Annual Report 2017 We are a leading developer, owner and operator of mixed-use, Stock Code: 1972 principally commercial, properties in Hong Kong and Mainland China, with a record of creating long-term value by transforming urban areas. Our business comprises three main elements: Property Property Hotel Investment Trading Investment Annual Report 2017 www.swireproperties.com HKRI Taikoo Hui Shanghai CMYK SPAR 2017 Cover A_Eng CMYK SPAR 2017 Cover A_Eng 14mm Annual Report 2017 We are a leading developer, owner and operator of mixed-use, Stock Code: 1972 principally commercial, properties in Hong Kong and Mainland China, with a record of creating long-term value by transforming urban areas. Our business comprises three main elements: Property Property Hotel Investment Trading Investment Annual Report 2017 www.swireproperties.com HKRI Taikoo Hui Shanghai CMYK SPAR 2017 Cover A_Eng CMYK SPAR 2017 Cover A_Eng 14mm 2017 Highlights Staff engagement event in Hong Kong called “Making Swire Places”, as part of our SD 2030 Strategy April – Hong Kong details on page 80 Naming of Swire Hotels’ fourth House hotel, “The Middle House” May – Shanghai details on page 36 ALASSIO units handed over to purchasers April onwards – Hong Kong details on page 35 Opening of the new ArtisTree at Taikoo Place, a 7,000 sq ft space dedicated to arts and culture June – Hong Kong details on page 81 Swire Properties listed in Dow Jones Sustainability World Index and Global Real Estate Sustainability Benchmark September – Hong Kong details on page 83 Relaunch of the Blueprint co-working hub at Taikoo Place October – Hong Kong details on page 37 Fifth annual White Christmas Street Fair at Taikoo Place December – Hong Kong details on page 81 Grand opening of HKRI Taikoo Hui in Shanghai November – Shanghai details on page 30 Contents 2 Company Profile AUDITOR’S REPORT AND ACCOUNTS 3 Financial Highlights 86 Independent Auditor’s Report 4 Ten-Year Financial Summary 90 Consolidated Statement of Profit or Loss 7 Chairman’s Statement 91 Consolidated Statement of Other 10 Key Business Strategies Comprehensive Income 92 Consolidated Statement of Financial Position MANAGEMENT DISCUSSION & ANALYSIS 93 Consolidated Statement of Cash Flows 94 Consolidated Statement of Changes in Equity 14 Review of Operations 95 Notes to the Financial Statements 42 Financial Review 150 Principal Accounting Policies 49 Financing 153 Principal Subsidiary, Joint Venture and Associated Companies CORPORATE GOVERNANCE & SUSTAINABILITY SUPPLEMENTARY INFORMATION 60 Corporate Governance 156 Schedule of Principal Group Properties 71 Risk Management 167 Glossary 72 Directors and Officers 168 Financial Calendar and Information for Investors 74 Directors’ Report 80 Sustainable Development Company Profile Swire Properties is a leading developer, owner and operator of mixed-use, principally commercial, properties in Hong Kong and Mainland China, with a record of creating long-term value by transforming urban areas. Our business comprises three main elements: property investment, property trading and hotel investment. Founded in Hong Kong in 1972, Swire Properties is listed on The Stock Exchange of Hong Kong Limited and, with its subsidiaries, employs over 5,000 people. In Hong Kong, we have spent over 40 years developing an industrial area into what is now Taikoo Place and Cityplaza, one of Hong Kong’s largest business districts comprising office space, the largest shopping mall on Hong Kong Island and a hotel. Pacific Place, built on the former Victoria Barracks site, is one of Hong Kong’s premier retail and business addresses. In Mainland China, Swire Properties has five major mixed-use projects in operation or under development in Beijing, Guangzhou, Chengdu and Shanghai. Similar in scale to our developments in Hong Kong, our Mainland China properties are in commercial districts with excellent transport connections. Swire Properties has interests in the luxury residential market in Hong Kong and in Miami in the U.S.A. Swire Hotels develops and manages hotels in Hong Kong and Mainland China and in Miami in the U.S.A. The Company has a significant presence in Miami, U.S.A. where it develops investment and residential trading properties. The first phase of Brickell City Centre, a large scale mixed-use project in the Brickell financial district in Miami, was completed in 2016 and its components opened between March 2016 and February 2017. The Company has an office in Singapore to explore opportunities in the property markets in Southeast Asia. 2 Swire Properties Annual Report 2017 Financial Highlights Results 2017 2016 For the year Note HK$M HK$M Change Revenue 18,558 16,792 +11% Operating profit 34,930 17,320 +102% Profit attributable to the Company’s shareholders Underlying (a), (b) 7,834 7,112 +10% Reported 33,957 15,050 +126% Cash generated from operations 13,680 10,767 +27% Net cash inflow before financing 4,869 1,998 +144% HK$ HK$ Earnings per share Underlying (c) 1.34 1.22 +10% Reported (c) 5.80 2.57 +126% Dividends per share First interim 0.25 0.23 +9% Second interim 0.52 0.48 +8% Financial Position At 31st December HK$M HK$M Total equity (including non-controlling interests) 259,378 227,225 +14% Net debt 35,347 35,377 -0% Gearing ratio (a) 13.6% 15.6% -2.0%pt. HK$ HK$ Equity attributable to the Company’s shareholders per share (a) 44.00 38.52 +14% Notes: (a) Refer to glossary on page 167 for definition. (b) A reconciliation between reported profit and underlying profit attributable to the Company’s shareholders is provided on page 15. (c) Refer to note 14 in the financial statements for the weighted average number of shares. Underlying HK$M profit/(loss) 8,000 7,834 7,112 by segment 7,000 1,154 1,200 6,000 5,000 4,000 3,000 6,723 6,029 2,000 Property investment 1,000 Property trading 0 Hotels -1,000 (43) (117) 2017 2016 Ten-Year Financial Summary 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M STATEMENT OF PROFIT OR LOSS Revenue Property investment 6,901 7,516 7,953 8,651 9,123 9,786 10,456 10,857 10,902 11,380 Property trading 889 643 400 213 4,147 2,207 3,842 4,463 4,760 5,833 Hotels 156 172 518 717 782 942 1,089 1,127 1,130 1,345 7,946 8,331 8,871 9,581 14,052 12,935 15,387 16,447 16,792 18,558 Profit Attributable to the Company’s Shareholders Property investment 3,318 3,965 4,574 4,638 4,896 5,426 6,029 6,231 5,938 6,671 Property trading 95 23 87 7 1,659 720 1,020 1,089 1,199 1,111 Hotels 73 (332) (109) (33) 14 (46) 30 (303) (117) (43) Change in fair value of investment properties (236) 13,596 21,478 20,496 12,184 6,425 2,437 7,055 8,030 26,218 3,250 17,252 26,030 25,108 18,753 12,525 9,516 14,072 15,050 33,957 Dividends for the year 2,966 25 2,426 11,067 3,510 3,510 3,861 4,154 4,154 4,505 Retained profit 284 17,227 23,604 14,041 15,243 9,015 5,655 9,918 10,896 29,452 STATEMENT OF FINANCIAL POSITION Net Assets Employed Property investment 140,440 155,374 183,062 191,116 207,577 218,556 226,607 235,917 248,466 283,045 Property trading 3,496 3,772 6,303 6,581 7,309 9,408 8,210 7,452 6,616 3,942 Hotels 4,037 5,523 5,797 6,421 7,111 7,200 7,801 7,928 7,520 7,738 147,973 164,669 195,162 204,118 221,997 235,164 242,618 251,297 262,602 294,725 Financed by Equity attributable to the Company’s shareholders 110,235 129,778 157,847 175,886 192,434 202,350 207,691 216,247 225,369 257,381 Non-controlling interests 1,068 424 479 532 642 800 856 1,702 1,856 1,997 Net debt 36,670 34,467 36,836 27,700 28,921 32,014 34,071 33,348 35,377 35,347 147,973 164,669 195,162 204,118 221,997 235,164 242,618 251,297 262,602 294,725 HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ Earnings per share 0.59 3.14 4.57 4.40 3.21 2.14 1.63 2.41 2.57 5.80 Dividends per share 0.54 – 0.43 1.94 0.60 0.60 0.66 0.71 0.71 0.77 Equity attributable to shareholders per share 20.07 23.60 27.74 30.07 32.89 34.59 35.50 36.97 38.52 44.00 RATIOS Return on average equity attributable to the Company’s shareholders 3.0% 14.4% 18.1% 15.0% 10.2% 6.3% 4.6% 6.6% 6.8% 14.1% Gearing ratio 33.0% 26.5% 23.3% 15.7% 15.0% 15.8% 16.3% 15.3% 15.6% 13.6% Interest cover – times 4.79 17.56 21.79 18.23 15.72 10.02 8.96 13.56 15.48 38.81 Dividend cover – times 1.10 N/A 10.73 2.27 5.34 3.57 2.46 3.39 3.62 7.54 UNDERLYING Profit (HK$M) 3,540 3,721 4,767 12,914 6,935 6,348 7,152 7,078 7,112 7,834 Return on average equity attributable to the Company’s shareholders 3.2% 3.1% 3.3% 7.7% 3.8% 3.2% 3.5% 3.3% 3.2% 3.2% Earnings per share (HK$) 0.64 0.68 0.84 2.26 1.19 1.09 1.22 1.21 1.22 1.34 Interest cover – times 4.48 4.33 5.37 12.01 7.90 6.43 7.58 7.75 8.89 10.68 Dividend cover – times 1.19 N/A 1.96 1.17 1.98 1.81 1.85 1.70 1.71 1.74 Notes: 1.