P.1

The development of Real Estate Investment

Trusts (REITs) in Hong Kong

October 2013

P.2

What is a REIT?

A REIT (“Real Estate Investment Trust”) is a collective

investment scheme constituted as a trust that invests primarily in

real estate with the aim of providing investors with returns derived

from rental income

REITs originated in the United States in the 1960s, gradually

gaining popularity in Australia and other parts of the world

REITs are required to payout most of their income to

unitholders in the form of distribution, usually > 90%

REITs have restrictions on borrowing limits, use of financial

instruments and development activities

P.3

Investment Advantages of REITs

Buying Physical Assets Buying Listed REITs

Barrier to entry Medium to High Low

Liquidity Low High

Divisibility Low High

Flexibility Low High

Transparency Low High

Profitability Stable to Fluctuate Stable

Costs and

disbursements

High (HK property stamp duty: 1.5 – 8.5%;

HK special stamp duty: 5 -20%;

HK buyer stamp duty: 15%;

Estate agent commission; Solicitor fees;

Mortgages; Taxes; Government rate;

Insurance; etc (if applicable))

Low (Brokerage: ~1.0%;

HK Stock Exchange trading fee: 0.005%;

SFC transaction levy: 0.003%;

Investor compensation levy; etc

(if applicable))

Day-to-day operational

management

Required Not required

Risk exposure Concentrated Diversified

H-REIT Structure – Typically Externally Managed

Typical externally managed H-REITs

P.4

REIT

Unitholders

Trustee Manager

Properties Property Manager

Management Services

Management Fees

Act on behalf of Unitholders

Trustee’s Fees

Property Management Services

Property Management Fees

Distributions Holding of units

Net property income Ownership

Sponsor

Assets Acquisition

The Link REIT is the only internally managed REIT in Asia

The Link REIT – Internally Managed

The Manager is stapled together as part of the REIT

Trustee Unitholders

HSBC Institutional Trust

Services (Asia) Limited

Ownership of Units

The Link

Management Limited

The Link

Holdings Limited

THE LINK REIT

Trustee’s Fees

Management Services

Manager’s Fee on cost recovery basis

Special Purpose Vehicles Manager

100%

182 Properties

Custodian of assets

P.5

Hong Kong Business Trust – Stapled Units Structure

P.6

Trust

Public Investors

Share Stapled Units

Trustee - Manager

Operating Business

Listco

Provision of trustee/

management service

Reimbursement of expenses

Preference Shares

Units

100% Ordinary Shares

Sponsor/

Controlling Unitholder

100%

P.7

H-REITs At a Glance

* Source: Data as at 30 Sep 2013, Bloomberg

Name Year of

IPO

Stock code Asset types Assets'

location

Market cap

(HK$ billion)*

The Link 2005 823.HK Retail Hong Kong 87.6

Prosperity 2005 808.HK Office Hong Kong 3.3

Yuexiu 2005 405.HK Office China 10.6

Champion 2006 2778.HK Diversified Hong Kong 20.0

Sunlight 2006 435.HK Diversified Hong Kong 4.9

Regal 2007 1881.HK Hotel Hong Kong 7.4

Fortune 2010 778.HK Retail Hong Kong 11.7

Hui Xian 2011 87001.HK Diversified China 19.3

New Century 2013 1275.HK Hotel China 2.8

Hong Kong Lag Behind Singapore as

Developing into a Regional Centre for REITs

P.8

Development of the REIT market in Hong Kong began with the listing of The Link

REIT in 2005, while Singapore REIT market was started in 2002 with the IPO of

CapitaMall Trust

To date, the development of the two markets are in stark contrast:

Number of REITs/

Business Trusts

Total Market Cap

(@30/09/13) Types of Assets

Location of

Assets

Hong Kong 9 ~US$22bn Retail, mixed, office,

hospitality Hong Kong, PRC

Singapore 33 ~US$46bn

Retail, mixed, office,

hospitality, industrial,

healthcare,

apartment

Singapore, PRC,

Hong Kong,

India, Japan,

Malaysia

P.9

Comparison of Hong Kong and

Singapore REIT Markets

Source: Bloomberg ; Market cap of 2013 as at 30 September 2013

Growth of S-REIT Market Growth of H-REIT Market

10

20

30

40

50

60

Mark

et

cap

at

year-

en

d (

US

$B

)

Development of S-REITs

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011 2012 2013

Mark

et

cap

at

year-

en

d (

US

$B

)

Development of H-REITs

Singapore REIT market has vastly outgrown Hong Kong REIT market by

number of listings, size, diversity of asset type and diversity of geography

Criteria US Australia UK France Netherlands Singapore Japan Hong Kong

Management Internal &

external

Internal &

external

Internal &

external

Internal &

external

Internal External External Internal &

external

Property

Investment

75%+ Flexible 75%+

Flexible 100% 70%+ 75%+

100%

Overseas

Investment

Yes Yes Yes Yes Yes Yes Yes Yes

Property

Development

Yes Yes Yes Yes Minimal Max. 10%

assets

Restricted No

Gearing Limit No limit No limit 1.25x

interest

cover test

No limit 60%

total assets

35% total

assets; 60%

total assets

if credit

rating

No limit 45%

total assets

Distribution

Percentage

> 90%

taxable

income

100%

taxable

income

> 90%

rental asset

income

> 85%

taxable

income

100% fiscal

earnings

> 90%

taxable

income

> 90%

taxable

income

> 90%

taxable

income

Tax

Transparency

Yes Yes Yes Yes Yes Yes Yes No

Source: “Implications for the Strategic Development of UK REITs from the Experience of LPTs in Australia”, IPF Research Programme 2006-2009

Hong Kong’s REIT regulations are relatively more restrictive than

other international markets

P.10

Regulatory Restrictions on REITs

Key Issues of the Hong Kong REIT Market

P.11

Restrictions under Mandatory Provident Fund

Exclusion from Hang Seng Index

Preclusion from Development Activities

Uncertainties in REIT Regulations

Developing Hong Kong into a Regional Centre

for REITs

P.12

Potential for listing of PRC and other overseas REITs

REIT as an investment choice for retail investors

Cluster effect to attract REIT specialist analysts and global property investors

Platform for developers to recycle capital by offloading non-core assets to REIT’s

Most significantly, REIT is a heavy user of capital markets(1) leading to demand for

rights issues, private placements, CMBS, bonds and loans, thus supporting Hong

Kong’s financial services industry

Note (1): As REIT has to distribute at least 90% of its distributable income, it does not have retained

earnings for acquisitions or capital expenditure and relies on the capital markets for funding.

0

50

100

150

200

250

300

350

Jan 09 Jan 10 Jan 11 Jan 12 Jan 13

Indic

es r

e-b

ase

d to

100

as a

t 1

Ja

n 2

00

9

Hang Seng REIT Index Straits Times REIT Index Hang Seng Index Straits Times Index

P.13

REIT Indices Outperformed Broad Market Indices

Source: Bloomberg

REIT Indices Broad Market Indices

0

50

100

150

200

250

300

350

400

Jan 09 Jan 10 Jan 11 Jan 12 Jan 13

Un

it P

rice

re

-base

d to

100

as a

t 1

Ja

n 2

00

9

The Link REIT Hang Seng REIT Index

P.14

Outperformance of Retail REITs

Source: Bloomberg

Retail REIT

Hong Kong Retail Market

Strong Retail sales growth

Steady household income growth supports retail market

Decentralisation of retailers drives retail space demand

Limited new supply of retail space

P.15

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Jan-Jul 13

Supermarkets

Jewellery

Foods & alcoholic drinks

Department stores

Clothing

Asian financial crisis

Tech bubble burst

Global financial crisis

SARS outbreak

12 Jan-Jul 13

Daily necessities resilient over long run

Continuous growth in retail sales

Year on Year Change of Retail Sales Value

Hong Kong Retail Market Growth

Source: CEIC Data Company Ltd (“CEIC”)

Source: Census and Statistics Department

P.16

18.3%

9.6%

5.6%

17.3% 16.4%

36.1%

24.9%

7.2%

12.5%

28.0%

21.6%

46.6%

9.8%

2.8%

10.3%

7.6% 9.7%

7.7%

14.2%

2.5%

6.8% 9.3%

20.2%

32.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

All retail outlets

Food, Alcoholic Drinks & Tobacco

Supermarkets Clothing, Footwear &

Allied Products

Department Stores

Jewellery, Watches, Clocks &

Valuable Gifts

2010 2011 2012 Jan-Jul 13

YoY%

$221 $208 $237

$295 $309

$52 $67

$88

$111 $137

0

50

100

150

200

250

300

350

400

450

500

2008 2009 2010 2011 2012

Total Retail Sales HKD bn Mainlanders' Spending HKD bn

Continuous growth in tourist arrival and

mainlanders’ spending on retail sales

Hong Kong Tourism Growth

P.17

Steady Tourist Arrival Growth

36.03

41.92

48.62

25.37

22.68

28.10

34.91

18.82

-

5

10

15

20

25

30

35

40

45

50

2010 2011 2012 Jan-Jun 2013

Tourist Arrivals (Millions)

Total (Millions) Mainland China (Millions)

Source: CEIC

0

Mainlanders’ Spending on Retail Sales

+

HK$’B

2008 2009 2010 2011 2012

Contribution of Mainlanders’

Spending on Shopping to HK Retail

Sales*

19% 24% 24% 27% 31%

Mainland Tourist -

Per Capita Overall Spending (HK$)

4,106 4,649 4,980 5,237 5,119

*Contribution (%) is estimated based on the Mainland tourists’ spending on

shopping from HKTB as a fraction of HK Retail Sales from C&SD (The Link

REIT’s Estimates)

Source: CEIC, Hong Kong Tourism Board (“HKTB”)

(HK$’B) (HK$’B)

Months Unemployment Rate

May 13 3.4%

Jun 13 3.3%

Jul 13 3.3%

2013F 3.1%

-8

-6

-4

-2

0

2

4

6

8

10

12

14

2Q

03

4Q

03

2Q

04

4Q

04

2Q

05

4Q

05

2Q

06

4Q

06

2Q

07

4Q

07

2Q

08

4Q

08

2Q

09

4Q

09

2Q

10

4Q

10

2Q

11

4Q

11

2Q

12

4Q

12

2Q

13

GDP Private Consumption Expenditure

YoY%

Hong Kong Economic Growth

Source: Census & Statistics Department

2Q13

YoY

+4.2%

+3.3%

P.18

GDP & PCE

Source: Census and Statistic Department and Economist Intelligence Unit

Modest Growth in GDP & PCE with unemployment rate at near historic

low supporting income growth

P.18

Unemployment Rate

Source: Census and Statistic Department and Economist Intelligence Unit

0

1

2

3

4

5

6

7

8

9

Ma

r-04

Oct-

04

Ma

y-0

5

De

c-0

5

Ju

l-06

Feb-0

7

Se

p-0

7

Ap

r-08

No

v-0

8

Ju

n-0

9

Ja

n-1

0

Au

g-1

0

Ma

r-11

Oct-

11

Ma

y-1

2

De

c-1

2

Ju

l-13

%

7,500

10,000

12,500

15,000

17,500

20,000

22,500

25,000

27,500

30,000

32,500

2Q

03

4Q

03

2Q

04

4Q

04

2Q

05

4Q

05

2Q

06

4Q

06

2Q

07

4Q

07

2Q

08

4Q

08

2Q

09

4Q

09

2Q

10

4Q

10

2Q

11

4Q

11

2Q

12

4Q

12

2Q

13

Private Permanent Housing Subsidized Sale Flats

Overall Public Rental Housing

Median Monthly Household Income (including bonus)

HK$

Hong Kong Economic Growth

Source: Census & Statistics Department P.19

Household Income Growth

Source: CEIC

Public household income growth outpaced steady overall

growth due to minimum wages and labour shortage P.19

2Q13 2Q13

YoY

Median HH Income (2Q13)

Public Rental Housing +10.0% HK$13,200

Subsidized Home Ownership Housing

+4.8% HK$24,000

Private Permanent Housing

0.0% HK$30,000

Overall +6.3% HK$21,900

Market Decentralisation

P.20

Expansion of international retailers

forcing high street retailers to suburban locations

Tsuen Wan Kwai Shing East, Shek Lei,

Kwai Fong

New Territories East Wo Che, Tai Wo, Choi Yuen

New Territories West Leung King, Chung Fu,

Yau Oi, On Ting

Kowloon Tong Lok Fu, Wong Tai Sin, Lung Cheung

Tseung Kwan O Hau Tak, Sheung Tak, Nan Fung

P.20

The Link REIT -

Portfolio Benefitting from Mainland Shoppers

Lung Cheung Plaza

Stanley Plaza

Lok Fu Plaza Tai Wo Plaza

Butterfly Plaza

Choi Yuen Plaza Chung Fu Plaza

Presence with The Link REIT’s properties

P.21

Wong Tai Sin Plaza

0.12 0.22

0.48

0.78

0.59 0.49

0.60

1.30

5 5

6

5

4

5

4

9

0

1

2

3

4

5

6

7

8

9

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 and beyond

Total Reported Project Capex (HK$'B) No. of Projects Completed

No. of Projects Underway/ Pending Statutory Approval Total Estimated Project Capex (HK$’B)

HK$’B No. of Projects

Financial

Year

The Link REIT -

Asset Enhancement Investments

30 Completed Asset Enhancement Projects with a Total Capex of HK$2.7B

Continuous improvement of assets and service quality

Note: Data as at 31 March 2013

P.22

(HK$’B)

The Link REIT -

Continuous Improvement of Asset and Service Quality

Chung Fu – Established One-stop Shopping Centre in Tin Shui Wai

From This… To This…

Asset Enhancement (Phase II) to be completed in 2013

P.23

The Link REIT -

Continuous Improvement of Asset and Service Quality

Yau Oi and On Ting – A New Tuen Mun Flagship Upon Asset Enhancement Completion

Estimated completion in late 2014

From This… To This…

P.24

The Link REIT -

Continuous Improvement of Asset and Service Quality

Tai Yuen Market – Pioneer Fresh Market Asset Enhancement Project

Completed in 2011

From This… To This…

P.25

The Link REIT -

Business Model with Multiple Growth Drivers

Our Growth

Drivers

Our Strengths

Our Vision,

Mission,

Values Managing and operating

our business with Respect,

Excellence, Integrity and Teamwork

To Be a World Class

Real Estate Investor and Manager

Serving and Improving the Lives

of Those Around Us

Asset

Management

Asset

Enhancement

Asset

Investment

Real Estate

Expertise

Financial

Strength

Strong Corporate

Governance

P.26

The Link REIT -

Aligning Vision and Strengthening Culture

P.27

To build a business with long term sustainable growth

The Link Real Estate Investment Trust

HEAD OFFICE

33/F, AXA Tower, Landmark East,

100 How Ming Street, Kwun Tong, Kowloon, Hong Kong

Tel: +852 2175 1800

Fax: +852 2175 1900

Email: IR@thelinkreit.com

Website: www.thelinkreit.com

P.28