Whose NAV Is at Most Risk? Stress Test Chinese Developers (II)

Real Estate/Property Industry Overview

Equity | China | Real Estate/Property 20 April 2010 Whose NAV is at most risk? Stress test Chinese Developers (II)

Christie Ju, CFA >> +852 2536 3987 Research Analyst Merrill Lynch (Hong Kong) Tough policy headwinds—who will be the winner? [email protected] Chinese property developers have been under severe selling pressure, with more Jason Ching, CFA >> +852 2536 3953 drastic tightening measures introduced by Chinese government. After analyzing Research Analyst Merrill Lynch (Hong Kong) developers’ cash flow and debt servicing abilities, we conducted more stress tests [email protected] to examine their landbank exposure, LAT liability and NAV sensitivity. Our Matthew Chow, CFA >> +852 2161 7877 analysis suggests CR Land and Evergrande are better positioned, while R&F, Research Analyst Hopson and Country Garden are at more potential risk. Merrill Lynch (Hong Kong) [email protected] New tightening policies to curb property speculation Rong Li >> 852 2536 3417 China’s State Council released additional tightening policies over the weekend. Research Analyst Merrill Lynch (Hong Kong) For cities with highest ASP increases, banks can reject mortgage application for [email protected] rd 3 home purchase, and are restricted to grant mortgage to non-local residents without 1-year local tax proof. Tax authorities are urged to strictly enforce audit and investigate high priced property projects. Links to recent reports Key takeaways from our China Property conference call We hosted conference call with Mr. Chen Sheng, Deputy Director of China Index Stress test Chinese developers (April 16) Academy—one of the largest property research institutions in China. He expects structural changes in the residential property sector, and predicts 2010 China Property Conference call replay transaction volume to decline by 4.4-6.5%, and ASP to increase by 3.3-6%. China Property 4x4 (April 4) Stress test Chinese developers: landbank, LAT and NAV After stress testing developers” cash flow and debt servicing abilities, we carried 78 SOE to exit property market (March 19)

out more stress tests on landbank exposure in high ASP growth cities, LAT liability and NAV sensitivity. We examined the potential impact to cash flow if LAT is fully collected. Under worst case scenario (20% decline in ASP and volume), our analysis shows Hopson, Evergrande and R&F trade at steepest discount.

Figure 1: NAV discount Current Worst case* Worst case NAV Company Price NAV NAV premium/discount COLI 14.92 17.70 12.88 16% Country Garden 2.48 3.70 2.56 -3% Sino-Ocean 6.19 9.40 7.64 -19% Agile 8.87 16.80 12.56 -29% CR Land 14.42 24.40 20.84 -31% Yanlord 1.75 3.00 2.61 -33% R&F 10.98 22.50 18.96 -42% Evergrande 3.08 7.50 5.85 -47% Hopson 11.42 32.00 22.64 -50% Average -26% Source: Priced as of April 19 2010. Source: BofA Merrill Lynch Global Research. *factor-in 20% ASP & volume decline.

>> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain Merrill Lynch entities that take responsibility for this report in particular jurisdictions. Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 15 to 17. Analyst Certification on Page 14. Price Objective Basis/Risk on page 11. Link to Definitions on page 14.10929083

RM Real Estate/Property 20 April 2010

New tightening policies over the weekend China’s State Council released additional tightening measures last Saturday, after it introduced stringent down-payment requirements on April 15:

For cities with highest ASP increases, banks can reject mortgage application relating to the purchase of third homes;

Banks are restricted to grant mortgages to non-local residents (those without 1-year local tax proof or social security payment). Local government can temporarily limit the maximum number of flats that buyers can buy;

Tax authorities will strictly enforce audit and investigate on highly-priced property projects in accordance with the relevant tax rules for tax collection;

Increase supply of small-mid sized units and subsidized housing for cities which ASP saw strongest increases;

Developers are restricted from misusing shareholder financing to bid for land or develop projects. SOEs whose core businesses do not include property development are strictly forbidden to participate in future property projects.

More tightening for cities with high ASP increase Figure 2: Major cities with high ASP increase In 1Q10, average property prices in the top 70 large and medium-sized cities City ASP growth y/y recorded strong y/y growth of 11.7%-- the sharpest increase in recent years. Haikou 64.8% Hainan saw the highest ASP increases, with Haikou +64.8% y/y growth and Sanya 57.5% Sanya +57.5%. Guangzhou, Beijing and Shenzhen followed at 20.3%, 19%, and Guangzhou 20.3% 15.7%, respectively. Shanghai was up at a relatively moderate 11.2% y/y. Beijing 19.0% Shenzhen 15.7% Hangzhou 14.8% As State Council urged local governments to take responsibility to ensure healthy Tianjin 13.9% property markets, we believe cities with the strongest surge in ASP and high Nanjing 13.5% participation of investors/speculations are likely to see further policy headwinds. Chongqing 12.5% We believe Chinese developers with high landbank exposure these high ASP Shanghai 11.2% growth cities at risk. In our coverage universe, R&F (75%), Yanlord (61%) and Source: National Bureau of Statistics Hopson (60%) are more at risk, while Country Garden (11%), Shimao (14%) and Evergrande (15%) are less exposed.

Figure 3: Landbank exposure

Source: company, BofA Merrill Lynch Global Research estimate

2 RM Real Estate/Property 20 April 2010

Strict enforcement of tax to curb high prices As expected, the key focus of this round of government tightening measures is to curb high property prices. The State Council highlighted high price property projects as the targets, and urges tax authorities to strictly enforce audit and investigation, in accordance with the relevant tax rules for tax collection.

Figure 4: 2009 pre-sale ASP In our view, these tax measurements may include the following: Company ASP(Rmb/sqm) Yanlord 21,300 Property tax – While there have been talks on the pilot testing property tax Hopson 13,000 in Chongqing and Shanghai, implementation is a complicated issue, as it CR Land 11,700 affects many parties and requires legislation. That said, we believe a simple R&F 10,400 version (such as property ownership tax which utilizes existing law) can be Sino Ocean 9,900 Longfor 9,700 introduced and implemented within a short period of time, if needed; Shimao 9,000 COLI 8,800 Full collection of LAT – State Administration of Taxation has reiterated the Agile 8,100 full collection of LAT before, but it has not been fully implemented due to the Evergrande 5,400 complexity of execution. While full implementation remains a challenge, we Country Garden 4,900 believe the strict enforcement of cumulative LAT or 2010 LAT could add Source: Company negatively impact developers’ cash flow. Based on our analysis, R&F, Agile, and Hopson are more at risk.

Figure 5: Summary of LAT liability Company Cumulative LAT % of end-10 cash FY10E LAT % of end-10 cash R&F 2.2 73% 2.3 76% Agile 3.6 42% 1.6 19% Hopson 3.1 27% 1.4 13% COLI* 5.5 18% 2.9 10% Yanlord* 2.0 18% 1.2 11% Sino-Ocean* 1.0 12% 1.0 12% Country Garden 1.3 9% 2.1 15% CR Land* 1.3 7% 1.9 10% Evergrande 0.8 3% 3.8 14% Source: BofA Merrill Lynch Global Research

Impact on speculation/investment demand - From our channel checks, as >50% of buyers require mortgage financing; the latest measures should be effective in containing speculative or investment demand, in our view;

The development of social housing long term positive We believe government policy to support development of social/economic housing is long term positive for the residential property market:

To help social stability over long-term – We believe an increase in subsidized housing supply will help social stability by solving the housing needs for those who cannot afford in the commodity housing market. Better social welfare system should help to create harmony in the society. As these markets are differentiated, it enables the commodity market to be more market driven;

Limited impact from social/economic housing – As buyers’ profile between commodity housing and subsidized housing is different, we see limited impact to the commodity housing market over the longer-term.

3 RM Real Estate/Property 20 April 2010

Conference call key takeaways We hosted a conference with Mr. Chen Sheng, the Deputy Director of China Conference call replay dial-in info: Index Academy (one of the largest Chinese property research organizations) to China Property: The Start of Real Tightening discuss the latest policy changes and their implications to China Property market. Key takeaways are below.

Background of the latest policy changes and their implications In Jan-Mar 2010, residential price across all cities saw strong increases, despite most with declining sales volumes. We believe the situation where ASP is rising but sales volume declining is due to low inventory, which is typically at less than 6-month supply in most cities. Moreover, higher expectation on inflation also pushed ASP upwards. Regulators have become impatient and can no longer tolerate high ASP.

Near-term ASP outlook will depend on: a) whether there are sufficient loans to developers and mortgage loans to buyers; b) enhanced product quality, either from higher premium of nearby land or better infrastructure, such as subway, etc; c) continued expectation for higher prices.

The latest policies are targeting a) and c). MoLR has increased residential land supply by 135% (from 77k hectare (1 hectare = 10,000 sqm) in 2009 to 180k hectare in 2010), which will be the key factor at this moment. Of the 180k hectare, 80k will be devoted to small to medium sized units (the average annual land supply to all subsidized housing was only 54.65k hectare in the last 5 years). Policies aimed to support the end-user demand.

What is government’s bottom line for property price increases/decrease? In Jan-Feb, Tier 1 cities saw 19-20% y/y price increases, while Tier 2 & 3 recorded >10% y/y increases. Government could not tolerate with this unsustainable magnitude of increases, and they want to see increases inline with the growth of disposable income or GDP.

However, we are unlikely to see sharp price decreases. Excluding 2007 (hot money inflow) and 2009 (Rmb4tn stimulus) data, average property prices would show a steady rising curve. If prices decline >30%, the banking system likely will be under the strain of increased levels of non-performing loans.

What will be the impact to property prices and volumes? Land supply for subsidized housing in 2010 will exceed total supply for residential housing in 2009. Due to the 135% increase in total land supply, land supply for commodity housing in 2010 would only see a slight decline even a higher portion is allocated to subsidized housing; therefore it is unlikely to drive up commodity housing ASP purely on concern of land shortage.

Overall ASP is unlikely to continue moving up. Property prices likely will see structural changes going forward: subsidized housing should account for a larger proportion while market-oriented supply decreases. However for cities mostly urbanized, tight land supply may persist and prices will likely to continue rising.

All being equal, based on our model, we expect 2010 commodity housing transaction volume to decline by 4.4-6.5% y/y and prices up by 3.3-6% y/y. We expect Tier 1 ASP to increase at a slower pace, while Tier 2 & 3 see a faster increase. Total area under-construction of commodity housing will grow 15-20%.

4 RM Real Estate/Property 20 April 2010

What’s the outlook for Tier 2 & 3 cities? Tier 2 & 3 cities look healthier overall. However, speculators may have already entered markets such as Hangzhou and Wuhan. Government has issued measure to prevent non-local residents from buying too many houses to curb speculation.

Since 2005, GFA completion has been below GFA pre-sold (demand outpaced supply). Hence, the government aims to meet the real demand and support low- income group to buy houses, not to help high-income group to buy more houses.

Additional taxes the government may introduce? Government will closely monitor the situation then decide if any additional taxes are needed to cool down the property market. Property tax (物业税) is unlikely to be introduced near-term as legislation and valuation are complicated. Real Estate tax (房产税) is an existing tax, which is now levied with commercial properties but exempted for residential. Government can easily revoke the exemption and begin to levy the tax if needed.

Any restrictions on loan to developers? The loan-to-developer situation likely will vary. For developers hoarding land, they will likely to have difficulties in getting loans. For developers with subsidized housing or mass residential projects, they should continue to be supported. Due to strong presale in 2009, developers have a strong balance sheet. However, government hopes that developers will begin to feel the tightened liquidity.

What the latest trend for transaction volume? Overall buying pattern is becoming more rational. Second-hand property supply is increasing. Some developers plan to give more incentives to real estate agents to improve marketing & pre-sale in anticipation of future difficulty. With 3Q being the traditional season of high supply, market should tend to stabilize.

What makes this round of tightening different? The 2005 and 2007 tightening policies were targeting demand. Without sufficient supply, it is unlikely to curb high-rising prices. This time supply will be sharply increased, which should be key factor. Government has already taken into account any possible short fall in executing the policies. For example, land supply earmarked for social housing (保障性住房) is 24k hectare, while only 12k, if completed, would be enough to satisfy demand. Funding will also be increased sharply: before 2007 only Rmb8bn was for subsidized housing, and now Rmb900bn will be spend in three years.

In addition, local government will be held accountable for price increases, with periodical result measurement framework in place. This will also increase the effectiveness of policy implementations.

High-end properties more impacted or the same across the board? Projects located within close proximity to subsidized housing are likely to see more downward pressure in ASP. High-end projects, while long-term outlook still good, but buyers would likely stand on sidelines in the near term and volume may decrease.

Impact to different types of demand Government recognizes four types of demand from low to high-end: real demand, upgrade demand, luxury demand, and enjoyment demand. Government will prioritize to support the real demand (include the demand for units < 90 sqm).

5 RM Real Estate/Property 20 April 2010

The upgrade will see lesser support. For the 3rd and 4th type, government may introduce other tax policies to limit demand.

For the next three years (the 1st 3 years of the 12th Five-Year Plan), government will continue to support the real and upgrade demand.

How are large developers involved in subsidized housing projects? The subsidized housing construction is accelerating nationwide, and large SOE developers are taking the lead. For example, four out of Vanke’s eight projects in Shanghai from 2008-09 was related to subsidized housing. In future large developers must be involved in subsidized; otherwise their scale may shrink.

How would local government’s revenue be impacted? As land supply to commodity housing is unlikely to see a large decrease, so government should still have plentiful land premium income. Tier 1 cities with tight land supply (e.g. Beijing and Shanghai) need to restructure their economy and become less dependent on land premium income – which will be difficult. The ultimate solution to the revenue restructuring likely will be property tax. China Property Policy Index (CPPI) Links to recent reports We believe government policy risk is the single most important risk for the China Property sector in 2010. The Chinese property market historically has been highly China Property 4x4 (April 4) sensitive to policy changes. In order to quantify the impact of government 2010 China Property Investment Strategy (Jan 8) policies, we developed a proprietary BofA Merrill Lynch China Property Policy Index (CPPI). We summarized all historical government real estate related policy changes since 2007, and scored it based on the magnitude of impact to the industry (our score on individual policies range from -1 to +2.5). The combination of these policy scores is the basis to build our proprietary China Property Policy Index.

Price, transaction volume highly correlated to CPPI By regression analysis, we identified that there is a strong correlation between y/y changes in national GFA sold and ASP (3 months lag) and our CPPI.

Figure 6: BofA Merrill Lynch China Property Policy Index (CPPI) Figure 7: BofA Merrill Lynch China Property Policy Index (CPPI)

5 3 Months lag 5 3 Months lag 25% 90% 4 4 20% 3 70% 3 2 2 15% 50% 1 1 30% 0 10% 0 -1 -1 10% 5% -2 -2 -3 (10%) 0% -3 -4 (30%) -4 -5 (5%) -5 (50%) Apr-07 Jun-07 Apr-08 Jun-08 Apr-09 Jun-09 Apr-10 Oct-07 Oct-08 Oct-09 Feb-07 Feb-08 Feb-09 Feb-10 Dec-06 Aug-07 Dec-07 Aug-08 Dec-08 Aug-09 Dec-09 Apr-07 Jun-07 Apr-08 Jun-08 Apr-09 Jun-09 Apr-10 Oct-07 Oct-08 Oct-09 Feb-07 Feb-08 Feb-09 Feb-10 Dec-06 Aug-07 Dec-07 Aug-08 Dec-08 Aug-09 Dec-09 China Property Policy Index ASP YoY Growth (3M Lag)

China Property Policy Index Monthly GFA sold YoY growth (3M lag) Regression Results M ultiple R 0.882 Regression Results R Square 0.778 M ultiple R 0.873 R Square 0.762 Adjusted R Square 0.771 Adjusted R Square 0.755 Standard Error 0.036 Standard Error 0.177 Observations 37 Observations 37 df SS MS F Significance F df SS MS F Significance F Regression 1 0.16 0.16 122.42 5.63326E-13 Regression 1 3.53 3.53 112.12 1.8588E-12 Residual 35 1.10 0.03 Residual 35 0.05 0.00 Total 36 4.63 Total 36 0.21 Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research

6 RM 20 April 2010 Figure 8: National historical policy changes since 2008 Negative/ Prop. Interest Date Positive Land Market Tax Credit rate RRR From Comment Jan 08 N √ +50bps PBoC Feb 08 N √ MC Enhance low income housing development Apr 08 N √ +50bps PBoC May 08 N √ +50bps PBoC Jun 08 N √ +50bps PBoC Jun 08 N √ +50bps PBoC Sep 08 P √ -27bps -100bps PBoC Oct 08 P √ -27bps PBoC Oct 08 P √ -50bps PBoC Oct 08 P √ PBOC Decrease personal housing accumulation fund loan interest rate by 27bps Oct 08 P √ -27bps PBoC Deed, Stamp tax, Decrease Deed to 1% for first home buyers; LAT and Stamp tax are exempted for Nov 08 P √ SAT LAT house purchase Nov 08 P √ -108bps -100bps PBoC Property tax, Biz Exempt property biz tax; Impose business tax for transaction of home holding <2yrs Dec 08 P √ the State Council tax Encourage consuming, real estate investment and domestic demand Dec 08 P √ -27bps -50bps PBoC

Decrease brought forward personal housing accumulation fund loan interest rate by Real Estate/Property Dec 08 P √ PBoC 27bps and current by 18bps Encourage property transaction. The preferential policy for first home buyers can be Dec 08 P √ the State Council used to second home buyers Apr 09 N √ MF Raise fund of Rmb7bn for low-rent house development May 09 N √ MF Impose land use fee Capital % of total real estate investment decrease to 20% for low income housing and May 09 P √ √ the State Council ordinary residential housing development, others are 30%. NDRC, MF ,Ministry of Housing and Urban- Jun 09 N √ Stipulate the detail development plan for low rent housing Rural Development Sep 09 N √ MLRPRC Ask local government to solve land-hoarding problems MF,MLRPRC, PBoC, MC, National Audit Dec 09 N √ Ask developer to pay at least 50% in down payment, and pay back all in 2 years office Dec 09 N √ Biz tax the State Council Impose business tax for transaction of home holding <5yrs Dec 09 N √ √ the State Council Plans to make out more tightening polices to cool the over heating property market Dec 09 N √ Five Ministries Increase first down payment to 50% for land buyers Jan 10 N √ √ the State Council Regulate more details of cooling measures Jan 10 N √ +50bps PBoC Jan 10 N √ MLRPRC Economic house, low rent house and small house should be > 70% in city planning Jan 10 P √ the State Council Enhance the urbanization of Small cities and towns Feb 10 P √ MLRPRC Strengthen the management of small property right houses Feb 10 N √ +50bps PBoC Feb 10 N √ Banks A lot of banks withdrew and lifted the preferential interest rate for first home buyers Feb 10 N √ CBRC Restrict trust fund to buy lands Developers need to pay 20% of land cost as a deposit, and 50% in two weeks after the Mar 10 N √ MLRPRC acquisition Mar 10 P √ SASAC Ask 78 SOEs to quit property development business Apr 10 N Deed MF Withdraw the deed preferential for buyers who have bought before Apr 10 N MC Restrict multi house owners to buy house in cities with skyrocketing house selling price Increasing 1st down payment to 50% for 2nd house buyers and mortgage rate to 110% Apr 10 N √ State Council of benchmark; Minimum 30% down payments for purchase of 1st homes > 90 sqm Source: BofA Merrill Lynch 7

RM Real Estate/Property 20 April 2010

Policy tightening to get more severe We have carried out a worst case scenario analysis at the beginning of the year by assuming multiple government tightening policies will be introduced in 1H10 and our CPPI will approach a reading of -5 by year end (meaning that the level of tightening will be equivalent to Sept-08, or the tightest moment in years).

Figure 9: CPPI at Jan-10 Figure 10: CPPI at Apr-10

8 8 6 6 3 Months lag 3 Months lag 4 4

2 2

0 0 -2 -2 -4 -4 -6

-6 -8

-8 -10 Jul-07 Jul-08 Jul-09 Jul-07 Jul-08 Jul-09 Jan-07 Jan-08 Jan-09 Jan-10 Nov-07 Nov-08 Nov-09 Jan-07 Jan-08 Jan-09 Jan-10 Mar-07 Mar-08 Mar-09 Mar-10 Nov-07 Nov-08 Nov-09 Sep-07 Sep-08 Sep-09 Mar-07 Mar-08 Mar-09 Mar-10 Sep-07 Sep-08 Sep-09 May-07 May-08 May-09 Jul-10E May-07 May-08 May-09 Jul-10E Nov-10E Nov-10E Sep-10E Sep-10E May-10E May-10E Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research

As expected, the government introduced various measures since the beginning of the year including the Reserve Requirement Ratio hikes, CBRC’s restriction on the use of trust fund to buy land, and Ministry of Land Resource’s tougher requirements on payment of land premiums. However, we believe the latest policies on down-payment requirements announced by the State Council last week marks the real tightening in the sector. These measures brought our CPPI to -4 (6.5 points drop since end-09), which reflected a severe policy tightening.

Worst case scenario: -33% y/y in volume; +5% y/y in ASP To factor in a more severe tightening than we previously anticipated, we have carried out a worst case scenario analysis on our CPPI. We assume our CPPI to approach -10 by mid-10 and will stay at that level for the remaining months of the year. Under this assumption, we expect sales volume to decline 33% y/y and ASP to decline 16% in remaining months of the year (however, ASP likely will rise by 5% y/y for FY10 due to a low base in FY09).

Figure 11: Sensitivity analysis of CPPI Good case Base case Worst case CPPI Index 1Q10 -2.6 -2.6 -2.6 6M10 -5 -6 -10 end-10 -6 -8 -10

y/y growth Sales volume -11% -17% -33% ASP 7% 6% 5% Presales -30% Source: BofA Merrill Lynch Global Research

8 RM Real Estate/Property 20 April 2010

NAV down 30% with 30% ASP decline To quantify the impact of ASP declines to NAV, we have carried out a sensitivity analysis by assuming 10%, 20% and 30% ASP decline while keeping our volume assumption unchanged.

Figure 12: ASP sensitivity to NAV Current ASP cut 10% ASP cut 20% ASP cut 30% Company NAV per share NAV % change from current NAV % change from current NAV % change from current COLI 17.70 15.90 -10% 13.44 -24% 10.81 -39% CR Land 24.40 23.02 -6% 21.31 -13% 19.35 -21% Evergrande 7.50 6.70 -11% 6.05 -19% 5.32 -29% Country Garden 3.70 3.10 -16% 2.69 -27% 2.10 -43% Sino-Ocean 9.40 8.69 -8% 7.86 -16% 7.03 -25% R&F 22.50 20.98 -7% 19.42 -14% 17.65 -22% Agile 16.80 15.07 -10% 13.06 -22% 10.59 -37% Yanlord 3.00 2.81 -6% 2.66 -11% 2.50 -17% Hopson 32.00 27.84 -13% 23.71 -26% 18.71 -42% Average -10% -19% -30% Source: BofA Merrill Lynch Global Research

CR Land’s NAV is most resilient to ASP cut thanks to the higher exposure to investment properties (42% of NAV). R&F also fared better as it also has 27% of NAV in investment properties. Its higher LAT for 2010 onwards also provides cushion, according to our estimate;

The two companies which would hit hard from potential ASP cut are Hopson and Country Garden. NAV for both companies is more sensitive to ASP declines as they are almost pure exposure to residential developments;

NAV less sensitive to volume decline To quantify the impact of volume declines to NAV, we have carried out a sensitivity analysis by assuming 10%, 20% and 30% volume decline while keeping our ASP assumptions unchanged. We assume this reduced volume will be sold in 2012. Our analysis shows volume decline has a much small impact to NAV compared with ASP declines.

Figure 13: Volume sensitivity to NAV Current Volume cut 10% Volume cut 20% Volume cut 30% Company NAV per share NAV % change from current NAV % change from current NAV % change from current COLI 17.70 17.39 -2% 16.96 -4% 16.50 -7% CR Land 24.40 24.16 -1% 23.86 -2% 23.52 -4% Evergrande 7.50 7.36 -2% 7.25 -3% 7.12 -5% Country Garden 3.70 3.60 -3% 3.52 -5% 3.42 -8% Sino-Ocean 9.40 9.28 -1% 9.13 -3% 8.99 -4% R&F 22.50 22.24 -1% 21.97 -2% 21.66 -4% Agile 16.80 16.50 -2% 16.15 -4% 15.72 -6% Yanlord 3.00 2.97 -1% 2.94 -2% 2.91 -3% Hopson 32.00 31.28 -2% 30.56 -4% 29.69 -7% Average -2% -3% -5% Source: BofA Merrill Lynch Global Research

9 RM Real Estate/Property 20 April 2010

Our worst case scenario – ASP/volume down by 20% Under our worst case scenario of 20% drop in both ASP and volume, valuation for most stocks would not look as attractive, in particularly with COLI where it is trading at 16% premium to this worst scenario NAV. However, CR Land still looks relatively inexpensive at 31% discount to NAV, putting it at one standard deviation below its long-term average. Moreover, Evergrande/Hopson offer the largest NAV discount in our coverage.

Figure 14: Worst case NAV (assuming 20% decline in ASP/volume) ASP and volume both down by 20% Company Current NAV NAV per share % change from base NAV discount COLI 17.70 12.88 -27% 16% CR Land 24.40 20.84 -15% -31% Evergrande 7.50 5.85 -22% -47% Country Garden 3.70 2.56 -31% -3% Sino-Ocean 9.40 7.64 -19% -19% R&F 22.50 18.96 -16% -42% Agile 16.80 12.56 -25% -29% Yanlord 3.00 2.61 -13% -33% Hopson 32.00 22.64 -29% -50% Average -22% -26% Source: BofA Merrill Lynch Global Research

Figure 15: Valuation Comp Table Company Blbg Price Mkt Cap PE PB tickers (local) (US$ mn) 2008 2009E 2010E 2011E 2008 2009E 2010E 2011E Evergrande 3333 HK 3.08 5,952 72.4 36.7 5.2 4.3 4.6 3.2 2 1.4 China Resources Land 1109 HK 14.42 9,354 37 22.4 15.5 12.1 2.2 1.9 1.7 1.6 Sino-Ocean Land 3377 HK 6.19 4,495 19.9 29.1 17.4 11.3 1.4 1.3 1.2 1.1 Agile Property 3383 HK 8.87 4,062 26.3 15.4 10.5 7.4 1.9 2 1.4 1.2 Guangzhou R&F 2777 HK 10.98 4,558 15.7 11.3 6.6 5.4 2.1 1.8 1.6 1.3 China Overseas 688 HK 14.92 15,703 29.2 19.3 13.5 11.3 3.5 2.9 2.5 2.1 Yanlord YLLG SP 1.75 2,467 22.2 14.7 10.6 9.4 1.7 1.4 1.3 1.1 Country Garden 2007 HK 2.48 5,256 13.6 19.6 11.8 8.7 1.9 1.7 1.6 1.4 Hopson 754 HK 11.42 2,578 10.1 9.3 7.5 5.4 0.8 0.7 0.7 0.6 Average 26.5 19.1 10.6 8.6 2.2 1.8 1.5 1.3 Source: Bloomberg; pricing as of Apr 19

10 RM Real Estate/Property 20 April 2010

Price objective basis & risk Agile Property Holdings Ltd (AGPYF, C-1-7, HK$8.87) Our 12-month PO of HK$14.3 is based on 15% discount to our 2010 NAV estimate, which implies a PER of 14x FY10/11E normalized earnings. While Hainan is now a well capitalized project without further equity injections, as demand could be uncertain in light of the latest government measure to lift down- payment requirements for 2nd homes, we believe it deserves to continue to trade a wider discount at 15%

Downside risks: 1) Failure to meet sales targets or make material asset sales: Current development scale requires it to maintain a consistently high volume of construction and sales. Any prolonged sales slowdown may require the company to significantly slow down.

2) Agile has numerous projects located in city fringe/suburbs of holiday home/secondary residence in nature. Demand for such residences may be vulnerable in times of economic uncertainty and early stages of recovery. Moreover, ASP could see a much slower recovery than projects located innercity.

China Overseas Land & Investment (CAOVF, C-1-7, HK$14.92) Our 12-month price objective of HK$20.4 is based on 12% premium to 2010E NAV, implying 17x PER of 2010/11E normalized earnings, which is at the upper end of the market range. We believe COLI should trade at a premium to its NAV, thanks to its state-owned background, sound financial position, a long listing history and proven track record, in particular with riding out the severe market downturn in 2008.

Downside risk: If it becomes more evident that COLI is unable to meet profit growth or sales targets, COLI's share price could come under pressure.

China Resources Land (CRBJF, C-1-7, HK$14.42) Our 12-month price objective of HK$24.4 is on par to our NAV estimate, which implies 23x PER of our 2010/11E normalized earnings, which is at the high end of the market range. We believe the company deserves to trade at a premium to its NAV, thanks to its strong parent support, diversified development pipeline, and its largest landbank among peers.

Downside risks: Excessive landbank relative to sales & completions: Ratio of new land acquisitions to completions has been the highest in the industry during the past 3 years. Unless it significantly speeds up sales and/or new construction slows, debt levels could rise rapidly.

Country Garden (CTRYF, C-3-7, HK$2.48) Our 12-months target price HK$2.8 is based on 25% discount to our estimated NAV of HK$3.75, which implies a normalized FY10/11 PER of 11x. We believe CG should trade at a discount to its NAV due to its highly concentrated geographic exposure, the relatively lower pricing power of its products among peers, and the lower asset transparency warrants a higher risk premium.

11 RM Real Estate/Property 20 April 2010

Upside risks: If residential sales volume turns out to be stronger than we expect and leads to Country Garden recovering pricing power, the positive impact to NAV and profit growth potential will justify further share price gains.

Downside risks: Despite a massive landbank buildout, CG has maintained a healthy balance sheet throughout its history as a listed company. If CG is able to resume its pre- 08 growth levels, shares could outperform on a positive re-rating. However, if sales see a sudden downturn and the sustainability of its business model is further called into question, a more structural de-rating could occur.

Evergrande Real Estate Group (XEVRF, C-1-7, HK$3.08) Our 12-month PO of HK$6 is at 20% discount to our 2010 NAV estimate of HK$7.5/shr, which implies a PER of 8.5x 2010/11E normalized earnings. Given the standardized operational model, low-cost large-scale landbank and strong execution capabilities, we believe the company deserves to trade in line with other larger cap, private-owned listed developers.

2) Evergrande has numerous projects located in city fringe/suburbs of holiday home/secondary residence in nature. Demand for such residences may be vulnerable in times of economic uncertainty and early stages of recovery. Moreover, ASP could see a much slower recovery than projects located innercity.

Guangzhou R&F -H (GZUHF, C-1-7, HK$10.98) Our 12-month price objective of HK$18 is based on a 20% discount to our 2010 NAV estimate, which implies a normalized FY10/11E PER of 11x, at the lower rank among other large cap, privately owned China Property peers. We believe the company deserves to trade at a discount to NAV due to concerns on high net gearing despite its quality landbank, strong brand name and execution ability.

Downside risks: 1) Excessive leverage: Net debt to equity gearing is the highest among HK-listed peers. Although R&F does not have any concerns about covenant violations, its high level of debt severely limits investment flexibility and exposes the company to higher financial risks.

2) Failure to meet sales targets or make material asset sales: Current development scale requires it to maintain a consistently high volume of construction and sales. Any prolonged sales slowdown may require the company to significantly slow down.

Hopson Development Holdings Ltd (HPDLF, C-3-9, HK$11.42) Our 12-month price objective of HK$11.2 is based on 65% discount to 2010E NAV, implying 6x PER of 2010/11E normalized earnings. We believe Hopson should trade at a sizeable discount to its NAV due to inadequate transparency

12 RM Real Estate/Property 20 April 2010

and corporate governance issues. We believe these factors will continue to serve as a major overhang to the stock, in our view. We do not expect the huge discount to NAV will narrow in the near term.

Downside risks are:

1) Slow sales at key projects, in particular the high-end projects in Tier-1 cities.

Upside risks are:

1) Significant improvement in investor communication and transparency.

Sino-Ocean Land (SIOLF, C-1-7, HK$6.19) Our 12-month target price HK$9.4 is set on par with our 2010 NAV estimate, which implies 21x PER of our 2010/11E normalized earnings. Given the uncertainties regarding a possible stake disposal by COSCO and the relatively more expensive land acquisitions lately, we have taken out its NAV premium (averaged 6.3% since listing in Oct-07) and believe Sino-Ocean deserves to trade on par to NAV.

Downside risks: 1) Concentrated landbank: Nearly 80% of its landbank by GFA is in the Greater Bohai Rim. Any slowdown in the regional economy could have an adverse impact on the operations of SOL.

2) Limited listing track record: SOL has only been listed since Sep-07. Although it has weathered this current downturn reasonably well, investors may need longer to judge the company & management performance before being willing to re-rate the shares to match its peers with similar background and business model.

Yanlord Land Group Ltd (YLDGF, C-2-7, HK$1.74) Our 12-month price objective of S$2.55 is based on 15% discount to 2010E NAV, implying 15x PER of 2010/11E normalized earnings. Yanlord has a strong brand that consistently give its products greater marketability and premium pricing power. However, we believe Yanlord should trade at a discount to its NAV due to a liquidity discount from its Singapore listing status, i.e. away from the listing custer of Chinese developers in Hong Kong/China.

Risk factors:

Longer inventory turnover cycle: Due to its concern for product quality, Yanlord typically like to sell projects very close to completion. Though this is useful for maintaining its reputation for quality, it does reduce working capital turnover and subjects the company to greater risk of excess inventory.

13 RM Real Estate/Property 20 April 2010

Link to Definitions Financials Click here for definitions of commonly used terms.

Analyst Certification We, Christie Ju, CFA and Jason Ching, CFA, hereby certify that the views each of us has expressed in this research report accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.

Greater China - Property Coverage Cluster Investment rating Company BofAML ticker Bloomberg symbol Analyst BUY Agile Property Holdings Ltd AGPYF 3383 HK Jason Ching, CFA Cheung Kong (Holdings) Limited CHEUF 1 HK Karl Choi, CFA China Overseas Land & Investment CAOVF 688 HK Christie Ju, CFA China Resources Land CRBJF 1109 HK Christie Ju, CFA China South City Holdings Limited XCHNF 1668 HK Kevin Lai CRIC CRIC CRIC US Jason Ching, CFA E-House China EJ EJ US Jason Ching, CFA Evergrande Real Estate Group XEVRF 3333 HK Christie Ju, CFA Guangzhou R&F -H GZUHF 2777 HK Christie Ju, CFA Henderson Land HLDVF 12 HK Karl Choi, CFA Henderson Lnd -A HLDCY HLDCY US Karl Choi, CFA Renhe Commercial Holdings RNHEF 1387 HK Jason Ching, CFA SHK Properties-A SUHJY SUHJY US Karl Choi, CFA Sino Land SNLAF 83 HK Karl Choi, CFA Sino-Ocean Land SIOLF 3377 HK Christie Ju, CFA Sun Hung Kai Properties SUHJF 16 HK Karl Choi, CFA NEUTRAL Franshion Properties (China) Limited FRSHF 817 HK Jason Ching, CFA Kerry Properties KRYPF 683 HK Kevin Lai Mingfa Group XMFAF 846 HK Jason Ching, CFA Yanlord Land Group Ltd YLDGF YLLG SP Jason Ching, CFA UNDERPERFORM Country Garden CTRYF 2007 HK Christie Ju, CFA Hang Lung Properties HLPPF 101 HK Karl Choi, CFA Hopson Development Holdings Ltd HPDLF 754 HK Jason Ching, CFA

14 RM Real Estate/Property 20 April 2010

Important Disclosures

Investment Rating Distribution: Real Estate/Property Group (as of 01 Apr 2010) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 56 56.00% Buy 19 35.85% Neutral 28 28.00% Neutral 6 21.43% Sell 16 16.00% Sell 4 26.67% Investment Rating Distribution: Global Group (as of 01 Apr 2010) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 1818 52.41% Buy 952 58.01% Neutral 873 25.17% Neutral 490 61.95% Sell 778 22.43% Sell 355 49.72% * Companies in respect of which MLPF&S or an affiliate has received compensation for investment banking services within the past 12 months. For purposes of this distribution, a stock rated Underperform is included as a Sell.

FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster* Buy ≥ 10% ≤ 70% Neutral ≥ 0% ≤ 30% Underperform N/A ≥ 20% * Ratings dispersions may vary from time to time where BofAML Research believes it better reflects the investment prospects of stocks in a Coverage Cluster. INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock’s coverage cluster is included in the most recent BofAML Comment referencing the stock.

Price charts for the securities referenced in this research report are available at http://www.ml.com/research/pricecharts.asp, or call 1-888-ML-CHART to have them mailed.

MLPF&S or an affiliate was a manager of a public offering of securities of this company within the last 12 months: Agile Property, Evergrande. The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: Agile Property, Country Garden, Evergrande. MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: Agile Property, Country Garden. The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: Agile Property, Country Garden. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale: Agile Property, COLI, Country Garden, CR Land, Evergrande, Guangzhou R&F-H, Hopson Dev, Sino-Ocean Land, Yanlord Land Gro. MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: Agile Property, Country Garden, Evergrande. MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company within the next three months: Agile Property, COLI, Country Garden, Evergrande. MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this company. If this report was issued on or after the 10th day of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 10th day of a month reflect the ownership position at the end of the second month preceding the date of the report: COLI, Country Garden, CR Land, Evergrande, Guangzhou R&F-H, Sino-Ocean Land. The company is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates: Agile Property, Country Garden. The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking revenues.

15 RM Real Estate/Property 20 April 2010

Other Important Disclosures MLPF&S or one of its affiliates has a significant financial interest in the fixed income instruments of the issuer. If this report was issued on or after the 10th day of a month, it reflects a significant financial interest on the last day of the previous month. Reports issued before the 10th day of a month reflect a significant financial interest at the end of the second month preceding the date of the report: Agile Property.

BofA Merrill Lynch (BofAML) Research refers to the combined Global Research operations of Merrill Lynch and BAS. Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments. Merrill Lynch Research policies relating to conflicts of interest are described at http://www.ml.com/media/43347.pdf. "Merrill Lynch" includes Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and its affiliates, including BofA (defined below). "BofA" refers to Banc of America Securities LLC ("BAS"), Banc of America Securities Limited ("BASL") and their affiliates. Investors should contact their Merrill Lynch or BofA representative if they have questions concerning this report. Information relating to Non-US affiliates of Merrill Lynch and Distribution of Affiliate Research Reports: MLPF&S, BAS, and BASL distribute, or may in the future distribute, research reports of the following non-US affiliates in the US (short name: legal name): Merrill Lynch (France): Merrill Lynch Capital Markets (France) SAS; Merrill Lynch (Frankfurt): Merrill Lynch International Bank Ltd, Frankfurt Branch; Merrill Lynch (South Africa): Merrill Lynch South Africa (Pty) Ltd; Merrill Lynch (Milan): Merrill Lynch International Bank Limited; MLPF&S (UK): Merrill Lynch, Pierce, Fenner & Smith Limited; Merrill Lynch (Australia): Merrill Lynch Equities (Australia) Limited; Merrill Lynch (Hong Kong): Merrill Lynch (Asia Pacific) Limited; Merrill Lynch (Singapore): Merrill Lynch (Singapore) Pte Ltd; Merrill Lynch (Canada): Merrill Lynch Canada Inc; Merrill Lynch (Mexico): Merrill Lynch Mexico, SA de CV, Casa de Bolsa; Merrill Lynch (Argentina): Merrill Lynch Argentina SA; Merrill Lynch (Japan): Merrill Lynch Japan Securities Co, Ltd; Merrill Lynch (Seoul): Merrill Lynch International Incorporated (Seoul Branch); Merrill Lynch (Taiwan): Merrill Lynch Securities (Taiwan) Ltd.; DSP Merrill Lynch (India): DSP Merrill Lynch Limited; PT Merrill Lynch (Indonesia): PT Merrill Lynch Indonesia; Merrill Lynch (Israel): Merrill Lynch Israel Limited; Merrill Lynch (Russia): Merrill Lynch CIS Limited, Moscow; Merrill Lynch (Turkey): Merrill Lynch Yatirim Bankasi A.S.; Merrill Lynch (Dubai): Merrill Lynch International, Dubai Branch; MLPF&S (Zürich rep. office): MLPF&S Incorporated Zürich representative office; Merrill Lynch (Spain): Merrill Lynch Capital Markets Espana, S.A.S.V.; Merrill Lynch (Brazil): Banco Merrill Lynch de Investimentos S.A. This note has been approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited and BASL, which are authorized and regulated by the Financial Services Authority; has been considered and distributed in Japan by Merrill Lynch Japan Securities Co, Ltd and Banc of America Securities – Japan, Inc., registered securities dealers under the Financial Instruments and Exchange Law in Japan; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Limited and Banc of America Securities Asia Limited, which are regulated by the Hong Kong SFC and the Hong Kong Monetary Authority; is issued and distributed in Taiwan by Merrill Lynch Securities (Taiwan) Ltd.; is issued and distributed in India by DSP Merrill Lynch Limited; and is issued and distributed in Singapore by Merrill Lynch International Bank Limited (Merchant Bank), Merrill Lynch (Singapore) Pte Ltd (Company Registration No.’s F 06872E and 198602883D respectively) and Bank of America Singapore Limited (Merchant Bank). Merrill Lynch International Bank Limited (Merchant Bank), Merrill Lynch (Singapore) Pte Ltd and Bank of America Singapore Limited (Merchant Bank) are regulated by the Monetary Authority of Singapore. Merrill Lynch Equities (Australia) Limited (ABN 65 006 276 795), AFS License 235132 provides this note in Australia in accordance with section 911B of the Corporations Act 2001 and neither it nor any of its affiliates involved in preparing this note is an Authorised Deposit-Taking Institution under the Banking Act 1959 nor regulated by the Australian Prudential Regulation Authority. No approval is required for publication or distribution of this note in Brazil. This research report has been prepared and issued by MLPF&S and/or one or more of its non-US affiliates. MLPF&S is the distributor of this research report in the US and accepts full responsibility for research reports of its non-US affiliates distributed to MLPF&S clients in the US. Any US person (other than BAS, BAI and their respective clients) receiving this research report and wishing to effect any transaction in any security discussed in the report should do so through MLPF&S and not such foreign affiliates. BAS distributes this research report to its clients and accepts responsibility for the distribution of this report in the US to BAS clients. Transactions by US persons that are BAS clients in any security discussed herein must be carried out through BAS. General Investment Related Disclosures: This research report provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other financial instrument or any derivative related to such securities or instruments (e.g., options, futures, warrants, and contracts for differences). This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person. Investors should seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Any decision to purchase or subscribe for securities in any offering must be based solely on existing public information on such security or the information in the prospectus or other offering document issued in connection with such offering, and not on this report. Securities and other financial instruments discussed in this report, or recommended, offered or sold by Merrill Lynch, are not insured by the Federal Deposit Insurance Corporation and are not deposits or other obligations of any insured depository institution (including, Bank of America, N.A.). Investments in general and, derivatives, in particular, involve numerous risks, including, among others, market risk, counterparty default risk and liquidity risk. No security, financial instrument or derivative is suitable for all investors. In some cases, securities and other financial instruments may be difficult to value or sell and reliable information about the value or risks related to the security or financial instrument may be difficult to obtain. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. Past performance is not necessarily a guide to future performance. Levels and basis for taxation may change. This report may contain a short-term trading idea or recommendation, which highlights a specific near-term catalyst or event impacting the company or the market that is anticipated to have a short-term price impact on the equity securities of the company. Short-term trading ideas and recommendations are different from and do not affect a stock's fundamental equity rating, which reflects both a longer term total return expectation and attractiveness for investment relative to other stocks within its Coverage Cluster. Short-term trading ideas and recommendations may be more or less positive than a stock's fundamental equity rating. Foreign currency rates of exchange may adversely affect the value, price or income of any security or financial instrument mentioned in this report. Investors in such securities and instruments, including ADRs, effectively assume currency risk. UK Readers: The protections provided by the U.K. regulatory regime, including the Financial Services Scheme, do not apply in general to business coordinated by Merrill Lynch entities located outside of the United Kingdom. These disclosures should be read in conjunction with the BASL general policy statement on the handling of research conflicts, which is available upon request. Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments. Merrill Lynch is a regular issuer of traded financial instruments linked to securities that may have been recommended in this report. Merrill Lynch may, at any time, hold a trading position (long or short) in the securities and financial instruments discussed in this report.

16 RM Real Estate/Property 20 April 2010

Merrill Lynch, through business units other than BofAML Research, may have issued and may in the future issue trading ideas or recommendations that are inconsistent with, and reach different conclusions from, the information presented in this report. Such ideas or recommendations reflect the different time frames, assumptions, views and analytical methods of the persons who prepared them, and Merrill Lynch is under no obligation to ensure that such other trading ideas or recommendations are brought to the attention of any recipient of this report. In the event that the recipient received this report pursuant to a contract between the recipient and MLPF&S for the provision of research services for a separate fee, and in connection therewith MLPF&S may be deemed to be acting as an investment adviser, such status relates, if at all, solely to the person with whom MLPF&S has contracted directly and does not extend beyond the delivery of this report (unless otherwise agreed specifically in writing by MLPF&S). MLPF&S is and continues to act solely as a broker-dealer in connection with the execution of any transactions, including transactions in any securities mentioned in this report. Copyright and General Information regarding Research Reports: Copyright 2010 Merrill Lynch, Pierce, Fenner & Smith Incorporated. All rights reserved. iQmethod, iQmethod 2.0, iQprofile, iQtoolkit, iQworks are service marks of Merrill Lynch & Co., Inc. iQanalytics®, iQcustom®, iQdatabase® are registered service marks of Merrill Lynch & Co., Inc. This research report is prepared for the use of Merrill Lynch clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Merrill Lynch. Merrill Lynch research reports are distributed simultaneously to internal and client websites and other portals by Merrill Lynch and are not publicly- available materials. Any unauthorized use or disclosure is prohibited. Receipt and review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets) without first obtaining expressed permission from an authorized officer of Merrill Lynch. Materials prepared by Merrill Lynch research personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Merrill Lynch, including investment banking personnel. Merrill Lynch has established information barriers between BofAML Research and certain business groups. As a result, Merrill Lynch does not disclose certain client relationships with, or compensation received from, such companies in research reports. To the extent this report discusses any legal proceeding or issues, it has not been prepared as nor is it intended to express any legal conclusion, opinion or advice. Investors should consult their own legal advisers as to issues of law relating to the subject matter of this report. Merrill Lynch research personnel’s knowledge of legal proceedings in which any Merrill Lynch entity and/or its directors, officers and employees may be plaintiffs, defendants, co-defendants or co-plaintiffs with or involving companies mentioned in this report is based on public information. Facts and views presented in this material that relate to any such proceedings have not been reviewed by, discussed with, and may not reflect information known to, professionals in other business areas of Merrill Lynch in connection with the legal proceedings or matters relevant to such proceedings. This report has been prepared independently of any issuer of securities mentioned herein and not in connection with any proposed offering of securities or as agent of any issuer of any securities. None of MLPF&S, any of its affiliates or their research analysts has any authority whatsoever to make any representation or warranty on behalf of the issuer(s). Merrill Lynch policy prohibits research personnel from disclosing a recommendation, investment rating, or investment thesis for review by an issuer prior to the publication of a research report containing such rating, recommendation or investment thesis. Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. The information herein (other than disclosure information relating to Merrill Lynch and its affiliates) was obtained from various sources and we do not guarantee its accuracy. This report may contain links to third-party websites. Merrill Lynch is not responsible for the content of any third-party website or any linked content contained in a third-party website. Content contained on such third-party websites is not part of this report and is not incorporated by reference into this report. The inclusion of a link in this report does not imply any endorsement by or any affiliation with Merrill Lynch. Access to any third-party website is at your own risk, and you should always review the terms and privacy policies at third-party websites before submitting any personal information to them. Merrill Lynch is not responsible for such terms and privacy policies and expressly disclaims any liability for them. Subject to the quiet period applicable under laws of the various jurisdictions in which we distribute research reports and other legal and Merrill Lynch policy- related restrictions on the publication of research reports, fundamental equity reports are produced on a regular basis as necessary to keep the investment recommendation current. Certain outstanding reports may contain discussions and/or investment opinions relating to securities, financial instruments and/or issuers that are no longer current. Always refer to the most recent research report relating to a company or issuer prior to making an investment decision. In some cases, a company or issuer may be classified as Restricted or may be Under Review or Extended Review. In each case, investors should consider any investment opinion relating to such company or issuer (or its security and/or financial instruments) to be suspended or withdrawn and should not rely on the analyses and investment opinion(s) pertaining to such issuer (or its securities and/or financial instruments) nor should the analyses or opinion(s) be considered a solicitation of any kind. Sales persons and financial advisors affiliated with BAS, MLPF&S or any of their affiliates may not solicit purchases of securities or financial instruments that are Restricted or Under Review and may only solicit securities under Extended Review in accordance with firm policies. Neither Merrill Lynch nor any officer or employee of Merrill Lynch accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.

17 RM