Asia Real Estate Co-working...WeWork, the largest global co-working space operator, reportedly valued at USD47bn (2013: USD318m), has recently filed for an IPO. In 1H18, WeWork has

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Disclosures & Disclaimer: This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix, and with the Disclaimer, which forms part of it.

Play interview withMichelle Kwok and Raymond Liu

By: Michelle Kwok, Pratik Ray and Raymond Liu

REMDEquities

June 2019

Asia Real EstateCo-workingWhy hot desks are such hot property

Co-working has evolved from a market that did not exist a few short years ago to one that is growing exponentially today

Select real estate developers have made a head start by establishing their own co-working brands, which reflects their constructive view on the co-working market

We see developers including SOHO China (Upgrade to Buy), Shimao (Hold), COLI (Buy), Champion REIT (Hold), Swire Properties (Buy), Hongkong Land (Buy), Capitaland (Buy) and Frasers Property (Buy) as best positioned to benefit from the trend

S P O T L I G H T

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Equities ● REMD June 2019

The key messages

Hot desks, hip-hop soundtrack and a pool table in the communal area, great wi-fi, printers that

work, yoga classes, great location, and, most importantly, low rents … these are all the

ingredients you need for a really cool, co-working office.

We first wrote about this hot topic last year after it became apparent that this new phenomenon

was becoming the talk of the real estate industry (Primer on co-working, 20 November 2018).

Since then, the buzz has only become louder. What’s interesting is that this is not just about

start-ups and freelancers anymore. Larger companies and even multinationals are getting

involved in co-working as they want to shake up their corporate structures and working routines.

In our view, co-working, which did not exist only a few years ago, is here to stay. In the long term, it

has the potential to play a significant role in the leasing of traditional office space. And no one in the

industry wants to miss out. Recognising the wide-ranging implications for the commercial real estate

market, property companies and landlords in the region have already started to dip their toes into the

market. Some have got a head start by establishing their own co-working brands.

This report takes a more regional approach, looking at the co-working market in Hong Kong,

leading cities in China, as well as Singapore. We analyse how the co-working office market will

likely evolve in these markets in the next few years, explain why the new phenomenon is

complementary rather than disruptive to the traditional office market, and identify the likely

winners among our coverage.

Why read this report?

We analyse how the fast-growing regional co-working market will

likely evolve over the next few years

We think co-working is complementary to the traditional real estate

market – they can share different slices of the same pie

We identify winners that appear well positioned to ride the positive

momentum; some may have long-term aspirations for spin-offs

Michelle Kwok* Head of Real Estate Research, Asia PacificThe Hongkong and Shanghai Banking Corporation [email protected]

+852 2996 6918

* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations

https://www.research.hsbc.com/R/10/rPwwQKwlqKbM?docid=1108385

https://www.research.hsbc.com/R/20/TmHdTrq


2

Facts and figures about the co-working industry

Global

The number of co-working tenants and spaces worldwide is expected to reach 3.8m and

24,306 in 2020, up 627% and 211% from 2015 levels, according to Emergent Research.

Asia Pacific

Flexible workspace in Asia Pacific surged 150% from 2014 to 2017 and the number of

major flexi workplace operators has more than doubled in the region during the period,

according to JLL.

Greater China

Three markets (Beijing, Shanghai and Hong Kong) and three operators (UCommune, Naked

Hub (which merged with WeWork in April 2018), and WeWork) dominate China’s co-working

industry, jointly accounting for one-fifth of co-working office locations in these cities.

The estimated number of Chinese (including Hong Kong) unicorns and start-ups, a major

driver of co-working office demand, has grown 41-fold from two in 2013 to 93 in January

2019, according to CB Insights.

China

Co-working office turnover surged 87% y-o-y in 2018, significantly above the 42% y-o-y

growth for the overall sharing economy turnover, according to the State Information Center.

Domestic operators account for 79% of market share in co-working offices in tier-1 cities.

Hong Kong

More than 90% of the top 200 occupiers in Hong Kong are considering making flexible

workspace part of their real estate strategy in 2017, according to Colliers.

Hong Kong co-working office space is expensive versus other major cities in Asia Pacific.

Average cost per desk reached USD1,100/month, representing 1.7x the average cost per

desk in Singapore, 1.9x for Beijing, 3.4x for Shanghai and 2.2x that of Sydney.

Singapore

Singapore had 36 co-working operators operating out of 120 locations as of July 2018,

almost 2x the number of operators and locations from four years ago, representing c20%

CAGR over this period on both counts.

Co-working operators make up c20% of gross take-up in the office market in Singapore’s CBD,

although operator occupancy remains less than 4% of total CBD office stock (2017: less than

2.5%), according to Colliers.

Corporate actions

WeWork, the largest global co-working space operator, reportedly valued at USD47bn (2013:

USD318m), has recently filed for an IPO. In 1H18, WeWork has opened 87 new locations in

12 new cities and five new countries since the start of 2018, while total memberships were up

110% y-o-y during the period. In 2019, it plans to open 5 to 15 co-working offices in China each

month and expand to over 10 cities from the current 8 cities.

3


Why read this report? 1

The key messages 1

Facts and figures about the

co-working industry 2

Hot desks, hot property 4

Related research 5

Hot desks, hot property 8

Co-working beckons 8

Past (non-existent), present

(booming) & future (consolidation) 8

The linkages: co-working

and real estate 9

Quantifying the size of regional

markets 9

Our view on co-working 12

Winners in the region 12

Rating change: SOHO China 15

Risks associated with co-working 16

Quantifying the size of the

co-working market 17

How fast can the co-working

market grow? 17

A booming market: 34% CAGR

(2018-21e) in co-working turnover 18

ESG considerations 21

Contributing to the Sustainable

Development Goals 21

Hong Kong 23

The co-working market 23

Co-working opportunities 23

Risks 24

Opportunities for Hong Kong

property companies 25

Major deals across Hong Kong 26

China (tier-1 cities) 27

Co-working in China – enormous

room to grow 27

Opportunities for co-working

operators in China 27

Risks involved in the business

model 29

Co-working office turnover to grow

quickly in the next few years 30

Developers are stepping into the

co-working market 31

Co-working deals across cities 33

Singapore 34

Vibrant environment for start-ups

and small businesses 34

Co-working landscape 36

Opportunities and winners 37

Potential risks related to co-working 39

Valuation and risks 41

Financials & valuation 43

Disclosure appendix 57

Disclaimer 60

Contents


4

Hot desks, hot property

Source: Colliers, JLL, Company data, HSBC estimates

Shenzhen

74%(1.0% co-working office

penetration rate 2018)

Singapore

29%(3.9%)

Hong Kong

17%(3.0%)

Beijing

41%(2.9%)

Guangzhou

38%(2.0%)

Shanghai

15%(8.0%)

150%

Co-working office (CBD) projected turnover CAGR 2018-2021e

Number of co-office/flexible workspace (CBD)

Average cost per desk per month in

Asia Pacific (USD 2018)

Flexible workspace in

Asia Pacific surged

from 2014 to 2017

Regional winners: developer office

exposure (gross asset value)

SOHO China

China

Hong Kong

72%

19%

11%

9%

9%

9%

8%

7%

3%

2%

2%

1%

1%

0%

0%

0%

0%

0%

0%

0%

Shimao

COLI (HKD)

China SCE

Joy City

Sino-Ocean

China Jinmao

Yanlord

CRL

KWG

GZ R&F

Agile

CIFI

SZ Investment

Longfor

Logan

CG

Champion

Swire Prop

HKL

Hysan

W-REIC

SHKP

Wheelock

HLD

HLP

Sino

CKA

MTRC

Link REIT

Kerry

Wharf

Langham

MNACT

HX REIT

70%

54%

48%

43%

28%

20%

19%

Singapore

CapitaLand CT

Keppel REIT

Suntec REIT

Mapletree CT

CapitaLand

Frasers Property

CapitaLand MT

95%

85%

56%

26%

19%

14%

10%

17%

14%

13%

10%

5%

5%

4%

4%

1,100

648

320

Shenzhen Shanghai Beijing HK Singapore

11 285 45 46 113

500

Hong Kong Singapore Sydney Shanghai

5


Related research

Recommended reading...

Primer on co-working 20 Nov 2018

Co-working – Takeaways from investor lunch with WeWork 23 Nov 2018

How big’s the gig 10 key questions on the gig economy 24 Apr 2019

The future of cities – Tech solutions to five urban challenges 19 Sept 2018

Sustainability engaged An investor engagement guide to the UN’s SDGs 15 Mar 2019

Powering the data revolution Powering the data revolution 30 May 2019

Leapfrog technologies How space-based tech can help EM 9 Oct 2018

The Nomadic Investor Unbundling the City: Beyond Urbanisation 2 May 2017

The Nomadic Investor Transport shock: autonomous today, virtual tomorrow 19 Oct 2016

The Nomadic Investor AI: the new collective super-mind 6 Jun 2016


https://www.research.hsbc.com/R/10/GR2bdJzlqKbM?docid=1108903

https://www.research.hsbc.com/R/10/zbXhMr9lqKbM?docid=1118778

https://www.research.hsbc.com/R/10/Wq7m2VPlqKbM?docid=1104269

https://www.research.hsbc.com/R/10/7LBVkjmlqKbM?docid=1115809

https://www.research.hsbc.com/R/10/prXHhGDlqKbM?docid=1121535

https://www.research.hsbc.com/R/10/t6kTBQKlqKbM?docid=1105282

https://www.research.hsbc.com/R/10/2KCGThRlqKbM?docid=646124

https://www.research.hsbc.com/R/10/RgDBs6llqKbM?docid=531849

https://www.research.hsbc.com/R/10/XTSsnhKlqKbM?docid=514093


6

Figure 1: Co-office/flexible workspace centres in major cities

Source: Colliers, HSBC

$190 $22 $56$54 $33 $51$74 $45 $45$36 $21 $26 $26

Space occupied by

Flexible Workspace

(%)

2018

2017

3.0%

2.8%

3.9%

2.4%

8.0%

5.8%

2.9%

2.3%

8.0%

-

1.0%

-

1.9%

-

2.5%

2.0%

2.6%

2.0%

1.6%

-

4.0%

-

17.6%

2.0%

17.6%

2.0%

Vacancy rate

(%)

2.2% 8.1% 13.9% 8.7% 24.6% 15.6% 16.7% 5.0% 5.9% 6.4% 15.0% 3.9% 3.9%

Average rent

Grade A

(USD/sq ft/annum)

7

Eq

uitie

s

Ju

ne 2

019

Figure 2: Co-office/flexible workspace centres in major cities


$

$1,100

$350

$648

$680

$187

$210

$210

$40

$190

$580

$320

$575

$500

BEIJING 45

SHANGHAI 285

HONG KONG 46

MANILA 80

SINGAPORE 113

JAKARTA 80

SYDNEY 52

MELBOURNE 47

CHENGDU9

SHENZHEN11

DELHI27

MUMBAI11

BENGALURU27

Average desk cost (USD/month)

Number of Flexible Workspace centres

PUBLIC


8

Co-working beckons

In previous thematic reports, we explored China’s residential property market through a central

theme – how demand for housing is driven by internal migration of professionals. We believe the

movement of talent offer insights into underlying housing demand as population flows imply the

need for home purchases. The same logic applies to the commercial real estate in Asia.

In this report, we deepen our discussion of co-working office space by taking a regional

perspective. Last year, we wrote about the Singapore market, highlighting that co-working was

an evolving and fast-growing segment in the commercial real estate market (see Primer on co-

working, 20 November 2018). The same is true in Hong Kong and major cities in China, which

we have included in our discussion to broaden the scope of our analysis.

Co-working is a hot topic and recently made headlines news when US-based WeWork filed for

an IPO. It’s the world’s largest global co-working company valued at US47bn, according to a

news article published by Thomson Reuters. The planned listing is raising the level of investor

interest in this new business at a time when the market is assessing the merits and longer-term

demand drivers of shared office space.

Past (non-existent), present (booming) & future (consolidation)

Co-working, which did not exist as a concept only a few years ago, is now highly visible and

growing rapidly. In the long term, we think it has the potential to play a significant role in the

leasing of traditional office space. And no one in the industry wants to miss out. Recognising the

potential wide-ranging implications for the commercial real estate market, property companies

and landlords in the region have already started to dip their toes in the water. Specifically, a

select few developers have taken a head start by establishing their own co-working brands.

Hot desks, hot property

Our previous proprietary analysis of China’s residential property market

was based around a central theme – migration-driven housing demand.

We believe the movement of talent offer insights into underlying housing

demand as population flows imply the need for home purchases. The

same logic applies to the commercial real estate market in Asia.

Specifically, co-working attracts highly mobile professionals who want

greater flexibility in terms of their working lives and office space. This offers

an opportunity for real estate companies to adjust their business approach

to maximise revenue as the co-working industry gathers steam in the

office leasing market. From a regional perspective, we maintain our view

that the large property groups are best placed to ride this wave.



9


For instance, COLI has established its Officezip co-working brand in China; Hong Kong’s Swire

Properties has introduced its Blueprint co-working office brand; and in Singapore, Mapletree

Investment has launched Coqoons. In our view, this proactive investment approach reflects the

real estate developers’ constructive view on the co-working market and the need to secure first

mover advantage. Moving ahead, the more competitive market dynamics in the shared office

space will inevitably lead to further market consolidation, with the large players better positioned

to gain further dominance. Indeed, WeWork’s well-established co-working platform was in part

facilitated by its acquisition of Naked Hub in April 2018 for USD400m.

The linkages: co-working and real estate

From a real estate perspective, the market perceives that co-working has the potential to be a

disruptive force which could lead to longer-term structural changes to the commercial real estate

market globally. That said, we are not sure it is as clear cut as that. We also believe co-working

has qualities that are complementary to the office leasing market, for example by offering more

flexible lease terms to a niche group of operators.

From a supply/demand perspective, it is clear that there is rising demand from a wide variety of

tenants, including start-ups, freelancers as well as large corporates. The popularity of co-working

stems from the lower-cost structure, the rise of the millennial workforce and start-ups. Looking at

the bigger picture, co-working is part of the shift to a shared economy, innovative approaches to

business and the relentless pace of improvements in technology. See House of Tech (22 January

2018), where our proprietary analysis revealed the 14 second-tier cities that we believe are well

positioned to attract tech talent.

In terms of real estate developers and landlords, co-working has opened doors and broadened

investment options. While large companies generally prefer Grade A office buildings, they are

also starting to test the use of co-working spaces. Given that co-working involves tight cost

control in terms of rent, most operators have opted for properties outside the Grade A bracket.

As of the end of 1Q18, 75% of all large co-working centres were located in non-Grade A office

buildings in the six major city markets in the Greater China regions, according to Cushman &

Wakefield. This should benefit rental and capital value trends in the non-Grade A office

segment, where in the past it has proved difficult to improve rental yields.

Quantifying the size of regional markets

We quantify the size of the regional co-working markets (Hong Kong, China (tier-1 cities) and

Singapore) by projecting their respective future turnover trend and implied growth rate. Our

analysis reveals strong but divergent co-working turnover growth rates across different regions,

with a 33% average CAGR during 2018-21e across the six markets being studied. Not

Figure 3: Co-working across key cities in Asia (ex Japan)

HK Shanghai Beijing Guangzhou Shenzhen Singapore Sydney Melbourne Jakarta

No. of flexible workspace centres in CBD 46 285 45 40 11 113 52 47 80 Co-working (% of CBD stock) (2017) 2.80% 5.80% 2.30% - - 2.40% 2.00% - - Co-working (% of CBD stock) (2018*) 3.00% 8.00% 2.90% 2.0% 1.00% 3.90% 2.60% 1.60% 1.90% CBD vacancy rate (%) 2.20% 13.90% 8.70% 6.5% 15.60% 8.10% 5.90% 6.40% 16.70% Average desk cost (USD per month) 1,100 320 580 - 680 648 500 575 187 Average Grade-A rents (USD per month) 15.8 4.5 3 - 3.8 6.2 4.7 3.8 2.8 % of space taken up by co-working (2017) 15% 18% 20% - 2.60% 1% 26% 27% 19%

Source: Colliers, HSBC. Note: *Colliers estimate

https://www.research.hsbc.com/R/10/DsVbJj9lqKbM?docid=1017659


10

surprisingly, the divergence is most meaningful within the four tier-1 Chinese cities – Beijing,

Shanghai, Guangzhou and Shenzhen. Among these, Shenzhen and Beijing are seen to have

the highest potential, with projected co-working turnover CAGRs at 74% and 41% during

2018-2021e, on our estimates, much higher than Guangzhou (38% CAGR) and Shanghai (15%

CAGR) during the same period. We see the developed markets, Hong Kong and Singapore,

growing at 17% and 29% CAGRs in 2018-21e, respectively.

Figure 5: Co-working space penetration rate and size in CBD

Source: JLL, Cushman and Wakefield, HSBC estimates

Figure 6: Summary of co-working office space, penetration and CAGR

2018 Co-office size in CBD (sqm m)

2018 Co-office turnover in CBD (RMBm)

Co-working office penetration rate 2018

Co-working office turnover CAGR

2018-21e

Shenzhen 0.07 176 1.0% 74% Beijing 0.05 366 2.9% 41% Singapore 0.10 549 3.9% 29% Guangzhou 0.07 209 2.0% 38% Hong Kong 0.27 2,531 3.0% 17% Shanghai 0.53 2,843 8.0% 15% Average 3.5% 36%

Source: Colliers, JLL, Cushman and Wakefield, HSBC estimates

1.0%

2.9%2.0%

3.9%3.0%

8.0%

3.5%

5.4%4.5%

6.4%

5.5%

10.5%

0.0%

5.0%

10.0%

15.0%

20.0%

-

0.20

0.40

0.60

0.80

1.00

Shenzhen Beijing Guangzhou Singapore Hong Kong Shanghai

2018 Co-office space (sqm m) 2021 Co-office space (sqm m) 2018 penetration rate (RHS) 2021 penetration rate (RHS)

sqm m

Figure 4: Co-office turnover and CAGR summary

Source: HSBC estimates

0.20.4 0.2

0.5

2.52.8

0.9 1.0

0.5

1.2

4.14.374%

41% 38%29%

17% 15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0


2018 CBD co-office turnover 2021 CBD co-office turnover CAGR (2018-2021) (RHS)

RMBbn

11


Sensitivity analysis

We understand that our co-working turnover projections have the highest sensitivity to new

office supply in each market. As such, we have applied the same incremental co-working

penetration rate assumption across each market, regardless of existing penetration rate.

We find that for every 0.25ppt increase in penetration rate (over the base case) in each year

during the forecast period (2019e-21e), co-working sector turnover CAGR (2018-21e) would

increase by 5.1%. Shenzhen is the most sensitive city with respect to changes in penetration

rate, given the low base effect where the end-2018 co-working penetration rate stood at just

1%. On average, Shenzhen 2018-21e CAGR would increase by 11.7ppt for a 0.25ppt increase

in penetration rate (over the base case) for each year in 2019e-21e, vs a 5.1% average for all

cities, on our estimates.

Figure 7: Sensitivity of changes in penetration rate in 2019e-2021e

________________________ Change in penetration rate (ppt) _________________________ -1.00 -0.75 -0.50 -0.25 0.00 0.25 0.50 0.75 1.00

Beijing 7 17 26 34 41 47 52 58 63 2018-2021e Guangzhou -5 9 20 30 38 45 52 58 63 co-working Shanghai 3 6 9 12 15 18 20 23 25

turnover Shenzhen -9 24 45 61 74 86 97 106 114 CAGR (ppt) Hong Kong -10 -1 6 12 17 23 27 32 36

Singapore 5 12 18 24 29 34 39 43 47 Average -1 11 21 29 36 42 48 53 58

Source: Company data, HSBC



Beijing -33.3 -23.1 -14.4 -6.8 0.0 6.2 12.0 17.3 22.3 Change in Guangzhou -42.2 -28.4 -17.4 -8.1 0.0 7.3 13.9 19.9 25.6 2018-2021e Shanghai -12.2 -8.9 -5.8 -2.8 0.0 2.7 5.2 7.7 10.1

turnover CAGR Shenzhen -83.3 -50.7 -29.7 -13.5 0.0 11.7 22.0 31.4 40.0 relative to Hong Kong -27.1 -18.9 -11.8 -5.6 0.0 5.1 9.8 14.2 18.3

base case (ppt) Singapore -24.6 -17.4 -11.0 -5.3 0.0 4.9 9.4 13.7 17.7 Average -32.0 -21.2 -13.0 -6.1 0.0 5.4 10.4 15.0 19.3



12

Our view on co-working

The rise of the co-working segment in the office industry is a structural and longer-term trend that we

think is here to stay. It satisfies the needs of corporates and start-ups looking for a self-contained

workplace with more flexible lease terms than for traditional office space. Overall, we don’t think

co-working will be a major disruptive force. As mentioned earlier, it has complementary qualities such

as helping tenants looking for more flexible lease terms.

That said, well-established and large enterprises are likely to maintain their preference for

traditional multi-year office leases which facilitate long-term planning. Even so, we note that

some of these large corporates have allocated a small proportion of total leased GFA in the co-

working segment in order to cater to business segments that require more flexible staff mobility.

Over time, we expect the co-working market to consolidate, driven by mergers and acquisitions.

We also think the penetration rate will continue to pick up steadily. The key to survival depends

on innovation in services to enhance the stickiness of users, monetising the businesses apart

from purely rental income, and being able to cater for the specific needs of different companies.

For example, some co-working operators provide a wide range of wellness courses, including

yoga, dance classes and body combat lessons. This enables members to achieve a more

balanced style of work and, in turn, increase user stickiness.

In summary, we believe co-working space is complementary to traditional office space, sharing

a slice of the pie in the overall office leasing market. Against this backdrop, we believe it makes

sense for developers to devote a portion of their resources to co-working. In the long run, co-

working space will create synergies for real estate companies, drawing conventional office

tenants to co-share common areas and facilities offered by the co-working operator on the

same premises.

Winners in the region

China: COLI, Shimao and SOHO

We believe Chinese developers are in a good position to compete with pure co-working office

operators due to strong cash flow from their property development business and the presence of

sizable investment property portfolios. In fact, many developers are actively exploring the co-

working business model. Among stocks in our coverage universe, SOHO China (72% GAV

exposure), Shimao (19%) and COLI (11%) are best positioned to benefit from the rise of this trend.

All three companies have their own co-working brand. SOHO China has established SOHO 3Q,

while COLI and Shimao launched Officezip and MWorks, respectively. Although the contribution

to total revenue remains small, we believe there is upside potential as developers ride on the

increasingly popular co-working office wave. With their solid financial liquidity, developers may

also capitalize on co-working M&A opportunities to broaden their presence, driving co-working

sector consolidation.

In the long run, developers could grow their co-working businesses sufficiently to be large

enough for possible spin-offs or separate listings, which would help unlock value from their

overall property portfolios. Indeed, SOHO has signalled a potential spin-off plan for its SOHO

3Q co-working brand but we believe it would be unlikely to happen in the next 12 months.

13


Figure 9: China: Office exposure in terms of GAV

Source: Company data, HSBC estimates

Note: Longfor has only minimal office exposure and they have not separately disclosed the exposure. Some of their co-working office is light asset operating model and therefore no separate valuation is provided by the company.

Figure 10: Summary of developers’ involvement in co-working space

Developer Brand Relationship with the developer Remarks

Longfor Easywork Own brand Shanghai only. 800 seats in Hongqiao Paradise Walk SOHO SOHO 3Q Own brand 31 centres with c30k seats in seven cities in China CRL CR Union Own brand CR Union is a new office brand launched in 2019. It will launch six

projects during the year including some co-working offices. COLI Officezip Own brand 12 centres in 6 cities in China CIFI Workingdom Partnership Launching three co-working office centres in 2019 in Beijing Shimao MWORKS Own Brand Opened MWORKS in Nanjing Software Valley with 3,500sqm GFA Country Garden Fountown Partnership Entered into strategic partnership agreement in various area including

co-working. The first project was launched in Shanghai in mid-2018. Gemdale WeWork Partnership Entered a revenue sharing agreement with WeWork. Converting its

own office into a new co-working centre in Shenzhen. Sino-Ocean WeWork Partnership WeWork entered first real estate strategic partnership with Sino-

Ocean, which now has 6 co-working locations in co-operation with WeWork across Beijing, Shanghai, Chengdu and Shenzhen.

Nashwork Investment Participated in a financing (series B+ round) with Beijing-based Nashwork in June 2018.

OKspace Own brand Presence in Hangzhou and Beijing China SCE Funwork Investment Established by chairman’s son. China SCE has a stake.

Source: Local media, company data, HSBC

0%

0%

0%

0%

1%

1%

2%

2%

3%

7%

8%

9%

9%

9%

11%

19%

72%

0% 10% 20% 30% 40% 50% 60% 70% 80%

CG

Logan

Longfor

SZ Investment

CIFI

Agile

GZ R&F

KWG

CRL

Yanlord

China Jinmao

Sino-Ocean

Joy City

China SCE

COLI (HKD)

Shimao

SOHO China


14

Hong Kong: Champion REIT, Swire Properties and Hongkong Land

We believe office landlords are in a good position to collaborate with the pure co-office operators, as

they are a new source of demand for office space. This could provide an incremental rental uplift in

the medium term. Champion REIT, Swire Properties and Hongkong Land have good exposure to the

office market in Hong Kong, which will allow them to ride this wave of new demand.

Swire Properties is one of the few major companies to launch a co-working brand – “Blueprint” – in

Quarry Bay. The company sees it as a way to add value and diversity to their office buildings.

Figure 11: Hong Kong property – HK office exposure (% of total GAV)


Singapore: Capitaland and Frasers Property

Some of the largest property groups in Singapore are among the best placed to ride the co-

working wave. They have office exposure through their office REITs and have themselves

invested in co-working operators or collaborated with them in one way or the other. In the listed

space, these include large property groups such as CapitaLand and Frasers Property.

Large office landlords in Singapore could benefit from co-working demand. Many of these

landlords are office REITs, which are sponsored by the large property groups.

Lastly, if there are positive implications for commercial real estate (offices and shopping malls)

in cities like Singapore, then the large property groups and their listed subsidiaries and

associates, including their sponsored REITs, would be the go-to names for investors seeking

exposure to commercial real estate in Singapore through listed proxies.

Figure 12: Prominent property groups with exposure to co-working

Date Property group Country Property assets Operator Co-working related investment

Oct-18 CapitaLand Singapore cSGD93bn (group managed real estate assets)

The Work Project Kingdom

SGD27m (USD19.7m)

May-18 City Developments Singapore cSGD20bn (total assets) Distrii RMB102m (USD14.8m) May-18 Frasers Property Singapore cSGD32bn (total group assets) JustGroup Holdings USD60m Feb-18 CapitaLand Singapore cSGD93bn (group managed

real estate assets) Flexi-Suites Flexi-Suites is CapitaLand’s

co-working offering Nov-17 Keppel Corp Singapore cSGD29bn (assets under

management) KLOUD KLOUD is Keppel’s

co-working offering Dec-17 Mapletree

Investments Singapore cSGD46bn (assets under

management) CoQoons CoQoons is a subsidiary of

Mapletree Oct-15 Keppel Corp Singapore cSGD29bn (assets under

management) Workspace Workspace is Keppel’s

co-working offering

Source: Company announcements, HSBC

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Figure 13: Singapore property: Office exposure (% of total GAV)


Rating change: SOHO China

With this report, we upgrade SOHO China to Buy from Hold, mainly due to the company’s

attractive valuation. The stock has corrected c20% since end-March and is now trading at a

76% discount to our NAV estimate and 0.34x price-to-book, both at around 1.5 SD below the

historical mean. While we contend that while SOHO’s business model is relatively more passive

and lacks excitement from a growth perspective, it is uniquely positioned as a stable commercial

real estate player and enjoys first mover advantage as a co-working office operator in China.

Operationally, completion of two new commercial properties − SOHO Leeza in the Lize District

in Beijing and Gubei SOHO in the Changning District in Shanghai − is set to strengthen its

recurrent income stream, enhancing SOHO’s ability to pay a stable dividend in the longer term.

We keep our target price unchanged at HKD3.30, based on an unchanged target NAV discount

of 70% (1 SD below mean since 2012), applied to our unchanged NAV estimate of HKD10.90

per share. With 27% implied upside to our TP, we upgrade SOHO from a Hold to a Buy rating.

Key downside risks include: 1) uncertainties related to SOHO 3Q; 2) slower-than-expected

lease-up progress and rental of new offices; 3) uncertainties in dividend outlook; and 4) macro

and property policy uncertainties in China, especially in the commercial property market.

Figure 14: SOHO NAV discount Figure 15: SOHO trailing PB

Source: Company data, Bloomberg, Refinitiv, HSBC estimates Source: Company data, Bloomberg, Refinitiv, HSBC estimates

SOHO aside, we have left our ratings and earnings estimates of all other stocks under our

coverage universe unchanged in this report.

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CapitaLand Commercial Trust

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16

Risks associated with co-working

Hong Kong

Hong Kong has seen a rapid expansion in co-working spaces in the last few years as the number of

operators has increased. Savills believes that the HK co-working market has become too crowded

and that demand is not catching up with the investments made. The market will continue to grow

but the competition is going to be intense due to a price war. As a result, Savills thinks the number

of operators who are heavily reliant on funds from venture capitalists will come down.

China

With low entry barriers, it’s relatively easy for co-working operators with limited experience in

commercial real estate to set foot in the market, resulting in a surge in the number of operators in

recent years. Many operators attempted to replicate the business model and office design of

existing operators. Based on the experience of other shared economic industries in China, such as

bikes and mobile chargers, it could easily develop into a vicious cycle of price competition which

exerts downward pressure on profitability. Without the support of stable earnings, operators may

find it difficult to sustain the current mode of operation if the macro environment deteriorates,

impacting overall investment sentiment and office space demand from smaller enterprises.

Singapore

As most co-working firms have emerged only in the past few years, they have not been around

long enough to have experienced a recession. In Singapore, there are more than a hundred

different companies in the co-working space, most of which are small. We think it is likely that

many of these firms would go bankrupt in the event of a recession, if and when it occurs.

Given the impact a recession, if and when it occurs, could have on co-working operators, it is only

natural that market participants would factor in more conservative assumptions around cash flows,

cash flow volatility, and/or valuation cap rates for assets that have a substantial proportion of

tenants as co-working operators. As such, while co-working may boost investment demand for

commercial assets for the overall market, assets that have a very high proportion of co-working

tenants could be viewed adversely. However, the extent to which such perceptions may impact

valuations and the thresholds that may trigger such adverse perceptions remain unclear.

17


How fast can the co-working market grow?

In this section, we quantify the size of the regional co-working markets (Hong Kong, China (tier-1

cities) and Singapore) by projecting their respective future turnover trend and implied growth rate.

Our analysis is based on three input metrics for calculation of annual office turnover:

CBD office stock data (GFA)

Current effective rent

Vacancy rate

In terms of key assumptions, the key variables are property consultants’ future property stock

projection (2019-23) and future co-working penetration rate. The data for the co-working

segment is fragmented and limited, while current penetration rates range from just 1% in

Shenzhen to 8% in Shanghai. On the other hand, developed markets such as Hong Kong and

Singapore have a fairly consistent co-working penetration rate at 3-4%, according to Colliers.

Methodology

Calculate total office turnover in each region in 2019-23, based on the three inputs as

highlighted above and the respective annual office new supply

Calculate co-working space turnover in 2019-23, based on the applicable penetration rate

and assumed annual increase in co-working penetration

Calculate the implied growth in co-working space turnover over 2019-23

Shortcomings of our analysis:

Our analysis uses CBD office stock data as the core input for calculation, due to limited

data availability on the overall office market in each region

Assumption of future co-working penetration rate is arbitrary, where the annual incremental

increase is the same across region at 1% y-o-y through 2020 and 0.5% y-o-y in 2021.

Quantifying the size of the

co-working market

We quantify the size of the regional co-working markets by

projecting their future turnover trend

We project an average CAGR of 33% in co-working turnover during

2018-21e across the six markets being studied

Our analysis reveals a divergence in the turnover growth rate across

different regions, most notably in the four tier-1 cities in China


18

A booming market: 34% CAGR (2018-21e) in co-working turnover

Our analysis reveals strong but divergent co-working turnover growth rate across different regions,

with a 34% CAGR during 2018-20 across the six markets being studied. Not surprisingly, the

divergence is actually most meaningful within the four tier-1 Chinese cities – Beijing, Shanghai,

Guangzhou and Shenzhen. Among these, Shenzhen and Beijing are seen to have the highest

potential, with projected co-working turnover CAGR at 75% and 41% during 2018-2021e, much

higher than Guangzhou (38% CAGR) and Shanghai (15% CAGR) during the same period. The

developed markets, Hong Kong and Singapore, are projected to grow at 17-29% CAGR in 2018-22e.

Figure 16: Co-office turnover and CAGR summary


Figure 17: Co-working space penetration rate and size in CBD

Source: JLL, Cushman and Wakefield, HSBC estimates

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sqm m

19


Figure 18: Co-working market size forecast

2018 2019e 2020e 2021e

CBD stock GFA (sqm) (A) Beijing 1,824,223 2,452,223 2,692,223 2,692,223 Guangzhou 3,358,557 3,582,428 3,582,428 4,004,272 Shanghai 6,681,606 7,012,487 7,143,487 7,472,247 Shenzhen 6,883,000 8,637,000 10,622,000 11,773,000 Hong Kong 8,945,836 9,223,513 9,245,615 9,434,552 Singapore 2,610,575 2,685,084 2,786,812 2,845,806 Effective rent (RMB/sqm/month) (B) Beijing 608 629 630 644 Guangzhou 277 277 280 287 Shanghai 496 491 497 511 Shenzhen 250 240 230 230 Hong Kong 820 838 812 699 Singapore (SGD/sqm) 103 114 116 119 Annual office turnover (RMBm) (C= A x B x (1-vacancy rate)) Beijing 12,632 16,065 18,168 18,828 Guangzhou 10,427 10,850 11,145 12,106 Shanghai 35,537 36,604 38,503 41,208 Shenzhen 17,552 19,651 22,867 26,645 Hong Kong 84,371 87,576 85,040 74,507 Singapore (SGDm) 2,807 3,276 3,488 3,701 Co-working office penetration into CBD stocks (D) Beijing 2.9% 3.9% 4.9% 5.4% Guangzhou 2.0% 3.0% 4.0% 4.5% Shanghai 8.0% 9.0% 10.0% 10.5% Shenzhen 1.0% 2.0% 3.0% 3.5% Hong Kong 3.0% 4.0% 5.0% 5.5% Singapore 3.9% 4.9% 5.9% 6.4% Co-working space in CBD (sqm) Beijing 52,902 95,637 131,919 145,380 Guangzhou 67,171 107,473 143,297 180,192 Shanghai 534,528 631,124 714,349 784,586 Shenzhen 68,830 172,740 318,660 412,055 Hong Kong 268,375 368,941 462,281 518,900 Singapore 101,812 131,569 164,422 182,132 Total co-working space turnover in CBD (RMBm) (E = C x D) Beijing 366 627 890 1,017 Guangzhou 209 326 446 545 Shanghai 2,843 3,294 3,850 4,327 Shenzhen 176 393 686 933 Hong Kong 2,531 3,503 4,252 4,098 Singapore 548.62 804.58 1,031.32 1,187.05 Singapore (SGDm) 109 161 206 237 Total co-working space turnover growth (CBD) Implied growth CAGR 2021e vs 2018 2018-2021e Beijing 143% 41% Guangzhou 114% 38% Shanghai 35% 15% Shenzhen 291% 74% Hong Kong 68% 17% Singapore 88% 29% Average 123% 36%



20

Sensitivity analysis

We understand that our co-working turnover projection has the highest sensitivity to new office

supply in each market. We have applied the same incremental co-working penetration rate

assumption across each market, regardless of the existing penetration rate.

We find that for every 0.25ppt increase in penetration rate (over the base case) in each year

during the forecast period (2019e-21e), co-working sector turnover CAGR (2018-21e) would

increase by 5.1%. Shenzhen is the most sensitive city with respect to changes in penetration rate,

given the low base effect where at end-2018 the co-working penetration rate stood at just 1%.

On average, Shenzhen 2018-21e CAGR would increase by 11.7ppt for every 0.25ppt increase in

penetration rate (over the base case) for each year in 2019e-21e, on our estimates, vs 5.1% on

average for all cities.



Beijing 7 17 26 34 41 47 52 58 63 2018-2021e Guangzhou -5 9 20 30 38 45 52 58 63 co-working Shanghai 3 6 9 12 15 18 20 23 25

turnover Shenzhen -9 24 45 61 74 86 97 106 114 CAGR (ppt) Hong Kong -10 -1 6 12 17 23 27 32 36

Singapore 5 12 18 24 29 34 39 43 47 Average -1 11 21 29 36 42 48 53 58




Beijing -33.3 -23.1 -14.4 -6.8 0.0 6.2 12.0 17.3 22.3 Change in Guangzhou -42.2 -28.4 -17.4 -8.1 0.0 7.3 13.9 19.9 25.6 2018-2021e Shanghai -12.2 -8.9 -5.8 -2.8 0.0 2.7 5.2 7.7 10.1

turnover CAGR Shenzhen -83.3 -50.7 -29.7 -13.5 0.0 11.7 22.0 31.4 40.0 relative to Hong Kong -27.1 -18.9 -11.8 -5.6 0.0 5.1 9.8 14.2 18.3

base case (ppt) Singapore -24.6 -17.4 -11.0 -5.3 0.0 4.9 9.4 13.7 17.7 Average -32.0 -21.2 -13.0 -6.1 0.0 5.4 10.4 15.0 19.3


21


ESG considerations

Our analysis of different property companies across the region reveals that co-working offices

generate substantial “environmental benefits” which is a key ESG consideration. They provide

the ability to work remotely or in flexible locations, while co-working offices also have other

sustainable development attributes.

Environmental benefits associated with co-working

Buildings are collectively one of the largest contributors to global greenhouse gases through

their energy and heating requirements. The traditional model of one company requiring

permanent office space has led to a massive increase in building stock. The co-working model,

in theory, means fewer overall buildings are required – and that the actual buildings are shared.

In the set-up of co-working offices, equipment, supplies, resources, and common facilities/amenities

are shared. This can help to improve resource efficiency – for example, individual and collective

energy consumption and wastage – as well as encourage and enable more recycling. At the same

time, many of the users of co-working offices are attracted by the flexibility in the lease terms.

Such users could be associated with the so-called “gig economy” where there is much more

emphasis on individuals or a small group of people rather than large companies and

corporations (see How big’s the gig?, 24 April 2019). These users tend to have lower

requirements in terms of interior decoration. That is, they are just looking for a place to work

from, which tends to lead to relatively less materials and energy usage from renovation,

compared to traditional offices.

Co-working often reduces the number of commutes as the co-working offices are usually set up

in multiple locations – this can have a significant environmental benefit as users tend to choose

the location closest to where they reside. With fewer (and perhaps shorter) commutes, overall

carbon emissions are lower, and fewer localised air pollutants are produced. The extent of the

reduction in carbon emissions can vary across locations, and is dependent on the mode of

transport as well as availability of public transport infrastructure.

Contributing to the Sustainable Development Goals

We believe the concept of co-working offices can contribute towards some of the UN’s

Sustainable Development Goals (SDGs) as follows:

Good health and well-being (SDG 3); Decent work and economic growth (SDG 8)

Co-working offices put considerable focus on providing decent working conditions for their

users. In addition, many co-working operators try to promote a healthy work-life balance and

introduce various classes and events to enhance the well-being of the tenants. These include

yoga classes, wine tastings, workshops and social gatherings. These help towards combatting

the loneliness that is sometimes found in gig economy or individual workers. In the long term,

co-working spaces could enhance productivity and the overall well-being of individuals.

According to a survey by WeWork, 78% of its enterprise members believe that WeWork has

helped them to attract and retain talent. Some 80% of members say their productivity increased

since joining WeWork. The presence of a wide range of start-ups and companies from different

industries in a co-working office also creates opportunities for collaboration.

https://www.research.hsbc.com/R/10/zbXhMr9lqKbM?docid=1118778


22

Industry, innovation, and infrastructure (SDG 9)

The use of co-working office space is an innovation on the traditional office model. In some

more sophisticated co-working office operators, we see the adoption of AI and Internet of things

to analyse the office usage and traffic which helps to optimise the design of the offices. The

sharing of meeting rooms, cafeterias, furniture and fixtures as well as various office equipment

by tenants can help to reduce fixed asset investment and increase resource efficiency. Selected

foreign operators have brought over a co-working business model from a more developed office

market, which will help to lift overall standards. In general, co-working office spaces reduce the

overall number of buildings required.

Sustainable cities and communities (SDG 11)

Co-working offices are usually sited at convenient and accessible locations. The sizable co-

working operators even have multiple locations across cities. This provides flexibility to both

start-ups and large enterprises in terms of choosing their office locations, with a relatively lower

capital commitment versus the traditional office. This contributes to sustainable cities by

bringing the (shared) office closer to residential areas and communities. For example, in Beijing,

WeWork has used a historical site, Beijing Fun, as a co-working office. It also helps to enhance

the usage of the cultural heritage.

23


The co-working market

According to Cushman & Wakefield (C&W), a property consultant, Hong Kong had 68 co-working

operators as of June 2018, 70% more than in 2016, implying a CAGR of c30%. The rapid growth

is being driven by demand from start-ups, fintech companies, freelancers and large corporates.

US-based WeWork, China’s Naked Hub and Amsterdam-based Spaces are the major operators in

Hong Kong.

Hong Kong fintech start-ups raised USD188m in 2018, down 66% from 2017. However, the

number of deals has gone up by 27% y-o-y to 19. In our view, the increased number of deals in

the start-up ecosystem is driving up the demand for co-working space.

Figure 21: Fintech funding (VC, PE and M&A activity) in Hong Kong

Source: FinTech Global, SCMP, HSBC

Co-working opportunities

According to Savills, co-working space operators currently occupy c2.2m sqft in Hong Kong, around

double the size at the end of 2017. And according to Colliers, around 3% of total central business

district (CBD) stock is estimated to be occupied by co-working operators as of end-2018 and about

15% of total office market take-up was leased by co-working operators as of end-2017. The

proportion of new take-up has increased from 25% in 2016 to 29% in 2017. According to Colliers, the

take up by co-working operators was 613,000 sqft in 2018 vs 350,000 sqft in 2017.

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Hong Kong

Hong Kong co-working demand is being driven by start-ups

Deeper partnership between landlords and operators needed for co-

working to be beneficial

HK property companies like Hysan, SHKP and Wharf REIC are

collaborating with external operators to leverage their advantages

Raymond Liu*, CFA Analyst

The Hongkong and Shanghai Banking Corporation Limited [email protected]

+852 2996 6743



24

The tight vacancy environment in the Hong Kong office market is driving rents up, so the arrival

of co-working space operators presents an interesting opportunity for corporates and start-ups

alike. Although the original target was start-ups, an increasing number of large corporates are

also looking at co-working as they look to save costs, increase the flexibility of their office

portfolios, and also leverage the entrepreneurial spirit of co-working environments.

If we look at Asia, China remains the top destination. Shanghai has the highest number of co-

working centres, at 285. Its percentage of co-working space is the highest at c8% of its CBD

across Asia (according to Colliers). In Hong Kong, the CBD vacancy rate is only 2.2% which

means the average desk cost is the highest in Asia at USD1,100 per month.

Figure 22: CBD vacancy rate (%)


Risks

Hong Kong has seen a rapid expansion in co-working spaces in the last few years as the

number of operators has increased. Savills believes that the HK co-working market has become

too crowded and that demand is not catching up with the investments made. The market will

continue to grow but the competition is going to be intense due to a price war. The better

managed operators will get the funding and thus will survive, according to Savills.

As a result, the number of operators who are heavily reliant on funds from venture capitalists will

come down. For example, China-based Kr Space is holding back its expansion plans and

evaluating the profitability of each individual project. Kr Space also gave up seven floors (total:

83,000 sqft) pre-leased at One Hennessy in Wan Chai. Chinachem Group, the developer of

One Hennessy, has sued Kr Space for not executing the lease agreement, according to SCMP

on 10 April 2019.

According to Colliers, there needs to be a strong partnership between co-working space

operators and landlords in order to be successful in the long haul. Through better integration,

both should strive to give a holistic offering to the tenant. This will enable them to tap what is a

huge opportunity.

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Jakarta Shanghai Beijing Singapore Melbourne Sydney Manila Hong Kong

25


Opportunities for Hong Kong property companies

Among Hong Kong property companies, Champion REIT has the highest level of office

exposure in Hong Kong (70% of GAV), followed by Swire Properties (54%), Hong Kong Land

(48%), Hysan (43%), Wharf REIC (28%) and Sun Hung Kai Properties (20%). For these major

companies, adding co-working space to their office portfolios can help enhance the occupancy

of floors and provide a better user experience to its occupiers.

These companies are increasingly looking at innovative ways to leverage the advantages of

including co-working spaces in their office portfolios. They are embracing this theme either through

their in-house concepts or external operators.

Figure 23: Hong Kong property – HK office exposure (% of total GAV)


Beneficial for both landlords and operators

Landlords could benefit more if they directly leased small units to occupiers. However, running a big

chunk of space is labour intensive and landlords do not have the economies of scale to make this

type of operation work efficiently. On the other hand, operators have expertise in leasing office

spaces to the occupiers and providing a good design mix as well as community features. Thus, we

expect the partnership between landlords and operators to have many benefits, such as economies

of scale, the ability for end-users to access multiple sites, and consistency across a portfolio.

Swire Properties leading the way with its “Blueprint” concept

Swire Properties is one of first property companies in the Hong Kong to embrace co-working. Its

“Blueprint” concept not only provides flexible spaces at its Taikoo Place but also provides value-

added amenities like training rooms and auditoriums to its occupiers. Other property companies

like Hysan, SHKP and Wharf REIC are collaborating with external operators to leverage the

advantages of co-working.

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Major deals across Hong Kong

In the major deal of 2019, WeWork leased six floors (c150,000 sqft) at The Gateway in Tsim

Sha Tsui at a monthly rent of HKD60psf. This is the first time WeWork has leased office space

in Tsim Sha Tsui. WeWork has also leased several office spaces in Causeway Bay and Wan

Chai. The largest deal in 2018 was the leasing of three floors (c77,000 sqft) at The Harbourfront

Landmark in Hung Hom for a monthly rent of HKD30psf by local operator Campfire.

The major Hong Kong property companies with good exposure to office sub-segments, like Swire

Properties, Hysan, SHKP and Wharf REIC, are collaborating with external operators to leverage the

advantages of co-working. Examples include:

Wharf REIC: In 2019, WeWork leased six floors (c150,000 sqft) at Wharf REIC’s The

Gateway in Tsim Sha Tsui at a monthly rent of HKD60psf.

Swire Properties: In 2018, The Great Room, a Singaporean co-working space operator,

leased a floor (c21, 000 sqft) at One Taikoo Place in Quarry Bay at an estimated monthly

rent of cHKD60psf.

Hysan Development: In 2018, WeWork leased a total of 80,000 sqft of space in two office

buildings of Hysan’s portfolio in Causeway Bay – 48,000 sqft at Lee Garden One at cHKD80psf

per month, and 32,000 sqft at Hysan Place at cHKD90psf per month.

Sun Hung Kai Properties and Henderson Land: In 2016, Flexible office space operator The

Executive Centre (TEC) leased a total of 17,000 sqft of space at SHKP/HLD’s Two International

Finance Centre in (IFC 2) Central.

Figure 24: Major co-working deals in Hong Kong’s office market

Year Operator District Buildings Size (sf)

2019 Victory Offices Central The Center 25,000 2019 WeWork Tsimshatsui The Gateway 150,000 2018 The Great Room Quarry Bay One Taikoo Place 21,000 2018 WeWork Causeway Bay Lee Garden One 48,000 2018 WeWork Causeway Bay Hysan Place 32,000 2018 Campfire Hung Hom The Harbourfront Landmark 77,000 2018 naked Hub Kwun Tong Two Harbour Square 58,000 2018 UR Work Sheung Wan Grand Millennium Plaza 15,000 2017 Spaces Central Sun House 77,000 2017 naked Hub Sheung Wan Bonham Circus 55,000 2017 Spaces Causeway Bay Lee Garden Three 40,000 2017 Campfire Causeway Bay V Point 38,000 2017 Spaces Ngau Tau Kok 133 Wai Yip Street 37,500 2017 Regus Mong Kok 700 Nathan Road 24,000 2017 theDesk Causeway Bay Leighton Centre 17,000 2017 UR Work Sheung Wan One8One Queen’s Road Central 15,500 2017 naked Hub Sheung Wan New Street 13,000 2016 WeWork Causeway Bay Tower 535 90,000 2016 naked Hub Sheung Wan Bonham Circus 60,000 2016 WeWork Wan Chai MassMutual Tower 60,000 2016 The Work Project Causeway Bay Midtown 30,000 2016 TEC Central IFC 2 17,000

Source: Colliers, various newspapers, HSBC

27


Co-working in China – enormous room to grow

China’s shared economy has been surging over the past few years, as shown in the table

below. Co-working space is a rising trend relevant to the shared economy but it accounts for

less than 1% of shared economy turnover, so has substantial room to grow.

Figure 25: Shared economy turnover breakdown

RMB bn 2017 2018 y-o-y Proportion 2017 Proportion 2018

Transport sharing 201 248 23% 9.7% 8.4% House sharing 12 17 38% 0.6% 0.6% Knowledge and skills sharing 138 235 70% 6.7% 8.0% Living service sharing 1,292 1,589 23% 62.2% 54.0% Medicare sharing 6 9 57% 0.3% 0.3% Co-working office 11 21 87% 0.5% 0.7% Production capacity sharing 417 824 98% 20.1% 28.0% Total 2,077 2,942 42% 100% 100%


Opportunities for co-working operators in China

Based on C&W data, Greater China’s co-working office has surged from a few sizeable venues

a few years ago to more than 500 locations in key cities as of end-Q1 2018. Many view co-

working as one of the major emerging trends of the knowledge economy. Colliers believes that

flexible workspace is no longer a disruption to conventional office space. Indeed, the

consultancy cited co-working as a fundamental part of the commercial real estate market and a

standalone sector that is important for landlords and occupiers.

Proliferation of startups has boosted demand

This trend is highly correlated with the proliferation of start-ups in China, supported by an influx of

capital from corporates and venture capital firms. According to Hurun, China has 202 unicorns

(start-ups with a value of over USD1bn) as of end-2018, which is the second highest number in the

world and is almost 10 times the number in India.

Those at the top of the list include companies such as Ant Financial, Toutiao, Didi, Cai Niao and

DJI. Most unicorns are relatively young companies with an average operating history of seven

years (70% have an average age of 5.2 years). This trend coincides with the rise of millennials,

born in the 1980s and 1990s, who are taking the lead in innovation and entrepreneurial

enterprises. KPMG has pointed out that the financial sector has stepped up the promotion of big

data technologies in China. Big data, finance and insurance technologies are ranked as the top

three financial technologies in the list of top fintech companies it compiled.

China (tier-1 cities)

Co-working office space accounts for less than 1% of China’s shared

economy, indicating substantial room to grow

Chinese developers are starting to tap into the co-working market

Developers are competitive players in the co-working market due to

their strong cash flow and experience in managing rental properties

Michelle Kwok* Head of Real Estate Research, Asia Pacific The Hongkong and Shanghai Banking Corporation Limited

[email protected]

+852 2996 6918

Albert Tam*

Analyst

The Hongkong and Shanghai Banking Corporation Limited

[email protected]

+852 2822 4395

Simon Sin* Associate


[email protected]

+852 2996 6514

Max Liang*

Associate


[email protected]

+852 2996 6629



28

Figure 26: Fintech funding (VC, PE and M&A activity) in China

Source: KPMG, HSBC

Technology advancement has made new ways of co-working possible

Given elevated office costs, a number of multinationals are searching for flexible lease terms

and cost-saving options provided by co-working operators. At the same time, advancements in

technology have made new ways of co-working possible. Colliers has discussed a city campus

leasing model that allows businesses with a mobile workforce to access drop-down space

across a city. It enables staff mobility with the aid of a digital platform that gives easy access to

hot desks or office space across different locations within a co-working operator’s portfolio.

Figure 27: Comparison of co-working office space and traditional office space in China

Co-working Traditional office

Rent period Flexible, typically 1 month or above Relatively rigid, at least one year Minimum size No GFA requirement, one desk or more At least 100-500 sqm Additional cost No renovation, furniture and utilities Renovation cost, property management and utilities Environment Includes both open/sharing area and private office area.

Focus on community and collaboration. Selected operators provide gym, swimming pool or other interest classes.

Traditional office space, limited recreation facilities, limited consideration for community and collaboration.

Source: Askci Corporation

Enhancing the user experience to create stickiness

Colliers describes co-working workspace as a business with low entry barriers. Therefore

operators have to strive to maintain user stickiness to maintain occupancy levels, which drives

profitability. Bigger operators with a larger end-user base can afford to invest more heavily in

shared facilities, which enhances the user experience. For example, Naked Hub has a

swimming pool in select locations and offers regular yoga classes to users in all locations.

Ucommune offers theatres and cafés in some locations.

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29


Figure 28: Major co-working office operators

No Operator Locations Amenities

1 SOHO 3Q Cities such as Beijing, Shanghai, Hangzhou, Shenzhen

Meeting rooms, coffee bar

2 Ucommune 40 cities including Beijing, Shanghai, Nanjing, Xi’an, Yantai, Tianjin, and Shenzhen

Meeting rooms, cafe, libraries, gyms, and game rooms.

3 People Squared Beijing, Shanghai, Shenzhen, Ningbo, Hangzhou, Taipei

Meeting rooms, offices, lounges,

4 W+COWORK Guangzhou, Beijing, Shanghai, Tianjin, Shenzhen, Suzhou, Qingdao, Ningbo, Xi'an, Chengdu, Urumqi, and Hangzhou

Meeting rooms, booths, water bar, telephone booths, recreational facilities

5 SimplyWork Shenzhen Private offices, meeting rooms, lounge, kitchen, coffee bar, smoking areas, telephone booths, gyms

6 TechTemple Beijing, Shenzhen, and Shanghai Meeting rooms and coffee bar 7 Agora Space Shanghai Meeting rooms, private offices, multimedia, storage room,

coffee and tea, beers, private garden


Risks involved in the business model

With low entry barriers, it is relatively easy for co-working operators with limited experience in

commercial real estate to set foot in the market. In China, this has resulted in a surge in the

number of operators in recent years. Given that many operators do not have a unique selling

point or business model, they often attempt to replicate the business model and office design of

existing operators. Based on the experience of other shared economic industries in China, such

as bikes and mobile chargers, it could easily develop into a vicious cycle of price competition

which exerts downward pressure on profitability.

Co-working office operators have been in expansion mode in China, backed by financing from

venture capital and private investors. Operators with strong financial support are starting to take

over smaller players. In 2018, WeWork acquired Naked Hub. Another major operator,

Ucommune, has acquired four operators – Woo Space, WeDo, New Space and Workingdom. A

rise in M&A activity has led to intense competition and sector consolidation. Currently, many

players are still in an investment phase. Even industry leader WeWork disclosed that it made an

operating loss in FY18 after being in operation for nine years.

Without the support of stable earnings, operators may find it difficult to sustain the current mode

of operation if the macro environment deteriorates, impacting overall investment sentiment and

office space demand from smaller enterprises.


30

Co-working office turnover to grow quickly in the next few years

As discussed in the previous section, there is still ample room for the co-working office segment

to grow. However, this is still an evolving segment where limited data is available, so our

forecasts are focused on the CBDs of key cities.

Shanghai has the largest supply of offices in the CBD area at 6.7m sqm, which is roughly 3.7x

that of Beijing, 2.0x Guangzhou and 1.3x Shenzhen. With a well-developed office market and

the presence of numerous multinationals and financial institutions, Shanghai has the largest co-

working office penetration rate at 8% as of 2018, versus 1-3% in other tier-1 cities, according to

Colliers. We estimate the size (in terms of turnover) of the co-working market at RMB2.8bn,

RMB209m, RMB366m and RMB176m in the CBDs of Shanghai, Guangzhou, Beijing and

Shenzhen in 2018, respectively.

Our assumption is that the penetration rate of the co-working market will increase by 1ppt per

year in 2019-20e and 0.5ppt in 2021e. Higher penetration rates will help drive co-working office

turnover in the market – Shenzhen (2018-21e CAGR at 74%), Beijing (41%), Guangzhou (38%)

and Shanghai (15%). We expect Shenzhen to see the highest growth due to its current low

penetration rate, followed by Beijing, which has a concentrated presence of start-ups. For

reference, Beijing has the highest number of unicorns and potential unicorns in China – 82

unicorns in 2018, almost double the number in Shanghai, according to Hurun.

Figure 29: Summary of co-working office space, penetration and CAGR

2018 Co-office size in CBD (sqm m)

2018 Co-office turnover in CBD (RMBm)

Co-working office penetration rate 2018

Co-working office turnover CAGR 2018-2021e

Shenzhen 0.07 176 1.0% 74% Beijing 0.05 366 2.9% 41% Guangzhou 0.07 209 2.0% 38% Shanghai 0.53 2,843 8.0% 15% Average 3.5% 36%


31


Developers are stepping into the co-working market

Developers are jumping on the bandwagon and have either established their own brands or

collaborated with existing co-working space operators. Chinese developers are backed by

strong cash inflows from their existing property development business and can benefit from

more diverse funding channels.

A handful of developers have established their own co-working brands, including COLI, Longfor,

Sino-Ocean and SOHO. They can leverage on their existing office properties to test the

feasibility of this business model.

For developers that didn’t allocate resources to launch a co-working brand, they have

collaborated with other pure co-working operations in order to establish a presence in this

business segment, allowing them to learn from other more established market players. These

developers include Gemdale, Sino-Ocean and Country Garden.

Among stocks in our coverage universe, SOHO China is the purest commercial and co-working

player, while Sino-Ocean has also stepped up in its co-working initiatives. Specifically, Sino-

Ocean has collaborated with WeWork and has set up co-working offices in six locations across

four top-tier cities in China. In addition, it has also established its own co-working brand

OKspace and invested in Beijing-based operator Nashwork.

Based on the online news media HK01 and kknews, the sons of the chairmen of China SCE

and Agile have separately developed their own co-working brands, called Funwork and ATLAS,

respectively. We see potential for developers to invest in these platforms. For instance, China

SCE acquired a 25% stake in Funwork from the chairman’s son in January 2019.

Figure 30: Summary of developers’ involvement in co-working space

Developer Brand Relationship with the developer

Remarks

Longfor Easywork Own brand Shanghai only. 800 seats in Hongqiao Paradise Walk SOHO SOHO 3Q Own brand 31 centres with c30k seats in seven cities in China CRL CR Union Own brand CR Union is a new office brand launched in 2019. It will launch

six projects during the year including some co-working offices. COLI Officezip Own brand 12 centres in 6 cities in China CIFI Workingdom Partnership Launching three co-working office centres in 2019 in Beijing Shimao MWORKS Own Brand Opened MWORKS in Nanjing Software Valley with 3,500sqm GFA Country Garden Fountown Partnership Entered into strategic partnership agreement in various area

including co-working. The first project was launched in Shanghai in mid-2018.

Gemdale WeWork Partnership Entered a revenue sharing agreement with WeWork. Converting its own office into a new co-working centre in Shenzhen.

Sino-Ocean WeWork Partnership WeWork entered first real estate strategic partnership with Sino-Ocean, which now has 6 co-working locations in co-operation with WeWork across Beijing, Shanghai, Chengdu and Shenzhen.

Nashwork Investment Participated in a financing (series B+ round) with Beijing-based Nashwork in June 2018.

OKspace Own brand Presence in Hangzhou and Beijing China SCE Funwork Investment Established by chairman’s son. China SCE has a stake.

Source: Local media, company data, HSBC


32

Case study – SOHO 3Q

SOHO China is one of the few listed developers that has been focusing on the co-working

space business. SOHO launched its co-working brand, SOHO 3Q, in February 2015 with an

initial focus in Beijing and Shanghai, where SOHO’s portfolio of investment properties are

located. Started originally in SOHO’s own commercial properties, SOHO 3Q now also runs at

third party buildings. As of end-2018, SOHO 3Q spanned seven cities – Beijing, Shanghai,

Shenzhen, Hangzhou, Chengdu, Chongqing, and Nanjing, with 31 centres and just above

30,000 seats. Guanghualu SOHO 3Q, located in Guanghualu SOHO II, is the flagship 3Q

centre with over 3,000 seats.

While SOHO’s management has had a target to achieve over 50,000 co-working seats by 2018,

actual completion fell short of this target due to fierce and “unhealthy” competition in the

segment, according to SOHO. While we note that the company had earlier indicated a plan for a

spin-off for its co-working business (South China Morning Post, 20 June 2018), the company

has more recently said that its near-term focus is on maintaining profitability of the business in

2019, instead of scale expansion.

Figure 31: The short development history of SOHO 3Q

2015 2016 2017 2018

Number of cities 2 2 5 7 Number of centres 11 19 26 31 Number of seats 10,000 17,000 26,000 30,673 Average occupancy n.a. 85% 87% 87% Remarks Located in Beijing and

Shanghai Located in Beijing and

Shanghai Located in Beijing,

Shanghai, Shenzhen, Hangzhou and Nanjing

Located in Beijing, Shanghai, Shenzhen, Hangzhou, Chengdu,

Chongqing and Nanjing


Indeed, the share price of SOHO China de-rated in the beginning of 2015, reflecting the change in

business focus but also other factors like the uncertainty associated with SOHO’s dividend policy.

Figure 32: SOHO’s NAV discount

Source: Company data, Refinitiv, HSBC estimates

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

% to NAV +1 SD Mean -1 SD

33


Co-working deals across cities

The top tier cities are seeing rising demand for the co-working space. Beijing is China’s science

and technology centre, which attracts numerous tech companies the city. At the same time, the

development of Zhongguancun, which is referred as “China’s Silicon Valley”, is home to many

new tech companies. In 2018 Kr Space leased 3,500 sqm of office space in China Overseas

Plaza for its co-working business.

In Shanghai, Cushman and Wakefield indicated that the co-working office market has become a

significant contributor to Grade A office absorption. With rising demand for flexible work space,

C&W described Shanghai as a key battleground for market share among both domestic and

overseas operators. In particular, WeWork has leased 27,000 sqm at the China Overseas

International Center. Developers are also expanding their presence in the city. SOHO has been

operating “SOHO 3Q” and Longfor has established its “Easywork” co-working office brand.

In Shenzhen, the rapid development of the technology segment and the presence of

multinationals provides some of the best opportunities for co-working space development.

WeWork and naked Hub have been very active in the city.

Figure 33: Major deals in co-working space

City Company District Building Size (sqm)

Beijing 5L meet CBD Traders Hotel 39,999 Beijing naked Hub Sanlitun Pacific Century Place 5,500 Beijing WeWork Sanlitun Taikoo Li 3,000 Beijing WeWork Wangfujing Spot on WFJ 13,000 Beijing Fountown Others Yinyuan Building 11,338 Beijing Kr Space Others Straits International Plaza 10,300 Beijing Kr Space CBD China Overseas Plaza 3,500 Beijing naked Hub CBD Gongxiao International Building 2,850

Shanghai naked Hub Changning Loushanguan Lu 12,077 Shanghai WeWork Huangpu Yunnan Lu 10,219 Shanghai Atlas Huangpu Gopher Center 7,432 Shanghai WeWork Xuhui ITC 6,503 Shanghai We+ Luijiazui Shanghai Tower 3,716 Shanghai WeWork Huangpu China Overseas International Center 27,000 Shanghai WeWork Lujiazui Fuhui Plaza 14,000 Shanghai naked Hub Hongkou Landmark Center 10,000 Shanghai Distrii Core Xuhui Grand Gateway 6,500 Shanghai WeWork Core Xuhui ITC Phase I 6,000

Guangzhou Atlas Zhujiang New Town Agile Center 11,000 Guangzhou Chirk-up Tianhe Sports Center Citic Plaza 10,000 Guangzhou Worldunion Space Tianhe Sports Center Hongfa Building 4,115 Guangzhou Bee+ Zhujiang New Town Guangzhou IFC 2,991 Guangzhou Kr Space Haizhu T.I.T Business Park 2,662

Shenzhen WeWork Nanshan CR Land Building 26,999 Shenzhen Nashwork Futian Excellence Century Center 2,000 Shenzhen Regus Futian Ping An Building 1,900 Shenzhen Atlas Futian Dinghe Tower 10,000 Shenzhen Atlas Nanshan SZ Aerospace Science and Tech Sq 13,000 Shenzhen Atlas Futian Shenzhen Gemdale Center 5,700 Shenzhen Regus Futian Ping’an Financial Center 3,500

Source: Cushman and Wakefield, Colliers, HSBC


34

Vibrant environment for start-ups and small businesses

Singapore’s start-up environment has become vibrant in recent years, with the city-state aiming to

become a top regional and global fintech hub, supported by government initiatives. According to

EY, there are more than 400 fintech firms in Singapore and several more are slated to be added

each year. Furthermore, Singapore’s Smart Nation initiative has also given the start-up scene a

boost. The policy initiative, aimed at guiding Singapore’s digital transformation, is expected to

leverage off technology and big data analytics and create opportunities for prospective start-ups.

In general, the government has been encouraging the development of an ecosystem that allows

new entrepreneurs to find the required training, help and funding – these entrepreneurs then in

turn help their peers and the next generation of entrepreneurs. There are signs of progress, with

an increased number of individuals emerging as independent workers, entrepreneurs and

freelancers. This group, in particular the millennials, generally prefer flexible work arrangements

and this has been driving demand for co-working in Singapore’s office market.

Figure 34: Fintech funding (VC, PE and M&A activity) in Singapore

Source: KPMG, HSBC

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Deal value (USDm) Number of deals closed (RHS)

Singapore

The co-working market has been growing rapidly

Large office landlords could benefit from co-working demand

Positive implications for commercial assets in Singapore could

benefit some SREITs

Pratik Ray*, CFA

Senior Property Analyst, ASEAN The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch

[email protected]

+65 6658 0611

Derek Chang*

Property Analyst

The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch

[email protected]

+65 6658 0624


35


Figure 35: Count of SMEs (thousand) Figure 36: Nominal value added by SMEs (SGDbn)

Source: Ministry of Manpower, HSBC Source: Ministry of Manpower, HSBC

Large corporations are setting up their own innovation centres

Alongside start-ups, many large corporates have also realised the importance of innovation and

creativity in the workplace. This is driven by multiple factors: 1) to address competition from

disruptive technologies in various industries; 2) seeking to leverage government initiatives

around developing Singapore into a smart nation; and 3) keeping employees engaged and

making it a part of the company’s talent retention strategy, in particular for millennials.

To achieve this, many firms have set up incubators that work outside of the conventional office

set-up, such as co-working spaces. These incubators, which bring together technology and

analytical data professionals and form specialised teams to work on special projects, are also

driving demand for co-working in Singapore’s office market.

242.9245.2 246.1

252.8

262.6

230

235

240

245

250

255

260

265

2014 2015 2016 2017 2018

Count of SMEs (Thousand)

179.0 178.0

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2014 2015 2016 2017 2018

Nominal value added by SMEs (SGDbn)

Figure 37: Innovation centres by corporates in Singapore

Corporation Industry Innovation Centre Objective

Dell Tech Internet of Things (IoT) Lab Develop and test Dell and Intel solutions, allow for scalability testing DBS Banking & Finance Life Analytics Lab Process data from social media platforms to generate new digital innovations and sales leads MetLife Insurance LumenLab Develop disruptive new business models in areas such as wellness, wealth and retirement HSBC Banking & Finance HSBC Singapore

Innovation Lab Support the development and testing of digital and mobile banking innovation

Accenture Management Consulting Services

Accenture Analytics Innovation Center

Develop new approaches for use of analytics in key areas of services, such as public safety, service delivery, workforce effectiveness, etc.

PayPal Banking & Finance Paypal Innovation Lab Explore opportunities in the areas of cybernetic authentication tokens, AI-powered know-your-customer (KYC) processes and cryptography technology, such as post-quantum cryptography to future-proof PayPal’s risk and security management systems

Mastercard Banking & Finance Mastercard Innovation Showcase

Innovate newer ways of making payments, such as by taking a selfie through an app with biometric authentication, and purchasing items in a vending machine via a mobile application among others

Citibank Banking & Finance Citi Innovation Lab Use new web, mobile, supply chain and analytics technologies to engage Citi’s institutional clients more innovatively and to create the most effective solutions and products for them

KPMG Management Consulting Services

KPMG Digital Village Bring corporates, start-ups, investors, and government bodies together in a collaborative ecosystem to drive the adoption and integration of innovative solutions focusing on fintech, healthtech and logistics

Refinitiv Media Refinitiv Labs Collaborate with customers, tech start-ups, universities and Singapore’s government to roll out products and solutions for professional markets in Asia Pacific

Expedia Travel Expedia Innovation Lab Use proprietary scientific methods to further understand Asia consumer online and app travel search and booking behaviour to inform its innovation and technology developments globally

Microsoft Tech Microsoft Technology Centre (MTC)

A place for collaborative workshops for Microsoft customers, where they can engage with MTC staff in briefings, sessions and other technical courses

IBM Tech IBM Studios Develop individualised experiences through a combination of cognitive capabilities and experience design Standard Chartered Bank

Banking & Finance SCB - eXellerator Work closely with the business units within the bank and explore the use of emerging technologies and data science for sustainable business solutions

MUFG Bank Banking & Finance MUFG Innovation Lab Experiment with fintech and innovative business solutions BNP Paribas Banking & Finance BNP Paribas Innovation

Lab Enrich the customer experience, and develop close collaboration between a select group of clients, fintechs and in-house wealth management specialists

OCBC Banking & Finance The Open Vault Collaborate with external fintech firms to rapidly test and validate new ideas and solutions – before bringing prototypes quickly to the market and make banking simpler

UOB Banking & Finance The FinLab Business accelerator that propels the growth of technology companies and catalyses the digital transformation of businesses

Source: Company announcements, Cushman & Wakefield, Medium, HSBC


36

Co-working landscape

As of July 2018, Singapore had 36 co-working operators operating out of 120 locations, almost 2x

the number four years ago, implying a c20% CAGR for both categories over this period. The

sector has seen expansion from local operators, such as JustCo and The Great Room, while

Chinese operators like Distrii as well as US-based WeWork have also entered the market.

Figure 38: Singapore: Number of co-working operators and centres

Source: Cushman & Wakefield, HSBC

Increasingly a growing influence in the office leasing market

Co-working operators have become more influential in Singapore’s office leasing market as

traditional occupiers from sectors such as banking & finance have moderated their expansion

plans. According to Colliers, co-working operators now make up c20% of the gross take-up in

the office market in Singapore’s CBD. In our view, the net take-up proportion is substantially

higher. However, given this is off a low base, Colliers estimates that co-working operators

occupy less than 4% of the total CBD office stock in Singapore (2017: less than 2.5%). The

pick-up in number of operators and centres has sustained in 2019 and with it co-working-led

leasing activity in the market.

Figure 39: Major co-working deals in Singapore’s office market

Date Operator Building Size (sf)

May-19 JustCo 20 Collyer Quay 16,800 Nov-18 WeWork Suntec City Tower 5 30,000 Oct-18 JustCo China Square Central 34,500 Oct-18 Campfire 139 Cecil Street 85,000 Jun-18 Space&Co. 8 Exhibition Street, Melbourne 16,872 Jun-18 WeWork 71 Robinson Road 64,583 May-18 Distrii Republic Plaza 62,000 Apr-18 Spaces TripleOne Somerset 35,000 Mar-18 Spaces One Raffles Place 35,000 Mar-18 Spaces Paya Lebar Quarter 50,000 Mar-18 The Great Room Centennial Tower, Temasek Avenue 36,000 Mar-18 WeWork China Square Central 26,700 Feb-18 Ucommnue Suntec City 13,800 Dec-17 WeWork Funan's North Office Block 40,000 Jun-17 The Work Project OUE Downtown 21,000 Jan-17 The Working Capitol 140 Robinson Road 55,000 Jun-16 Collective Works 12th floor of Capital Tower 22,000 Jun-16 The Great Room One George Street 24,000 Mar-15 The Working Capitol 1 Keong Saik Road 33,000


19 18 22 2636

66 70

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Number of operators Number of centres

37


Opportunities and winners

Some of the largest property groups in the region are the best placed

Some of the largest property groups in Singapore have been quick to realise that co-working as

a model is here to stay. They have responded by investing in operators or collaborating with

them in one way or the other. The most active and the early adopters have been the large

property groups such as CapitaLand, Frasers Property and Mapletree Investments.


Date Property group Country Property assets Operator Co-working related investment

Oct-18 CapitaLand Singapore cSGD93bn (group managed real estate assets)

The Work Project Kingdom

SGD27m (USD19.7m)

May-18 City Developments Singapore cSGD20bn (total assets) Distrii RMB102m (USD14.8m) May-18 Frasers Property Singapore cSGD32bn (total group assets) JustGroup Holdings USD60m Feb-18 CapitaLand Singapore cSGD93bn (group managed

real estate assets) Flexi-Suites Flexi-Suites is CapitaLand’s

co-working offering Nov-17 Keppel Corp Singapore cSGD29bn (assets under

management) KLOUD KLOUD is Keppel’s co-

working offering Dec-17 Mapletree

Investments Singapore cSGD46bn (assets under

management) CoQoons CoQoons is a subsidiary of

Mapletree Oct-15 Keppel Corp Singapore cSGD29bn (assets under

management) Workspace Workspace is Keppel’s co-

working offering



Property group Currency Price Market Cap (USDm)

Trading Liquidity (USDm)

PB (x) ROE (%) (2019e)

PE (x) (2019e)

EPS Growth (%) (2019-20e)

Dividend Yield (%)

(2019e)

CapitaLand* SGD 3.54 10,920 21.5 0.78 5.2% 14.7 18.7% 3.4% Frasers Property* SGD 1.80 3,948 0.4 0.72 7.0% 10.3 -12.1% 4.7%

Total/Simple average 14,868 21.9 0.75 6.1% 12.5 3.3% 4.0%

Source: Bloomberg consensus for non-covered (not rated) companies, HSBC estimates for covered (rated) companies. *HSBC covered (rated) stock. Priced as of 24 June 2019

Large office landlords in Singapore could benefit from co-working demand

Large office landlords in Singapore could benefit from co-working demand. Singapore, as the

only gateway city in Southeast Asia, is likely to be the choice destination for regional and global

multinationals seeking space in a co-working set-up in Southeast Asia. The government has

also been proactive in attempting to develop an ecosystem that offers entrepreneurs,

freelancers, and small businesses an environment in which they can thrive. Many of these

landlords are office REITs, which are sponsored by the large property groups – this further

substantiates our view that such groups are well placed to ride the co-working wave.

Figure 42: Office REITs in Singapore

Price (SGD)

Market cap (USDm)

Trading liquidity (USDm)

PB (x)

DPU yield (%)

(2019e)

DPU yield (%)

(2020e)

DPU yield (%)

(2021e)

CapitaLand Commercial Trust* 2.14 5,929 20.4 1.18 4.1% 4.1% 4.1% Keppel REIT* 1.27 3,192 5.9 0.92 4.5% 4.6% 4.7% OUE Commercial Trust 0.51 1,069 0.4 0.70 6.8% 7.0% 7.0% Frasers Commercial Trust 1.58 1,057 2.4 1.01 6.2% 6.2% 6.2%

Total/Simple average 11,247 29.1 0.95 5.4% 5.5% 5.5%



38

Positive implications for commercial assets in Singapore could benefit some SREITs

If there are positive implications for commercial real estate (office and shopping mall), then the

large property groups in Singapore and their listed subsidiaries and associates, including their

sponsored REITs, would be the go-to names for investors seeking exposure to commercial real

estate in Singapore through listed proxies.

Figure 43: Retail, office and mixed REITs in Singapore by sponsor

Segment Price (SGD)

Market cap (USDm)

Trading liquidity (USDm)

PB (x)

DPU yield (%)

(2019e)

DPU yield (%)

(2020e)

DPU yield (%)

(2021e)

CapitaLand CapitaLand Mall Trust* Retail 2.6 7,085 18.4 1.27 4.6% 4.9% 5.0% CapitaLand Commercial Trust* Office 2.14 5,929 20.4 1.18 4.1% 4.1% 4.1% Mapletree Mapletree Commercial Trust* Retail/Office 2.06 4,405 11.9 1.29 4.5% 4.6% 4.7% Keppel Keppel REIT* Office 1.27 3,192 5.9 0.92 4.5% 4.6% 4.7% Frasers Property Frasers Centrepoint Trust* Retail 2.59 2,131 4.2 1.24 4.8% 5.0% 5.2% Frasers Commercial Trust Office 1.58 1,057 2.4 1.01 6.2% 6.2% 6.2% OUE OUE Commercial Trust Office 0.51 1,069 0.4 0.70 6.8% 7.0% 7.0% Others Suntec REIT* Retail/Office 1.94 4,006 14.1 0.93 5.3% 5.4% 5.5% SPH REIT Retail 1.07 2,045 0.8 1.14 5.3% 5.5% 5.6% Starhill Global REIT Retail/Office 0.78 1,257 1.6 0.86 6.1% 6.2% 6.1%


Figure 44: Singapore property: Office exposures (% of total GAV)


10%

14%

19%

26%

56%

85%

95%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

CapitaLand Mall Trust

Frasers Property

CapitaLand

Mapletree Commercial Trust

Suntec REIT

Keppel REIT

CapitaLand Commercial Trust

39


Potential risks related to co-working

Co-working operators have yet to experience a major recession

As most co-working firms have emerged only in the past few years, they have not been around

long enough to have experienced a recession. In Singapore, there are more than a hundred

different companies in the co-working space, most of which are small. It is possible that many of

these firms would go bankrupt in the event of a recession, if and when it occurs.

Perception issues around assets substantially leased to co-working operators

Given the impact a recession, if and when it occurs, could have on co-working operators, it is

only natural that market participants would factor in more conservative assumptions around

cash flows, cash flow volatility, and/or valuation cap rates for assets that have a substantial

proportion of tenants as co-working operators. As such, while co-working may boost investment

demand for commercial assets for the overall market, assets that have a very high proportion of

co-working tenants could be viewed adversely. However, the extent to which such perceptions

may impact valuations and the thresholds that may trigger such adverse perceptions remains

unclear. Consultants like Cushman & Wakefield have cited a 15-30% threshold (in terms of

leasing to co-working operators without any adverse impact with regard to perception), but we

think these conclusions are preliminary as transactional evidence is thin.


40

Figure 45: Regional valuation summary

Company Ticker Rating Price (HKD)

Target Price

(HKD)

Upside /(D’nside)

(%)

Mkt Cap (USDbn)

3M ADTV (USDm)

NAV (HKD/shr)

(Disc)/ Prem (%)

FY18a PE (x)

FY19e PE (x)

FY20e PE (x)

FY19e Yield (%)

FY18a PB (x)

FY19e Net gearing

HK developers CK Asset 1113 HK Buy 61.30 76.40 24.6 29.0 57.8 123.2 (50) 9.4 8.0 8.5 3.5 0.7 5 HLP 101 HK Buy 18.50 23.30 25.9 10.6 12.7 34.7 (47) 20.3 19.3 16.3 4.1 0.6 22 Henderson 12 HK Hold 43.45 47.55 9.4 26.9 44.4 83.4 (53) 9.7 11.2 11.2 4.3 0.6 27 HKLand (USD) HKL SP Buy 6.69 8.40 25.6 15.7 10.5 12.5 (46) 15.1 14.3 13.8 3.4 0.4 8 Hysan 14 HK Hold 40.50 44.20 9.1 5.4 6.0 83.3 (51) 16.7 15.4 15.0 3.8 0.6 6 Kerry 683 HK Hold 32.75 34.70 6.0 6.1 6.2 77.0 (57) 14.2 8.0 7.5 4.3 0.5 49 Sino Land 83 HK Buy 13.50 17.40 28.9 11.8 10.1 28.5 (53) 16.1 16.9 14.8 4.1 0.6 net cash SHKP 16 HK Buy 134.50 163.20 21.3 49.9 80.5 229.9 (41) 12.8 12.1 10.0 3.8 0.7 14 Swire Prop 1972 HK Buy 32.60 38.20 17.2 24.4 8.8 57.1 (43) 18.8 14.8 20.8 2.7 0.7 5 Wharf 4 HK Reduce 20.65 19.20 (7.0) 8.1 9.9 54.7 (62) 9.7 9.5 8.9 3.4 0.5 10 Wharf REIC 1997 HK Buy 55.60 66.30 19.2 21.6 20.1 93.4 (40) 16.8 15.5 14.3 4.2 0.8 16 Wheelock 20 HK Buy 55.75 79.30 42.2 14.6 9.1 130.0 (57) 8.6 7.6 7.1 3.0 0.5 16 Average (45) 15.6 14.2 13.5 3.7 0.7 18 REITs & Trusts Champion REIT] 2778 HK Hold 6.68 6.90 3.3 5.0 3.1 6.9 (3) 25.5 22.6 20.3 4.4 0.6 18 Hui Xian REIT (RMB) 87001 HK Buy 3.36 3.80 13.1 2.8 1.6 n.a. n.a. 12.7 12.4 12.0 8.0 0.7 22 Jinmao Hotel 6139 HK Buy 4.37 6.00 37.3 1.1 0.0 7.5 (42) 13.1 12.4 12.0 8.1 1.5 41 Link REIT 823 HK Hold 97.25 99.50 2.3 26.3 53.7 99.5 (2) 38.9 35.8 32.4 2.8 1.2 11 Average (13) 20.7 19.3 18.1 6.0 0.9 27 China Props Agile 3383 HK Hold 10.44 10.40 (0.4) 5.2 11.4 34.8 (70) 5.2 4.4 3.8 11.5 0.7 145 COLI 688 HK Buy 27.80 40.00 43.9 39.0 49.8 44.4 (37) 8.2 6.8 5.7 4.0 1.1 36 CRL 1109 HK Buy 34.75 40.60 16.8 30.8 50.4 50.8 (32) 10.8 8.3 7.0 4.2 1.7 50 China SCE 1966 HK Buy 3.70 4.70 27.0 2.0 4.9 11.8 (69) 5.6 4.1 3.1 7.8 0.8 133 CIFI 884 HK Buy 5.05 6.80 34.7 5.0 13.1 13.7 (63) 6.1 4.9 4.0 6.9 1.3 150 CG 2007 HK Hold 11.96 12.00 0.3 33.2 62.4 15.0 (20) 6.5 5.2 4.7 5.9 1.8 79 China Jinmao 817 HK Hold 4.79 5.50 14.8 7.1 34.5 11.0 (56) 9.4 7.0 5.5 5.7 1.5 162 GZ R&F 2777 HK Buy 14.72 18.70 27.0 6.1 13.7 53.3 (72) 4.5 3.2 2.7 12.5 0.6 210 Joy City 207 HK Buy 0.95 1.50 57.9 1.7 0.5 3.7 (74) 8.0 7.9 6.4 5.0 0.4 89 KWG 1813 HK Buy 7.88 12.20 54.8 3.2 10.8 40.6 (81) 5.7 4.4 3.9 8.2 0.7 83 Logan 3380 HK Buy 12.32 14.60 18.5 8.6 8.1 26.6 (54) 7.2 5.8 4.2 5.9 2.2 114 Longfor 960 HK Hold 29.65 27.60 (6.9) 22.6 26.5 46.0 (36) 11.9 9.3 7.6 4.3 0.3 90 Shimao 813 HK Hold 24.25 23.90 (1.4) 10.2 20.7 39.8 (39) 8.2 6.5 5.4 5.4 1.2 123 Sino-Ocean 3377 HK Buy 3.27 4.00 22.3 3.2 6.3 13.3 (75) 8.2 6.1 4.3 6.6 0.4 105 SOHO China 410 HK Buy 2.60 3.30 26.9 1.7 1.4 10.9 (76) 10.6 25.0 19.3 1.6 0.3 43 SZ Investment 604 HK Hold 2.90 2.80 (3.4) 3.1 2.9 6.9 (58) 7.5 7.3 6.4 4.8 0.6 44 Yanlord (SGD) YLLG SP Hold 1.30 1.28 (1.5) 1.9 2.3 3.7 (65) 3.9 3.6 3.1 5.5 0.5 99 Avg ex Joy City and SOHO** (55) 7.3 5.8 4.7 6.6 1.0 108 Singapore developers CapitaLand CAPL SP Buy 3.54 4.15 17.2 10.9 21.5 4.9 (28) 14.7 14.7 12.4 3.4 0.8 63 Frasers Prop FPL SP Buy 1.83 2.25 23.0 3.9 0.4 3.0 (39) 12.7 10.3 11.7 4.7 0.7 90 Average (34) 13.7 12.5 12.1 4.0 0.8 76 ASEAN (ex-Sing. dev) SM Prime SMPH PM Hold 38.45 35.00 (9.0) 21.6 6.1 35.0 10 34.5 30.7 28.3 1.0 3.9 71 Ayala Land ALI PM Buy 51.80 54.40 5.0 14.9 13.6 54.4 (5) 26.1 22.5 19.7 1.0 4.0 80 Robinsons Land RLC PM Buy 26.50 28.95 9.2 2.7 1.1 36.2 (27) 20.4 19.0 16.0 1.1 1.1 49 Central Pattana CPN TB Hold 75.75 76.60 1.1 11.1 23.0 76.6 (1) 27.9 24.2 22.7 1.7 4.5 15 Land & Houses LH TB Buy 11.10 12.85 15.8 4.3 21.3 13.5 (18) 12.7 13.1 12.8 6.8 2.6 97 Pruksa PSH TB Buy 21.00 24.30 15.7 1.5 1.8 27.0 (22) 7.6 7.5 7.1 7.4 1.1 56 Bumi Serpong BSDE IJ Buy 1,520.00 2,000.16 31.6 2.1 1.5 2,222.4 (32) 22.6 13.2 12.4 0.4 1.1 21 Pakuwon Jati PWON IJ Buy 740.00 808.00 9.2 2.5 2.1 808.4 (8) 14.0 14.0 13.0 0.6 2.8 8 Ciputra Dev CTRA IJ Buy 1,125.00 1,500.00 33.3 1.5 2.7 1,500.5 (25) 18.1 19.3 18.7 0.5 1.4 33 Lippo Karawaci LPKR IJ Buy 290.00 543.00 87.3 0.5 1.6 603.4 (52) 10.9 6.8 6.2 1.4 0.2 37 Vinhomes VHM VM Buy 79,500.00 105,000.00 32.1 11.4 4.7 105,000.0 (24) 17.5 14.8 9.9 0.4 6.1 40 Average (17) 20.4 19.1 17.3 1.8 2.5 49 Sinagpore REITs Ascendas REIT AREIT SP Hold 3.01 2.80 (7.0) 6.9 26.3 2.6 18 18.6 19.1 18.8 5.6 1.4 35 CapitaLand Mall Trust CT SP Hold 2.60 2.50 (3.8) 7.1 18.4 2.3 14 19.4 21.1 19.9 4.6 1.2 31 CapitaLand Comm. CCT SP Hold 2.14 1.95 (8.9) 5.9 20.4 2.0 7 23.8 25.8 25.5 4.1 1.1 28 Suntec REIT SUN SP Buy 1.94 2.05 5.7 4.0 14.1 2.0 (5) 24.3 27.6 25.9 5.2 0.9 38 MCT MCT SP Hold 2.06 1.90 (7.8) 4.4 11.9 1.8 17 24.2 23.6 23.0 4.5 1.2 33 Keppel REIT KREIT SP Buy 1.27 1.35 6.3 3.2 5.9 1.4 (12) 38.2 27.3 24.7 4.5 0.8 33 MLT MLT SP Hold 1.57 1.40 (10.8) 4.2 16.6 1.2 34 26.3 21.1 20.2 5.2 1.3 36 Frasers Centrepoint FCT SP Hold 2.59 2.50 (3.5) 2.1 4.2 2.2 19 22.9 22.6 20.5 4.8 1.2 29 CDL Hospitality CDREIT SP Hold 1.62 1.68 3.7 1.4 2.0 1.5 8 27.8 20.5 19.3 5.7 1.0 34 Keppel DC REIT KDCREIT SP Hold 1.64 1.45 (11.6) 1.6 4.7 1.1 47 18.5 19.0 18.3 4.7 1.5 31 Far East Hosp. FEHT SP Buy 0.68 0.75 11.1 1.0 1.2 0.8 (13) 20.1 18.7 17.7 6.3 0.7 39 Cache Logistics CACHE SP Hold 0.80 0.72 (10.0) 0.6 1.4 0.7 7 20.3 15.0 14.6 7.6 1.2 36 Average 12 23.7 21.8 20.7 5.2 1.1 34 ASEAN (ex-Sing) REITs and prop funds Tesco Lotus TLGF TB Hold 20.80 18.80 (9.6) 1.6 0.8 16.5 26 21.6 20.6 19.7 4.4 1.5 8 IGB REIT IGBREIT MK Buy 1.86 2.00 7.5 1.6 0.7 1.8 2 19.6 20.9 20.3 5.1 1.7 25 Average 14 20.6 20.7 20.0 4.7 1.6 16

Source: Company data, Bloomberg, HSBC estimates. Note: Priced as at 24 Jun 2019

41


Valuation and risks

Valuation Risks

COLI

688 HK

Current price:

HKD27.80

Target price:

HKD40.00

Up/downside:

+44%

We derive our fair value target price of HKD40.00 based on an

unchanged target discount of 10% (+0.5 SD above the historical

mean) applied to our unchanged NAV estimate of HKD44.40 per

share. With our TP implying 44% upside from current levels, we

maintain our Buy rating on COLI for its quality land bank, execution

track record, balance sheet strength and potential increase in

dividend payout.

Key downside risks include slower-than-expected

contracted sales momentum; achieving lower-than-expected

ASPs; uncertainties associated with the recent management

changes; and uncertainties related to macro and property-

specific policies.

Buy

Michelle Kwok* | [email protected] | +852 2996 6918

Shimao

813 HK

Current price:

HKD24.25

Target price:

HKD23.90

Up/downside:

-1%

We derive our fair value target price of HKD23.90 based on our

unchanged target discount of 40% (historical mean) applied to our

unchanged NAV estimate of HKD39.80/share. Our TP implies

downside of 1% and we maintain our Hold rating.

Key upside risks include faster-than-expected growth in

sales, higher-than-expected ASPs and margin, share

repurchase by the company and policy relaxation.

Key downside risks include an inability to sustain strong

sales momentum; lower-than-expected ASPs; overspending

on land acquisitions; and uncertainty related to macro and

property-specific policies.

Hold


SOHO

410 HK

Current price:

HKD2.60

Target price:

HKD3.30

Upside:

27%

We derive our fair value target price of HKD3.30 based on our

unchanged target discount of 70% (1 SD below mean) applied to

our unchanged NAV estimate of HKD10.90/share. Our TP implies

upside of 27% and we upgrade SOHO from a Hold to a Buy rating.

Key downside risks include uncertainties related to SOHO

3Q; slower-than-expected lease-up progress and rental of

new offices; uncertainties in dividend outlook; and macro

and property policy uncertainties in China, especially in the

commercial property market

Buy


Champion REIT

2778 HK

Current price:

HKD6.68

Target price:

HKD6.90

Up/downside:

+3%

We derive our unchanged target price of HKD6.90, on par with our

DDM-based fair value, assuming an unchanged cost of equity of

5.8%, a beta of 0.71 and terminal growth rate of 0.5%. Our target

price implies c3% upside from current levels. We rate Champion

REIT Hold given that its 4.4% FY19e dividend yield implies around

290/240bp spread over the Hong Kong/US 10-year yield, which is

narrower than the historical average of 457/389bp.

Upside risks: Successful project acquisitions, stronger-

than-expected DPU growth and faster-than-expected

recovery in HK retail sales which should help stronger retail

rental at Langham Place.

Downside risks: Lower-than-expected Central office rental,

rising long-term US bond yields and interest rate hikes.

Hold

Raymond Liu*, CFA | [email protected] | +852 2996 6743

Hongkong

Land

HKL SP

Current price:

USD6.69

Target price:

USD8.40

Up/downside:

+26%

We derive our fair value target price of USD8.40 based on an

unchanged target discount of 33% (0.5SD below mean) applied to

our unchanged NAV estimate of USD12.50/share. Our target price

implies c.26% upside from current levels. We have a Buy rating on

the stock as we think it should benefit from a shortage of quality

office space in Hong Kong, which should help boost its rental

income. Positive catalysts could come from a sustainable pick-up in

Central office rentals.

Downside risks include rising Hong Kong commercial cap

rates, lower-than-expected rentals, disappointing sales

performance or weaker-than-expected profitability in its

China property development business.

Buy


Swire

Properties

1972 HK

Current price:

HKD32.60

Target price:

HKD38.20

Up/downside:

+17%

We derive our unchanged target price of HKD38.20 based on an

unchanged target discount of 33% applied to our unchanged NAV

estimate of HKD57.10/share. Our discount is benchmarked against

Hongkong Land’s NAV discount at 0.5SD below historical average,

given the short trading history of Swire Properties. Our target price

implies c17% upside. We rate the stock Buy due to improved

performance at the Pacific Place mall and sustainable office rental

growth in Hong Kong.

Downside risks include lower-than-expected rentals

achieved and slower-than expected completion and ramp-up

of new projects.

Buy



42

Valuation Risks

Hysan

Development

14 HK

Current price:

HKD40.50

Target price:

HKD44.20

Up/downside:

+9%

We derive our unchanged target price of HKD44.20 based on an

unchanged target discount of 47% (0.75SD below mean) applied to our

unchanged NAV estimate of HKD83.30/share. Our target price implies

c9% upside from current levels. We see limited share price catalysts in

the next 12 months given moderating retail sales growth and no new

project completions; therefore, we maintain our Hold rating on the stock.

Upside risks include more resilient-than-expected retail

rental growth in Hong Kong and sales of its commercial

buildings in Causeway Bay.

Downside risks include rising Hong Kong commercial cap

rates and/or lower-than-expected retail rental achieved.

Hold


Wharf REIC

1997 HK

Current price:

HKD55.60

Target price:

HKD66.30

Up/downside:

+19%

We derive our target price of HKD66.30 based on an unchanged target

discount of 29% applied to our unchanged NAV estimate of

HKD93.40/share. We benchmark this against Hongkong Land’s (HKL

SP, CMP USD6.69, Buy) NAV discount at 0.25 SD below the historical

average, given the short trading history of Wharf REIC. Our target price

implies c19% upside from the current share price. We rate the stock

Buy as we believe its FY19-21e dividend yield of 4.3-4.9% looks

attractive and provides downside protection, while we note some signs

of a recovery from short-term weakness in the Hong Kong retail market.

Downside risks include lower tourist arrivals,

concentration risk in Hong Kong, weaker-than-expected

lease renewals with tenants and weaker economic growth in

Hong Kong.

Buy


CapitaLand

CAPL SP

Current price:

SGD3.54

Target price:

SGD4.15

Up/downside:

+17%

Our sum-of-the-parts (SOTP)-based RNAV is SGD4.90 per share. In

arriving at our RNAV, we have estimated the gross assets of the

company at SGD13.11 per share and total liabilities including minorities

at SGD8.20 per share. Our target discount remains unchanged at 15%

(10% for transparency and agency issues and another 5% for our

outlook for the physical property market) – thus, our target price

(rounded) is set at SGD4.15. At the current price, the stock is trading at a

28% discount to RNAV. Our target price implies 17% upside. We

maintain our Buy rating on the stock given potential uplift from

CapitaLand’s recent acquisition of Ascendas-Singbridge and divestment

of non-core assets at better than expected prices.

Downside risks: A hard landing for the property market in

Singapore or China, as a result of a recession, sharply higher

interest rates, or adverse policy action, which could lead to lower

asset values and a reduced valuation for CapitaLand. RMB

depreciation versus SGD is also a risk to RNAV given the

sensitivity of developments in China to RNAV.

Buy

Pratik Burman Ray* | [email protected] | +65 6658 0611

Frasers

Property

FPL SP

Current price:

SGD1.83

Target price:

SGD2.25

Up/downside:

+23%

Our gross valuation (per share) for FPL, based on a sum-of-the-

parts valuation, is SGD10.01. Adjusting for net liabilities of

SGD6.99, our RNAV is SGD3.02. Our TP is set at SGD2.25 –

pegged at a target discount of 25% (10% for investability, another

10% for transparency and agency issues and 5% for our outlook on

the physical property market) and rounded down.

Our TP implies an upside of 23.0% and we maintain our Buy rating

on the stock. Potential catalysts include a turnaround in sentiment in

key markets where FPL operates (Singapore and Australia),

divestment of mature assets and an improved free float.

Downside risks: The primary downside risk is from a hard

landing in the key markets where FPL operates, either as a

result of recession, sharply higher interest rates or policy

missteps. Also, given the low free float of c12%, there is a

risk associated with liquidity events whereby the controlling

shareholders – TCC Group and/or ThaiBev – could look to

pare down exposure to FPL while still maintaining majority

control. While such a placement could boost trading liquidity,

the risk associated with such a liquidity event could also act

as an overhang on FPL’s share price. Lastly, the company’s

capital allocation philosophy is likely to remain a key area of

investor focus – this can impact the extent of the RNAV

discount the stock trades at if investors perceive capital

allocation decisions to be sub-optimal.

Buy


Frasers

Centrepoint

Trust

FCT SP

Current price:

SGD2.59

Target price:

SGD2.50

Up/downside:

-4%

Our RNAV for FCT is SGD2.18 and our DDM valuation (using a

cost of equity assumption of 6.80% and a terminal stage growth

rate assumption of 2.50%) is SGD3.05. The average of our DDM

valuation and RNAV is SGD2.62. Our premium/discount framework

ascribes a 5% discount to this average valuation (due to its

relatively lower trading liquidity), thus, we peg FCT’s target price

(rounded up) at SGD2.50. Our target price implies an downside of

4% and we rate the stock a Hold.

Downside risks are: 1) potential adverse impact on CCP from

the recent opening of Jewel at Changi Airport; 2) increase in

gearing, which could result in an overhang on the shares if

expectations of an equity raising take hold; 3) worse-than-

expected outlook for Singapore’s retail sector, given the threat of

e-commerce as well as supply of retail malls (both private as

well as public sector), translating into lower rentals for FCT’s

properties; 4) overpaying for acquisitions in Singapore or

overseas; and 5) an increase in long-term interest rates, which

is a generic risk of the sector.

Upside risks are: 1) potential upside from FCT’s acquisition

of the stake in the PGIM-linked fund; and 2) upside from

accretive acquisitions.

Hold


Priced at 24 June 2019. *Employed by a non-US affiliate of HSBC Securities (USA) Inc. and not registered/qualified pursuant to FINRA regulations Source: HSBC estimates

43


Financial statements

Year to 12/2018a 12/2019e 12/2020e 12/2021e

Profit & loss summary (HKDm)

Property sales 165,298 203,644 251,598 318,548 Property investment & others 4,361 5,145 6,159 6,722 Total revenue 169,659 208,789 257,757 325,270 Cost of sales (104,855) (138,012) (173,286) (221,708) Gross profit 64,803 70,777 84,471 103,562 Selling & Admin expenses (5,588) (6,780) (7,449) (8,540) Other gains/expenses (721) 0 0 0 Operating profit 58,494 63,997 77,022 95,022 Net interest 217 498 806 940 Share of profit from asso. 3,422 2,996 3,251 4,591 Revaluation on IP and others 10,436 0 0 0 PBT 72,568 67,492 81,078 100,553 Taxation (25,866) (21,091) (25,745) (35,760) Minority interests (1,802) (1,576) (1,606) (1,794) Net profit 44,900 44,825 53,727 63,000 Core Profit 37,090 44,825 53,727 63,000 Cash flow summary (HKDm)

Cash flow from operations 5,671 4,903 8,300 5,338 Capex (3,917) (8,298) (8,984) (10,471) Changes in investments (13,647) (5,289) (4,024) (2,096) Net cash from financing activities 8,398 22,063 7,100 14,460 Net change in cash (3,495) 13,379 2,393 7,232 Cash at the beginning 104,051 100,555 113,935 116,327 Cash at the end 100,555 113,935 116,327 123,559 Balance sheet summary (HKDm)

Shareholders' funds 283,481 315,449 353,785 397,372 Long-term liabilities 165,045 167,873 151,114 122,795 Minority interests 10,125 11,701 13,307 15,100 Deferred items 17,554 17,554 17,554 17,554 Total capital employed 476,204 512,576 535,759 552,822 Fixed assets 115,241 123,171 131,783 141,879 Other non-current assets 43,068 49,535 54,972 58,763 Current assets 567,032 698,479 844,943 1,047,026 Total assets 725,341 871,184 1,031,698 1,247,668

Ratio, growth and per share analysis

Year to 12/2018a 12/2019e 12/2020e 12/2021e

y-o-y % change

Revenue 3% 23% 23% 26% PBT 14% -7% 20% 24% Reported EPS 10% 0% 20% 17% HSBC EPS 8% 21% 20% 17% Ratios (%)

ROIC ex-exceptional 10% 10% 11% 11% ROAE ex-exceptional 13% 15% 16% 17% ROAA ex-exceptional 5% 6% 6% 6% Gross profit margin 38% 34% 33% 32% Core profit margin 22% 21% 21% 19% Interest cover ex-exceptional (x) 8.1 7.2 8.0 8.4 Net debt/equity (incl.restricted cash) 34% 36% 37% 38% Per share data (HKD)

Reported EPS (fully diluted) 4.10 4.09 4.90 5.75 HSBC EPS (fully diluted) 3.39 4.09 4.90 5.75 DPS 0.90 1.11 1.35 1.61 BV 25.87 28.79 32.29 36.27


COLI: NAV breakdown

(RMBm) (HKD/sh) % of GAV

Development properties Residential 516,908 54.5 79.6% Others 51,559 5.4 7.9% Investment properties Office/retail 80,448 8.5 12.4% Industrial 215 0.0 0.0% Car park space 30 0.0 0.0% Net debt (98,600) (10.4) Outstanding LAT (119,913) (12.6) Outstanding Land premium (10,000) (1.1)

Fair value NAV 420,646 44.4 100.0%


ESG metrics

Environmental indicators 12/2018a Governance indicators 12/2018a

GHG emission intensity* 11.7 No. of board members 7

Energy intensity* 18.7 Average board tenure (years) 6.8

CO2 reduction policy Yes Female board members (%) 14.3

Social indicators 12/2018a Board members independence (%) 42.9

Employee costs as % of revenue 1.7

Employee turnover (%) 8.0

Diversity policy Yes

*GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD’000


NAV discount

Source: Company data, Refinitiv Datastream, HSBC estimates

Price relative

Note: Priced at close of 24 June 2019 Source: HSBC

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


17.00

19.00

21.00

23.00

25.00

27.00

29.00

31.00

33.00

17.00

19.00

21.00

23.00

25.00

27.00

29.00

31.00

33.00

2017 2018 2019

China Overseas Land & Inv Rel to HSCEI

Financials & valuation: China Overseas Land & Investment Buy


44


Year to 12/2018a 12/2019e 12/2020e 12/2021e

Profit & loss summary (RMBm)

Property sales revenue 80,907 105,848 127,385 151,574 Property investment & other revenue 4,606 5,560 6,899 9,912 Total revenue 85,513 111,408 134,284 161,487 Cost of sales (58,564) (77,081) (94,099) (113,180) Gross profit 26,949 34,327 40,184 48,307 Selling & Admin expenses (5,973) (7,455) (8,992) (10,719) Other gains & misc 2,233 306 315 325 Operating profit/EBIT 23,209 27,178 31,508 37,912 Net interest (337) (516) (698) (653) Share of profit from asso. (233) (163) (114) (118) PBT 22,638 26,499 30,696 37,141 Taxation (10,327) (11,831) (13,468) (16,671) Minority interests (3,476) (3,927) (4,310) (4,741) Net profit 8,835 10,742 12,918 15,729 Core Profit 8,548 10,742 12,918 15,729 Cash flow summary (RMBm)

Cash flow from operations (8,811) (8,436) (9,911) (8,507) Capex (12,412) (12,272) (12,611) (12,893) Changes in investments and minorities 2,304 1,565 1,544 1,802 Dividends paid (3,693) (3,823) (4,344) (5,224) Other financing activities 37,763 19,397 23,699 27,047 Net change in cash 15,151 (3,569) (1,624) 2,224 Cash at the beginning 28,537 43,688 40,120 38,496 Cash at the end 43,688 40,120 38,496 40,720 Balance sheet summary (RMBm)

Shareholders' funds 64,334 73,267 83,606 95,879 Long-term liabilities 77,825 78,328 84,874 93,579 Minority interests 40,946 44,873 49,183 53,924 Deferred items 6,596 6,596 6,596 6,596 Total capital employed 189,702 203,064 224,259 249,978 Fixed assets 61,010 64,223 65,236 90,941 Other assets 27,738 31,072 35,249 39,040 Current assets 288,849 342,591 378,783 423,031 Total assets 377,597 437,886 479,268 553,012


Year to 12/2018a 12/2019e 12/2020e 12/2021e

y-o-y % change

Revenue 21% 30% 21% 20% Gross profit 26% 27% 17% 20% PBT 21% 17% 16% 21% Reported EPS 14% 23% 20% 22% HSBC EPS 25% 27% 20% 22% Ratios (%)

ROIC ex-exceptional 7% 7% 8% 9% ROAE ex-exceptional 15% 17% 18% 19% ROAA ex-exceptional 2% 3% 3% 3% Gross margin 32% 31% 30% 30% Core profit margin 10% 10% 10% 10% Interest cover ex-exceptional (x) 3.4 3.1 3.2 4.1 Net debt/equity(excl. restricted cash & MI, perp as debt)

119% 123% 123% 101%

Net debt/equity(incl. restricted cash and MI)

59% 66% 68% 58%

Per share data (RMB)

Reported EPS (fully diluted) 2.65 3.25 3.91 4.76 HSBC EPS (fully diluted) 2.56 3.25 3.91 4.76 DPS (HKD) 1.20 1.32 1.58 1.93 BV (HKD) 20.7 23.9 27.5 31.8


Shimao: NAV breakdown


Development properties Residential 169,807 58.8 66.2% Office/retail 10,588 3.7 4.1% Investment properties Office/retail 63,166 21.9 24.6% Hotel properties 12,928 4.5 5.0% Net debt (excluding restricted cash) (78,409) (27.1) Outstanding land premium (8,400) (2.9) Outstanding LAT (54,737) (19.0)

Fair value NAV 114,944 39.8 100.0%


ESG metrics

Environmental indicators 12/2018a Governance indicators 12/2018a

GHG emission intensity* N/A No. of board members 7

Energy intensity* N/A Average board tenure (years) 11.1


Social indicators 12/2018a Board members independence (%) 42.9

Employee costs as % of revenue 2.4

Employee turnover (%) N/A


*GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD’000


NAV discount


Price relative

Source: riced at close of 24 June 2019

-100%

-80%

-60%

-40%

-20%

0%

20%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


7.80

12.80

17.80

22.80

27.80

7.80

12.80

17.80

22.80

27.80

2017 2018 2019

Shimao Property Rel to HSCEI

1.80

2.30

2.80

3.30

3.80

4.30

4.80

5.30

1.80

2.30

2.80

3.30

3.80

4.30

4.80

5.30

2017 2018 2019

SOHO China Limited Rel to HSCEI

Financials & valuation: Shimao Property Hold

45



Year to 12/2018a 12/2019e 12/2020e 12/2021e

Profit & loss summary (RMBm)

Property sales revenue 68 193 257 161 Property investment revenue 1,652 1,971 2,381 3,041 Total revenue 1,721 2,164 2,639 3,202 Cost of sales (435) (595) (732) (831) Gross profit 1,285 1,568 1,906 2,371 SG&A (278) (422) (475) (576) Other income and gains 1,327 148 104 45 Operating profit 2,335 1,294 1,535 1,840 Net interest expense (471) (568) (604) (664) Revaluation gains 1,093 0 0 0 PBT 2,957 727 931 1,176 Taxation (1,009) (182) (233) (294) Minority interests (24) (76) (91) (122) Net profit 1,925 469 607 760 HSBC core profit 1,105 469 607 760 Cash flow summary (RMBm)

Cash flow from operations 1,096 850 653 746 Capex (954) (617) (382) (357) Other investing activities 1,222 (33) (41) (51) Net cash from financing activities 500 (71) (46) (148) Net change in cash 1,864 130 185 190 Cash at the beginning 3,702 5,566 5,696 5,881 Cash at the end 5,566 5,696 5,881 6,070 Balance sheet summary (RMBm)

Shareholders’ funds 34,747 35,028 35,332 35,712 Long-term liabilities 16,730 16,406 17,055 16,923 Minority interests 1,047 1,123 1,213 1,336 Deferred items and others 8,581 8,662 8,743 8,825 Total capital employed 61,105 61,218 62,343 62,795 Fixed assets 59,742 60,631 61,301 61,993 Other non-current assets 1,285 942 988 1,045 Current assets 9,072 9,126 9,201 9,332 Total assets 70,099 70,698 71,490 72,371


Year to 12/2018a 12/2019e 12/2020e 12/2021e

y-o-y % change

Revenue -12% 26% 22% 21% Operating profit 38% -45% 19% 20% PBT -64% -75% 28% 26% Reported EPS -59% -76% 30% 25% HSBC EPS 141% -58% 30% 25% Ratios (%)

ROIC excl. exceptional 1% 1% 1% 1% ROAE excl. exceptional 1% 1% 2% 2% ROAA excl. exceptional 1% 1% 1% 1% Gross profit margin 75% 72% 72% 74% Core profit margin (excl. IP revaluation) 64% 22% 23% 24% Interest cover excl. exceptional (x) 3.8 1.3 1.5 1.6 Net debt/equity (excl. restricted cash) 44% 43% 43% 42% Net debt/equity (incl. restricted cash) 43% 42% 42% 41% Per share data (RMB)

Reported EPS (diluted) 0.37 0.09 0.12 0.15 HSBC EPS (diluted) 0.21 0.09 0.12 0.15 DPS (RMB) 0.03 0.04 0.06 0.07 BV 6.68 6.74 6.80 6.87


SOHO China: NAV breakdown


Office/Retail 63,861 14.2 100% GAV 63,861 14.2 100.0% Net debt (excluding restricted cash) (15,034) (3.3)

Fair Value NAV 48,827 10.9

Source: HSBC estimates ESG metrics

Environmental Indicators 12/2018a Governance Indicators 12/2017a


Energy intensity* 248.2 Average board tenure (years) N/A


Social Indicators 12/2018a Board members independence (%) 60.0

Employee costs as % of revenues 12.8

Employee turnover (%) N/A



* GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s NAV discount


Price relative

Note: Priced at close of 24 June 2019 Source: HSBC

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


1.80

2.30

2.80

3.30

3.80

4.30

4.80

5.30

1.80

2.30

2.80

3.30

3.80

4.30

4.80

5.30

2017 2018 2019

SOHO China Limited Rel to HSCEI

Financials & valuation: SOHO China Buy


46


Year to 12/2018a 12/2019e 12/2020e 12/2021e


Rental Income 2,594 2,892 3,151 3,202 Other Income 371 348 355 361 Operating Expenses (560) (583) (609) (619) Net Property Income 2,405 2,656 2,898 2,945 Non-property Expenses (316) (344) (373) (378) Operating Profit/EBIT 2,089 2,312 2,525 2,567 Net Interest Expense (400) (346) (317) (272) PBT 1,689 1,966 2,208 2,295 HSBC PBT 1,689 1,966 2,208 2,295 Taxation (289) (324) (364) (379) Core Net Profit 1,400 1,642 1,844 1,916 Net impact of property rev reserve 6,412 0 0 0 Reported Profit 7,812 1,642 1,844 1,916 HSBC Net Profit 1,400 1,642 1,844 1,916 Distribution Income 1,530 1,734 1,940 2,012

Cash flow summary (HKDm)

Net cash from operating activities 1,704 2,041 2,205 2,234 Cash flow from investing activities (219) 144 140 71 Bank financing 200 300 0 0 Distribution paid (1,462) (1,583) (1,745) (1,877) Net cash used in financing activities (1,275) (1,307) (1,770) (1,902) Net change in cash 209 878 574 403 Net cash at end 1,400 2,277 2,852 3,255

Balance sheet summary (HKDm)

Shareholders’ funds 66,761 66,582 66,854 67,070 Long-term liabilities 11,307 11,582 15,282 15,282 Total capital employed 78,666 78,792 82,796 83,045 Fixed assets 83,135 83,135 83,135 83,135 Current assets 1,897 2,644 3,249 3,649 Total assets 85,291 85,818 86,423 86,823


Year to 12/2018a 12/2019e 12/2020e 12/2021e

y-o-y % change

Revenue 10% 9% 8% 2% Operating profit 11% 11% 9% 2% PBT -29% -76% 12% 4% Reported EPS -30% -79% 12% 3% HSBC EPS 8% 13% 12% 3%

Ratios (%)

ROIC ex-exceptional 2% 2% 2% 2% ROAE ex-exceptional 2% 2% 3% 3% ROAA ex-exceptionals 2% 2% 2% 2% EBITDA margin 70% 71% 72% 72% Core profit margin 47% 51% 53% 54% Interest cover ex-exceptional (x) 5.2 6.7 8.0 9.4 Debt/gross assets 18% 18% 18% 18% Net debt/EBITDA (x) 6.5 5.7 5.0 4.8

Per share data (HKD)

EPS reported (fully diluted) 1.34 0.28 0.31 0.32 HSBC EPS (fully diluted) 0.25 0.28 0.31 0.32 DPS 0.262 0.295 0.328 0.339

Champion: NAV breakdown (based on DDM)

Year DPU (HKD/unit)

FY19e 0.295 FY20e 0.310 FY21e 0.303 Perpetual value 4.457

Est. NAV 6.9


ESG metrics






Employee costs as % of revenues NA

Employee turnover (%) 0



* GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Price relative

Source: HSBC

Note: Priced at close of 24 Jun 2019

2.70

3.70

4.70

5.70

6.70

2.70

3.70

4.70

5.70

6.70

01/15 07/15 12/15 06/16 12/16 06/17 12/17 06/18 12/18

Champion REIT Rel to HANG SENG INDEX

Financials & valuation: Champion REIT Hold

47



Year to 12/2018a 12/2019e 12/2020e 12/2021e

Profit & loss summary (USDm)

Revenue - Rental Income 983 1,020 1,039 1,058 Revenue - Property Trading 1,533 1,022 434 981 Revenue Others (service & mgmt. charges) 150 221 230 230 Total cost of sales (1,429) (1,043) (556) (1,015) Gross profit 1,236 1,219 1,147 1,255 Other Income 28 29 30 32 Admin & Other Expense (174) (192) (201) (211) Operating Profit/EBIT 1,089 1,056 977 1,076 Net Interest (114) (154) (134) (125) Non-operating profit/loss 265 382 466 549 PBT 1,240 1,284 1,309 1,501 Taxation (206) (180) (169) (190) Minority Interests 2 (7) (7) (18) Core Net Profit 1,036 1,097 1,133 1,292

Cash flow summary (USDm)

Cash flow from operations 604 1,062 2,010 1,437 Capex (150) (1,282) (863) (449) Cash flow from investing activities (1,056) (1,282) (863) (449) Dividends paid (469) (515) (539) (562) Net cash used in financing activities 237 171 (430) (573) Net change in cash (215) (49) 716 415 Cash at the beginning 1,617 1,369 1,326 2,043 Cash at the end 1,369 1,326 2,043 2,458

Balance sheet summary (USDm)

Shareholders’ funds 38,342 39,208 40,071 41,060 Long-term liabilities 4,145 3,994 3,711 3,387 Minority interests 28 35 42 60 Total capital employed 42,713 43,436 44,022 44,705 Fixed assets 33,846 35,124 35,982 36,427 Other assets 6,855 7,237 7,703 8,252 Current assets 4,262 5,030 6,831 8,136 Total assets 44,963 47,391 50,517 52,815


Year to 12/2018a 12/2019e 12/2020e 12/2021e

y-o-y % change

Revenue 65% -15% -25% 33% Operating profit 24% -3% -8% 10% PBT 13% 4% 2% 15% Reported EPS 10% 6% 3% 14% HSBC EPS 10% 6% 3% 14%

Ratios (%)

ROIC ex-exceptional 3% 3% 3% 3% ROAE ex-exceptional 3% 3% 3% 3% ROAA ex-exceptional 2% 3% 3% 3% Operating margin 41% 47% 58% 48% Core profit margin 39% 48% 66% 57% Interest cover ex-exceptional (x) 9.1 7.1 8.5 10.4 Net debt/equity 9% 8% 6% 4% PB (x) 0.4 0.4 0.4 0.4 PE (x) 15.1 14.3 13.8 12.1 Dividend yield 3.3% 3.4% 3.6% 3.7%

Per share data (USD)

Reported EPS (diluted) 0.44 0.47 0.48 0.55 HSBC EPS (diluted) 0.44 0.47 0.48 0.55 DPS 0.22 0.23 0.24 0.25

NAV estimates

(USDm) (USD/sh) % of gross asset

Hong Kong investment properties Office 15,929 6.8 48% Retail 5,107 2.2 15% Overseas properties Singapore Investment properties 2,123 0.9 6% Investment properties in other regions 3,888 1.7 12% Development properties China 3,103 1.3 9% Singapore 1,125 0.5 3% Other regions 1,948 0.8 6% Estimated net debt (3,916) (1.7)

Est. NAV 29,307 12.50 100%






Social Indicators 12/2018a Board members independence (%) 0


Employee turnover (%) NA



* GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s

HKL (discount)/premium to NAV

Source: HSBC estimates Price relative

Source: HSBC


-60%

-45%

-30%

-15%

0%

15%

07 08 09 10 11 12 13 14 15 16 17 18 19

% to NAV -1 S.D

4.60

5.60

6.60

7.60

8.60

4.60

5.60

6.60

7.60

8.60

01/15 07/15 12/15 06/16 12/16 06/17 12/17 06/18 12/18

Hongkong Land Rel to HANG SENG INDEX

Financials & valuation: Hongkong Land Buy


48


Year to 12/2018a 12/2019e 12/2020e 12/2021e


Property Investment 12,117 13,762 14,819 15,234 Property Development 1,061 976 605 2,808 Hotels & Other Business 1,541 1,612 1,681 1,709 Operating Costs (ex. Dep. & Amor.) (5,881) (6,022) (6,315) (8,680) EBITDA 8,838 10,328 10,790 11,071 Depreciation and Amortisation (394) (401) (408) (416) Other Gains 1,469 2,547 0 0 Non-operating Profit/Loss 20,515 0 0 0 Net Interest Expense (882) (810) (765) (747) Share of Profit from Asso. 915 1,062 1,140 1,098 PBT 30,461 12,725 10,756 11,005 Taxation (1,740) (1,900) (1,551) (1,595) Minority Interests (55) (40) (41) (42) Net Profit 28,666 10,784 9,165 9,369 Net Impact of Ppty. Rev. Reserve/gains (18,518) 2,127 0 0 Core Profit 10,148 12,911 9,165 9,369


Cash flow from operations 10,397 11,156 10,006 11,651 Capex (4,038) (3,561) (4,469) (3,163) Other investments activities 4,901 13,647 (39) (27) Dividends paid (4,622) (5,031) (5,207) (5,207) Others fin. activities (6,206) (3,123) (2,238) (1,113) Net change in cash 432 13,089 (1,947) 2,141 Cash at beginning 1,708 2,093 15,182 13,235 Cash at end 2,093 15,182 13,235 15,376


Shareholders’ funds 279,275 286,980 290,938 295,042 Long-term liabilities 30,769 28,855 27,738 27,680 Minority interests 2,016 2,056 2,097 2,139 Deferred tax & others 9,597 9,597 9,597 9,597 Total capital employed 321,657 327,489 330,370 334,458 Fixed assets 281,063 290,130 315,152 340,528 Other assets 31,000 31,371 31,761 32,070 Current assets 21,584 20,028 18,639 22,266 Total assets 333,647 341,530 365,553 394,864 Ratio, growth and per share analysis

Year to 12/2018a 12/2019e 12/2020e 12/2021e

Y-o-y % change

Revenue -21% 11% 5% 15% Operating profit -10% 18% 5% 3% PBT -15% -58% -15% 2% Reported EPS -16% -62% -15% 2% HSBC EPS 30% 27% -29% 2%

Ratios (%)

ROIC ex exceptionals 4% 5% 3% 3% ROAE ex exceptionals 4% 5% 3% 3% ROAA ex exceptionals 3% 4% 3% 2% Operating margin 57% 61% 61% 54% Core profit margin 69% 79% 54% 47% Interest cover ex exceptionals (x) 8.9 11.6 12.7 13.3 Net debt/equity 11% 5% 5% 5% PB(x) 0.7 0.7 0.7 0.6 PE(x) 18.8 14.8 20.8 20.4 Dividend yield 2.6% 2.7% 2.7% 2.8%


Reported EPS (diluted) 4.90 1.84 1.57 1.60 HSBC EPS (diluted) 1.73 2.21 1.57 1.60 DPS 0.84 0.89 0.89 0.90


Swire Properties: NAV breakdown

Particulars (HKDm) HKD/share % of GAV

Investment properties-HK 253,909 43.4 73% Office 186,707 31.9 54% Retail 47,968 8.2 14% Residential 11,365 1.9 3% Hotel 7,869 1.3 2% Development properties 4,667 0.8 1% China-Investment properties 73,541 12.6 21% Office (completed) 45,203 7.7 13% Retail (completed) 13,904 2.4 4% Under developments 7,814 1.3 2% China residential and hotels 6,620 1.1 2% Others (US props and HK other props) 16,645 2.8 5%

GAV 348,762 59.6 100% Net debt -14,827 -2.5

Net asset value 333,935 57.1


ESG metrics










* GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Swire Properties (disc)/prem to NAV

Source: HSBC estimates Price relative

Source: HSBC Note: Priced at close of 24 Jun 2019

-60%

-50%

-40%

-30%

-20%

-10%

0%

Jan-12 Apr-13 Jun-14 Aug-15 Oct-16 Dec-17 Mar-19

% to NAV Target NAV (%)

17.00

22.00

27.00

32.00

37.00

17.00

22.00

27.00

32.00

37.00

01/15 07/15 12/15 06/16 12/16 06/17 12/17 06/18 12/18

Swire Properties Rel to HANG SENG INDEX

Financials & valuation: Swire Properties Buy

49



Year to 12/2018a 12/2019e 12/2020e 12/2021e


Property Development 89 413 0 0 Property Investment 14,304 15,258 16,554 17,478 Hotels 1,821 2,223 2,231 2,239 Others 267 274 282 289 Total revenue 16,481 18,169 19,066 20,006 Cost of Sales (3,757) (4,027) (3,947) (4,074) Gross Profit 12,724 14,141 15,119 15,932 Net Interest Expense (815) (784) (736) (701) Share of Profit from Asso. 233 2 80 0 Property revaluation 8,065 0 0 0 Other exceptionals 46 26 35 49 PBT 20,253 13,386 14,497 15,280 Taxation (1,994) (2,373) (2,515) (2,653) Minority Interests (232) (132) (170) (185) Net Profit 18,027 10,881 11,812 12,442 Net impact of revaluation 7,974 0 0 0 Core Profit 10,053 10,881 11,812 12,442


Cash flow from operations 9,498 11,486 12,708 13,513 Capex (588) (2,894) (1,998) (1,650) Changes in investments 375 (26) (104) (24) New shares issued 0 0 0 0 Dividends paid (6,199) (6,724) (7,375) (7,883) Others (3,369) (980) (2,005) (1,626) Net change in cash (283) 861 1,225 2,330 Cash at beginning 3,076 2,675 3,536 4,761 Cash at end 2,675 3,536 4,761 7,091


Shareholders’ funds 218,797 223,255 227,916 232,779 Long-term liabilities 39,068 37,876 35,397 33,171 Minority interests 5,535 5,667 5,837 6,022 Deferred tax and others 2,609 2,739 2,876 3,020 Total capital employed 266,009 269,538 272,026 274,992 Fixed assets 267,261 269,093 270,437 271,779 Other assets 5,738 5,769 5,878 5,907 Current assets 7,357 8,489 9,999 12,396 Total assets 280,356 283,351 286,314 290,082


Year to 12/2018a 12/2019e 12/2020e 12/2021e

y-o-y % change

Revenue -21% 10% 5% 5% Operating profit -18% 11% 7% 5% PBT -9% -34% 8% 5% Core profit 5% -40% 9% 5% Reported EPS 9% 8% 9% 5% HSBC EPS -21% 10% 5% 5%

Ratios (%)

ROIC ex exceptionals 4% 4% 5% 5% ROAE ex exceptionals 5% 5% 5% 5% ROAA ex exceptionals 4% 4% 4% 4% Operating margin 77% 78% 79% 80% Core profit margin 61% 60% 62% 62% Interest cover ex exceptionals (x) 15.3 17.7 20.1 22.3 Net debt/equity 18% 16% 14% 12% PB(x) 0.8 0.8 0.7 0.7 PE(x) 16.8 15.5 14.3 13.6 Dividend yield 3.8% 4.2% 4.5% 4.8%


Reported EPS (fully diluted) 5.94 3.58 3.89 4.10 HSBC EPS (fully diluted) 3.31 3.58 3.89 4.10 DPS 2.10 2.33 2.53 2.66

Wharf REIC : Est. NAV breakdown

Particulars (HKDm) HKD/ Share

% of total asset

HK investment prop 307,581 101.3 96% Office 90,938 30.0 28% Retail 212,983 70.1 67% Residential and others 3,659 1.2 1% China investment Prop 1,281 0.4 0% Office 861 0.3 0% Retail 26 0.0 0% Residential and others 394 0.1 0% Development properties 1,062 0.3 0% Hotels 10,131 3.3 3%

GAV 320,054 105.4 100% Net debt (36,491) (12.0)

Est. NAV 283,563 93.4





CO2 reduction policy Yes Female board members (%) 20






* GHG intensity and energy intensity are measured in kg and kWh respectively against revenue in USD ‘000s Wharf REIC (discount)/premium to NAV

Source: Bloomberg, HSBC estimates Price relative

Source: HSBC Note: Priced at close of 24 Jun 2019

-50%

-45%

-40%

-35%

-30%

-25%

-20%

NAV disc (%) Mean

41.00

46.00

51.00

56.00

61.00

66.00

41.00

46.00

51.00

56.00

61.00

66.00

11/17 05/18 10/18 05/19

Wharf REIC Rel to HANG SENG INDEX

Financials & valuation: Wharf REIC Buy


50


Year to 12/2018a 12/2019e 12/2020e 12/2021e

Profit & loss summary (HKDm) Turnover 3,890 4,147 4,232 4,346 Operating Expenses (523) (540) (541) (555) Net Property Income 3,367 3,607 3,691 3,791 Net Interest (222) (211) (238) (198) Other Expenses (227) (272) (274) (277) Operating Profit 2,980 3,213 3,265 3,404 Share of Profit from JCEs 179 219 246 250 PBT 3,159 3,431 3,512 3,654 Taxation (481) (516) (524) (547) Minority Interests (142) (163) (167) (172) Core Net Profit 2,536 2,753 2,820 2,934 Net impact of revaluation 3,497 0 0 0 Reported Profit 6,033 2,753 2,820 2,934 HSBC net profit 2,536 2,753 2,820 2,934 Cash flow summary (HKDm)

Net cash from operating activities 2,751 3,029 3,101 6,370 Capex (1,265) (1,716) (1,718) (1,716) Other investing activities (990) (1,682) (1,690) (1,678) Dividends paid (1,572) (1,663) (1,747) (1,799) Other financing activities (1,726) (1,455) (1,871) (3,076) Net change in cash 35 (108) (460) 1,616 Cash at begin inc. time deposits 2,782 2,817 2,709 2,249 Net cash at end inc. time deposits 2,817 2,709 2,249 3,865


Shareholders’ funds 74,431 75,646 76,845 78,105 Long-term liabilities 7,571 8,018 8,242 7,317 Minority interests 3,206 3,244 3,286 3,333 Total capital employed 85,208 86,907 88,372 88,755 Fixed assets 78,189 79,888 81,588 83,287 Other assets 5,607 5,879 6,183 6,496 Current assets 3,247 3,170 2,745 4,398 Total assets 87,043 88,937 90,516 94,181


Year to 12/2018a 12/2019e 12/2020e 12/2021e

y-o-y % change

Revenue 10% 7% 2% 3% Operating profit -1% 8% 2% 4% PBT -1% 9% 2% 4% Reported EPS 66% -54% 2% 4% HSBC EPS 2% 9% 2% 4%

Ratios (%)

ROIC ex-exceptional 4% 4% 4% 4% ROAE ex-exceptional (ex-revaluation res) 4% 4% 4% 4% ROAA ex-exceptionals 3% 3% 3% 3% EBITDA margin 77% 78% 78% 79% Core profit margin 65% 66% 67% 68% Interest cover ex-excep (x) 14.4 16.2 14.7 18.2 Net debt/equity 5% 6% 6% 3% PB (x) 0.6 0.6 0.6 0.5 PE (x) 16.7 15.4 15.0 14.4 Dividend yield 3.6% 3.8% 3.9% 4.0% Per share data (HKD)

EPS reported 5.77 2.63 2.70 2.80 SBC EPS 2.42 2.63 2.70 2.80 DPS 1.44 1.54 1.59 1.64

Hysan: NAV breakdown

Particulars (HKDm) (HKD/sh) % of GAV

HK investment portfolio Office 39,660 37.9 43% Retail 37,000 35.4 41% Lux. Res. 6,548 6.3 7% PRC investment portfolio Office 1,122 1.1 1% Retail 2,793 2.7 3% Lux. Res. 777 0.7 1%

HK development property 3,418 3.3 4%

Gross Asset Value 91,317 87.3 100% Estimated net debt (4,167) (4.0)

Hysan NAV 87,150 83.3


ESG metrics











Hysan (discount)/premium to NAV


Price relative

Source: HSBC


-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

07 08 09 10 11 12 13 14 15 16 17 18 19

% to NAV +1 S.D-1 S.D Mean

+

26.00

31.00

36.00

41.00

46.00

26.00

31.00

36.00

41.00

46.00

01/15 07/15 12/15 06/16 12/16 06/17 12/17 06/18 12/18

Hysan Development Rel to HANG SENG INDEX

Financials & valuation: Hysan Development Hold

51



Year to 12/2017 12/2018 12/2019e 12/2020e

Profit & loss summary (SGDm)

Revenue 4,618 5,602 5,472 6,057

EBIT 3,302 4,145 2,542 2,922

Net interest (487) (636) (649) (713)

PBT 2,816 3,509 1,893 2,209

Taxation (469) (659) (398) (464)

PAT 2,347 2,850 1,495 1,745

Minority interest (777) (1,087) (496) (559)

PATMI 1,570 1,762 1,000 1,187

Operating PATMI 927 872 1,000 1,187

PATMI (ex-revaluations) – core 766 872 1,000 1,187

Cash flow summary (SGDm)

Cash flow from operations 2,166 553 1,916 1,771

Cash flow from investing activities (1,770) (1,356) (3,240) (2,657)

Cash flow from financing 979 (217) 673 608

Other adjustments (48) (0) - -

Change in cash 1,328 (1,020) (651) (277)

Opening cash balance 4,778 6,080 5,005 4,354

Closing cash balance 6,105 5,060 4,354 4,077

Balance sheet summary (SGDm)

Cash and cash equivalents 6,105 5,060 4,354 4,077

Total current assets 12,312 12,446 11,576 12,037

Non-current assets 49,227 52,201 55,755 58,755

Total assets 61,539 64,648 67,331 70,792

Total debt 21,695 23,634 25,634 27,634

Total liabilities 29,421 31,341 33,507 36,261

Total equity 32,118 33,307 33,807 34,494

Shareholder’s funds 18,413 18,953 19,453 20,140


Year to 12/2017 12/2018 12/2019e 12/2020e

Y-o-y % change

Revenue -12% 21% -2% 11%

EBIT 40% 26% -39% 15%

PBT 48% 25% -46% 17%

PATMI 32% 12% -43% 19%

EPS (basic) 32% 14% -43% 19%

Ratios (%)

ROE 9% 9% 5% 6%

ROE (ex-revaluations) – core 4% 5% 5% 6%

ROA (ex-revaluations) – core 6% 4% 4% 4%

EBITDA margin 72% 74% 46% 48%

EBITDA/net interest expense 6.8 6.5 3.5 3.8

Net debt/equity 49% 56% 63% 68%

Net debt/EBITDA (x) 3.9 4.1 7.8 7.7

Per share data (SGD)

EPS* (basic) 0.37 0.42 0.24 0.29

EPS* (diluted) 0.34 0.39 0.21 0.25

DPS 0.12 0.12 0.12 0.12

NTA per share 4.20 4.40 4.52 4.69

BV per share 4.34 4.55 4.67 4.84

*estimates reflect only core numbers

RNAV Computation (SGDm) Per Share (SGD)

% of GAV

CapitaLand Singapore 11,880 2.80 21%

CapitaLand China 9,291 2.19 17%

CapitaMalls Asia 23,286 5.48 42%

Serviced Residences (Ascott) 7,838 1.85 14%

Others 3,370 0.79 6%

Total attributable GAV* 55,665 13.11 100%

Less: Attributable net liabilities* (34,835) (8.20)

RNAV 20,830 4.90

No. of shares (m) 4,247

RNAV per share (SGD) 4.90

Target premium / (discount) to RNAV 15%

Target price (SGD) 4.15

*Note: For the purposes or computing our RNAV, our attributable GAV and attributable net

liabilities are computed on the basis of equity accounting for all REITs and assets in which CAPL

has a stake of 50% or lower. ESG metrics






Employee costs as % of revenues n/a





CapitaLand Limited: PBV chart

Source: Bloomberg, HSBC Performance relative to FSSTI

Source: Bloomberg, HSBC

0.0

0.5

1.0

1.5

2.0

2.5

Jan-05 Aug-08 Mar-12 Nov-15 Jun-19

CAPL PBV Avg Trendline

+1 std dev -1 std dev

Avg: 1.02

+1SD: 1.42

-1SD: 0.63

0

100

200

300

400

500

Jan-05 Aug-08 Mar-12 Oct-15 Jun-19

CAPL FSSTI

Financials & valuation: CapitaLand Buy


52


Year to 09/2018 09/2019e 09/2020e 09/2021e


Revenue 4,312 3,799 3,820 3,917

EBIT 1,279 1,352 1,246 1,193

Net interest (280) (325) (334) (339)

Other charges (Fair value change on

properties, exceptional items etc.)

478 0 0 0

PBT (core) 999 1,027 912 853

Taxation (282) (152) (127) (110)

PAT (core) 944 875 785 744

Minority Interest (436) (263) (235) (223)

PATMI (core) 507 613 549 521

Preferred equity interests (83) (91) (91) (91)

PATMI (core) – Common equity holders 425 521 458 429


Cash flow from operations 493 1,376 1,596 1,758

Cash flow from investing activities (2,010) (1,311) (1,319) (1,324)

Cash flow from financing 1,560 (690) (690) (690)

Change in cash 42 (625) (413) (255)

Cash at beginning 2,136 2,136 1,511 1,098

Effect of exchange rate on opening cash (45) 0 0 0

Bank overdraft 3 0 0 0

Cash at end (excluding bank overdrafts) 2,136 1,511 1,098 843

Total cash (including cash held by REITs) 2,136 1,511 1,098 843


Cash & cash equivalents 2,136 1,511 1,098 843

Current assets excluding cash 5,140 5,085 5,087 5,098

Non-current assets 25,144 25,944 26,744 27,544

Total assets 32,421 32,541 32,930 33,485

Total debt 14,926 14,926 14,926 14,926

Total liabilities 17,793 17,642 17,824 18,200

Total equity 14,628 14,899 15,106 15,285

Preferred equity and minorities 7,266 7,266 7,266 7,266

Common equity holders’ funds 7,362 7,633 7,840 8,019


Year to 09/2018 09/2019e 09/2020e 09/2021e

Y-o-y % change

Revenue 7% -12% 1% 3%

EBIT 17% 6% -8% -4%

PBT core 3% 3% -11% -6%

PATMI core – Common equity holders 1% 23% -12% -6%

EPS core – Common equity holders 1% 23% -12% -6%

Ratios (%)

ROE (core – Common equity) 6% 7% 6% 5%

ROA (core) 4% 4% 4% 4%

EBIT Margins 24% 32% 30% 28%

Net debt/total equity 87% 90% 92% 92%

Net debt and prefs/ total common equity 118% 120% 121% 122%

Net debt/EBIT (x) 10.0 9.9 11.1 11.8

Per share data (SGD)

EPS core (basic) – Common equity holders 14.6 17.9 15.7 14.7

EPS core (fully diluted) – Common equity

holders

14.5 17.7 15.6 14.6

DPS (basic) 8.6 8.6 8.6 8.6

DPS (fully diluted) 8.6 8.5 8.5 8.5

RNAV Computation (SGDm) Per share (SGD)

% of GAV

Business Segments

Residential 3,473 1.18 12%

Former Australand portfolio 2,140 0.73 7%

Investment properties – Retail 2,420 0.82 8%

Investment properties – Office/Business parks 2,358 0.80 8%

Listed REITs (FCT, FCOT, FHT, FLT) 10,859 3.70 37%

Global hospitality 2,659 0.91 9%

Stakes in listed Thai companies 1,910 0.65 6%

Continental Europe, UK 2,665 0.91 9%

Funds management business 417 0.14 1%

Other assets (ex-SG, ex-CH, ex-AUS) 501 0.17 2%

Total GAV 29,402 10.01 100%

Less: Net debt (12,790) (4.35)

Other liabilities (net) and minority interests (5,800) (1.97)

Perpetual securities (1,950) (0.66)

RNAV 8,862 3.02

No. of shares (m) 2,938

RNAV per share (SGD) 3.02

Premium / discount to RNAV -25%

Target price (SGD) 2.25

ESG metrics

Environmental Indicators Governance Indicators

GHG Intensity (kg/USD) 54.2 No. of board members 11

Energy Intensity (kWh/USD) 91.9 Average board experience (years) 4.7

CO2 reduction policy Y Female board members (%) 9

Social Indicators Board members Independence (%) 55

Employee costs as % of sales n/a

Employee turnover (%) n/a

Diversity policy Y


FPL: Historical PBV chart


FPL: Performance relative to FSSTI


0.5

0.6

0.7

0.8

0.9

Jan-14 Aug-14 Mar-15 Oct-15 Jun-16 Jan-17 Aug-17 Mar-18 Oct-18 Jun-19

FPL PBV Avg Trendline +1 std dev -1 std dev

+1SD: 0.78

Avg: 0.70

-1SD: 0.63

70.0

100.0

130.0

160.0

Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-18 Oct-18 Jun-19

FPL FSSTI

Financials & valuation: Frasers Property Limited Buy

53



Year to 09/2018 09/2019e 09/2020e 09/2021e


Gross revenue 193 206 211 216

Property expenses (56) (57) (58) (60)

Net property income 137 149 153 156

Asset management and trust expenses (17) (23) (19) (19)

EBIT 120 126 134 137

Net interest expense (20) (25) (29) (29)

Share of results of associate 5 16 36 37

Fair value gains 62 0 0 0

Income before taxes 167 117 141 145

Income tax expense 0 0 0 0

Income after tax 167 117 141 145

Net investment income (for distribution) 111 127 147 151


Cash generated from operations 137 143 139 142

Cash flows from investing activities (12) (603) 36 37

Cash flows from financing activities (117) 466 (176) (180)

Net change in cash and cash equivalents 8 7 (1) (1)

Beginning cash and cash equivalents 14 22 29 28

Cash and cash equivalents at end 22 29 28 27


Non-current assets

Investment properties 2,749 2,749 2,749 2,749

Other non-current assets 66 686 688 689

Total non-current assets 2,815 3,435 3,437 3,438

Current assets

Trade and other receivables 3 8 8 8

Cash and cash equivalents 22 29 28 27

Total current assets 25 36 36 35

Total Assets 2,840 3,471 3,472 3,474

Current liabilities

Trade and other payables 46 60 61 63

Short term borrowings 217 203 248 248

Other current liabilities 16 16 16 16

Total current liabilities 280 279 326 327

Non-current liabilities

Interest bearing loans & borrowings 596 791 745 745

Other non-current liabilities 32 32 32 32

Total non-current liabilities 627 822 777 777

Total Liabilities 907 1,102 1,103 1,104

Net Assets 1,934 2,370 2,369 2,369

Ratio growth and per unit analysis

Year to 09/2018 09/2019e 09/2020e 09/2021e

Y-o-y % change

Revenue 6% 7% 2% 2%

Net property income 6% 9% 2% 2%

Income after tax -14% -30% 20% 3%

Net investment income (for distribution) 1% 14% 15% 3%

Fully diluted EPU -14% -36% 10% 3%

Fully diluted DPU 1% 3% 6% 3%

Ratios

EBIT margin 62% 61% 63% 63%

Net Debt/Assets 28% 28% 28% 28%

EBIT/Net interest expense 6.0 5.1 4.7 4.8

Net debt/EBIT 6.6 7.7 7.2 7.1 Per unit data (cents)

EPU 18.0 11.5 12.7 13.0

Diluted EPU 18.0 11.5 12.7 13.0

DPU 12.0 12.4 13.2 13.5

Diluted DPU 12.0 12.4 13.2 13.5

Dividend yield (%) 4.6% 4.8% 5.0% 5.2%

RNAV computation (SGDm)

Gross asset valuation

Causeway Point 1,200

Northpoint 803

Changi City Point 398

YewTee Point 201

Anchorpoint 125

Bedok Point 92

Waterway Point 244

Other assets 457

Total GAV 3,520

Debt (994)

Other liabilities (94)

Total liabilities (1,088)

RNAV 2,433

No. of units (m) 1,114

RNAV / unit (SGD) 2.18

ESG metrics




CO2 reduction policy Yes Female board members (%) 0


Employee costs as % of revenues n/a





FCT: Historical PBV chart


FCT: Performance relative to FSSTI & FSTREI


0.9

1.1

1.3

1.5

Jan-10 Jul-11 Feb-13 Sep-14 Apr-16 Nov-17 Jun-19

FCT PBV Average +1 stdev -1 stdev

Avg: 1.10

+1 sd: 1.18

-1 sd: 1.01

80

100

120

140

160

180

Jan-10 Jul-11 Feb-13 Sep-14 Apr-16 Nov-17 Jun-19

FCT FSSTI FSTREI

Financials & valuation: Frasers Centrepoint Trust Hold


54

Notes

55


Notes


56

Notes

57


Disclosure appendix

Analyst Certification

The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s)

whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering

analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or

issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other

views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect

their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific

recommendation(s) or views contained in this research report: Michelle Kwok, Pratik Ray, CFA, Raymond Liu, CFA, Albert Tam,

Simon Sin, Derek Chang and Max Liang

Important disclosures

Equities: Stock ratings and basis for financial analysis

HSBC and its affiliates, including the issuer of this report (“HSBC”) believes an investor's decision to buy or sell a stock should

depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and that

investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or

relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating

systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in

each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating

because research reports contain more complete information concerning the analysts' views and the basis for the rating.

From 23rd March 2015 HSBC has assigned ratings on the following basis:

The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12

months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will

be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a

Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between

5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more than 20%

below the current share price, the stock will be classified as a Reduce.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage, change

in target price or estimates).

Upside/Downside is the percentage difference between the target price and the share price.

Prior to this date, HSBC’s rating structure was applied on the following basis:

For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate,

regional market established by our strategy team. The target price for a stock represented the value the analyst expected the

stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as Overweight,

the potential return, which equals the percentage difference between the current share price and the target price, including the

forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the succeeding 12

months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock was

expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage

points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.

*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months

(unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However, stocks which

we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past month's

average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however,

volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.


58

Rating distribution for long-term investment opportunities

As of 26 June 2019, the distribution of all independent ratings published by HSBC is as follows:

For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current

rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current model Buy

= Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis for financial

analysis” above.

For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at

http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.

To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please

use the following links to access the disclosure page:

Clients of Global Research and Global Banking and Markets: www.research.hsbc.com/A/Disclosures

Clients of HSBC Private Banking: www.research.privatebank.hsbc.com/Disclosures

HSBC & Analyst disclosures

Disclosure checklist

Company Ticker Recent price Price date Disclosure

CAPITALAND CATL.SI 3.54 25 Jun 2019 4, 5, 6, 7, 12 CHAMPION REIT 2778.HK 6.69 25 Jun 2019 4, 6, 7 CHINA OVERSEAS LAND & INV 0688.HK 27.60 25 Jun 2019 4, 6, 11 FRASERS CENTREPOINT TRUST FCRT.SI 2.61 25 Jun 2019 4 FRASERS PROPERTY LIMITED FRPL.SI 1.84 25 Jun 2019 4, 6 HONGKONG LAND HKLD.SI 6.81 25 Jun 2019 5, 6, 7 HYSAN DEVELOPMENT 0014.HK 40.50 25 Jun 2019 4, 5, 6, 7 SHIMAO PROPERTY 0813.HK 23.90 25 Jun 2019 1, 5, 6, 7 SOHO CHINA LIMITED 0410.HK 2.61 25 Jun 2019 5, 6, 7 SWIRE PROPERTIES 1972.HK 32.65 25 Jun 2019 4, 5, 6, 7

Source: HSBC

1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.

2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3

months.

3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this

company.

4 As of 31 May 2019, HSBC beneficially owned 1% or more of a class of common equity securities of this company.

5 As of 30 April 2019, this company was a client of HSBC or had during the preceding 12 month period been a client of

and/or paid compensation to HSBC in respect of investment banking services.


and/or paid compensation to HSBC in respect of non-investment banking securities-related services.


and/or paid compensation to HSBC in respect of non-securities services.

8 A covering analyst/s has received compensation from this company in the past 12 months.

9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as

detailed below.

10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this

company, as detailed below.

11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in

securities in respect of this company

Buy 52% ( 29% of these provided with Investment Banking Services )

Hold 38% ( 27% of these provided with Investment Banking Services )

Sell 10% ( 21% of these provided with Investment Banking Services )

59


12 As of 20 Jun 2019, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued share

capital, calculated according to the SSR methodology.

13 As of 20 Jun 2019, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued share

capital, calculated according to the SSR methodology. HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt

(including derivatives) of companies covered in HSBC Research on a principal or agency basis or act as a market maker or

liquidity provider in the securities/instruments mentioned in this report.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking,

sales & trading, and principal trading revenues.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

Non-U.S. analysts may not be associated persons of HSBC Securities (USA) Inc, and therefore may not be subject to FINRA

Rule 2241 or FINRA Rule 2242 restrictions on communications with the subject company, public appearances and trading

securities held by the analysts.

Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities.

This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as

such, this report should not be construed as an inducement to transact in any sanctioned securities.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company

available at www.hsbcnet.com/research. HSBC Private Banking clients should contact their Manager for queries regarding

other research reports. In order to find out more about the proprietary models used to produce this report, please contact the

authoring analyst.

Additional disclosures

1 This report is dated as at 27 June 2019.

2 All market data included in this report are dated as at close 24 June 2019, unless a different date and/or a specific time of

day is indicated in the report.

3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its

Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of

Research operate and have a management reporting line independent of HSBC's Investment Banking business.

Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses

to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest

payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the

price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument,

and/or (iii) measuring the performance of a financial instrument.

5 As of 14 Jun 2019 HSBC owned a significant interest in the debt securities of the following company(ies): HYSAN

DEVELOPMENT, SWIRE PROPERTIES

Production & distribution disclosures

1. This report was produced and signed off by the author on 26 Jun 2019 08:24 GMT.

2. In order to see when this report was first disseminated please see the disclosure page available at

https://www.research.hsbc.com/R/34/LMdS9v9


60

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[1123178]

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