscastus Reorganization Agreement, (d) the Harvest Star Reorganization Agreement, (e) the Portion A (BVI) Reorganization Agreement and (f) the Portion B (BVI) Reorganization Agreement, and ‘‘Reorganization Agreement’’ means any one of them Reserved Units a stated number (to be determined by the Manager) of Units to be offered pursuant to the Preferential Offering and which are to be allocated out of the Units to be offered under the International Offering Savills or Independent Property Savills Valuation and Professional Services Limited Valuer Separate Listing the proposed separate listing of the Units on the Main Board of the Stock Exchange SFC the Securities and Futures Commission of Hong Kong SFO the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, supplemented or otherwise modified for the time being SGM the special general meeting of the Company to be held at the Penthouse, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong on 10 May 2006 at 3 p.m., notice of which is set out on pages (I) to (II) of this circular Shareholders shareholders of the Company Shares shares of HK$0.50 each in the share capital of the Company Special Purpose Vehicle an entity whose primary purpose is to hold or own real estate or arrange financing for Champion REIT Stock Exchange The Stock Exchange of Hong Kong Limited

7 DEFINITIONS

Trust Deed the trust deed to be entered into between the Trustee and the Manager constituting Champion REIT Trustee HSBC Institutional Trust Services (Asia) Limited, the proposed trustee of Champion REIT Unit(s) unit(s) of Champion REIT Unitholder any person registered as holding a Unit Vendor Companies the respective vendors of the Holding Company Shares, being (a) (i) Shuster Limited in respect of Fuscastus Limited and (ii) Horana Limited in respect of Harvest Star Limited, each of which is indirectly owned by the Company (85.9%), Kerry Properties (10.2%) and Wing Tai (3.9%); and (b) (i) Elegant Mark International Limited in respect of East Power Limited and Cojoin Properties Limited and (ii) Accumate Assets Limited in respect of Portion A (BVI) Limited and Portion B (BVI) Limited, each of which is indirectly wholly-owned by the Company, and ‘‘Vendor Company’’ means any one of them Wing Tai Wing Tai Corporation Limited, a company incorporated in Hong Kong with limited liability % per cent

8 PARTIES INVOLVED IN THE PROPOSED SPIN-OFF

Directors Chairman and LO Ying Shek Managing Director Deputy Chairman and LO Ka Shui Managing Director Deputy Managing Director LO Kai Shui Directors LO TO Lee Kwan CHENG Hoi Chuen, Vincent* WONG Yue Chim, Richard* LEE Pui Ling, Angelina* LO Hong Sui, Antony LAW Wai Duen LO Hong Sui, Vincent LO Ying Sui, Archie KAN Tak Kwong *Independent non-executive directors Financial advisor to the Company Merrill Lynch Far East Limited 17/F, ICBC Tower 3 Garden Road, Central Hong Kong Independent financial advisor to Somerley Limited the Independent Board Suite 2201, 22nd Floor Committee and the Two International Finance Centre Shareholders 8 Finance Street Central Hong Kong Legal advisors to the Company Baker & McKenzie 14/F, Hutchison House 10 Harcourt Road Central Hong Kong Auditors Deloitte Touche Tohmatsu 26/F, Wing On Centre 111 Connaught Road Central Hong Kong Independent property valuer Savills Valuation and Professional Services Limited 23/F, Two Exchange Square Central Hong Kong Hong Kong Branch Registrars Computershare Hong Kong Investor Services Limited Shops 1712-1716 17/F, Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

9 PARTIES INVOLVED IN THE PROPOSED SPIN-OFF

Principal Registrars Butterfield Fund Services (Bermuda) Limited Rosebank Centre 11 Bermudiana Road Pembroke HM08 Bermuda

10 LETTER FROM THE BOARD

(Stock Code: 41)

Directors: Registered Office: 2.14 LO Ying Shek, Chairman and Managing Director Canon’s Court LO TO Lee Kwan 22 Victoria Street LO Ka Shui, Deputy Chairman and Managing Director Hamilton HM12 LO Kai Shui, Deputy Managing Director Bermuda CHENG Hoi Chuen, Vincent* WONG Yue Chim, Richard* LEE Pui Ling, Angelina* LO Hong Sui, Antony Principal Office: LAW Wai Duen 33rd Floor, Great Eagle Centre LO Hong Sui, Vincent 23 Harbour Road LO Ying Sui, Archie Wanchai KAN Tak Kwong Hong Kong

* Independent non-executive Directors 24 April 2006 To the Shareholders Dear Sir or Madam,

INTRODUCTION

The Board announced on 24 April 2006 that a formal application has been made to the SFC for the 14.58(3) Authorisation and an application, to take effect on 24 April 2006, has been made by Champion REIT to the 14.63(1) Stock Exchange for the Separate Listing. There is proposed to be a Global Offering by Champion REIT, 14.63(2)(a) comprising an offer for subscription by way of public offer in Hong Kong and an international placement to 14A.58 professional, institutional and other investors. (3)(A) The purposes of this circular are: (a) to provide the Shareholders with information on the reasons for, and the benefits of, the Proposed Spin-off (together with such other information relating to the Proposed Spin-off as is required by the Listing Rules for a very substantial disposal of the Company) and information on the Connected Transaction and other related matters; (b) to set out the recommendations of the Independent Board Committee to the Shareholders; (c) to set out the letter of advice from Somerley Limited containing its recommendation to the Independent Board Committee and the Shareholders as regards voting on the Proposed Spin-off and other related matters; (d) to seek Shareholders’ approval for the Proposed Spin-off and any related matters by way of poll; and (e) to give notice to the Shareholders of the SGM at

11 LETTER FROM THE BOARD which the ordinary resolution will be proposed to approve the Proposed Spin-off and any related matters by way of poll. The Proposed Spin-off is subject to, among other things, the Listing Approval being granted by the Listing Committee. Accordingly, Shareholders should note that the Proposed Spin-off is dependent on a number of factors and subject to a number of conditions, which may or may not be satisfied. Thus, there can be no assurance that the Proposed Spin-off will proceed. Accordingly, Shareholders or other persons contemplating buying or selling Shares are reminded to exercise caution when dealing in the securities of the Company and are recommended to consult their professional advisers if they are in any doubt about their positions. The Directors confirm that the Company complies with all of the requirements set out under PN 15.

BACKGROUND

The principal activities of the Group include property development and investment, hotel and 14.58(2) restaurant operations, trading of building materials, share investment, provision of management and maintenance services, property management, insurance agency and fitness centre operation. Its investment in office properties extends to the United States of America and its hotel portfolio covers Hong Kong, North America, Europe, Australia and New Zealand. In connection with the Proposed Spin-off, the Group is proposing to implement the Reorganization which will involve a transfer to Champion REIT of the entire issued share capital of the Holding Companies which in turn collectively (through wholly-owned subsidiaries) own the Property, as detailed in the paragraph headed ‘‘Reorganization’’ below. Of the six Holding Companies proposed to be transferred to Champion REIT, four Holding Companies are currently indirect wholly-owned subsidiaries of the Company while two Holding Companies are currently indirectly owned by the Company (85.9%), Kerry Properties (10.2%) and Wing Tai (3.9%). It is proposed that new Units will be issued by Champion REIT pursuant to the Global Offering. As part of the Global Offering, an assured entitlement to the Units will be provided to the Qualifying Shareholders by way of the Preferential Offering. As a result of the issue of new Units pursuant to the Proposed Spin-off, and assuming the Over-allotment Option is exercised in full, the Group’s interest in Champion REIT is expected to decrease from approximately 89.5% to approximately 49.0% (assuming that the Over-allotment Option is not exercised) or approximately 43.0% (assuming that the Over-allotment Option is exercised in full) immediately following the completion of the Proposed Spin-off. Such issue of new Units will give rise to a deemed disposal by the Company under Rule 14.29 of the Listing Rules. The transaction will constitute a very substantial disposal for the Company under Rule 14.06 of the Listing Rules, which will be subject to the approval of the Shareholders under Rule 14.49 of the Listing Rules. Further, the Reorganization will constitute a connected transaction of the Company under the Listing Rules, and is also subject to the approval of Shareholders.

Kerry Properties is indirectly a substantial shareholder of certain non-wholly subsidiaries of the 14A.59(2)(a) Company, one of which is Throng Limited which is, in turn, the indirect holding company of two of the (c),(d),(e) Property Companies. The Reorganization involves the establishment of Champion REIT (which is deemed to be a subsidiary of the Company for the purposes of the Listing Rules) and the issue of Units to a wholly owned subsidiary of Kerry Properties. As Kerry Properties is a connected person of the Company, the Reorganization constitutes a connected transaction and is subject to the approval of the Shareholders under the Listing Rules. The Stock Exchange has granted the Company a waiver pursuant to Rule 14A.43 of the Listing Rules from the requirement to hold a general meeting to approve the Connected Transaction, on the basis that the requirements under Rule 14A.43 of the Listing Rules are met in respect of the Connected Transaction.

12 LETTER FROM THE BOARD

Any Shareholder who has a material interest in the Proposed Spin-off, and his associates, shall be 2.17 required to abstain from voting on the resolution approving the Proposed Spin-off. As far as the Directors 14.63(2)(d) are aware, the interests in relation to the Proposed Spin-off, the Reorganization and other related matters of 14.66(5) all Shareholders (including the controlling shareholder (as defined in the Listing Rules) of the Company) are 14A.59(5) the same, hence all Shareholders are entitled to vote on the ordinary resolution at the SGM. In addition, and without limiting the generality of foregoing, the Relevant Shareholders, who as at the Latest Practicable Date together were interested in more than 50% in nominal value of the Shares, have no material interest in the proposed transaction (for the purpose of Rule 2.16 of the Listing Rules) and thus, are entitled to vote on, and have irrevocably undertaken that they will vote in favour of, such resolution in connection with the Proposed Spin-off and any related matters. The Relevant Shareholders have also provided irrevocable written approvals and authorizations in respect of the Connected Transaction pursuant to Rule 14A.43 of the Listing Rules. As far as the Directors are aware, as at the Latest Practicable Date, neither Kerry Properties nor Wing Tai, nor any of their respective associates (as defined in the Listing Rules), held any Shares. INFORMATION ON CHAMPION REIT 1. Description of a REIT

A REIT is a collective investment scheme constituted as a unit trust that invests primarily in 14.58(2) income-producing real estate assets and uses the income to provide stable returns to its Unitholders. 14.60(2) Purchasing a unit in a REIT allows investors to share the benefits and risks of owning the real estate assets held by the REIT. An investment in the units of a REIT in Hong Kong is governed primarily by the REIT Code and offers investors the following benefits: ( certainty as to business focus, as a REIT does not have the discretion to diversify outside of the real estate sector or to own significant non-real estate assets; ( a distribution which is required by the REIT Code to be at least 90% of the REIT’s audited net income after tax for each financial year subject to certain adjustments (and, in the case of Champion REIT, as stated below, by a requirement under the Trust Deed to be at least 90%, and a policy to distribute 100% of Annual Distributable Income for each financial year). The Annual Distributable Income is the consolidated audited net profit after tax of Champion REIT and each Special Purpose Vehicle owned by the Trustee on trust for and on behalf of Champion REIT subject to certain adjustments as described under ‘‘Distribution Policy’’ below; ( enhanced liquidity in comparison to direct investments in real estate; ( a manager licensed and regulated on an ongoing basis by the SFC; and ( a statutory and regulatory corporate governance framework and an internal corporate governance framework overseen by an independent trustee. 2. Objectives of Champion REIT The Manager’s key objectives for Champion REIT are to provide Unitholders with stable and sustainable distributions per Unit and to achieve long-term growth in the net asset value per Unit. The Manager’s principal investment strategy is to invest in income-producing office and retail properties in Hong Kong and it aims to produce attractive total returns to Unitholders by actively managing the Property and maintaining a high level of investment discipline and financial flexibility. The Manager intends to hold the Property for long-term investment purposes while seeking yield-enhancing acquisition opportunities. 3. The Manager The Manager has a general power of management over the assets of Champion REIT. The Manager’s main responsibility is to manage the assets of Champion REIT for the benefit of the Unitholders and the Manager is not involved in any other REIT. The Manager will set the strategic direction and risk management policies of Champion REIT and give recommendations to the Trustee on the acquisition,

13 LETTER FROM THE BOARD divestment or enhancement of assets of Champion REIT in accordance with its stated investment strategy. The Manager will manage the assets of Champion REIT in accordance with the Manager’s investment strategy and in accordance with the provisions of the Trust Deed and the compliance procedures set forth herein. The Manager will be licensed by the SFC to conduct the regulated activity of asset management, as required by the REIT Code.

4. Implementation of the Manager’s strategy The implementation of the Manager’s strategy can be broadly categorized as follows: ( Asset management strategy. The Manager intends to proactively manage the Property to maximize rental income, improve occupancy levels, increase tenancy renewal rates and maintain a high quality tenant base. The Manager will work closely with both the DMC Manager and the Property Manager to drive organic growth and build and maintain strong relationships with tenants. ( Acquisition strategy. The Manager intends to seek to selectively acquire additional income- producing properties that meet its investment criteria. ( Financing strategy. The Manager intends to strive to employ appropriate debt and equity financing policies.

5. Distribution policy The Manager’s policy is to distribute to Unitholders an amount equal to 100% of Champion REIT’s Annual Distributable Income for each financial year. Pursuant to the Trust Deed, Champion REIT will in any event be required to ensure that the total amount distributed to Unitholders shall be no less than 90% of Champion REIT’s Annual Distributable Income for each financial year. For these purposes, and under the terms of the Trust Deed, ‘‘Annual Distributable Income’’ is the consolidated audited net profit after tax of Champion REIT and each Special Purpose Vehicle owned by the Trustee on trust for and on behalf of Champion REIT for the relevant financial year adjusted to eliminate the effects of certain Adjustments (as defined below) which have been recorded in the income statement for the relevant financial year. After eliminating these Adjustments, Annual Distributable Income may be different from the net profit recorded for the relevant financial year. ‘‘Adjustments’’ means significant adjustments which are charged or credited to the income statement for the relevant financial year or the relevant distribution period, as the case may be, including: (a) unrealized property revaluation gains/losses, including impairment provisions and reversals of impairment provisions; (b) impairment loss of goodwill/recognition of negative goodwill; (c) differences between cash and accounting finance costs; (d) realized gains on the disposal of properties; (e) fair value changes on financial instruments; (f) deferred tax charges/credits in respect of property valuation movements, fair value changes on financial instruments and commercial building allowances/capital allowances and other tax deductions claimed; (g) the portion of the Manager’s management fee that is paid in the form of Units; (h) costs of any public offering of Units that are expensed through the income statement but are funded by proceeds from the issuance of such Units; and (i) other material non-cash gains/ losses. The sources of the distribution to Unitholders are from: (1) net profit after tax generated by each Special Purpose Vehicle which the Special Purpose Vehicles pay to Champion REIT by way of dividend; and (2) distribution of capital which is facilitated by the Special Purpose Vehicles repaying loans to Champion REIT. However, no amount of revaluation surplus on real estate credited to income or gains on disposal of real estate, whether directly or indirectly through the disposal of any Special Purpose Vehicle, shall form part of any distribution to Unitholders unless the Manager shall have obtained the Trustee’s prior consent.

14 LETTER FROM THE BOARD

It is proposed that Champion REIT’s initial distribution policy will be that two distributions will be made in respect of each year for the six-month periods ending 30 June and 31 December, except with respect to 2006, where one distribution will be made in respect of the period from the Listing Date to 31 December 2006. Distributions will be paid within 150 days of the end of the relevant period. It is anticipated that interim and final distributions will be paid by the end of November and May following each six-month period, respectively. With respect to 2006, Champion REIT’s first distribution after the Listing Date will be for the FY06 Distribution Period, which is the period from the Listing Date to 31 December 2006, and which is expected to be paid by the end of May 2007. Each of GE Holder (together with the Company as guarantor), KP Holder (together with Kerry Properties as guarantor) and Wing Tai (together with the Company as guarantor) will enter into a distribution entitlement waiver deed with the Trustee and the Manager pursuant to which it will agree to waive its entitlement to receive any distributions payable (a) for the FY06 Distribution Period with respect to all of the Units it holds as of the Listing Date; (b) for the FY07 Distribution Periods with respect to 55% of the Units it holds as of the Listing Date; and (c) for the FY08 Distribution Periods with respect to 20% of the Units it holds as of the Listing Date. Each such portion of the distributions waived will be available for distribution to other Unitholders. Wing Tai has agreed to indemnify the Company in respect of the Company’s guarantee of Wing Tai’s obligations under the distribution entitlement waiver deed. GE Holder (together with the Company as guarantor) will enter into a deed of guarantee with the Trustee and the Manager pursuant to which GE Holder will guarantee that the DPU of Champion REIT payable to the public Unitholders for the FY06 Distribution Period will not be less than a certain amount to be determined among the Manager, the Trustee and GE Holder (after taking into account the effect of the Distribution Waiver and assuming any applicable distribution waiver top-up obligations by GE Holder, KP Holder and Wing Tai is paid pursuant to the distribution entitlement waiver deed). Distributions to Unitholders will be declared and paid in Hong Kong dollars. The Manager may also adopt such rules as it considers appropriate for the reinvestment by Unitholders of any distributions to be made by Champion REIT in return for new Units but no Unitholder shall be obliged to receive Units in lieu of a cash distribution. Under current Hong Kong tax law, distributions may be made free of withholdings or deductions on account of Hong Kong tax. It is understood that, under the Hong Kong Inland Revenue Department’s current practice, Hong Kong profits tax will not be payable by a Unitholder on distributions made by Champion REIT. However, Unitholders should take advice from their own professional advisers as to their particular tax position. Champion REIT’s ability to make distributions is dependent on, among other things, the Trustee having available sufficient cash in Champion REIT to make the payments required. The REIT Code requires the Manager and the Trustee to ensure that each company used to hold real estate and other assets for Champion REIT for the time being shall distribute to Champion REIT all of such company’s income for each financial year as permitted by the laws and regulations of its relevant jurisdiction of incorporation. PROPOSED SPIN-OFF 1. The Proposed Spin-off

The Proposed Spin-off will comprise the Global Offering and the Separate Listing. The Global 14.60(1) Offering will comprise an offer for subscription by way of public offer in Hong Kong and an international placement to professional, institutional and other investors. As part of the Global Offering, there will be a Preferential Offering to the Qualifying Shareholders. The Proposed Spin-off is conditional upon, among other things, (a) the Authorisation of the SFC under the REIT Code and (b) the approval of the Stock Exchange for the listing of, and permission to deal in, all the Units on the Stock Exchange. If such conditions are not fulfilled, the Proposed Spin-off will not be implemented.

Upon completion of the Reorganization, the Company’s interest in Champion REIT will be 14.64 approximately 89.5%. Immediately following the completion of the Proposed Spin-off, it is expected that (4)(a)

15 LETTER FROM THE BOARD the Company’s interest in Champion REIT will be decreased from approximately 89.5% to approximately 49.0% (assuming that the Over-allotment Option is not exercised) or approximately 43.0% (assuming that the Over-allotment Option is exercised in full).

2. Separate Listing The Shares will continue to be listed on the Main Board of the Stock Exchange after the implementation of the Proposed Spin-off. The listing of the Units on the Main Board of the Stock Exchange is conditional upon the fulfillment of the conditions stated in the sub-paragraph headed ‘‘Conditions’’ below. An application has been made to the SFC for the Authorisation and an application, to take effect on 24 April 2006, has been made to the Stock Exchange for the listing of, and permission to deal in, the Units (including any Units sold pursuant to the exercise of the Over-allotment Option) on the Main Board of the Stock Exchange. Subject to the Authorisation and the Listing Approval, as well as compliance with the stock admission requirements of HKSCC, the Units will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the Listing Date or such other date as may be determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

3. Businesses of the Group and Champion REIT

The Manager’s key objectives for Champion REIT are to provide Unitholders with stable and 14.58(2) sustainable distributions per Unit and to achieve long-term growth in the net asset value per Unit. The 14A.59 Manager’s principal investment strategy is to invest in income-producing office and retail properties in (2)(b) Hong Kong and it aims to produce attractive total returns to Unitholders by actively managing the Property and maintaining a high level of investment discipline and financial flexibility. The Manager intends to hold the Property for long-term investment purposes while seeking yield-enhancing acquisition opportunities.

The property to be transferred to Champion REIT is as follows: 14.60(2)

Total floor area Appraised value as of Name of (excluding 28 February property Address Description carparks) 2006

Citibank Plaza 3 Garden Road, The whole of Citibank 1,492,526 sq. ft. HK$22,670 million 14.58(6) Central, Hong Plaza with the exception Kong of the 3rd Floor (other than the circulation area) and the whole of the 4th, 5th, 6th, 34th, 36th and 37th Floors of Citibank Tower and Private Parking Spaces Nos. 39, 40 and 41. As at 31 December 2005, the carrying value of the Property, as determined by the Directors, was HK$22,670 million.

16 LETTER FROM THE BOARD

4. Reasons for and benefits of the Proposed Spin-off

The Directors consider that the Proposed Spin-off will be beneficial for both the Company and 14.58(8) Champion REIT for the following reasons: 14.63 ( the net proceeds received by the Company from the Proposed Spin-off of at least HK$10.3 billion (2)(c) in cash will provide the Group with funds for its operations, thereby enabling the Group to reduce 14A.58(1) its net borrowings, and hence improve its liquidity and gearing position. It would also provide the 14A.59(13) Group with capital to fund new investment opportunities; ( the Proposed Spin-off will increase the operational and financial transparency of Champion REIT and provide the investors and the investment market with greater clarity on the businesses and financial status of Champion REIT; ( the Proposed Spin-off will provide additional funding sources (potentially on better terms as a result of the greater clarity referred to above) for Champion REIT to finance its future expansion; ( the Proposed Spin-off will allow Champion REIT to establish a higher profile as a separate listed entity with the ability to access the debt and equity capital markets to fund future investments; ( the Proposed Spin-off will allow the Company to realize part of the Property and achieve the valuation potential in the form of upfront cash proceeds as well as enabling the Shareholders to benefit from the Company’s continuing interest in Champion REIT to benefit from an expected positive outlook of the Central office property market; and ( The Proposed Spin-off will enable the Group to enter into the REIT management business which will generate a new source of income.

Following the completion of the Proposed Spin-off and assuming the Over-allotment Option is not 14.64 exercised, the Company will retain an interest of approximately 49.0% of the total Units then outstanding (4)(a)(b) and will continue to receive diversified mix of income flow from its existing business. 5. Intended use of proceeds

It is the present intention of the Directors to use part of the anticipated net cash proceeds to be 14.60(3)(b) received by the Company from the Proposed Spin-off for working capital and part for reducing the gearing 14.70(1) level and interest expenses of the Group, thereby improving the liquidity and financial position of the Group. Based on the estimation of the Directors and with reference to the valuation of the Property for the purposes of the Proposed Spin-off (which in turn is determined by reference to the Appraised Value), the net 14.58(5) cash proceeds to be received by the Company from the Proposed Spin-off (subject to the Offer Price and 14.58(4) relevant expenses) are expected to be not less than approximately HK$10.3 billion.

Should the final net cash proceeds received by the Company from the Proposed Spin-off be more than 14.70(2) the abovementioned amount, such excess will be applied for working capital.

17 LETTER FROM THE BOARD

6. Effect of the Proposed Spin-off (a) Ownership structure of Champion REIT immediately after the Reorganization but prior to the Proposed Spin-off

The ownership structure of Champion REIT immediately after the Reorganization but prior to the Proposed Spin-off will be as follows:

Kerry Wing Tai Company Properties

2.9% 89.5% 7.6%

Champion REIT

100%

Fuscastus Harvest Star East Power Cojoin Properties Portion A (BVI) Portion B (BVI) CP Finance (BVI) Limited (BVI) Limited (BVI) Limited (BVI) Limited (BVI) Limited (BVI) Limited (BVI) Limited (BVI)

Shine Hill CP (SH) Maple CP (MC) Panhy CP Well Charm CP CP CP CP CP (B1) CP Development Limited Court Limited Limited (PH) Development (WC) (Portion A) (A1) (Portion B) Limited Finance Limited Limited Limited Limited Limited Limited Limited Limited Limited

(b) Ownership structure of Champion REIT upon completion of the Proposed Spin-off

The ownership structure of Champion REIT immediately following the completion of the Proposed 14.64(4)(a) Spin-off (assuming that the Over-allotment Option is not exercised) will be as follows:

Kerry Public Wing Tai Company Properties Unitholders

1.5% 49.0%4.5% 45.0%

Champion REIT

100%

Fuscastus Harvest Star East Power Cojoin Properties Portion A (BVI) Portion B (BVI) CP Finance (BVI) Limited (BVI) Limited (BVI) Limited (BVI) Limited (BVI) Limited (BVI) Limited (BVI) Limited (BVI)

Champion REIT, as a collective investment scheme constituted as a unit trust and authorised under section 104 of the SFO, will be exempt from Hong Kong profits tax. Distributions made by Champion REIT to Unitholders are not subject to any withholding tax in Hong Kong.

18 LETTER FROM THE BOARD

(d) Stamp duty No Hong Kong stamp duty is payable by Champion REIT on the issue of new Units. (e) General Qualifying Shareholders are recommended to consult their professional advisers if they are in any doubt as to tax implications of the holding or disposal of, or dealing in the Units. It is emphasised that none of the Company, its Directors or any other parties involved in the Proposed Spin-off accepts responsibility for any tax effects or liabilities of holders of the Units resulting from the holding or disposal of, or dealing in the Units. 7. Distribution entitlement waiver and guarantee Each of GE Holder (together with the Company as guarantor), KP Holder (together with Kerry Properties as guarantor) and Wing Tai (together with the Company as guarantor) will enter into a distribution entitlement waiver deed with the Trustee and the Manager pursuant to which it will agree to waive its entitlement to receive any distributions payable (a) for the FY06 Distribution Period with respect to all of the Units it holds as of the Listing Date; (b) for the FY07 Distribution Periods with respect to 55% of the Units it holds as of the Listing Date; and (c) for the FY08 Distribution Periods with respect to 20% of the Units it holds as of the Listing Date. Each such portion of the distributions waived will be available for distribution to other Unitholders. Wing Tai has agreed to indemnify the Company in respect of the Company’s guarantee of Wing Tai’s obligations under the distribution entitlement waiver deed. In view of such indemnity from Wing Tai, and the relative immateriality of its holdings of Units in the context of Global Offering as a whole, the Directors consider that it is appropriate for the Company, as majority shareholder of the relevant Holding Companies, to provide such guarantee in order to expedite the Proposed Spin-off so as to enable the Company to capitalise on the current favourable market conditions for the Global Offering. The Directors are of the view that the provision of such guarantee of Wing Tai is fair and reasonable and is in the interests of the Company and Shareholders as a whole. While the amount of income forgone in FY06 Distribution Period, FY07 Distribution Periods and FY08 Distribution Periods is significant, the Directors believe that such arrangement will enhance investor confidence and support for a successful Global Offering at a relatively higher valuation for the Champion REIT which in turn will increase the cash proceeds to the Group. 8. Lock-up arrangement It is proposed that as part of the Global Offering, the Company, GE Holder, Kerry Properties, KP Holder and Wing Tai will enter into certain lock-up arrangements with the underwriters of the Global Offering with respect to their Units for a period of 180 days from and including the Listing Date. Details of the lock-up arrangements will be set out in the Offering Circular.

9. Conditions 14.58(3) The Proposed Spin-off will be conditional on, among other things, the following: (a) Shareholders passing the ordinary resolution by way of poll at the SGM to approve the Proposed Spin-off and any related matters; (b) the Listing Committee granting the Listing Approval; (c) the conditions precedent to the draw down of the Facility being fulfilled or waived; (d) the obligations of the underwriters under the underwriting agreements entered into or to be entered into between, among others, the Company, the Manager and the underwriters in respect of the Global Offering becoming and remaining unconditional and neither underwriting agreement being terminated in accordance with its terms or otherwise, on or before the dates and times to be specified therein, details of which will be set out in the Offering Circular; and (e) the receipt of the Authorisation.

19 LETTER FROM THE BOARD

If the foregoing or any other applicable conditions precedent are not fulfilled or waived prior to the dates and times to be specified in the Offering Circular, the Global Offering will lapse and a notice will be published by the Company and/or Champion REIT as soon as practicable following such lapse. The Proposed Spin-off is subject to the foregoing conditions and is dependent on a number of factors (including, without limitation, the entering into of definitive underwriting agreements and other legal documentation in respect of the Global Offering as well as market conditions at the relevant time). Shareholders should note in particular that the underwriting agreements, if entered into, will be subject to, among other things, customary conditions precedent. There is, therefore, no assurance that the Proposed Spin-off will proceed. LISTING AND DEALINGS The Shares will continue to be listed on the Stock Exchange after the implementation of the Proposed Spin-off. An application has been made to the SFC for the Authorisation and an application, to take effect on 24 April 2006, has been made to the Stock Exchange for the listing of, and permission to deal in, the Units (including any Units to be sold upon the exercise of the Over-allotment Option) on the Main Board of the Stock Exchange. Subject to the granting of the Listing Approval and the compliance with the stock admission requirements of HKSCC, the Units will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Units or such other date as may be determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. PREFERENTIAL OFFERING In accordance with the assured entitlement requirements under PN 15, the Board has given due regard to the interests of the Shareholders by requesting the Manager to provide Qualifying Shareholders with Assured Entitlements to a certain number of Units (subject to certain conditions) by way of the Preferential Offering, if the Manager decides to proceed with the Global Offering and the Separate Listing. It is currently proposed that Qualifying Shareholders will be entitled to subscribe for one Reserved Unit for every whole multiple of 4 Shares (or such other number of Shares as will be stated in the Offering Circular) held by them at the close of business on the Record Date. Any Qualifying Shareholder holding less than 4 Shares (or such other number of Shares as will be stated in the Offering Circular) will not be entitled to apply for any Reserved Unit. Any Reserved Units not taken up by the Qualifying Shareholders will be allocated to the International Offering. Assuming that all the Reserved Units are taken up under the Preferential Offering, the number of Units to be issued under the Preferential Offering is expected to represent approximately 4.4% of the Units offered in the Global Offering. Shareholders should note that the entitlement to Reserved Units may represent Units not in a whole multiple of a full board lot of Units, and dealings in odd lot Units may be below their prevailing market price. Entitlements to Reserved Units are not transferable and there will be no trading in nil-paid entitlements on the Stock Exchange. Any Units to be issued pursuant to the Preferential Offering shall be fully paid, ranking pari passu in all respects with other Units to be issued pursuant to the Global Offering. Any Qualifying Shareholder who holds the Shares as a nominee, trustee or registered holder in any other capacity will not be treated differently from any other registered holder. Any beneficial owner of the Shares whose Shares are registered in the name of a nominee, trustee or registered holder in any other

20 LETTER FROM THE BOARD capacity should make arrangements with such nominee, trustee or registered holder in relation to the Assured Entitlement. Any such person may consider whether it wishes to arrange for the registration of the relevant Shares in the name of the beneficial owner prior to the Record Date.

CLOSURE OF REGISTER OF MEMBERS OF THE COMPANY Based on the expected timetable, the register of members of the Company will be closed on 8 May 2006 for the purpose of determining the Assured Entitlements and entitlement to vote at the SGM, and will be re-opened on 9 May 2006. No transfer of the Shares may be registered during such book close period. In order to qualify for the Assured Entitlements and to vote at the SGM, all transfer forms accompanied by the relevant share certificates must be lodged with the Registrar by no later than 4 p.m. on 4 May 2006. The last day of dealing in the Shares cum Assured Entitlements is expected to be on 2 May 2006 and the Shares will then be traded ex Assured Entitlements as from 3 May 2006. However, if the Global Offering and the Separate Listing are postponed, the Board may then determine another date(s) for closure of the register of members of the Company for the purposes of determining the Assured Entitlements and entitlement to vote at the SGM and further announcement(s) will be made to inform the Shareholders and other investors in due course. Shareholders should note that the implementation of the Preferential Offering is conditional upon the satisfaction of the conditions of the Proposed Spin-off as set out in the sub-paragraph headed ‘‘Conditions’’ under the paragraph headed ‘‘Proposed Spin-off’’ above. If any of such conditions is not fulfilled by such time as is set out therein, the Preferential Offering will not be made and in such case no Qualifying Shareholders may subscribe for any Reserved Units thereunder.

REORGANIZATION It is proposed that an internal reorganization of part of the Company’s real estate portfolio will be implemented with the result that Champion REIT will hold, through various companies owned and controlled by it, the Group’s entire interests in the Property. The Reorganization is proposed to be effected in the manner described below.

1. Establishment of Champion REIT Champion REIT will be constituted and established when Eagle Asset Management (CP) Limited, as manager of Champion REIT, and HSBC Institutional Trust Services (Asia) Limited, as trustee of Champion REIT, enter into the Trust Deed.

2. Subscription of Units 14A.59 A subscription agreement will be entered into by the Company and the Manager pursuant to which the (2)(b),(c) Manager will issue, at the direction of the Company, certain number of Units to GE Holder, KP Holder and Wing Tai. The initial subscription price to be paid in respect of such Units is expected to be approximately HK$7.2 billion (the ‘‘Initial Subscription Price’’) which is determined based upon the expected total number of Units to be issued to GE Holder, KP Holder and Wing Tai at a price per Unit by reference to the expected Offer Price range. The Initial Subscription Price is subject to adjustment based on the Offer Price such that the final, adjusted subscription price per Unit for the Units issued to GE Holder, KP Holder and Wing Tai will ultimately be identical to the Offer Price payable by public investors under the Global Offering. The Initial Subscription Price will be satisfied by the assignment to the Trustee of a promissory note to be issued by Alfida Limited, a wholly-owned subsidiary of the Company, to GE Holder for an amount equal to the Initial Subscription Price (the ‘‘Subscription Promissory Note’’). In the event of an adjustment to the Initial Subscription Price, the principal amount of the Subscription Promissory Note will be increased to include the amount of such adjustment. The Subscription Promissory Note will not bear any interest and will be paid by Alfida Limited on the Listing Date.

21 LETTER FROM THE BOARD

3. Reorganization Agreements

The Reorganization Agreements will be entered into by, among others, the Trustee, as trustee of Champion REIT, with the relevant Vendor Companies pursuant to which the Trustee, on behalf of Champion REIT, will acquire the Holding Company Shares from the relevant Vendor Companies. Completion is expected to take place immediately following the execution of the Reorganization Agreements. 14A.59(2)(a)

The Holding Companies together indirectly own the entire legal and beneficial interest in the Property. Of the six Holding Companies to be acquired by the Trustee, on behalf of Champion REIT, pursuant to the Reorganization Agreements, four Holding Companies are indirect wholly-owned subsidiaries of the Company while two Holding Companies are indirectly owned by the Company (as to 85.9%), Kerry Properties (as to 10.2%) and Wing Tai (at to 3.9%).

Immediately before the Proposed Spin-off, all the Units will be indirectly owned by the Company (as to 89.5%), Kerry Properties (as to 7.6%) and Wing Tai (as to 2.9%).

There will not be any gain or loss associated with the Reorganization as the Reorganization involves 14.58(5) merely a change of holding structure. The respective asset value held by each of the Company, Kerry 14.58(4) Properties and Wing Tai will be the same before and after the Reorganization.

4. Initial consideration

The aggregate initial consideration to be paid by the Trustee, on behalf of Champion REIT, for the acquisition of the Holding Companies pursuant to the Reorganization Agreements is expected to be approximately HK$18.7 billion (the ‘‘Initial Consideration’’) which will comprise (a) the consideration for the Holding Company Shares (the ‘‘initial share consideration’’), which is subject to the adjustments as described in the sub-paragraph headed ‘‘Adjustments’’ below; and (b) the consideration for the assignment by each Vendor Company to the Trustee of the amount owing by the relevant Holding Company to such Vendor Company as of completion of the Reorganization (‘‘Completion’’) on a dollar for dollar basis.

The initial share consideration to be paid in respect of the acquisition of each Holding Company is proposed to be determined by reference to, among other things, the net asset value of that Holding Company and its subsidiaries as of the expected listing date (the ‘‘Expected Listing Date’’), and the rental income and occupancy trend of the Property. The initial share consideration serves as a starting figure for the purposes of the Reorganization.

The Initial Consideration is subject to adjustment, the purpose of which is to ensure that the final consideration payable by Champion REIT for the purchase of the Property will ultimately be identical to the Implied Purchase Price based on the Offer Price achieved in the Global Offering.

Pursuant to the Reorganization Agreements, it is proposed that a pro forma completion balance sheet for each Holding Company and its subsidiaries (the ‘‘Pro Forma Completion Balance Sheet’’) will be prepared in accordance with accounting policies which are consistent with those used in preparing the audited accounts of the relevant entities, and comply with applicable Hong Kong Financial Reporting Standards, and on the basis of the unaudited consolidated completion management accounts of the relevant Holding Company and its subsidiaries to be drawn up as of the Expected Listing Date, to facilitate the determination of the Initial Consideration.

The Initial Consideration is proposed to be satisfied by the issue of promissory notes by the Trustee, on behalf of Champion REIT, to the relevant Vendor Companies (the ‘‘Purchaser Promissory Notes’’). The Purchaser Promissory Notes will not bear any interest and shall be paid by the Trustee on the Listing Date.

22 LETTER FROM THE BOARD

5. Adjustments (a) IPO Adjustment If the Listing Date occurs on or before 31 December 2006 (or such later date as the parties to the Reorganization Agreements may agree in writing), the initial share consideration in respect of all of the Holding Companies will be subject to an adjustment calculated in the manner described below (the ‘‘IPO Adjustment’’).

The total amount of the IPO Adjustment in respect of all of the Holding Companies will be calculated 14A.58(2) as the sum of: (i) the gross proceeds from the issue of Units pursuant to the Global Offering net of commissions payable to the underwriters; (ii) the gross amount drawn down by the Finance Company pursuant to the Facility on the Listing Date; and (iii) the principal amount of the Subscription Promissory Note, less the sum of: (i) the Initial Consideration; (ii) the aggregate upfront swap payments of the interest rate swaps to be entered into between each of the New Property Companies and Merrill Lynch Capital Markets Bank Limited; (iii) the front end fees payable in respect of the Facility; and (iv) an amount to be agreed representing the costs and expenses of the Global Offering for the purposes of the calculation of the IPO Adjustment. The IPO Adjustment in respect of each Holding Company will be calculated based on a certain percentage (to be specified in the relevant Reorganization Agreement) of the total amount of the IPO Adjustment as described above. Such percentage is determined based on the appraised value of the respective portion of the Property in which each of the Holding Company is interested as of 28 February 2006. Where the amount of the IPO Adjustment is a positive figure, such amount will be paid by the Trustee, on behalf of Champion REIT, to the relevant Vendor Company on the Listing Date. Where the amount of the IPO Adjustment is a negative figure, such amount will be offset against the principal amount of the Purchaser Promissory Note issued to the relevant Vendor Company and the balance of the principal amount of such Purchaser Promissory Note will be paid to the relevant Vendor Company on the Listing Date. The main purpose of the IPO Adjustment is to ensure that the consideration for the acquisition of the Holding Company Shares reflects the value of the Property implied by the Offer Price attributable to the Holding Companies.

(b) Post-Completion Adjustment Pursuant to the Reorganization Agreements, it is proposed that an audit of the accounts and a review of the Pro Forma Completion Balance Sheet of each Holding Company and its subsidiaries will be conducted by the auditors of the relevant Holding Company within 90 days after the Listing Date. An adjustment payment (the ‘‘Post-Completion Adjustment’’) is to be made by or to the relevant Vendor Company to address any overstatement or understatement, as the case may be, of the current assets/current liabilities of the relevant Holding Company and its subsidiaries as of the Listing Date as shown in the relevant Pro Forma Completion Balance Sheet. The amount of the Post-Completion Adjustment will be paid by the Trustee, on behalf of Champion REIT, or the relevant Vendor Company, as the case may be, within 14 days of the receipt of the adjustment statement issued by the auditors of the relevant Holding Company.

23 LETTER FROM THE BOARD

(c) Additional fee to joint bookrunners of the Global Offering It is proposed that the joint lead underwriters of the Global Offering will together receive for themselves only an additional fee (the ‘‘Additional Fee’’) of up to 10% (the ‘‘Relevant Percentage’’) of an amount (to be apportioned among such joint lead underwriters in proportion to the number of Hong Kong Public Offering Units each of them agrees severally, under the underwriting agreement to be entered into with respect to the Hong Kong Public Offering, to subscribe or procure subscribers for) which is equal to 45% of the amount, if any, by which the Implied Purchase Price is greater than HK$20.0 billion, payable to such joint lead underwriters by the Vendor Companies. The Additional Fee, which is determined after arm’s length negotiation between the Vendor Companies and such joint lead underwriters, will be apportioned among the Vendor Companies on the basis of the percentage used to calculate the IPO Adjustment in respect of each Holding Company as described above. In the event a Post-Completion Adjustment is required to be made, the amount of the Additional Fee will be proportionately adjusted.

6. Final consideration The final consideration for the acquisition of the Holding Companies will be announced by the Manager upon the determination of the adjustments described above together with the quantum of the adjustment amounts. As at the Latest Practicable Date, the minimum amount of the final consideration, in cash and Units, expected to be received was approximately HK$19.0 billion.

7. Representations and warranties It is proposed that each Reorganization Agreement will contain certain representations and warranties, in line with customary market practice for arm’s-length transactions of this nature, to be made by the relevant Vendor Company in respect of, among others, the relevant Holding Company and its subsidiaries and the relevant portion of the Property owned by the Holding Company. Each Reorganization Agreement will also set out limitations on the liability of the relevant Vendor Company, in line with customary market practice for arm’s-length transactions of this nature, in respect of any breach of warranties, including provisions for aggregate maximum liability, minimum threshold for claims and a limitation period of 24 months from the Listing Date for all claims.

8. Deeds of Tax Covenant In connection with the Reorganization, it is proposed that the Trustee, on behalf of Champion REIT, and each relevant Holding Company and its subsidiaries will, in line with customary market practice for arm’s-length transactions of this nature, enter into a separate Deed of Tax Covenant with the relevant Vendor Company and the relevant guarantor(s). Pursuant to the Deeds of Tax Covenant, each relevant Vendor Company will covenant to indemnify the Trustee and the relevant Holding Company and its subsidiaries in respect of: (a) any liability for tax resulting from or by reference to any event occurring on or before the Listing Date or in respect of any gross receipts, income, profits or gains earned, accrued or received by the relevant Holding Company or its subsidiaries on or before the Listing Date (including, for the avoidance of doubt, any profits tax arising from the sale of the Property by the Predecessor Property Companies to the New Property Companies), except that (i) the relevant Vendor Company will not be responsible for any stamp duty payable in connection with the relevant Property Sale and Purchase Agreement in respect of the relevant portion of the Property or on the assignment of the relevant portion of the Property pursuant to such Property Sale and Purchase Agreement; and (ii) in determining the consideration payable for the acquisition of the relevant Holding Company Shares, the provision made for stamp duty will not be taken into account; and (b) all reasonable out-of-pocket costs and expenses properly incurred and payable by the Trustee or the relevant Holding Company or its subsidiaries in connection with a successful claim pursuant to the relevant Deed of Tax Covenant.

24 LETTER FROM THE BOARD

The limitation period for claims under paragraph (a) or (b) above will be seven years from the Listing Date. The right of the Trustee and the relevant Holding Company and its subsidiaries to be indemnified pursuant to the relevant Deed of Tax Covenant will not be prejudiced by any tax action or proceeding in respect of the relevant tax liability which is the subject matter of the claim not being finally resolved before the expiry of the applicable limitation period.

9. Guarantee of relevant Vendor Company’s obligations 14.58(9)

It is proposed that the Company will guarantee the relevant Vendor Company’s obligations pursuant to the East Power Reorganization Agreement, the Cojoin Properties Reorganization Agreement, the Portion A (BVI) Reorganization Agreement and the Portion B (BVI) Reorganization Agreement and pursuant to the Deeds of Tax Covenant relating to the acquisition of East Power Limited, Cojoin Properties Limited, Portion A (BVI) Limited and Portion B (BVI) Limited.

Shareholders should note that the implementation of the Reorganization described above is expected to take place before the date of the SGM and is not conditional upon the Proposed Spin-off. If the Proposed Spin-off does not proceed, the Directors may take such actions as they consider necessary and in the interests of the Group and the Shareholders to restore the Group’s position as if the Reorganization had not taken place and will ensure that the Company will comply with the relevant provisions of the Listing Rules.

10. Property Sale and Purchase Agreements

Immediately following the completion of the Reorganization, it is proposed that the Predecessor Property Companies will enter into the Property Sale and Purchase Agreements with the New Property Companies pursuant to which each New Property Company will agree to acquire the entire portion of the Property owned by the relevant Predecessor Property Company. The Property Sale and Purchase Agreements will be conditional upon the listing of Champion REIT on the Stock Exchange. Upon the Property Sale and Purchase Agreements becoming unconditional, the consideration will be paid by the New Property Companies to the Predecessor Property Companies on the Listing Date.

Legal assignment of the relevant portion of the Property will take place on the earlier of: (a) such date as may be notified by the relevant New Property Company to the relevant Predecessor Property Company by not less than 14 clear days’ notice in writing; and (b) the 10th anniversary of the date of the relevant Property Sale and Purchase Agreement. Under the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong), the Property Sale and Purchase Agreements will not be chargeable with Hong Kong ad valorem stamp duty. Such stamp duty will only be payable on the legal assignment of the Property to the New Property Companies at the then prevailing Hong Kong ad valorem stamp duty rate.

11. Connected Transaction 14A.58(1) 14A.59(2) As part of the Reorganization, Units will be issued to KP Holder, a wholly-owned subsidiary of Kerry (a), (d), (e) Properties. Kerry Properties is a connected person of the Company by virtue of being a substantial shareholder of certain of the Company’s subsidiaries. Accordingly, the Reorganization will constitute a (f) connected transaction of the Company under the Listing Rules, and is also subject to the approval of the Shareholders.

25 LETTER FROM THE BOARD

RELATIONSHIP WITH THE GROUP The remaining businesses and operations of the Group and Champion REIT will be managed by separate teams of management. The Trustee will be a professional trustee independent of the Group, while the Manager is a wholly-owned subsidiary of the Company.

1. Manager It is proposed that Champion REIT will be managed by Eagle Asset Management (CP) Limited which is a newly incorporated company and indirectly wholly-owned by the Company. Notwithstanding the Company’s ownership, the Manager will operate independently of the Company.

(a) Board and management of the Manager The board of directors of the Manager will be responsible for the overall governance of the Manager including establishing goals for management and monitoring the achievement of these goals. It will establish a framework for the management of Champion REIT, including a system of internal controls and business risk management processes. It is proposed that the board of directors of the Manager will comprise nine directors, consisting of the Chief Executive Officer, four independent non-executive directors and four non-executive directors. Dr. Lo Ka Shui, the Deputy Chairman and Managing Director of the Company, and Mr. Lo Kai Shui, the Deputy Managing Director of the Company, are expected to be non-executive directors of the Manager.

(b) Directors Dr. Lo Ka Shui has been a member of the board of directors of Great Eagle since 1980 and is the deputy chairman and managing director of the Group. He is proposed to be a non-executive director of the Manager. Mr. Ang Keng Lam is the chairman of the board of directors of Kerry Properties. He is proposed to be a non-executive director of the Manager. Mr. Cheng Wai Chee, Christopher is a non-executive director and chairman of Winsor Properties Holdings Limited. He is proposed to be a non-executive director of the Manager. Mr. Lo Kai Shui is the deputy managing director of the Group. He is proposed to be a non-executive director of the Manager. Mr. Stewardson, Jeremy Bellinger is proposed to be an executive director, a responsible officer and the chief executive officer of the Manager. He is a private property consultant and had previously held senior management positions in the property industry with Jones Lang LaSalle and other major organizations. Mr. Cha Mou Sing, Payson is a director and the deputy chairman of the board of directors of HKR International Limited. He is proposed to be an independent non-executive director of the Manager. Professor K.C. Chan (CHAN Ka Keung, Ceajer) is the Dean of Business and Management at Hong Kong University of Science and Technology. He is proposed to be an independent non-executive director of the Manager. Mr. Eldon, David Gordon is a director of the Mass Transit Railway Corporation Limited. He is proposed to be an independent non-executive director of the Manager. Mr. Shek Lai Him, Abraham is currently a member of the Legislative Council. He is proposed to be an independent non-executive director of the Manager.

(c) Senior executives Mr. Kwong Chi Kwong is proposed to be the Chief Operating Officer and the Responsible Officer of the Manager. He will be responsible for formulating the business plans of Champion REIT’s properties with short, medium and long-term objectives, and with a view to maximizing the rental income of Champion

26 LETTER FROM THE BOARD

REIT via active asset management. Mr. Kwong is currently the assistant general manager of The Great Eagle Estate Agents Limited. Mr. Choo Chong Yao, Patrick is proposed to be the Chief Investment Officer and a Responsible Officer of the Manager. He is responsible for the strategic planning and the strategic management of Champion REIT, and for communicating and liaising with Unitholders. He is also responsible for identifying and evaluating potential acquisitions or investments consistent with Champion REIT’s investment strategy. Ms. Sung Kar Wai, Rosana is proposed to be the Finance and Office Administration Manager of the Manager. She will be primarily responsible for the financial management and general office administration of Champion REIT. Ms. Sung is currently the senior accountant of The Great Eagle Company, Limited. Mr. Au Tat Wah, Steve is proposed to be the Compliance Manager of the Manager. He will be primarily responsible for ensuring that the Manager complies with the Trust Deed, the REIT Code, the Listing Rules, the rules and regulations of the Stock Exchange, where applicable, the SFO, and other applicable laws, regulations and rules. Mr. Au is currently the assistant company secretary of The Great Eagle Company, Limited. Mr. Lee Kim Man, Julian is proposed to be the Internal Auditor of the Manager. He will be responsible for reviewing the accuracy and completeness of records of all operations and transactions of Champion REIT and ensuring the Manager’s internal control system functions properly. Mr. Lee is currently the senior internal auditor of The Great Eagle Company, Limited.

(d) Sharing of non-management function It is expected that there will be some limited sharing of ancillary back office and non-managerial functions between the Manager and the Group, such services comprise corporate accounting services, corporate secretarial services and services relating to the information technology infrastructure system. The Manager will have its own team of managerial and administrative staff to carry out all essential operational and administrative functions. The Manager will have its own data base with access and security codes different from those of the Group. The Manager will also have the necessary office facilities to carry out all its necessary administrative functions independently.

(c) Manager’s fee The following is a summary of certain fees payable by Champion REIT, at the maximum, to the Manager: (i) a Manager’s fee of 12.0% per annum of the net property income (before deduction therefrom of such Manager’s fee) provided that the net property income is equal to or more than (i) HK$270 million for the period from the Listing Date to 31 December 2006; (ii) HK$200 million for each six-month period thereafter; (ii) an acquisition fee not exceeding the rate of 1.0% of the acquisition price for any real estate acquired directly or indirectly by Champion REIT (pro rated, if applicable, to the proportion of Champion REIT’s interest in the real estate acquired); and (iii) a divestment fee not exceeding the rate of 0.5% of the sale price of any real estate sold or divested directly or indirectly by Champion REIT (pro rated, if applicable, to the proportion of Champion REIT’s interest in the real estate sold).

2. Property Manager It is proposed that Eagle Property Management (CP) Limited will be appointed to provide property management services in respect of the Property. The Property Manager is a wholly-owned subsidiary of the Company.

27 LETTER FROM THE BOARD

(a) Property Management Agreement It is proposed that the Property Manager will enter into the Property Management Agreement with the Manager pursuant to which the Property Manager will manage, supervise, maintain and market the properties of Champion REIT located in Hong Kong, subject to the overall management and supervision of the Manager and upon the terms and conditions set out in the Property Management Agreement. Pursuant to the Property Management Agreement, the Property Manager will provide the following services for properties of Champion REIT located in Hong Kong on an exclusive basis, subject to the overall management and supervision of the Manager: ( Property management services. These services include co-ordinating tenants’ fitting out requirements, recommending third party contracts for the provision of property management services, maintenance services, supervising the performance of service providers and contractors, arranging for adequate insurance and ensuring compliance with building and safety regulations. ( Lease management services. These services include the administration of rental collection, management of rental arrears, initiating lease renewals and negotiations of terms with tenants to conclude the renewal. ( Marketing services. These services include the provision of marketing and marketing co- ordination services.

(b) Fees of the Property Manager Pursuant to the Property Management Agreement, the Property Manager will be entitled to receive the following fees in relation to the management, supervision, maintenance and marketing of the relevant portion of the Property. (i) Property and Lease Management Services For property and lease management services, the Property Manager will be entitled to a fee of 3.0% per annum of the Gross Property Revenue of the relevant portion of the Property. (ii) Marketing Services For marketing services which will be provided by the Property Manager, each New Property Company will pay the Property Manager the following commissions: ( a commission equivalent to one month’s base rent, for securing a tenancy of three years or more; ( a commission equivalent to one-half month’s base rent, for securing a tenancy of less than three years; ( a commission equivalent to one-half month’s base rent, for securing a renewal of tenancy irrespective of the duration of the renewal term; and ( a commission equivalent to 10.0% of the total licence fee for securing a licence for a duration of less than 12 months. If the tenancy, renewal of tenancy or licence is secured by a third party agent, the Property Manager will not be entitled to receive any of the above commissions. The New Property Companies can use the services of either the Property Manager or third party leasing agents. In addition to its fees, the Property Manager will be fully reimbursed by the relevant Property Company for the employment costs and remuneration relating to the employees of the Property Manager engaged solely and exclusively for the operation of the parking facilities of the Property.

3. Conflicts of interests As the Property Manager is a wholly-owned subsidiary of the Company, potential conflicts of interests may arise in respect of leasing and marketing functions. In order to address such potential conflicts of

28 LETTER FROM THE BOARD interests between the Remaining Group and Champion REIT, the following arrangements will be put into place: i) Segregation of leasing functions The Property Manager will provide leasing services to Champion REIT in respect of the Property on an exclusive basis. It will not carry out any property management and leasing functions in respect of other properties held by the Remaining Group. ii) Physical segregation The Property Manager will have its own office premises that is separate from the other members of the Remaining Group that perform leasing and marketing functions in respect of other properties held by the Remaining Group. Staff members of other members of the Remaining Group will not be able to access to the office premises of the Property Manager, and vice versa. iii) ‘‘Chinese Wall’’ ‘‘Chinese Wall’’ procedures will be put in place to ensure that there is segregation of information between the Property Manager and the other members of the Group. To ensure that there is segregation of information between the Remaining Group and Champion REIT, the personnel performing services for the Remaining Group will be segregated from those servicing Champion REIT. Fire walls will be set up between the computer system used by the Remaining Group and that used by the Property Manager, including different security access codes to ensure that staff of the Remaining Group will not be able to access the computer used by staff of the Property Manager, and vice versa. 4. On-going transactions There are anticipated to be various on-going transactions between Champion REIT, the Manager (acting on behalf of Champion REIT) and/or the Property Companies (on the one hand) and members of the Group (on the other hand) following the Proposed Spin-off. All such transactions will be on arms’ length basis and normal commercial terms and are subject to annual limits as disclosed in the Offering Circular. Upon completion of the Proposed Spin-off, the Company will be interested in approximately 49.0% of the Units (assuming the Over-allotment Option is not exercised). Champion REIT will therefore not become a subsidiary of the Company and its accounts will not be consolidated into the Company’s accounts. Since 14.60(5) Champion REIT is not a connected person of the Company within the meaning of the Listing Rules following the completion of the Proposed Spin-off, transactions entered into between the Company and Champion REIT will not be connected transaction for the Company under the Listing Rules.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP App16(32) As disclosed in the annual results announcement of the Group for the year ended 31 December 2005 App16(48) (the ‘‘Results Announcement’’), total revenue of the Group has increased approximately 24.4% from A1B.29 HK$2,830.8 million in 2004 to HK$3,521.2 million. On a geographical analysis, revenue attributable to (1)(b) Hong Kong operation accounted for about 55.6%, with the rest from North America, Europe and other Asia Pacific countries. From an operational perspective, the Group is organized into three sections of property investment, hotel operation and other operations. For the year ended 31 December 2005, the property investment section contributed approximately HK$1,101.7 million or 31.3% to the revenue of the Group. Profit attributable to shareholders, as shown in the Results Announcement, for the year ended 31 December 2005 was HK$10,028.1 million, representing an increase of approximately 223.1% over the figure (as reinstated to take account of the effect of new accounting standards effective in 2005) for the preceding year. It is also disclosed in the Results Announcement that as at 31 December 2005, the net asset value attributable to and the gearing ratio of the Group were approximately HK$24,339 million and 59% respectively. Total outstanding bank loans of the Group amounted to HK$15,917 million (including an amount of approximately HK$429 million attributable to minority interests), of which 8.74% is repayable

29 LETTER FROM THE BOARD within one year, 8.77% between one to two years, 72.24% between three to five years, and the rest of 10.25% is repayable more than five years from the date thereof. The net finance cost expensed to income statement for the year ended 31 December 2005 was HK$728.3 million.

As further shown in the Results Announcement, the Group had as at 31 December 2005 commitment A1B.28 of HK$12 million not provided for in the accounts. The Group had also issued corporate guarantees to certain banks and financial institutions in respect of credit facilities drawn amounting to approximately HK$13,543 million.

Set out in Appendix II is the financial information of the Group. The figures for the two years ended A16.48(1) 31 December 2004 and 2005 are the same as those that will be set out in the financial statements of the A1B.30 Group for the year ended 31 December 2005. The Directors (other than Mr. Lo Ying Shek due to indisposition) are of the opinion that, upon completion of the Proposed Spin-off and after taking into account the present available banking facilities and internal resources of the Group, the Group has sufficient working capital for its present requirements, that is, for at least the next twelve months from the date of this circular.

UNAUDITED FINANCIAL INFORMATION OF THE PROPERTY 14.58(7) For the year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 Turnover — rental income and management fee income Rental income **************************************** 449,328 329,142 319,549 Car park income ************************************** 11,111 8,321 9,011 Building management fee income************************* 73,548 66,126 72,723 533,987 403,589 401,283 Rental related income ************************************ 1,966 2,107 1,993 Other operating income *********************************** 770 104 109 Direct outgoings***************************************** (120,567) (111,398) (116,998) Fitting out works of investment properties written off ********** — (2,148) (1,746) Administrative expenses ********************************** (416) (434) (569) Fair value gains/(losses) on investment properties************** (494,000) 1,988,859 11,925,276 Finance costs ******************************************* (101,183) (63,450) (88,242) Profit before taxation************************************* (179,443) 2,217,229 12,121,106 Taxation *********************************************** (49,956) (381,988) (2,095,810) Profit for the year *************************************** (229,399) 1,835,241 10,025,296

FINANCIAL EFFECTS OF THE PROPOSED SPIN-OFF 14.60(3)(a)(b) As at 31 December 2005, the aggregate carrying value of the Property, being also the aggregate fair 14.64(3) value as determined by the directors, was HK$22,670 million. As disclosed in the Results Announcement, 14.58(4-6) the net asset value and outstanding bank loans attributable to and gearing ratio of the Group as at 31 December 2005 were HK$24,339 million, HK$14,311 million and 59% respectively. It is mentioned in the sub-paragraph headed ‘‘Intended use of proceeds’’ under the paragraph ‘‘Proposed Spin-off’’ above that the net cash proceeds (subject to the Offer Price and relevant expenses) to be received by the Group from the Proposed Spin-off is expected to be not less than approximately HK$10.3 billion. The directors at present intend to use part of the anticipated net cash proceeds for working capital and part for repayment of bank loans so as to reduce the gearing level and interest expenses of the Group, thereby improving its liquidity and financial position. Should the final net cash proceeds from the Proposed Spin-off be more than the abovementioned amount, such excess will also be applied for working capital.

30 LETTER FROM THE BOARD

As a result of the Proposed Spin-off, it is expected that the Group’s interest in the Champion REIT will be reduced to approximately 49.0% (assuming that the Over-allotment Option is not exercised) and approximately 43.0% (assuming that the Over-allotment Option is exercised in full), and Champion REIT will not be regarded as a subsidiary of the Group. Consequently, financial results of Champion REIT and hence the Property will no longer be consolidated into the accounts of the Group. While the gross asset value of the Group is expected to decrease without consolidating the Property, the Group will be able to reduce its liabilities by repaying certain bank borrowings with the net cash proceeds expected to be received under the Proposed Spin-off. As described in the sub-paragraph headed ‘‘Distribution policy’’ under the paragraph ‘‘Information on Champion REIT’’ above, the Group will waive its entitlement to receive any distributions payable (a) for the FY06 Distribution Period with respect to all of the Units it holds as of the Listing Date; (b) for the FY07 Distribution Periods with respect to 55% of the Units it holds as of the Listing Date; and (c) for the FY08 Distribution Periods with respect of 20% of the Units it holds as of the Listing Date. In addition, the Group will also guarantee that the DPU of Champion REIT payable to the public Unitholders for the FY06 Distribution Period will not be less than a certain amount. Save as mentioned above, the Group will be entitled to receive return on its interest in the Property in the form of distributions from Champion REIT following the completion of the Proposed Spin-off. However, since it is not possible to forecast the financial results of the Group, Champion REIT or the Property, it is not practical to project the effect of the above. Based on the unaudited results of the Property, profit after taxation contributed from the Property for the year ended 31 December 2005 amounted to approximately HK$10,025 million. For accounting purpose, the Proposed Spin-off will be treated as a disposal of part of the Group’s interest in the Property (the ‘‘Disposal’’). Accordingly, forthwith upon completion of the Proposed Spin-off, the Group will recognize a gain or loss on the Disposal depending on, among other things, the Offer Price of the Units. Such gain/loss is the difference between (a) the implied disposal value of the Property Companies achieved from the Proposed Spin-off and (b) the sum of the net asset value of the Property Companies and the face value of the existing loans to be assigned to Champion REIT, which has already taken into account the effect of the release of deferred taxation on previous revaluation surplus of the Property. For illustrative purposes only, assuming that the implied disposal value is equal to the Appraised Value (i.e., $22,670 million), the Company will have an attributable gain of approximately $2,750 million on the Disposal. Assuming that the implied disposal value is at a discount of approximately 16% to the Appraised Value, it is estimated that the Company will have an attributable loss of approximately HK$507 million on the Disposal. Any such gain or loss will, however, be non-recurring in nature and will not have any additional cash impact since the cash impact will be reflected in the amount of proceeds from the Proposed Spin-off.

MANAGEMENT DISCUSSION AND ANALYSIS ON THE REMAINING GROUP OPERATIONS REVIEW

1. Rental Properties App16 Hong Kong Rental Properties (32)(6) The Great Eagle Centre offices remained well occupied during 2005 with a year-end occupancy rate of 96.4%. As the renewal of the larger tenancies in 2005 took place earlier in the year at lower rent rates, the rental income from Great Eagle Centre of HK$54.6 million for 2005 was only marginally higher than that of HK$53.0 million in 2004. The Langham Place Mall had its first full year of operations in 2005. With its unique design and its strategic location, it has become an important shopping centre in Kowloon as well as a popular tourists spot. Occupancy of the Mall at the end of 2005 was at a high level of 98.5%. The Group is in the process of adjusting the tenant mix to enhance the Mall’s attraction to shoppers. Out of the 772,500 sq. ft. of space in the Langham Place Office Tower, approximately 327,900 sq. ft. or 46.7% were leased as at 31st December App16 2005. To reduce the gearing ratio of the Group, four floors comprising approximately 69,600 sq. ft. were (32)(5) 31 LETTER FROM THE BOARD contracted for disposal. Completion of disposal (ARPg15) of two floors took place in 2005, with the remaining two floors took place in 2006. In view of the strong demand for quality office space for letting, the Group put up the remaining 375,000 sq. ft., mainly in the high and top zones of the Tower, for leasing in early 2006. The initial market response has been encouraging. In all, the Langham Place Mall and Office Tower contributed HK$362.6 million in gross rental income in 2005. The Eaton House furnished apartments, which were reclassified as investment properties in financial year 2005, achieved an average occupancy of 84.2% in 2005. Rental income increased by 20% from HK$29.5 million in 2004 to HK$35.3 million in 2005, mainly due to strong demand from the corporate segment.

U.S. Commercial Properties Net rental income from the U.S. Office portfolio decreased by 30% to HK$83.8 million in 2005 from HK$119.4 million in 2004, mainly because of the reduction in income resulting from the sale of 888 West Sixth Street in Los Angeles in September 2004. The California markets which bottomed-out in 2004 are experiencing favorable improvement in rental rates, with rates increased by 10% in 2005. However, since rental rates are still below historic levels, there should be some negative rental rate reversions continuing in 2006.

On 20th December 2005, the Group acquired a Class-A suburban office building located at 2700 App16 Ygnacio Valley Road, in Walnut Creek, California. The property has 106,000 sq. ft. in gross floor area and (32)(5) was 87% occupied. The purchase consideration was US$22.25 million.

2. Hotels

The Group’s strategic focus remains in brand building and driving greater global recognition of the App16 Group’s luxury position. The hotel division continues to look for business opportunities to increase the (32)(6) Group’s hotel presence in major international cities over time.

Hong Kong Operations Langham Hotel, Hong Kong Performance in 2005 was a healthy increment over the previous year with strategic focuses being placed on high yielding corporate business, which was the main contributor to both occupancy and rate growth, making up more than 65% of rooms revenue. For the year 2005, the hotel achieved an average occupancy of 83% and an average room rate of HK$1,145.

Langham Place Hotel, Hong Kong The Hotel, which opened in August 2004, had its first full year of operation in 2005. For the year 2005, the hotel achieved an average occupancy of 74% and an average room rate of HK$905.

Eaton Hotel, Hong Kong Taking advantage of improved market sentiments, emphasis remained on lifting room rates in all market segments and, in particular, the high yielding corporate business. For the year 2005, the hotel achieved an average occupancy of 87% and an average room rate of HK$624.

32 LETTER FROM THE BOARD

International Operations Langham Hotel, London Having operated for a full year under the Langham brand, both occupancy and room rates had surpassed pre-rebranding levels, although the improvement was negatively affected by the July bombings in London. The hotel’s focus on rate growth strategies will continue, supported by enhancements in electronic distribution which made up 36% of total hotel business in 2005. A phased renovation of the hotel is underway to position the hotel as the Group’s flagship luxury property. For the year 2005, the hotel achieved an average occupancy of 71% and an average room rate of £155.

Langham Hotel, Boston Overall performance of the hotel remained stagnant with room rate edging ahead by 5% over last year while occupancy dropped marginally. Focus remains on improving occupancy to pre-re-branding levels whilst growing rates through improvement of the corporate and group market during the week and driving marketing for leisure business on the weekends. To further enhance the Langham brand standard in the hotel, refurbishment and redecoration have been scheduled for the coming year for guest rooms and public areas. For the year 2005, the hotel achieved an average occupancy of 67% and an average room rate of US$207.

Langham Hotel, Melbourne Both occupancy and room rates were affected by the re-branding at the beginning of 2005 and that impact mainly arose from the corporate segment. Business regained some lost ground in the latter part of the year as the Langham brand awareness continued to improve and our advertising and sales efforts gained momentum. For the year 2005, the hotel achieved an average occupancy of 69% and an average room rate of A$199.

Langham Hotel, Auckland The Auckland lodging market experienced a gradual slowdown in occupancy for the year 2005 with the Langham Auckland sharing a similar trend. Strong marketing support coupled with an extensive luxurious refurbishment, will enable the hotel to gain momentum and recover market share. For the year 2005, the hotel achieved an average occupancy of 69% and an average room rate of NZ$133.

Delta Chelsea Hotel, Toronto The hotel experienced marginal growth in both occupancy and room rate for 2005. The Delta Chelsea’s performance remained stable and in line with the market trend and its competitors. For the year 2005, the hotel achieved an average occupancy of 76% and an average room rate of C$127.

3. Trading App16 Property developers’ reduced spending on building materials during 2005 had adversely affected the (32)(6) performance of trading division of the Group. Revenue slightly increased to HK$112 million in 2005. To diversify from a highly volatile project business, the Group started to invest in the retail business. In 2005 the Group launched Samsung Staron» solid surfaces and 4 new electrical home appliance brands. The Group will need to invest on brand building to enhance public awareness and look for returns starting 2006.

33 LETTER FROM THE BOARD

4. Property Management App16 Management remuneration received in 2005 amounted to HK$17.2 million. The increase was due to (32)(6) an additional income of HK$1.1 million generated from the management of Langham Place. Despite the keen competition in the market, income for the engineering division for 2005 rose to HK$23.71 million. Majority of the revenue was generated from service contracts and medium size jobs. The division commenced the provision of facilities management services for tenants of Langham Place in 2005. There was an increase in the number of jobs after mid-year as a result of higher occupancy at the Group’s rental properties.

FINANCIAL REVIEW 1. Debt

Consolidated net attributable debt of the Remaining Group as of 31st December 2005 was App16 HK$4,022 million. No major capital expenditure was incurred in 2005 after the completion of Langham (32)(1) Place. During 2005, two floors in the Langham Place Office Tower were sold for net sales proceeds of HK$292 million, of which HK$107 million was applied towards repayment of debt and HK$185 million App16 was retained for general working capital. (32)(5) Consolidated net assets attributable to equity holders of the holding company of the Remaining Group, based on professional valuation of the Group’s investment properties as of 31st December 2005 and other assets at cost, amounted to HK$13,566 million. The gearing ratio of the Remaining Group at 31st December App16 2005 was 37%. (32)(10) As at 31st December 2005, the Remaining Group had outstanding interest rate swaps with total notional principal of HK$1,720 million, representing 14.5% of our HKdollar-denominated debts. The rest of our HKdollar debts were on floating-rate basis.

The foreign currency debts of the Remaining Group as of 31st December 2005 amounted to the App16 equivalent of HK$4,046 million. These foreign currency borrowings are fully hedged by the value of the (32)(11) underlying properties. Of this, the equivalent of HK$1,260 million, or 31.1% of the Group’s foreign currency debts, was on fixed-rate basis as of 31st December 2005.

2. Liquidity and Debt Maturity Profile

As of 31st December 2005, the cash, bank deposits and committed but undrawn loan facilities of the App16 Remaining Group amounted to a total of HK$2,286 million. The majority of loan facilities is medium-term (32)(1)(2) in nature and is secured by properties. During 2005, the bank loans related to the Langham Place and Langham Hotel, London were successfully refinanced and the final maturity of those loans have been extended. In additions, the Remaining Group obtained new bank loans related to the acquisition of 2700 Ygnacio Valley Road. The following is a profile of the maturity of outstanding debts as of 31st December 2005: Within 1 year ******************************************************************* 3.7% 1 — 2 years ******************************************************************** 9.95% 3 — 5 years ******************************************************************** 72.78% More than 5 years *************************************************************** 13.57%

3. Pledge of Assets

As at 31st December 2005, properties of the Remaining Group with a total carrying value of App16 approximately HK$23,616 million together with assignments of sales proceeds, insurance proceeds, rental (32)(8) income, revenues and all other income generated from the relevant properties and deposits of approximately HK$486 million were mortgaged or pledged to secure credit facilities granted to the Remaining Group.

34 LETTER FROM THE BOARD

4. Commitments and Contingent Liabilities

As at 31st December 2005, the Remaining Group had authorised capital expenditures not provided for App16 in these financial statements amounting to approximately HK$7 million of which approximately (32)(12) HK$6 million were contracted for. Other than set out above, the Remaining Group did not have any significant commitments and contingent liabilities as at 31st December 2005.

STAFF

The total number of employees in the Remaining Group was 3,739 as at 31st December 2005. Salary App16 levels of employees are competitive and discretionary bonuses are granted based on performance of the (32)(7) Group as well as performance of individual employees. Other employee benefits include educational allowance, insurance, medical scheme and provident fund schemes. Senior employees (including executive directors) are entitled to participate in the Great Eagle Holdings Limited Share Option Scheme. In order to enhance employee relations and communications, certain recreation activities and regular meetings of general staff with senior management were arranged during the year.

SGM A notice convening the SGM to be held at the Penthouse, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong on Wednesday, 10 May 2006 at 3 p.m. is set out on pages (I) to (II) of this circular. At the SGM, an ordinary resolution will be proposed to approve the Proposed Spin-off and any related matters. Form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the meeting, you are requested to complete the enclosed forms of proxy in accordance with the instructions printed thereon and return the same to the Company’s principal office at 33rd Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the SGM, or any adjournments thereof. Completion and return of the respective form of proxy will not preclude you from attending and voting in person at the SGM or any adjournments thereof should you so desire. The procedure by which Shareholders may demand a poll at any general meeting of the Company is set out in Appendix IV to this circular.

RECOMMENDATIONS 14.58(8) The Directors (including the independent non-executive Directors, but not including Mr. Lo Ying Shek 14.63(2)(c) due to indisposition) are of the view that the Proposed Spin-off (including the Preferential Offering) are in the interests of the Company and the Shareholders and accordingly recommend the Shareholders to vote in favour of the ordinary resolution to approve the Proposed Spin-off and any related matters at the SGM as set out in the notice of SGM on pages (I) to (II) of this circular. Somerley Limited, the independent financial adviser to the Shareholders, considers that the terms and conditions of the Connected Transaction, the Proposed Spin-off and any related matters are fair and reasonable so far as the Company and the Shareholders are concerned and that the Connected Transaction, the Proposed Spin-off and other related matters are in the interests of the Company and the Shareholders as a whole. Accordingly, Somerley Limited recommends the Shareholders to vote in favour of the resolution to be proposed at the SGM to approve the Proposed Spin-off and any related matters. The text of the letter from Somerley Limited containing its advice and the principal factors and reasons taken into account as regards, among other things, the Connected Transaction, the Proposed Spin-off and any related matters is set out on pages 38 to 61 of this circular.

35 LETTER FROM THE BOARD

ADDITIONAL INFORMATION This circular is being distributed to the Shareholders. This circular does not constitute and offer or invitation to subscribe for or purchase any securities nor is it calculated to invite any such offer or invitation. Neither this circular nor anything contained herein shall form the basis of any contract or commitment whatsoever. In connection with the Global Offering, the price of the Units may be stabilised in accordance with the SFO. Details of any intended stabilisation and how it will be regulated under the SFO will be contained in Offering Circular. Your attention is drawn to the additional information contained in the appendices to this circular.

Yours faithfully,

By Order of the Board LO Ka Shui Deputy Chairman and Managing Director

36 LETTER FROM THE INDEPENDENT BOARD COMMITTEE 14A.58(3) 14A.59(7)

(Stock Code: 41) 24 April 2006 To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL IN RELATION TO THE PROPOSED SPIN-OFF OF CHAMPION REAL ESTATE INVESTMENT TRUST ON THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG LIMITED AND CONNECTED TRANSACTION IN RELATION TO THE REORGANIZATION OF CERTAIN PROPERTY INTERESTS OF GREAT EAGLE HOLDINGS LIMITED We refer to the circular to the Shareholders dated 24 April 2006 (the ‘‘Circular’’), of which this letter forms part. Unless the context requires otherwise, terms used in this letter shall have the same meanings given to them in the definition section of the Circular. In compliance of the Listing Rules, we have been appointed by the Board to advise the Shareholders in relation to the Proposed Spin-off which constitutes a very substantial disposal for the Company under the Listing Rules. In this connection, Somerley Limited has been appointed as an independent financial adviser to advise on whether the terms and conditions of the Connected Transaction, the Proposed Spin-off and any related matters are fair and reasonable so far as the Company and the Shareholders are concerned and the Connected Transaction, the Proposed Spin-off and other related matters are in the interests of the Company and the Shareholders as a whole. Details of, and the reasons for, the Connected Transaction, the Proposed Spin-off and other related matters together with the actions to be taken by the Shareholders are contained in the Letter from the Board set out on pages 11 to 36 of the Circular. As the members of the Independent Board Committee, we have discussed with the management of the Company as to the reasons for the Connected Transaction, the Proposed Spin-off and other related matters. We also wish to draw your attention to the letter of advice from Somerley Limited set out on pages 38 to 61 of the Circular. We have also discussed with Somerley Limited as to the basis upon which its advice has been given to us. We have also noted the letter and the advice contained therein and have considered, amongst others, the various factors contained in such letter. In our opinion, the Connected Transaction, the terms and conditions of the Connected Transaction, the Proposed Spin-off and any related matters are fair and reasonable so far as the Company and the Shareholders are concerned and the Connected Transaction, the Proposed Spin-off and any related matters are in the interests of the Company and the Shareholders as a whole. Accordingly, as the members of the Independent Board Committee, we recommend the Shareholders to vote in favour of the ordinary resolution which will be proposed at the SGM to approve the Proposed Spin-off and any related matters by way of poll.

Yours faithfully, Independent Board Committee of Great Eagle Holdings Limited WONG Yue Chim, Richard LEE Pui Ling, Angelina

37 LETTER FROM SOMERLEY LIMITED 14A.22 The following is the text of the letter of advice to the Independent Board Committee and the Shareholders prepared by Somerley Limited for the purpose of inclusion in this circular. SOMERLEY LIMITED Suite 2201, 22nd Floor Two International Finance Centre 8 Finance Street Central Hong Kong 24 April 2006

To the Independent Board Committee and the Shareholders of Great Eagle Holdings Limited

Dear Sirs,

INTRODUCTION

We refer to our appointment by the Company to advise you in respect of the Proposed Spin-off and the Reorganization. Details of the Proposed Spin-off and the Reorganization are contained in the circular to the Shareholders dated 24 April 2006 (the ‘‘Circular’’), of which this letter forms part. Unless the context otherwise requires, capitalised terms used in this letter shall have the same meaning as those defined in the Circular.

We have been appointed as independent financial adviser to the Independent Board Committee and the Shareholders to advise you on whether the terms of the Proposed Spin-off and the Reorganization are fair and reasonable and in the interests of the Company and the Shareholders as a whole and how Shareholders should vote at the SGM in respect of the Proposed Spin-off. In connection with the Proposed Spin-off, the Group is proposing to implement the Reorganization which will involve the transfer to Champion REIT of the entire issued share capital of the Holding Companies which in turn collectively (through wholly-owned subsidiaries) own the Property. The Reorganization involves the establishment of Champion REIT (which is deemed to be a subsidiary of the Company for the purposes of the Listing Rules) and the issue of Units to a wholly owned subsidiary of Kerry Properties. Kerry Properties is a substantial shareholder of certain subsidiaries of the Company. By virtue of such interests, Kerry Properties is considered to be a connected person of the Company and the Reorganization constitutes a connected transaction of the Company under the Listing Rules and is subject to the approval of Shareholders. The Stock Exchange has granted the Company a waiver pursuant to Rule 14A.43 of the Listing Rules from the requirement to hold a general meeting to approve the Connected Transaction, on the basis that the requirements under Rule 14A.43 of the Listing Rules are met in respect of the Connected Transaction.

38 LETTER FROM SOMERLEY LIMITED

It is proposed that new Units will be issued by Champion REIT pursuant to the Global Offering. It is presently expected that approximately 45.0% of the Units of Champion REIT will be held by the public immediately following the completion of the Proposed Spin-off (before taking into account the exercise of the Over-allotment Option). As a result of the issue of new Units pursuant to the Proposed Spin-off, and before taking into account the exercise of the Over-allotment Option, the Group’s interest in Champion REIT is expected to decrease from approximately 89.5% to approximately 49.0% immediately following the completion of the Proposed Spin-off. Such issue of new Units will constitute a deemed disposal by the Company under Rule 14.29 of the Listing Rules. Under the Listing Rules, the Proposed Spin-off will constitute a very substantial disposal of the Company and will be subject to the approval of the Shareholders. The SGM will be convened to consider and, if thought fit, approve the Proposed Spin-off. All Shareholders are entitled to vote on the ordinary resolution to be proposed at the SGM and to consider the Proposed Spin-off. The Relevant Shareholders, who together were interested in more than 50% in nominal value of the Shares in issue as at the Latest Practicable Date, have no material interest in the proposed transaction (for the purpose of Rule 2.16 of the Listing Rules) and thus, are entitled to vote on, and have irrevocably undertaken that they will vote in favour of, such resolution in connection with the Proposed Spin-off and any related matters at the SGM. The Relevant Shareholders have also provided irrevocable written approvals and authorizations in respect of the Connected Transaction pursuant to Rule 14A.43 of the Listing Rules. As at the Latest Practicable Date, neither Kerry Properties nor Wing Tai, nor any of their respective associates (as defined in the Listing Rules), held any Shares. In accordance with the terms of PN 15, Qualifying Shareholders will be able to apply for a certain number of Units (subject to certain conditions) by way of the Preferential Offering. Based on the expected timetable, the register of members of the Company will be closed on 8 May 2006 for the purpose of determining Assured Entitlements. It is not within our terms of reference to advise the Qualifying Shareholders as to whether or not to participate in the Preferential Offering. In this respect, the Qualifying Shareholders are recommended to consult their own professional advisers and refer to the information contained in the Circular and the Offering Circular. We have also not considered the tax consequences of the Preferential Offering on the Qualifying Shareholders since these are particular to their individual circumstances. If in doubt, the Qualifying Shareholders should consult their own professional advisers in this regard. The Independent Board Committee, comprising Mr. WONG Yue Chim, Richard and Mrs. LEE Pui Ling, Angelina, both being independent non-executive Directors, has been appointed by the Board to advise the Shareholders in relation to the Proposed Spin-off and the Reorganization. Somerley Limited is not associated with the Company or its substantial Shareholders or any party acting, or presumed to be acting, in concert with any of them and, accordingly, is considered eligible to give independent advice on the terms of the Proposed Spin-off and Reorganization. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby we will receive or benefit from the Company or its substantial Shareholders or any party acting, or presumed to be acting, in concert with any of them. In formulating our advice and recommendation with regard to the Proposed Spin-off and the Reorganization, we have relied on the information and facts supplied, and the opinions expressed, by the Directors which we have assumed to be true, accurate and complete. We have sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed by them and the management of the Group. We consider that the information which we have received is sufficient for us to reach our advice and recommendation as set out in this letter and to justify our reliance on such information. We have no reason to doubt the truth and accuracy of the information provided to us or that any material facts have been omitted or withheld. We have not, however, conducted any independent investigation into the business and affairs of the Group or Champion REIT. We have assumed that all the information we have received and all representations contained or referred to in

39 LETTER FROM SOMERLEY LIMITED the Circular and made by the Directors are true at the date of the Circular and will continue to be true up to the date of the SGM.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation with regard to the Proposed Spin-off and the Reorganization, we have taken into account the following principal factors and reasons:

THE PROPOSED SPIN-OFF

I. Background to and reasons for the Proposed Spin-off and the Reorganization

(i) The Group and its business

The Group is principally engaged in property development and investment, hotel and restaurant operations, trading of building materials, share investment, provision of management and maintenance services, property management, insurance agency and fitness centre operation. Its investment in office properties extends to the United States of America and its hotel portfolio covers Hong Kong, North America, Europe, Australia and New Zealand.

The operations of the Group consist mainly of two major divisions, namely property investment and hotel operations. The principal Hong Kong investment properties of the Group include the Citibank Plaza in Central, the Great Eagle Centre in Wanchai and the Langham Place composite development in Mongkok. For the financial year ended 31 December 2005, the Property (Citibank Plaza) accounted for approximately 34.4% of the Group’s gross rental income and approximately 48.2% of the Group’s non-current assets. The hotel portfolio comprises three hotels in Hong Kong and five hotels in North America, Europe, Australia and New Zealand.

(ii) Benefits of the Proposed Spin-off

The expected benefits of the Proposed Spin-off to the Company and Champion REIT may be summarised as follows:

( the net proceeds to be received by the Company from the Proposed Spin-off of at least HK$10.3 billion in cash will enable the Group to reduce its net borrowings, improve its liquidity and gearing position and pursue growth by further expansion and investment in its other core businesses;

( Investors and the investment market will be able to evaluate the businesses and financial position of the Company and Champion REIT separately and more precisely;

( as a result of this greater clarity and Champion REIT’s status as a separately listed entity, additional and diversified funding sources may be available for Champion REIT to finance its future expansion without support from the Company, in particular, facilitating Champion REIT’s future expansion by acquisitions;

( the Proposed Spin-off will allow the Group to realize part of the Property and achieve its valuation potential in the form of upfront cash proceeds as well as enabling the Shareholders to benefit from the Company’s continuing 49% interest in Champion REIT and an expected positive outlook of the Central office property market; and

( the Proposed Spin-off will enable the Group to enter into the REIT management business which will generate a new source of income.

40 LETTER FROM SOMERLEY LIMITED

(iii) Use of proceeds

Based on the estimation of the Directors and with reference to the valuation of the Property, the net cash proceeds (subject to the Offer Price and relevant expenses) to be received by the Company from the Proposed Spin-off are expected to be not less than HK$10.3 billion, which will arise from the net proceeds from the Global Offering and the drawdown of the Facility (as more particularly described in the section headed ‘‘Effects of financing and interest rate swaps’’ below). As disclosed in the paragraph headed ‘‘Intended use of proceeds’’ in the letter from the Board, it is the present intention of the Directors to use part of the anticipated net cash proceeds (subject to the Offer Price and relevant expenses) to be received by the Company from the Proposed Spin-off for the repayment of the Group’s outstanding bank borrowings, the enhancement of the Group’s working capital and to further expand and invest in its core businesses.

II. Business and organization of Champion REIT and the relationship with the Group

(i) Champion REIT

A REIT is a collective investment scheme constituted as a unit trust that invests primarily in income-producing real estate assets and uses the income to provide stable returns to its Unitholders. Purchasing a unit in a REIT allows investors to share the benefits and risks of owning the real estate assets held by the REIT. An investment in the units of a REIT in Hong Kong is governed primarily by the REIT Code.

Champion REIT is a real estate investment trust formed primarily to own and invest in an income producing portfolio of office and retail properties. The key objectives are to provide Unitholders with stable and sustainable distributions and to achieve long-term capital growth.

Champion REIT will be constituted and established when Eagle Asset Management (CP) Limited, as manager of Champion REIT, and HSBC Institutional Trust Services (Asia) Limited, as trustee of Champion REIT, enter into the Trust Deed. The Manager is a wholly owned subsidiary of the Company and the Trustee is a professional trustee independent of the Group.

(ii) The Property

The initial principal asset of Champion REIT will be the Property, which comprises 91.5% of the gross rentable area of Citibank Plaza and substantially all of the parking spaces at Citibank Plaza. The only areas not owned are the 3rd floor (other than the circulation area) and the 4-6th floors (owned by the Financial Secretary Incorporated) and the 34th and 36-37th floors (owned by the Kerry Group). Citibank Plaza is a modern glass and steel office complex that comprises Citibank Tower, a 47 storey building, and ICBC Tower, a 37 storey building, and includes a retail podium, and is located at 3 Garden Road, Central, near the intersection of Garden Road and Queen’s Road Central.

The Property is a prime Grade A office property in the premier central business district in the core Central District in Hong Kong. The Property has an aggregate total floor area of 1,492,526 sq.ft., comprising 1,434,805 sq.ft. of office space, 57,721 sq.ft. of retail space, 55 private carparking spaces and a public carpark with 500 carparking spaces and 50 motorcycle parking spaces. A significant portion of existing tenancies for the Property were entered into in 2003 and 2004 when the market conditions were particularly depressed. A large portion of tenancies are scheduled to be renewed or reviewed towards current market rates in 2006 and 2007, which leaves substantial room for reversionary potential given sharply higher current rental rates. The Property has been valued at HK$22,670 million by Savills as at 28 February, 2006. A letter and valuation certificate from Savills is set out in Appendix I to the Circular.

41 LETTER FROM SOMERLEY LIMITED

(iii) Structure of Champion REIT The following chart illustrates the overall structure of Champion REIT:

Unitholders The Company 49.0% Kerry Properties 4.5% The Company Wing Tai 1.5% Public Unitholders 45.0%

100% Investment in Champion REIT Distributions

Manager’s fees Trustee Fee

Manager Champion REIT Trustee

Management Holds assets services on trust for Unitholders Ownership of shares 100% Distributions Property and lease management fees 100% Property Manager Holding Companies and Property Companies Property and lease management services

100%

The Property

Note: Before exercise of the Over-allotment Option

a. The Manager Champion REIT will be managed by Eagle Asset Management (CP) Limited which is a newly incorporated company and indirectly wholly-owned by the Company. Notwithstanding the Company’s ownership, the Manager will operate independently of the Company. Only two of the Manager’s nine proposed directors will be executive Directors. The Manager has general power of management over the assets of Champion REIT. The Manager’s main responsibility is to manage the assets of Champion REIT for the benefit of the Unitholders and the Manager is not involved in any other REIT. The Manager will set the strategic direction and risk management policies of Champion REIT and give recommendations to the Trustee on the acquisition, divestment or enhancement of assets of Champion REIT in

42 LETTER FROM SOMERLEY LIMITED accordance with its stated investment strategy. The Manager will manage the assets of Champion REIT in accordance with the Manager’s investment strategy and in accordance with the provisions and the compliance procedures set out in the Trust Deed.

Manager’s fees

The following is a summary of certain fees payable by Champion REIT, at the maximum, to the Manager:

(i) a Manager’s fee of 12.0% per annum of the net property income (before deduction of such Manager’s fee) provided that the net property income is equal to or more than a threshold which is fixed at (a) HK$270 million for the 8-month period from the Listing Date to 31 December 2006; and (b) HK$200 million for each 6-month period thereafter. The Manager’s fee will be payable in Units rather than cash for the first five years from the Listing Date. In the period from the Listing Date to 31 December 2006, it is expected that the Manager will receive no Manager’s fee. Based on the expected income from the Property, as discussed with the Manager, for the periods subsequent to 31 December 2006, we consider that the above thresholds will be exceeded and that the fee of 12.0% will therefore be payable to the Manager;

(ii) an acquisition fee not exceeding the rate of 1.0% of the acquisition price for any real estate acquired directly or indirectly by Champion REIT (pro rated, if applicable, to the proportion of Champion REIT’s interest in the real estate acquired); and

(iii) a divestment fee not exceeding the rate of 0.5% of the sale price of any real estate sold or divested directly or indirectly by Champion REIT (pro rated, if applicable, to the proportion of Champion REIT’s interest in the real estate sold). b. Property Manager

It is proposed that Eagle Property Management (CP) Limited will be appointed to provide property management services in respect of the Property. The Property Manager is a wholly- owned subsidiary of the Company and will provide services exclusively to Champion REIT. Pursuant to the Property Management Agreement, the Property Manager will manage, supervise, maintain and market the properties of Champion REIT located in Hong Kong, subject to the overall management and supervision of the Manager.

Pursuant to the Property Management Agreement, the Property Manager will provide services for properties of Champion REIT located in Hong Kong, including property management services, lease management services and marketing services. Details of the scope of the Property Manager’s services are included in the letter from the Board.

Fees of the Property Manager

Pursuant to the Property Management Agreement, the Property Manager will be entitled to receive the following fees in relation to the management, supervision, maintenance and marketing of the relevant portion of the Property.

(1) Property and Lease Management Services

For property and lease management services, the Property Manager will be entitled to a fee of 3.0% per annum of the Gross Property Revenue of the relevant portion of the Property.

43 LETTER FROM SOMERLEY LIMITED

(2) Marketing Services

For marketing services which will be provided by the Property Manager, each New Property Company will pay the Property Manager the following commissions:

( a commission equivalent to one month’s base rent, for securing a tenancy of three years or more;

( a commission equivalent to one-half month’s base rent, for securing a tenancy of less than three years;

( a commission equivalent to one-half month’s base rent, for securing a renewal of tenancy irrespective of the duration of the renewal term; and

( a commission equivalent to 10.0% of the total licence fee for securing a licence fee for securing a licence for a duration of less than 12 months.

If the tenancy, renewal of tenancy or licence is secured by a third party agent, the Property Manager will not be entitled to receive any of the above commissions.

In addition to its fees, the Property Manager will be fully reimbursed by the relevant Property Company for the employment costs and remuneration relating to the employees of the Property Manager engaged solely and exclusively for the operation of the parking facilities of the Property

(iv) Comparison with other Hong Kong properties related REITs listed on the Stock Exchange and the Singapore Stock Exchange

The following is a summary of the management fees paid by other managers for relevant REITs listed in Hong Kong and Singapore.

Combined base fee and performance/service fee as a percentage Performance/ of net property Acquisition fee for Divestment fee for REIT (Note 1) Base fee Service fee income property acquired property divested

Prosperity Real Estate Investment Trust (stock code: 808) *********** 0.4% p.a. of the 3.0% p.a. of the 14.5% p.a. 1% of the gross 0.5% of the gross property value net property (Note 2) purchase price sale price income GZI Real Estate Investment Trust (stock code: 405) *********** 0.3% p.a. of the 3.0% p.a. of the 6.8% p.a. 1% of the gross 0.5% of the gross property value net property (Note 3) purchase price sale price income Fortune Real Estate Investment Trust ********************* 0.3% p.a. of the 3.0% p.a. of the 11.0% p.a. 1% of the gross 0.5% of the gross property value net property (Note 4) purchase price sale price income Champion REIT************* Nil 12.0% p.a. of 12.0% p.a. 1% of the gross 0.5% of the the net purchase price gross sale price property income

Notes: (1) The trustee of The Link Real Estate Investment Trust wholly owns the manager on trust for the benefit of the unitholders and fees paid to the manager are on a cost reimbursement basis and therefore are not considered to be comparable.

44 LETTER FROM SOMERLEY LIMITED

(2) Based on the property value of HK$4,548 million as at 31 December 2005 and forecast net property income for the year ended 31 December 2006 of HK$158.7 million disclosed in the offering circular of Prosperity Real Estate Investment Trust dated 5 December 2005; (3) Based on the property value of HK$4,054 million as at 31 December 2005 and forecast net property income for the year ending 31 December 2006 of HK$316.2 million disclosed in the offering circular of GZI Real Estate Investment Trust dated 12 December 2005; (4) Based on the property value of HK$8,592 million as at 31 December 2005 and audited net property income for the year ended 31 December 2005 of HK$323.2 million disclosed in the 2005 annual report of Fortune Real Estate Investment Trust. Whilst Fortune Real Estate Investment Trust is listed in Singapore, all of its assets are located in Hong Kong and therefore the relevant remuneration for its manager should be consistent with the market rate generally charged for the provision of comparable services in Hong Kong. (5) Information for calculating the combined base fee and performance fee/service fee relating to Prosperity Real Estate Investment Trust and GZI Real Estate Investment Trust is based on the forecast figures for the year ending 31 December 2006 as disclosed in their respective offering circulars because the relevant information for a complete year ended 31 December 2005 has not been disclosed in any public documents for Prosperity Real Estate Investment Trust and GZI Real Estate Investment Trust. As compared to the fees charged by other managers of REITs above, the Manager’s remuneration, in terms of the acquisition fee and the divestment fee, are in line with the fees charged by the REITs listed on the Stock Exchange and the Singapore Stock Exchange (with properties substantially located in Hong Kong). The Manager will charge a single performance fee of 12.0% based on income, as opposed to the other managers who charge both a fee based on the value of the properties and a performance/service fee based on income. Overall, the remuneration of the Manager is effectively comparable with other REIT managers and we consider the Manager will be remunerated at rates no less favourable than the market rates. The Directors consider that the structure of the Manager’s fees to be determined by reference purely to the net property income will incentivise the Manager to enhance the performance of Champion REIT and align the interest of the Manager to that of the Unitholders (including the Group).

45 LETTER FROM SOMERLEY LIMITED

In addition, we have also considered the fees payable by Champion REIT to the Property Manager. Set out below are the fees for property management and leasing services payable by all REITs listed on the Stock Exchange and the Singapore Stock Exchange (with properties substantially located in Hong Kong):

REIT Property management fee/leasing service fee The Link Real Estate Investment Trust (stock code: 823) *********************** Not applicable (note) Prosperity Real Estate Investment Trust (stock code: 808) *********************** (i) 3.0% p.a. of the gross property revenue (ii) variable marketing service fee (ranging from one-half to one month base rent, depending on the length and nature of subject tenancy) (iii) a commission equivalent to 10.0% of the total licence fee for securing a licence for a duration of less than 12 months. GZI Real Estate Investment Trust (stock code: 405) *********************** (i) 4.0% p.a. of the rental income of the Fortune Plaza Units, the City Development Plaza Units and the Victory Plaza Units to Yi Cheng (ii) 3.0% p.a. of the rental income of the White Horse Units to White Horse Property Management Company Fortune Real Estate Investment Trust ********* (i) 3.0% p.a. of gross property revenue (ii) variable marketing service fee (ranging from one-half to one month base rent, depending on the length and nature of subject tenancy) Champion REIT ************************* (i) 3.0% p.a. of the Gross Property Revenue of the relevant portion of the Property (ii) variable marketing service fee (ranging from one-half to one month base rent, depending on the length and nature of subject tenancy) (iii) a commission equivalent to 10.0% of the total licence fee for securing a licence for a duration of less than 12 months.

Note:

The trustee of The Link Real Estate Investment Trust wholly owns the manager on trust for the benefit of the unitholders and fees paid to the manager are on a cost reimbursement basis and therefore are not considered to be comparable.

Based on the above table, the remuneration paid to the Property Manager is within the range of the fees paid to the property managers of the REITs listed on the Stock Exchange and the Singapore Stock Exchange (with properties substantially located in Hong Kong) and therefore we believe the Property Manager will not be under-remunerated.

46 LETTER FROM SOMERLEY LIMITED

III. Other features of the Proposed Spin-off affecting the Group (i) Distribution policy The Manager’s policy is to distribute to Unitholders an amount equal to 100% of Champion REIT’s Annual Distributable Income for each financial year. Pursuant to the Trust Deed, Champion REIT will in any event be required to ensure that the total amount distributed to Unitholders shall be no less than 90% of Champion REIT’s Annual Distributable Income for each financial year. Champion REIT’s ability to make distributions is dependent on, among other things, the Trustee having available sufficient cash in Champion REIT to make the payments required. The REIT Code requires the Manager and the Trustee to ensure that each company used to hold real estate and other assets for Champion REIT for the time being shall distribute to Champion REIT all of such company’s income for each financial year as permitted by the laws and regulations of its relevant jurisdiction of incorporation.

(ii) Waiver of distribution entitlements It is proposed that Champion REIT’s initial distribution policy will be that two distributions will be made in respect of each year for the six-month periods ending 30 June and 31 December, except with respect to 2006, where one distribution will be made in respect of the period from the Listing Date to 31 December 2006. Distributions will be paid within 150 days of the end of the relevant period. It is anticipated that interim and final distributions will be paid by the end of November and May following each six-month period, respectively. With respect to 2006, Champion REIT’s first distribution after the Listing Date will be for the FY06 Distribution Period, which is the period from the Listing Date to 31 December 2006, and which is expected to be paid by the end of May 2007. Each of GE Holder (together with the Company as guarantor), KP Holder (with Kerry Properties as guarantor) and Wing Tai (with the Company as guarantor) will enter into a distribution entitlement waiver deed with the Trustee and the Manager pursuant to which it will agree to waive its entitlement to receive any distributions payable (a) for the FY06 Distribution Period with respect to all of the Units it holds as of the Listing Date; (b) for the FY07 Distribution Periods with respect to 55% of the Units it holds as of the Listing Date; and (c) for the FY08 Distribution Periods with respect to 20% of the Units it holds as of the Listing Date. Each such portion of the Distributions waived will be available for distribution to other Unitholders. Wing Tai has agreed to indemnify the Company in respect of the Company’s guarantee of Wing Tai’s obligations under the distribution entitlement waiver deed referred to above. In view of such indemnity and the relative immateriality of its holdings in the Units in the context of the Global Offering as a whole, we consider that it is not unreasonable for the Group, as the majority shareholder of the relevant Holding Companies, to provide the guarantee for the waiver on behalf of Wing Tai. In the event that any of GE Holder, KP Holder and Wing Tai holds less than the number of Units they held as at the Listing Date, the waiver applies to the number of Units held on the Listing Date and each such holder will need to make a cash payment equivalent to the relevant shortfall. As a reference, based on the profit of the Property (before taking into account the gain in the fair value of the Property and taxation) for the year ended 31 December 2005 of HK$195.8 million and the Group’s holding of the remaining 49.0% of the outstanding Units in Champion REIT, the waiver will involve the Company foregoing significant amounts of income for the FY06 Distribution Period, the FY07 Distribution Period and the FY08 Distribution Period. While the amount of income forgone is significant, we believe that such arrangement will enhance investor confidence and support for a successful Global Offering at a relatively higher valuation for the Champion REIT which in turn will increase the cash proceeds to the Group. Such arrangement will enhance the DPU offered to investors in the Global Offering, making the Global Offering potentially more attractive to investors as compared to other REITs listed in Hong Kong. In our view, the potential amounts of the distribution to

47 LETTER FROM SOMERLEY LIMITED

be waived by the Group over the FY06, FY07 and FY08 Distribution Periods and the potential exposure to the Group arising from the guarantee given in favour of Wing Tai are, in the context of the net proceeds receivable by the Group, relatively insignificant and therefore, taking into account the benefits to the Group arising from the Proposed Spin-off, we consider that such features are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

(iii) Guarantee of FY06 Distribution GE Holder (together with the Company as guarantor) will enter into a deed of guarantee with the Trustee and the Manager pursuant to which GE Holder will guarantee a certain level of DPU of Champion REIT payable to the public Unitholders for the FY06 Distribution Period. If this level cannot be met from the distributable income or cash resources of Champion REIT, GE Holder (or the Company) would have to contribute cash on a dollar for dollar basis. As discussed with the management of the Manager, it is not expected the Company will have to make any material payment to Champion REIT under the terms of this guarantee.

(iv) Deeds of Tax Covenant In connection with the Reorganization, it is proposed that the Trustee, on behalf of Champion REIT, and each relevant Holding Company and its subsidiaries will, in line with customary market practice for arm’s-length transactions of this nature, enter into a separate Deed of Tax Covenant with the relevant Vendor Company and the relevant guarantor(s). Pursuant to the Deeds of Tax Covenant, each relevant Vendor Company will covenant to indemnify the Trustee and the relevant Holding Company and its subsidiaries in respect of, among others, any liability for tax resulting from or by reference to any event occurring on or before the Listing Date or in respect of any gross receipts, income, profits or gains earned, accrued or received by the relevant Holding Company or its subsidiaries on or before the Listing Date.

(v) Lock-up arrangement It is proposed that as part of the Global Offering, pursuant to the underwriting agreement relating to the Hong Kong public offering, the Company, GE Holder, Kerry Properties, KP Holder and Wing Tai will enter into certain lock-up arrangements with the underwriters of the Global Offering with respect to their Units for a period of 180 days from and including the Listing Date. During such lock-up period, each of the Company, GE Holder, Kerry Properties, KP Holder and Wing Tai are restricted from disposing any Units or any indirect interest therein or any securities exchangeable or convertible into any Units, or any swap or derivative instrument to transfer economic ownership in the Units, or disposing of companies holding the Units, unless with the consent of the underwriters. Such lock-up arrangement is in line with market practice for initial public offerings in Hong Kong. Details of the lock-up arrangement will be set out in the Offering Circular.

IV. Effects of financing and interest rate swaps Upon the listing of Champion REIT, with a view to achieving a desired capital structure, the Facility will be put in place in the amount of HK$7,200 million for a term of five years from the Listing Date, comprising a term loan in the amount of HK$7,000 million to be drawn down on the Listing Date and a HK$200 million revolving credit facility. A front-end fee will be paid by the Finance Company in respect of the Facility, which will bear interest on a floating rate basis. Each of the New Property Companies will enter into interest rate swaps for a term of five years. Under the interest rate swaps, the swap counterparty will pay the New Property Companies on a quarterly basis an aggregate amount equivalent to the floating rate interest payable in respect of the term loan under the Facility to meet the interest payments payable in respect of the term loan under the Facility Agreement. The

48 LETTER FROM SOMERLEY LIMITED

New Property Companies will in turn pay fixed interest payments to the swap counterparty by way of the upfront payment and the remainder over the course of 5 years. The interest rate swaps aim to eliminate the effect of interest rate fluctuation on the Annual Distributable Income of Champion REIT. The interest rate swap arrangements represent a feature, in our view, designed to promote the success of Champion REIT. The finance costs incurred will be borne by Champion REIT and the Group will not be required to give support for this financing or any of the financial obligations of Champion REIT. Taking into account the benefits to the Group arising from the Proposed Spin-off, we consider the financing and swap arrangements are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

V. Effects of the Proposed Spin-off on the Group As stated in the letter from the Board contained in the Circular, the exact size of the Global Offering and other details are yet to be finalised. Accordingly, the financial effects of the Proposed Spin-off as discussed below are based on preliminary figures. We have also discussed the accounting policies to be adopted by the Company in respect of its holding in Champion REIT with the Company and its auditors. The Group’s interest in the 49.0% of the outstanding Units will be accounted for as a long term investment in the financial statements of the Group. The carrying value of the Group’s interest in the Units will be stated at their fair value at the respective reporting dates. Unrealised gains and losses arising on investments in the Units are dealt with in equity until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in net profit or loss for the period. Distributions from the Units are recognized as revenue for the Group when the right to receive the distribution has been established.

49 LETTER FROM SOMERLEY LIMITED

(i) Effect on gearing of the Group We have considered the level of gearing for the following comparable companies (the ‘‘Comparable Companies’’) based on Bloomberg search for companies under the category of ‘‘Real Estate Operator/Developer’’ (the Company falls under this category) and listed on the Stock Exchange with market capitalization between HK$9 billion (representing 50% of the market capitalization of the Company of approximately HK$18 billion as at the Latest Practicable Date) and HK$36 billion (representing 200% of the market capitalization of the Company as at the Latest Practicable Date): Net borrowings Net asset value Gearing ratio HK$ million HK$ million Tsim Sha Tsui Properties Limited (stock code: 247) (note 1)*********************************** 18,512 13,621 135.9% Hang Lung Group Limited (stock code: 10) (note 1) 6,661 23,449 28.4% Hysan Development Company Limited (stock code: 14) (note 2)********************* 2,899 24,667 11.8% Chinese Estates Holdings Limited (stock code: 127) (note 2)*********************************** 11,753 23,302 50.4% Hopewell Holdings Limited (note 1) ************* 0 16,371 0.0% Wheelock and Company Limited (stock code: 20) (note 3)*********************************** 3,267 37,428 8.7% Average ************************************ 39.2% The Company — before Proposed Spin-off ******** 14,311 24,339 58.8% (note 4) — after Proposed Spin-off ********* 4,940 23,832 20.7% (note 5)

Notes:

1. Based on the interim report of the company for the six months ended 31 December 2005.

2. Based on the annual report of the company for the year ended 31 December 2005.

3. Based on the interim report of the company for the six months ended 30 September 2005.

4. Extracted from the section headed ‘‘Financial review’’ in the 2005 results announcement of the Company dated 20 April 2006.

5. Based on the unaudited pro forma consolidated balance sheet of the Remaining Group as at 31 December 2005 set out in Appendix III and calculated as the sum of borrowings due within one year of HK$1,391 million and borrowings due after one year of HK$14,526 million and unsecured bank overdraft of HK$4 million minus bank balances and cash of HK$10,981 million.

6. Certain samples generated from Bloomberg have been excluded from the analysis as revenue from property related operations of such companies account for less than 50% of their total revenue or over 50% of the property interests are located overseas. On the basis of the audited consolidated balance sheet of the Group as at 31 December 2005 as disclosed in the 2005 results announcement of the Company dated 20 April 2006, the gearing ratio of the Group as at 31 December 2005 was approximately 59%. As compared to the Comparable Companies, the gearing position of the Group has been considered to be high for a number of years. Owing to the improvement in the valuation of the Group’s property interests, the gearing position has improved significantly in recent years but the position as at 31 December 2005 with a net gearing ratio of 59% remains significantly above that of the Comparable Companies, which have an average of 39.2%. The Group had total borrowings of approximately HK$15,921 million as at 31 December 2005. The aggregate cash proceeds to be raised from the Global Offering of not less than HK$10.3 billion will be applied towards the repayment of outstanding bank borrowings, the

50 LETTER FROM SOMERLEY LIMITED enhancement of the Group’s working capital and for further expansion and investment in the Group’s core businesses. Immediately after the Proposed Spin-off, on the basis of the cash proceeds raised of not less than HK$10.3 billion and the borrowings position of the Group as at 31 December 2005, the net gearing position of the Group is expected to be substantially reduced to approximately 20.7%. We consider such improvement to be a major benefit for the Group, given its relatively high level of gearing. The longer term effect will depend on the application of funds and how the Group chooses to invest the funds generated. In any event, the proceeds from the Global Offering offer to the Group significant financial flexibility to pursue further growth in the future.

(ii) Effect on net asset value The expected effects of the Proposed Spin-off on the net asset value of the Group calculated based on the low end of the range of valuation for the Global Offering as set out in the paragraph headed ‘‘Financial effects of the Proposed Spin-off’’ in the letter from the Board are summarised below: Percentage Percentage HK$ million decrease Per Share decrease (%) HK$ (note) (%) Audited consolidated net asset value of the Group before the Global Offering ******* 24,339 40.862 Pro forma adjusted consolidated net asset value of the Group after the Global Offering **************************** 23,832 40.011 Decrease in pro forma consolidated net asset value******************************* 507 2.08% 0.851 2.08%

Note: Based on 595,643,307 Shares in issue as at the Latest Practicable Date as confirmed by the Company. As the book value of the Property, as disclosed in the latest audited financial statements, is stated at recent market value and the Global Offering of the Units would be made at price determined by reference to the Appraised Value, the decrease in pro forma consolidated net asset value of the Group after the Global Offering is not significant. Taking into account the overall benefits of the Proposed Spin-off on the Group, in particular, the significant amount of proceeds generated, we consider the small decrease in net asset value to be acceptable.

51 LETTER FROM SOMERLEY LIMITED

(iii) Effect on earnings The expected effects of the Proposed Spin-off on the earnings of the Group calculated based on the lower end of the valuation of the Global Offering as set out in the paragraph headed ‘‘Financial effects of the Proposed Spin-off’’ in the letter from the Board are summarised below: Profitable attributable to Percentage Percentage the Shareholders decrease Per Share decrease HK$ million (%) HK$ (note) (%) Audited profit attributable to the Shareholders for the year ended 31 December 2005 **************** 10,028 16.836 Pro forma profit attributable to the Shareholders for the year ended 31 December 2005 after the Proposed Spin-off and the Global Offering **** 432 0.725 Decrease in pro forma profit ********** 9,596 95.7% 16.111 95.7%

Note: Based on 595,643,307 Shares in issue as at the Latest Practicable Date as confirmed by the Company. As illustrated above, the pro forma profit attributable to the Shareholders for the year ended 31 December 2005 assuming the Reorganization and the Global Offering were completed at the beginning of the financial year would be HK$432 million, or HK$0.725 per Share (calculated on the basis of the note above). These represent a 95.7% decrease from those before the Proposed Spin-off and the Global Offering. The decrease represents a substantially reduced share of the Group’s interest in the increment to the fair value of the Property, which is a one-off item. This is reflective of the fact that the Proposed Spin-off represents a part realization of the Group’s interest in the Property at the current prices, thereby giving up any further upside in the future for that part. Whilst the one-off effect is significant, this is the result of a significant upturn in the Grade A office property market in Central during the year ended 31 December 2005. Since the Proposed Spin-off is expected to take place in the year ending 31 December 2006, such decrease in earnings, which is attributable to the upturn in the aforesaid market, is not expected to be as significant unless the performance in the Grade A office property market continue its strength and the degree of upward revaluation in the Property in the year ending 31 December 2006 has a similar magnitude as in 2005. Such decrease does not take into account the potential interest savings resulting from a significantly reduced level of gearing for the Group. In addition, while the future contribution of earnings of the Property will be significantly diluted, the Group will have been able to realize a significant sum of money at a value which takes into account the incremental potential of rental reviews for the tenancies of the Property. In addition, through its unitholding in Champion REIT, the Group can continue to enjoy an additional upside from potential rental income increase for the Property. It should be noted that the above analysis has not taken into consideration any new rental revision potential after the year ended 31 December 2005. On this basis and taking into account the improvement in the gearing position of the Group after the Global Offering and the benefits of the Proposed Spin-off as a whole, on balance, we consider the decrease in the profit attributable to the Shareholders will not be as significant as that illustrated in the pro forma profits for 2005 and therefore would be acceptable. Upon completion of the Proposed Spin-off, the Group will recognize a gain or loss on the Disposal depending on, among other things, the final Offer Price of the Units. For illustrative purposes

52 LETTER FROM SOMERLEY LIMITED only, assuming that the implied disposal value is equal to the Appraised Value of HK$22,670 million, the Company will have an attributable gain of approximately HK$2,750 million on Disposal. If the implied disposal value is at a discount of approximately 16% to the Appraised Value, it is estimated that an attributable loss on disposal of interests in Champion REIT of HK$507 million will arise. Any gain or loss from the disposal will ultimately depend on the pricing level of the Units achieved in the Global Offering. Such gain or loss is the difference between (a) the implied disposal value of the Property Companies achieved from the Proposed Spin-off and (b) the sum of the net asset value of the Property Companies and the face value of the existing loans to be assigned to Champion REIT, which has already taken into account the effect of the release of deferred taxation on previous revaluation surplus of the Property. Such gain or loss is non-recurring in nature and will not have any additional cash impact and shall be reflected in the profit and loss accounts of the Group for the year ending 31 December 2006 if the Global Offering takes place therein.

(iv) Remaining businesses of the Group After the Proposed Spin-off, in addition to its 49.0% interest in Champion REIT (assuming the Over-allotment Option is not exercised), the Group will continue its businesses carried out by the hotel and other divisions, as well as significant holdings in investment properties. In connection with the Proposed Spin-off, the Group will not be required to give a non-competition undertaking nor agree to restrict its activities in any way. In addition, the Group has not given Champion REIT any right of first refusal over any other of its existing properties or future developments, which is a feature of some other REIT issues. The lack of the aforesaid restrictions will enable the Group to retain the flexibility in its future business development in pursuing new projects. As extracted from the pro forma financial statements of the Remaining Group in Appendix III to the Circular, turnover from businesses other than interests in the Property represented approximately 88.5% of the Group’s total turnover for the year ended 31 December 2005 and assets deployed for businesses other than the Property accounted for approximately 53.3% of the Group’s total assets as at 31 December 2005. In view of the level of turnover as well as assets attributable to those businesses other than the Property, we consider that the Group will continue to have a substantial business after the Proposed Spin-off. We also note that extensive mechanisms are in place to ensure the independent operation of the Group and Champion REIT. We are advised by the Directors that, of the nine proposed directors of the Manager, two are also executive directors of the Company. There will also be four independent non-executive directors of the Manager. We consider that, given the Group’s holding of the Units, the board composition of the Manager reflects the interest of the Group in Champion REIT and yet enables the Manager to maintain a management team sufficiently independent of the Group.

(v) Dilution of interest in Champion REIT The table below sets out the dilutive effect of the Global Offering to the Shareholders’ attributable interest in Champion REIT. Attributable interest of the Group in Champion REIT After the Reorganization but before the Global Offering ******************** 89.5% Immediately after the Global Offering (assuming the Over-allotment Option is not exercised) ***************************************************** 49.0% Immediately after the Global Offering (assuming the Over-allotment Option is exercised in full) ************************************************** 43.0%

53 LETTER FROM SOMERLEY LIMITED

As detailed above, the attributable interest of the Shareholders in Champion REIT, before taking into account the Preferential Offering, will be diluted from approximately 89.5% to 49.0% of the Units after the Global Offering. One of the principal benefits of the Proposed Spin-off is to allow the Group to realize part of the Group’s interest in the Property and achieve its valuation potential in the form of upfront cash proceeds. In our opinion, such dilution, while significant, is in line with the Group’s stated intention of realizing part of its interest in the Property and should be acceptable to the Shareholders taking into consideration the benefits which may be derived from the Proposed Spin-off as discussed in the paragraph headed ‘‘Benefits of the Proposed Spin-off’’ above. In addition, the Qualifying Shareholders will have the opportunity to subscribe for the Assured Entitlements on the basis of one Reserved Unit for every 4 Shares held at the Offer Price, representing in aggregate approximately 4.4% of the Units to be issued under the Global Offering. If the Assured Entitlements are fully taken up, Shareholders’ interest in Champion REIT through the Company and the Preferential Offering will amount to 51.0%. Such holdings, will however be diluted in the event that the Over-allotment Option is exercised. On the other hand, the arrangement for the Manager to receive management fee by way of issue of Units will enable the Group to increase its interest in Champion REIT, over the course of the next 5 years.

VI. Preferential Offering PN 15 envisages that in the case of a separate listing, assured entitlements will be provided to existing shareholders of the parent company. No specific basis or percentage is stipulated. In this case, it is currently proposed that Qualifying Shareholders (which exclude Overseas Shareholders and exclude certain members of the family of Mr. Lo Ying Shek, the Chairman of the Company, and/or their related trusts and companies which together were interested in approximately 63.9% of the issued share capital of the Company as at the Latest Practicable Date) will be entitled to subscribe for one Reserved Unit for every whole multiple of 4 Shares (or as stated in the Offering Circular) held by them at the close of business on the Record Date. Any Reserved Units not taken up by the Qualifying Shareholders will be allocated to the International Offering. Assuming that all the Reserved Units are taken up under the Preferential Offering, the number of Units to be issued under the Preferential Offering is expected to represent approximately 4.4% of the Units offered in the Global Offering. We have reviewed the following cases we consider comparable, which comprise all

54 LETTER FROM SOMERLEY LIMITED

Hong Kong separate listings since 2000 (being a reasonable period to reflect market conditions in recent years) involving offerings of over HK$1 billion:

Assured Size of assured entitlements as % Maximum size of Date of announcement Parent company Separate listed entity entitlements of the offering the offering (HK$’million) (HK$’million) 02-Feb-00 ********* Sun Hung Kai Properties Sunevision Holdings Limited 93.4 3.0% 3,114 Limited 03-Apr-00 ********* Henderson Land Henderson Cyber Limited 19.7 1.9% 1,050 Development Company Limited 10-May-02 ******** Cheung Kong (Holdings) CK Life Sciences Int’l., 118.0 4.5% 2,614 Limited (Holdings) Inc. 24-Dec-03********* TOM Group Limited Tom Online Inc. 58.2 3.9% 1,500 18-Mar-04********* Dah Sing Financial Holdings Dah Sing Banking Group 378.9 15.0% 2,523 Limited Limited 29-Mar-04********* Hutchison Whampoa HTIL 428.6 4.9% 8,720 Limited 28-Oct-05 ********* Cheung Kong (Holdings) Prosperity Real Estate 95.9 5.0% 1,918 Limited Investment Trust 24-Nov-05********* Guangzhou Investment GZI Real Estate Investment 52.0 2.9% 1,793 Company Limited Trust Average ********** 155.6 5.1% 2,904 24-Apr-06 ********* The Company Champion REIT 4.4%

Source: respective companies’ announcements and circulars The only REITs listed in Hong Kong to-date which involved a separate listing are Prosperity Real Estate Investment Trust and GZI Real Estate Investment Trust, where assured entitlements represented 5.0% and 2.9%of the Units offered, respectively. In other cases we considered, which were not REITs, assured entitlements ranged from 1.9% to 15.0% of the shares offered, with an average of 5.1%. The assured entitlements for Champion REIT fall within both percentage ranges and represent a relatively large dollar amount as compared to the other issues we have considered. Shareholders should note that the entitlement to Reserved Units may not be in whole multiple(s) of board lots of Units. For example, the holder of one board lot of 1,000 Shares will have an assured entitlement to 250 Units, whereas the board lot for trading in the Units is 1,000 Units. Dealings in odd lot Units may be below their prevailing market price. Entitlements to Reserved Units are not transferable and there will be no trading in nil-paid entitlements on the Stock Exchange. Units issued pursuant to the Preferential Offering will be fully paid, ranking pari passu in all respects with other Units issued pursuant to the Global Offering. Based on the expected timetable, the register of members of the Company will close on 8 May 2006 for the purpose of determining the Assured Entitlements, and will re-open on 9 May 2006. In order to qualify for the Assured Entitlements, all transfer forms accompanied by the relevant share certificates must be lodged with the Registrar by no later than 4 p.m. on 4 May 2006. The Shares will be traded ex Assured Entitlements as from 3 May 2006. Whether or not the Separate Listing proceeds, the Shares will continue to be listed and traded on the Stock Exchange.

VII. Conditions of the Global Offering Your attention is drawn to the paragraph headed ‘‘Conditions’’ under the section headed ‘‘The Proposed Spin-off’’ in the letter from the Board contained in the Circular. The Proposed Spin-off is conditional on, among other things, the Shareholders passing an ordinary resolution at the SGM. As the interest of all Shareholders are identical to each other in respect of the Proposed Separate Listing, all

55 LETTER FROM SOMERLEY LIMITED

Shareholders are entitled to vote on the Proposed Separate Listing. The Relevant Shareholders who as at the Latest Practicable Date together were interested in more than 50% in nominal value of the Shares have given an irrevocable undertaking that they will vote in favour of the Proposed Spin-off and any related matters at the SGM. The resolution to approve the Proposed Spin-off is an ordinary resolution and requires only a 50% majority to be passed. In addition to the approval by the Shareholders of the Proposed Spin-off, the Global Offering and the Proposed Spin-off will also be conditional on, among other things, the Listing Committee granting the Listing Approval for the listing of Champion REIT, the Authorisation and the obligations of the Underwriters becoming unconditional and the Underwriting Agreements not being terminated. Accordingly, the Proposed Spin-off and the Global Offering may not proceed if the aforesaid and other applicable conditions are not fulfilled or waived.

THE REORGANIZATION Champion REIT will be constituted and established when the Manager and the Trustee enter into the Trust Deed. The reorganization of the Group’s interest in the Property into Champion REIT will be carried out by way of the Subscription Agreement and the Reorganization Agreements. By virtue of Kerry Properties’ participation in the Reorganization, the Reorganization will constitute a connected transaction of the Company under the Listing Rules.

I. The Subscription Agreement Under the Subscription Agreement, certain number of Units will be issued to GE Holder, KP Holder and Wing Tai. The consideration will be satisfied by the assignment of the Subscription Promissory Note to the Trustee. The Initial Subscription Price to be paid is determined based upon the expected total number of Units to be issued to GE Holder, KP Holder and Wing Tai at a price per Unit by reference to the expected Offer Price range. The Initial Subscription Price is subject to adjustment based on the Offer Price such that the final, adjusted subscription price per Unit for the Units issued to GE Holder, KP Holder and Wing Tai will ultimately be identical to the final Offer Price payable by public investors under the Global Offering.

II. The Reorganization Agreements Under the Reorganization Agreements, the entire issued share capital of the Holding Companies which in turn collectively own the Property, will be transferred to Champion REIT. Of the six Holding Companies proposed to be transferred to Champion REIT, four Holding Companies are currently indirect wholly-owned subsidiaries of the Company while two Holding Companies are currently indirectly owned by the Company (as to 85.9%), Kerry Properties (as to 10.2%) and Wing Tai (as to 3.9%). In return for the transfer, the Group will be issued the Purchaser Promissory Note at the Initial Consideration, which is determined by reference to a price of the Property agreed between the Vendor Companies and Champion REIT. The Initial Consideration is subject to adjustment as more particularly described below. New Units will be issued by Champion REIT to the public pursuant to the Global Offering. Cash proceeds from, among others, the Global Offering and the Facility will effectively be paid to the GE Holder, the KP Holder and Wing Tai. Upon completion of the Global Offering, the Company (through GE Holder) will own 49.0% of the then outstanding Units (before any exercise of the Over-allotment Option). Assuming full exercise of the Over-allotment Option, the Company’s interest would be approximately 43.0%. The Company will guarantee the relevant Vendor Company’s obligations pursuant to the East Power Reorganization Agreement, the Cojoin Properties Reorganization Agreement, the Portion A (BVI) Reorganization Agreement and the Portion B (BVI) Reorganization Agreement and pursuant to the Deeds of Tax Covenant relating to the acquisition of East Power Limited, Cojoin Properties Limited, Portion A (BVI) Limited and Portion B (BVI) Limited.

56 LETTER FROM SOMERLEY LIMITED

It is further proposed that the Company, Kerry Properties and Wing Tai (together with the Company as guarantor for Wing Tai) will severally guarantee, in proportion to their respective indirect shareholding interest in Fuscastus Limited and Harvest Star Limited immediately prior to Completion, the relevant Vendor Companies’ obligations pursuant to the Fuscastus Reorganization Agreement and the Harvest Star Reorganization Agreement and pursuant to the Deeds of Tax Covenant relating to the acquisition of Fuscastus Limited and Harvest Star Limited. Pursuant to the Reorganization, the restructuring of the interests of the Group, Kerry Properties and Wing Tai into holdings in Units have been carried out in proportionate to their respective shareholding ratios and the prices at which their interests are converted into Units under the Reorganization are identical. Prior to the Reorganization, the Company wholly owns four Holding Companies and two Holding Companies are indirectly owned by the Company (as to 85.9%), Kerry Properties (as to 10.2%) and Wing Tai (as to 3.9%). After the Reorganization but before the Proposed Spin-off, the Property will be wholly- owned by Champion REIT, whose Units will be indirectly owned by the Company (as to 89.5%), Kerry Properties (as to 7.6%) and Wing Tai (as to 2.9%). Implementation of the Reorganization is expected to take place before the date of the SGM and is not conditional upon the Proposed Spin-off. If the Proposed Spin-off does not proceed, the Directors may take such actions as they consider necessary and in the interests of the Group and the Shareholders to restore the Group’s position as if the Reorganization had not taken place. Shareholders should note that in the event that the Proposed Spin-off does not proceed, the result will be that the Group’s interest in the Property will be changed from directly owning wholly four of the Holding Companies and partially two of the Holding Companies to holding a non-wholly owned private non-listed unit trust. The Reorganization forms part and parcel of the procedures to implement the Proposed Spin-off. The consideration for the transfer of the Holding Companies is determined by reference to the net asset values of the Holding Companies and applying the same rate of discount for the Property as compared to the Appraised Value. We consider this basis of determining the consideration to be fair and reasonable and is appropriate for holding companies for properties. On a standalone basis, there will not be any gain or loss associated with the Reorganization as the Reorganization involves merely a change of holding structure. The relative interests in the Property for the respective Vendor Companies will remain unchanged. Accordingly, even if the Reorganization is implemented but the Group is not be able to benefit from the Proposed Spin- off because the Global Offering does not proceed, the interest of the Group will not be adversely affected.

III. Consideration for the Property The Group will transfer the interest in the Holding Company Shares at the Initial Consideration to Champion REIT pursuant to the Reorganization Agreements, which will comprise (a) the consideration for the Holding Company Shares (being the Initial Share Consideration), which is subject to the adjustments as described below; and (b) the consideration for the assignment by each Vendor Company to the Trustee of the amount owing by the relevant Holding Company to such Vendor Company as of Completion on a dollar for dollar basis. As property holding companies, we consider the basis of determining the Initial Consideration to be appropriate. The Initial Share Consideration to be paid in respect of the acquisition of each Holding Company is proposed to be determined based on the net asset value of that Holding Company and its subsidiaries as of the expected listing date, after making certain adjustments. The Initial Consideration is subject to adjustment as detailed in the Letter from the Board in the Circular. The purpose of such adjustment is to ensure that the final consideration payable by Champion REIT for the purchase of the Property will ultimately be identical to the Implied Purchase Price based on the final Offer Price achieved in the Global Offering. These adjustments will include adjusting the value of the relevant portion of the Property owned by that Holding Company and its subsidiaries to an agreed value based on an agreed discount to the independent professional valuation set out in Appendix I to the Circular. Based on the current estimate by

57 LETTER FROM SOMERLEY LIMITED the Directors, this agreed value is expected to be not less than HK$19.0 billion which implies that the discount will be no more than approximately 16% to the Appraised Value. The actual discount will depend on the issue price of the Units under the Global Offering. The maximum potential discount of the initial consideration compared to the Appraised Value is significant in our view. We have made references to all REITs listed on the Stock Exchange and a REIT listed on the Singapore Stock Exchange with properties substantially located in Hong Kong, in order to assess the fairness and reasonableness of the proposed consideration for the Property.

Premium/(discount) to appraised value as at the initial listing date (Note) The Link Real Estate Investment Trust (stock code: 823) ******************** 1.2% Prosperity Real Estate Investment Trust (stock code: 808) ******************* (7.6)% GZI Real Estate Investment Trust (stock code: 405) ************************ 2.1% Fortune Real Estate Investment Trust************************************* (5.1)% Average ************************************************************ (2.4)%

Champion REIT (note 1) ********************************************** Maximum of (16)%

Note: Difference between acquisition price and appraised value for the subject properties as disclosed in their respective offering circulars. We have considered the discounts at which property portfolios were injected into the REITs listed in Hong Kong and Singapore (with assets substantially in Hong Kong) in preparation for their respective listings, which ranged from a discount of 7.6% to a premium of 2.1%. Whilst the actual prices at which the relevant property portfolios were injected into the REITs represented a smaller discount than the maximum discount under the Global Offering, the level of discount for the Property depends essentially on market response for the Global Offering and cannot be ascertained until a later stage. Accordingly, taking into account the relative magnitude of the Global Offering which will generate at least HK$10.3 billion in cash for the Group based on the maximum discount of 16% of the implied disposal value to the Appraised Value, we consider a slightly higher discount to be acceptable. On the basis of the existing rental income generated by the Property, which has yet to reflect the full reversionary potential, and taking into account the size of the Property, such discount is necessary in order to structure terms for the Global Offering, in particular a stable distribution for the Units, so as to enable the Global Offering to be successfully launched in the capital markets. On this basis and taking into account the overall benefits of the Proposed Spin-off to the Group as a whole, in particular, the benefit for the Group of raising a substantial amount of cash proceeds from the Proposed Spin-off to strengthen its financial position as detailed above, we consider the discount to be acceptable. The Initial Consideration is proposed to be satisfied by the issue of the Purchaser Promissory Notes by the Trustee, on behalf of Champion REIT, to the relevant Vendor Companies. The Purchaser Promissory Notes will not bear any interest and shall be paid by the Trustee on the Listing Date from the proceeds of the Facility and the Global Offering. If the Listing Date occurs on or before 31 December 2006 (or such later date as the parties to the Reorganization Agreements may agree in writing), the Initial Share Consideration in respect of all of the Holding Companies will be subject to the IPO Adjustment calculated in the manner described in the letter from the Board in the Circular. The main purpose of the IPO Adjustment is to ensure that the consideration for the acquisition of the Holding Company Shares reflects the value of the Property implied by the Offer

58 LETTER FROM SOMERLEY LIMITED

Price attributable to the Holding Companies. The IPO Adjustment in respect of each Holding Company will be calculated based on a percentage of the total amount of the IPO Adjustment where such percentage is determined based on the Appraised Value as of 28 February 2006 of the respective portion of the Property in which each of the Holding Company is interested. Where the amount of the IPO Adjustment is a positive figure, such amount will be paid by the Trustee, on behalf of Champion REIT, to the relevant Vendor Company on the Listing Date. Where the amount of the IPO Adjustment is a negative figure, such amount will be offset against the principal amount of the Purchaser Promissory Note issued to the relevant Vendor Company and the balance of the principal amount of such Purchaser Promissory Note will be paid to the relevant Vendor Company on the Listing Date. To ensure that the there is no material overstatement or understatement, as the case may be, of the current assets/current liabilities of the relevant Holding Company and its subsidiaries as of the Listing Date, the Post-Completion Adjustment will be calculated. Having considered the procedures and terms of the Reorganization and its effect on the Group, we consider that the Reorganization is fair and reasonable and in the interests of the Group and the Shareholders as a whole.

DISCUSSION AND ANALYSIS The Proposed Spin-off The Property is one of the Group’s three largest investment properties in Hong Kong, representing some 61.2% of the gross book value of the Group’s investment properties at 31 December 2005. The investment property division is one of the two main divisions of the Group. The Proposed Spin-off constitutes a very substantial disposal for the Group. However, the majority of the Group’s assets and business will remain after the Proposed Spin-off and of course the Shares will continue to be listed and traded. On completion of the Global Offering, the Group is expected to receive net proceeds of at least approximately HK$10.3 billion, which is based on the sale of the Property at a discount of not more than approximately 16% to the Appraised Value as set out in Appendix I to the Circular. Although the Property will be disposed at a material discount to the Appraised Value, the Disposal will strengthen the financial position of the Group, on the basis set out below. The net proceeds will be equivalent to 72% of net borrowings of the Group at 31 December 2005. The ratio of net borrowings to shareholders’ equity at that date was 59% and subsequent to the Proposed Spin- off, the level of gearing will be significantly reduced to around 20.7%, which we consider represents a considerable strengthening of the Group’s financial position. In addition, the Group will retain an approximately 49.0% interest in Champion REIT as well as ongoing fees associated with the management of the Property through the activities and roles of Manager, the Property Manager and the DMC Manager and sub-Manager, all of which are 100% owned subsidiaries of the Group. REIT management will constitute a new business for the Group and we consider that the fees receivable for such management services are in line with other REIT issues and should provide a profitable business activity in its own right for the Group. As the Company will not exercise any significant degree of control over Champion REIT, the Company will not equity account its 49.0% interest in Champion REIT. Effecting the Proposed Spin-off essentially means that the Group is realizing part of its interest in the Property at a value by reference to the Appraised Value and retaining future upward potential on the value of the remaining portion of the Property through its holding of Units in Champion REIT. On a recurring basis, the Group will benefit from substantially lower interest expenses due to a lower level of gearing as well as from the new management

59 LETTER FROM SOMERLEY LIMITED fee income. As the Property is being sold based on the valuation as shown in the 2005 accounts, the effect on net assets will be broadly neutral.

The Company is agreeing to certain terms designed, in our opinion, to promote the success of Champion REIT. The Property is being sold at a discount to the Appraised Value of no more than approximately 16% (depending on the pricing of the Units). The fee of the Manager for the first five years is payable in Units rather than cash. The Company is guaranteeing a minimum DPU for 2006. As discussed with the Manager, it is not expected that the Group will be called on under this guarantee. In addition, the Group has undertaken to waive all its entitlements to distributions for the financial year 2006 and to waive 55% and 20% of such entitlements for 2007 and 2008 respectively and has guaranteed Wing Tai’s undertaking in the same terms. Based on previous rental income, the aggregate cost of the waivers to the Group will be significant, assuming no liability under the guarantee given on behalf of Wing Tai. The waiver is designed to boost the yield to independent Unitholders in the period when the rental income from the Property builds up to reflect higher rentals now being achieved and likely to be achieved in the near future, in order to promote the success of the Global Offering. We consider that the Group is justified in providing this support in view of the overall benefits of the Proposed Spin-Off.

Champion REIT itself has entered into an interest rate swap, one of the effects of which is to enhance Annual Distributable Income during the five year life of the swap. The Group has given no support for this financing or any other financial obligation of Champion REIT.

The Group has not given Champion REIT any right of first refusal over any other of its existing properties or future developments, which is a feature of some other REIT issues. Nor has the Company given any non-compete undertaking or agreed to restrict its activities in any way. The Units held by the Company at the close of the Global Offering are subject to a 180-day lock-up, in line with market practice for initial public offerings in Hong Kong.

The Company will have a 89.5% interest immediately after the Reorganization, decreasing to 49.0% after the Proposed Spin-off (43.0% assuming full exercise of the Over-allotment Option). This is a significant reduction but we consider it justified in view of the beneficial effect on the Group’s financial position as set out above. The payment of the Manager in Units will have an off-setting effect. In addition, Qualifying Shareholders will have the opportunity to mitigate the effect of this dilution by subscribing themselves, if they wish, for Assured Entitlements on the basis of 1 Unit for every 4 Shares at the Offer Price, representing approximately 4.4% of the Units being offered under the Global Offering. We consider this a reasonable proportion bearing in mind also the relatively large dollar amount it represents.

The Reorganization

By virtue of Kerry Properties’ participation in the Reorganization, the Reorganization will constitute a connected transaction of the Company under the Listing Rules.

Pursuant to the Reorganization, the restructuring of the interests of the Group, Kerry Properties and Wing Tai into holdings in Units has been carried out in proportion to their respective shareholding ratios and the prices at which their interests are converted into Units under the Reorganization are identical.

60 LETTER FROM SOMERLEY LIMITED

RECOMMENDATION Having taken into consideration the principal factors and reasons as set out above, we are of the view that the terms of the Proposed Spin-off and the Reorganization are fair and reasonable in so far as the Company and the Shareholders are concerned, and that the Reorganization and the Proposed Spin-off are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise, and we ourselves advise, the Shareholders to vote in favour of the resolution to be proposed at the SGM to approve the Proposed Spin-off.

Yours faithfully, for and on behalf of SOMERLEY LIMITED M. N. Sabine Chairman

61 (This Page Intentionally Left Blank) APPENDIX I PROPERTY VALUATION REPORT

The following is the text of a valuation report received from Savills Valuation and Professional 14.66(2) Services Limited, an independent property valuer, in connection with its valuation of the Property as of 28 February 2006.

Great Eagle Holdings Limited T: (852) 2801 6100 33/F, Great Eagle Centre F: (852) 2530 0756 23 Harbour Road Wanchai 23/F Two Exchange Square Hong Kong Central, Hong Kong EA License: C-023750 savills.com

24 April 2006 Dear Sirs

Re: Various Portions in Citibank Plaza, 3 Garden Road, Central, Hong Kong In accordance with your recent instructions to value the captioned property, we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the property as at 28 February 2006 (referred to as the ‘‘Valuation Date’’).

Basis of Valuation Our valuation is our opinion of the market value of the property which we would define as intended to mean ‘the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion’. The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value of a property is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes. Our valuation is prepared in accordance with the requirements of paragraph 6.8 of the Code on Real Estate Investment Trusts (the ‘‘REIT Code’’) and the relevant requirements of the Listing Rules, i.e. adopting the higher of the two standards in the event of any inconsistency. Our valuation is also prepared in accordance with The HKIS Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors.

Valuation Methodologies We have valued the property by reference to sales evidence available on the market and where appropriate on the basis of capitalisation of the net income shown on schedules handed to us. In arriving at our opinion of value, we have considered relevant general and economic factors and in particular, we have investigated recent sales and leasing transactions of comparable properties. In the course

I-1 APPENDIX I PROPERTY VALUATION REPORT of our valuation analysis, we have principally adopted the Income Capitalization Approach and counter- checked by the Direct Comparison Approach. For the purposes of this valuation, we consider the Income Capitalization Approach is the most appropriate valuation method for assessing the market value of the property with regard to the income driven nature of the property. We have assumed that no significant capital expenditure by the owners of the property will be required in the foreseeable future. Income capitalization The Income Capitalization Approach is a method of valuation whereby the existing rental incomes of all lettable units of the property are capitalized for their respective unexpired terms of contractual tenancies whilst vacant units are assumed to be let at their respective market rents as at the Valuation Date. Upon expiry of the existing tenancies, each unit is assumed to be let at its current market rent as at the Valuation Date, which is in turn capitalized for the unexpired term of the Government lease under which the property is held. The summation of the capitalized value of the term income for the leased portion, the capitalized value of the reversion income as appropriately deferred for the leased portion and the capitalized value for the vacant portion provides the market value of the property. The market rentals of all lettable units are made (a) by reference to the rentals fetched in the property and (b) by reference to the lettings of similar properties in the neighbourhood in the range of HK$40 to HK$300 per sq.ft. of Gross Rentable Area for retail space and HK$45 to HK$90 per sq.ft. of Gross Rentable Area for office space. The capitalization rate adopted is made by reference to the yields achieved in analysed market sales transactions and our knowledge of the market expectation from property investors. This expected return reflects implicitly the quality of the investment, the expectation of the potential for future rental growth and capital appreciation, operating costs, risk factor and the like. Our adopted capitalization rates for the retail accommodation and office are 4.25% and 3.25% respectively. Direct comparison As a supporting approach to the valuation, we have also considered the Direct Comparison Approach as a check for the valuation arrived at from the Income Capitalization Approach. In this regard, comparable sales transactions of both en-bloc and strata-title Grade A office premises in Central District around the date of valuation are collected and analyzed in terms of a price per square footage in the range of HK$9,000 to HK$15,000 per sq.ft. of Total Floor Area. The collected comparables are then adjusted to take account of the discrepancies between the property and comparables in terms of time, location, age, building quality and the like. Title Investigations We have not been provided with extracts from title documents relating to the property but we have caused searches to be made at the Land Registry. We have not, however, searched the original documents to verify ownership or to ascertain the existence of any amendment which does not appear on the copies handed to us. We do not accept a liability for any interpretation which we have placed on such information which is more properly the sphere of your legal advisers. In performing our valuation, we have been provided with a copy of, and have noted, the legal opinion relating to the leasehold title of the property issued by the legal adviser to the Manager. Valuation Consideration We have relied to a very considerable extent on information given by the instructing party and have accepted information given to us on such matters as planning approvals or statutory notices, easements, tenure, lettings, floor areas and all other relevant matters. We have no reason to doubt the truth and accuracy of the information provided to us by the instructing party, and have been advised by the instructing party that no material facts have been omitted from the information provided. We have not carried out detailed on-site measurements to verify the correctness of the floor areas in respect of the property but have assumed that the floor areas shown on the documents handed to us are

I-2 APPENDIX I PROPERTY VALUATION REPORT correct. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us by the instructing party and are therefore only approximations. We have inspected the exterior of the property valued and, where possible, we have also inspected the interior of the premises. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defect. We are not, however, able to report that the property is free of rot, infestation or any other structural defect. No test were carried out to any of the services. No allowance has been made in our report for any charge, mortgage or amount owing on the property nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect its value. We hereby certify that this valuation certificate is prepared on a fair and unbiased basis and our valuers undertaking this valuation are authorized to practice as valuers and have the necessary expertise and experience in valuing similar type of property. We would also confirm that we have not valued the property in the last 12 months and we are acting as an Independent Valuer as defined in The HKIS Valuation Standards on Properties (1st Edition 2005) published by Hong Kong Institution of Surveyors. We enclose herewith our valuation certificate and market overview.

Yours faithfully For and on behalf of Savills Valuation and Professional Services Limited

Charles C K Chan MSc FRICS FHKIS MCIArb RPS(GP) Managing Director

* Mr Charles C K Chan, chartered estate surveyor, MSc, FRICS, FHKIS, MCIArb, RPS(GP), has been a qualified valuer since June 1987 and has about 21 years experience in the valuation of properties in Hong Kong.

I-3 APPENDIX I PROPERTY VALUATION REPORT

Valuation Certificate Market value in existing state as at Estimated Net Property Description and tenure Particulars of occupancy 28 February 2006 Property Yield Various Portions in Citibank Plaza is an office / The office and retail HK$ 22,670,000,000 1.75% Citibank Plaza, commercial / carparking portions of the property 3 Garden Road, development situated in are let under various Central, Central district. It comprises tenancies for various terms Hong Kong (See Note 1) one 47-storey office block, with the last expiry date known as Citibank Tower, and in May 2014, yielding a 1,330,963/1,650,000th one 37-storey office block, total monthly rental undivided parts or shares of known as ICBC Tower income of approximately and in Inland Lot No. 8888 surmounting a 6-level podium HK$31 million exclusive (including 4 basement levels) of rates, management and with retail accommodation on air-conditioning charges. the lower ground floor and A number of tenancies carparking spaces in the contain rent review clauses basements. The development and/or options to renew was completed in 1992. for further terms at the The property comprises the then market rents. whole of the retail The current occupancy accommodation and the rate of the property majority of the offices of the (excluding car parking development. The total floor spaces and miscellaneous area and the gross rentable areas) is approximately area of the retail and office 86.6%. A total of 500 portions of the property are as carparks and 50 follows:- motorcycle parking spaces Total Floor Area are being operated as a Use sq.m. sq.ft. fee-paying public carpark Retail 5,362.41 57,721 and the remaining 55 Office 133,296.64 1,434,805 carparks are occupied as Total 138,659.05 1,492,526 private carparks and let under various licences. Gross Rentable Area The total average monthly Use sq.m. sq.ft. income in 2005 is approximately Retail 3,956.99 42,593 Office 103,830.73 1,117,634 HK$755,000 inclusive of rates, management and Total 107,787.72 1,160,227 utility charges. The property also includes 55 Various spaces for cellular private car parking spaces and phone systems are let a fee paying public carpark under four tenancies for comprising 500 car parking terms of two to three spaces and 50 motorcycle years with the last expiry parking spaces in the date in September 2007, basements. yielding a total monthly Inland Lot No. 8888 is held rental income of from the Government for the approximately HK$58,000 residue of the terms of years exclusive of rates, commencing from 3 August management and utility 1989 and expiring on 30 June charges. 2047 under a Government Various advertising spaces lease deemed to have been and the naming rights of issued under and by virtue of Citibank Tower and ICBC Section 14(3) of the Tower are licensed under Coveyancing and Property various licences for terms Ordinance (Chapter 219 of the of six to ten years with Laws of Hong Kong) upon the last expiry date in compliance with the conditions May 2014, yielding a total precedent contained in the monthly licence fees of Conditions of Sale No. 12063 approximately at an annual rent equivalent to HK$1,300,000 exclusive 3% of the rateable value for of rates, management and the time being of the lot. utility charges.

I-4 APPENDIX I PROPERTY VALUATION REPORT

Notes: (1) The property comprises the following portions:- Office & Health Club (ICBC Tower) Whole of ICBC Tower including 2nd to 12th Floors, 15th to 18th Floors, 20th to 23rd Floors and 25th to 40th Floors (13th, 14th and 24th Floors are omitted from floor numbering; 1st and 19th Floors are mechanical floors). Office (Citibank Tower) Various portions of Citibank Tower including portion on 3rd Floor, 7th to 12th Floors, 15th to 18th Floors, 20th to 23rd Floors, 25th to 30th Floors, Portions A and B on 31st Floor, 32nd to 33rd Floors, 38th to 39th Floors, Portions A and B on 40th Floor and 41st to 50th Floors (13th, 14th and 24th Floors are omitted from floor numbering; 1st, 2nd, 19th and 35th Floors are mechanical floors). Retail Shop Restaurant and Shops 1 to 5 on Lower Ground Floor of the development. Car Parking Space Private car parking space nos. 5 to 33, 42 to 51, 118 to 131 and 166 to 167 on Basement 2 and public carpark comprising 500 car parking spaces and 50 motor cycle parking spaces within the development.

(2) The registered owners of the respective portions of the property are set out below:- Registered Owner Portion of the property Shine Hill Development Limited Whole of ICBC Tower including 2nd to 12th Floors, 15th to 18th Floors, 20th to 23rd Floors and 25th to 40th Floors (13th, 14th and 24th Floors are omitted from floor numbering; 1st and 19th Floors are mechanical floors). Various portions of Citibank Tower, including portion on 3rd Floor, 7th to 12th Floors, 15th to 18th Floors, 20th to 23rd Floors and 25th to 28th Floors (13th, 14th and 24th Floors are omitted from floor numbering; 1st, 2nd, 19th and 35th Floors are mechanical floors). Restaurant and Shops 1 to 4 on Lower Ground Floor of the development. Private car parking space nos. 5 to 20, 26 to 33, 45 to 51, 121 to 122 and 166 and 167 on Basement 2 and public carpark comprising 500 private car parking spaces and 50 motor cycle parking spaces within the development. All those Reserved Areas as defined in the Deed of Mutual Covenant and Management Agreement in respect of Citibank Plaza registered in the Land Registry by Memorial No. UB5511011 (being those parts of the buildings (not specifically assigned for the exclusive use of any Owner and not being part of the common areas) reserved for the exclusive use and occupation of Shine Hill Development Limited (including without limitation to the generality of the foregoing, the Main Roofs, the flat roof, the External Walls, the loading/ unloading areas on the First Basement and three (3) flag poles at or above Level +14.668 facing the transverse road). Maple Court Limited 29th to 30th Floors and Portion B on 31st Floor of Citibank Tower Private car parking space nos. 21 to 22 on Basement 2 of the development. Panhy Limited Portion A on 31st Floor and 32nd to 33rd Floors of Citibank Tower. Private car parking space nos. 42 to 44 on Basement 2 of the development. Well Charm Development Limited 38th Floor of Citibank Tower. CP (Portion A) Limited Portion A on 40th Floor, 41st to 50th Floors of Citibank Tower. Shop 5 on Lower Ground Floor of the development. Private car parking space nos. 118 to 120 and 123 to 131 on Basement 2 of the development. CP (Portion B) Limited 39th Floor and Portion B on 40th Floor of Citibank Tower. Private parking space nos. 23 to 25 on Basement 2 of the development.

(3) The portions of the property held by Shine Hill Development Limited and Maple Court Limited (see Note 2) are each subject to a legal charge and debenture in favour of Hang Seng Finance Limited on its own behalf and as agent and trustee for the lenders.

I-5 APPENDIX I PROPERTY VALUATION REPORT

(4) The portions of the property held by CP (Portion A) Limited and CP (Portion B) Limited (see Note 2) are each subject to another legal charge and debenture in favour of Hang Seng Finance Limited on its own behalf and as agent and trustee for the lenders. (5) The portions of the property held by Panhy Limited and Well Charm Development Limited (see Note 2) are each subject to a legal charge in favour of The Bank of East Asia Limited. (6) The property lies within an area zoned ‘‘Commercial’’ under Central District Outline Zoning Plan. (7) The rentals reported herein are the total of the face rentals without taking into account any rent free periods or the turnover rents received, if any. (8) Based on the tenancy information provided by the Group, our analysis of the existing tenancy profile as at 28 February 2006 (excluding car parking spaces and miscellaneous areas) is set out below:- Occupancy Profile Type Gross Rentable Area (sq. ft.) % of total Leased 1,005,291 86.6 Vacant 154,936 13.4 Total 1,160,227 100

Lease Commencement Profile Gross Rentable % of Monthly Rental % of No. of % of Year Area (sq. ft.) total (HK$) total Tenancy total 2000 3,805 0.4 91,320 0.3 1 0.9 2001 1,275 0.1 30,600 0.1 1 0.9 2002 121,448 12.1 5,271,304 17.0 3 2.8 2003 33,731 3.4 735,778 2.4 8 7.6 2004 486,129 48.3 11,594,540 37.4 29 27.4 2005 321,670 32.0 11,430,133 36.9 56 52.8 2006* 37,233 3.7 1,853,412 5.9 8 7.6 Total 1,005,291 100 31,007,087 100 106 100

* For the period from January to February 2006 Lease Expiry Profile Gross Rentable % of Monthly Rental % of No. of % of Year Area (sq. ft.) total (HK$) total Tenancy total Monthly 30,517 3.0 400,000 1.3 1 0.9 2006** 83,438 8.3 2,211,964 7.1 22 20.8 2007 219,896 21.9 7,383,218 23.7 41 38.8 2008 251,721 25.0 10,597,356 34.2 28 26.4 2009 19,458 1.9 959,264 3.1 3 2.8 2010 276,508 27.5 6,094,840 19.7 7 6.6 2011 15,992 1.7 614,093 2.0 1 0.9 2014 107,761 10.7 2,746,352 8.9 3 2.8 Total 1,005,291 100 31,007,087 100 106 100

** For the period from March to December 2006

I-6 APPENDIX I PROPERTY VALUATION REPORT

Lease Duration Profile Gross Rentable % of Monthly Rental % of No. of % of Year Area (sq. ft.) total (HK$) total Tenancy total Monthly 30,517 3.0 400,000 1.3 1 0.9 1 13,512 1.3 580,222 1.9 6 5.7 2 143,680 14.3 5,170,181 16.7 34 32.1 3 270,292 26.9 9,387,699 30.2 46 43.4 4 21,776 2.2 651,076 2.1 4 3.8 5 41,773 4.2 1,419,354 4.5 3 2.8 6 375,980 37.4 10,652,203 34.4 9 8.5 9 2,325 0.2 89,365 0.3 1 0.9 10 105,436 10.5 2,656,987 8.6 2 1.9 Total 1,005,291 100 31,007,087 100 106 100

I-7 APPENDIX I PROPERTY VALUATION REPORT

OFFICE MARKET OVERVIEW Structural Change in Hong Kong The growth of Hong Kong’s office sector over the past 2 decades has reflected growth in the number of people employed in the service sector as a proportion of the total work force. Hong Kong has benefited greatly from its proximity to Mainland China and its ability to tap into its vast resources and population. Being located on the international time zone between Asia and Europe has also helped Hong Kong to become a global financial centre. Stock According to the Rating and Valuation Department, the total office stock in Hong Kong grew by more than 200 per cent from 1982 to 2004. The rapid growth rate of office stock can be attributed to the extension of Hong Kong’s manufacturing sector into the Pearl River Delta Region while Hong Kong has evolved into a global financial centre with a strong demand for Grade ‘A’ offices. At the end of 2004, Grade ‘A’ office space accounted for approximately 60 per cent of all office stock, with the remaining 40 per cent was accounted for by Grade ‘B’ and ‘C’ office space respectively. Central is the central business district (CBD) of Hong Kong, and is also where the SAR’s government is based. Central represents approximately 20 per cent of total office stock of all grades and 30 per cent of the total stock of Grade ‘A’ offices. Central, together with the other traditional business districts of Wanchai / Causeway Bay and Tsimshatsui, represented more than 60 per cent of total Grade ‘A’ office stock at the end of 2004. Rental Trend The Hong Kong economy rebounded swiftly after the successful containment of SARS in 2003, as did the Hong Kong office market. Grade ‘A’ office rents reversed their downward trend and have risen consistently since Q4/2003. Strong demand for prime office space has been noted from the financial and related business services sectors, which have benefited from a booming stock market, Mainland Chinese IPOs, mergers and acquisitions, as well as a flourishing trading sector. The average Grade ‘A’ office rent surged by around 60 per cent from the end of Q3/2003 to the end of Q4/2005 and even more dramatic growth of around 90 per cent was recorded for Central Grade ‘A’ office rents over the same period, though signs of slowing were noted in the last quarter of 2005 in Central after months of very rapid gains(1). Price Trend The Grade ‘A’ office sales market saw a dramatic turnaround in 2003, with prices dropping over the first half of the year and rebounding quickly over the second half, resulting in an aggregate whole year increase, the first year to record a YoY increase in Grade ‘A’ office prices since 1996. The buoyant investment sentiment continued in 2004 when prices nearly doubled on the back of a strong economic recovery and rising rents, only to cool off from the beginning of 2005 as interest rates started climbing. While interest rate has increased by 2.75 percentage points over 2005, office prices increased modestly over the same period, with a slight decrease recorded over the last quarter of 2005. Supply Less favorable economic conditions after 1997 and a lack of developable sites had resulted in a disincentive to engage in development activity. Consequently, the supply of offices fell to a low level in 2000. The average of completed Grade ‘A’ office space between 2000 and 2004 was significantly less than the average of completed office space for the 5 years between 1990 and 1994 and between 1995 and 1999 respectively.

(1) Source: Rating and Valuation Department

I-8 APPENDIX I PROPERTY VALUATION REPORT

New supply of offices is expected to remain at low levels over the next few years, particularly for Grade ‘A’ offices in the core areas of Central, Wanchai/Causeway Bay and Tsimshatsui. The total supply of Grade ‘A’ offices between 2005 and 2010 is expected to reach approximately 10 million sq.ft., or 1.7 million sq.ft. per annum, which is below the 10-year average of 2.6 million sq. ft. recorded between 1995 and 2004 It is also noteworthy that new supply will come on stream outside the core business districts of Central, Wanchai/Causeway Bay and Tsimshatsui. In fact, after the completion of Landmark East in Central, there will be no new supply in the core locations until the completion of the redevelopment at the Central Market site into prime office. In addition to the already tight availability, tenants in core locations are expected to look at options such as splitting operations, decentralizing or downgrading in order to accommodate their growing headcounts. Meanwhile, rents in the core business districts are expected to face strong upward pressure. Vacancy Rates Savills estimates that the average Grade ‘A’ office vacancy rate reached a recent low at the end of 2005 of 6 per cent, and vacancy rates across all districts are expected to continue to show a sharply declining trend. Outlook The overall office market is expected to be well supported by the positive economic outlook. Demand for office space is expected to remain high as it is anticipated that real GDP growth will average approximately 4.9 per cent per annum over the period from 2005 to 2009(2). New supply, however, is not expected to match demand. Although the structural shift of the domestic economy from manufacturing to services is largely completed, manufacturers in Hong Kong will continue to take advantage of the low operating costs in the Pearl River Delta Region and leverage Hong Kong’s advanced business services skills, its infrastructure and experience in international trade to expand their businesses. Meanwhile, the finance sector and related business services are expected to benefit from the growing strength of the economy. Increasing demand for higher end services such as personal banking, trade finance, fund raising, law, and accounting is expected from the region. Tight availability of Grade ‘A’ offices in the core business districts is expected to push up both rents and prices of office premises in the territory. *****

(2) Source: Consensus Economics, October 2005

I-9 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

1. ACCOUNTANTS’ REPORT OF THE GROUP The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong

24th April, 2006

The Directors Great Eagle Holdings Limited Merrill Lynch Far East Limited

Dear Sirs, We set out below our report on the financial information (the ‘‘Financial Information’’) relating to Great Eagle Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’) for each of the three years ended 31st December, 2005 (the ‘‘Relevant Periods’’) for inclusion in the circular of the Company dated 24th April, 2006 (the ‘‘Circular’’) in relation to the proposed disposal of the entire issued capital of certain companies which are engaged in property investment business (the ‘‘Property Companies’’). The Company was incorporated in Bermuda as an exempted company under The Company Act 1981 of Bermuda (as amended) on 3rd January, 1997. The principal activity of the Company is investment holding. At the date of this report, the Company has the following subsidiaries: Percentage of issued equity share capital Date of Issued and paid up equity held by the Direct subsidiary incorporation share capital Principal activity Company — incorporated and operating in the British Virgin Islands: Jolly Trend Limited********** 17th October, 1989 2 shares of US$l each Investment holding 100% Indirect subsidiary — incorporated and operating in Hong Kong: Benington Limited ********** 29th December, 1988 100 shares of HK$10 each Property investment 100% Bon Project Limited ********* 12th April, 1985 2 shares of HK$1 each Property investment 100% Chance Mark Limited******** 30th April, 1992 2 shares of HK$1 each Property investment 100% Cheer Spring Limited ******** 10th December, 2004 1 share of HK$1 Inactive 100% Clever Gain Investment Limited 21st April, 1994 2 shares of HK$1 each Restaurant operation 100% CP (A1) Limited ************ 3rd March, 2006 1 share of HK$1 Inactive 100% CP (B1) Limited ************ 3rd March, 2006 1 share of HK$1 Inactive 100% CP Finance Limited ********* 3rd March, 2006 1 share of HK$1 Inactive 100% CP (MC) Limited *********** 3rd March, 2006 1 share of HK$1 Inactive 100% CP (PH) Limited************ 3rd March, 2006 1 share of HK$1 Inactive 100% CP (Portion A) Limited ****** 21st July, 1989 2 shares of HK$1 each Property investment 100% CP (Portion B) Limited ****** 9th June, 1989 2 shares of HK$1 each Property investment 100%

II-1 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Percentage of issued equity share capital Date of Issued and paid up equity held by the Indirect subsidiary incorporation share capital Principal activity Company CP (SH) Limited************ 3rd March, 2006 1 share of HK$1 Financing 100% CP-SH Finance Limited ****** 17th March, 2000 2 shares of HK$1 each Inactive 100% CP (WC) Limited *********** 3rd March, 2006 1 share of HK$1 Inactive 100% Crucial Investments Limited*** 28th December, 1979 10,000 shares of HK$1 each Property investment 100% Eagle Harbour Building Management Co., Limited ** 11th February, 1983 500 A shares and 500 B Building 100% shares of HK$1 each management Eagle Harbour Carparks Management Co., Limited ** 11th February, 1983 1 A share and 1 B share of Car parks 100% HK$1 each management Eagle Property Management (CP) Limited ************* 7th March, 2006 1 share of HK$1 Inactive 100% Eagle Asset Management (CP) Limited ************* 12th January, 2006 5,000,000 shares of HK$1 Inactive 100% each Ease Billion Development Limited ***************** 9th October, 2000 2 shares of HK$1 each Property investment 100% Easy Wealth Limited********* 22nd December, 1999 2 shares of HK$1 each Property investment 100% Eaton Hotels Limited (formerly Eaton House International Limited) ***************** 5th June, 1987 2 shares of HK$10 each Management of 100% furnished apartments Fortuna Wealth Company Limited ***************** 5th August, 1993 2 shares of HK$1 each Property investment 100% Frequent Investments Limited 3rd November, 1981 2 shares of HK$1 each Investment holding 100% G E Advertising Agency Limited ***************** 7th October, 1983 2 shares of HK$1 each Advertising agency 100% G.E. Nominees Limited ****** 9th January, 1987 2 shares of HK$1 each Nominee services 100% G.E. Secretaries Limited****** 30th August, 1984 2 shares of HK$1 each Secretarial services 100% GEventful Limited ********** 30th June, 2000 2 shares of HK$1 each Inactive 100% Gold Epoch Investment Limited 24th August, 1993 2 shares of HK$1 each Property investment 100% Great Concept Enterprises Limited ***************** 18th February, 2000 100 shares of HK$1 each Inactive 75% Grow On Development Limited 6th June, 1984 5,000 shares of HK$1 each Hotel ownership 100% and operation Happy Home Club Limited *** 4th October, 2000 2 shares of HK$1 each Retailing of 100% household products Harvest Star International Limited ***************** 13th May, 1993 2 shares of HK$1 each Hotel ownership 100% and operation Honour Ascent Limited ****** 26th November, 2004 1 share of HK$1 Inactive 100% Huge Charm Investment Limited ***************** 17th December, 2004 1 share of HK$1 Inactive 100% Ka Yick Company Limited**** 15th April, 1980 100,000 shares of HK$1 Share investment 100% each Keysen Engineering Company, Limited ***************** 28th October, 1980 2 shares of HK$1 each Maintenance 100% services Langham Finance Limited **** 31st December, 2004 1 share of HK$1 Inactive 100% Langham Hotels (China) Limited ***************** 17th December, 2004 1 share of HK$1 Hotel management 100% Langham Hotels International Limited ***************** 30th August, 1984 2 shares of HK$1 each Hotel management 100%

II-2 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Percentage of issued equity share capital Date of Issued and paid up equity held by the Indirect subsidiary incorporation share capital Principal activity Company Langham Hotels International (China) Limited*********** 23rd February, 2000 2 shares of HK$1 each Hotel management 100% Langham Place Hotel (HK) Limited************* 30th June, 2003 2 shares of HK$1 each Hotel ownership 100% and operation Great Eagle Hospitality Group Limited (formerly LHC Hospitality Group Limited) 26th May, 2005 1 share of HK$1 Inactive 100% Longworth Management Limited ***************** 13th August, 1991 10,000 shares of HK$1 each Property 100% management Maple Court Limited ******** 11th August, 1989 2 shares of HK$1 each Property investment 85.93% Million Prime Company Limited ***************** 3rd August, 1993 2 shares of HK$1 each Property investment 100% Missleton Finance Limited **** 28th February, 1989 1,000,000 shares of HK$1 Financing 85.93% each Moon Yik Company, Limited 15th August, 1978 10,000,000 shares of HK$1 Property investment 100% each Panhy Limited ************** 11th July, 1989 2 shares of HK$1 each Property investment 100% Profit Lord Limited********** 11th August, 1989 2 shares of HK$1 each Financing 100% Renaissance City Development Company Limited ********* 15th April, 1987 2 shares of HK$10 each Property investment 100% Ropark Company Limited **** 30th March, 1984 2 shares of HK$1 each Investment holding 100% Selex Properties Management Company, Limited********* 17th December, 1982 2 shares of HK$l each Property 100% management Shine Hill Development Limited ***************** 16th October, 1987 1,000,000 shares of HK$1 Property investment 85.93% each Shung Kai Development Company Limited ********* 5th December, 1972 1,000 shares of HK$100 Investment holding 100% each Strong Dynamic Limited ***** 5th December, 2001 2 shares of HK$1 each Fitness centre 100% operation Talent Palace Limited ******** 3rd December, 2004 1 share of HK$1 Inactive 100% The Great Eagle Company, Limited ***************** 14th November, 1963 2,000,000 shares of HK$0.5 Investment holding 100% each The Great Eagle Development and Project Management Limited ***************** 4th December, 1979 2 shares of HK$10 each Project management 100% The Great Eagle Engineering Company Limited ********* 11th October, 1983 2 shares of HK$l each Maintenance 100% services The Great Eagle Estate Agents Limited ***************** 21st July, 1981 2 shares of HK$10 each Real estate agency 100% The Great Eagle Finance Company, Limited********* 21st May, 1974 100,000 shares of HK$100 Financing 100% each The Great Eagle Insurance Company, Limited********* 25th September, 1979 1,000 shares of HK$1 each Insurance agency 100%

II-3 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Percentage of issued equity share capital Date of Issued and paid up equity held by the Indirect subsidiary incorporation share capital Principal activity Company The Great Eagle Properties Management Company, Limited ***************** 30th January, 1973 100,000 shares of HK$1 Property 100% each management Toptech Co. Limited ********* 25th November, 1986 600,000 shares of HK$1 Trading of building 100% each materials Topstar Home Appliances Limited ***************** 26th November, 2004 1 share of HK$1 Trading 100% Venus Glory Company Limited 22nd July, 1993 2 shares of HK$1 each Property investment 100% Wai Cheong Company Limited 10th August, 1964 5,000 shares of HK$100 Property investment 100% each Well Charm Development Limited ***************** 5th March, 1996 2 shares of HK$1 each Property investment 100% Worth Bright Company Limited 17th August, 1993 2 shares of HK$1 each Property investment 100% Zamanta Investments Limited** 22nd July, 1980 100 shares of HK$10 each Property investment 100% — incorporated in the British Virgin Islands and operating in Hong Kong: Accumate Assets Limited***** 22nd May, 2001 1 share of US$1 Investment holding 100% Acefield Investments Limited** 1st December, 2004 1 share of US$1 Investment holding 100% Acemaster Investments Limited 1st December, 2004 1 share of US$1 Investment holding 100% Alfida Limited************** 24th July, 1989 1 share of US$1 Investment holding 100% Asiadelta Enterprises Limited** 8th June, 2005 1 share of US$1 Investment holding 100% Best Noble Enterprises Limited 12th May, 2005 1 share of US$1 Investment holding 100% Bondcity Investments Limited 1st December, 2004 1 share of US$1 Investment holding 100% Braveforce Investments Limited 26th November, 2004 1 share of US$1 Investment holding 100% Braveman Investments Limited 12th November, 2004 1 share of US$1 Investment holding 100% Cann Developments Limited ** 25th November, 1993 1 share of US$1 Inactive 100% Cojoin Properties Limited***** 26th July, 1993 1 share of US$1 Investment holding 100% CP Finance (BVI) Limited **** 3rd March, 2006 1 share of US$1 Investment holding 100% Cubitt Properties Limited ***** 2nd July, 1993 1 share of US$1 Investment holding 100% Dorace Management Limited ** 27th July, 1993 1 share of US$1 Inactive 100% Eagle Asset Management Holdings Limited ********* 5th January, 2006 1 share of US$1 Investment holding 100% Eagle Property Management Holdings Limited ********* 28th February, 2006 1 share of US$1 Investment holding 100% East Power Limited********** 24th July, 1989 1 share of US$1 Investment holding 100% Elegant Mark International Limited ***************** 22nd March, 1994 1 share of US$1 Investment holding 100% Elvina Assets Limited******** 12th November, 1996 1 share of US$1 Investment holding 100% Evertop Pacific Investments Limited ***************** 7th January, 1994 1 share of US$1 Investment holding 100% Faversham Enterprises Limited 1st September, 1997 1 share of US$1 Investment holding 100% Flexibility Assets Limited***** 28th March, 2000 1 share of US$1 Investment holding 100% Fruitful Gain Limited ******** 18th November, 1997 1 share of US$1 Investment holding 85.93% Fu Keung Limited*********** 13th June, 1995 10,000 shares of US$1 each Inactive 85.93% Full Efforts Enterprises Limited 2nd May, 2000 1 share of US$1 Inactive 80% Fuscastus Limited *********** 4th July, 1989 1,000,000 shares of HK$1 Investment holding 85.93% each G-Concept (BVI) Limited***** 30th August, 2000 1 share of US$1 Investment holding 100% GE Tech Limited************ 21st February, 2000 1 share of US$1 Inactive 100% GE (TN) Limited *********** 10th May, 2000 1 share of US$1 Inactive 100% Goodshare Enterprises Limited 18th November, 1997 1 share of US$1 Investment holding 100% Great Eagle (China) Investment Limited ***************** 18th February, 1992 1 share of US$1 Investment holding 100%

II-4 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Percentage of issued equity share capital Date of Issued and paid up equity held by the Indirect subsidiary incorporation share capital Principal activity Company Great Eagle Net Limited****** 3rd November, 1997 1 share of US$1 Investment holding 100% Great Eagle Nichemusic Limited ***************** 22nd October, 1997 1 share of US$1 Share investment 100% Hamni Properties Limited***** 3rd July, 1996 1 share of US$1 Investment holding 100% Harvest Star Limited********* 22nd May, 1989 1 share of US$1 Investment holding 85.93% Hekfer Holdings Limited ***** 8th August, 1996 1 share of US$1 Investment holding 100% Horana Limited ************* 22nd May, 1989 1 share of US$1 Investment holding 85.93% Huasha Profits Limited ******* 24th August, 1993 1 share of US$1 Investment holding 100% Hungar Properties Limited **** 6th July, 1993 1 share of US$1 Investment holding 100% Kaduna Developments Limited 13th March, 1996 1 share of US$1 Investment holding 100% Kekina Group Limited ******* 3rd July, 1996 1 share of US$1 Investment holding 100% Kieane Group Limited ******* 8th August, 1996 1 share of US$1 Investment holding 100% Kirkton Group Limited******* 8th February, 1996 1,000 shares of US$1 each Investment holding 100% Lailon Holdings Limited****** 4th April, 1996 1 share of US$1 Investment holding 100% Langham Hospitality Limited** 8th June, 2005 1 share of US$1 Hotel management 100% Livelong Investments Limited 12th November, 2004 1 share of US$1 Investment holding 100% Lokson Properties Limited **** 28th March, 1996 1 share of US$1 Investment holding 100% Longlast Holdings Limited**** 9th January, 2006 1 share of US$1 Investment holding 100% Luxway Investments Limited ** 14th September, 1993 1 share of US$1 Investment holding 100% Milmac Holdings Limited***** 20th November, 1996 1 share of US$1 Investment holding 100% Morewise Enterprises Limited 6th January, 2006 1 share of US$1 Investment holding 100% Oriental Assets Limited ****** 24th July, 1989 1 share of US$1 Investment holding 100% Orwell Enterprises Limited**** 7th December, 1993 1 share of US$1 Investment holding 100% Portion A (BVI) Limited ***** 26th September, 1989 1 share of US$1 Investment holding 100% Portion B (BVI) Limited ***** 26th September, 1989 1 share of US$1 Investment holding 100% Raychen Investments Limited** 20th November, 1996 1 share of US$1 Investment holding 100% Richchamp Assets Limited**** 24th July, 1989 1 share of US$1 Investment holding 100% Rowan Enterprises Limited**** 7th December, 1993 1 share of US$1 Investment holding 100% Shoreland International Limited 9th January, 2006 1 share of US$1 Investment holding 100% Shuster Limited ************* 4th July, 1989 1,000,000 shares of HK$1 Investment holding 85.93% each Sound Profit Investments Limited ***************** 5th July, 2000 1 share of US$1 Inactive 100% Spot Track Limited ********** 12th March, 1997 1 share of US$1 Financing 100% Sureable Assets Limited ****** 16th December, 2004 1 share of US$1 Artworks ownership 100% Swift Success Investments Limited ***************** 2nd May, 2000 1 share of US$1 Investment holding 100% Throng Limited ************* 12th June, 1989 1,000,000 shares of HK$1 Investment holding 85.93% each TN Quebec Holdings Limited 2nd May, 2000 1 share of US$1 Inactive 80% TN Seattle Holdings Limited ** 18th May, 2000 1 share of US$1 Inactive 80% TN Toronto Holdings Limited 22nd August, 2000 1 share of US$1 Inactive 80% Top Domain International Limited ***************** 6th February, 2006 1 share of US$1 Inactive 100% TribeNation (Asia) Limited *** 3rd November, 1997 1 share of US$1 Inactive 80% TribeNation Entertainment Holdings Limited ********* 8th March, 2000 1 share of US$1 Inactive 80% TribeNation Holdings Limited 8th March, 2000 10,000 shares of US$1 each Inactive 80% TribeNation Technologies Holdings Limited ********* 2nd May, 2000 1 share of US$1 Inactive 80% TribeNation Technologies Inc. 6th April, 2000 1 share of US$1 Inactive 80% Truefaith Developments Limited ***************** 25th May, 2005 1 share of US$1 Investment holding 100% Unite Asia Properties Limited 5th August, 1993 1 share of US$1 Inactive 100% Vintage Holdings Limited***** 15th November, 1991 100 shares of US$1 each Investment holding 100%

II-5 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Percentage of issued equity share capital Date of Issued and paid up equity held by the Indirect subsidiary incorporation share capital Principal activity Company Wellsmart Assets Limited***** 26th August, 2002 1 share of US$1 Investment holding 100% Wesselhoft Limited ********** 12th June, 1989 1,000,000 shares of HK$1 Investment holding 85.93% each Winners Glory Properties Limited ***************** 3rd November, 1997 1 share of US$1 Investment holding 100% World Class Investments Limited ***************** 18th February, 1992 1 share of US$1 Investment holding 100% — incorporated in the British Virgin Islands and operating in United Kingdom: Great Eagle Hotels (UK) Limited************* 28th March, 1996 1 share of US$1 Hotel ownership 100% and operation — incorporated and operating in Canada: Great Eagle Hotels (Canada) Limited ***************** 17th December, 1996 10 common shares of C$1 Hotel ownership 100% each and operation TribeNation (Quebec) Inc. **** 25th February, 2000 no par value Inactive and in 80% bankruptcy TribeNation (Toronto) Inc. **** 4th August, 2000 no par value Inactive and in 80% bankruptcy TSP Inc. ****************** 8th June, 2000 no par value Inactive and in 80% bankruptcy — incorporated in the British Virgin Islands and operating in Australia: Katesbridge Group Limited *** 8th August, 1996 1 share of US$1 Investment holding 100% — incorporated and operating in Australia: Great Eagle Hotels (Victoria) Pty Ltd****************** 12th May, 1994 2 shares of A$1 each Investment holding 100% Kenrick Towns Pty. Ltd. ***** 29th October, 1996 12 shares of A$1 each Trustee 100% Southgate Hotel Management Pty. Ltd. **************** 18th April, 1958 17,408 shares of A$2 each Hotel operation 100% — incorporated in the British Virgin Islands and operating in New Zealand: Great Eagle Hotels (New Zealand) Limited********** 13th March, 1996 1 share of US$1 Property investment 100% — incorporated and operating in New Zealand: Great Eagle Hotels (Auckland) Limited ***************** 30th June, 1997 1,000 shares of no par value Hotel operation 100% — incorporated and operating in USA: EIH Properties Company — XX, LLC **************** 13th April, 1999 US$1,000 Property investment 100% Pacific 2700 Ygnacio Corporation ************** 1st December, 2005 100 shares of US$1 each Property investment 100% Pacific 888, LLC************ 20th August, 1998 US$4,850,000 Inactive 100% Pacific Dolphin Corporation*** 7th April, 1993 100 shares of no par value Property investment 100%

II-6 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Percentage of issued equity share capital Date of Issued and paid up equity held by the Indirect subsidiary incorporation share capital Principal activity Company Pacific Eagle Holdings Corporation ************** 21st May, 1993 100 shares of no par value Management 100% company Pacific Boston Holdings Corporation ************** 9th April, 1997 100 shares of US$0.001 Investment holding 100% each Pacific Boston Service Corporation ************** 9th April, 1997 100 shares of US$0.001 Inactive 100% each Pacific Figueroa Corporation ** 20th August, 1998 100 shares of US$0.001 Investment holding 100% each Pacific Investment Limited **** 3rd December, 1991 100 shares of US$1 each Investment holding 100% Pacific Landmark Limited **** 24th November, 1997 100 shares of US$0.001 Investment holding 100% each Pacific Northwestern Corporation ************** 17th June, 2002 100 shares of US$0.001 Investment holding 100% each Pacific Spear Corporation***** 10th May, 1994 100 shares of US$0.001 Property investment 100% each Pacific Venture Limited ****** 20th November, 1997 100 shares of US$0.001 Investment holding 100% each Pacific Walnut Creek Corporation ************** 1st December, 2005 100 shares of US$1 each Investment holding 100% Pacific Wilshire Corporation ** 19th November, 1997 100 shares of US$0.001 Inactive 100% each Pacific Ygnacio Corporation*** 7th April, 1993 100 shares of no par value Property investment 100% Shorthills NJ, Inc. ********** 3rd December, 1991 100 shares of US$1 each Property investment 100% — incorporated in Cayman Islands Ernest Limited************** 28th April, 2005 100 shares of US$1 each Investment holding 100% — incorporated in Liberian Baxter Investment Limited **** 21st October, 1987 500 shares of US$1 each Investment holding 100% Carius Investment Limited **** 21st October, 1987 1 share of US$1 each Investment holding 100% Glendive Investment Limited ** 22nd October, 1987 500 shares of US$1 each Investment holding 100% We have acted as auditors of the Company for the Relevant Periods. Audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong for each of the three years ended 31st December, 2005. We have examined the audited consolidated financial statements of the Group (the ‘‘Underlying Financial Statements’’) for the Relevant Periods. Our examination was made in accordance with the Auditing Guideline ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the Hong Kong Institute of Certified Public Accountants. The consolidated income statements and consolidated cash flow of the Group for the Relevant Periods and consolidated balance sheets as at 31st December, 2003, 2004 and 2005 as set out in this report have been prepared based on the Underlying Financial Statements for the Relevant Periods for the purpose of preparing our report for inclusion in the Circular. The preparation of the Underlying Financial Statements is the responsibility of the directors of the Company who approve the issue. The directors of the Company are also responsible for the contents of the Circular in which this report is included. It is our responsibilities to compile the Financial Information from the Underlying Financial Statements, to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

II-7 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

In our opinion, the Financial Information together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of the Group as at 31st December, 2003, 2004 and 2005, and of results and cash flows of the Group for each of the three years ended 31st December 2005.

II-8 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

A. FINANCIAL INFORMATION CONSOLIDATED INCOME STATEMENT Notes 2003 2004 2005 HK$’000 HK$’000 HK$’000 Revenue ************************************ 7 2,522,965 2,830,822 3,521,201 Cost of goods and services********************* (1,542,513) (1,939,204) (2,273,950) Gross profit ********************************* 980,452 891,618 1,247,251 Gain on disposal of property investment subsidiaries — 51,862 — Fair value changes on investment properties ******* (494,378) 3,781,275 12,982,057 Fair value changes on derivative financial instruments******************************** — — 258,944 Other income ******************************** 9 27,939 23,264 42,592 Administrative expenses *********************** (113,361) (107,003) (135,752) Other expenses******************************* (19,590) (52,581) (34,469) Depreciation on hotel buildings ***************** (97,708) (117,557) (155,481) Amortisation on prepaid lease payments ********** (30,038) (36,177) (44,771) Finance costs ******************************** 10 (329,782) (404,277) (760,710) Share of results of associates ******************* 14,313 7,396 9,250 (Loss) Profit before tax************************ (62,153) 4,037,820 13,408,911 Income taxes ******************************** 11 (143,820) (746,011) (2,323,495) (Loss) Profit for the year ********************** 12 (205,973) 3,291,809 11,085,416 Attributable to: Equity holders of the parent ****************** (173,607) 3,103,952 10,028,139 Minority interests ************************** (32,366) 187,857 1,057,277 (205,973) 3,291,809 11,085,416 Dividends *********************************** 14 Interim, paid ******************************** 17,529 20,638 20,801 Final, proposed ****************************** 58,441 76,816 119,129 Basic earnings (loss) per share****************** 15 HK$(0.30) HK$5.28 HK$16.93 Diluted earnings (loss) per share **************** 15 HK$(0.30) HK$5.27 HK$16.89

II-9 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED BALANCE SHEET Notes 2003 2004 2005 HK$’000 HK$’000 HK$’000 Non-current assets Property, plant and equipment ************* 16 14,023,682 7,179,517 7,302,912 Prepaid lease payments ******************* 17 1,945,001 1,885,497 1,840,726 Investment properties ******************** 18 12,302,317 24,793,003 37,049,745 Interests in associates ******************** 19 1,646 9,510 18,760 Available-for-sale investments ************* 20 — — 16,432 Other investments *********************** 21 24,440 15,274 — Loan receivables ************************ 22 260,877 270,237 278,344 Pledged bank deposits******************** 23 3,600 3,604 489,346 28,561,563 34,156,642 46,996,265 Current assets Inventories ***************************** 24 66,073 83,371 75,309 Debtors, deposits and prepayments ********* 25 277,196 314,182 407,991 Prepaid lease payments ******************* 17 30,038 44,771 44,771 Bank balances and cash ****************** 23 637,149 1,391,317 719,351 1,010,456 1,833,641 1,247,422 Non-current assets classified as held for sale 26 — — 253,800 1,010,456 1,833,641 1,501,222 Current liabilities Creditors, deposits and accruals ************ 27 662,002 1,453,603 1,532,173 Derivative financial instruments ************ 28 — — 44,356 Provision for taxation ******************** 119,267 102,760 92,760 Borrowings due within one year *********** 29 1,543,613 1,685,710 1,390,620 Unsecured bank overdraft ***************** 1,093 28,524 3,967 2,325,975 3,270,597 3,063,876 Net current liabilities*********************** (1,315,519) (1,436,956) (1,562,654) Total assets less current liabilities ************ 27,246,044 32,719,686 45,433,611 Non-current liabilities Borrowings due after one year ************* 29 13,283,607 14,757,166 14,526,388 Deferred taxation************************ 30 1,802,207 2,464,425 4,653,230 15,085,814 17,221,591 19,179,618 Net Assets ******************************* 12,160,230 15,498,095 26,253,993 Equity Share capital ***************************** 31 292,153 294,883 297,401 Share premium and reserves***************** 11,198,309 14,345,587 24,041,690 Equity attributable to equity holders of the parent ********************************* 11,490,462 14,640,470 24,339,091 Minority interests ************************* 669,768 857,625 1,914,902 Total Equity ****************************** 12,160,230 15,498,095 26,253,993

II-10 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the parent Property Investment Capital Exchange Share Share Share revaluation revaluation redemption Contributed translation options Retained Minority capital premium reserve reserve reserve surplus reserve reserve profits Total interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note) At 1st January 2003 as originally stated ********* 291,489 3,132,685 3,588,637 (1,424) 1,650 402,540 (55,423) — 6,642,882 14,003,036 525,227 14,528,263 Effects of changes in accounting policies (note 3) — — (3,588,637) — — — (14,458) — 1,217,442 (2,385,653) 176,907 (2,208,746) 291,489 3,132,685 — (1,424) 1,650 402,540 (69,881) — 7,860,324 11,617,383 702,134 12,319,517 Surplus on revaluation of investments ************* — — — 8,537 — — — — — 8,537 — 8,537 Exchange differences arising on translation of foreign operations ************** — — — — — — 108,482 — — 108,482 — 108,482 Total income recognised directly in equity ******** — — — 8,537 — — 108,482 — — 117,019 — 117,019 Loss for the year ********** — — — — — — — — (173,607) (173,607) (32,366) (205,973) Total recognised income and expense for the year ****** — — — 8,537 — — 108,482 — (173,607) (56,588) (32,366) (88,954) Dividend paid ************* — — — — — — — — (75,827) (75,827) — (75,827) Shares issued at premium *** 664 4,402 — — — — — — — 5,066 — 5,066 Share issue expenses ******* — (44) — — — — — — — (44) — (44) Recognition of equity-settled share based payments***** — — — — — — — 472 — 472 — 472 At 31st December, 2003 **** 292,153 3,137,043 — 7,113 1,650 402,540 38,601 472 7,610,890 11,490,462 669,768 12,160,230 Surplus on revaluation of investments ************* — — — 557 — — — — — 557 — 557 Exchange differences arising on translation of foreign operations ************** — — — — — — 73,229 — — 73,229 — 73,229 Total income recognised directly in equity ******** — — — 557 — — 73,229 — — 73,786 — 73,786 Revaluation surplus released upon disposal *********** — — — (2,406) — — — — — (2,406) — (2,406) Profit for the year********** — — — — — — — — 3,103,952 3,103,952 187,857 3,291,809 Total recognised income and expense for the year ****** — — — (1,849) — — 73,229 — 3,103,952 3,175,332 187,857 3,363,189 Dividend paid ************* — — — — — — — — (79,129) (79,129) — (79,129) Shares issued at premium *** 2,730 48,134 — — — — — — — 50,864 — 50,864 Share issue expenses ******* — (58) — — — — — — — (58) — (58) Recognition of equity-settled share based payments***** — — — — — — — 2,999 — 2,999 — 2,999 At 31st December, 2004 **** 294,883 3,185,119 — 5,264 1,650 402,540 111,830 3,471 10,635,713 14,640,470 857,625 15,498,095 Effects of changes in accounting policies (note 3) — — — — — — — — (249,921) (249,921) — (249,921) As restated *************** 294,883 3,185,119 — 5,264 1,650 402,540 111,830 3,471 10,385,792 14,390,549 857,625 15,248,174 Surplus on revaluation of investments ************* — — — 1,158 — — — — — 1,158 — 1,158 Exchange differences arising on translation of foreign operations ************** — — — — — — (60,305) — — (60,305) — (60,305) Net income and expense recognised directly in equity****************** — — — 1,158 — — (60,305) — — (59,147) — (59,147) Profit for the year********** — — — — — — — — 10,028,139 10,028,139 1,057,277 11,085,416 Total recognised income and expenses for the year ***** — — — 1,158 — — (60,305) — 10,028,139 9,968,992 1,057,277 11,026,269 Dividend paid ************* — — — — — — — — (97,650) (97,650) — (97,650) Shares issued at premium *** 2,518 68,153 — — — — — (646) — 70,025 — 70,025 Share issue expenses ******* — (80) — — — — — — — (80) — (80) Recognition of equity-settled share based payments***** — — — — — — — 7,255 — 7,255 — 7,255 At 31st December, 2005 **** 297,401 3,253,192 — 6,422 1,650 402,540 51,525 10,080 20,316,281 24,339,091 1,914,902 26,253,993

Note: Contributed surplus represents the surplus arising under the Scheme of Arrangement undertaken by the Group in 1989/90. Under the Bermuda Companies Act, the contributed surplus of the Company is available for distribution to shareholders.

II-11 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED CASH FLOW STATEMENT 2003 2004 2005 HK$’000 HK$’000 HK$’000 Operating activities (Loss) Profit before taxation**************************** (62,153) 4,037,820 13,408,911 Adjustments for: Share of results of associates ************************* (14,313) (7,396) (9,250) Gain on disposal of property investment subsidiaries****** — (51,862) — Gain on disposal of listed investment ****************** — (2,549) — (Profit) loss on disposal of property, plant and equipment *** — (48) 130 Interest income ************************************ (12,855) (12,666) (32,386) Interest expenses *********************************** 315,026 394,303 748,799 Dividends received from unlisted investments************ (585) (292) — Dividends received from listed investments************** (572) (589) (717) Loss on partial disposal of an associate **************** 4— — Allowance for doubtful debts ************************* 2,013 2,537 13,325 Depreciation on other property, plant and equipment****** 5,495 18,720 48,109 Depreciation on hotel buildings *********************** 97,708 117,557 155,481 Amortisation on prepaid lease payments **************** 30,038 36,177 44,771 Recognition of share-based payments ****************** 472 2,999 7,255 Fair value changes on investment properties ************* 494,378 (3,781,275) (12,982,057) Fair value changes on derivative financial instruments***** — — (258,944) Deferred initial direct cost *************************** — — (6,240) Fitting-out works of properties written off****************************** 16,000 45,395 11,865 Operating cash flows before movements in working capital ** 870,656 798,831 1,149,052 (Increase) decrease in inventories************************ (14,942) (17,298) 8,062 Increase in debtors, deposits and prepayments ************* (8,168) (40,434) (105,718) Increase in bills payables, creditors, deposits and accruals *** 50,426 170,273 222,329 Cash generated from operations *********************** 897,972 911,372 1,273,725 Interest paid***************************************** (512,356) (513,134) (737,519) Hong Kong Profits Tax paid**************************** (102,284) (81,041) (53,317) Other jurisdictions tax paid **************************** (26,224) (35,131) (27,812) Other jurisdictions tax refunded ************************* 15,476 2,989 1,778 Net cash from operating activities ********************* 272,584 285,055 456,855

II-12 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED CASH FLOW STATEMENT — continued

NOTE 2003 2004 2005 HK$’000 HK$’000 HK$’000 Investing activities Interest received******************************* 17,458 12,550 30,970 Dividends received from unlisted investments ******* 585 292 — Dividends received from listed investments ********* 572 589 717 Dividends received from associates *************** 2,799 2,182 — Additions to investment properties **************** (22,822) (1,069,520) (134,141) Additions to property, plant and equipment********* (1,631,918) (303,981) (408,402) Proceeds on partial disposal of an associate ******** 1—— Investments in associates************************ — (2,649) — Repayment from (Advance to) an associate********* 2,851 (5,235) — Advance to minority interest shareholders ********** (8,340) (4,126) (8,107) Capital return from an other investment *********** 3,900 3,897 — Proceeds on disposal of investment property******** — 192,149 291,849 Proceeds on disposal of property investment subsidiaries********************************* 34 — 174,795 — Proceeds on disposal of listed investment ********** — 5,983 — Proceeds on disposal of property, plant and equipment********************************** —4829 Decrease (increase) in pledged bank deposits ******* 1,010 (4) (485,742) Net cash used in investing activities ************* (1,633,904) (993,030) (712,827) Financing activities Dividends paid to shareholders******************* (70,866) (34,472) (46,232) Issue of shares ******************************** 105 6,207 18,607 Share issue expenses *************************** (44) (58) (80) New bank loans raised ************************* 3,569,963 3,039,561 5,188,186 Repayments of bank loans ********************** (2,137,169) (1,604,634) (5,551,170) Net cash from (used in) financing activities******* 1,361,989 1,406,604 (390,689) Increase (Decrease) in cash and cash equivalents** 669 698,629 (646,661) Effect of foreign exchange rates changes ********* 16,009 28,108 (748) Cash and cash equivalents at the beginning of the year ************************************** 619,378 636,056 1,362,793 Cash and cash equivalents at the end of the year 636,056 1,362,793 715,384 Analysis of the balance of cash and cash equivalents Bank balances and cash ********************** 637,149 1,391,317 719,351 Bank overdrafts ***************************** (1,093) (28,524) (3,967) 636,056 1,362,793 715,384

II-13 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

NOTES TO THE FINANCIAL INFORMATION 1. GENERAL The Company is a public listed company incorporated in Bermuda with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’). The address of the registered office is Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda and the address of the principal place of business of the Company is 33rd Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong. The principal activity of the Company is investment holding. The principal activities of the subsidiaries are property development, property investment, hotel and restaurant operations, trading of building materials, share investment, provision of management and maintenance services, property management and insurance agency and fitness centre operation. The consolidated financial information are presented in Hong Kong dollars, which is the same as the functional currency of the Company.

2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES IN ACCOUNTING POLICIES In 2003, the Group has adopted, for the first time, the revised Statement of Standard Accounting Practice (‘‘SSAP’’) 12 ‘‘Income Taxes’’ (‘‘SSAP 12 (Revised)’’). The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. In previous years, partial provision was made for deferred tax using the income statement liability method, i.e. a liability was recognised in respect of timing differences arising, except where those timing differences were not expected to reverse in the foreseeable future. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, with limited exceptions. In the absence of any specific transitional requirements in SSAP 12 (Revised), the new accounting policy has been applied retrospectively (see Note 3 for the financial impact). For the year ended 31st December, 2005, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (‘‘HKFRSs’’), Hong Kong Accounting Standards (‘‘HKASs’’) and Interpretations (‘‘INTs’’) (hereinafter collectively referred to as the ‘‘new HKFRSs’’) issued by the Hong Kong Institute of Certified Public Accountants that are effective for accounting periods, beginning on or after 1st January, 2005. The application of the new HKFRSs has resulted in a change in the presentation of the consolidated income statement, consolidated balance sheet and the consolidated statement of changes in equity. In particular, the presentation of minority interests and share of tax of associates have been changed. The changes in presentation have been applied retrospectively. The adoption of the new HKFRSs has resulted in changes to the Group’s accounting policies in the following areas that have an effect on how the results for the current or prior accounting periods are prepared and presented (see Note 3 for the financial impact).

Share-based payments From 1st January, 2005 onwards, the Group has applied HKFRS 2 ‘‘Share-based Payment’’ which requires an expense to be recognised where the Group buys goods or obtains services in exchange for shares or rights over shares (‘‘equity-settled transactions’’). The principal impact of HKFRS 2 on the Group is in relation to the expensing of the fair value of directors’ and employees’ share options of the Company determined at the date of grant of the share options over the vesting period. Prior to the application of HKFRS 2, the Group did not recognise the financial effect of these share options until they were exercised.

II-14 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

The Group has applied HKFRS 2 to share options granted on or after 1st January, 2005. In relation to share options granted before 1st January, 2005, the Group has not applied HKFRS 2 to share options granted on or before 7th November, 2002 and share options that were granted after 7th November, 2002 and had vested before 1st January, 2005 in accordance with the relevant transitional provisions. However, the Group is still required to apply HKFRS 2 retrospectively to share options that were granted after 7th November, 2002 and had not yet vested on 1st January 2005. Comparative figures have been restated. (see Note 3 for the financial impact).

Financial instruments In 2005, the Group has applied HKAS 32 ‘‘Financial Instruments: Disclosure and Presentation’’ and HKAS 39, ‘‘Financial Instruments: Recognition and Measurement’’. HKAS 32 requires retrospective application. The application of HKAS 32 has had no material effect on the presentation of the current period consolidated financial statement. HKAS 39, which is effective for accounting periods beginning on or after 1st January, 2005, generally does not permit to recognise, derecognise or measure financial assets and liabilities on a retrospective basis. The principal effects resulting from the implementation of HKAS 39 are summarised below:

Classification and measurement of financial assets and financial liabilities The Group has applied the relevant transitional provisions in HKAS 39 with respect to classification and measurement of financial assets and financial liabilities that are within the scope of HKAS 39.

Debt and equity securities previously accounted for under the alternative treatment of SSAP 24 Up until 31st December, 2004, the Group classified and measured its debt and equity securities in accordance with the alternative treatment of SSAP 24. Under SSAP 24, investments in debt or equity securities are classified as ‘‘trading securities’’, ‘‘non-trading securities’’ or ‘‘held-to-maturity investments’’ as appropriate. Both ‘‘trading securities’’ and ‘‘non-trading securities’’ are measured at fair value. Unrealised gains or losses of ‘‘trading securities’’ are reported in the profit or loss for the period in which gains or losses arise. Unrealised gains or losses of ‘‘non-trading securities’’ are reported in equity until the securities are sold or determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for that period. From 1st January, 2005 onwards, the Group classifies and measures its debt and equity securities in accordance with HKAS 39. Under HKAS 39, financial assets are classified as ‘‘financial assets at fair value through profit or loss’’, ‘‘available-for-sale financial assets’’, ‘‘loans and receivables’’, or ‘‘held-to-maturity financial assets’’. ‘‘Financial assets at fair value through profit or loss’’ and ‘‘available-for-sale financial assets’’ are carried at fair value, with changes in fair values recognised in profit or loss and equity respectively. Investment in securities classified as ‘‘non- trading securities’’ under SSAP 24 had been reclassified as available for sale and accordingly, no adjustment is required.

Financial assets and financial liabilities other than debt and equity securities From 1st January, 2005 onwards, the Group classifies and measures its financial assets and financial liabilities other than debt and equity securities (which were previously outside the scope of SSAP 24) in accordance with the requirements of HKAS 39. As mentioned above, financial assets under HKAS 39 are classified as ‘‘financial assets at fair value through profit or loss’’, ‘‘available-for-sale financial assets’’, ‘‘loans and receivables’’ or ‘‘held-to-maturity financial assets’’. Financial liabilities are generally classified as ‘‘financial liabilities at fair value through profit or loss’’ or ‘‘financial liabilities other than financial liabilities at fair value through profit or loss (other financial liabilities)’’. ‘‘Other financial liabilities’’ are carried at amortised cost using the effective interest method after initial recognition. The application of HKAS 39 has had no material effect on financial assets and financial liabilities other than debt and equity securities.

II-15 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Derivatives and hedging By 31st December, 2004, the Group’s derivative financial instruments, mainly comprised interest rate swaps were used to manage the Group’s exposure to interest rate fluctuation. The derivatives were previously recorded off balance sheet except for net interest settlement arising on the derivatives, which were previously accounted for on an accrual basis. From 1st January, 2005 onwards, all derivatives that are within the scope of HKAS 39 are required to be carried at fair value at each balance sheet date regardless of whether they are deemed as held for trading or designed as effective hedging instruments. Under HKAS 39, derivatives (including embedded derivatives separately accounted for from the host contracts) are deemed as held-for-trading financial assets or financial liabilities, unless they qualify and are designated as effective hedging instruments. The corresponding adjustments on changes in fair values would depend on whether the derivatives are designated as effective hedging instruments, and if so, the nature of the item being hedged. All derivatives are deemed as held for trading, changes in fair values of such derivatives are recognised in profit or loss for the period in which they arise. The Group has applied the relevant transitional provisions in HKAS 39, resulting in the recognition of fair value on derivatives as at 1st January, 2005. (see Note 3 for the financial impact).

Hotel properties Hong Kong INT-2 ‘‘The Appropriate Accounting Policies for Hotel Properties’’ clarifies the accounting policy for owner operated hotel properties. In previous periods, the Group’s self-operated hotel properties were carried at revalued amounts and were not subject to depreciation. Hong Kong Interpretation 2 requires owner-operated properties to be classified as property, plant and equipment in accordance with HKAS 16 ‘‘Property, Plant and Equipment’’, and therefore be accounted for either using the cost model or the revaluation model. The Group has resolved to account for their hotel properties using the cost model. In the absence of any specific transitional provisions in Hong Kong Interpretation 2, the new accounting policy has been applied retrospectively. Comparative figures have been restated (see Note 3 for the financial impact).

Owner-occupied leasehold interest in land In previous periods, owner-occupied leasehold interest in land of the hotel properties were measured using the revaluation model. In the current period, the Group has applied HKAS 17 ‘‘Leases’’. Under HKAS 17, the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification, unless the lease payments cannot be allocated reliably between the land and buildings elements, in which case, the entire lease is generally treated as a finance lease. To the extent that the allocation of the lease payments between the land and buildings elements can be made reliably, the leasehold interests in land are reclassified to prepaid lease payments under operating leases, which are carried at cost and amortised over the lease term on a straight-line basis and less accumulated impairment losses. Alternatively, where the allocation between the land and buildings elements cannot be made reliably, the leasehold interests in land continue to be accounted for as property, plant and equipment. This change in accounting policy has been applied retrospectively (see Note 3 for the financial impact).

Investment properties In 2005, the Group has, for the first time, applied HKAS 40 ‘‘Investment Property’’. The Group has elected to use the fair value model to account for its investment properties which requires gains or losses arising from changes in the fair value of investment properties to be recognised directly in the profit or loss for the period in which they arise. In previous periods, investment properties under SSAP 13 were measured at open market values, with revaluation surplus or deficits credited or charged to the investment property revaluation reserve unless the balance on this reserve was insufficient to cover a revaluation decrease, in

II-16 APPENDIX II FINANCIAL INFORMATION OF THE GROUP which case the excess of the revaluation decrease over the balance on the investment property revaluation reserve was charged to the income statement. Where a decrease had previously been charged to the income statement and revaluation subsequently arose, that increase was credited to the income statement to the extent of the decrease previously charged. The new accounting policy has been applied retrospectively. Comparative figures have been restated. (see Note 3 for the financial impact).

The adoption of HKAS 40 has also resulted in a change of classification of certain properties which were previously classified as investment properties according to SSAP 13. In previous periods, property with 15% or less by area or value that was occupied by the Company or another company in the group would normally be regarded as an investment property in its entirely even though part of it is not held for investment purposes. According to HKAS 40, if a portion of the properties could be sold separately (or leased out separately under a finance lease), an entity accounts for the portions separately. If the portion could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. In the current period, the Group applied HKAS 40 and has reclassified certain such owner-occupied properties that could be sold separately (or leased out separately under a finance lease) from investment properties to property, plant and equipment and prepaid lease payment retrospectively. Comparative figures for 2004 have been restated. (see Note 3 for the financial impact).

Deferred taxes related to investment properties

In previous periods, deferred tax consequences in respect of revalued investment properties were assessed on the basis of the tax consequence that would follow from recovery of the carrying amount of the properties through sale in accordance with the predecessor interpretation (SSAP INT-20). In the current period, the Group has applied HK(SIC) Interpretation 21 (‘‘INT-21’’) ‘‘Income Taxes — Recovery of Revalued Non-Depreciable Assets’’ which removes the presumption that the carrying amount of investment properties are to be recovered through sale. Therefore, the deferred tax consequences of the investment properties are now assessed on the basis that reflect the tax consequences that would follow from the manner in which the Group expects to recover the property at each balance sheet date. In the absence of any specific transitional provisions in HKAS INT-21, this change in accounting policy has been applied retrospectively. Comparative figures for 2004 have been restated. (see Note 3 for the financial impact).

Non-current assets held for sale

In 2005, the Group has, for the first time, applied HKFRS 5 ‘‘Non-current assets held for sale and discontinued operations’’ Non current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less costs to sell. The adoption of this new accounting standard has had no material effect on how the result for the prior accounting years are prepared and presented.

Initial direct costs incurred by lessors under operating leases

HKAS 17 ‘‘Leases’’ has eliminated the choice of expensing initial direct costs incurred by lessors in negotiating and arranging an operating lease, the policy previously followed by the Group. Initial direct costs are now required to be added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income. This change in accounting policy has had no material impact on how the results of the prior accounting year are prepared and presented.

II-17 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

The Group has not early applied the following new standards or interpretations that have been issued but are not yet effective. The directors anticipate that the application of these standards or interpretations will have no material impact on the financial statements of the Group.

HKAS 1 (Amendment) Capital disclosures(1) HKAS 19 (Amendment) Actuarial gains and losses, group plans and disclosures(2) HKAS 21 (Amendment) The effects of change in foreign exchange rate — net investment in a foreign operation(2) HKAS 39 (Amendment) Cash flow hedge accounting of forecast intragroup transactions(2) HKAS 39 (Amendment) The fair value option(2) HKAS 39 & HKFRS 4 (Amendments) Financial guarantee contracts(2) HKFRS 6 Exploration for and evaluation of mineral resources(2) HKFRS 7 Financial instruments: Disclosures(1) HK(IFRIC) — INT 4 Determining whether an arrangement contains a lease(2) HK(IFRIC) — INT 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds(2) HK(IFRIC) — INT 6 Liabilities arising from participating in a specific market-waste electrical and electronic equipment(3) HK(IFRIC) — INT 7 Applying the restatement approach under HKAS 29 Financial Reporting in Hyperinflationary Economics(4)

(1) Effective for annual periods beginning on or after 1st January, 2007. (2) Effective for annual periods beginning on or after 1st January, 2006. (3) Effective for annual periods beginning on or after 1st December, 2005. (4) Effective for annual periods beginning on or after 1st March, 2006.

II-18 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

3. SUMMARY OF THE EFFECT OF THE CHANGES IN ACCOUNTING POLICIES The effect of the changes in the accounting policies described in Note 2 above on the results for the Relevant Periods are as follows:

2003 2004 2005 HK$’000 HK$’000 HK$’000 Decrease in gain on disposal of property investment subsidiaries ************************************* — (17,394) — Gains arising from fair value changes of investment properties *************************************** (494,378) 3,742,481 12,866,873 Increase (decrease) in deferred tax liabilities in relation to fair value gains of investment properties ************** 46,928 (627,190) (2,162,725) Increase in depreciation arising from reclassification of hotel properties and owner-occupied properties to property, plant and equipment ********************** (98,035) (117,886) (159,636) Decrease in deferred tax liabilities arising from reclassification of hotel properties and owner-occupied properties to property, plant and equipment *********** 18,865 21,490 23,772 Increase in amortisation arising from prepaid lease payments *************************************** (30,038) (36,177) (44,771) Expenses in relation to share options granted to the directors and employees *************************** (472) (2,999) (7,255) Gains arising from fair value changes of derivative financial instruments ****************************** — — 258,944 Increase in deferred tax liabilities in relation to fair value gains of derivative financial instruments ************** — — (51,320) Decrease in rental related outgoings arising from deferred initial direct cost ********************************* — — 6,240 Decrease in finance cost arising from capitalization of loan front-end fee ************************************ — — 25,170 (Decrease) increase in profit for the year *************** (557,130) 2,962,325 10,755,292 Attributable to: Equity holders of the parent************************ (506,484) 2,791,766 9,724,312 Minority interests ******************************** (50,646) 170,559 1,030,980 (557,130) 2,962,325 10,755,292

II-19 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Analysis of increase (decrease) in (loss) profit for the year by line items presented according to their function: 2003 2004 2005 HK$’000 HK$’000 HK$’000 Decrease in cost of goods and services ******************* — — 6,240 Decrease in gain on disposal of property investment subsidiaries **************************************** — (17,394) — Increase in fair value changes on investment properties ****** (494,378) 3,742,481 12,866,873 Increase in fair value changes on derivative financial instruments **************************************** — — 258,944 Increase in administrative expenses*********************** (472) (2,999) (7,255) Increase in other expenses ****************************** (327) (329) (4,155) Increase in income taxes ******************************* 50,728 (605,662) (2,189,998) Increase in depreciation for hotel buildings **************** (97,708) (117,557) (155,481) Increase in amortisation on prepaid lease payments ********* (30,038) (36,177) (44,771) Decrease in finance costs******************************* — — 25,170 Decrease in share of results of associates****************** 15,065 (38) (275) (557,130) 2,962,325 10,755,292

As at 31st December, 2003 As at As at 31st December, 31st December, 2003 2003 (originally stated) Adjustments (restated) HK$’000 HK$’000 HK$’000 Balance sheet items Impact of HKAS 16, 17 and 40: Fixed assets********************************** 30,134,187 (30,134,187) — Property, plant and equipment******************* — 14,023,682 14,023,682 Investment properties ************************** — 12,302,317 12,302,317 Prepaid lease payments ************************ — 1,975,039 1,975,039 Impact of HK(SIC) — INT-21: Deferred tax liabilities ************************* (1,272,202) (530,005) (1,802,207) Other asset/liabilities ************************** (14,601,124) — (14,601,124) Interests in associates************************** 8,789 (7,143) 1,646 Non-current loan receivables ******************** — 260,877 260,877 Total effect on assets and liabilities ************** 14,269,650 (2,109,420) 12,160,230 Share capital ********************************* 292,153 — 292,153 Share premium ******************************* 3,137,043 — 3,137,043 Retained profits ****************************** 6,899,932 710,958 7,610,890 Property revaluation reserve********************* 2,942,485 (2,942,485) — Investment revaluation reserve******************* 7,113 — 7,113 Exchange translation reserve ******************** 105,174 (66,573) 38,601 Share options reserve ************************** — 472 472 Other reserves******************************** 404,190 — 404,190 Equity attributable to equity holders of the parent*** 13,788,090 (2,297,628) 11,490,462 Minority interests ***************************** 481,560 188,208 669,768 Total effects on equity ************************* 14,269,650 (2,109,420) 12,160,230

II-20 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

As at 31st December, 2004 and 1st January, 2005

As at As at As at 31st December, 31st December, 1st January, 2004 2004 2005 (originally stated) Adjustments (restated) Adjustments (restated) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Balance sheet items Impact of HKAS 16, 17 and 40: Fixed assets **************** 36,202,646 (36,202,646) — — — Property, plant and equipment — 7,179,517 7,179,517 — 7,179,517 Investment properties********* — 24,793,003 24,793,003 — 24,793,003 Prepaid lease payments ******* — 1,930,268 1,930,268 — 1,930,268 Impact of HKAS 32 and 39: Available-for-sale investments** — — — 15,274 15,274 Other investments *********** 15,274 — 15,274 (15,274) — Derivative financial instruments — — — (304,781) (304,781) Impact of HK(SIC) — INT-21: Deferred tax liabilities******** (1,337,873) (1,126,552) (2,464,425) 54,860 (2,409,565) Other asset/liabilities ********* (16,235,289) — (16,235,289) — (16,235,289) Interests in associates ******** 21,887 (12,377) 9,510 — 9,510 Non-current loan receivables*** — 270,237 270,237 — 270,237 Total effect on assets and liabilities***************** 18,666,645 (3,168,550) 15,498,095 (249,921) 15,248,174 Share capital**************** 294,883 — 294,883 — 294,883 Share premium************** 3,185,119 — 3,185,119 — 3,185,119 Retained profits ************* 7,132,989 3,502,724 10,635,713 (249,921) 10,385,792 Property revaluation reserve *** 6,727,752 (6,727,752) — — — Investment revaluation reserve 5,264 — 5,264 — 5,264 Exchange translation reserve*** 214,977 (103,147) 111,830 — 111,830 Share options reserve********* — 3,471 3,471 — 3,471 Other reserves ************** 404,190 — 404,190 — 404,190 Equity attributable to equity holders of the parent ******* 17,965,174 (3,324,704) 14,640,470 (249,921) 14,390,549 Minority interests************ 701,471 156,154 857,625 — 857,625 Total effects on equity******** 18,666,645 (3,168,550) 15,498,095 (249,921) 15,248,174

II-21 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

The financial effects of the application of the new HKFRSs to the Group’s equity on 1st January, 2003 are summarized below:

As originally restated Adjustments As restated HK$’000 HK$’000 HK$’000 Share capital ***************************************** 291,489 — 291,489 Share premium *************************************** 3,132,685 — 3,132,685 Retained profits*************************************** 6,642,882 1,217,442 7,860,324 Property revaluation reserve ***************************** 3,588,637 (3,588,637) — Investment revaluation reserve *************************** (1,424) — (1,424) Exchange translation reserve **************************** (55,423) (14,458) (69,881) Share options reserve ********************************** —— — Other reserve***************************************** 404,190 — 404,190 Equity attributable to equity holders of the parent*********************************** 14,003,036 (2,385,653) 11,617,383 Minority interests ************************************* 525,227 176,907 702,134 Total effects on equity ********************************* 14,528,263 (2,208,746) 12,319,517

4. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial information have been prepared on the historical cost basis except for certain properties and financial instruments, which are measured at fair values, as explained in the accounting policies set out below.

The consolidated financial information have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Companies Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31st December each year.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All significant intercompany transactions, balances, income and expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

II-22 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Investments in associates The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes in equity of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate. Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

Revenue recognition Rental income from operating lease is recognised in the income statement on a straight-line basis over the terms of the relevant leases. Hotel operation income is recognised upon the provision of services and the utilisation by guests of the hotel facilities. Building management fee income is recognised when building management services are provided. Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial assets to that assets net carrying amount. Dividend income from investments is recognised when the shareholder’s rights to receive payment have been established. Service income is recognised when services are provided. Sales of goods are recognised when goods are delivered and title is passed. Agency commission income is recognised when services are rendered. Membership fee is recognised as revenue on a straight-line basis over the membership period. Other service income is recognised when the services are rendered. Membership fee and other service fee received in advance are recorded as deferred income.

Property, plant and equipment Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment losses. Leasehold land transferred from investment properties are stated at deemed cost equal to its fair value at the date of change in use and is continued to account for as if it were an asset held under finance lease. Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method, at the following rates per annum:

Leasehold land held under finance lease ******* Over the shorter of the term of the lease, or 50 years Buildings and hotel properties**************** Over the shorter of the term of the lease, or 50 years Furniture and fixtures, motor vehicles and plant and machinery ****************** 20%

II-23 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset is determined as the difference between the net disposal proceeds and the carrying amount of the asset and is included in the income statement in the year in which the item is derecognised.

Prepaid lease payments Prepaid lease payments represent upfront premium paid for land cost. Prepaid lease payment is charged to income statement over the term of relevant land leases on a straight line basis.

Leasehold land and buildings under development When the leasehold land and buildings are in the course of development for production, rental or for administrative purposes, the leasehold land component is classified as a prepaid lease payment and amortised over a straight-line basis over the lease term. During the construction period, the amortisation charge provided for the leasehold land is included as part of costs of buildings under construction. Buildings under construction are carried at cost, less any identified impairment losses. Depreciation of buildings commences when they are available for use (i.e. when they are in the location and condition necessary for them to be capable of operating in the manner intended by management).

Investment properties On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset is determined as the difference between the net disposal proceeds and the carrying amount of the asset is included in the income statement in the year in which the item is derecognised.

Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor Rental income from operating leases is recognised in the income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

The Group as lessee Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

Foreign currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e.

II-24 APPENDIX II FINANCIAL INFORMATION OF THE GROUP the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity. For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised as and included in finance costs in the income statement in the period in which they are incurred.

Retirement benefit costs Payments to defined contribution retirement benefit plans and the Mandatory Provident Fund Scheme are charged as expenses as they fall due.

Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial

II-25 APPENDIX II FINANCIAL INFORMATION OF THE GROUP recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.

Non-current assets classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less costs to sell except for financial assets and investment properties which are measured at fair value.

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

II-26 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Financial assets

The Group’s financial assets are classified into one of the four categories, including financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading and those designated at fair value through profit or loss on initial recognition. At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise.

Loans and receivables

Loans and receivables including non-current loan receivables, debtors and bank deposits are non- derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the other categories (set out above). At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss. Any impairment losses on available-for-sale financial assets are recognised in profit or loss. Impairment losses on available-for-sale equity investments will not reverse in profit and loss in subsequent periods. For available-for-sale debt investments, impairment losses are subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

II-27 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Financial liabilities and equity Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss has two subcategories, including financial liabilities held for trading and those designated at fair value through profit or loss on initial recognition. At each balance sheet date subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise.

Other financial liabilities Other financial liabilities including trade creditors and borrowings are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments Derivatives that do not qualify for hedge accounting are deemed as financial assets held for trading or financial liabilities held for trading. Changes in fair values of such derivatives are recognised directly in profit or loss.

Derecognition Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss. For financial liabilities, they are removed from the Group’s balance sheet (i.e. when the obligation specified in the relevant contract is discharged, cancelled or expires). The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss.

Equity-settled share-based payment transactions The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period with a corresponding increase in equity (share option reserve). At the time when the share options are exercised, the amount previously recognised in share option reserve will be transferred to share premium. When the share options are forfeited after vesting date or are

II-28 APPENDIX II FINANCIAL INFORMATION OF THE GROUP still not exercised at the expiry date, the amount previously recognised in share option reserve will transfer to retained earnings.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have significant risk to the carrying amounts of assets and liabilities within the next financial year, are also discussed below.

Investment properties At 31st December, 2005, 2004 and 2003, investment properties are stated at fair value based on the valuation performed by independent professional valuers except for the certain investment properties at 31st December 2005. In determining the fair value, the valuers have based on a method of valuation which involves certain estimates. In relying on the valuation report, the management has exercised their judgment and is satisfied that the method of valuation is reflective of the current market conditions. At 31st December, 2005, certain investment properties are stated at fair value based on the valuation performed by the respective directors of the companies comprising the Group. In determining the fair value, the directors have based on a method of valuation which involves certain estimates by reference to recent market prices for similar properties.

Income taxes At 31st December 2003, 2004 and 2005, a deferred tax asset of HK$251,484,000, HK$385,260,000 and HK$329,769,000 respectively in relation to unused tax losses has been recognised as set out in note 30. The realisability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are less or more than expected, a material reversal or further recognition of deferred tax assets may arise, which would be recognised in the income statement for the period in which such a reversal or further recognition takes place.

Share options The Black-Scholes option pricing model was applied to estimate the fair value of share options granted by the Company. This pricing model requires the input of highly subjective assumptions, including the volatility of the share price. The changes in input assumptions can materially affect the fair value estimate.

6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s major financial instruments include loans receivable, trade debtors, bank balances and cash, trade creditors and borrowings. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk (i) Interest rate risk The Group’s cash flow interest rate risk relates to floating-rate bank and other borrowings. The Group’s fair value interest rate risk relates to fixed-rate short-term bank fixed deposits and fixed rate other borrowings. The Group will continue to maintain a reasonable mix of floating rate and fixed rate borrowings and take actions to hedge against any foreseeable interest rate exposure, if

II-29 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

necessary. The interest rates and terms of repayment of bank and other borrowings of the Group are disclosed in note 29. (ii) Currency risk The Group have foreign currency sales and purchases and certain borrowings of the Group are denominated in foreign currencies which expose the Group to foreign currency risk. (iii) Other price risk The Group’s available-for-sale investments are measured at fair value at each balance sheet date. Therefore, the Group is exposed to equity price risk in relation to its available-for-sale investments.

Credit risk The Group’s principal financial assets are bank balances and cash, trade and other receivables, loan receivables and available-for-sale investments. The Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31st December, 2005 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The Group’s credit risk is primarily attributable to its trade and other receivables. The amounts presented in the consolidated balance sheet are net of allowances for doubtful receivables. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures are carried out to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade and other debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

Liquidity risk The Group’s objective is to maintain a balance between the continuity of funding and the flexibility through the use of bank loans and overdrafts. In addition, banking facilities have been put in place for contingency purposes.

7. REVENUE Revenue represents the aggregate of gross rental income, income from hotel and restaurant operations, proceeds from sales of building materials, property management and maintenance income, agency commission and fitness centre operation.

2003 2004 2005 HK$’000 HK$’000 HK$’000 Property rental income****************************** 750,683 660,570 959,537 Building management fee income********************* 92,789 96,144 142,204 Hotel income ************************************* 1,493,266 1,875,828 2,208,475 Sales of goods ************************************ 96,182 107,565 112,317 Other ******************************************** 90,045 90,715 98,668 2,522,965 2,830,822 3,521,201

II-30 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

8. BUSINESS AND GEOGRAPHICAL SEGMENTS Business segments

For management purposes, the Group is currently organised into the following operations:

Property investment — income from leasing of properties and furnished apartments and properties held for investment potential. Hotel operation — hotels accommodation, food and banquet operations. Other operations — property development, sales of building materials, restaurant operation, provision of property management, maintenance and agency services, provision of insurance agency services and fitness centre operation.

These operations are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below. Property Hotel Other 2003 investment operation operations Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 REVENUE External sales ************* 843,472 1,493,266 186,227 — 2,522,965 Inter-segment sales ********* 25,932 — 24,255 (50,187) — Total ******************** 869,404 1,493,266 210,482 (50,187) 2,522,965

Inter-segment sales are charged at a mutually agreed price.

RESULTS Segment results************ 613,208 188,179 26,595 827,982 Unallocated corporate expenses *************** (80,288) Fair value changes on investment properties ***** (494,378) — — (494,378) Finance costs************** (329,782) Share of results of associates 14,313 Loss before tax ************ (62,153) Income taxes ************** (143,820) Loss for the year ********** (205,973)

OTHER INFORMATION Property Hotel Other investment operation operations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 Capital expenditure ****************** 22,750 72,118 1,799,929 1,894,797 Depreciation on property, plant and equipment************************ 350 97,858 4,995 103,203 Amortisation on prepaid lease payments 166 29,872 — 30,038 Non-cash expenses other than depreciation and amortisation ******** 11,259 4,741 2,013 18,013

II-31 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

BALANCE SHEET Property Hotel Other investment operations operations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets ********************** 12,894,995 7,461,162 9,142,425 29,498,582 Interests in associates **************** 1,002 — 644 1,646 Unallocated corporate assets *********** 71,791 Consolidated total assets ************** 29,572,019 LIABILITIES Segment liabilities ******************* 130,795 260,806 257,116 648,717 Unallocated corporate liabilities ******** 16,763,072 Consolidated total liabilities *********** 17,411,789

Property Hotel Other 2004 investment operation operations Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 REVENUE External sales ************* 756,714 1,875,828 198,280 — 2,830,822 Inter-segment sales ********* 28,928 — 26,056 (54,984) — Total ******************** 785,642 1,875,828 224,336 (54,984) 2,830,822

Inter-segment sales are charged at a mutually agreed price.

RESULTS Segment results *********** 531,842 171,350 28,193 731,385 Unallocated corporate expenses*************** (77,959) Fair value changes on investment properties **** 3,781,275 — — 3,781,275 Finance costs ************* (404,277) Share of results of associates 47 — 7,349 7,396 Profit before tax ********** 4,037,820 Income taxes ************* (746,011) Profit for the year ********* 3,291,809

II-32 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

OTHER INFORMATION Property Hotel Other investment operation operations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 Capital expenditure ****************** 1,588,503 519,793 12,274 2,120,570 Depreciation on property, plant and equipment************************ 357 128,966 6,954 136,277 Amortisation on prepaid lease payments 166 36,011 — 36,177 Non-cash expenses other than depreciation and amortisation******************* 14,834 29,424 1,136 45,394

BALANCE SHEET Property Hotel Other investment operations operations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets *********************** 26,144,058 9,585,855 159,482 35,889,395 Interests in associates ***************** 549 — 8,961 9,510 Unallocated corporate assets ************ 91,378 Consolidated total assets *************** 35,990,283 LIABILITIES Segment liabilities ******************** 769,793 561,943 95,943 1,427,679 Unallocated corporate liabilities ********* 19,064,509 Consolidated total liabilities ************ 20,492,188

Property Hotel Other 2005 investment operation operations Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 REVENUE External sales ************ 1,101,741 2,208,475 210,985 — 3,521,201 Inter-segment sales ******** 29,695 — 31,103 (60,798) — Total******************** 1,131,436 2,208,475 242,088 (60,798) 3,521,201

Inter-segment sales are charged at a mutually agreed price.

II-33 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

RESULTS Segment results ************ 674,275 308,779 34,533 1,017,587 Unallocated corporate expenses **************** (98,217) Fair value changes on investment properties ****** 12,982,057 — — 12,982,057 Fair value changes on derivative financial instruments ************** 258,944 Finance costs ************** (760,710) Share of results of associates 140 — 9,110 9,250 Profit before tax************ 13,408,911 Income taxes ************** (2,323,495) Profit for the year ********** 11,085,416

OTHER INFORMATION Property investment Hotel Other HK$’000 operation operations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 Capital expenditure ****************** 209,638 182,015 7,657 399,310 Depreciation on property, plant and equipment *********************** 4,525 191,552 7,513 203,590 Amortisation on prepaid lease payments 166 44,605 — 44,771 Non-cash expenses other than depreciation and amortisation ****************** 1,746 10,119 130 11,995

BALANCE SHEET Property Hotel Other investment operations operations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets ****************** 38,292,774 9,469,555 209,230 47,971,559 Interests in associates ************* 689 — 18,071 18,760 Unallocated corporate assets ******* 507,168 Consolidated total assets ********** 48,497,487 LIABILITIES Segment liabilities *************** 1,017,582 362,504 122,454 1,502,540 Unallocated corporate liabilities **** 20,740,954 Consolidated total liabilities******** 22,243,494

II-34 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Geographical segments A geographical analysis of the Group’s revenue by geographical market, is as follows:

2003 2004 2005 HK$’000 HK$’000 HK$’000 Hong Kong ************************************** 1,160,618 1,300,001 1,957,162 North America************************************ 743,124 850,535 873,210 Europe ****************************************** 305,857 331,994 357,145 Asia Pacific, other than Hong Kong ****************** 313,366 348,292 333,684 2,522,965 2,830,822 3,521,201

An analysis of the carrying amount of segment assets and additions to fixed assets by the geographical area in which the assets are located is as follows:

Carrying amount of segment assets Additions to fixed assets 2003 2004 2005 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Hong Kong********** 23,472,940 29,826,658 42,355,575 1,861,885 1,887,719 80,138 North America ******* 3,429,249 3,361,201 3,435,144 27,116 28,981 231,151 Europe ************* 1,576,921 1,663,831 1,659,995 5,796 189,313 35,711 Asia Pacific, other than Hong Kong******** 1,092,909 1,138,593 1,046,773 — 14,557 52,310 29,572,019 35,990,283 48,497,487 1,894,797 2,120,570 399,310

9. OTHER INCOME

2003 2004 2005 HK$’000 HK$’000 HK$’000 Included in other income are: Dividends received from unlisted investments**************** 585 292 — Dividends received from listed investments****************** 572 589 717 Gain on disposal of listed investments********************** — 2,549 — Gain on disposal of property, plant and equipment *********** —48— Interest income **************************************** 12,855 12,666 32,386 Service income **************************************** 6,682 — — Net exchange gain************************************** 637 — 120

II-35 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

10. FINANCE COSTS 2003 2004 2005 HK$’000 HK$’000 HK$’000 Interest on bank borrowings not wholly repayable within five years********************************************* 22,377 3,495 78,204 Interest on bank borrowings wholly repayable within five years ***************************************** 370,843 426,810 573,592 Interest on other loan not wholly repayable within five years — 22,164 20,160 Interest on other loans wholly repayable within five years *** 101,493 71,774 76,843 Other borrowing costs********************************* 44,400 11,898 11,911 Total borrowing costs ********************************* 539,113 536,141 760,710 Less: Amount capitalised to property under development **** (209,331) (131,864) — 329,782 404,277 760,710

11. INCOME TAXES 2003 2004 2005 HK$’000 HK$’000 HK$’000 Current tax: Current year: Hong Kong Profits Tax****************************** 66,313 51,276 50,442 Other jurisdictions********************************** 6,763 43,988 22,932 73,076 95,264 73,374 Under (over) provision in prior years: Hong Kong Profits Tax****************************** 416 277 (241) Other jurisdictions********************************** (5,913) (196) (4,688) (5,497) 81 (4,929) Deferred tax (note 30): Current year*************************************** (13,391) 650,814 2,246,785 Underprovision in prior years************************* — — 8,265 Attributable to changes in tax rates ******************** 89,632 (148) — 76,241 650,666 2,255,050 Taxation attributable to the Company and its subsidiaries **** 143,820 746,011 2,323,495

Hong Kong Profits Tax is calculated at 17.5% of estimated assessable profit for the year. Taxation arising in other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

II-36 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

The tax charge for the year can be reconciled to the (loss) profit per income statement as follows:

2003 2004 2005 HK$’000 HK$’000 HK$’000 (Loss) Profit before taxation ************************* (62,153) 4,037,820 13,408,911 Tax at the domestic income tax rate of 17.5% ********** (10,877) 706,619 2,346,559 Tax effect of expenses that are not deductible for tax purpose ************************************* 35,149 21,565 33,630 Tax effect of income that is not taxable for tax purpose*** (1,971) (13,690) (51,663) (Over) underprovision in prior years ****************** (5,497) 81 3,336 Increase (Decrease) in opening deferred tax liabilities resulting from changes in applicable tax rates **************** 89,632 (148) — Tax effect of share of result of associates ************** (2,636) 7 (1,619) Tax effect of tax losses not recognised***************** 29,855 35,673 24,974 Utilisation of tax losses previously not recognised ******* (518) (4,221) (34,868) Effect of different tax rates of subsidiaries operating in other jurisdictions ***************************** 529 (2,288) 11,117 Others ******************************************* 10,154 2,413 (7,971) Tax charge for the year ***************************** 143,820 746,011 2,323,495

12. (LOSS) PROFIT FOR THE YEAR

2003 2004 2005 HK$’000 HK$’000 HK$’000 (Loss) profit for the year has been arrived at after charging: Allowance for doubtful debts ******************************** 2,013 2,537 13,325 Auditors’ remuneration ************************************* 3,925 4,464 4,563 Depreciation on — hotel buildings *************************************** 97,708 117,557 155,481 — other property, plant and equipment ********************** 5,495 18,720 48,109 103,203 136,277 203,590 Amortisation of prepaid lease payments************************ 30,038 36,177 44,771 Loss on disposal of property, plant and equipment*************** — — 130 Fitting-out works of properties written off********************** 16,000 45,395 11,865 Net exchange loss ***************************************** — 752 — Operating lease payments on rented premises ******************* 2,293 2,341 2,485 Staff costs, including directors’ emoluments ******************** 623,546 763,648 894,541 Cost of inventories recognised as an expense ******************* 240,761 287,732 320,421 Share of tax of associates (included in the share of result of associates)********************************************** (15,065) 38 275 and after crediting: Rental income from investment properties less related outgoings of HK$224,761,000, HK$167,360,000 and HK$276,908,000 ******* 525,922 493,210 682,629

II-37 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

13. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

During the year ended 31st December, 2003, the emoluments paid or payable to each of the thirteen directors were as follows: 2003 Salaries Retirement and other Discretionary Share benefits scheme Fee benefits bonuses option contributions Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Mr. LO Ying Shek ************** 20 4,685 15 72 — 4,792 Madam LO TO Lee Kwan******** 20 — — — — 20 Dr. LO Ka Shui **************** 20 1,911 82 72 96 2,181 Mr. LO Kai Shui *************** 20 918 46 72 54 1,110 Mr. CHENG Hoi Chuen, Vincent ** ——— — — — Professor WONG Yue Chim, Richard ********************* 20 — — — — 20 Mrs. LEE Pui Ling, Angelina ***** 20 — — — — 20 Mr. LO Hong Sui, Antony******** 20 1,026 44 — 51 1,141 Madam LAW Wai Duen ********* 20 358 15 — 18 411 Mr. LO Hong Sui, Vincent ******* 20 — — — — 20 Dr. LO Ying Sui, Archie ********* 20 — — — — 20 Mr. KAN Tak Kwong *********** 20 2,582 110 48 129 2,889 Brian Shane McELNEY********** 7—— — — 7 227 11,480 312 264 348 12,631

Mr. Cheng Hoi Chuen, Vincent, an Independent Non-executive Director, had waived his director’s fee for the year ended 31st December 2003 and 2004.

During the year ended 31st December, 2004, the emoluments paid or payable to each of the twelve directors were as follows: 2004 Salaries Retirement and other Discretionary Share benefits scheme Fee benefits bonuses option contributions Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Mr. LO Ying Shek ************** 20 3,574 29 494 — 4,117 Madam LO TO Lee Kwan******** 20 — — — — 20 Dr. LO Ka Shui **************** 20 2,946 156 494 93 3,709 Mr. LO Kai Shui *************** 20 1,052 87 494 53 1,706 Mr. CHENG Hoi Chuen, Vincent ** ————— — Professor WONG Yue Chim, Richard ********************* 20 — — — — 20 Mrs. LEE Pui Ling, Angelina ***** 20 — — — — 20 Mr. LO Hong Sui, Antony******** 20 1,004 84 — 50 1,158 Madam LAW Wai Duen ********* 20 350 29 — 18 417 Mr. LO Hong Sui, Vincent ******* 20 — — — — 20 Dr. LO Ying Sui, Archie ********* 20 — — — — 20 Mr. KAN Tak Kwong *********** 20 2,526 421 261 126 3,354 220 11,452 806 1,743 340 14,561

II-38 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

During the year ended 31st December 2005, the emoluments paid or payable to each of the twelve directors were as follows: 2005 Salaries Retirement and other Discretionary Share benefits scheme Fee benefits bonuses option contributions Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Mr. LO Ying Shek ************** 60 2,820 — 682 — 3,562 Madam LO TO Lee Kwan******** 60 — — — — 60 Dr. LO Ka Shui **************** 60 3,761 550 1,303 132 5,806 Mr. LO Kai Shui *************** 60 1,077 135 1,055 54 2,381 Mr. CHENG Hoi Chuen, Vincent ** 140 — — — — 140 Professor WONG Yue Chim, Richard ********************* 125 — — — — 125 Mrs. LEE Pui Ling, Angelina ***** 125 — — — — 125 Mr. LO Hong Sui, Antony******** 60 1,029 129 — 51 1,269 Madam LAW Wai Duen ********* 60 420 53 — 21 554 Mr. LO Hong Sui, Vincent ******* 60 — — — — 60 Dr. LO Ying Sui, Archie ********* 60 — — — — 60 Mr. KAN Tak Kwong *********** 60 2,590 539 579 130 3,898 930 11,697 1,406 3,619 388 18,040

Employees’ emoluments Of the five individuals with the highest emoluments in the Group for the year ended 31st December 2003, 2004 and 2005, three of them were Directors of the Company whose emoluments are included in the disclosures above. The emoluments of the remaining two individuals were as follows:

2003 2004 2005 HK$’000 HK$’000 HK$’000 (restated) (restated) Salaries and other benefits************************************* 3,941 4,897 5,294 Discretionary bonuses **************************************** 172 178 345 Share option ************************************************ 169 145 366 Retirement scheme contributions******************************** 58 201 355 4,340 5,421 6,360

2003 2004 2005 Number of Number of Number of employees employees employees Bands: HK$1,500,001 — HK$2,000,000 *************************** 1—— HK$2,000,001 — HK$2,500,000 *************************** 11— HK$2,500,001 — HK$3,000,000 *************************** —11 HK$3,500,001 — HK$4,000,000 *************************** —— 1 222

II-39 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

14. DIVIDENDS

2003 2004 2005 HK$’000 HK$’000 HK$’000 Dividend paid: Final dividend of HK10 cents per ordinary share in respect of 2002 ************************************************* 58,298 Final dividend of HK10 cents per ordinary share in respect of 2003 58,491 Final dividend of HK13 cents per ordinary share in respect of 2004 76,849 Interim dividend of HK3 cents per ordinary share in respect of 2003 17,529 Interim dividend of HK3.5 cents per ordinary share in respect of 2004 20,638 Interim dividend of HK3.5 cents per ordinary share in respect of 2005 20,801 75,827 79,129 97,650 Dividend proposed: Final dividend of HK10 cents per ordinary share in respect of 2003 ************************************************* 58,441 Final dividend of HK13 cents per ordinary share in respect of 2004 76,816 Final dividend of HK20 cents per ordinary share in respect of 2005 119,129 58,441 76,816 119,129

A final dividend in respect of 2005 at HK20 cents per share has been proposed by the Directors and is subject to approval by the shareholders in the forthcoming annual general meeting.

15. EARNINGS (LOSS) PER SHARE The calculation of basic and diluted earnings per share is based on the following data:

2003 2004 2005 HK$’000 HK$’000 HK$’000 (restated) (restated) Earnings Earnings (Loss) for the purpose of basic and diluted earnings per share ((loss) profit for the year attributable to equity holders of the parent) ********* (173,607) 3,103,952 10,028,139 Number of shares Weighted average number of shares for the purpose of basic earnings (loss) per share ******************* 583,697,084 587,368,774 592,177,466 Effect of dilutive potential shares: Share options ********************************* — 1,413,347 1,380,383 Weighted average number of shares for the purpose of diluted earnings (loss) per share ****************** 583,697,084 588,782,121 593,557,849

The computation of diluted loss per share for 2003 did not assume the exercise of the Company’s outstanding options as their exercise would result in a decrease in net loss per share for 2003.

II-40 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

The following table summarises the impact on both basic and diluted earnings (loss) per share as a result of: Impact on basic Impact on diluted earnings (loss) per share earnings (loss) per share 2003 2004 2005 2003 2004 2005 Reported figures before adjustments ********** HK$ 0.57 HK$0.53 HK$ 0.51 HK$ 0.57 HK$0.53 HK$ 0.51 Adjustments arising from changes in accounting policies (see Note 3)*** (HK$0.87) HK$4.75 HK$16.42 (HK$0.87) HK$4.74 HK$16.38 Restated *************** (HK$0.30) HK$5.28 HK$16.93 (HK$0.30) HK$5.27 HK$16.89

II-41 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

16. PROPERTY, PLANT AND EQUIPMENT

Property Buildings Furniture Hotel under situated in and Motor Plant and properties development Hong Kong fixture vehicles machinery Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 THE GROUP COST At 1st January, 2003, restated ** 5,226,902 7,153,526 15,886 73,289 4,396 2,990 12,476,989 Exchange adjustments ******** 546,290 — — (3) — — 546,287 Additions******************* 56,827 1,809,904 36 4,051 471 803 1,872,092 Transfer in (out) ************* — (373) — — — — (373) Disposals/written off ********* (5,123) — — (1,223) — — (6,346) At 31st December, 2003 ****** 5,824,896 8,963,057 15,922 76,114 4,867 3,793 14,888,649 Exchange adjustments ******** 274,516 — — 1 — — 274,517 Additions******************* 66,548 1,784,831 34 68,030 570 17 1,920,030 Transfer in (out) ************* 1,910,833 (10,747,888) — — — — (8,837,055) Disposals/written off ********* (29,927) — — (1,139) (567) — (31,633) At 31st December, 2004 ****** 8,046,866 — 15,956 143,006 4,870 3,810 8,214,508 Exchange adjustments ******** (245,274) — — (2) — — (245,276) Additions******************* 48,305 — — 141,368 1,038 5 190,716 Transfer in ***************** 146,965 — 207,768 — — — 354,733 Disposals/written off ********* (3,752) — — (6,377) (135) — (10,264) At 31st December, 2005 ****** 7,993,110 — 223,724 277,995 5,773 3,815 8,504,417 DEPRECIATION AND IMPAIRMENT At 1st January, 2003 ********* 630,777 — 5,847 60,437 3,677 2,852 703,590 Exchange adjustments ******** 59,400 — — (3) — — 59,397 Charge for the year ********** 97,708 — 327 4,584 378 206 103,203 Eliminated on disposal******** — — — (1,223) — — (1,223) At 31st December, 2003 ****** 787,885 — 6,174 63,795 4,055 3,058 864,967 Exchange adjustments ******** 34,314 — — 1 — — 34,315 Charge for the year ********** 117,557 — 328 17,694 492 206 136,277 Eliminated on disposal******** — — — (1) (567) — (568) At 31st December, 2004 ****** 939,756 — 6,502 81,489 3,980 3,264 1,034,991 Exchange adjustments ******** (30,405) — — (318) — — (30,723) Charge for the year ********** 155,481 — 4,155 43,197 567 190 203,590 Eliminated on disposal******** — — — (6,218) (135) — (6,353) At 31st December, 2005 ****** 1,064,832 — 10,657 118,150 4,412 3,454 1,201,505 CARRYING VALUES At 31st December, 2003 ****** 5,037,011 8,963,057 9,748 12,319 812 735 14,023,682 At 31st December, 2004 ****** 7,107,110 — 9,454 61,517 890 546 7,179,517 At 31st December, 2005 ****** 6,928,278 — 213,067 159,845 1,361 361 7,302,912

Buildings with carrying amount of HK$9,714,000, HK$9,420,000 and HK$9,092,000 as at 31st December, 2003, 2004 and 2005 respectively, are situated on land in Hong Kong which are held under long-term leases. In addition, hotel properties and buildings with carrying amount of HK$1,223,082,000, HK$3,098,736,000 and HK$3,241,242,000 respectively, are situated on land in Hong Kong which are held under medium-term leases. Hotel properties situated outside Hong Kong are held under freehold land which amounted to approximately HK$3,813,963,000, HK$4,008,408,000 and HK$3,891,011,000 as at 31st December 2003, 2004 and 2005 respectively.

II-42 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Property under development

The property under development represents property situated on land in Hong Kong which are held under a medium-term lease.

Included in property under development are borrowing costs capitalised of approximately HK$2,225,260,000. The effective interest rate capitalised for the project during the year was 2.9%.

17. PREPAID LEASE PAYMENTS

2003 2004 2005 HK$’000 HK$’000 HK$’000 The Group’s prepaid lease payments comprise: Leasehold land in Hong Kong: Long lease ************************************* 20,861 20,529 20,363 Medium-term lease ****************************** 1,954,178 1,909,739 1,865,134 1,975,039 1,930,268 1,885,497 Analysed for reporting purposes as: Current asset *********************************** 30,038 44,771 44,771 Non-current asset ******************************* 1,945,001 1,885,497 1,840,726 1,975,039 1,930,268 1,885,497

18. INVESTMENT PROPERTIES

2003 2004 2005 HK$’000 HK$’000 HK$’000 FAIR VALUE At 1st January ********************************* 12,792,700 12,302,317 24,793,003 Exchange adjustments*************************** (7,451) 2,557 (21,971) Additions ************************************* 22,705 200,540 208,594 Disposal of subsidiaries ************************* — (124,200) — Net increase (decrease) in fair value recognised in the income statement***************************** (494,378) 3,781,275 12,982,057 Disposals/written off**************************** (11,259) (206,541) (309,645) Transfers (to) from property, plant and equipment**** — 8,837,055 (354,733) Reclassified as non-current assets held for sale ****** — — (253,800) At 31st December ****************************** 12,302,317 24,793,003 37,043,505

2003 2004 2005 HK$’000 HK$’000 HK$’000 Fair value of investment properties **************** 12,302,317 24,793,003 37,043,505 Deferred initial direct costs ********************** — — 6,240 12,302,317 24,793,003 37,049,745

(a) The Group’s property interests of approximately HK$10,617,420,000, HK$23,146,840,000 and HK$35,340,485,000 as at 31st December, 2003, 2004 and 2005 respectively which are held under operating leases to earn rentals or for capital appreciation purposes are measured using the fair value model and are classified and accounted for as investment properties.

II-43 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

(b) The fair value of the Group’s investment properties at 31st December, 2003 and 2004 had been arrived at on the basis of valuation arised. (c) The fair value of the Group’s investment properties except for Citibank Plaza at 31st December, 2005 have been arrived at on a basis of valuation carried out by independent professional property valuers not connected with the Group: Investment properties in Hong Kong except Citibank Plaza — Chesterton Petty Ltd. Investment properties in the United States of America (‘‘USA’’) — Cushman & Wakefield of California, Inc. The fair values of Citibank Plaza as at 31st December, 2005 have been determined by the directors of the Group. No valuation has been performed by independent qualified professional valuers. The valuation performed by the directors of the Group was arrived at by reference to recent market prices for similar properties. (d) The carrying amount of investment properties includes land situated in Hong Kong and outside of Hong Kong as follows:

2003 2004 2005 HK$’000 HK$’000 HK$’000 Long leases in Hong Kong ***************** 1,617,220 1,825,340 2,044,655 Medium-term leases in Hong Kong ********** 9,000,200 21,321,500 33,295,830 Freehold land outside Hong Kong *********** 1,684,897 1,646,163 1,703,020 12,302,317 24,793,003 37,043,505

(e) Deferred initial direct costs arose in connection with the negotiation of operating leases for a substantial portion of the Group’s investment properties portfolio which are being amortised over the term of these lease.

19. INTERESTS IN ASSOCIATES

2003 2004 2005 HK$’000 HK$’000 HK$’000 Cost of investment in associates: Unlisted associates in Hong Kong ************************ 11 12 12 Listed associate in Hong Kong *************************** — 2,649 2,649 Share of post acquisition reserves*************************** 1,635 6,849 16,099 1,646 9,510 18,760 Fair value of listed securities ****************************** 3,974 28,352 39,069

II-44 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

The summarised financial information in respect of the Group’s associates is set out below:

2003 2004 2005 HK$’000 HK$’000 HK$’000 Total assets **************************************** 195,411 252,993 363,752 Total liabilities ************************************* (212,759) (215,745) (282,729) Net (liabilities) assets******************************** (17,348) 37,248 81,023 Group’s share of associates’ net assets****************** 1,646 9,510 18,760 Revenue ****************************************** 144,019 198,347 330,341 (Loss) profit for the year ***************************** (9,405) 25,972 42,181 Group’s share of associates’ profit for the year*********** 14,313 7,396 9,250

20. AVAILABLE-FOR-SALE INVESTMENTS

Available-for-sale investments as at 31st December, 2005 comprises:

HK$’000 Unlisted securities in Hong Kong ********************************************* 246 Listed securities in Hong Kong*********************************************** 16,186 16,432

As mentioned in note 2, from 1st January, 2005 onwards, not-for-trading securities has been reclassified to available-for-sale investments in accordance with the requirements of HKAS 39.

As at the balance sheet date, all available-for-sale investments are stated at fair value, except for those unlisted equity investments of which their fair values cannot be measured reliably. Fair values of those investments have been determined by reference to bid prices quoted in active markets.

The above unlisted investments represent investments in unlisted equity securities issued by private entities. They are measured at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that their fair values cannot be measured reliably.

21. OTHER INVESTMENTS

2003 2004 HK$ HK$ Fixed return investment in other region of People’s Republic of China, unlisted ********************************* 3,882 — Not-for-trading securities Unlisted in Hong Kong ****************************************** 246 246 Listed in Hong Kong******************************************** 20,312 15,028 20,558 15,274 24,440 15,274

II-45 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

22. LOAN RECEIVABLES

2003 2004 2005 HK$’000 HK$’000 HK$’000 Amounts due from minority shareholders ******************** 253,734 257,860 265,967 Amounts due from associates ****************************** 7,143 12,377 12,377 260,877 270,237 278,344

The loan to minority shareholders of the Group are unsecured, carries interest at Hong Kong Interbank Offering Rates plus 0.9125 per cent per annum, and have no fixed repayment terms.

The amounts due from associates are unsecured, interest free and have no fixed repayment terms. The associates are not expected to repay within twelve months from the balance sheet date and the balances are classified as non-current.

The fair value of the Group’s loan receivables as at the balance sheet date approximates to the carrying amount of the receivables.

23. PLEDGED BANK DEPOSITS, BANK BALANCES AND CASH

The pledged deposits have been placed in designated banks as part of the securities provided for long- term facilities granted to the Group.

The fair value of the Group’s fixed deposits included in bank balances and cash approximate to their carrying amounts as the fixed deposits are short term.

24. INVENTORIES

2003 2004 2005 HK$’000 HK$’000 HK$’000 Completed properties held for sale ************************** 42 42 42 Raw materials ******************************************* 32,159 25,451 29,342 Provisions and beverages ********************************** 14,999 19,314 23,151 Work-in-progress***************************************** 18,873 38,564 22,774 66,073 83,371 75,309

25. DEBTORS, DEPOSITS AND PREPAYMENTS 2003 2004 2005 HK$’000 HK$’000 HK$’000 Trade debtors ***************************************** 159,780 161,041 207,815 Deferred rent receivables ******************************** 36,769 48,210 79,258 Other receivables ************************************** 32,622 29,730 46,941 Deposits and prepayments ******************************* 48,025 75,201 73,977 277,196 314,182 407,991

II-46 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

The Group maintains a defined credit policy. For sales of goods, the Group allows an average credit period of 30-60 days to its trade customers. Rentals receivable from tenants and service income receivable from customers are payable on presentation of invoices. The aged analysis of trade debtors is as follows: 2003 2004 2005 HK$’000 HK$’000 HK$’000 0 - 3 months ****************************************** 129,185 147,643 192,729 3 - 6 months ****************************************** 17,454 6,385 13,885 Over 6 months **************************************** 13,141 7,013 1,201 159,780 161,041 207,815

The fair value of the Group’s trade and other receivables at 31st December, 2005 approximates to the corresponding carrying amount.

26. NON-CURRENT ASSETS HELD FOR SALE

During the year ended 31st December, 2005, the Group entered into two sales and purchase agreements with third parties in relation to the disposal of two floors at Langham Place Office Tower. Accordingly, the carrying amounts of these properties were classified as non-current assets held for sales and the disposal was completed subsequent to the balance sheet date.

27. CREDITORS, DEPOSITS AND ACCRUALS 2003 2004 2005 HK$’000 HK$’000 HK$’000 Trade creditors ************************************* 161,945 163,516 161,154 Rental deposits ************************************* 132,746 224,167 279,083 Construction fee payable and retention money payable **** 147,307 751,981 609,430 Accruals, interest payable and other payables ************ 220,004 313,939 482,506 662,002 1,453,603 1,532,173 Rental deposits — Due within one year**************************** 88,713 89,390 126,814 — Due after one year ***************************** 44,033 134,777 152,269 132,746 224,167 279,083

As at 31st December 2003, 2004 and 2005, retention payables amounted to HK$132,761,000, HK$94,584,000 and HK$89,103,000 are estimated to be payable within one year.

The aged analysis of trade creditors is as follows: 2003 2004 2005 HK$’000 HK$’000 HK$’000 0 - 3 months ****************************************** 157,985 157,165 156,398 3 - 6 months ****************************************** 1,344 4,024 2,685 Over 6 months **************************************** 2,616 2,327 2,071 161,945 163,516 161,154

The fair value of the Group’s trade and other payables at 31st December, 2005 approximates to the corresponding carrying amount.

II-47 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

28. DERIVATIVES FINANCIAL INSTRUMENTS As at 31st December 2005, the Group has used interest rate swaps to manage its exposure to interest rate movements on its bank borrowings, details of such major swaps are summarised below:- (a) Interest rate swap contracts of nominal amount of HK$2,982,000,000 were entered for periods up to 2009, to swap floating rate borrowings to fixed rate borrowings of interest rates ranging from 4.72% to 5.53%; and (b) Interest rate swap contracts of nominal amount of HK$3,520,000,000 were entered for periods up to 2007 to swap borrowings from floating rates based on Hong Kong Interbank Offer Rate (‘‘HIBOR’’) to floating rates based on London Interbank Offer Rate (‘‘LIBOR’’). The fair value of outstanding swaps at 31 December 2005 is estimated at total liability of HK$44,356,000, which is estimated by discounting the future expected cash flow at the balance sheet date. Changes in fair value of these swaps during the year were recorded in the income statement.

29. BORROWINGS 2003 2004 2005 HK$’000 HK$’000 HK$’000 Bills payable*************************************** 4,173 1,043 1,722 Bank loans and revolving loans (secured) *************** 13,082,943 14,847,060 14,192,423 Other non-current loans (secured)********************** 1,740,104 1,594,773 1,748,027 14,827,220 16,442,876 15,942,172 Loan front-end fee ********************************** — — (25,164) 14,827,220 16,442,876 15,917,008 The maturity of the above loans and overdrafts is as follows: On demand or within one year ************************ 1,543,613 1,685,710 1,390,620 More than one year but not exceeding two years ********* 1,452,131 1,357,695 1,396,452 More than two years but not exceeding five years ******** 10,731,476 12,760,471 11,498,616 More than five years ******************************** 1,100,000 639,000 1,631,320 14,827,220 16,442,876 15,917,008 Less: Amounts due within one year shown under current liabilities********************************** (1,543,613) (1,685,710) (1,390,620) Amounts due after one year ************************** 13,283,607 14,757,166 14,526,388

The exposure of the Group’s fixed-rate borrowings and the contractual maturity dates are as follows: 2003 2004 2005 HK$’000 HK$’000 HK$’000 Within one year *************************************** 377,822 8,245 12,270 In more than one year but not more than two years ********** 8,242 12,768 14,878 In more than two years but not more than three years ******** 8,853 15,383 674,829 In more than three years but not more than four years******** 9,509 677,224 6,760 In more than four years but not more than five years ********* 670,065 5,872 49,923 In more than five years ********************************* — 379,000 500,968 1,074,491 1,098,492 1,259,628

II-48 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

The exposure of the Group’s floating-rate borrowings and the contractual maturity dates are as follows: 2003 2004 2005 HK$’000 HK$’000 HK$’000 Within one year ************************************ 1,165,793 1,677,465 1,378,350 In more than one year but not more than two years ******* 1,443,888 1,344,927 1,381,574 In more than two years but not more than three years ***** 1,306,766 1,859,675 6,519,108 In more than three years but not more than four years***** 1,775,266 8,606,228 1,871,114 In more than four years but not more than five years ****** 6,961,016 1,596,089 2,376,884 In more than five years ****************************** 1,100,000 260,000 1,130,350 13,752,729 15,344,384 14,657,380

The ranges of effective interest rates (which are also equal to contracted interest rates) on the Group’s borrowings are as follows: 2003 2004 2005 Effective interest rate: Fixed-rate borrowings********** 4.52% to 8.22% 4.52% to 8.22% 4.52% to 12.50% Variable-rate borrowings ******* 1.74% to 6.53% 1.01% to 6.92% 2.79% to 8.02% The Group’s borrowings that are denominated in currencies other than the functional currencies of the relevant group entities are set out below: 2003 2004 2005 HK$’000 HK$’000 HK$’000 United State Dollar ******************************* 1,740,104 1,594,773 1,745,720 Sterling ***************************************** 1,015,082 1,212,224 1,029,526 Canadian Dollar ********************************** 573,495 592,202 581,882 Australian Dollar ********************************* 473,963 480,675 434,237 New Zealand Dollar******************************* 273,903 285,959 254,778 Hong Kong Dollar ******************************** 10,750,673 12,277,043 11,870,865 As at 31st December, 2003, 2004 and 2005, secured bank loans include a loan of HK$3,150,000,000, HK$3,100,000,000 and HK$3,050,000,000 respectively obtained from a syndicate of banks by an indirect subsidiary in which the Group has an 85.93% interest. During 2005, the Group refinanced loans in the amount of HK$5,000,000,000. The loans bear interest at floating rates and will be repayable by instalments with maturity dates in 2008 and 2010. The proceeds were used to finance operating activities of the Group. The directors consider that the carrying amount of interest-bearing borrowings approximates their fair value.

II-49 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

30. DEFERRED TAXATION The following are the major deferred tax liabilities and assets recognised and movements thereon during the current and prior reporting periods:

Accelerated tax Tax depreciation losses Others Total HK$’000 HK$’000 HK$’000 HK$’000 At 1st January, 2003 *************************** 1,024,728 (202,680) 265,717 1,087,765 Effect of changes in accounting policies *********** 566,287 55,498 — 621,785 At 1st January, 2003, (as restated)**************** 1,591,015 (147,182) 265,717 1,709,550 Exchange differences*************************** 31,837 (15,486) 65 16,416 Charge (credit) to income for the year ************ (23,574) (10,242) 20,425 (13,391) Effect of changes in tax rates credit to income statement ********************************** 71,063 (7,941) 26,510 89,632 At 31st December, 2003 ************************ 1,670,341 (180,851) 312,717 1,802,207 Exchange differences*************************** 19,566 (7,166) (22) 12,378 Charge to income for the year ******************* 1,174,348 (197,450) (326,084) 650,814 Released upon disposal of subsidiaries ************ (1,033) 207 — (826) Effect of changes in tax rates credit to income statement ********************************** (148) — — (148) At 31st December, 2004 ************************ 2,863,074 (385,260) (13,389) 2,464,425 Effect of changes in accounting policies (note 2) **** — — (54,860) (54,860) At 1st January, 2005 (as restated) **************** 2,863,074 (385,260) (68,249) 2,409,565 Exchange differences*************************** (20,406) 8,866 155 (11,385) Charge to income for the year ******************* 2,162,062 46,625 46,363 2,255,050 At 31st December, 2005 ************************ 5,004,730 (329,769) (21,731) 4,653,230

At 31st December 2003, 2004 and 2005, the Group has unutilised tax losses of HK$1,870,461,000, HK$3,150,364,000 and HK$2,717,003,000 respectively available for offset against future profits. A deferred tax asset has been recognised in respect of HK$800,087,000, HK$1,895,629,000 and HK$1,597,634,000 of such losses. No deferred tax asset has been recognised in respect of the remaining HK$1,070,374,000, HK$1,254,735,000 and HK$1,119,369,000 due to the unpredictability of future profit streams.

31. SHARE CAPITAL 2003 2004 2005 Number Nominal Number Nominal Number Nominal of shares value of shares value of shares value ’000 HK$’000 ’000 HK$’000 ’000 HK$’000 (a) Authorised: Shares of HK$0.50 each Balance brought forward and carried forward**** 800,000 400,000 800,000 400,000 800,000 400,000 (b) Issued and fully paid: Shares of HK$0.50 each Balance brought forward ******************** 582,978 291,489 584,305 292,153 589,765 294,883 Issued upon exercise of share options under the Share Option Scheme *********************** 15 8 769 385 2,043 1,022 Issued as scrip dividends ******************** 1,312 656 4,691 2,345 2,993 1,496 Balance carried forward ********************* 584,305 292,153 589,765 294,883 594,801 297,401

II-50 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

During the year ended 31st December 2003, 2004 and 2005, 1,312,389, 4,690,857 and 2,992,910 shares of HK$0.50 each in the Company were issued at HK$3.78, HK$9.52 and HK$17.18 per share as scrip dividends.

32. SHARE OPTION In accordance with the Company’s Great Eagle Holdings Limited Share Option Scheme (formerly Executive Share Option Scheme) (the ‘‘Scheme’’), which was adopted pursuant to an ordinary resolution passed on 10th June, 1999 and amended by an ordinary resolution passed on 20th December, 2001, the Board of Directors of the Company may grant options to eligible employees, including executive directors of the Company and its subsidiaries, to subscribe for shares in the Company.

Summary of the Scheme a. The purpose of the Scheme is to motivate officers, employees, associates, agents and contractors of the Company or any subsidiary (the ‘‘Participants’’) and to allow them to participate in the growth of the Company. b. Participants of the Scheme include any person the Board may select to be offered an option, subject to compliance with applicable laws, including, without limitation, any full-time or part- time employee of the Company or any subsidiary, any executive or non-executive director of the Company or any subsidiary and any associate, agent or contractor of the Company or any subsidiary. c. The maximum number of shares of HK$0.50 each of the Company (the ‘‘Shares’’) in respect of which options may be granted (together with options exercised and options then outstanding) under the Scheme, when aggregated with any number of Shares subject to any other schemes, will be such number of Shares as shall represent 10% of the issued share capital of the Company on the date of adoption of the Scheme. The total number of Shares available for issue under the Scheme is 54,636,853 Shares, representing 9% of the Company’s issued share capital as at 19th April, 2006, the latest practicable date before the approval of these financial statements. d. No option may be granted to any one Participant under the Scheme which, if exercised in full, would result in the total number of Shares already issued and issuable to him under all the options previously granted and to be granted to him in any 12-month period up to the proposed date of the latest grant exceeding 1% of the Company’s Shares in issue. e. The period within which the Shares must be taken up under an option is 36 months commencing on the expiry of 24 months after the date upon which the option is deemed to be granted and accepted and expiring on the last day of the 36 months’ period. f. The minimum period within which an option must be held before it can be exercised is the 24 months referred to in paragraph (e) above. g. Any Participant who accepts an offer of the grant of an option in accordance with the terms of the Scheme shall pay to the Company HK$1.00 by way of consideration for the grant thereof within a period of 28 days from the date on which an option is offered to the participant. h. The subscription price, the price per Share at which a grantee may subscribe for Shares on the exercise of an option, shall be the higher of (i) the last dealt price of the Shares quoted in the Stock Exchange daily quotations sheets on the date of offer of an option, which must be a business day (as defined in the Rules Governing the Listing of Securities on the Stock Exchange), and (ii) the average of the last dealt prices of the Shares quoted in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the said

II-51 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

offer date, provided that the subscription price shall in no event be less than the nominal value of a Share. i. The Scheme has a life of 10 years and will expire on 10th June 2009. The following table discloses details of the Company’s share options held by employees and movements in such holdings during the year: Number of shares Outstanding Options Outstanding options at lapsed options at In 2003 1st January, Options Options Options 22nd January, 31st December, Year of grant of options 2003 granted exercised cancelled 2003 2003 1998 ******************* 1,611,000 — — — (1,611,000) — 1999 ******************* 509,000 — (15,000) — — 494,000 2000 ******************* 711,000 — — — — 711,000 2001 ******************* 1,067,000 — — (2,000) — 1,065,000 2002 ******************* 970,000 — — (6,000) — 964,000 2003 ******************* — 996,000 — (10,000) — 986,000 4,868,000 996,000 (15,000) (18,000) (1,611,000) 4,220,000 Exercisable at end of the year Weighted average exercisable price ******* $ 13.63 $ 4.63 $ 7.02 $ 6.87 $ 6.91 $ 8.91

Number of shares Outstanding Options Outstanding options at lapsed options at In 2004 1st January, Options Options Options 12th March, 31st December, Year of grant of options 2004 granted exercised cancelled 2004 2004 1999******************* 494,000 — (484,000) — (10,000) — 2000******************* 711,000 — (105,000) (6,000) — 600,000 2001******************* 1,065,000 — (46,000) (6,000) — 1,013,000 2002******************* 964,000 — (134,000) (6,000) — 824,000 2003******************* 986,000 — — (13,000) — 973,000 2004******************* — 1,210,000 — (9,000) — 1,201,000 4,220,000 1,210,000 (769,000) (40,000) (10,000) 4,611,000 Exercisable at end of the year Weighted average exercisable price ******* $ 8.91 $ 13.55 $ 8.07 $ 9.34 $ 7.02 $ 10.27

II-52 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Number of shares Outstanding Options Outstanding In 2005 options at lapsed options at Year of grant of 1st January, Options Options Options 14th February, 31st December, options 2005 granted exercised cancelled 2005 2005 2000 ************* 600,000 — (583,000) — (17,000) — 2001 ************* 1,013,000 — (511,000) — — 502,000 2002 ************* 824,000 — (387,000) — — 437,000 2003 ************* 973,000 — (562,000) — — 411,000 2004 ************* 1,201,000 — — (14,000) — 1,187,000 2005 ************* — 1,606,000 — (10,000) — 1,596,000 4,611,000 1,606,000 (2,043,000) (24,000) (17,000) 4,133,000 Exercisable at end of the year Weighted average exercisable price $ 10.27 $ 18.21 $ 9.11 $ 15.49 $ 10.12 $ 13.90

Details of the share options held by the directors included in the above table are as follows: In 2003 Number of shares Outstanding Options Outstanding options at lapsed options at 1st January, Options Options 22nd January, 31st December, Year of grant of options 2003 granted exercised 2003 2003 1998 - 2003****************** 3,405,000 550,000 — (1,350,000) 2,605,000

In 2004 Number of shares Outstanding Options Outstanding options at lapsed options at 1st January, Options Options 12th March, 31st December, Year of grant of options 2004 granted exercised 2004 2004 1999 - 2004****************** 2,605,000 700,000 (385,000) — 2,920,000

In 2005 Number of shares Outstanding Options Outstanding options at lapsed options at 1st January, Options Options 14th February, 31st December, Year of grant of options 2005 granted exercised 2005 2005 2000 - 2005 *************** 2,920,000 770,000 (1,400,000) — 2,290,000

During the year 2003, 2004 and 2005, the weighted average price of the shares on the exercise date was HK$8.90, HK$14.00 and HK$15.20.

II-53 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Details of Options granted in each year are as follows: Subscription Date of price per Year grant Exercisable period share (HK$) 1997 *************************************** 15.4.1997 16.4.1999 - 15.4.2002 21.519 1998 *************************************** 22.1.1998 23.1.2000 - 22.1.2003 6.912 1999 *************************************** 12.3.1999 13.3.2001 - 12.3.2004 7.020 2000 *************************************** 14.2.2000 15.2.2002 - 14.2.2005 10.116 2001 *************************************** 16.1.2001 17.1.2003 - 16.1.2006 13.392 2002 *************************************** 28.1.2002 29.1.2004 - 28.1.2007 8.440 2003 *************************************** 10.2.2003 11.2.2005 - 10.2.2008 4.625 2004 *************************************** 16.3.2004 17.3.2006 - 16.3.2009 13.550 2005 *************************************** 17.3.2005 18.3.2007 - 17.3.2010 18.210

Notes: (i) Options granted in 1999 were granted under the previous scheme which expired on 16th March 1999. Options granted in 2000 to 2005 were granted under the Scheme of the Company adopted on 10th June 1999. (ii) Consideration paid for each grant of an option was HK$1.00. (iii) The closing price of the shares of HK$0.50 each of the Company quoted on the Stock Exchange on 7th February 2003, 15th March 2004 and 16th March 2005, being the business date immediately before the date grant (10th February 2003), (16th March 2004) and (17th March 2005) on which share options were granted, was HK$4.55, HK$13.50 and HK$18.05 respectively. (iv) The vesting period for the option grant is 24 months from date of grant. (v) The following significant assumptions were used to derive the fair value, using the Black-Scholes option pricing model: Date of grant 17.3.2005 16.3.2004 10.2.2003 Exercise price : HK$18.21 HK$13.55 HK$4.625 Expected volatility (note a) : 41.88% 46.49% 32.36% Expected dividend yield (note b) : 0.95% 0.96% 2.81% Expected life from grant date : 5 years 5 years 5 years Risk free interest rate (note c) : 3.81% 2.52% 2.98% Fair value per option : HK$ 6.63 HK$ 5.43 HK$ 1.15

Notes: (a) The expected volatility was based on historical volatility. (b) The expected dividend yield was based on historical dividends. (c) Risk free interest rate was approximately yield of 5-year Exchange Fund Note on the grant date.

All the options forfeited before expiry of the options will be treated as lapsed options under the relevant share option scheme.

33. RETIREMENT BENEFIT SCHEMES The Group has established various retirement benefit schemes for the benefit of its staff in Hong Kong and overseas. In Hong Kong, the Group operates several defined contribution schemes for qualifying employees. The schemes are registered under the Occupational Retirement Schemes Ordinance. The assets of the schemes are administered by independent third parties and are held separately from the Group’s assets. The schemes are funded by contributions from both employees and employers at rates ranging from 5% to 10% of the employee’s basic monthly salary. Arrangements for staff retirement benefits of overseas employees vary from country to country and are made in accordance with local regulations and custom.

II-54 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

The Occupational Retirement Scheme in Hong Kong had been closed to new employees as a consequence of the new Mandatory Provident Fund Pension Legislation introduced by The Government of Hong Kong Special Administration Region in 2000.

From 1st December, 2000 onwards, new staff in Hong Kong joining the Group are required to join the new Mandatory Provident Fund Scheme. The Group is required to contribute 5% to 10%, while the employees are required to contribute 5% of their salaries to the Scheme.

For the year ended 31st December, 2003, 2004 and 2005, forfeited contributions to retirement schemes amounting to approximately HK$988,000, HK$826,000 and HK$1,031,000 respectively have been used to reduce the existing level of contributions. For the year ended 31st December, 2003, 2004 and 2005, total contributions to retirement fund schemes charged to the income statement amounted to approximately HK$24,989,000, HK$29,401,000 and HK$34,543,000 respectively. As at 31st December, 2003, 2004 and 2005, contributions of approximately HK$1,923,000, HK$1,256,000 and HK$301,000 respectively due in respect of each year had not been paid over to the schemes.

34. DISPOSAL OF PROPERTY INVESTMENT SUBSIDIARIES

During the year ended 31st December, 2004, the Group had disposed of its subsidiaries, Bright View Holdings Limited and Capital Win Development Limited. The net assets of these subsidiaries at the date of disposal were as follows: 2004 HK$’000 NET ASSETS DISPOSED OF: Investment properties ****************************************************** 124,200 Debtors, deposits and prepayments ******************************************* 1,027 Creditors, deposits and accruals********************************************** (1,444) Provision for taxation ****************************************************** (24) Deferred taxation ********************************************************* (826) 122,933 Gain on disposal of property investment subsidiaries **************************** 51,862 Total consideration ******************************************************** 174,795

HK$’000 Satisfied by: Cash******************************************************************* 174,795 Cash inflow arising on disposal: Cash consideration ******************************************************* 174,795

During year ended 31st December, 2004, the subsidiaries disposed of contributed approximately HK$3,671,000 to the Group’s turnover and approximately HK$3,143,000 to the Group’s profit from operations. The subsidiaries disposed of during that year had no significant impact on cash flows of the Group.

35. MAJOR NON-CASH TRANSACTION

During the year ended 31st December 2003, 2004 and 2005, 1,312,389 shares, 4,690,857 shares and 2,992,910 shares of HK$0.50 each in the Company were issued at HK$3.78, HK$9.52 and HK$17.18 per share as scrip dividends.

II-55 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

36. PLEDGE OF ASSETS

At 31st December, 2003, 2004 and 2005, the Group’s pledged their following assets for credit facilities granted to the Group:

(a) the Group’s investment properties with a total carrying value of approximately HK$12,107,390,000, HK$24,758,633,000 and HK$37,005,245,000 respectively together with assignments of sales proceeds, insurance proceeds, rental income, revenues and all other income generated from the relevant properties;

(b) the Group’s hotel buildings with a total carrying value of approximately HK$5,037,011,000, HK$7,107,110,000 and HK$6,928,278,000 respectively and prepaid land costs with a total carrying value of approximately HK$1,954,344,000, HK$1,909,739,000 and HK$1,865,132,000 respectively;

(c) the Group’s owner use properties with a total carrying value of approximately HK$30,409,000, HK$9,420,000 and HK$213,033,000 respectively and prepaid land costs with total carrying value of approximately HK$20,695,000, HK$20,529,000 and HK$20,365,000, respectively;

(d) the Group’s non-current asset held for sale of approximately HK$nil, HK$nil and HK$253,800,000 respectively; and

(e) bank deposits of HK$3,600,000, HK$3,604,000 and HK$489,346,000.

37. COMMITMENTS AND CONTINGENT LIABILITIES

At 31st December 2003, estimated expenditure in respect of property under development amounting to approximately HK$1,407,340,000 of which approximately HK$1,094,375,000 was contracted for.

At 31st December, 2003, 2004 and 2005, the Group had authorised capital expenditure not provided for in these financial statements amounting to approximately HK$31,305,000, HK$33,625,000 and HK$11,911,000 respectively of which approximately HK$8,773,000, HK$18,821,000 and HK$8,522,000 respectively was contracted for.

Other than set out above, the Group did not have any significant commitments and contingent liabilities at 31st December, 2003, 2004 and 2005.

38. OPERATING LEASE ARRANGEMENTS The Group as lessor

Property rental income earned during the year 2003, 2004 and 2005 was HK$725,346,000, HK$660,570,000 and HK$959,537,000. The properties held had committed leases typically running for one to six years.

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments in respect of investment properties which fall due as follows: 2003 2004 2005 HK$’000 HK$’000 HK$’000 Within one year*********************************** 484,020 773,061 874,890 In the second to fifth years inclusive****************** 604,553 1,544,359 1,436,708 After five years *********************************** 37,926 265,897 200,021 1,126,499 2,583,317 2,511,619

II-56 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

Certain future minimum lease payments are calculated based on the estimated market rent to be received from the contracted tenants during specified time intervals of the contracted period as stipulated in the lease agreement.

The Group as lessee At the balance sheet date, the Group has outstanding commitments under non-cancellable operating leases in respect of rented premises which fall due as follows: 2003 2004 2005 HK$’000 HK$’000 HK$’000 Within one year ***************************************** 1,645 1,446 2,836 In the second to fifth years inclusive ************************ 393 466 1,479 2,038 1,912 4,315

Operating lease payments represent rentals payable by the Group for certain of its office premises. Leases are negotiated for term of one to three years and rental are fixed over the respective leases.

B. RELATED PARTY TRANSACTIONS The Group had the following significant related party transactions during the year and balances at the balance sheet date with certain companies in which some shareholders and directors of the Company have

II-57 APPENDIX II FINANCIAL INFORMATION OF THE GROUP beneficial interests. The transactions were carried out in the normal course of the Group’s business on terms mutually agreed between the parties. 2003 2004 2005 HK$’000 HK$’000 HK$’000 Transactions for the year ended 31st December Trading income Sun Fook Kong Holdings Limited and its subsidiaries ** a 1,296 2,014 1,574 Shui On Construction and Materials Limited and its subsidiaries *********************************** a 508 341 39 Rental income Sun Fook Kong Holdings Limited and its subsidiaries ** b 1,670 1,670 1,483 Management fee received Shui Sing Holdings Limited and its subsidiaries ******* c 240 240 240 Rental charges paid for Director’s accommodation Shui Sing Holdings Limited and its subsidiaries ******* d 2,400 2,400 1,950 Cost and expenses incurred for super-structural works Sun Fook Kong Holdings Limited and its subsidiaries ** e 1,397,963 765,003 97,415 Payment for renovation works Sun Fook Kong Holdings Limited and its subsidiaries ** e 3,974 3,013 2,316 Balances as at 31st December Amounts due from minority shareholders ************** 253,735 257,860 265,967 Amounts due from associates (see note 22) Crucial Investments Limited *********************** 7,143 323 323 City Apex Limited ******************************* — 12,054 12,054 Debtors, deposits and prepayments Sun Fook Kong Holdings and its subsidiaries ********* f 2,686 2,891 4,239 Shui On Construction and Materials Limited and its subsidiaries *********************************** f 751 652 67 Amounts due to associates (see note 22) Crucial Investments Limited *********************** 177 — — City Apes Limited ******************************* 98—— Creditors, deposits and accruals Sun Fook Kong Holdings Limited and its subsidiaries ** g 123,673 561,951 477,034

II-58 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

a. Trading income are based on pre-determined rates agreed by both parties. b. Rental income are based on pre-determined rates agreed by both parties. c. Management fee income are based on pre-determined rates agreed by both parties. d. Operating lease payments on rented premises are based on pre-determined rates agreed by both parties. e. Payment for construction and renovation works are determined by reference to price charged to third parties of similar transactions. f. The amounts represent the trade receivable from the related companies. The amounts are unsecured, interest-free and have no fixed repayment terms. The fair value of debtors, deposits and prepayment at the balance sheet date approximates to the corresponding carrying amount. g. The amounts represent the construction fee payable to the related companies. The amounts are unsecured, interest-free and have no fixed repayment terms. The fair value of creditors, deposits and accruals at the balance sheet date approximates to the corresponding carrying amount. h. The remuneration of directors and other members of key management during the year were disclosed in note 13. The remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends.

C. SUBSEQUENT EVENT There is no significant event which has occurred to any business or group company since 31st December, 2005.

D. SUBSEQUENT FINANCIAL STATEMENTS No audited financial statements for any of the companies comprising the Group have been prepared in respect of any period subsequent to 31st December, 2005.

E. FINANCIAL INFORMATION OF THE PROPERTY (i) Included in the consolidated balance sheet of the Group are the assets and liabilities attributable to the Property Companies as at respective balance sheet dates which are presented on a

II-59 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

combined basis as if those companies had been controlled entities throughout the Relevant Period:

As at 31st December, 2003 2004 2005 HK$’000 HK$’000 HK$’000 Non-current assets Investment properties ******************************* 8,763,000 10,752,500 22,670,000 Amounts due from fellow subsidiaries ***************** 72,638 72,642 — 8,835,638 10,825,142 22,670,000 Current assets Accounts receivable, deposits and prepayments********** 15,860 28,119 48,488 Amounts due from fellow subsidiaries ***************** 35,019 29,537 111,118 Tax prepaid*************************************** — 3,534 4,847 Pledged bank deposits ****************************** 3,600 3,604 3,690 Cash at bank************************************** 1,092 3,561 3,606 55,571 68,355 171,749 Current liabilities Accounts payable and accruals *********************** 15,069 18,411 6,842 Deposits received ********************************** 64,698 61,362 75,258 Amounts due to fellow subsidiaries ******************* 9,517 15,641 2,096,879 Provision for taxation******************************* 5,569 — 9,562 94,853 95,414 2,188,541 Net current liabilities ********************************* (39,282) (27,059) (2,016,792) Total assets less current liabilities*********************** 8,796,356 10,798,083 20,653,208 Non-current liabilities Deferred taxation ********************************** 862,045 1,213,890 3,282,381 Amounts due to fellow subsidiaries ******************* 2,424,021 2,238,662 — 3,286,066 3,452,552 3,282,381 NET ASSETS ************************************** 5,510,290 7,345,531 17,370,827 Represented by: Issued equity**************************************** 859 859 859 Retained profits ************************************* 4,878,245 6,526,680 15,500,077 Equity attributable to unit holders of the trust ************* 4,879,104 6,527,539 15,500,936 Minority interests ************************************ 631,186 817,992 1,869,891 TOTAL EQUITY *********************************** 5,510,290 7,345,531 17,370,827

II-60 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

(ii) Included in the consolidated income statement of the Group are the results attributable to the Property Companies during the Relevant Periods which are presented on a combined basis as if those companies had been controlled entities throughout the Relevant Period:

Year ended 31st December, 2003 2004 2005 HK$’000 HK$’000 HK$’000 Rental and building management fee income *************** 533,987 403,589 401,283 Rental related income ********************************** 1,966 2,107 1,993 Rental related outgoings ******************************** (120,567) (111,398) (116,998) Net rental income ************************************* 415,386 294,298 286,278 Other operating income ********************************* 770 104 109 Fitting out works of investment properties written off ******** — (2,148) (1,746) Administrative expenses ******************************** (416) (434) (569) (Decrease) increase in fair value of investment properties ***** (494,000) 1,988,859 11,925,276 Finance costs ***************************************** (101,183) (63,450) (88,242) (Loss) profit before taxation ***************************** (179,443) 2,217,229 12,121,106 Taxation ********************************************* (49,956) (381,988) (2,095,810) (Loss) profit for the year******************************** (229,399) 1,835,241 10,025,296 Attributable to Unit holders of the trust ****************************** (201,976) 1,648,435 8,973,397 Minority interests************************************ (27,423) 186,806 1,051,899 (229,399) 1,835,241 10,025,296

II-61 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

(iii) Included in the consolidated cash flow statement of the Group are the cash flows attributable to the Property Companies during the Relevant Periods which are presented on a combined basis as if those companies had been controlled entities throughout the Relevant Period: Year ended 31st December, 2003 2004 2005 HK$’000 HK$’000 HK$’000 Operating activities (Loss) profit before taxation************************ (179,443) 2,217,229 12,121,106 Adjustments for: Fitting-out works of investment properties written off — 2,148 1,746 Interest expense ******************************** 101,183 63,450 88,242 Interest income ******************************** (712) (13) (109) Decrease (increase) in fair value of investment properties *********************************** 494,000 (1,988,859) (11,925,276) Operating cash flows before movements in working capital**************************************** 415,028 293,955 285,709 Decrease (increase) in accounts receivable, deposits and prepayments*********************************** 12,486 (12,259) (20,362) Decrease (increase) in amounts due from fellow subsidiaries *********************************** 1,891 5,482 (9,028) (Decrease) increase in accounts payable and accruals *** (5,362) (2,768) 4,429 (Decrease) increase in deposits received ************** (5,584) (3,336) 13,896 (Decrease) increase in amounts due to fellow subsidiaries *********************************** (176) 6,124 (737) Cash generated from operations ******************* 418,283 287,198 273,907 Interest paid*********************************** (101,286) (57,340) (94,557) Hong Kong Profits Tax paid********************** (46,172) (39,246) (19,070) Net cash from operating activities ***************** 270,825 190,612 160,280 Investing activities Interest received******************************** 763 13 102 Additions to investment properties***************** — (2,789) (3,653) Increase in pledged bank deposits ***************** (29) (4) (86) (Increase) decrease in amounts due from fellow subsidiaries ********************************* (10) (4) 89 Net cash from (used in) investing activities********** 724 (2,784) (3,548) Net cash used in financing activities Decrease in amounts due to fellow subsidiaries ****** (326,644) (185,359) (156,687) (Decrease) increase in cash and cash equivalents***** (55,095) 2,469 45 Cash and cash equivalents at the beginning of the year ***************************************** 56,187 1,092 3,561 Cash and cash equivalents at the end of the year representing cash at bank ********************** 1,092 3,561 3,606

Yours faithfully,

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

II-62 APPENDIX II FINANCIAL INFORMATION OF THE GROUP

2. STATEMENT OF INDEBTEDNESS At the close of business on 31st March, 2006, being the latest practicable date for this statement of indebtedness prior to the printing of this circular, the Group has outstanding borrowings of approximately HK$15,822,322,000 comprising secured borrowings of approximately HK$15,814,026,000 and unsecured overdraft of approximately HK$8,296,000. The secured borrowings of approximately HK$15,814,026,000 included bank borrowings of approximately HK$14,069,401,000, and other borrowings of approximately HK$1,744,625,000.

Pledge of assets and guarantees At the close of business on 31st March, 2006, the secured borrowings are secured by certain of the Group’s assets of approximately HK$46,463,239,000. At the close of business on 31st March, 2006, the Company had issued corporate guarantees to certain banks and financial institutions in respect of credit facilities drawn by its subsidiaries amounting to approximately HK$13,473,124,000.

Debt securities At the close of business on 31st March, 2006, the Group had no debt securities.

Commitments At 31st March, 2006, the Group has authorized capital expenditure not provided for in these financial statements amounting to approximately HK$9,028,000 of which approximately HK$5,639,000 was contracted for. Save as aforesaid and apart from intra-group liabilities, the Group did not have outstanding at the close of business on 31st March, 2006 any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under debentures, mortgages, charges, finance lease commitments, guarantees or other material contingent liabilities.

II-63 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The following is the unaudited pro forma consolidated balance sheet of Remaining Group as at 14.68(1)(a) 31 December 2005, together with pro forma consolidated income statement and cash flow statement for the year then ended (collectively the ‘‘Pro Forma Accounts’’), prepared to demonstrate the effect of the Reorganization and the issuance of the Units pursuant to the Global Offering (the ‘‘Transactions’’) as if the Transactions had been completed as at 1st January 2005. The unaudited Pro Forma Accounts of Remaining Group were prepared based on the audited consolidated financial statement of the Group as at 31st December 2005, as set out in the accountants’ report in Appendix II, adjusted only to reflect the effects of the Transactions. These unaudited Pro Forma Accounts have been prepared for illustrative purposes only and do not purport to represent what the assets and liabilities or results of Remaining Group will actually be as at 31st December 2005 or to give a true picture of the financial position of Remaining Group as at that date. The fair value of the assets and liabilities of Remaining Group as at 31st December 2005 may be different from the fair value used in the preparation of the unaudited Pro Forma Accounts.

I. Unaudited Pro Forma Accounts (A) Unaudited pro forma consolidated balance sheet of Remaining Group

Before As at 31st December 2005 After Disposal Pro forma Adjustments Disposal HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) (Note 3) Non-current assets Property, plant and equipment ******* 7,302,912 7,302,912 Prepaid lease payments************* 1,840,726 1,840,726 Investment properties ************** 37,049,745 (22,670,000) 14,379,745 Interests in associates ************** 18,760 18,760 Available for sale investments ******* 16,432 6,713,912 6,730,344 Loan receivables ****************** 278,344 278,344 Amounts due from related companies — 2,096,879 242,414 (2,339,293) — Pledged bank deposits************** 489,346 (3,690) 485,656 46,996,265 31,036,487 Current assets Inventories *********************** 75,309 75,309 Debtors, deposits and prepayments *** 407,991 (48,488) 359,503 Prepaid lease payments************* 44,711 44,771 Bank balances and cash ************ 719,351 (3,606) (242,414) 10,508,083 10,981,414 1,247,422 11,460,997 Non-current assets classified as held for sale************************ 253,800 253,800 1,501,222 11,714,797

III-1 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Before As at 31st December 2005 After Disposal Pro forma Adjustments Disposal HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) (Note 3) Current liabilities Creditors, deposits and accruals ****** 1,532,173 (82,100) 1,450,073 Derivative financial instruments ****** 44,356 44,356 Amounts due to related companies *** — 111,118 (111,118) — Provision for taxation ************** 92,760 (4,715) 88,045 Borrowings due within one year ***** 1,390,620 1,390,620 Unsecured bank overdraft *********** 3,967 3,967 3,063,876 2,977,061 Net current (liabilities)/assets ********** (1,562,654) 8,737,736 Total assets less current liabilities ****** 45,433,611 39,774,223 Non-current liabilities Borrowings due after one year ******* 14,526,388 14,526,388 Deferred taxation****************** 4,653,230 (3,282,381) 1,370,849 19,179,618 15,897,237 NET ASSETS********************** 26,253,993 23,876,986 EQUITY Share capital *********************** 297,401 (859) 859 297,401 Share premium and reserves*********** 24,041,690 (15,500,077) 14,992,961 23,534,574 Equity attributable to equity holders of the parent************************ 24,339,091 23,831,975 Minority interests ******************* 1,914,902 (1,869,891) 45,011 TOTAL EQUITY******************* 26,253,993 23,876,986

III-2 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

(B) Unaudited pro forma consolidated income statement of Remaining Group

Year ended 31 December 2005 Before After Disposal Pro forma adjustments Disposal HK$’000 HK$’000 HK$’000 HK$’000 (Note 4) (Note 5) Revenue ********************************** 3,521,201 (401,283) 3,119,918 Cost of goods and services ******************* (2,273,950) 116,998 (2,156,952) Gross profit ******************************* 1,247,251 962,966 Fair value changes on investment properties ***** 12,982,057 (11,925,276) 1,056,781 Fair value changes on derivative financial instruments ****************************** 258,944 258,944 Loss on disposal of subsidiaries *************** — (622,608) (622,608) Other income ****************************** 42,592 86,140 128,732 Administrative expenses ********************* (135,752) 569 (135,183) Other expenses ***************************** (34,469) 1,746 (32,723) Depreciation on hotel buildings *************** (155,481) (155,481) Amortisation on prepaid lease payments ******** (44,771) (44,771) Finance costs ****************************** (760,710) (760,710) Share of results of associates ***************** 9,250 9,250 Profit before tax**************************** 13,408,911 665,197 Income taxes ****************************** (2,323,495) 2,095,810 (227,685) Profit for the year ************************** 11,085,416 437,512 Attributable to: Equity holders of the parent ****************** 10,028,139 (8,973,397) (622,608) 432,134 Minority interests*************************** 1,057,277 (1,051,899) 5,378 11,085,416 437,512

III-3 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Year ended 31 December 2005 Before After Disposal Pro forma adjustments Disposal HK$’000 HK$’000 HK$’000 HK$’000 (Note 6) (Note 7) Operating activities Profit before taxation ********************* 13,408,911 (12,121,106) (622,608) 665,197 Adjustments for: Share of results of associates ************* (9,250) (9,250) Interest income ************************ (32,386) (88,133) (120,519) Interest expenses *********************** 748,799 748,799 Dividends received from listed investments (717) (717) Allowance for doubtful debts************* 13,325 13,325 Loss on disposal of subsidiaries ********** — 622,608 622,608 Depreciation on other property, plant and equipment ************************** 48,109 48,109 Depreciation on hotel buildings *********** 155,481 155,481 Amortisation on prepaid lease payments**** 44,771 44,771 Recognition of share-based payments ****** 7,255 7,255 Deferred initial direct cost *************** (6,240) (6,240) Fair value changes on investment properties (12,982,057) 11,925,276 (1,056,781) Fair value changes on derivative financial instruments ************************* (258,944) (258,944) Loss on disposal of property, plant and equipment ************************** 130 130 Fitting out works of properties written off ** 11,865 (1,746) 10,119 Operating cash flows before movements in working capital ************************ 1,149,052 863,343 Decrease in inventories******************** 8,062 8,062 Increase in debtors, deposits and prepayments (105,718) 20,362 (85,356) Increase in amounts due to related companies — 9,028 9,028 Increase in bills payables, creditors, deposits and accruals*************************** 222,329 (18,325) 204,004 Decrease in amounts due from related companies **************************** — 737 737 Cash generated from operations*********** 1,273,725 999,818 Interest paid***************************** (737,519) (737,519) Hong Kong Profits Tax paid *************** (53,317) 19,070 (34,247) Other jurisdictions tax paid **************** (27,812) (27,812) Other jurisdictions tax refunded************* 1,778 1,778 Net cash from operating activities ********* 456,855 202,018

III-4 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Year ended 31 December 2005 Before After Disposal Pro forma adjustments Disposal HK$’000 HK$’000 HK$’000 HK$’000 (Note 6) (Note 7) Investing activities Interest received ************************* 30,970 94,455 125,425 Dividends received from listed investments *** 717 717 Additions to investment properties*********** (134,141) 3,653 (130,488) Additions to property, plant and equipment *** (408,402) (408,402) Advance to minority shareholders/settlement with minority shareholders*************** (8,107) 215,276 207,169 Net proceeds on disposal of subsidiaries****** — (3,561) 4,661,298 4,657,737 Proceeds on disposal of investment property ** 291,849 291,849 Proceeds on disposal of property, plant and equipment **************************** 29 29 Decrease in amounts due to related companies — 156,598 156,598 Increase in pledged bank deposits *********** (485,742) 86 (485,656) Net cash used in investing activities ******** (712,827) 4,414,978 Financing activities Dividends paid to shareholders ************* (46,232) (46,232) Issue of shares*************************** 18,607 18,607 Share issue expenses********************** (80) (80) New bank loans raised ******************** 5,188,186 5,188,186 Repayments of bank loan****************** (5,551,170) (5,551,170) Net cash used in financing activities ******* (390,689) (390,689) (Decrease)/Increase in cash and cash equivalents *************************** (646,661) (3,606) 4,876,574 4,226,307 Effect of foreign exchange rates changes**** (748) (748) Cash and cash equivalents at the beginning of the year *************************** 1,362,793 1,362,793 Cash and cash equivalents at the end of the year ********************************* 715,384 5,588,352 Analysis of the balance of cash and cash equivalents Being: Bank balances and cash ***************** 719,351 (3,606) 4,876,574 5,592,319 Bank overdrafts************************ (3,967) (3,967) 715,384 5,588,352

Notes to the unaudited pro forma financial information (1) The adjustment reflects the effect of segregation of the assets and liabilities of Champion REIT as at 31st December 2005 from the Group pursuant to the Reorganization. This pro forma balance sheet is prepared in accordance with applicable Hong Kong Financial Reporting Standards and the Listing Rule. It is assumed for the purpose of preparing this pro forma balance sheet that the final consideration payable by Champion REIT under the Reorganization will be not less than approximately HK$19 billion. The amount of $2,096,879,000 represents existing loans due by Property Companies to the Company. The amount of $111,118,000 represents amount due by the Company to Property Companies. Such amounts were previously eliminated on

III-5 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

consolidation as the Property Companies were subsidiaries of the Company. The amounts are reinstated in the pro forma balance sheet for the Remaining Group as the Property Companies are treated as a separate group after the Transactions.

(2) Pursuant to the Reorganization, the Property Companies will be acquired by Champion REIT and the Vendor Companies are required to put aside certain cash amount for the settlement of liabilities of the Property Companies. Such cash amount of approximately HK$242,414,000 represents the estimated amount of such liabilities, which include current tax liabilities, tenant deposits and other payables.

(3) The adjustment amount represents the total considerations to be received by the Company and is comprised of (i) total cash of HK$10,508,083,000 which includes HK$10,310,696,000 of cash proceeds from the Transactions and a repayment of HK$197,387,000 by the minority shareholders to the Company; and (ii) Units at a total value of HK$6,713,912,000.

The amount of HK$197,387,000 represents a payment by the minority shareholders to the Company that settles certain advances related to the non-wholly-owned Property Companies previously made by the Company to the minority shareholders.

The amount of HK$6,713,912,000 represents the consideration payable by the Company for the subscription of units in Champion REIT, based on the Implied Purchase Price of approximately HK$19 billion for the Property.

The adjustment amount of HK$2,339,293,000 refers to the settlement of shareholder’s loan due by the Property Companies to Great Eagle which comprises of the balance of HK$2,096,879,000 as at 31 December 2005 and the additional cash amount of HK$242,414,000 as mentioned in Note (2) above.

(4) The adjustments to reflect the segregation of the income statement of the Property Companies in income statement from the Group upon the completion of the Transactions, which is assumed, for this purpose to have taken place on 1st January 2005. In accordance with applicable Hong Kong Financial Reporting Standards and the Listing Rule, it is assumed for the purpose of preparing this pro forma income statement that the disposal of Property Companies by the Company to Champion REIT would be at a consideration by reference to the valuation of the Property as at 1 January 2005.

The amount of $86,140,000 represents net income derived by the Property Companies from the Company. Such amount was previously eliminated on consolidation as the Property Companies were subsidiaries of the Company. The amounts are reinstated in the pro forma income statement for the Remaining Group as the Property Companies are treated as a separate group after the Transactions.

(5) The purpose of this adjustment is to reflect the loss on the disposal (assuming the Transactions have been taken place on 1st January, 2005) to the Company as a result of the Transactions, which is arrived at taking the difference between (a) the implied disposal value of the Property Companies achieved from the Proposed Spin-off and (b) the sum of the net asset value of the Property Companies and the face value of the existing loans to be assigned to Champion REIT as at 1st January, 2005. On this basis, the loss to the Company on the disposal would be HK$622,608,000.

Assuming that the transaction is taken place on December 31, 2005 at a consideration by reference to the then market valuation of the Property, and assuming that the final consideration payable by Champion REIT under the Reorganization will be approximately HK$19 billion, the loss to the Company on disposal would be HK$507,116,000.

(6) The adjustments reflect the segregation of the cashflow statement of the Property Companies from the Group upon the completion of the Transactions, which is assumed, for this purpose, to have taken place on 1st January 2005. In accordance with applicable Hong Kong Financial Reporting Standards and the Listing Rule, it is assumed for the purpose of preparing this pro forma cash flow statement that the disposal of Property Companies by the Company to Champion REIT would be at a consideration by reference to the valuation of the Property as at 1 January 2005.

The amount of $88,133,000 represents cashflow from interest income derived by the Property Companies from the Company. Such amount was previously eliminated on consolidation as the Property Companies were subsidiaries of the Company. The amounts are reinstated in the pro forma cashflow statement for the Remaining Group as the Property Companies are treated as a separate group after the Transactions.

(7) The amount of HK$215,276,000 represents the repayment by the minority shareholders to the Company for previous indebtedness related to non-wholly-owned Property Companies for similar reasons as explained in note (3) above. The HK$4,661,298,000 represents the difference between (i) total cash of HK$4,884,331,000 of cash proceeds from the Transactions and (ii) the amount of HK$223,033,000 provided by the Vendor Companies for similar reasons as mentioned in note (2) above.

III-6 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

II. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION FROM THE REPORTING ACCOUNTANTS The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF THE GREAT EAGLE HOLDINGS LIMITED AND MERRILL LYNCH FAR EAST LIMITED We reported on the unaudited pro forma financial information (the ‘‘Unaudited Pro Forma Financial Information’’) of Great Eagle Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’), which has been prepared by the Directors of the Company, for illustration purposes only, to provide information about how the proposed disposal of the entire issued capital of certain companies which are engaged in property investment businesses might have affected the financial information presented, for inclusion in Appendix III of the circular dated 24th April, 2006.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS OF THE COMPANY AND REPORTING ACCOUNTANTS It is the responsibilities solely of the Directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’), and with reference to Accounting Guideline 7 ‘‘Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’). It is our responsibility to form an opinion, as required by paragraph 29 (7) of Chapter 4 of the Listing Rules on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

BASIS OF OPINION We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 ‘‘Accountants’ Reports on Unaudited Pro Forma Financial Information in Investment Circulars’’ issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with unaudited source documents, considering the evidence supporting the adjustments and discussing the unaudited Pro Forma Financial Information with the Directors of the Company. This engagement did not involve independent examination of any of the underlying financial information. We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information have been properly compiled by the Directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are

III-7 APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29 (1) of Chapter 4 of the Listing Rules. The Unaudited Pro Forma Financial Information is for illustrative purpose only, based on the judgements and assumptions of the Directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not give an indicative of: ( the financial position of the Group as at 31st December, 2005 or any future date; and ( results and cash flows of the Company for the year ended 31st December, 2005 or any future period.

OPINION In our opinion: (a) the Unaudited Pro Forma Financial Information has been properly compiled by the Directors of the Company on the basis stated; (b) such basis is consistent with the accounting policies of the Group; and (c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29 (1) of Chapter 4 of the Listing Rules.

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 24th April, 2006

III-8 APPENDIX IV GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT A1B.2 This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement herein misleading.

2. SHARE CAPITAL OF THE COMPANY As of the Latest Practicable Date, the authorized share capital of the Company was HK$400,000,000 divided into 800,000,000 Shares, of which 595,643,307 Shares were issued and fully paid.

3. DISCLOSURE OF DIRECTORS’ INTERESTS FOR THE COMPANY

Save as disclosed below, as of the Latest Practicable Date, none of the Directors or chief executives (if 14.64(2) any) of the Company had, or was deemed to have any interests or short positions in the shares, underlying A1B.38(1) shares and debentures of the Company or any of its associated corporations (as defined in Part XV of the (a-c), (1A) SFO) which was required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO including interests and short positions which they were taken or deemed to have under such provisions of the SFO or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

The Company

Number of shares (Long Positions) Percentage Personal Family Corporate Other of issued Outstanding Name of Director interests interests interests interests Total share capital share options LO Ying Shek *********** 4,101,343 — 1,796,563 — 5,897,906 0.99 250,000 Note (2) LO Ka Shui ************* 7,281,619 — 25,993,974 234,057,789 267,333,382 44.88 500,000 Note (3) Note (1) LO Kai Shui************* 433,161 — 55,413,317 194,085,777 249,932,255 41.96 700,000 Note (4) Note (1) CHENG Hoi Chuen, Vincent *************** — 10,000 — — 10,000 — — LO Hong Sui, Antony ***** 2,892 — — — 2,892 — 50,000 LAW Wai Duen ********** 238,402 — — 194,085,777 194,324,179 32.62 50,000 Note (1) LO Hong Sui, Vincent***** 289 — — — 289 — — LO Ying Sui, Archie ****** 3,855,046 3,700 33,269,396 194,085,777 231,213,919 38.82 — Note (5) Note (1) KAN Tak Kwong ********* 526,042 — — — 526,042 0.09 430,000

Notes: (1) The 194,085,777 shares of Mr. LO Kai Shui, Madam LAW Wai Duen and Dr. LO Ying Sui, Archie and 194,085,777 shares of the 234,057,789 shares of Dr. LO Ka Shui were the same parcel of shares. (2) These 1,796,563 shares were held by a company in which Mr. LO Ying Shek had entire interest. (3) These 25,993,974 shares were held by a company in which Dr. LO Ka Shui had entire interest. (4) 15,273,861 shares of the 55,413,317 shares were held by companies in which Mr. LO Kai Shui had entire interests. The remaining 40,139,456 shares of the 55,413,317 shares were duplicated in the interests described in Note (6) and Mr. LO Kai Shui had indirect controlling interests in the 2 companies mentioned therein.

IV-1 APPENDIX IV GENERAL INFORMATION

(5) These 33,269,396 shares held by Adscan Holdings Limited were duplicated in the interests of Dr. LO Ying Sui who had entire interest in said company. (6) The 40,139,456 shares were held by Springtime Int’l Limited which were the same parcel of shares in which Full Harvest Holdings Limited was interested. Other than as disclosed above, none of the Directors or their associates had any interest or short position in the shares or underlying shares of the Company and its associated corporations (within the meaning of Part XV of the SFO).

4. SUBSTANTIAL SHAREHOLDERS OF THE COMPANY A1B.34 A1B.38(2) Save as disclosed below, as of the Latest Practicable Date, so far as is known to any Director or chief executive (if any) of the Company, no person (not being a Director or chief executive (if any) of the Company nor any member of the Group), has an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provision of the SFO) or who is directly or indirectly interested in 5% or more of the nominal value of any class of shares carrying rights to vote in all circumstances at general meetings of the Company or any other member of the Group.

Interests in the Company

Percentage Number of shares of issued Name of Shareholder (Long Positions) share capital Notes KSL Management Limited ***************************** 39,472,012 6.63 (1) Surewit Finance Limited ******************************* 39,175,573 6.58 (1) Hartwick Holdings Limited ***************************** 55,194,178 9.27 (2) Good Target Limited ********************************** 55,194,178 9.27 (2) Springtime Int’l Limited ******************************* 40,139,456 6.74 (3) Full Harvest Holdings Limited ************************** 40,139,456 6.74 (3) Gainsland Investments Limited ************************** 38,068,710 6.39 (4) Adscan Holdings Limited ****************************** 33,269,396 5.59 (5) HSBC International Trustee Limited********************** 243,648,838 40.91 (6) Powermax Agents Limited****************************** 143,082,768 24.02 (7)

Notes: (1) 39,175,573 shares of Surewit Finance Limited, a direct wholly-owned subsidiary of KSL Management Limited (‘‘KSLM’’), and 39,175,573 shares of 39,472,012 shares of KSLM were the same parcel of shares. 39,472,012 shares of KSLM were duplicated in the interests of Dr. LO Ka Shui. The said shares were held for a discretionary trust of which Dr. LO Ka Shui was the founder. (2) Hartwick Holdings Limited and its direct wholly-owned subsidiary, Good Target Limited, were interested in 55,194,178 shares which were the same parcel of shares and were duplicated in the interests of Mr. LO Kai Shui. (3) These 40,139,456 shares held by Springtime Int’l Limited and Full Harvest Holdings Limited were the same parcel of shares. (4) These 38,068,710 shares held by Gainsland Investments Limited was duplicated in the interests described in Note (3). This company was a direct wholly-owned subsidiary of Full Harvest Holdings Limited which was a direct subsidiary of Springtime Int’l Limited. (5) These 33,269,396 shares held by Adscan Holdings Limited were duplicated in the interests of Dr. LO Ying Sui who had entire interest in said company. (6) 194,085,777 shares of the 243,648,838 shares were the same parcel of shares as described in Note (8). HSBC International Trustee Limited (‘‘HKIT’’), as trustee of a discretionary trust in which the persons mentioned in Note (8) were the beneficiaries, were interested in said 194,085,777 shares. 39,472,012 shares of the 243,648,838 shares were the same parcel of shares as described in Note (1). The 2 companies mentioned in Note (1) were the wholly-owned subsidiaries of HKIT. The remaining shares were held by other trusts for which HKIT acted as the trustee.

IV-2 APPENDIX IV GENERAL INFORMATION

(7) These 143,082,768 shares held by Powermax Agents Limited were duplicated in the interests of HKIT. This company was a direct wholly-owned subsidiary of HKIT. (8) The 194,085,777 shares of Mr. LO Kai Shui, Madam LAW Wai Duen and Dr. LO Ying Sui, Archie and 194,085,777 shares of the 234,057,789 shares of Dr. LO Ka Shui were the same parcel of shares. Other than as disclosed above, no notifications were received by the Company from any person (other than Directors of the Company) of having an interest or short position in the shares or underlying shares of the Company (within the meaning of Part XV of the SFO).

Interests in members of the Group Kerry Properties is indirectly interested in approximately 10.16% of the issued share capital of each of the following companies: (a) Wesselhoft Limited; (b) Fruitful Gain Limited; (c) Missleton Finance Limited; (d) Throng Limited; (e) Horana Limited; (f) Harvest Star Limited; (g) Maple Court Limited; (h) Shuster Limited; (i) Fuscastus Limited; (j) Shine Hill Development Limited; and (k) Fu Keung Limited.

5. MATERIAL CONTRACTS A1B.42 Neither the Company nor any of its subsidiaries has entered into any contracts (not being contracts entered into in the ordinary course of business) within the two years preceding the date of this circular and which are or may be material.

6. EXPERTS’ DISCLOSURE OF INTERESTS AND CONSENTS A1B.35 (a) The following are the qualifications of the experts who have given opinion or advice contained in this circular:

Name Qualification Somerley Limited ************ a licensed corporation to carry out types 1 (dealing in securities), 4 (advising on securities), 6 (advising on corporate finance) and 9 (asset management) regulated activities under the SFO Savills********************** independent property valuer (b) As of the Latest Practicable Date, neither Somerley Limited nor Savills had any direct or indirect shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for shares in any member of the Group.

IV-3 APPENDIX IV GENERAL INFORMATION

(c) Somerley Limited and Savills have given and have not withdrawn their written consents to the issue of this circular with the inclusion therein of their letter or report and reference to their names in the form and context in which they appear.

(d) The letter and advice given by Somerley Limited and the report given by Savills are given as of the date of this circular for incorporation herein.

7. SERVICE CONTRACTS 14.64(5) A1B.39 Save as disclosed above, none of the Directors had, as of the Latest Practicable Date, a service contract or a proposed service contract with any member of the Group which is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

8. NO MATERIAL ADVERSE CHANGES A1B.32

As of the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005, the date to which the latest published consolidated audited accounts of the Group were made up.

9. LITIGATION A1B.33

As of the Latest Practicable Date, no member of the Group was engaged in any litigation, arbitration or claim of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

10. PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS A1B.8A

Bye-Law 78 of the Bye-Laws of the Company sets out the procedure by which Shareholders may demand a poll:

At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

(a) by the Chairman of the Meeting; or

(b) by at least three members present in person or by corporate representatives or by proxy for the time being entitled to vote at the meeting; or

(c) by any member or members present in person or by corporate representatives or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or

(d) by a member or members present in person or by corporate representatives or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Unless a poll be so demanded and not withdrawn, a declaration by the Chairman that a resolution has on a show of hands been carried or carried unanimously, or by a particular majority, or lost, and entry to that effect in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against such resolution.

IV-4 APPENDIX IV GENERAL INFORMATION

11. GENERAL

(a) The registered office of the Company is situated at Canon’s Court, 22 Victoria Street, A1B.36 Hamilton HM12, Bermuda.

(b) The principal office of the Company is situated at 33rd Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong.

(c) The company secretary is Tsang Yiu Wing, Peter, who is a Fellow of both The Institute of A1B.35 Chartered Secretaries and Administrators in the United Kingdom and The Hong Kong Institute of Chartered Secretaries.

(d) The qualified accountant of the Company is Kan Tak Kwong, who is a Fellow of the Hong Kong A1B.35 Institute of Certified Public Accountants.

(e) The English text of this circular shall prevail over the Chinese text.

(f) As of the Latest Practicable Date, none of the Directors or the experts named at paragraph 6 A1B.40(1) above in this circular had any direct or indirect interests in any assets which have since 31 December 2005 (being the date to which the latest published audited consolidated accounts of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

(g) As of the Latest Practicable Date, none of the Directors was materially interested in any contract A1B.40(2) or arrangement entered into by any member of the Group, which was subsisting and was significant in relation to the business of the Group.

(h) As far as the Directors are aware, Mr. Lo Hong Sui, Vincent, a Director, is the Chairman and 14.64(8) Chief Executive of the Shui On Construction and Materials Limited, a Hong Kong-listed 14A.59(11) company which engages in construction and building maintenance, sale of construction materials, trading of building materials, property development and property investment with interests in Hong Kong and the P.R.C..

Saved as disclosed above, as of the Latest Practicable Date, none of the Directors and their respective associates had any competing interest with the Group.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any weekday (Saturdays and public holidays excepted) at the principal office of the Company at 33rd Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong up to and including the date of the SGM:

(a) the memorandum of association and bye-laws of the Company; A1B.43(1)

(b) the audited consolidated accounts of the Group for the two financial years ended 31 December A1B.43 2005; (3), (5)

(c) the letter of advice from Somerley Limited to the Independent Board Committee and the A1B.43(3) Shareholders, the text of which is set out on pages 38 to 61 of this circular;

(d) the property valuation report; and A1B.43(3)

(e) the written consents referred to in the paragraph headed ‘‘Experts’ disclosure of interest and consent’’ of this Appendix.

IV-5 NOTICE OF SPECIAL GENERAL MEETING

(Stock Code: 41) NOTICE IS HEREBY GIVEN that the Special General Meeting of Great Eagle Holdings Limited (the ‘‘Company’’) will be held at the Penthouse, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong on Wednesday, 10 May 2006 at 3 p.m. for the purpose of considering and, if thought fit, passing the following resolution(s):

ORDINARY RESOLUTION ‘‘THAT subject to and conditional upon (among other things) (i) the Listing Committee of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) granting approval for the listing of, and permission to deal in, all of the units (‘‘Units’’) of Champion Real Estate Investment Trust (‘‘Champion REIT’’); (ii) the receipt of the authorisation of Champion REIT by the Securities and Futures Commission of Hong Kong under section 104 of the Securities and Futures Ordinance; (iii) conditions precedent to draw down the loan facility being fulfilled or waived; and (iv) the obligations of the underwriters under the underwriting agreements in respect of the Global Offering (as defined below) becoming and remaining unconditional (including, if relevant, as a result of the waiver of any condition(s) by the Joint Lead Underwriters for and on behalf of, the underwriters) and not being terminated in accordance with the terms of such agreements or otherwise: (a) the Proposed Spin-off (as defined below), which constitutes a very substantial disposal (for the purposes of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) for the Company, and the documents or agreements in connection therewith or contemplated thereunder, be and is hereby approved by way of poll and any director of the Company be and is hereby authorised on behalf of the Company to approve and implement the Proposed Spin-off and all incidental matters and to take all actions in connection therewith or arising therefrom relating to the Proposed Spin-off as he shall think fit; and (b) any director of the Company be and is hereby authorised (i) to sign any document for and on behalf of the Company in connection with or pursuant to the Proposed Spin-off; (ii) to affix the common seal of the Company to any document in connection with or pursuant to the Proposed Spin-off which requires the affixation of the common seal of the Company; and (iii) to exercise all such powers and do all such acts as he considers necessary or desirable to give effect to the Proposed Spin-off.’’ ‘‘Global Offering’’ means (a) the offering of Units to the public in Hong Kong and (b) the offering of Units to institutional, professional and other investors and includes the preferential offering to qualifying shareholders for subscription of reserved Units; ‘‘Proposed Spin-off’’ means the proposed spin-off of Champion REIT comprising the Global Offering and the Separate Listing; and

(I) NOTICE OF SPECIAL GENERAL MEETING

‘‘Separate Listing’’ means the separate listing of the Units on the Main Board of the Stock Exchange.

By Order of the Board TSANG Yiu Wing, Peter Company Secretary Hong Kong, 24 April 2006

Registered Office: Principal Office: Canon’s Court 33rd Floor, Great Eagle Centre 22 Victoria Street 23 Harbour Road Hamilton HM12 Wanchai Bermuda Hong Kong

Notes:

(1) The register of members of the Company will be closed on 8 May 2006 and will be re-opened on 9 May 2006. In order to determine the entitlement to attend and vote at the meeting, all transfer documents accompanied by the relevant share certificates must be lodged with the Hong Kong branch share registrar of the Company, Computershare Hong Kong Investor Services Limited of Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong no later than 4 p.m. on 4 May 2006.

(2) Any member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxies to attend and vote on his behalf. A proxy need not be a member of the Company.

(3) Where there are joint registered holders of any share, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holders is present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company shall, in respect of such share, be entitled alone to vote in respect thereof.

(4) A form of proxy for use at the meeting is enclosed with the circular to shareholders of the Company.

(5) In order to be valid, forms of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power of attorney or authority, must be deposited at 33rd Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong not less than 48 hours before the time fixed for holding the meeting or any adjournment thereof.

(6) Completion and return of the form of proxy will not preclude a member from attending and voting in person at the meeting. If such member attends the meeting, however, his form of proxy will be deemed to have been revoked.

(7) The translation into Chinese language of this notice is for reference only. In case of any inconsistency, the English version shall prevail.

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