hong kong hk grade a office - kim eng€¦ · 7 november 2013 page 4 of 60 hong kong office we...

SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

Hong KongSector Report 7 November 2013

HK Grade A Office Pick the Right Side of a Coin

We initiate on the HK Grade A office sector with a neutral view and a slight negative bias. Our forecasts for 2014 look for a range of -5% to +5% rental change YoY, with different submarket performance expectations with Central being the weakness (est. 5% decline YoY in rental) and decentralized areas like Kowloon East, Wan Chai and Causeway Bay being the stronger (est. 5% rental growth YoY).

Grade A office rental growth decelerated in 1H13. Although rental and prices continued to go up in 1H, we noticed the growth is losing momentum amidst the surge in US treasury yields in 2Q13, some speculators turning away due to property curbs and high prices. Rental and price indexes have just increased by 0.7% QoQ and 0.6% QoQ respectively in 2Q13. Office rental yield was only at 2.9% in Aug-13.

Weak hiring sentiment should dampen overall rental growth in 2014 especially in core districts. Per the 3Q13 Hudson Report, only 35% of companies had expectations to increase their hiring in permanent positions in 4Q13, which is lower than the average of 47.6% from 2007 to 2013. We note the hiring sentiment is highly correlated to the change in HK office rental and lead the change by about 2 quarters.

We believe decentralization would continue to support rental growth. Despite rental in traditional office districts have dropped by 3 – 5% YoY recently, the rental gap is still high enough to provide sufficient economic initiatives to tenants to decentralize their offices.

Completion/uptake equilibrium; divergent outlook for different sub-markets. HKRVD forecasted the completion of Grade A office in FY13F and 14F to be 123k and 132k sq m, slightly lower than the 7-year average annual uptake of 166k sq m. We see the supply-demand as largely at equilibrium and the general office market rental trend may be stable in FY2014. However, districts with higher vacancy rates will still be under pressure with landlords being more aggressive to lift their occupancy rates.

US QE tapering – No need to panic. According to our banks analyst Steven Chan, there is no need to panic on US QE tapering. Chairman Bernanke made it clear that even if there is a modest reduction in the pace of asset purchase (i.e. the QE tapering), the Fed’s portfolio of securities will not be shrinking. However, we have still incorporated a 25-cap rate expansion across all Hong Kong sub-sectors (office, industrial, and retail) in our models for 2014.

We initiate on Prosperity REIT with a BUY and Champion REIT with a SELL, TP at HKD2.75/unit and HKD3.09 respectively, representing a FY13 distribution yield of 6.4% and 5.7% respectively.

HK-REITs peer comparison table as of Nov 6, 2013 Nov 6 TP Mkt cap Last fiscal PER (x) P/B (x) Yield (%) ROE (%) REIT name Ticker Rating (HKD) (HKD) (USDm) year end FY13* FY14* FY13* FY14* FY13* FY14* FY13* FY14*Prosperity REIT 808 HK BUY 2.31 2.75 416 12/2012 15.7 14.8 0.5 0.5 6.4 6.7 3.4 3.5Link REIT* 823 HK NR 38.50 N/A 11,477 03/2013* 24.1 22.2 1.1 1.0 4.2 4.5 4.4 4.7Champion REIT 2778 HK SELL 3.52 3.09 2,595 12/2012 17.6 18.5 0.5 0.5 5.7 5.4 2.8 2.9Sunlight REIT* 435 HK NR 3.07 N/A 642 06/2013* 17.1 16.2 0.5 0.4 6.2 6.4 2.9 3.0Fortune REIT 778 HK NR 6.29 N/A 1,508 12/2012 20.0 18.3 0.7 0.6 5.7 6.2 3.7 3.9Regal REIT 1881 HK NR 2.29 N/A 962 12/2012 15.3 15.3 0.5 0.5 6.8 7.0 3.1 3.0Average 18.3 17.6 0.6 0.6 5.8 6.0 3.4 3.5*Note: Link and Sunlight REITs’ valuation metrics are for FY14 and FY15 instead of FY13 and FY14 due to difference in fiscal year ends. Source: Company data, Bloomberg, Maybank Kim Eng

Neutral (new) Philip TSE, CFA FRM [email protected] (852) 2268 0643 Karen P KWAN [email protected] (852) 2268 0640

Stock Information (as of 6 Nov)

Prosperity REIT description: Prosperity REIT is the second real estate investment trust listed in HK in 2005. Its assets portfolio includes 7 buildings located in decentralized districts with a total gross rentable area of ~1.2m sq ft. Ticker: 808 HK Shares Issued (m): 1,396 Market Cap (USDm): 416 3-mth Avg Daily Turnover (USDm): 0.8 HSI: 23,036.94 Free Float (%): 80.1 Major Shareholders: % Cheung Kong (Holdings) Limited 19.9 Champion REIT description: Champion REIT is a real estate investment trust listed in HK in 2006. Its assets are Citibank Plaza and Langham Place, with ~2m sq ft of Grade A office and 360k sq ft of retail space in Hong Kong. Ticker: 2778 HK Units Issued (m): 5,714 Market Cap (USDm): 2,594.6 3-mth Avg Daily Turnover (USDm): 2.5 HSI: 23,036.94 Free Float (%): 39.5 Major Shareholders: % Great Eagle 60.5

7 November 2013 of 60

Hong Kong Office

Contents

Three charts to know .......................................... 3

Office market review ........................................... 4

US QE tapering ................................................. 10

2014 office market outlook ................................ 13

Prosperity REIT ................................................. 18

Champion REIT ................................................ 43


Hong Kong Office

Three charts to know

Figure 1: Monthly rental gap vs Central of different districts and vacancy ratios

Source: CB Richard Ellis Research, Maybank Kim Eng

Figure 2: % of companies with expectations to increase in hiring of next quarter per Hudson Report vs office rental index change

Source: Hudson Reports, Savills Research and Consultancy, Maybank Kim Eng

Figure 3: Chart of office leasing dominated by tenants <10,000 sq ft in first three quarters of 2013

Source: Company data, CB Richard Ellis Research, Maybank Kim Eng

0

1

2

3

4

5

6

7

01020304050607080

%HKD/sq ft Rental gap vs Central (LHS) Vacancy Rate (RHS)

(15)

(10)

(5)

0

5

10

15

0

10

20

30

40

50

60

70

80

1Q2007 4Q2007 3Q2008 2Q2009 1Q2010 4Q2010 3Q2011 2Q2012 1Q2013 4Q2013

%% Increase in Hiring (LHS) Office rental index change (RHS)

0-5,000 sq ft50.0%

5,001-10,000 sq ft35.0%

10,001-25,000 sq ft15.0%


Hong Kong Office

We initiate on the HK Grade A office sector with a neutral view and a slight negative bias. Our forecasts for 2014 look for a range of -5% to +5% rental change YoY, with different submarket performance expectations with Central being the weakness (estimated 5% decline YoY in rental) and decentralized areas like Kowloon East, Wan Chai and Causeway Bay being the stronger submarkets (estimated 5% rental growth YoY).

Office market review (1H13 & 3Q13)

Prime buildings’ office rental growth decelerated

In 1H13, HK Grade A office rental and prices continued to go up according to the Grade A office rental and price indexes published by Savills Research and Consultancy. Rental and price indexes increased by 2.3% HoH and 4.0% HoH respectively. However, we noticed the growth is losing momentum amidst the surge in US treasury yields in 2Q13 as well as some speculators turning away due to property measures and high prices. Rental and price indexes just increased by 0.7% QoQ and 0.6% QoQ respectively in 2Q13.

Figure 4: Quarterly Hong Kong Grade A office rental and price indexes Year Quarter Rental Index QoQ change (%) Price Index QoQ change (%)2008 Q1 277.9 8.5 411.9 9.0 Q2 299.2 7.7 399.0 (3.1) Q3 297.6 (0.5) 345.4 (13.4) Q4 257.4 (13.5) 242.7 (29.7)2009 Q1 231.2 (10.2) 250.8 3.3 Q2 220.3 (4.7) 335.2 33.7 Q3 215.0 (2.4) 347.1 3.5 Q4 216.9 0.9 357.2 2.92010 Q1 225.6 4.0 383.4 7.3 Q2 235.7 4.5 387.1 1.0 Q3 252.5 7.1 412.1 6.5 Q4 273.3 8.2 432.3 4.92011 Q1 298.9 9.4 463.2 7.1 Q2 312.1 4.4 505.5 9.1 Q3 315.9 1.2 509.9 0.9 Q4 316.4 0.2 507.8 (0.4)2012 Q1 316.1 (0.1) 516.0 1.6 Q2 314.6 (0.5) 535.7 3.8 Q3 321.2 2.1 541.6 1.1 Q4 325.3 1.3 559.1 3.22013 Q1 330.6 1.6 577.8 3.3 Q2 332.9 0.7 581.3 0.6Source: Savills Research and Consultancy, Maybank Kim Eng

Office rental yield only at 2.9%

As a result of faster growth in price than rental, rental yield for office properties has dropped to a record low during the period. Both Grade A and Grade B office rental yields in Hong Kong recorded a drop of 30bps YoY to 2.9% in Aug-13, comparing to 3.2% respectively in Aug-12 according to the latest property market statistics published by the Rating and Valuation Department of the Hong Kong government (“HKRVD”).

We initiate on the HK Grade A office sector with a neutral

view and a slight negative bias


Hong Kong Office

Figure 5: Rental yield of Hong Kong Grade A and Grade B office (1999 – 2013)

Source: Rating and Valuation Department of HKSAR government, Maybank Kim Eng

Kowloon East, emerging Grade A office districts to provide more choices

With the robust growth in new supply for consecutive years in Kowloon East, especially Kowloon Bay and Kwun Tong, inventory stocks of Grande A office in Kowloon East has already surpasses various traditional non-core office areas such as Island East, Wan Chai and Tsim Sha Tsui. Kowloon East has already become the second largest Grade A office hub followed by the Central district.

As at end-2012, the total Grade A office inventories in Kwun Tong and Kowloon Bay area has reached 1.09m sq m, which has surpassed 0.927m sq m in Wan Chai/Causeway Bay, 0.739m sq m in Island East and 0.790m sq m in Tsim Sha Tsui according to the HKRVD’s “Hong Kong Property Review 2013”.

Figure 6: Hong Kong office inventories by Grade and districts as at end-2012

Source: HKRVD, Maybank Kim Eng

0

2

4

6

8

10

Jan 99 Jan 01 Jan 03 Jan 05 Jan 07 Jan 09 Jan 11 Jan 13

Grade A Grade BGrade A average (1999 - 2013) Grade B average (1999 - 2013)

Grade A average = 4.7%Aug 13: 2.9%

Grade B average = 5.5%Aug 13: 2.9%

0

500

1,000

1,500

2,000

2,500

SheungWan

Central Wan Chai /Causeway

Bay

North Point/ Quarry

Bay

Tsim ShaTsui

Yau Ma Tei/ Mong Kok

Kwun Tong/ Kowloon

Bay

Others

(k sqm) Grade A Grade B Grade C


Hong Kong Office

Figure 7: Hong Kong total office inventories districts as at end-2012

Source: HKRVD, Maybank Kim Eng

We have already seen many newly completed grade A office buildings in Kowloon East district having the highest “Triple-A” specification like those in Central with large floor-plate of over 10k sq ft/floor. These large spaces offer high flexibility for international conglomerates, services companies and back office of financial sectors. Furthermore, some landlords are willing to provide competitive leasing packages at the rental ramp-up period such as more rent-free period with effective rental as low as about HKD25 – 30/sq ft/month to attract first batch of tenants to quickly fill up their vacant spaces. Hence, these buildings are attractive to those large spaces consumers to relocate part of their back offices to these areas.

Decentralization to continue to support rental growth

The rental gap between decentralized areas and traditional CBD are still very high although we have already seen the rental in many traditional office districts including Central, Sheung Wan and Wan Chai, have dropped by 3 – 5% recently. However, the monthly rental level of these traditional districts (HKD60 – 100/sq ft) are still 2 – 3x comparing to some other decentralized areas like Kowloon Central and Kowloon East (HKD30 – 35/sq ft).

Figure 8: Rental level of different HK office sub-markets in 3Q13

Monthly rent

(HKD/sq ft)QoQ

(%) YoY(%)

Hong Kong Island sub-markets Central 100.0 -0.2 -3.4Admiralty 71.9 -1.1 -4.0Sheung Wan 61.1 -0.8 -4.9Wan Chai 60.5 -0.6 +1.4Causeway Bay 59.8 +0.5 +8.9Hong Kong East 47.2 +0.4 +5.7 Kowloon sub-markets Tsim Sha Tsui 58.2 -1.6 -2.4Tsim Sha Tsui East 39.0 +2.7 +5.8Kowloon East 34.3 -0.7 +6.6Mong Kok 43.7 0 0Hung Hom 33.5 0 +5.6Cheung Sha Wan 28.4 +5.3 +19.8Source: CB Richard Ellis Research, Maybank Kim Eng

Looking back to 2009, the vacancy rate in Kowloon East was once as high as 20% when many of the large sized new buildings were completed in 2009. Supporting by the relocation and decentralization demand throughout the years, most of the large spaces are basically filled up and vacancy rates of these decentralized areas have dropped to only 2 – 4% in 3Q13, even lower than 4 – 6% of traditional districts. We believe the low vacancy rate will continue to strengthen the bargaining power of landlords in these areas.

Sheung Wan9.0%

Central19.8%

Wan Chai / Causeway Bay

16.7%

North Point / Quarry Bay8.7%

Tsim Sha Tsui12.0%

Yau Ma Tei / Mong Kok7.8%

Kwun Tong / Kowloon Bay

10.7%

Others15.3%


Hong Kong Office

Figure 9: Vacancy rates of different HK office sub-markets in 3Q13

Vacancy rate

(%)QoQ

(%) YoY(%)

Hong Kong Island sub-markets Central 5.2 +0.1 0Admiralty 6.2 +1.3 +0.9Sheung Wan 4.3 0 +1.0Wan Chai 4.1 -0.5 +0.5Causeway Bay 3.4 +0.7 -2.8Hong Kong East 1.5 -0.2 -0.1 Kowloon sub-markets Tsim Sha Tsui 3.3 +1.2 +1.9Tsim Sha Tsui East 2.3 +0.5 +0.4Kowloon East 3.9 +0.7 +2.2Mong Kok 0.9 -0.8 -1.4Hung Hom 0.8 -1.1 +0.4Cheung Sha Wan 2.5 +0.9 +1.2Source: CB Richard Ellis Research, Maybank Kim Eng

Figure 10: Monthly rental gap vs Central of different districts and vacancy ratios


However, weak hiring sentiment should dampen overall rental growth in 2014 especially core-districts

On the other hand, the Hudson Report – Hong Kong 3rd Quarter 2013 has pointed out only 35% of companies have expectations to increase their hiring in permanent positions in 4Q13, which is lower than the average of 47.6% from 2007 to 2013. We see the hiring sentiment is highly correlated to the change in HK office rental and lead the change by approximately 2 quarters. The weak hiring sentiment should dampen the growth of rental in 1H14, and thus, lower the full year overall rental growth, in our view.

Figure 11: % of companies with expectations increase in hiring of next quarter per Hudson Report vs office rental index change

Source: Hudson Reports, Savills Research and Consultancy, Maybank Kim Eng

0

1

2

3

4

5

6

7

01020304050607080

%HKD/sq ft Rental gap vs Central (LHS) Vacancy Rate (RHS)

(15)

(10)

(5)

0

5

10

15

0

10

20

30

40

50

60

70

80

1Q2007 4Q2007 3Q2008 2Q2009 1Q2010 4Q2010 3Q2011 2Q2012 1Q2013 4Q2013

%% Increase in Hiring (LHS) Office rental index change (RHS)


Hong Kong Office

The latest leasing activities are mainly dominated by smaller tenants

According to CB Richard Ellis Research, ~85% of leasing activities in YTD-3Q13 are dominated by tenants of 10,000 sq ft or less in terms of number of transactions. We believe one of the reasons would be the lack of large floor space availabilities in the decentralized areas. We noticed large floor spaces are still available in some Central and Admiralty buildings like in Citibank Plaza, United Center, Far East Finance Center and Admiralty Center, we believe the quiet large floor space leasing market can partly tell the demand on prime district from the large occupiers are sluggish. Financial institutions which have traditionally been the entities behind large pick-up in space seem to be not active in the leasing space; small companies like hedge funds, newly listed China companies as well as other tenants have been more active in inquiries, per our on-the-ground checks.

Figure 12: Chart of office leasing dominated by tenants <10,000 sq ft in first three quarters of 2013

Source: Company data, CB Richard Ellis Research, Maybank Kim Eng

0-5,000 sq ft50.0%

5,001-10,000 sq ft35.0%

10,001-25,000 sq ft15.0%


Hong Kong Office

Figure 13: Recent deals transacted in the market per local press and property agents Reported Date Office Floor Landlord Tenant Reported rents Our comments Sep-13 Shun Tak

Center West Wing

21st floor / unit 11 (2.4k sq ft)

Strata-titled to different owners

~HKD56/sq ft

Sep-13 Lippo Center Tower 1 / 20th floor / unit 8 (~969 sq ft)


~HKD52.6/sq ft

Sep-13 Lippo Center Tower 2 / 17th floor / unit 03 (~2k sq ft)


~HKD45/sq ft

Sep-13 Shun Tak Center West Wing

33rd floor / unit 3 (~1.8k sq ft)


~HKD36/sq ft

Sep-13 Lippo Center 5th floor unit (~2.2k sq ft)


~HKD40/sq ft

Sep-13 Sino Plaza Mid floor unit (~1.5k sq ft)

Sino Land ~HKD46/sq ft

Sep-13 The Center Mid-low floor / units 1-5 (~7.9k sq ft)


~HKD53/sq ft

Sep-13 CCB Tower 7.4k sq ft CCB PIMCO ~HKD100/sq ft Relocation from 9 Queen's Road Central

Sep-13 28 Hennessy Road

18th-19th floors (~9.8k sq ft)

Swire Shenyin Wanguo ~HKD55/sq ft

Sep-13 ICC 81st floor unit (~20k sq ft)

SHKP INTESA SANPAOLO SPA

~HKD60/ sq ft Relocation from Lee Garden

Sep-13 Citibank Plaza 6th floor Champion REIT Compass Office ~Mid-to-High HKD60's/ sq ft

We believe the low rent is for the initial year with step-up later

Aug-13 Hysan Place 38th floor (~16k sq ft) Hysan Linkedln ~HKD80/sq ft 2Q13 Two IFC ~10k sq ft SHKP/HLD/MTRC A Canadian Bank 2Q13 Citibank Plaza ~25k sq ft Champion REIT Industrial Bank 2Q13 Two IFC ~3k sq ft SHKP/HLD/MTRC A Chinese firm 2Q13 Times Square ~12k sq ft Wharf Yahoo 2Q13 One Island

East ~21.3k sq ft Swire JP Morgan

3Q13 Two IFC ~2.5k sq ft SHKP/HLD/MTRC A Chinese firm 3Q13 Cosco Tower ~17k sq ft HKMC Expansion 3Q13 Li Po Chun

Chambers ~87.3k sq ft Strata-titled to

different owners

3Q13 Two Pacific Place

~4.8k sq ft Swire

3Q13 One Pacific Place

~10.48k sq ft Swire

3Q13 28 Hennessy Road

~4.9k sq ft Swire Grant Thornton

3Q13 28 Hennessy Road

~4.9k sq ft Swire Cigna Worldwide Life Ins

3Q13 Times Square ~19.5k sq ft Wharf 3Q13 Hysan Place ~16.4k sq ft Hysan 3Q13 Cityplaza Three ~17.8k sq ft Swire Sun Life

Assurance Co.

3Q13 Kowloon Bay ITAEC

~50k sq ft Hopewell Wharf T&T

Aug-13 Man Yee Building

27th Fl (~6k sq ft) Robeco ~HKD 78/sq ft Relocation from Li Po Chun Building in Sheung Wan

Aug-13 IFC 2 High floor units 14-15 (~2.5k sq ft)

SHKP Chinese financial institution

~HKD 165/sq ft

Aug-13 8 Queen's Road East

4 low floors (~81.346k sq ft)

Swire (sub-lease by Generali)

Madison ~HKD 46/sq ft

Aug-13 Times Square Unknown (~14.1k sq ft) SAP Expansion Jul-13 28 Hennessy

Road 26 and 27th Fl (~10k sq ft)

Swire Net-a-Porter (on-line retailer)

~HKD 50/sq ft

Jul-13 28 Hennessy Road

14 and 15th Fl (~10k sq ft)

Swire CIGNA (insurance co)

~HKD 50/sq ft Some relocation from Sunning Plaza in Causeway Bay

Jul-13 28 Hennessy Road

12 and 13rd Fl (~10k sq ft)

Swire Grant Thornton (accounting)

~HKD 50/sq ft Some relocation from Sunning Plaza in Causeway Bay

Jul-13 Henley Building (5 QRC)

12 Fl (~5.7k sq ft) Religare (Indian firm)

~HKD 55/sq ft Relocation from Two Exchange Square

Jul-13 CK Center 20th Fl Units 01, 03, 05 (~11.6k sq ft)

Hutch Unknown on HKET article

~HKD 120/sq ft

May-13 Caroline Center Two Floors (~30k sq ft) Hysan Yahoo Relocation from Sunning Plaza in Causeway Bay

May-13 Hysan Place Unknown Hysan Advertising firm Relocation from Sunning Plaza in Causeway Bay

Source: HKET, HKEJ, Singtao, Mingpao, Centaline agents, Bloomberg, Maybank Kim Eng


Hong Kong Office

US QE tapering – No need to panic (Excerpt from report “Potential Surprises in 2014” by our banks analyst, Steven Chan, dated 21 Oct 2013)

According to our banks analyst Steven Chan, there is no need to panic on US QE tapering and we have incorporated a 25-cap rate expansion across all Hong Kong sub-sectors (office, industrial, and retail) in our models for 2014. On 19 Jun 2013, Chairman Bernanke of the Fed indicated that it would be appropriate for the FOMC to moderate the monthly pace of asset purchase under the QE4 later this year if the incoming economic data are broadly consistent with the committee’s forecast. “The FOMC sees as most likely involve continuing gains in labour markets, supported by moderate economic growth that picks up over the next several quarters. It also sees inflation moving back towards the 2% objective over time,” according to Chairman Bernanke. The Fed expects that the QE tapering will continue through 1H14 and the asset purchases will ultimately come to an end when the unemployment rate is in the vicinity of 7%.

However, Chairman Bernanke made it clear that even if there is a modest reduction in the pace of asset purchase (i.e. the QE tapering), the Fed’s portfolio of securities will not be shrinking. Rather, this should result in a slower growth in the portfolio of securities as the Fed will continue to reinvest the principal payments of maturing securities.

Figure 14: Timetable of the US Federal Reserve’s quantitative easing program Program Period Details QE1 Nov 2008 - Jun 2010 Purchase of USD175m of GSE obligations, USD1.25t of MBS and USD300b of long-term Treasury notes

QE2 Nov 2010 - Jun 2011 Purchase of USD600b of long-term Treasury notes; Reinvestment of USD250-300b in Treasuries from proceeds of maturing MBS

Operation Twist Sep 2011 - Dec 2012 Purchase of long-term Treasury notes from proceeds of maturing short-term Treasury bills; Reinvestment in MBS when due

QE3 Sep 2012 - Dec 2012 Purchase of USD40b MBS and USD45b long-term Treasury notes through Operation Twist per month

QE4 Jan 2013 - Present Termination of Operation Twist; purchase of USD40b MBS and USD45b long-term Treasury notes per month

Source: US Federal Reserve

Figure 15: 3-month US Treasury bill rate vs 10-year US Treasury bond rate


Meanwhile, the QE tapering should not have any impact on the Fed funds rate. The FOMC said in its Dec 2012 meeting that it will keep the target range for the Fed funds rate at 0-0.25% for as long as the unemployment rate remains above 6.5% and the inflation rate 1-2 years ahead is projected to be no more than 0.5ppt above the 2% long-run goal. Moreover, Chairman Bernanke stated in Jun 2013 that these economic conditions set out as preceding any future interest rate hikes are thresholds, not triggers. In other words, even if the US inflation rate is close to 2.5% or the unemployment rate is close to 6.5%, it will not

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13

%% 10-year Treasury bond (LHS) 3-month Treasury bill (RHS)

Chairman Bernanke indicated in Jun 2013 that it

would be appropriate for the FOMC to moderate the monthly pace of asset

purchase under the QE4 later this year

Even if there is QE tapering, the Fed’s portfolio of securities will not be

shrinking

Even if the US inflation rate is close to 2.5% or the

unemployment rate is close to 6.5%, this will not

automatically result in an increase in the Fed funds

rate target


Hong Kong Office

automatically result in an increase in the Fed funds rate target, according to our banks analyst.

According to Chairman Bernanke, the QE programs are an unconventional monetary policy used to achieve some near-term momentum to get the economy moving forward into a sustainable recovery. Hence, our banks analyst believes that it is reasonable for the Fed to engage in QE tapering when the US unemployment rate is on a gradual recovery trend and falls to about 7% as: (i) the unemployment rate was 6.8% in Nov 2008 when the QE program was first launched; and (ii) if the unemployment rate were to fall to about 7%, the US real GDP growth will also rebound to above 2.3% (close to the sustainable GDP growth before the Lehman crisis), according to the Sep 2013 economic projection of the Federal Reserve.

Figure 16: US Fed funds rate vs inflation and jobless rates Figure 17: US real GDP growth vs unemployment rate

Source: US Federal Reserve, Bloomberg Source: Bloomberg

US short-term rate hike seems unlikely in 2H13-2014

As aforesaid, our banks analyst believes that the QE tapering will be gradual, depending on the pace of recovery in the US labour market. Besides, the Fed has not set out any criteria or timetable on when it is to reduce the balance of its portfolio of long-term treasury bonds and MBS. He believes that it will not shrink the size of its balance sheet until there is a sustainable downtrend in unemployment rate and a substantial increase in inflationary pressure in the US.

Immediately after the hint from Chairman Bernanke on potential QE tapering, the US 10-year Treasury yield surged from an average of 1.93% in May 2013 to 2.3% in Jun 2013 and further to 2.5-2.9% during Jul-Sep 2013. However, the Fed projects that the PCE inflation rate will stay low at 1.3-1.8% during 2014 (1.23% in Aug 2013). Hence, we see a low chance of the Fed disposing of its holdings on long-term treasury bonds and MBS even it were to begin to taper QE in 2H13-2014. Our banks analyst forecasts that the US 10-year Treasury yield is unlikely to rebound to the pre-QE level (i.e. 3.8% in Oct 2008). Instead, it may fluctuate within a small range of 2.7% to 3.1% during 4Q13-2014.

Figure 18: Projections of Federal Reserve and CBO on key US economic indicators 2013F 2014F 2015F 2016F

Real GDP growth (%) Federal Reserve 2.0-2.3 2.9-3.1 3.0-3.5 2.5-3.3

CBO 1.4 2.6 4.1 4.4

Unemployment rate (%) Federal Reserve 7.1-7.3 6.4-6.8 5.9-6.2 5.4-5.9CBO 7.9 7.8 7.1 6.3

PCE inflation (%) Federal Reserve 1.1-1.2 1.3-1.8 1.6-2.0 1.7-2.0CBO 1.3 1.8 1.9 1.9

Source: US Federal Reserve, CBO

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

(4)(2)02468

1012

Jan 08 Sep 08 May 09 Jan 10 Sep 10 May 11 Jan 12 Sep 12 May 13

%%

PCE YoY% (LHS)Unemployment rate (SA, LHS)Fed fund target rate (RHS)

(5)

0

5

10

15

1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13

% Real GDP growth Unemployment rate (SA)

The Fed will not shrink its balance sheet until there is a

sustainable downtrend in unemployment rate and a

substantial increase in US inflationary pressure

The US 10-year Treasury yield is unlikely to rebound to the

pre-QE level (3.8% in Oct 2008)

We believe it is reasonable for the Fed to engage in QE

tapering when unemployment rate is on a gradual recovery trend and

falls to about 7%


Hong Kong Office

Meanwhile, both the Fed and the US Congressional Budget Office (CBO) project that the US unemployment rate will remain above 6.5% during 2013-2014 and the PCE inflation rate will remain below 2% during 2013-2015. Hence, we see a low chance for the Fed to raise the target Fed funds rate during 2H13-2014. Indeed, the three-month US Treasury bill rate was flat at below 0.05% during Jun-Sep 2013 despite widespread expectations of an imminent QE tapering. This implies that the market expects the Fed to maintain its short-term interest rate policy in the near term.

All told, our banks analyst believes the QE tapering should lead to a steepening US yield curve as the short rate is unlikely to rise during 2H13-2014. The Fed has also said that it may not reduce its holdings of long-term Treasury bonds and MBS even after the termination of the QE program. This should result in limited volatility in the medium-term US interest rates (2-3 year US Treasury yields). Hence, Hong Kong banks may take advantage of the steepening yield curve to lengthen their duration of US bond holdings and improve their NIMs.

Figure 19: US Treasury yield curve before and after speculation on QE tapering


Some landlords or REITs using lower cap rate may bear the brunt of risks on cap rate expansion. As mentioned in earlier sections, current average rental yield for Grade A office is just 2.9%. We noticed independent property valuers of some REITs and landlord are using more aggressive cap rate such as 3.3% for Citibank Plaza and 4.0% for Langham Place for CREIT. While some are using more conservative cap rates in their property valuation such as Link REIT at 4.5%-6.5% in general (as high as 8.25% for the lowest quality property assets), Fortune REIT at 4.3 – 5.0%, Prosperity REIT at 3.5% - 4.8% and Wharf’s HK retail at ~5% and HK office at ~4.5%. For those with more aggressive cap rates adopted, the valuation change is more sensitive to the same magnitude change in cap rates, and thus, the impact on its portfolio valuation from the potential cap rate expansion will be more severe, in our view.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y

% Jun 08 Dec 12 Sep 13

The Fed will not raise the target Fed funds rate during

2H3-2014

The QE tapering should lead to a steepening USD yield

curve with moderate interest rate volatility


Hong Kong Office

2014 office market outlook Completion/uptake equilibrium; divergence in outlook for different sub-markets

Without a massive completion supply in Kowloon East like the time in 2007 and 2008, HKRVD forecasted the completion of FY13F and FY14F would be 123k sq m and 132k sq m, similar to uptake in 2012 and slightly lower than the 7-year average annual uptake of 166k sq m for Grade A office space. We see the supply-demand is largely at equilibrium and the general office market rental trend may be stable in FY2014.

However, as we witness some of the districts are having a higher vacancy rates including the core office districts like Central, Admiralty and Wan Chai. We expect rental in these districts will still under pressure with landlords are more aggressively to lift their occupancy rates. Furthermore, even we have noticed relocation activities are slowing down, we believe this is mainly due to lack of available large floor spaces in Kowloon East or some decentralized districts. As long as some larger spaces are vacated, we expect they can be filled up by some large-space occupiers relocated from higher rental districts given the rental gaps are still big to provide sufficient economic initiatives.

Without material deterioration in macro economy in HK in 2014, we expect rental in Central and non-core Central (Sheung Wan and Admiralty) will fall by 5% and Tsim Sha Tsui will be at 0 to -5%, while we are more optimistic on rental change in some decentralized districts such as Wan Chai/Causeway Bay and Island East will be at 0 to +5% and Kowloon East at +5%. We also expect rental in Kowloon Central (such as Hung Hom and Mongkok) to remain stable.

Figure 20: HK office completion, take-up and vacancies by districts and Grades 2006 2007 2008 2009 2010 2011 2012 7-Yr Average 2013F* 2014F*Grade A Office Completion (k sq m) 92 286 331 129 115 125 104 168.9 123 132Take-up (k sq m) 81 140 350 (71) 292 233 134 165.6Vacancy (k sq m) 443 589 571 753 576 448 418 542.6Vacancy rate (%) 7.6 9.7 8.9 11.5 8.5 6.6 6.1 8.4 Grade B Office Completion (k sq m) 9 31 9 19 7 30 32 19.6 31 21Take-up (k sq m) 62 14 3 (22) 29 40 40 23.7Vacancy (k sq m) 163 181 168 195 173 161 153 170.6Vacancy rate (%) 6.7 7.3 6.9 8 7.1 6.6 6.1 7.0 Grade C Office Completion (k sq m) 8 3 1 3 2 0 0 2.4 4 6Take-up (k sq m) 24 16 (8) (8) 18 12 8 8.9Vacancy (k sq m) 147 131 134 135 111 91 81 118.6Vacancy rate (%) 9.3 8.4 8.6 8.9 7.3 6 5.4 7.7 Overall Completion (k sq m) 109 320 341 151 124 155 136 190.9 152 114Take-up (k sq m) 167 170 345 (101) 339 285 182 198.1Vacancy (k sq m) 753 901 873 1,083 860 700 652 831.7*Note: 2013F and 2014F numbers forecasted by HKRVD Source: HKRVD

Figure 21: Our forecasts on rental growth of various office sub-markets for 2014F Rental growth (%)Hong Kong Island sub-markets Central -5Non-core Central (Admiralty and Sheung Wan) Wan Chai/Causeway Bay 0 to +5Hong Kong East 0 to +5 Kowloon sub-markets Tsim Sha Tsui 0 to -5Kowloon East (Kwun Tong and Kowloon Bay) +5Kowloon Central (Hung Hom and Mongkok) 0Source: Maybank Kim Eng

We see the 2014 office market at completion/uptake

equilibrium


Hong Kong Office

Figure 22: Development completions since 1995 (m sq ft)


Figure 23: Rolling 4-quarter net absorption of office area and HK real GDP growth since 1996


Figure 24: Historical and current rental of benchmark Grade A office buildings

Source: CB Richard Ellis Research, Singtao, Hong Kong Economic Times, Maybank Kim Eng

0

1

2

3

4

5

6

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

New Supply Hong Kong Science ParkGov. site 13/14 Avg anticipated supplyAvg historic supply

-10%-5%0%5%10%15%20%25%30%35%40%

(400,000)(200,000)

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

HK Island, LHS Kowloon, LHS GDP growth, RHS (% YoY)sq ft

0

50

100

150

200

250

CharterHouse

AIA Central Two IFC One/TwoExchange

Square

CentralPlaza

One IslandEast

MilleniumCity V

ManulifeFinancialCentre

HKD per sqf/month Max Min Current


Hong Kong Office

Figure 25: Upcoming supply by floor-plate sizes and districts

*Note: FP: floor plate; LL: landlord Source: CB Richard Ellis Research, Maybank Kim Eng

Figure 26: Basic information of some REITs listed on HKEx

Link REIT Prosperity REIT Champion REIT Fortune REIT Sunlight REIT Ticker 823 HK 808 HK 2778 HK 778 HK 435 HK Current property portfolio

11m sq ft retail properties and ~80,000 parking spaces

7 office and industrial properties

2 office properties and 1 shopping mall

17 retail properties 12 office and 7 retail properties

Properties location Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong

Property valuation (Date of valuation)

HKD95.4b (Mar 2013)

HKD8.4b (Jun 2013)

HKD59.0b (Jun 2013)

HKD28.0b (Jun 2013)

HKD14.4b (Jun 2013)

Cap rate adopted 4.5 - 8.25% 3.8 - 4.3% 3.3 - 4.0% 4.3 - 5.0% 3.6 - 4.5%

Listing date 25 Nov 2005 16 Dec 2005 24 May 2006 20 Apr 2010 21 Dec 2006

Listing price (HKD/unit) 10.5 2.16 5.1 3.8 2.6

Book NAV/unit (HKD) 35.68 (Mar 13) 4.55 (Jun 13) 7.96 (Jun 13) 10.01 (Jun 13) 6.52 (Jun 13)

Closing price (as of 6 Nov 2013)

38.50 2.31 3.52 6.29 3.07

Market Cap (HKD b) 88.97 3.23 20.11 11.69 4.98

Premium / (discount) to book NAV

7.9% (49.2%) (55.8%) (37.2%) (52.9%)

Source: company data, Bloomberg, Maybank Kim Eng

Figure 27: HK-REITs peer comparison table as of Nov 6, 2013 Nov 6 TP Mkt cap Last fiscal PER (x) P/B (x) Yield (%) ROE (%) REIT name Ticker Rating (HKD) (HKD) (USDm) year end FY13* FY14* FY13* FY14* FY13* FY14* FY13* FY14*Prosperity REIT 808 HK BUY 2.31 2.75 416 12/2012 15.7 14.8 0.5 0.5 6.4 6.7 3.4 3.5Link REIT* 823 HK NR 38.50 N/A 11,477 03/2013* 24.1 22.2 1.1 1.0 4.2 4.5 4.4 4.7Champion REIT 2778 HK SELL 3.52 3.09 2,595 12/2012 17.6 18.5 0.5 0.5 5.7 5.4 2.8 2.9Sunlight REIT* 435 HK NR 3.07 N/A 642 06/2013* 17.1 16.2 0.5 0.4 6.2 6.4 2.9 3.0Fortune REIT 778 HK NR 6.29 N/A 1,508 12/2012 20.0 18.3 0.7 0.6 5.7 6.2 3.7 3.9Regal REIT 1881 HK NR 2.29 N/A 962 12/2012 15.3 15.3 0.5 0.5 6.8 7.0 3.1 3.0Average 18.3 17.6 0.6 0.6 5.8 6.0 3.4 3.5*Note: Link and Sunlight REITs’ valuation metrics are for FY14 and FY15 instead of FY13 and FY14 due to difference in fiscal year ends. Source: Company data, Bloomberg, Maybank Kim Eng

Large FP & Single LL, Other Kln, 6.9%

Small Floorplate, 20.8%

Large FP but Strata, 17.8%

Large FP & Single LL, HKI, 13.9%

Large FP & Single LL, Kln East,

40.6%

Total sq ft: 722,000# Buildings: 3

Total sq ft: 2,300,000# Buildings: 17





Hong Kong Office

Figure 28: Historical yield comparison between Prosperity REIT (808 HK) and the Link REIT (823 HK)

Source: Bloomberg, Maybank Kim Eng

Figure 29: Historical yield spread between Prosperity REIT (808 HK) and Link REIT (823 HK)


Figure 30: Historical yield comparison between Champion REIT (2778 HK) and the Link REIT (823 HK)


Avg = 6.70

Avg = 4.54

0

1

2

3

4

5

6

7

8

9

10

Nov 09 Apr 10 Sep 10 Feb 11 Jul 11 Dec 11 May 12 Oct 12 Mar 13 Aug 13

808 Div yield (%) 823 Div yield (%)

Avg = 2.15

0

1

2

3

4

5


Yield spread (%)

Avg = 5.73

Avg = 4.54

0

1

23

4

5

67

8

9

10


2778 Div yield (%) 823 Div yield (%)


Hong Kong Office

Figure 31: Historical yield spread between Champion REIT (2778 HK) and Link REIT (823 HK)


Avg =1.19

-1

0

1

2

3

4


Yield spread (%)


Hong KongInitiating Coverage 7 November 2013

Prosperity REIT Relocation + Wholesale Conversion = Winner Initiate with BUY. We initiate on Prosperity REIT (“PREIT”) with a BUY rating and a TP of HKD2.75/share, representing a FY13 distribution yield of 5.4% and 35% discount to NAV FY13F per unit on book. We believe PREIT can maintain its growth in three dimensions: (i) decentralized portfolio to capture relocation trend; (ii) premium-free wholesale conversion policy; and (iii) on-going Asset Enhancement Initiatives “AEI”s.

Relocation trend goes on. PREIT has a portfolio that spreads over various decentralized office districts which we believe can benefit greatly from the relocation demand from traditional core CBD given a 2-3x rental spread of Central District or over 50% spread from other non-core traditional office districts like Wanchai/Causeway Bay.

Ride on the premium-free wholesale conversion policy. The policy allows owners to apply for usage conversion from industrial/office (“I/O”) to commercial under a set of criteria. 2 out of 7 PREIT’s properties have fulfilled these requirements and one of them, the Prosperity Place, has been successfully converted to commercial use in 2H12. With the conversion, restrictions on tenants’ background were removed. PREIT can now introduce more variety of tenants for Prosperity Place such as retail and services to replace some lower rental tenants at lower floors to boost rental by ~10% in addition to the organic growth. Furthermore, PREIT has put the analysis on conversion of the other building, Trendy Center, which accounts for 15.3% of GRA of its portfolio, on its 2014 agenda.

Fair cap rates are adopted by the valuer of PREIT ranging from 3.8% to 4.3% with its Grade A office portfolio only at 3.8% to 4.0% and others from 4.1 to 4.3%. We regard this range as not aggressive and provides some buffer on potential cap rate hike due to future QE tapering.

Stable DPU growth with ongoing positive rental reversion. In 1H13, the average rental reversion rate was 37.8%. With passing rent generally HKD2-7/sq ft lagging behind spot rent, we expect the positive rental reversion trend will continue. We estimate PREIT’s distributable income will increase 9.6% in FY13 and further grow by 10.7% in FY14.

Cheap valuation. Our 12-month TP of HKD2.75 (19% upside) is derived from par to our DDM estimate fair value for PREIT, where we use a discount rate of 6.5% and a long-term growth rate of 1.0%. We factor in a 25-bp cap rate expansion in 2014 in our model. Downside risks to our TP include slowing down in demand from decentralization and relocation trend and over-supply in decentralized office districts.

PREIT–Summary Earnings Table FYE Dec (HKDm) 2012A 2013F 2014F 2015FRevenue 308 344 367 393Underlying distributable profit 187 205 227 236Underlying DPU (cents) 13.5 14.7 15.6 16.5Distribution yield on fair value (%) 4.9 5.4 5.7 6.0P/BV(x) 0.6 0.5 0.5 0.5Gearing (borrowings/total asset) (%) 22.0 20.7 20.7 19.9Consensus DPU (cents) N/A 15 16 17Source: Company data, Maybank Kim Eng

Buy (new)

Share price: HKD2.31 (as of 6 Nov) Target price: HKD2.75

Philip TSE, CFA FRM [email protected] (852) 2268 0643 Karen P KWAN [email protected] (852) 2268 0640

Stock Information

Description: Prosperity REIT is the second real estate investment trust listed in HK in 2005. Its assets portfolio includes 7 buildings located in decentralized districts with a total gross rentable area of ~1.2m sq ft. Ticker: 808 HK Shares Issued (m): 1,396 Market Cap (USDm): 416 3-mth Avg Daily Turnover (USDm): 0.8 HSI: 23,036.94 Free Float (%): 80.1 Major Shareholders: % Cheung Kong (Holdings) Limited 19.9 Historical Chart

Source: Bloomberg Performance: 52-week High/Low HKD3.11/HKD2.25 1-mth 3-mth 6-mth 1-yr YTD Absolute (%) (3%) (6%) (19%) 1% (2%) Relative (%) (3%) (11%) (19%) (4%) (3%)

60

80

100

120

140

Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13

Prosperity REIT HSI Index


Prosperity Real Estate Investment Trust

Four important tables to know

Figure 32: Spot rent and passing rent in 1H13

Property asset GRA

(sq ft)Passing rent

(HKD/sq ft/mth) Spot rent

(HKD/sq ft/mth)The Metropolis Tower 271,418 27.8 ~33Prosperity Millennia Plaza 217,955 21.4 ~28Harbourfront Landmark 77,021 16.9 ~20Prosperity Place 240,000 16.0 ~23Trendy Center 173,764 13.5 ~16Prosperity Center 149,253 14.0 ~16New Treasure Center 86,168 8.9 ~11Source: Company data, Maybank Kim Eng

Figure 33: Lease expiry profile by gross rental income (as at 31 Dec 2012)

Property asset GRA

(sq ft)2013

(%) 2014

(%) 2015 and beyond

(%)The Metropolis Tower 271,418 33.6 22.1 44.3Prosperity Millennia Plaza 217,955 33.1 46.8 20.1Harbourfront Landmark 77,021 0.0 99.9 0.1Prosperity Place 240,000 35.8 50.0 14.2Trendy Center 173,764 44.9 41.6 13.5Prosperity Center 149,253 45.0 33.3 21.7New Treasure Center 86,168 32.5 49.7 17.8Portfolio (overall) 33.9 40.6 25.5Source: Company data, Maybank Kim Eng

Figure 34: Property portfolio – occupancy rates GRA 2007 2008 2009 2010 2011 2012 1H13Property asset (sq ft) (%) (%) (%) (%) (%) (%) (%)Grade A Office The Metropolis Tower 271,418 99.3 99.7 98.5 100.0 98.5 97.9 97.5Prosperity Millennia Plaza 217,955 99.4 98.4 98.6 99.5 100.0 99.6 99.1Harbourfront Landmark 77,021 100.0 100.0 100.0 100.0 100.0 100.0 100.0Prosperity Place 240,000 98.6 97.4 96.5 98.8 98.8 96.1 95.5 Industrial/Office Trendy Center 173,764 94.7 98.7 93.8 98.9 96.3 99.2 98.0Prosperity Center 149,253 100.0 96.7 98.0 100.0 99.2 100.0 100.0 Industrial New Treasure Center 86,168 95.9 100.0 97.2 100.0 100.0 98.5 100.0 1,215,579 98.4 98.5 97.4 99.5 98.8 98.5 98.1Source: Midland, company and Maybank Kim Eng

Figure 35: Tenant retention ratio and rental reversion rate (%) FY07 FY08 FY09 FY10 FY11 FY12 1H13Tenant retention ratio 59.5 51.5 61.8 64.5 66.9 71.5 52.2Rental reversion rate 18.2 22.8 4.3 (0.8) 14.8 36.1 37.8Source: Company data, Maybank Kim Eng

Current spot rent is ~HKD2 – 7/sq ft/mth higher

than passing rent

High lease expiry profile of 33.9% and 40.6% in FY13 and

FY14 respectively, which should allow PREIT to capture

the difference in spot rent during renewal

High occupancy rates allow PREIT to have better

bargaining power not only during rental renewal, but also

in spot rental market

High positive rental reversion rate maintained in 1H13; drop

in tenant retention ratio just because of tenant-mix

adjustment in Prosperity Place right after the wholesale-

conversion



Investment thesis

PREIT has a three dimensional growth story:

1) Decentralized portfolio to capture relocation trend

2) Wholesale conversion of industrial/office buildings to office/commercial buildings

3) On-going Asset Enhancement Initiatives “AEI”s

The under-researched Prosperity REIT (“PREIT”) has a very special portfolio. The majority of its properties are in decentralized locations in Hong Kong including Kwun Tong, San Po Kong, Hung Hom and North Point, which led to additional growth in property income, from improvements in infrastructure and CBD2 efforts by the Hong Kong government, on top of organic growth in unit rentals.

We have seen PREIT benefiting from the continuous relocation demand, growing rental in Kowloon East as a government planned second CBD as well as a unique advantage in utilizing the “Industrial Building Revitalization Scheme” to convert its industrial/office (“I/O”) or purely industrial buildings usage to office/commercial usage at no land premium required from the HK Government. The latter is unique to PREIT among the HK-listed REIT stocks, and the costs of conversion are quite low as some of the properties of PREIT already fulfill the conversion requirement such as minimum car parking spaces and minimum building age of 15 years. Furthermore, the on-going asset enhancement initiatives of projects also allow PREIT to increase its asset competitiveness within their respective areas.

PREIT currently trading at ~6.4% FY13 DPU yield which represents a yield spread with the Hong Kong 10-year exchange fund note of ~450bps, slightly lower than the long-run average of 489bps. However, we believe with the growing DPU, PREIT should also deserve a lower yield spread especially with currently more commercial elements after the wholesale conversion.

We have used a 10-year dividend discount model, “DDM”, to assess the fair value of PREIT, and set our target price at par to the fair value at HKD2.75, initiating with a BUY rating. Our target price represents 19.0% upside, compared to the closing price of HKD2.31 as at 6 Nov 2013.



1) Decentralized portfolio to capture relocation trend

PREIT owns a majority of its property portfolio in non-core business districts. We believe PREIT can greatly benefit from the continuous decentralization trend in Hong Kong office sector. Despite the recent adjustments in Central district due to the softening demand from financial institutions and PRC companies listed on the HKEX, office rental in Central is still at a very high level. Currently, average Grade A office rental still remains at ~HKD100/sq ft/mth which is almost two to three times comparing to HKD30-40/sq ft/mth even for the good Grade A office buildings in Island East and Kowloon East, according to “Hong Kong Office MarketView Q3 2013” published by CBRE Global Research and Consulting. This continues to drive those less-affordable, medium floor space tenants with more options in building choices to look for other alternatives in decentralized area, like Kowloon East and HK Island East.

Given 67.8% and 17.9% of its total rentable GFA located in Kowloon East and HK Island East, respectively, in the property portfolio, PREIT is well-fit to ride on the positive rental growth and hence the growth in property income. Furthermore, we are positive of the mid/long-term growth potential for Kowloon East, as the government’s Kai Tak redevelopment plan and improving infrastructure and auxiliary facilities will help Kowloon East to become another core business district in the next 10-20 years.

For details of each of the property, please refer to Appendix I.

Figure 36: Prosperity REIT’s property portfolio and geographical distribution

Name Location District Usage GRA (sq ft)Trendy Center Lai Chi Kok Kln West Industrial/ office 173,764 Car park 79New Treasure Center Diamond Hill Kln East Industrial 86,168 Car park 22Prosperity Center Ngau Tau Kok Kln East Industrial/ office 149,253 Car park 105Prosperity Place Kwun Tong Kln East Commercial 240,000 Car park 60The Metropolis Tower Hung Hom Kln East Office 271,418 Car Park 98Harbourfront Landmark Hung Hom Kln East Commercial 77,021Prosperity Millennia Plaza Quarry Bay HK Island East Office 217,955 Car Park 43Source: Company data, Maybank Kim Eng

According to CBRE Research data, the average prime office rent rate in Kowloon East and HK Island East rose to HKD47.0/sq ft/mth and HKD34.5/sq ft/mth in 1H13, up 6.5% and 10.9% YoY respectively. Meanwhile, PREIT has a large tenant expiry portfolio in the near future, with 33.9% and 40.6% GRA of current rental contracts expiring in 2013 and 2014 respectively. Given the passing rent lagging behind the spot rent by HKD2-7/sq ft/mth generally, we estimate the rental re-rating opportunity will lift the company’s net property income by 9.5% YoY in 2013 and 5.2% YoY in 2014. Already in its 1H13 set of results, PREIT posted an impressive 37.8% rental reversion for its portfolio.



Figure 37: Location map of the property portfolio

Source: Company data, Maybank Kim Eng

Figure 38: Lease expiry profile by gross rental income (as at 31 Dec 2012)

Name GRA

(sq ft)2013

(%) 2014

(%) 2015 and beyond

(%)The Metropolis Tower 271,418 33.6 22.1 44.3Prosperity Millennia Plaza 217,955 33.1 46.8 20.1Harbourfront Landmark 77,021 0.0 99.9 0.1Prosperity Place 240,000 35.8 50.0 14.2Trendy Center 173,764 44.9 41.6 13.5Prosperity Center 149,253 45.0 33.3 21.7New Treasure Center 86,168 32.5 49.7 17.8Portfolio (overall) 33.9 40.6 25.5Source: Company data, Maybank Kim Eng



Figure 39: Spot rent and passing rent in 1H13

Name GRA

(sq ft)Passing rent

(HKD/sq ft/mth) Spot rent

(HKD/sq ft/mth)The Metropolis Tower 271,418 27.8 ~33Prosperity Millennia Plaza 217,955 21.4 ~28Harbourfront Landmark 77,021 16.9 ~20Prosperity Place 240,000 16.0 ~23Trendy Center 173,764 13.5 ~16Prosperity Center 149,253 14.0 ~16New Treasure Center 86,168 8.9 ~11Source: Company data, Maybank Kim Eng

2) Wholesale conversion of industrial/office buildings to office/commercial buildings

Along with HK’s economic restructuring and relocation of traditional manufacturing businesses to Mainland China, massive flatted industrial spaces were under-utilized. According to “Hong Kong Property Review 2013” by the Hong Kong Rating and Valuation Department, there was 17.14m sq m of flatted industrial stock as of end-2012, of which 5% was vacated and 94.9% was completed before 1995. In order to release the potential and optimize the land use of those industrial buildings located in convenient districts, Hong Kong Development Board has rolled out the Industrial Building Revitalization Scheme (“the Scheme”) in 2010 in order to release the potential and embedded value of these aged industrial buildings. The Scheme allows owner of the eligible buildings to obtain waivers on certain usage restrictions on its land lease and use it for commercial/office purposes without paying any premium. Some of the eligibility requirements include:

a building age of at least 15 years (counting from the date of issue of Occupation Permit);

conversion application has to be jointly submitted by all owners of the building (i.e. difficult for strata-titled buildings);

buildings situated on “Industrial”, “Commercial” or “Other Specified Uses” annotated “Business” (“OU(B)”); and

Minimum car parking spaces – 1 car parking space per 150 – 300 sq m GFA.

PREIT successfully applied for the wholesale conversion for Prosperity Place through the Scheme in Sep 2012. As a result, permitted usage for Prosperity Place (original Industrial/Office use under land lease) has been converted to commercial use. Since Trendy Center has met most of the prerequisite requirements for a commercial usage building and the AEIs were undergoing throughout past few years, there are not much additional CAPEX costs to PREIT.

So, what’s the difference and how to increase rental income? Before the conversion, Prosperity Place could only lease to tenants for industrial uses (like manufacturing or warehouse) and supporting office for companies with industrial business background (old major tenants include electronic, technology, manufacturing and trading companies). Upon the completion of the conversion, various usages like office use for companies without industrial/manufacturing background, such as restaurants, retailers, servicing tenants like spas, nail salons and dancing schools are all permitted. We see Prosperity Place can rerate the rentals in the following ways -

(i) While lower floors normally have lower rental for traditional office use, these lower floors can still attract retailer tenants which require more pedestrian flow and shop frontage and place those as priorities over the view from the



building. Management has indicated that the average rental has been increased by at least 10% for the lower floors after renting to retail tenants.

(ii) As there are no more restrictions on the background of tenants for office uses, the tenant base could be more diversified and have a higher affordability in rental.

(iii) Narrowing the rental gap between current I/O rental level and those “pure office” buildings. Also, based on current market environments, the cap rates used by valuers on typical office/commercial usage should also be ~75-175 bp lower than I/O usages.

Currently, PREIT is analyzing the potential of conversion of other buildings of its portfolio. Since there are numerous eligibility criteria to fulfill in order to apply for the waiver at nil premium under the Scheme, not all of the properties under the portfolio are eligible. Management has indicated that Trendy Center in Cheung Sha Wan, which account for 15.3% of total GRA, may be a good candidate and has put the filing of application in 2014 on its agenda. Assuming the Trendy Center application will be successful, it is estimated that by end-2015, the total GRA in office / commercial use will increase to 903,137sq ft, up 84.5% compared to 489,373 sq ft before conversion of both Trendy Center and Prosperity Place.

In addition, the conversion will not only increase the property income, but also significantly lift the valuation, which would allow more room for fund raising, hence more financial capacity for acquisitions, giving the maximum allowed leverage of 45% gearing ratio (debt/asset) under the HKEX REIT code. We note that for Singapore REIT code, rated issuers (e.g. by Moody’s and S&P), can have a maximum gearing of 60% but those without can lever up to 35% only, whereas HK-listed REIT’s maximum gearing allowed is 45% regardless of whether or not the issuer is rated.

Currently, the spot rent of Prosperity Place is about HKD21 – 23/sq ft/mth which we see as comparable to other office buildings in the district. Before the conversion, the appraised value was only at HKD1.056b or HKD4,400/sq ft, as on 30 Jun 2012. Even after the conversion, the quickly catching up appraised value by independent value of HKD1.385b or HKD5,770/sq ft, was still lagging behind the transacted ASP of nearby commercial buildings, ranging from HKD7,000/sq ft to HKD10,000/sq ft of similar rental level, according to our channel checks with agents and valuers.

Figure 40: Comparison of ASP and rental rates of commercial buildings in vicinity to Prosperity Place in Kwun Tong

Building Address Usage ASP HKD/sq ft

Spot RentHKD/sq ft

Legend Tower 7 Shing Yip Street Commercial/office 10,000–12,000 22 – 26

C-Bons International Center 108 Wai Yip Street Commercial/office 9,000 – 12,000 21 – 23

MG Tower 133 Hoi Bun Road Commercial/office 6,600 – 7,500 14 – 22

King Palace Plaza 55 King Yip Street Commercial/office 8,500 – 9,500 18 – 22

Manulife Financial Center 223 Wai Yip Street Commercial/office Single-owned 25 – 31

Millennium City Block 3 370 Kwun Tong Road Commercial/office 8,000 – 10,500 23 - 28

Prosperity Place 6 Shing Yip Street Commercial/office 5,770* 21 - 23 * Valuation by independent valuer as at 30 Jun 2013 based on gross rentable area of 240,000 sq ft Source: Midland, company data and Maybank Kim Eng



3) On-going Asset Enhancement Initiatives “AEI”s

We have seen many other REITs, such as Link REIT and Fortune REIT, with more exposure to retail space. They often have their AEIs in space planning such as reducing average shop sizes, increasing circulation spaces in order to increase the width of average shop frontage, relocating anchor tenants such as supermarkets or Chinese restaurants to upper floors, etc. We see these types of AEIs take effect quickly and have instant boost in rentals.

Although PREIT currently does not have much retail/shop elements, it implemented an on-going asset enhancement works on its property portfolio, e.g. renovating the main lobby to match Grade A office standard, upgrading toilet facilities, refurbishing and transforming roof to rooftop green garden, modernizing the lift system, etc. We have seen these AEIs considerably improve the accommodating environment and user satisfaction, hence rental competitiveness of the buildings. Although the impact of these AEIs may take effect slowly, but the growth will also last for longer along with the increase in tenant retention ratio, hence, rental reversion rate, in our view. During 1H13, the average rental reversion rate of the whole portfolio during renewal reached 37.8%. We believe there is still room for the management to release the embedded value and narrow the gap with market rental of better quality buildings within the districts. Management expects an IRR of 15% in general to its AEI projects.

Figure 41: On-going asset enhancement works Property Major asset enhancement works TimelineTrendy Center Main lobby and façade 2011 Ground floor lobby 2011 Common corridors 2011 Cargo lift lobby 2012 Common washrooms 2012 Prosperity Center Main lobby and typical floor lobby 2011 Prosperity Place Typical floor lobby and common corridors 2008 Façade and living green roof 2009 Common washrooms 2010 Passenger Lift 2011 Greenwall at carpark and further enhancement in roof garden 2012 Prosperity Millennia Plaza Common corridors

Common washrooms 2011 2011

The Metropolis Tower Executive and common washrooms 2011 Living green garden 2012 Source: Company data, Maybank Kim Eng

Figure 42: Facade of Trendy Center (before renewal) Figure 43: Facade of Trendy Center (after renewal)

Source: Company data Source: Company data



Figure 44: Roof of The Metropolis Tower (before renewal) Figure 45: Living Green Garden of the Metropolis Tower (after renewal)


Figure 46: Lobby of Prosperity Center (before renewal) Figure 47: Lobby of Prosperity Center (after renewal)


Relatively fair cap rates adopted, less affected by potential cap rate expansion

The cap rates adopted by PREIT’s value range from 3.8% to 4.3%, which we regard this range as fair and not aggressive comparing to some other REITs whose valuer adopted as low as 3.3% for Grade A office. The higher cap rates adopted for the valuation of PREIT’s assets simply mean lower impact on valuation for the same magnitude of change in cap rate comparing to the lower one in a scenario of cap rate expansion.

Figure 48: Property portfolio – historical cap rates for valuation

Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11* Jun-12 Dec-12 Jun-13 (%) (%) (%) (%) (%) (%) (%) (%) (%)

Grade A Office The Metropolis Tower 4.1 3.5 3.4 3.3 3.3 3.8 3.8 3.8 3.8Prosperity Millennia Plaza 4.6 4.0 4.0 3.9 3.6 3.7 3.7 3.7 3.7Harbourfront Landmark 4.7 4.3 4.3 4.2 3.9 4.0 4.0 4.0 4.0Prosperity Place 5.2 4.5 4.4 4.3 3.9 4.2 4.2 4.2 4.0 Industrial/Office Trendy Center 5.2 4.7 4.6 4.5 4.0 4.3 4.3 4.3 4.1Prosperity Center 5.2 4.6 4.5 4.4 4.0 4.3 4.3 4.3 4.1 Industrial New Treasure Center 5.6 4.8 4.7 4.6 4.2 4.5 4.5 4.5 4.3*Regulatory requirement to change valuer for every 3 years Source: company data and Maybank Kim Eng



Investment negatives

1) Not easy to have an acquisition unless meaningful corrections in capital values.

PREIT has expanded its investment scope from only office and commercial properties in HK to office, commercial retail properties and not limited in HK in 2008. However, the current rental yield of either office, commercial or retail properties market is still low at ~2.5% – 3.5%, compared to the recent trading yield of almost ~5.5%-6% of the stock. PREIT continues to look for acquisition opportunities for Grade B office or I/O building in decentralized districts in Hong Kong, with growth potential, after possible AEIs in consideration. If the investment market transaction volume remains stagnant, which could lead to some price correction in the near future, the leveraged yield may be able to fit Prosperity’s profile given a higher financing capacity and low finance cost (~HIBOR +160bps), but still, that might not be easy.

2) Unlikely to have asset injections from the ultimate sponsor, Cheung Kong Group.

Despite the fact that PREIT has a strong parent, Cheung Kong Group and we have noted Cheung Kong Group has injected one of the shopping malls to Fortune REIT (778 HK, not rated) recently, we believe asset injection is unlikely to happen to PREIT for two reasons: (i) smaller asset base of PREIT makes it more difficult to acquire any sizeable project from Cheung Kong unless money is raised through placement of large amount of new units which will cause significant dilution, and (ii) there are less suitable commercial or I/O projects from Cheung Kong to fit PREIT’s portfolio and management expertise.



High occupancy rate and tenant retention expected to sustain, based on sound track records

Given its sound track records of keeping high occupancy of over 97% since 2007, we are confident about the consistency of PREIT’s high occupancy rate. Even for 2008 and 2009, when the financial tsunami heavily hit Hong Kong property market, the REIT could still maintain high occupancy rate of 97.4%-98.5%. Therefore, we expect PREIT will keep occupancy rate over 98% on average for FY13 and FY14.

A high tenant retention ratio maintained by PREIT in recent years is also another key factor to keep stable rental income. The rental reversion ratio has also stayed at over 30% since 1H12 for three consecutive half-year periods. In our view, as a large proportion of PREIT’s tenant mix is mainly from the tech industry, like Canon, NEC, Acer, etc., they are less affected by the turbulence in financial markets.

Figure 49: Property portfolio – occupancy rates GRA 2007 2008 2009 2010 2011 2012 1H13 (sq ft) (%) (%) (%) (%) (%) (%) (%)Grade A Office The Metropolis Tower 271,418 99.3 99.7 98.5 100.0 98.5 97.9 97.5Prosperity Millennia Plaza 217,955 99.4 98.4 98.6 99.5 100.0 99.6 99.1Harbourfront Landmark (portion) 77,021 100.0 100.0 100.0 100.0 100.0 100.0 100.0Prosperity Place 240,000 98.6 97.4 96.5 98.8 98.8 96.1 95.5 Industrial/Office Trendy Center 173,764 94.7 98.7 93.8 98.9 96.3 99.2 98.0Prosperity Center (portion) 149,253 100.0 96.7 98.0 100.0 99.2 100.0 100.0 Industrial New Treasure Center (portion) 86,168 95.9 100.0 97.2 100.0 100.0 98.5 100.0 1,215,579 98.4 98.5 97.4 99.5 98.8 98.5 98.1Source: company data and Maybank Kim Eng

Figure 50: Tenant retention ratio and rental reversion rate (%) FY07 FY08 FY09 FY10 FY11 FY12 1H13Tenant retention ratio 59.5 51.5 61.8 64.5 66.9 71.5 52.2Rental reversion rate 18.2 22.8 4.3 (0.8) 14.8 36.1 37.8Source: Company data, Maybank Kim Eng

Figure 51: Gross rentable area by property (as at 31 Dec 12)

Figure 52: Appraised value by property (as at 31 Dec 12)

Source: Company data, Maybank Kim Eng Source: Company data, Maybank Kim Eng

The Metropolis

Tower, 22.3%

Prosperity Millennia

Plaza, 17.9%

Harbourfront Landmark

(portion), 6.4%

Prosperity Place, 19.7%

Trendy Centre, 14.3%

Prosperity Center

(portion), 12.3%

New Treasure Center

(portion), 7.1%

The Metropolis

Tower, 34.9%

Prosperity Millennia

Plaza, 20.5%

Harbourfront Landmark

(portion), 5.5%

Prosperity Place, 16.3%

Trendy Centre, 10.3%

Prosperity Center

(portion), 9.1%

New Treasure Center

(portion), 3.4%



Figure 53: Trade mix by gross rental income (as at 31 Dec 2012)

Figure 54: Trade mix by gross rentable area (as at 31 Dec 2012)

Source: Company data, Maybank Kim Eng Source: Company data, Maybank Kim Eng

Solid distribution growth based on rosy growth in rental

One of the most solid dividend growth plays among peers

With on-going positive rental reversion and sound track records of keeping high tenant occupancy rate, we think PREIT is one of the most stable REITs with sustainable growth, and hence the solid dividend payout increment. We expect the distributable income will increase to 9.8% in FY13 and further grow by 7.5% in FY14. Assuming ~100% of the manager’s fee is paid in units for FY13 and FY14, our estimated distribution per unit amounts to HKD0.147 and HKD0.156 for FY13 and FY14 respectively.

Figure 55: Net property income and distributable income from 2009 – 2014F

(HKD m) 2009 2010 2011 2012 2013F 2014F 5-yr CAGR

Net property income 206.9 212.5 211.5 239.5 267.4 285.1 6.6

Distributable income 145.4 147.8 163.5 186.9 205.2 220.7 8.7Source: Company data and Maybank Kim Eng

Electronic/ Technology,

33.6%

Manufacturing/Trading,

30.2%Textile/ Garment,

7.1%

Logistics, 2.9%

Advertising/ Media, 2.9%

Consultancy/ Research,

6.4%

Finance/ Investment,

2.8%

Real Estate, 0.2%

Others, 13.9% Electronic/ Technology,

31.0%


31.7%Textile/ Garment,

9.9%

Logistics, 3.5%



5.0%


2.3%

Real Estate, 0.2% Others, 13.5%



Financial position

Stable borrowing level and dropping borrowing ratio. As at Jun 2013, PREIT has a borrowing ratio of 20.7% which dropped 1.3 ppts compared to end-2012. This ratio has been dropping progressively since listed along with the increase in portfolio value appreciation (the HK REIT Code sets the maximum level of borrowings at 45% of the total gross asset value).

PREIT’s borrowings are mainly from a banking facility agreement by which PREIT has been granted a facility of HKD2.2b which mainly comprises two parts: 1) HKD1.77b five-year term loan which was set floating at HIBOR+81bps to be repayable on 16 Aug 2015, and 2) HKD430m of revolving loan set floating also at HIBOR+81bps. While interest rate is expected to increase with US QE tapering, the company has entered into an interest rate swap to hedge interest rate risk with notional amount of HKD1.416b (80% of the term loan) to hedge the interest risk. PREIT pays 1.34% fixed rate per annum and has floating interest receipts at three months HIBOR.

Figure 56: Financial gearing analysis (HKD m)

Period end

LT-borrowings

ST-borrowings Cash

Net borrowings

IP valuation

Total liabilities

Totalassets

Borrowing ratio*

2009 - 1,766 53 1,713 5,256 2,269 5,318 33.22010 1,724 26 30 1,720 5,934 2,386 5,972 30.22011 1,733 35 53 1,715 6,991 2,146 7,052 25.12012 1,743 20 44 1,719 7,952 2,185 8,004 22.01H13 1,748 10 57 1,701 8,434 2,205 8,500 20.7*Borrowing ratio = (LT borrowings + ST borrowings) / Total assets Source: Company data and Maybank Kim Eng



Valuation and recommendation

We believe that the stable rental growth and medium/long term will lead to more rental upside in decentralized areas, especially Kowloon East district because of the Kai Tak redevelopment plan and upcoming ancillary facilities. PREIT will also be able to capture additional rental growth from usage conversion under the revitalization scheme.

PREIT is currently trading at ~6.4% FY13 DPU yield which represents a yield spread with 10-year exchange fund note of ~450bps, slightly lower than the long-run average of 489bps. However, we believe with the growing DPU, PREIT should also deserve a lower yield spread especially with currently more commercial elements after the wholesale conversion. We use a 10-year dividend discount model, “DDM”, to assess the fair value of PREIT, and set our target price at HKD2.75, initiating with a BUY rating. Our target price represents 19% upside, compared to the closing price of HKD2.31 as at 6 Nov 2013. Our target price is derived from the following key assumptions:

1) estimated cost of equity will be 6.50% and terminal growth rate at 1.0% and

2) the manager’s fee will continue to be paid in the way of ~100% in units.

Figure 57: Detailed valuation assumptions for PREIT

10-yr HK exchange fund note generic yield 1.87%

Adopted long-run risk free rate 3.50%

Expected market return 8.01%

Estimated levered beta 0.62

Cost of equity 6.32%

Adopted discount rate 6.50%

Long term grow rate 1.00%

Terminal yield 5.50%

Valuation (HKD/share)

Aggregated discounted distribution for FY2013 – FY2022 1.15

Terminal value (post FY2022) 1.60

Fair value 2.75Source: Company data and Maybank Kim Eng estimates

Figure 58: HK-REITs peer comparison table as of Nov 6, 2013 Nov 6 TP Mkt cap Last fiscal PER (x) P/B (x) Yield (%) ROE (%)

REIT name Ticker Rating (HKD) (HKD) (USDm) year end FY13* FY14* FY13* FY14* FY13* FY14* FY13* FY14*Prosperity REIT 808 HK BUY 2.31 2.75 416 12/2012 15.7 14.8 0.5 0.5 6.4 6.7 3.4 3.5Link REIT* 823 HK NR 38.50 N/A 11,477 03/2013* 24.1 22.2 1.1 1.0 4.2 4.5 4.4 4.7Champion REIT 2778 HK SELL 3.52 3.09 2,595 12/2012 17.6 18.5 0.5 0.5 5.7 5.4 2.8 2.9Sunlight REIT* 435 HK NR 3.07 N/A 642 06/2013* 17.1 16.2 0.5 0.4 6.2 6.4 2.9 3.0Fortune REIT 778 HK NR 6.29 N/A 1,508 12/2012 20.0 18.3 0.7 0.6 5.7 6.2 3.7 3.9Regal REIT 1881 HK NR 2.29 N/A 962 12/2012 15.3 15.3 0.5 0.5 6.8 7.0 3.1 3.0

18.3 17.6 0.6 0.6 5.8 6.0 3.4 3.5*Note: Link and Sunlight REITs’ valuation metrics are for FY14 and FY15 instead of FY13 and FY14 due to difference in fiscal year ends. Source: Company data, Bloomberg, Maybank Kim Eng



Figure 59: Historical dividend yield and 10-Yr HK exchange fund note yield


Figure 60: Yield spread over 10-Yr HK exchange fund note yield


Avg = 6.70

Avg = 1.81

0

1

2

3

4

5

6

7

8

9

10


Div yield (%) 10-yr HK EFN (%)

Avg = 4.89

0

1

2

3

4

5

6

7

8

9


Yield spread (%)



Company background

PREIT is a real estate investment trust formed to own and invest in a portfolio of commercial properties and was listed in Hong Kong Stock Exchange on 16 Dec 2005. As at the end of Jun 2013, Prosperity’s property portfolio consists of gross rentable area, “GRA”, of 566,394sq ft in three Grade A office buildings in decentralized business districts, GRA of 563,017sq ft in all/portion of two industrial/office buildings and one commercial building and GRA of 86,168sq ft of a portion of one industrial building, and a total of 407 parking lots.

The manager of PREIT is the ARA Asset Management (Prosperity) Limited (ARA SP, non-rated), an in-direct wholly-owned subsidiary of Cheung Kong (1 HK, non-rated). Its current investment strategy is to invest in sustainable income producing office, commercial and retail properties to maximize their values through asset enhancements or wholesale conversion of industrial buildings. As these enhancement projects progress, the properties of PREIT can better benefit from the “decentralization” progress, whilst improving returns for unit-holders.

The management team has a strong experienced background and diverse expertise. For instance, the Chairman of the manager is Mr. Chiu Kwok Hung, Justin, who has more than 30 years of experience in real estate in Hong Kong and various countries. Mr. Chiu joined Cheung Kong Group in 1997, and started to head sales team, marketing team and property management team. Prior to joining Cheung Kong Group, Mr. Chiu was with Hang Lung Group (1979 – 1994) and Sino Land (1994-1997). Ms. Wong Lai Hung, Mavis was re-designated as CEO on 1 Jan 2013 and joined PREIT in 2007. She has ~20 years of real estate industry experience with leasing, marketing and property management experience in various developers including Cheung Kong, New World, Jardine Matheson, Goodwill and Yaohan Department Store.



Risks

1) Instability from external economy

Hong Kong’s economy largely depends on several factors from external economies, e.g. the recovery of European countries’ economy, pace of US QE tapering, slowing down of China economy, etc. Any worsening situations or lower-than-expected recovery will hurt the business environment and cause instability of the rental market. Furthermore, continuous capital outflow may also drive down rentals or cause cap rate expansion, i.e. deteriorate the appraised value of the investment properties portfolio.

2) Over-supply of office in Kowloon East

Following government’s Kai Tak Redevelopment Plan, we have seen similar I/O used buildings applying wholesale conversion to commercial used buildings, and it may cause an over-supply of office buildings, given that there is already ~1.1m sq m stock of Grade A office in Kwun Tong district (out of 6.9m sq m in HK) as at end 2012 according to Rating and Valuation Department. The possible further ramp-up office supply may drive down the occupancy rate and expected rental growth.

3) Decentralization trend may slow down with traditional districts rental plunge

The slowing down rental growth or even drop in rental in some traditional office districts including Central and Admiralty has narrowed the rental gap between these traditional core areas and emerging Kowloon East office areas. The narrowing down rental gap will reduce the price competitiveness of the new office areas which could decelerate the decentralization trend from core CBD tenants.



INCOME STATEMENT BALANCE SHEET FY (HKD '000) 2012A 2013F 2014F 2015F

FYE Dec (HKD '000) 2012A 2013F 2014F 2015F Revenue 308,366 344,333 367,070 393,426 Investment properties 7,952,000 8,522,553 8,585,617 8,954,071 Property expense (68,895) (76,931) (82,011) (87,899) Others 7,672 6,653 7,092 7,601 Net property income 239,471 267,402 285,060 305,527 Cash 44,305 42,767 39,188 34,576 Finance Costs (43,590) (48,101) (48,101) (49,891) Operating Profit (EBIT) 195,881 219,301 236,959 255,636 Total Assets 8,003,977 8,571,974 8,631,897 8,996,249 Manager's fee (36,837) (42,903) (48,698) (50,957) One-offs 940,744 549,941 42,055 346,538 ST Debt 20,000 20,000 1,783,729 20,000 Pre-Tax Profit 1,099,788 726,339 230,315 551,217 Other Current Liabilities 256,590 265,347 273,596 281,415 Tax (25,073) (27,848) (29,752) (32,399) LT Debt 1,743,423 1,753,576 0 1,773,882 Net Profit 1,074,715 698,491 200,563 518,817 Other LT Liabilities 164,782 177,728 190,674 203,620 Adjusted for non-cash items (887,847) (493,237) 20,123 (282,477) Minority Interest 0 0 0 0 Distributable income 186,868 205,254 220,686 236,340 Total Liabilities 2,184,795 2,216,651 2,247,999 2,278,917

Revenue Growth % 11.9 11.7 6.6 7.2 Unitholders' Equity 5,819,182 6,355,322 6,383,897 6,717,332 Expense ratio (%) 22.3 22.3 22.3 22.3 EBIT Growth (%) 18.5 12.0 8.1 7.9 Net Debt/(Cash) 1,719,118 1,730,809 1,744,541 1,759,306 Distributable profit growth (%) 14.3 9.8 7.5 7.1 Total liabilities/Total Assets (%) 27.3 25.9 26.0 25.3 Effective Tax Rate % 19.9 18.3 17.6 18.0 Borrowings/Total Assets (%) 22.0 20.7 20.7 19.9

CASH FLOW RATES & RATIOS

FY (HKD '000) 2012A 2013F 2014F 2015F FY 2012A 2013F 2014F 2015F Profit before tax 1,099,788 726,339 230,315 551,217 Revenue Growth (%) 11.9 11.7 6.6 7.2 Non-cash change (867,546) (466,648) 46,707 (254,107) NPI Growth (%) 13.2 11.7 6.6 7.2 Working capital change 3,842 1,019 (439) (509) Cash tax paid (9,322) (14,902) (16,806) (19,453)

Underlying DPU (HKD) / i )

13.5 14.7 15.6 16.5 Others 0 0 0 0 Underlying DPU growth (%) 12.7 8.5 6.0 5.6 Cash flow from operations 226,762 245,808 259,777 277,147 Outstanding number of units 1,379,867 1,397,028 1,416,508 1,436,106

BVPU (HKD/unit) 4.22 4.55 4.51 4.68 Addition of IP (including CAPEX) (13,280) (12,990) (13,065) (13,597) Others 84 88 93 97 Cash flow from investing (13,196) (12,901) (12,972) (13,500)

Debt raised/(repaid) (15,000) 0 0 0 Distribution (paid) (173,769) (196,497) (212,437) (228,521) Others (33,437) (37,948) (37,948) (39,738) Cash flow from financing (222,206) (234,445) (250,385) (268,259)

Change in cash (8,640) (1,538) (3,580) (4,612)




Appendix I – Property portfolio of Prosperity REIT

The Metropolis Tower

The Metropolis Tower is a 15-storey office tower, built over a 1.42m sq ft comprehensive mixed-used development, completed in 2001, namely The Metropolis. It comprises of The Metropolis Tower, a shopping mall (Fortune Metropolis), two 18-storey residential towers (The Metropolis Residence) and also a 5-star hotel (Harbour Plaza Metropolis). Prosperity REIT owns The Metropolis Tower with a total rentable area of 271,418 sq ft and also 98 car parking spaces.

Located in Hung Hom, the building enjoys an excellent transportation network which is right adjacent to the Hung Hom MTR Station, the terminal station of MTR East Rail, MTR West Rail as well as MTR Intercity Through Train. Further than that, numerous bus terminals and taxi stations are located in the vicinity. Hung Hom is the entrance to the busiest underwater tunnel in Hong Kong, the Hung Hom Cross Harbour Tunnel, which is also just a few minutes’ drive-away from The Metropolis Tower.

The office tower has a Grade-A office specification with modern architectural features and facilities including column-free floor plates, raised floor system, a fiber optic backbone, a back-up power supply and satellite communication.

Figure 61: Metropolis Tower Tenancy Expiry and Duration Profile

The Metropolis Tower Tenancy Expiry Profile Gross area

(sq ft)% of total

(%)Monthly rental

(HKD)% of total

(%) No. of

tenancy% of total

(%)Year 2013 94,604 35.6% 2,467,650 33.6% 32 37.6%2014 56,743 21.3% 1,620,300 22.1% 26 30.6%2015 & Beyond 114,452 43.1% 3,248,900 44.3% 27 31.8%Total 265,799 100.0% 7,336,850 100.0% 85 100.0%

The Metropolis Tower Tenancy Duration Profile Gross area

(sq ft)% of total

(%)Monthly rental

(HKD)% of total

(%) No. of

tenancy% of total

(%)Below and up to 2 years 81,876 30.8% 2,422,750 33.0% 19 22.4%More than 2 years and up to 3 years 183,923 69.2% 4,914,100 67.0% 66 77.6%More than 3 years – – – – – –Total 265,799 100.0% 7,336,850 100.0% 85 100.0%Source: Company data, Maybank Kim Eng

Figure 62: Top 5 tenants^ Tenants Trade GRA* (sq ft) % of GRI** % of GRACanon Hongkong Company Ltd Electronic/Technology 52,105 19.2 19.6The Hong Kong Polytechnic University Others 21,298 10.5 8.0NEC Hong Kong Ltd Electronic/Technology 18,161 6.0 6.8Heidelberg Hong Kong Ltd Manufacturing/Trading 11,885 4.4 4.5Presidio Production Ltd Electronic/Technology 11,319 4.3 4.3* Gross rentable area ** Gross rental income ^ Top 5 tenants are measured based on tenant's contribution to the total rental income of the property as at 31 December 2012; 1H13 data not disclosed Source: Company data, Maybank Kim Eng

Fig 63: Trade mix by gross rentable area (as at 31 Dec 2012) Figure 64: Lease expiry profile (as at 31 Dec 2012)

Note: 1H13 data not disclosed Source: Company data, Maybank Kim Eng


Electronic/ Technology

54.4%

Manufacturing/Trading25.7%

Textile/ Garment

1.9%

Logistics3.6%

Advertising/ Media0.8%

Consultancy/ Research

0.4%

Finance/ Investment

4.9% Others8.3%

43.1%

21.3%

36.6%

44.3%

22.1%

33.6%

0% 10% 20% 30% 40% 50% 60%

2015and beyond

2014

As at 31 Dec2012 and 2013

By gross rental income By gross rentable area



Prosperity Millennia Plaza

Prosperity Millennia Plaza was developed under a large-scale urban redevelopment program lead by the government and completed in 1999. Prosperity REIT owns the office portion (a 32-stroey office building) of the development with a total rentable area of 217,955 sq ft and 43 car parking spaces. It is located in the Island East office district adjacent to Harbour Plaza North Point Hotel and North Point Government office. Quarry Bay MTR station is just within two minutes’ walk away and Eastern Harbour Crossing Tunnel is about a few minutes’ drive-away from the building.

Along with the transforming Island East district, the area currently features numerous premium office buildings spreading from North Point to Tai Koo Shing which attracts decentralization tenants from traditional CBD areas in Central, Admiralty and Wan Chai districts.

Figure 65: Prosperity Millennia Plaza Tenancy Expiry and Duration Profile Prosperity Millennia Plaza Tenancy Expiry Profile

Gross area(sq ft)

% of total(%)

Monthly rental(HKD)

% of total (%)

No. oftenancy

% of total(%)

Year 2013 82,907 38.2% 1,549,240 33.1% 40 46.0%2014 95,086 43.8% 2,188,480 46.8% 39 44.8%2015 & Beyond 39,197 18.0% 941,400 20.1% 8 9.2%Total 217,190 100.0% 4,679,120 100.0% 87 100.0% Prosperity Millennia Plaza Tenancy Duration Profile

Gross area(sq ft)

% of total(%)

Monthly rental(HKD)

% of total (%)

No. oftenancy

% of total(%)

Below and up to 2 years 63,041 29.0% 1,377,540 29.4% 31 35.6%More than 2 years and up to 3 years 144,839 66.7% 3,090,980 66.1% 54 62.1%More than 3 years 9,310 4.3% 210,600 4.5% 2 2.3%Total 217,190 100.0% 4,679,120 100.0% 87 100.0%Source: Company data, Maybank Kim Eng

Figure 66: Top 5 tenants Tenants Trade GRA (sq ft)* % of GRI** % of GRAJDB Holdings Ltd Consultancy/Research 17,181 9.9 7.9Computer & Technologies Int’l Ltd Electronic/Technology 16,628 7.8 7.7Lamex Trading Co Ltd Manufacturing/Trading 16,132 7.7 7.4Jobs DB Hong Kong Ltd Consultancy/Research 7,818 4.6 3.6Owtel Consulting Ltd Consultancy/Research 8,314 4.3 3.8* Gross rentable area ** Gross rental income Source: Company data, Maybank Kim Eng

Fig 67: Trade mix by gross rentable area (as at 31 Dec 2012)

Figure 68: Lease expiry profile (as at 31 Dec 2012)



Electronic/ Technology

29.5%


Textile/ Garment

0.5%

Advertising/ Media7.8%

Consultancy/ Research

25.7%

Finance/ Investment

5.4%

Others10.7%

18.0%

43.8%

38.2%

20.1%

46.8%

33.1%

0% 10% 20% 30% 40% 50% 60%

2015and beyond

2014





Harbourfront Landmark Property

Prosperity REIT owns portion of units on 3rd, 5th and 6th floor with a total 77,021 sq ft gross rentable area of office portion of the Harbourfront Landmark, which is a skyscraper on the southern Kowloon waterfront, comprising three blocks of 50 to 60-storey residential towers, a 3-levels commercial podium and 2-levels car parking podium completed in 2001. The development is adjacent to a five-star hotel namely Harbour Plaza Hong Kong Hotel as well as Whampoa Garden, the largest residential development in Southern Kowloon.

This asset is located on Wai Hoi Street and is just a few minutes’ driving distance from the Hung Hom MTR East Rail Station, the transportation hub which provides convenient access to Tsim Sha Tsui, the New Territories and Mainland China. In addition, bus terminals and ferry pier are also located in close proximity to provide public transportations to various districts.

Figure 69: Harbourfront Landmark Tenancy Expiry and Duration Profile

Harbourfront Landmark Tenancy Expiry Profile Gross area

(sq ft)% of total

(%)Monthly rental

(HKD)% of total

(%) No. of

tenancy% of total

(%)Year 2013 – – – – – –2014 77,021 100.0% 1,428,530 99.9% 3 75.0%2015 & Beyond – – 1,600* 0.1% 1 25.0%Total 77,021 100.0% 1,430,130 100.0% 4 100.0% Harbourfront Landmark Tenancy Duration Profile

Gross area(sq ft)

% of total(%)

Monthly rental(HKD)

% of total (%)

No. oftenancy

% of total(%)

Below and up to 2 years – – – – – –More than 2 years and up to 3 years 77,021 100.0% 1,430,130 100.0% 4 100.0%More than 3 years – – – – – –Total 77,021 100.0% 1,430,130 100.0% 4 100.0%Source: Company data, Maybank Kim Eng

Figure 70: Top 5 tenants Tenants Trade GRA (sq ft)* % of GRI** % of GRAUniversal Entertainment Hong Kong Ltd Others 30,151 42.0 39.1Hallmark Cards (HK) Ltd Manufacturing/Trading 29,063 35.9 37.8UP Global Sourcing Hong Kong Ltd Manufacturing/Trading 17,807 22.0 23.1* Gross rentable area ** Gross rental income Source: Company data, Maybank Kim Eng






Others39.1%

0.0%

100.0%

0.0%

0.0%

99.9%

0.0%

0% 20% 40% 60% 80% 100% 120%

2015and beyond

2014





Prosperity Place

Prosperity Place is a 27-storey commercial building comprising approximately 240,000 sq ft gross rentable area and was completed in 1996. It is located in center of Kwun Tong of Kowloon East District. The building is located at about 3 minutes’ walk from Kwun Tong MTR Station and close to Eastern Cross Harbour Tunnel. It is the first building that Prosperity REIT successfully applied for the waiver letter through the Industrial Buildings Revitalization policy by the HK Government with usage transformed from industrial/office to commercial in Sep 2012. Some commercial tenants have been successfully introduced during 1H13 such as cafés, dancing school, education centers, beauty centers and some retail shops.

Motivated by the government planning, the Kowloon East area is emerging as a new commercial hub with numerous new Grade A office buildings and re-development projects, which have been completed and, also some are still in the pipeline. More commercial elements including shopping malls and leisure facilities are also developed which attract tenants relocating from Hong Kong East and traditional CBD areas like Central, Wan Chai and Tsim Sha Tsui.

Figure 73: Prosperity Place Tenancy Expiry and Duration Profile

Prosperity Place Tenancy Expiry Profile Gross area

(sq ft)% of total

(%)Monthly rental

(HKD)% of total

(%) No. of

tenancy% of total

(%)Year 2013 91,454 39.7% 1,046,151 35.8% 47 37.9%2014 108,704 47.1% 1,464,264 50.0% 61 49.2%2015 & Beyond 30,503 13.2% 414,117 14.2% 16 12.9%Total 230,661 100.0% 2,924,532 100.0% 124 100.0%

Prosperity Place Tenancy Duration Profile Gross area

(sq ft)% of total

(%)Monthly rental

(HKD)% of total

(%) No. of

tenancy% of total

(%)Below and up to 2 years 61,057 26.5% 842,593 28.8% 40 32.3%More than 2 years and up to 3 years 169,604 73.5% 2,081,939 71.2% 84 67.7%More than 3 years – – – – – –Total 230,661 100.0% 2,924,532 100.0% 124 100.0%Source: Company data, Maybank Kim Eng

Figure 74: Top 5 tenants Tenants Trade GRA (sq ft)* % of GRI** % of GRAEvlite Electronics Company Ltd Electronic/Technology 11,819 4.8 5.1Dartslive International Ltd Others 5,402 3.0 2.3Radio Frequency Engineering Ltd Electronic/Technology 5,608 2.5 2.4Opsec Delta (HK) Ltd Manufacturing/Trading 6,355 2.3 2.8Wistron Hong Kong Ltd Electronic/Technology 4,598 2.2 2.0* Gross rentable area ** Gross rental income Source: Company data, Maybank Kim Eng





39.2%


35.8%

Textile/ Garment,

4.8%

Logistics, 2.0%



1.6%


0.4%

Real Estate, 0.8% Others, 11.4%

13.2%

47.1%

39.7%

14.2%

50.0%

35.8%

0% 10% 20% 30% 40% 50% 60%

2015and beyond

2014





Trendy Center

Trendy Center is a 30-storey industrial/office building with parking and loading/unloading facilities underneath, completed in 1998. The building has a total gross rentable area of 173,764 sq ft. It is located on Castle Peak Road of Lai Chi Kok, which is about five-minute walk away from Lai Chi Kok MTR Station. The district is currently the major garment and fashion wholesale district in Hong Kong.

Figure 77: Trendy Center Tenancy Expiry Profile (as at end-2012)

Year Gross area

(sq ft)% of total

(%)Monthly rental

(HKD)% of total

(%) No. of

tenancy% of total

(%)2013 84,011 48.7% 1,089,400 44.9% 64 40.8%2014 71,016 41.2% 1,008,470 41.6% 77 49.0%2015 & Beyond 17,325 10.1% 326,300 13.5% 16 10.2%Total 172,352 100.0% 2,424,170 100.0% 157 100.0%Source: Company data, Maybank Kim Eng

Figure 78: Trendy Center Tenancy Duration Profile (as at end-2012) Gross

area(sq ft)

% of total

(%)

Monthly rental (HKD)

% of total

(%) No. of

tenancy

% of total


Figure 79: Top 5 tenants Tenants Trade GRA (sq ft)* % of GRI** % of GRADigital World International Ltd Electronic/Technology 4,773 4.1 2.8CEH Textile Limited Textile/Garment 6,849 3.7 4.0Madrid Café O/B Madrid Group Limited Restaurant 708 3.2 0.4STI Asia Pacific Ltd Manufacturing/Trading 898 2.1 0.5Sun-Flower Lace (H.K.) Co Ltd Textile/Garment 3,366 1.7 2.0* Gross rentable area ** Gross rental income Source: Company data, Maybank Kim Eng






14.8%


36.2%

Textile/ Garment,

32.1%

Logistics, 2.5%



0.4%

Others, 13.3%

10.1%

41.2%

48.7%

13.5%

41.6%

44.9%

0% 10% 20% 30% 40% 50% 60%

2015and beyond

2014





Prosperity Center Property

Prosperity Center is a 26-storey industrial building completed in 1999. It is located in Ngau Tau Kok of Kowloon East, which is about 3-minutes’ walk from the Ngau Tau Kok MTR Station. The building features a curtain external wall, 5 to 7.5 kPa floor loading, individual split-type air conditioning systems per unit, loading/unloading bays and ancillary facilities.

The portion owned by Prosperity REIT consists of various units scattered on different floors, with gross rentable area of 149,253 sq ft and also 105 parking spaces (including 91 private car parking spaces, 13 lorry parking spaces and 1 container parking space). With on-going evolving of the Kowloon East area into a second CBD, Prosperity REIT targets to capitalize the decentralization trend and introduce more tenants of higher quality and affordability.

Figure 82: Prosperity Center Tenancy Expiry and Duration Profile

Prosperity Center Tenancy Expiry Profile Gross area

(sq ft)% of total

(%)Monthly rental

(HKD)% of total

(%) No. of

tenancy% of total

(%)Year 2013 70,227 47.1% 887,250 45.0% 30 41.1%2014 47,789 32.0% 655,600 33.3% 24 32.9%2015 & Beyond 31,237 20.9% 428,000 21.7% 19 26.0%Total 149,253 100.0% 1,970,850 100.0% 73 100.0%

Prosperity Center Tenancy Duration Profile Gross area

(sq ft)% of total

(%)Monthly rental

(HKD)% of total

(%) No. of

tenancy% of total


Figure 83: Top 5 tenants Tenants Trade GRA (sq ft)* % of GRI** % of GRACosme De Net Co Ltd Manufacturing/Trading 21,056 16.0 14.1Aurora Fashions Asia Ltd Textile/Garment 10,528 8.5 7.1Metatech Ltd Electronic/Technology 5,545 3.5 3.7Intersport Asia Pacific Ltd Manufacturing/Trading 4,597 3.4 3.1"A Better Way" (Hong Kong) Ltd Electronic/Technology 5,588 3.3 3.7* Gross rentable area ** Gross rental income Source: Company data, Maybank Kim Eng





27.5%


34.2%

Textile/ Garment,

13.5%

Logistics, 15.6%


0.8%

Real Estate, 0.5%

Others, 7.9%

20.9%

32.0%

47.1%

21.7%

33.8%

45.0%

0% 10% 20% 30% 40% 50% 60%

2015and beyond

2014





New Treasure Center Property

New Treasure Center is a 30-stroey industrial building completed in 1995 and located in San Po Kong of Central Kowloon. The area was a traditional industrial area which was well served by extensive road transportation links and public transportation mainly served by buses and public light buses. Diamond Hill MTR station is also within 10-minutes’ walking distance. The building features a relatively modern design of its main lobby which distinguishes itself from other industrial buildings in the area.

The portion owned by Prosperity REIT consists of various units scattered on different floors, with gross rentable area of 86,168 sq ft and also 22 parking spaces. The typical floor plate is 7,500 sq ft.

Figure 86: New Treasure Center Tenancy Expiry and Duration Profile

New Treasure Center Tenancy Expiry Profile Gross area

(sq ft)% of total

(%)Monthly rental

(HKD)% of total

(%) No. of

tenancy% of total

(%)Year 2013 29,411 34.6% 241,601 32.5% 22 43.1%2014 39,471 46.5% 370,030 49.7% 26 51.0%2015 & Beyond 16,021 18.9% 132,600 17.8% 3 5.9%Total 84,903 100.0% 744,231 100.0% 51 100.0%

New Treasure Center Tenancy Duration Profile Gross area

(sq ft)% of total

(%)Monthly rental

(HKD)% of total

(%) No. of

tenancy% of total

(%)Below and up to 2 years 45,346 53.4% 398,431 53.5% 33 64.7%More than 2 years and up to 3 years 39,557 46.6% 345,800 46.5% 18 35.3%More than 3 years – – – – – –Total 84,903 100.0% 744,231 100.0% 51 100.0%Source: Company data, Maybank Kim Eng

Figure 87: Top 5 tenants Tenants Trade GRA (sq ft)* % of GRI** % of GRAGoodwell Property Management Ltd*** Others 12,404 13.4 14.6Union Apparel International Ltd Textile/Garment 2,649 3.7 3.1Newmarket Engineering (Holding) Ltd Others 2,496 3.5 2.9Macrotech Security & Management Services Ltd

Others 2,496 3.4 2.9

Supermax Merchandising (H.K.) Ltd Manufacturing/Trading 2,496 3.2 2.9* Gross rentable area ** Gross rental income *** Goodwell Property Management Ltd is a connected person of Prosperity REIT within the meaning of the REIT code Source: Company data, Maybank Kim Eng





6.0%


27.9%

Textile/ Garment,

31.3%

Advertising/Media, 5.6%

Others, 29.2%

18.9%

45.5%

34.6%

17.8%

49.7%

32.5%

0% 10% 20% 30% 40% 50% 60%

2015and beyond

2014




Hong KongInitiating Coverage 7 November 2013

Champion REIT Various Headwinds Ahead

Bearing the forefront of cap rate expansion risks and negative rental reversion. We initiate coverage on Champion REIT (“CREIT”) with a SELL rating and TP of HKD3.09. We believe CREIT will face the following problems in the coming two years: (i) high income concentration risk; (ii) hike in Citibank Plaza’s vacancy is imminent (est. Dec-2013 vacancy of ~15%) given slow process of only 1 new tenant (Compass serviced office) as reported by press committing to the 4 new floors acquired in May; (iii) forefront cap rate expansion risks given the 3.3% cap rate adopted by valuers; and (iv) negative rental reversion with spot rental lower than passing rental and leases to be expired in FY14 and FY15 in Citibank Plaza. We expect the impact of Bank of America Merrill Lynch’s lease expiry in Sep 14 who will vacate another 10 floors of spaces (or 15% of Citibank Plaza space) will be material.

We forecast non-core Central office rents to fall by 5% next year, underperforming certain sub-markets due to decentralization demand and the clustering effect of the new CBD. HK residential price drops could cause a second-degree negative impact on office prices, as they are historically highly correlated. We see high income concentration risk in just two properties. Despite Langham Place being a bright spot, our on-the-ground checks suggest that foot traffic is already very high and we believe the incremental jump in foot traffic is hard to come through and sales growth would have to come from ASP pick up in retail sales. We also do not expect any new acquisitions over the near term.

Negative rental reversion from Citibank Plaza in the next two years. While this year’s average lettable rent of HKD84/sq ft looks fair, there will be high expiring rents of HKD96/sq ft and HKD100/sq ft in 2014 and 2015, respectively, with CREIT facing negative rental reversion for an asset which we forecast to fetch ~55% of revenue in 2014 out of the portfolio. Also, the newly acquired 3-6th floors in May have a lower efficiency ratio and worse views and the press reported that Compass rented a floor at an initial low rate of HKD60’/sq ft with further step-up.

Valuation. Our 12-month TP of HKD3.09/share is derived from par to our DDM estimate for CREIT, using a discount rate of 6.5%, terminal yield of 5.5% and long-run risk-free rate at 3.5% to factor in a potential cap rate expansion. Upside risks to our TP include faster than expected take-up at Citibank Plaza and a stronger-than-expected recovery in rents and office demand from the financial industry.

CREIT – Earnings Summary Table

FYE Dec (HKDm) 2012A 2013F 2014F 2015FRevenue 2,059 2,026 1,927 1,920Underlying distributable profit 1,254 1,207 1,167 1,155Underlying DPU (cents) 22.1 20.1 19.1 18.3Distribution yield on fair value (%) 7.2 6.5 6.2 5.9P/BV(x) 0.44 0.46 0.53 0.59Gearing (borrowings/total asset) (%) 26.1 29.0 31.3 33.3Consensus DPU (cents) N/A 19.5 18.5 18.9Source: Company data, Maybank Kim Eng

Sell (new)

Share price: HKD3.52 (as of 6 Nov) Target price: HKD3.09

Philip TSE, CFA FRM [email protected] (852) 2268 0643 Karen P KWAN [email protected] (852) 2268 0640

Stock Information

Description: Champion REIT is a real estate investment trust listed in HK in 2006. Its assets are Citibank Plaza and Langham Place, with ~2m sq ft of Grade A office and 360k sq ft of retail space in Hong Kong. Ticker: 2778 HK Units Issued (m): 5,714 Market Cap (USDm): 2,594.6 3-mth Avg Daily Turnover (USDm): 2.5 HSI: 23,036.94 Free Float (%): 39.5 Major Shareholders: % Great Eagle 60.5 Historical Chart

Source: Bloomberg Performance: 52-week High/Low HKD4.28/HKD3.26 1-mth 3-mth 6-mth 1-yr YTD Absolute (%) 2% 2% (15%) (5%) (5%) Relative (%) 2% (3%) (15%) (10%) (7%)

60

70

80

90

100

110

120

Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13

Champion REIT HSI Index


Champion Real Estate Investment Trust

Two important charts and one table to know

Figure 90: High income concentration risk from Citibank Plaza (in HKD m)


Figure 91: Dropping tenant mix from more affordable financial sector in Citibank Plaza


Figure 92: Spot rents are far lower than average rental to be expired in 2014 and 2015 for Citibank Plaza

Year GRA

(sq ft)% of total

Monthly Rental(HKD)

% of total (%)

No. of tenancy

% of total

(%)

Avg. monthly lettable rental

(HKD/sq ft)

2012 6,891 0.7 654,645 0.7 1 1.1 952013 108,022 10.4 9,098,841 9.8 25 27.5 842014 479,445 46.1 46,204,965 49.9 33 36.2 962015 110,221 10.6 11,034,633 11.9 22 24.2 1002016 249,884 24.1 17,716,366 19.2 6 6.6 712017 84,431 8.1 7,855,470 8.5 4 4.4 93Total 1,038,894 100.0 92,564,920 100.0 91 100.0 89As of Dec-2012 *No disclosure on 1H13 data from the company Source: Company data, Maybank Kim Eng

220 231 230 249 254 278 285 304 320

135 134 135 133 126 128 129 135 138

676 638 594 536 570 584 597 609 600

0

200

400

600

800

1,000

1,200

1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13

Langham Place Mall Langham Place Office Citibank Plaza

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13

Banking Institutional Funds Hedge Funds Securities Legal Retail Others Vacant



Investment thesis Listed in 2006, Champion REIT (“CREIT”) is currently the third largest REIT in terms of market capitalization and is managed under Eagle Asset Management (CP) Limited (“EAMcp”), is a wholly owned subsidiary of the Great Eagle Group. The asset owned by the trust is basically comprised of two properties, Citibank Plaza, in non-core Central on Hong Kong Island and Langham Place, an integrated project in the commercial district of Mongkok in Kowloon. Although CREIT has a large asset portfolio of HKD59b on the balance sheet as of Jun 2013 which allowing for stronger financial capability to acquire new properties, we see a few specific key challenges faced by CREIT that will lead to a sustaining discount. Many of these problems are related to the heavier weighting asset – Citibank Plaza, which stalled over rental performance as well as the outlook of the whole portfolio. Key issues include:

1) High income concentration risk in just two properties.

2) Drop in tenants’ affordability and tenant-mix diversification.

3) Loss in pricing power in Citibank Plaza due to high vacancy rate.

4) Forecasted negative rental reversion from Citibank Plaza in the next two years.

1) High income concentration risk.

CREIT has only three major assets (or effectively just two if we count Langham Place office and mall as one asset). In 1H13, 70% of gross revenue came from the office segment (57% from Citibank Plaza and 13% from Langham Place Office) and the remaining 30% from Langham Place mall. Although we have seen high growth in rentals from Langham Place mall, which benefitted from the vivid retail market, the stagnant rental performance from the office sector has stalled overall rental growth. More importantly, Central office rental has softened since the European Sovereign Debt Crisis and the slowing down of the HK IPO market, which led to lower affordability from banking, one of the most profitable sectors. We do not expect a significant turnaround in spot rent growth as well as occupancy rates from Citibank Plaza in the short to medium term.

Furthermore, Bank of America Merrill Lynch (“BoAML”) is currently using 10 floors or 15% of space in Citibank Plaza that it will vacate in Sep 2014 and move to CK Center. However, we believe the demand for large space in the current market is weak which is also proven by ~85% leasing activities dominated by tenants of <10,000sq ft in 3Q13, according to CB Richard Ellis Research’s “3Q2013 Hong Kong Office MarketView” (“CBRE 3Q13 Report”).

Figure 93: Gross revenue breakdown of CREIT from 1H09 to 1H13 (in HKD m)


220 231 230 249 254 278 285 304 320

135 134 135 133 126 128 129 135 138

676 638 594 536 570 584 597 609 600

0

200

400

600

800

1,000

1,200

1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13

Langham Place Mall Langham Place Office Citibank Plaza



2) Drop in tenants’ affordability along with tenant-mix diversification.

The tenant mix of the key income source, Citibank Plaza, has been changing throughout these years especially after Barclays vacated 6% of space in 2H09. While Citibank, BoAML and ICBC continue to be the anchor tenants, we have seen the committed spaces from the financial sector dropping from 78% to 66% with vacancy rates staying at 10 – 12% from 2011, even with ICBC and some funds taking up more spaces themselves.

On one hand, we believe that the bright side of dropping contribution from a single sector or some major anchor tenants will be more tenant diversification. Therefore, it should lower vacancy rate volatility such as that in 2H10. However, having said that, tenants from the banking and financial sectors normally have higher rental affordability, so the dark side of the diversification and the loss of some anchor tenants will be lower rental affordability from tenants. This can potentially lead to a lower quality tenant-mix with more small scale corporates.

Figure 94: Tenant mix of Citibank Plaza from 2H09 to 1H13


3) Loss in pricing power in Citibank Plaza due to high vacancy rates.

According to the CBRE 3Q2013 Report, the average vacancy rate of the Grade A office market in Central was ~5.2%, an increase of 0.1ppt QoQ and flat YoY. The average rental was ~HKD100/sq ft which dropped 0.2ppt QoQ and 3.4ppt YoY.

The vacancy rate of Citibank Plaza has been greater than 10% since 2H09. Currently, the spot rent remains ~HKD80ish/sq ft for normal floors which is far lower than the peak average spot rental of over HKD100/sq ft in 2011. Furthermore, for lower-level floors including those 4 floors newly acquired in May 2013, the effective rental level is just at ~HKD65-75/sq ft, per local press. This is partly due to the lower efficiency ratio of the lower floors, high vacancy rate and weak large space demand, in our view.

Figure 95: Occupancy rate and passing rent of Citibank Plaza from 2H08 to 1H13


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13

Banking Institutional Funds Hedge Funds Securities Legal Retail Others Vacant

70

75

80

85

90

95

100

105

110

81

82

83

84

85

86

87

88

89

90

91

2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13

%HKD/sq ft Passing rent (HKD/sq ft) Occupancy Rate (%)



4) Forecasted negative rental reversion from Citibank Plaza in the next two years.

We see the outlook on rental reversion as not optimistic at all for two reasons: (i) high expiry profile in 2014 when carrying rental will be higher than spot rent; and (ii) high vacancy rates and the second place anchor tenant leaving in 2014.

As at 1H13, the average monthly passing rent of Citibank Plaza was HKD85.3/sq ft (not including the newly acquired floors which were not yet leased), close to the average rental of the tenancies to expire in 2013. However, looking into the expiry profile of 2014 and 2015, the monthly average rentals to expire are as high as HKD96/sq ft and HKD100/sq ft respectively. The total tenancies to expire in 2014 will be 46% by GRA of the whole Citibank Plaza portfolio, as of Dec-2012. As the vacancy rate still exceeds 10%, we believe spot rental will not likely rebound to level in 2011 of over HKD100/sq ft/month in 2014. Further vacancies from the newly acquired lower-level floors will further suppress CREIT’s bargaining power in seeking new tenants.

BoAML set to leave in Sep-2014. Currently using 10 floors or 15% of total GRA of Citibank Plaza, the second place anchor tenant will relocate its offices and vacate all of its leased spaces. We do not expect CREIT to be able to fill up BoAML’s space with any single tenant at market and CREIT will have to tackle the big jump in vacancy rates by reducing rental levels, providing more rent-free periods and introducing smaller scaled tenants, in our view. We believe CREIT may take at least 1 to 1.5 years to fully absorb the whole impact, similar to 2H09 when Barclays vacated its space. For its other tenant ICBC, we expect the bank to renew its lease due to naming rights, though the floor space to be leased might change.

Figure 96: Lease expiry profile of Citibank Plaza as of Dec-2012

Year GRA (sq ft)% of

total (%)Monthly

Rental (HKD)% of

total (%)No. of

tenancy % of

total (%)


(HKD/sq ft)2012 6,891 0.7 654,645 0.7 1 1.1 952013 108,022 10.4 9,098,841 9.8 25 27.5 842014 479,445 46.1 46,204,965 49.9 33 36.2 962015 110,221 10.6 11,034,633 11.9 22 24.2 1002016 249,884 24.1 17,716,366 19.2 6 6.6 712017 84,431 8.1 7,855,470 8.5 4 4.4 93Total 1,038,894 100.0 92,564,920 100.0 91 100.0 89*No disclosure on 1H13 data from the company Source: company data, Maybank Kim Eng

Figure 97: Lease commencement profile of Citibank Plaza as of Dec-2012

Year GRA% of total

Monthly Rental

% of total

No. of tenancy

% of total


(sq ft) (%) (HKD) (%) (%) (HKD/sq ft)2004 105,436 10.2 7,854,982 8.5 2 2.2 752005 2,325 0.2 173,213 0.2 1 1.1 752007 2,572 0.2 191,614 0.2 1 1.1 752008 7,753 0.7 961,372 1.0 1 1.1 1242010 357,927 34.5 26,822,505 29.0 25 27.5 752011 439,425 42.3 44,872,130 48.5 26 28.6 1022012 123,456 11.9 11,689,104 12.6 35 38.4 95Total 1,038,894 100.0 92,564,920 100.0 91 100.0 89*No disclosure on 1H13 data from the company Source: company data, Maybank Kim Eng

Champion REIT, the third largest REIT in Hong Kong with prime investment properties

Listed in 2006, Champion REIT is currently the third largest REIT in Hong Kong in terms of market capitalization. It is managed under Eagle Asset Management (CP) Limited (“EAMcp”), a wholly owned subsidiary of the Great Eagle Group. The asset owned by the trust is basically comprised of two properties, Citibank



Plaza, in Central on Hong Kong Island and Langham Place, an integrated project in the commercial district of Mongkok in Kowloon.

Figure 98: Location map of Langham Place (Mongkok) and Citibank Plaza (Central)


Citibank Plaza

Citibank Plaza is a Grade A office complex completed in 1996 that makes up two office towers, a 47-storey Citibank Tower and a 37-storey ICBC Tower, as well as a retail podium located in the non-core Central district, near Hong Kong’s traditional financial hub and CBD. Citibank Plaza’s office space has a gross rentable area of over 1.22m sq ft, approximately 42,500 sq ft of retail space, as well as a garage capable of accommodating 558 vehicles. Each of the top 26 floors of ICBC Tower can be joined with Citibank Tower to provide a floor plate of over 30,000 sq ft, providing such a large floor space that is scarce in Central.

After the acquisition of the remaining 4 floors of Citibank Tower in May 2013, Champion REIT currently owns 100% of the whole Citibank Plaza including all office floors, retail space and parking space in Citibank Plaza. According to local press, Compass has committed to one of the newly acquired floors with effective rental at ~HKD65-70/sq ft which is ~HKD10/sq ft less than the spot rent of normal floors. We believe that lease has a step-up structure. The building has had a vacancy rate of 10 – 12% since 2011; the vacancy rate is expected to increase to ~15-16% after BoAML vacates its space in 2H14.

Figure 99: Citibank Plaza’s exterior




Langham Place

Another property, Langham Place, is an integrated commercial development that consists of a 59-storey Grade A office tower, a 15-storey shopping mall and a 42-storey 5-star hotel located in Mongkok. Featuring a wide range of retailers and late operating hours, Mongkok is one of Hong Kong's busiest public transportation hubs and most popular shopping destinations for tourists and locals alike.

CREIT owns all but 4 floors of Langham Place Office Tower with approximately 700,000 sq ft of rentable office space, and the entire Langham Place Mall of 320,000 sq ft of rentable retail space and 250 carparks. On the other hand, Langham Place Hotel is owned by Langham Hospitality (1270 HK, non-rated), a subsidiary of Great Eagle Holdings Limited (parent company of Eagle Asset Management), which is not part of the CREIT’s assets.

Thanks to the right matching of brand and mix to its target audience, the mall is well received by young shoppers as well as tourists for its latest fashion flagship stores and good tenant mix. Together with its innovative design and prime location in Mongkok, it has become a defining landmark of the Mongkok district as well as the largest shopping mall in the area. In addition, the office portion - the Langham Place Office Tower, is a Grade A building that offers large floor space to the retail, merchandizing and wholesale sectors, conveniently located in one of Hong Kong's 4 core retail districts.

Annual footfall has increased from 91.4m in 2008 to 104.7m in 2012. We have seen the mall quite crowded with pedestrians most of the time during the weekend but we believe growth footfall will slow down onwards. In 1H13, the tenant recorded 10% growth in sales, less than 15% sales growth in 1H12 and 12% in full year 2012.

Figure 100: Langham Place: tenant monthly sales (HKD per lettable sq ft)


787

931 908 1,004 1,005

0

200

400

600

800

1,000

1,200

1H11 2H11 1H12 2H12 1H13



Figure 101: Langham Place’s exterior


Figure 102: Langham Place Mall's Beauty Avenue which replaced Seibu

Figure 103: Good foot traffic at Langham Mall's Beauty Avenue

Source: Maybank Kim Eng Source: Maybank Kim Eng

Figure 104: Monki had good traffic, but less packed than H&M

Figure 105: Outside H&M and Monki is MAC's launch of Divine Night limited edition cosmetics

Source: Maybank Kim Eng Source: Maybank Kim Eng



Figure 106: Tenant mix of Langham Place Office Tower from 2H09 to 1H13


Figure 107: Occupancy rate and passing rent of Langham Place Office Tower from 2H08 to 1H13


Figure 108: Tenant mix of Langham Place Mall from 2H09 to 1H13


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13

Merchandizing Professional and sales services Insurance Lifestyle Others Vacant

95

96

97

98

99

100

24

25

26

27

28

29

30

31

2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13

Fanshion and Accessories Health and Beauty Entertainment F&B Others Vacant



Figure 109: Occupancy rate and passing rent of Langham Place Mall from 2H08 to 1H13


Stagnant DPU is expected

Thanks to the new acquisition in Citibank Plaza, the increase in total rentable floor area will help to mitigate the drop in net property income, and thus, distributable income. However, we believe CREIT will still suffer from negative rental reversion and high vacancy rate in the next two years with net property income dropping ~2% by end-2014. Assuming that ~50% of the manager’s fees are paid in units for FY13 and FY14, our estimated distribution per unit amounts to HKD0.214 and HKD0.211 for FY13 and FY14, respectively.

Figure 110: Net property income and distributable income from 2009 to 2014F

(HKDm) 2009 2010 2011 2012 2013F 2014F 5-yr CAGR

Net property income 1,709 1,509 1,562 1,666 1,631 1,552 (1.9%)

Distributable income 1,242 1,067 1,170 1,269 1,207 1,168 (1.2%)Source: Company data and Maybank Kim Eng

Relatively lower cap rates than most other REITs and landlords

The independent property valuer of CREIT is using a cap rate of 3.3% for Citibank Plaza and 4.0% for Langham Place which we see as lower than the cap rates adopted by valuers on other REITs. Although the quality of properties or location may differ, we do see some other REITs and landlords using far higher cap rates on their property valuation such as LINK REIT at 4.5%-6.5% in general (as high as 8.25% for the lowest quality property assets), Fortune REIT at 4.3 – 5.0%, Prosperity REIT at 3.5% - 4.8% and Wharf’s HK retail at ~5% and HK office at ~4.5%. With more aggressive cap rates adopted for Citibank Plaza, the valuation change is more sensitive to the same magnitude change in cap rates, and thus, we believe the impact on its portfolio valuation from the potential cap rate expansion will be more severe.

96

97

98

99

100

101

0

20

40

60

80

100

120

140

2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13




Financial position – Borrowing levels to rebound, but still far from the statutory maximum limit

With the latest acquisition mostly funded by borrowings (HKD1.9b was borrowed out of acquisition cost of HKD2.15b), we expect the borrowing/total assets ratio to increase from 21.7% in 2012 to 24.6% by end-2013, but still lower than the maximum allowable borrowings level at 45% according to the statutory restriction of HK REIT Code.

CREIT’s borrowings are mainly from (i) syndicated term loans which float at HIBOR +59bps and HIBOR +93bps; (ii) bilateral term loan at HIBOR +185bps; and (iii) convertible bonds at 5.25% per annum. The blended interest rate current is at approximately HIBOR +114bps. We have assumed that the interest will increase 25bps per annum starting from FY14 to reflect the impact of US QE tapering.

Furthermore, CREIT’s gearing is also lower than a number of other REITs, which makes it more sensitive to interest rate changes.

Figure 111: Financial gearing analysis (HKD m)

Period end Total

borrowings CashIP

valuationTotal

liabilities Total

assetsBorrowing

ratio*2009 15,695 1,832 44,241 18,019 46,274 33.92010 16,942 2,038 50,222 19,294 52,436 32.32011 15,040 1,273 54,857 17,576 56,332 26.72012 12,976 1,397 58,297 15,639 59,892 21.72013F 14,876 824 59,525 17,583 60,543 24.62014F 14,876 1,024 55,823 17,646 57,041 26.1*Borrowing ratio = Total borrowings/ Total assets Source: Company data and Maybank Kim Eng

Any upside risks?

Apart from the dark side, we believe CREIT possesses the following upside risks:

1) We expect demand from tenants with very large floor area needs to be weak in the next 1 to 2 years. However, any single large tenant commitment to a large portion or all of the floor spaces to be vacated by BoAML could significantly boost the occupancy rate and enhance CREIT’s bargaining power not only in the spot rental market but also in rental renewal negotiations. Under such a scenario, this could lead to less magnitude in negative rental reversion in Citibank Plaza than our expectation.

2) CREIT has a large asset base and still has capacity to make further acquisitions. Any distribution accretive acquisition will also be positive for its share price, though we do not expect any in the next year.

3) CREIT may also benefit from any unexpected financial sector recovery, which could strengthen rental affordability and reduce relocation demand to non-core CBD areas.



Valuation and recommendation

Although CREIT has acquired extra floor spaces in Citibank Plaza without diluting its distribution very much, we believe the acquisition is not cheap with a nominal transacted price of HKD2.15b or HKD27,521/sq ft in GRA. Further increase in vacancy rates may even reduce bargaining power in rental renewal given the high expiry profile of Citibank Plaza in 2014.

CREIT is currently trading at ~5.7% FY13 DPU yield which represents a yield spread with 10-year exchange fund note of ~380bps, very close to the long-run average of 392bps. We have assumed a 6% drop in passing rental in Citibank Plaza and vacancy rate of 14% in FY14.

We use a 10-year dividend discount model, “DDM”, to assess the fair value of CREIT, and set our target price at HKD3.09, equal to par to our fair value, initiating with a SELL rating. Our target price represents 12% downside, compared to the closing price of HK$3.52 as at 6 Nov 2013. Our target price is derived from the following key assumptions:

1) estimated cost of equity of 6.41% and terminal growth rate at 1.0% and

2) manager’s fees continuing to be paid in the way of ~50% in units.

Figure 112: Detailed valuation assumption

10-yr HK Exchange Fund Note generic yield 1.87%

Adopted long run risk free rate 3.50%

Expected market return 8.01%

Estimated levered beta 0.65

Cost of equity 6.41%

Adopted discount rate 6.50%

Long term grow rate 1.0%

Valuation (HKD/share)

Aggregated discounted distribution for FY2013 – FY2022 1.32

Terminal value (post FY2022) 1.77

Fair value 3.09Source: Company data and Maybank Kim Eng

Figure 113: Historical dividend yield and 10-Yr HK exchange fund note yield


Avg = 5.73

Avg = 1.81

0

1

2

3

4

5

6

7

8

9

10


Div yield (%) 10-yr HK EFN (%)



Figure 114: Yield spread over 10-Yr HK exchange fund note yield


Figure 115: HK-REITs peer comparison table as of Nov 6, 2013 Nov 6 TP Mkt cap Last fiscal PER (x) P/B (x) Yield (%) ROE (%)

REIT name Ticker Rating (HKD) (HKD) (USDm) year end FY13* FY14* FY13* FY14* FY13* FY14* FY13* FY14*Prosperity REIT 808 HK BUY 2.31 2.75 416 12/2012 15.7 14.8 0.5 0.5 6.4 6.7 3.4 3.5Link REIT 823 HK NR 38.50 N/A 11,477 03/2013* 24.1 22.2 1.1 1.0 4.2 4.5 4.4 4.7Champion REIT 2778 HK SELL 3.52 3.09 2,595 12/2012 17.6 18.5 0.5 0.5 5.7 5.4 2.8 2.9Sunlight REIT 435 HK NR 3.07 N/A 642 06/2013* 17.1 16.2 0.5 0.4 6.2 6.4 2.9 3.0Fortune REIT 778 HK NR 6.29 N/A 1,508 12/2012 20.0 18.3 0.7 0.6 5.7 6.2 3.7 3.9Regal REIT 1881 HK NR 2.29 N/A 962 12/2012 15.3 15.3 0.5 0.5 6.8 7.0 3.1 3.0

18.3 17.6 0.6 0.6 5.8 6.0 3.4 3.5*Note: Link and Sunlight REITs’ valuation metrics are for FY14 and FY15 instead of FY13 and FY14 due to difference in fiscal year ends. Source: Company data, Bloomberg, Maybank Kim Eng

Avg = 3.92

0

1

2

3

4

5

6

7

8

9


Yield spread (%)



INCOME STATEMENT BALANCE SHEET FY (HKD ‘000) 2012A 2013F 2014F 2015F

FYE Dec (HKD ‘000) 2012A 2013F 2014F 2015F Revenue 2,059,014 2,025,835 1,926,915 1,919,865 Investment properties 58,297,000 59,525,008 54,839,688 51,569,231 Property expense (377,995) (393,214) (394,662) (375,391) Others 197,504 193,085 183,656 182,985 Net property income 1,665,800 1,631,173 1,551,524 1,545,847 Cash 1,397,082 808,474 869,139 998,985 Finance Costs (397,472) (393,721) (416,842) (439,943) Operating Profit (EBIT) 1,268,328 1,237,452 1,134,682 1,105,904 Total Assets 59,891,586 60,526,567 55,892,483 52,751,201 Manager's fee (199,896) (218,293) (186,182) (185,501) One-offs 3,311,748 (974,884) (4,729,738) (3,313,168) ST Debt 5,503,990 5,503,990 5,503,990 5,503,990 Pre-Tax Profit 4,380,180 44,275 (3,781,239) (2,392,765) Other Current Liabilities 2,323,163 2,295,741 2,192,891 2,178,508 Tax (220,229) (222,798) (204,684) (203,255) LT Debt 7,472,192 9,372,192 9,372,192 9,372,192 Net Profit 4,159,951 (178,523) (3,985,922) (2,596,020) Other LT Liabilities 340,041 398,684 450,799 506,178 Adjusted for non-cash items (2,906,086) 1,385,917 5,154,522 3,751,253 Minority Interest 0 0 0 0 Distributable income 1,253,865 1,207,393 1,168,600 1,155,233 Total Liabilities 15,639,386 17,570,607 17,519,872 17,560,868

Revenue Growth (%) 6.1 (1.6) (4.9) (0.4) Unitholders' Equity 44,252,200 42,955,960 38,372,611 35,190,333 Expense ratio (%) 18.4 19.4 20.5 19.6 EBIT Growth (%) 27.1 (2.4) (8.3) (2.5) Net Debt/(Cash) 11,579,100 14,067,708 14,007,043 13,877,197 Distributable profit growth (%) 7.1 (3.7) (3.2) (1.1) Total liabilities/Total assets (%) 26.1 29.0 31.3 33.3 Tax Rate % 21.0 22.2 21.9 22.5

CASH FLOW RATES & RATIOS

FY (HKD ‘000) 2012A 2013F 2014F 2015F FY 2012A 2013F 2014F 2015F Profit before tax 4,380,180 44,275 (3,781,239) (2,392,765) Revenue Growth (%) 6.1 (1.6) (4.9) (0.4) Non-cash change (2,815,485) 1,466,669 5,239,856 3,846,045 NPI Growth (%) 6.6 (2.1) (4.9) (0.4) Working capital change (799) 48,578 (89,946) (12,303)

EBIT Growth (%) 27.1 (2.4) (8.3) (2.5) Net interest receipts (143,661) (401,314) (424,814) (448,314) Distributable profit growth (%) 7.1 (3.7) (3.2) (1.1) Cash tax paid (127,261) (222,798) (204,684) (203,255) Underlying DPU (HKD)

/ i ) 22.1 20.1 19.1 18.3

Others 0 (12,938) 48,639 53,971 Underlying DPU growth (%) (6.4) (9.3) (5.0) (4.0) Cash flow from operations 1,292,974 922,472 787,813 843,380 BVPU (HKD/unit) 7.80 7.55 6.56 5.86

Addition of IP (including CAPEX) (4,249) (2,186,207) (28,548) (26,899) Others 7,415 7,593 7,972 8,371 Cash flow from investing 3,166 (2,178,614) (20,576) (18,529)

Debt raised/(repaid) 496,250 1,900,000 0 0 Equity raised/(repaid) (518,399) 0 0 0 Distribution (paid) (1,169,661) (1,232,466) (706,572) (695,005) Cash flow from financing (1,191,810) 667,534 (706,572) (695,005)

Change in cash 104,330 (588,608) 60,665 129,846



Hong Kong Office

RESEARCH OFFICES

REGIONAL WONG Chew Hann, CA Regional Head, Institutional Research (603) 2297 8686 [email protected]

Alexander GARTHOFF Institutional Product Manager (852) 2268 0638 [email protected]

ONG Seng Yeow Regional Head, Retail Research (65) 6432 1453 [email protected]

ECONOMICS Suhaimi ILIAS Chief Economist Singapore | Malaysia (603) 2297 8682 [email protected]

Luz LORENZO Philippines (63) 2 849 8836 [email protected]

Tim LEELAHAPHAN Thailand (662) 658 1420 [email protected]

JUNIMANChief Economist, BII Indonesia (62) 21 29228888 ext 29682 [email protected]

Josua PARDEDE Economist / Industry Analyst, BII Indonesia (62) 21 29228888 ext 29695 [email protected]

MALAYSIA WONG CHEW HANN, CA Head of Research (603) 2297 8686 [email protected] Strategy DESMOND CH’NG, ACA (603) 2297 8680 [email protected] Banking & Finance LIAW THONG JUNG (603) 2297 8688 [email protected] Oil & Gas – Regional Shipping ONG CHEE TING, CA (603) 2297 8678 [email protected] Plantations – Regional MOHSHIN AZIZ (603) 2297 8692 [email protected] Aviation – Regional Petrochem YIN SHAO YANG, CPA (603) 2297 8916 [email protected] Gaming – Regional Media TAN CHI WEI, CFA (603) 2297 8690 [email protected] Power Telcos WONG WEI SUM, CFA (603) 2297 8679 [email protected] Property & REITs LEE YEN LING (603) 2297 8691 [email protected] Building Materials Glove producers

CHAI LI SHIN (603) 2297 8684 [email protected] Plantation Construction & Infrastructure KANG CHUN EE (603) 2297 8675 [email protected] Consumer IVAN YAP (603) 2297 8612 [email protected] Automotive LEE Cheng Hooi, Regional Chartist (603) 2297 8694 [email protected] Tee Sze Chiah, Head of Retail Research (603) 2297 6858 [email protected]

HONG KONG / CHINA Howard WONG Head of Research (852) 2268 0648 [email protected] Oil & Gas - Regional Alexander LATZER (852) 2268 0647 [email protected] Metals & Mining - Regional Jacqueline KO, CFA (852) 2268 0633 [email protected] Consumer Terence LOK (852) 2268 0630 [email protected] Consumer Jeremy TAN (852) 2268 0635 [email protected] Gaming Karen KWAN (852) 2268 0640 [email protected] HK & China Property Philip TSE (852) 2268 0643 [email protected] HK & China Property Simon QIAN (852) 2268 0634 [email protected] Telecom & Internet Steven CHAN (852) 2268 0645 [email protected] Banking & Financials Warren LAU (852) 2268 0644 [email protected] Technology – Regional

INDIA Jigar SHAH Head of Research (91) 22 6623 2601 [email protected] Oil & Gas Automobile Cement Anubhav GUPTA (91) 22 6623 2605 [email protected] Metal & Mining Capital goods Property Urmil SHAH (91) 22 6623 2606 [email protected] Technology Media

SINGAPORE Gregory YAP Head of Research (65) 6432 1450 [email protected] Technology & Manufacturing Telcos Wilson LIEW (65) 6432 1454 [email protected] Property Developers James KOH (65) 6432 1431 [email protected] Consumer - Regional YEAK Chee Keong, CFA (65) 6432 1460 [email protected] Offshore & Marine Alison FOK (65) 6432 1447 [email protected] Small & Mid Caps Construction ONG Kian Lin (65) 6432 1470 [email protected] S-REITs Wei Bin (65) 6432 1455 [email protected] Commodity Logistics S-chips Derrick HENG (65) 6432 1446 [email protected] Transport (Land, Shipping & Aviation) John CHEONG (65) 6432 1461 [email protected] Small & Mid Caps Healthcare

INDONESIA Lucky ARIESANDI, CFA (62) 21 2557 1127 [email protected] Base metals Mining Oil & Gas Wholesale Pandu ANUGRAH (62) 21 2557 1137 [email protected] Automotive Heavy equipment Plantation Toll road Rahmi MARINA (62) 21 2557 1128 [email protected] Banking Multifinance Adi N. WICAKSONO (62) 21 2557 1128 [email protected] Generalist Anthony YUNUS (62) 21 2557 1139 [email protected] Cement Infrastructure Property

PHILIPPINES Luz LORENZO Head of Research (63) 2 849 8836 [email protected] Strategy Laura DY-LIACCO (63) 2 849 8840 [email protected] Utilities Conglomerates Telcos Lovell SARREAL (63) 2 849 8841 [email protected] Consumer Media Cement Luz LORENZO (63) 2 849 8836 [email protected] Conglomerates Property Ports/ Logistics Gaming Katherine TAN (63) 2 849 8843 [email protected] Banks Construction Ramon ADVIENTO (63) 2 849 8845 [email protected] Mining

THAILAND Sukit UDOMSIRIKUL Head of Research (66) 2658 6300 ext 5090 [email protected]

Maria LAPIZ Head of Institutional Research Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 [email protected] Consumer/ Big Caps

Mayuree CHOWVIKRAN (66) 2658 6300 ext 1440 [email protected] Strategy Padon Vannarat (66) 2658 6300 ext 1450 [email protected] Strategy Surachai PRAMUALCHAROENKIT (66) 2658 6300 ext 1470 [email protected] Auto Conmat Contractor Steel Suttatip PEERASUB (66) 2658 6300 ext 1430 [email protected] Media Commerce Sutthichai KUMWORACHAI (66) 2658 6300 ext 1400 [email protected] Energy Petrochem Termporn TANTIVIVAT (66) 2658 6300 ext 1520 [email protected] Property Woraphon WIROONSRI (66) 2658 6300 ext 1560 [email protected] Banking & Finance Jaroonpan WATTANAWONG (66) 2658 6300 ext 1404 [email protected] Transportation Small cap. Chatchai JINDARAT (66) 2658 6300 ext 1401 [email protected] Electronics

VIETNAM Nguyen Thi Ngan Tuyen (84) 844 55 58 88 x 8081 [email protected] Food and Beverage Oil and Gas Hang Vu (84) 844 55 58 88 x 8087 [email protected] Banking Trinh Thi Ngoc Diep (84) 844 55 58 88 x 8242 [email protected] Technology Utilities Construction Dang Thi Kim Thoa (84) 844 55 58 88 x 8083 [email protected] Consumer Nguyen Trung Hoa (84) 844 55 58 88 x 8088 [email protected] Steel Sugar Resources


Hong Kong Office

APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS

This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.

The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.

This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events.

MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. MKE may, to the extent permitted by law, act upon or use the information presented herein, or the research or analysis on which they are based, before the material is published. One or more directors, officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report.

This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect.

This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this report.

Malaysia

Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.

Singapore

This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law.

Thailand

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) does not confirm nor certify the accuracy of such survey result.

Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of MBKET. MBKET accepts no liability whatsoever for the actions of third parties in this respect.

US

This research report prepared by MKE is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations.

UK

This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.


Hong Kong Office

DISCLOSURES Legal Entities Disclosures

Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938-H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This material is issued and distributed in Singapore by Maybank KERPL (Co. Reg No 197201256N) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Kim Eng Securities (“PTKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities JSC (License Number: 71/UBCK-GP) is licensed under the State Securities Commission of Vietnam. Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited (Reg No: INF/INB 231452435) and the Bombay Stock Exchange (Reg. No. INF/INB 011452431) and is regulated by Securities and Exchange Board of India. KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.

Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.

Singapore: As of 7November 2013, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong: KESHK may have financial interests in relation to an issuer or a new listing applicant referred to as defined by the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

As of 7November 2013, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence

The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Reminder

Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Definition of Ratings

Maybank Kim Eng Research uses the following rating system:

BUY Return is expected to be above 10% in the next 12 months (excluding dividends)

HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends)

SELL Return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings

The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear):

Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax


Hong Kong Office

Malaysia Maybank Investment Bank Berhad (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194

Singapore Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Research Pte Ltd 9 Temasek Boulevard #39-00 Suntec Tower 2 Singapore 038989 Tel: (65) 6336 9090 Fax: (65) 6339 6003

London Maybank Kim Eng Securities (London) Ltd 6/F, 20 St. Dunstan’s Hill London EC3R 8HY, UK Tel: (44) 20 7621 9298 Dealers’ Tel: (44) 20 7626 2828 Fax: (44) 20 7283 6674

New York Maybank Kim Eng Securities USA Inc 777 Third Avenue, 21st Floor New York, NY 10017, U.S.A. Tel: (212) 688 8886 Fax: (212) 688 3500

Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888 Fax: (603) 2282 5136

Hong Kong Kim Eng Securities (HK) Ltd Level 30, Three Pacific Place, 1 Queen’s Road East, Hong Kong Tel: (852) 2268 0800 Fax: (852) 2877 0104

Indonesia PT Maybank Kim Eng Securities Plaza Bapindo Citibank Tower 17th Floor Jl Jend. Sudirman Kav. 54-55 Jakarta 12190, Indonesia

Tel: (62) 21 2557 1188 Fax: (62) 21 2557 1189

India Kim Eng Securities India Pvt Ltd 2nd Floor, The International 16, Maharishi Karve Road, Churchgate Station, Mumbai City - 400 020, India Tel: (91).22.6623.2600 Fax: (91).22.6623.2604

Philippines Maybank ATR Kim Eng Securities Inc. 17/F, Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue Makati City, Philippines 1200 Tel: (63) 2 849 8888 Fax: (63) 2 848 5738

Thailand Maybank Kim Eng Securities (Thailand) Public Company Limited 999/9 The Offices at Central World, 20th - 21st Floor, Rama 1 Road Pathumwan, Bangkok 10330, Thailand Tel: (66) 2 658 6817 (sales) Tel: (66) 2 658 6801 (research)

Vietnam In association with

Maybank Kim Eng Securities JSC 1st Floor, 255 Tran Hung Dao St. District 1 Ho Chi Minh City, Vietnam Tel : (84) 844 555 888 Fax : (84) 838 38 66 39

Saudi Arabia In association with

Anfaal Capital Villa 47, Tujjar Jeddah Prince Mohammed bin Abdulaziz Street P.O. Box 126575 Jeddah 21352 Tel: (966) 2 6068686 Fax: (966) 26068787

South Asia Sales Trading Kevin FOY [email protected] Tel: (65) 6336-5157 US Toll Free: 1-866-406-7447

North Asia Sales Trading Alex TSUN [email protected] Tel: (852) 2268 0228 US Toll Free: 1 877 837 7635

www.maybank-ke.com | www.maybank-keresearch.com | www.kimeng.com.hk

hong kong hk grade a office - kim eng€¦ · 7 november 2013 page 4 of 60 hong kong office we...

Documents