INDUSTRY OVERVIEW INTRODUCTION

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1 The information contained in this section and elsewhere in this prospectus have been derived from various official government and other publications generally believed to be reliable and the market research report prepared by JLL and commissioned by us. Our Directors, after taking reasonable care, are of the view that there has been no adverse change in the market information since the date of the JLL Report which may qualify, contradict or have an impact on the information in this section. We believe that the sources of such information and statistics are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading in any material respect or that any fact has been omitted that would render such information false or misleading in any material respect. Such information has not been independently verified by us or any of the Sole Sponsor, the Sole Global Coordinator, the Sole Bookrunner, the Joint Lead Managers, the Underwriters or any of our or their respective directors, officers or representatives or any other person involved in the Share Offer and no representation is given as to its accuracy. Due to possibly flawed or ineffective collection methods or discrepancies between published information and market practice, the facts and statistics in this section and elsewhere in this prospectus may be inaccurate or may not be comparable to facts and statistics produced with respect to other economies. Further, we cannot assure you that they are stated or compiled on the same basis or with the same degree of accuracy (as the case may be) in other jurisdictions. As a result, you should not unduly rely upon such facts and statistics contained in this prospectus. INTRODUCTION In connection with the Global Offering, we have commissioned JLL, an Independent Third Party, for use in this prospectus to prepare the Industry Research Report with necessary information on the real estate markets in the PRC and the cities in which we operate. JLL has charged us a total fee of HK$200,000 for the preparation of the Industry Research Report, which we believe is in line with the market rate for similar reports. JLL is an international real estate consultancy group, which provides a range of services including valuation and consultancy for occupiers, investors and developers across all sectors of the real estate market. JLL has licensed offices in Beijing, Shanghai, Guangzhou, Shenzhen and Chengdu in China, as well as Hong Kong, Singapore and other cities in Asia. For the purpose of the Listing, JLL also serves as our Property Valuer. The Property Valuation Report prepared by JLL which relates to our property interests is included in Appendix III to this prospectus. JLL provided services through two business teams which are independent from each other. This section was prepared primarily by the designatedmarketresearchteambasedonthefollowingsand considered that the information and statistics are reliable:. data from various government publications;. site visits and interviews; and. proprietary database of JLL; JLL has relied on the assumptions listed below:. all documents provided by our Company are true and correct;. all published data by the Buildings Department, Census and Statistics Department, Lands Department, Planning Department and Rating and Valuation Department are true and correct; and. where subscribed data is obtained from authoritative public institutions, JLL will rely upon the apparent integrity and expertise of such institutions. Our Directors confirm that after taking reasonable care, there is no adverse change in the market information since the date of the Industry Research Report prepared by JLL which may qualify, contradict or have impact on the information set out in this section. 59

2 OVERVIEW OF HONG KONG ECONOMY As one of the world s leading international financial centres, Hong Kong has a major capitalist economy characterised by low taxation and free trade. Hong Kong maintains a highly developed capitalist economy, ranked the freest in the world by the Index of Economic Freedom every year since It is an important centre for international finance and trade, with one of the greatest concentrations of corporate headquarters in the Asia-Pacific region. Hong Kong economy has grown modestly since Nominal GDP of Hong Kong grew to HK$2,403 billion in 2015, which represents a year-on-year growth rate of 2.4% in chained (2013) dollars. The table below illustrates the selected economic statistics of Hong Kong from 2011 to Selected economic statistics of Hong Kong ( ) CAGR Nominal GDP (HK$ billion) ,934 2,037 2,138 2,258 2, % Change over the preceding year (%) # * GDP per capita (HK$).. 273, , , , , % Census and Statistics Department, Hong Kong Notes: # in chained (2013) dollars * is the arithmetic mean Average monthly household expenditure has followed the income trend rising up steadily to HK$21,623 during 2009 and 2010, which is almost levelled up with monthly income. The chart illustrates the monthly household income distribution from 2010 to Monthly household income distribution ( ) Census and Statistics Department, Hong Kong The Consumer Price Index (CPI) measures the changes over time in the price level of consumer commodities and services generally purchased by households. The year-on-year rate of change in the CPI is widely used as an indicator of the inflation affecting consumers. The table below illustrates the composite CPI of Hong Kong from 2011 to

3 Composite CPI of Hong Kong ( ) Arithmetic mean CPI Census and Statistics Department, Hong Kong Note: preceding year = 100 OVERVIEW OF REAL ESTATE MARKET IN HONG KONG In general, real estate market in Hong Kong can be classified into domestic property market and non-domestic property market. Non-domestic property market is a crucial part of Hong Kong s real estate market and includes offices, commercial property and industrial property. Price Indices for Hong Kong property market (1999=100) Rental Indices for Hong Kong property market (1999=100) Rating and Valuation Department, Hong Kong The land supply from the Hong Kong Government for non-domestic use was limited with only 20 parcels of land sold by the Hong Kong Government between 2011 and 2015 and six parcels of land sold in 2011 and six parcels of land sold in 2015, which were the highest number of parcel of land for nondomestic use sold over the past five years. The GFA of non-domestic properties completed and under construction was the highest in 2012 with 2.3 million sq.m.. Significant amount of non-domestic properties were derived from redevelopment of old properties. As a result, industrial and commercial 61

4 property markets, property prices and rents in Hong Kong had been rising in the past few years, supported by firm economic growth, low interest rate, structural shortage of supply in land for nondomestic use, which lead to an underlying demand for non-domestic properties. The table below illustrates the real estate market indicators of Hong Kong during 2010 to 2015: Real estate market indicators of Hong Kong ( *) * CAGR (%) Real estate investment (HK$billion) N/A 20.3 # GFA of non-domestic property completed (sq.m.) , ,536 1,506, , , , GFA of non-domestic property under construction (sq.m.) , , , , ,786 1,147, GFA of nondomestic propertysold... Average price of non-domestic property... GFA of Private Offices sold (sq.m.) (Note 1) 300, , , ,484 90, , GFA of Private Commercial Properties sold (sq.m.) (Note 2) 300, , , ,699 84,713 66, GFA of Private Flatted Factories sold (sq.m.) (Note 3) 910, , , , , , Average price of Private Offices (Note 1) (HK$ per sq.m.) 114, , , , , , Average price of Private Commercial Properties (Note 2) (HK$ per sq.m.) 262, , , , , , Average price of Private Flatted Factories (Note 3) (HK$ per sq.m.) 26,471 34,854 45,884 60,338 61,455 68, Buildings Department, Census and Statistics Department and Rating and Valuation Department, Hong Kong Notes: * Provisional figures # CAGR 1. Private Offices generally comprise office premises situated in buildings designed for private commercial/business uses. 2. Private Commercial properties generally include retail premises and other premises designed or adapted for private commercial use, with the exception of private offices and carparking space. 3. Private Flatted Factories generally comprise premises designed for private general manufacturing processes and uses, including ancillary offices directly related to such processes, and normally intended for sale or letting by the developers. The Galaxy and The Star are industrial buildings with more modern and higher standard of finishes categorised as newly built industrial buildings, which are Private Flatted Factories completed since 2011, excluding Private Industrial/Office, Private Specialised Factories and Private Storage. The CWK Property is proposed to be redeveloped into a commercial building comprising mainly Studio Offices and thus falls under the category of Private Offices. The Yue Fung Property is proposed to be converted into a commercial building comprising mainly Studio Offices (falling within Private Offices) with podium, shops, restaurants and parking spaces (falling within Private Commercial Properties). As shown in the above table, the supply of non-domestic properties are on a decreasing trend while average price of non-domestic properties are on an upward trend, which suggests that the demand for non-domestic properties in Hong Kong is higher than their supply. 62

5 HONG KONG PRIVATE INDUSTRIAL MARKET Overview of Hong Kong Private Industrial Market Hong Kong industrial building is defined as either a building in which articles are manufactured, altered, cleaned, repaired, ornamented, finished, adapted for sale, broken up or demolished, or in which materials are transformed by the Building Ordinance or a godown. To be more specific, Rating and Valuation Department has defined Private Industrial into 4 categories Private Flatted Factories, Private Industrial/Office, Private Specialised Factories and Private Storage. Private Flatted Factories comprise premises designed for general manufacturing processes and uses, including offices, directly related to such processes, and normally intended for sale or letting by the developers. Specialised factories, as described below, are excluded. Similar premises built by the Housing Authority are not included. Private Industrial/Office premises are floor space designed or certified for industrial/office use. Private Specialised Factories comprise all other factory premises, primarily purpose-built for specialised manufacturing processes, usually for occupation by a single operator. Private Storage premises comprise premises designed or adapted for use as godowns or cold stores and include ancillary offices. Premises located within container terminals are included. According to public market information, 12 newly built industrial buildings were completed during the past five years while there were 476 existing industrial buildings under the land zoned industrial in the period between April 2013 and June The new supply of industrial buildings/flatted factories were scattered in Kowloon East, Kowloon West and New Territories West. As at 31 December 2015, according to RVD, the total stock of industrial buildings was approximately 260 million sq.ft. Completion of private flatted factories in 2015 amounted to approximately 980,000 sq. ft. contributing to approximately 0.4% of the total stock as at 31 December The number of completion in 2016 is expected to decrease to approximately 137,000 sq. ft. and approximately 281,000 sq. ft. in Newly built industrial buildings were scattered across Kowloon and New Territories, where traditional industrial zones are located. The table below illustrates the GFA of private flatted factories sold and their average price: GFA of Private Flatted Factories sold Rating and Valuation Department, Hong Kong Average selling price of Private Flatted Factories Rating and Valuation Department, Hong Kong 63

6 Despite a drop in 2016, which was mainly due to old private flatted factories and not newly built private flatted factories, the private industrial market is relatively stable compared to the overall Hong Kong market. As the average selling prices of private flatted factories had a general increase from 2010 to 2015 and potential sellers have optimistic view on further increase in selling prices, leading to a widening expectation gap between potential buyers and sellers which in turn reduces the probability of completing a transaction. Secondly, according to the data from the Rating and Valuation Department, the supply of private flatted factories had been reducing from 2010 to The decrease in supply of private flatted factories would result in the decrease of transaction volume along the observed period. Further, tightening of the cooling measures for property market, i.e. implementation of double stamp duty in February 2013, further increases the transaction cost. It triggered more transactions to be conducted on company level instead of a direct transfer of property assets which would not be recorded in the data originated from the Rating and Valuation Department. Key drivers in the newly built industrial buildings Recently, non-polluting industries including biotechnology, electronics, environmental protection, garment and the logistic industry such as warehouses for e-commerce and online shopping business continued to take up the traditional industries which may prefer higher standard industrial buildings rather than the under-utilised ones. It is expected that the demand for newly built industrial buildings will continue to increase due to a series of favourable policies from the Hong Kong Government such as the DesignSmart Initiative, The Innovation and Technology Fund and The SME Funding Schemes, which provide support to small-and-medium sized enterprises (SMEs) and young entrepreneurs. The demand for these industrial buildings remained stable which is evident by over 2,600 transactions recorded between April 2010 and early April 2016 for newly built industrial buildings completed since Such transactions included Private Flatted Factories but excluded Private Industrial/Office, Private Specialised Factories and Private Storage. Over 1,000 transactions were recorded in 2012, which was the highest during such period. The diagram below illustrates the number of transactions of newly built industrial buildings during the period between 2010 and early April 2016: Number of transactions of newly built industrial buildings Public Market Information Notes: Included Private Flatted Factories but excluded Private Industrial/Office, Private Specialised Factories and Private Storage. *TransactedsinceApril2010 # Up to early April 2016 The stable demand for newly built industrial buildings is also evident by the recent transactions relating to a newly built industrial building located in Cheung Sha Wan. It is reported that all units in the said industrial building were launched for presale on 6 April 2016 and sold out on 21 April In addition, 281 units of The Star had been sold out within 20 days since its launch of pre-sale on 21 September 2015, while 157 units of The Galaxy had been sold out within eight days since 1 February In 2012, a large development project located in Tsuen Wan was launched for sale and accounted for approximately 80% of the total number of transactions recorded in A linear upward trend for the number of transactions of newly built industrial buildings was observed throughout 2010 to

7 The average selling price of newly built industrial buildings (including both first-hand and secondhand newly built industrial buildings) over the past five years were in general increasing despite of the decrease in The market has gradually stabilised and the average selling prices had slightly increased afterwards. Besides, the unit sizes of these buildings were generally smaller than those of traditional industrial buildings and the lump sum price was thus generally lower than that of traditional industrial buildings. The average selling prices of newly built industrial buildings depends, to a large extent, on the special characteristics including quality and locations of the premises which are sold during the period. Changes in the average selling prices from 2010 to 2016 may be due to variation in the characteristics of the different properties being analyzed. In 2013, a new newly built industrial building located in Cheung Sha Wan was launched for sales and recorded a general higher unit price within the year, mainly due to its accessible location. In addition, some units located at upper floors and possess better view may also achieve a higher transacted unit price. Nevertheless, a linear upward trend in the average selling prices of newly built industrial buildings was observed throughout 2010 to The diagram below illustrates the average selling prices of newly built industrial buildings (including both first-hand and second-hand newly built industrial buildings) during the period between 2010 and early April 2016: Average selling prices of newly built industrial buildings (HK$ per sq.ft.) Public Market Information Notes: Completed since 2011 *TransactedsinceApril2010 # Up to early April 2016 Newly built industrial buildings in Hong Kong are mainly located in the districts of Kowloon East, Kowloon West and New Territories West. The diagrams below illustrate the average selling price of first-hand and second-hand newly built industrial buildings, respectively, by district during the period between April 2010 and early April 2016: Sales prices analysis for newly built industrial buildings by district Public Market Information Notes: Completed since 2011 * Transacted since April 2010 #UptoearlyApril

8 Sales prices analysis for newly built industrial buildings by district (first hand) Sales prices analysis for newly built industrial buildings by district (second hand) Public Market Information Public Market Information Notes: Completed since 2011 * Transacted since April 2010 #UptoearlyApril2016 Notes: Completed since 2011 * Transacted since April 2010 #UptoearlyApril2016 In addition, since the Special Stamp Duty and Buyer s Stamp Duty do not apply to non-domestic property transactions including newly built industrial buildings, investors may find it more attractive to invest in industrial buildings than in domestic properties due to the relatively low transaction costs and lower restrictions on the timing of the re-sale. Supply of development sites for newly built industrial buildings The supply of new industrial buildings is very limited but the stock of obsolescence and under utilised traditional industrial buildings is quite large. This indicates a huge potential for redeveloping industrial buildings. Therefore, the development potential for industrial buildings is considered stable. According to the JLL Report, in 2014, about 48.9% or 233 buildings were 30 years old or above, about 45% or 214 buildings were between 15 and 29 years old and about 4% or 19 buildings were below 15 years old and only 10 buildings were five years old or less. In terms of conditions, 15.1% of the industrial buildings were in poor conditions in Only 7.8% or 37 industrial buildings were in good conditions. The diagram below illustrates age and condition of industrial buildings in I area: Age and condition of industrial buildings in I area Planning Department, Hong Kong 66

9 HONG KONG OFFICE MARKET Overview of Hong Kong office market Studio offices are a new and innovative type of offices with average unit size of GFA of below 2,000 sq.ft. and with good building specification and flexible unit areas, which is usually located at non- CBD (non-central Business District) commercial area and traditional industrial area which has been rezoned from I zone to OU(B) zone. Studio offices are characterised by a relatively smaller size and individually controlled air conditioner provision. As at 31 December 2014, the date of the latest publication by Rating and Valuation Department, office stock was approximately 119 million sq.ft. (equivalent to approximately 11,060,700 sq.m.) in terms of GFA. The vacancy rate of offices recorded a general downward trend with fluctuations at an average year-on-year of 4.2% between 2010 and The price and rental indices for offices in general have been growing steadily from 2010 to The price and rental indices for studio offices (as a sub-sector of office market) are consistent with the office market in general. Vacancy rate of offices Price and rental indices for offices Rating and Valuation Department, Hong Kong Studio offices attract different group of customers who target to locate their businesses within the non-cbd areas i.e. areas other than Central and Admiralty, such as Kwai Chung, Cheung Sha Wan, Kwun Tong and Kowloon Bay and enjoy a lower unit price or rental. The graph below shows the average unit price per sq.ft. of studio offices. Average unit price of Studio Offices Public Market Information Notes: GFA below 2,000, sq.ft., completed since 2011, excluding those transacted with parking spaces *TransactedsinceApril2010 # Up to the early April

10 The demand for studio offices is stable where the average selling prices over the past 5 years were increasing in general especially in Despite experiencing a drop in 2015 after the peak recorded in 2014, the market restored afterwards and the average selling prices increased gradually. Key drivers in the office market The users of the studio offices are mainly SMEs including small-scale professional consultancy firms such as architectural firms, engineering firms, surveying firms, planning consultancy firms, legal law firms, accounting firms, small-scale business services firms such as advertising agencies, consultants and interior/graphic design offices and ancillary services for neighbourhood such as tutorial schools and medical clinics. These small scale businesses are attracted to studio offices because of the relatively affordable office rent and flexible unit sizes and individually controlled air-conditioning for flexible working hours, which cater for businesses of various sizes and diverging operating hour, and thus help minimise the overall operating costs for those businesses. Favourable government policies also drive the demand for studio offices in Hong Kong, for example, The CreateSmart Initiative promotes the development of creative industry in Hong Kong, such as comics, animation, games and digital entertainment, thus it is expected that the demand for small-size and affordable office space from this sector will remain stable. In addition, the lower financial requirement for purchases of studio offices attract investors as it provides a lower investment entry barrier and high yield potentials. As early as 2001, the Town Planning Board introduced a new land use zoning OU(B), which allowed a mix of commercial, office and non-polluting industrial use in traditional industrial areas. Property developers can redevelop the aged industrial buildings located in OU(B) zones without undergoing rezoning application and this provides more opportunities and shortens the time of redevelopment. Differentiating from traditional high grade offices located in the Central Business District ( CBD ) within the metro area, such as Central and Admiralty, studio offices are usually situated within the OU(B) zone such as Kwai Chung, Cheung Sha Wan, Kwun Tong and Kowloon Bay, where uses including office, commercial, non-polluting industry, administrative and managerial functions for industry, import and export office, research, development, training and design are anticipated. Supply of development sites for studio offices Supply of development sites for Studio Offices mainly come from land/buildings located in OU(B) zones such as Kwai Chung, Cheung Sha Wan, Kwun Tong and Kowloon Bay. Property developers can redevelop those aged industrial buildings located in these zones without undergoing rezoning application and this provides more opportunities and shortens the time of redevelopment. COMPETITIVE LANDSCAPE The property market, including the commercial and industrial property market, in Hong Kong has traditionally been dominated by a few large-scale local developers. However, there has been a growing number of small-to-medium property developers who participate in the redevelopment market (i.e. newly built industrial buildings and studio offices), which is a flourishing market with growth potential. Usually property developers compete with other market players in terms of the acquisition of land, brand recognition, financial resources, price, product quality, service quality and other factors. In order to establish a market share amidst the intense competition, developers have established different types of products and brands in order to differentiate their market position and to attract different groups of target customers. 68

11 According to the JLL Report, based on the total GFA of the properties completed since 2011: No. Market Players 1 Billion Development & Project Management Limited Private Industrial Market on Total GFA Approximate Total GFA (sq.ft.) Projects Completion Location Approximate market share 1,226,529 Grandion Plaza 2011 Cheung Sha Wan 41% TML Tower 2013 Tsuen Wan Reason Group Tower 2014 Kwai Chung 2 Wheelock Properties (Hong Kong) 585,082 ONE Midtown 2012 Tsuen Wan 20% Limited 3 Sun Hung Kai Properties Limited 336,052 CEO Tower 2011 Cheung Sha Wan 11% 4 Henderson Land Development 253,256 Global Gateway Tower 2015 Cheung Sha Wan 8% Company Limited 5 Star Properties Group (Cayman 152,254 The Galaxy 2014 Kwai Chung 5% Islands) Limited 6 First Group Holdings Limited 119,997 HTR 35 (FUN Tower) 2013 Kwun Tong 4% 7 New Venture Investment Limited 116,114 New Venture Centre 2012 Tsuen Wan 4% 8 HKR International Limited 93,623 DAN Tsuen Wan 3% 9 K Wah International Holdings Limited 66,504 SOLO (83 Bedford Road) 2013 Tai Kok Tsui 2% 10 Hanison Construction Holdings Limited 57, Bedford Road 2014 Tai Kok Tsui 2% Buildings Department and Lands Department, Hong Kong, Town Planning Board and Public Market Information Note: Included Private Flatted Factories completed since 2011, but excluded Private Industrial/Office, Private Specialised Factories and Private Storage. A number of competitive strengths are crucial to our success and are essential for our future growth, including (i) our property development projects are located in areas with attractive development potential in Hong Kong, including Kwai Chung, Tsuen Wan and Yuen Long; (ii) ability to secure new projects and source property/land in Hong Kong; (iii) we have an experienced and stable management team with strong business acumen and can respond swiftly to market demand; (iv) effective project management and stringent quality control; and (v) we have established business relationships with real estate agencies, through which we have acquired quality properties for redevelopment and investment. Although there is no explicit entry barrier to the property market in Hong Kong, it requires intensive capital commitment, deep professional expertise and extensive market knowledge in a successful bidding for a development site, execution of the property development project and sale of the units of the property development project. OUTLOOK OF THE PRIVATE INDUSTRIAL AND OFFICE MARKETS The demand for newly built industrial building and studio office markets is in healthy and steady growth pattern, underpinned by the relatively stable demand and relatively limited supply of such properties. As suggested by the Planning Department, as at 31 December 2014, 8.6 ha of industrial sites are subject to rezoning to other uses, while another 29.2 ha of industrial sites are subject to ongoing studies for possible rezoning to other non-industrial uses. There is a good potential in developments of newly built industrial buildings and Studio Offices in industrial and OU(B) zones subject to the Hong Kong Government initiatives and increasing demand for these two markets. As our development heavily depends on market sentiments and health growth of the economy, the possibility of sudden change in macro-economic conditions and the possible emergence of PRC developers may pose potential challenges to our development. HISTORICAL PRICE TRENDS OF RAW MATERIALS AND LAND During the past five years, due to the launch of a number of major infrastructure projects, such as Central Reclamation, Hong Kong Zhuhai Macau Bridge, Kowloon West High Speed Rail project, there is a general increase in the costs of construction labour. However, some building materials like mild steel round bars and high tensile steel bars experienced decline in price during the past five years mainly due to the drop in commodity prices during such period. Land cost generally accounts for the largest percentage of a development project s expenditure. The shortage of land supply has been a core issue in 69

12 Hong Kong real estate market, only one commercial land sold in 2010 and no industrial land sold during the period between 2010 and The prices for commercial land went up from HK$258,819 per sq.m. in 2011 to HK$496,841 per sq.m. in 2015, recording a CAGR of 39.0% during this period. There were fluctuations in the land price as the unit price of each parcel of land varied due to different plot ratio restrictions and locations. Cost of development sites generally accounts for the largest percentage of a development project s expenditure, which is in line with the property market trend. The following two graphs set out the costs of labour, construction materials and cost of development sites (mainly comprising the land cost) of Hong Kong during 2010 and 2014, and provisional figures in Average daily wages of construction labours ( *) Lands Department, Hong Kong Note: *Provisional figures Average wholesale prices of selected building materials ( *) Lands Department, Hong Kong Note: *Provisional figures Historical price of commercial and industrial land sold by Hong Kong Government ( ) Note: Lands Department, Hong Kong Provisional figures 70