The Link Real Estate Investment Trust · If you are in any doubt as to any aspect of this Circular or as to the action to be taken, you should consult your licensed securities dealer,

If you are in any doubt as to any aspect of this Circular or as to the action to be taken, youshould consult your licensed securities dealer, bank manager, solicitor, professional accountantor other professional adviser.

If you have sold or transferred all of your units in The Link Real Estate Investment Trust (“TheLink REIT”), you should at once hand this Circular, together with the accompanying proxy form,to the purchaser or transferee or to the bank, licensed securities dealer or other agent throughwhom the sale or transfer was effected for transmission to the purchaser or transferee.

The Securities and Futures Commission of Hong Kong, Hong Kong Exchanges and ClearingLimited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents ofthis Circular, make no representation as to its accuracy or completeness and expressly disclaimany liability whatsoever for any loss howsoever arising from or in reliance upon the whole or anypart of the contents of this Circular.

This Circular is for information purposes only and does not constitute an offer or invitation tosubscribe for or purchase any securities, nor is it calculated to invite any such offer or invitation.

The Link Real Estate Investment Trust(a collective investment scheme authorised under section 104

of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong))

(stock code: 823)

CIRCULAR TO UNITHOLDERS IN RELATION TO

(1) PROPOSED EXPANSION OF THE GEOGRAPHICAL SCOPE OFTHE LINK REIT’S INVESTMENT STRATEGY,

(2) OTHER PROPOSED AMENDMENTS TO THE TRUST DEED,

AND

(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening the extraordinary general meeting of the unitholders of The Link REIT to beheld at Salon 5 and 6, JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, PacificPlace, 88 Queensway, Hong Kong on Tuesday, 18 February 2014 at 10:00 a.m. is set out onpages N-1 to N-5 of this Circular.

Whether or not you are able to attend the aforesaid extraordinary general meeting in person,you are requested to complete the accompanying proxy form in accordance with the instructionsprinted thereon and return it to the unit registrar of The Link REIT, Computershare Hong KongInvestor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai,Hong Kong as soon as possible and in any event not less than 48 hours before the timeappointed for the holding of the extraordinary general meeting or any adjournment thereof.Completion and return of the proxy form will not preclude you from attending and voting inperson at the extraordinary general meeting or any adjournment thereof should you so wish.

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

17 January 2014

Page

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

LETTER FROM THE BOARD TO UNITHOLDERS

SECTION A. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION B. PROPOSED EXPANSION OF THE GEOGRAPHICAL SCOPE OFTHE LINK REIT’S INVESTMENT STRATEGY . . . . . . . . . . . . . . . 6

SECTION C. PROPOSED INVESTMENT SCOPE TRUST DEEDAMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

SECTION D. OTHER PROPOSED AMENDMENTS TO THE TRUST DEED . . . . 32

SECTION E. EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . 39

SECTION F. RESPONSIBILITY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

SECTION G. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

APPENDIX

I. TRUST DEED AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1

II. PRC RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1

III. OVERVIEW OF THE RELEVANT LAWS AND REGULATIONS INTHE PRC AND COMPARISON OF CERTAIN ASPECTS OFTHE PRC PROPERTY LAWS WITH THE LAWS OF HONG KONG . . . . . . III-1

IV. PRC TAXATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1

V. SAVILLS RESEARCH REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1

NOTICE OF EXTRAORDINARY GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . . N-1

TABLE OF CONTENTS

– i –

In this Circular, unless otherwise stated, the following definitions have the followingmeanings:

“2012 Circular” the circular dated 25 June 2012 issued by The LinkREIT to Unitholders in relation to, among otherthings, the proposed expansion of the asset class ofThe Link REIT’s investment strategy

“Board” board of Directors

“Business Day” has the meaning ascribed to it under the Trust Deed

“CAGR” compound annual growth rate

“Connected Person” has the meaning ascribed to it under the REIT Code

“Directors” directors of the Manager

“EGM” the extraordinary general meeting of Unitholdersconvened to be held at Salon 5 and 6, JW MarriottBallroom, Level 3, JW Marriott Hotel Hong Kong,Pacific Place, 88 Queensway, Hong Kong onTuesday, 18 February 2014 at 10:00 a.m.

“EGM Notice” the notice convening the EGM as set out on pagesN-1 to N-5 of this Circular

“Excluded Associate” means any person or entity who/which is anassociate of the relevant Connected Person solelyby virtue of the operation of paragraphs (b), (c),and/or (k) (in the case of paragraph (k), other than arelated corporation covered under paragraph (a) ofthe definition of “related corporation” in Schedule 1to the SFO) of the definition of “associate” inSchedule 1 to the SFO

“Expanded GeographicalInvestment Scope”

the proposed expansion of the geographical scopeof The Link REIT’s investment strategy beyondHong Kong (so that The Link REIT shall have theflexibility to invest in all classes ofsustainable-income producing non-residentialproperties including but not limited to stand-aloneassets and comprehensive mixed-use(predominantly retail-based) developments in HongKong and other overseas jurisdictions, but in allcases excluding hotels and serviced apartments)which is to be considered, and if thought fit,approved by Unitholders by the proposed SpecialResolution No. 1 set out in the EGM Notice

DEFINITIONS

– 1 –

“GDP” gross domestic product

“HK$” or “Hong Kong Dollars” Hong Kong dollars, the lawful currency of HongKong

“Hong Kong” the Hong Kong Special Administrative Region of thePeople’s Republic of China

“Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited

“Investment Scope Trust DeedAmendments”

the proposed amendments to the Trust Deed inconnection with the Expanded GeographicalInvestment Scope, the details of which are set outin Part A of Appendix I to this Circular, which are tobe considered, and if thought fit, approved byUnitholders by the proposed Special ResolutionNo. 2 set out in the EGM Notice

“Latest Practicable Date” 13 January 2014, being the latest practicable dateprior to the printing of this Circular for the purposeof ascertaining certain information contained in thisCircular

“Listing Rules” Rules Governing the Listing of Securities on TheStock Exchange of Hong Kong Limited

“Manager” The Link Management Limited, a companyincorporated under the laws of Hong Kong, which isthe manager of The Link REIT

“Matters Requiring Approval” the Expanded Geographical Investment Scope andthe Trust Deed Amendments

“NBS” National Bureau of Statistics of the People’sRepublic of China

“Other Trust DeedAmendments”

other proposed amendments to the Trust Deed, thedetails of which are set out in Part B to Part F ofAppendix I to this Circular, which are to beconsidered, and if thought fit, approved byUnitholders by the proposed Special ResolutionsNos. 3, 4, 5, 6 and 7 set out in the EGM Notice

“PRC” The People’s Republic of China excluding, for thepurposes of this Circular only, Hong Kong, theMacau Special Administrative Region of ThePeople’s Republic of China and Taiwan

DEFINITIONS

– 2 –

“PRD” the Pearl River Delta area, as further described inparagraph B.V(d) of section B of this Circular

“REIT Code” the Code on Real Estate Investment Trustspublished by the SFC as amended, supplementedor otherwise modified for the time being

“REIT(s)” real estate investment trust(s)

“RMB” Renminbi, the lawful currency of the PRC

“Savills” Savills Property Services (Shanghai) CompanyLimited

“Savills Research Report” Retail Research Report prepared by Savills andcommissioned by the Manager to provide anindependent review of the PRC retail propertymarket, the full text and sources of which are setout in Appendix V to this Circular

“SFC” the Securities and Futures Commission of HongKong

“SFO” the Securities and Futures Ordinance (Chapter 571of the Laws of Hong Kong) as amended,supplemented or otherwise modified for the timebeing

“Special Purpose Vehicle” a special purpose vehicle that is owned andcontrolled by The Link REIT in accordance with theREIT Code, which is defined in Clause 1.1 of theTrust Deed

“Special Resolution” a resolution of Unitholders passed by a majorityconsisting of 75% or more of the votes of thosepresent and entitled to vote, whether in person or byproxy, at a general meeting of Unitholders, wherethe votes shall be taken by way of poll but with aquorum of two or more Unitholders holding not lessthan 25% of the Units in issue

“The Link REIT” The Link Real Estate Investment Trust, a collectiveinvestment scheme authorised under section 104 ofthe SFO, whose Units are listed on the Main Boardof the Hong Kong Stock Exchange (stock code:823), and where the context requires, includescompanies and/or Special Purpose Vehicles ownedand/or controlled by it

DEFINITIONS

– 3 –

“Trust Deed” the trust deed dated 6 September 2005 between theTrustee and the Manager constituting The LinkREIT, as amended and supplemented by ninesupplemental deeds dated 4 November 2005, 8November 2005, 16 January 2006, 21 November2006, 13 July 2007, 23 July 2007, 5 October 2009,23 July 2010 and 25 July 2012, respectively

“Trust Deed Amendments” collectively, the Investment Scope Trust DeedAmendments and the Other Trust DeedAmendments

“Trustee” HSBC Institutional Trust Services (Asia) Limited, inits capacity as the trustee of The Link REIT, or anysuccessor thereof as the trustee of The Link REIT,as the context requires

“Unit(s)” unit(s) of The Link REIT

“Unitholder(s)” holder(s) of Unit(s)

“%” or “per cent.” per centum or percentage

Words importing the singular shall, where applicable, include the plural and vice versaand words importing the masculine gender shall, where applicable, include thefeminine and neuter genders. References to persons shall include corporations.

Any reference in this Circular to any enactment is a reference to that enactment for thetime being amended or re-enacted.

Any reference to a time of day in this Circular shall be a reference to Hong Kong timeunless otherwise stated.

DEFINITIONS

– 4 –


of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong))(stock code: 823)

Directors of the Manager:

Chairman (also an Independent Non-Executive Director)Nicholas Robert SALLNOW-SMITH

Executive DirectorsGeorge Kwok Lung HONGCHOY (Chief Executive Officer)Andy CHEUNG Lee Ming (Chief Financial Officer)

Non-Executive DirectorIan Keith GRIFFITHS

Independent Non-Executive DirectorsWilliam CHAN Chak CheungAnthony CHOW Wing KinPatrick FUNG Yuk BunStanley KO Kam ChuenMay Siew Boi TANDavid Charles WATTRichard WONG Yue ChimElaine Carole YOUNG

Registered Office:

33/F., AXA Tower,Landmark East,100 How Ming Street,Kwun Tong, Kowloon,Hong Kong

To: Unitholders of The Link REIT 17 January 2014

Dear Sir or Madam,

CIRCULAR TO UNITHOLDERS IN RELATION TO(1) PROPOSED EXPANSION OF THE GEOGRAPHICAL SCOPE OF

THE LINK REIT’S INVESTMENT STRATEGY,(2) OTHER PROPOSED AMENDMENTS TO THE TRUST DEED,

AND(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

SECTION A. INTRODUCTION

Reference is made to the announcement dated 10 January 2014 of The Link REIT inrelation to, among other things, the Matters Requiring Approval (being the ExpandedGeographical Investment Scope and the Trust Deed Amendments). The purpose of


– 5 –

this Circular is to provide you with the EGM Notice and further information on theSpecial Resolutions to be proposed at the EGM regarding the Matters RequiringApproval.

Section B of this Circular sets out the Manager’s proposal to expand the geographicalscope of The Link REIT’s investment strategy beyond Hong Kong, so that The LinkREIT shall have the flexibility to invest in all classes of sustainable-income producingnon-residential properties (including but not limited to stand-alone assets andcomprehensive mixed-use (predominantly retail-based) developments) in Hong Kongand other overseas jurisdictions, but in all cases excluding hotels and servicedapartments, for the reasons described herein. In accordance with the REIT Code, theManager is seeking Unitholders’ approval for this proposal, which if obtained, requirescertain consequential amendments to the Trust Deed (as set out in Section C of thisCircular).

Section D of this Circular sets out other proposed amendments to the Trust Deed,which do not relate to the proposed expansion of The Link REIT’s geographicalinvestment scope. Instead, such other amendments are intended to update the TrustDeed so that it reflects the latest developments in the Hong Kong REIT market, or inother cases, to mirror updates to the Listing Rules so that such updates will apply toThe Link REIT. These include, among other things, the proposed amendments to theTrust Deed to: (a) allow voting by way of a show of hands in limited circumstances;and (b) facilitate placing and top-up subscription transactions.

SECTION B. PROPOSED EXPANSION OF THE GEOGRAPHICAL SCOPE OFTHE LINK REIT’S INVESTMENT STRATEGY

I. Background

At the time of the initial authorisation of The Link REIT under section 104 of theSFO, The Link REIT’s property portfolio only comprised properties situated inHong Kong. Accordingly, the objective and the scope of The Link REIT’sinvestment strategy had been initially limited to sustainable-income producingproperties in Hong Kong which were substantially used for retail and car-parkpurposes.

In its effort to expand the investment strategy of The Link REIT for long-termgrowth, the Manager sought and obtained approval of the Unitholders at theannual general meeting of The Link REIT held on 25 July 2012, for the expansionof the investment strategy of The Link REIT to encompass investments in allclasses of sustainable-income producing non-residential properties, including butnot limited to, stand-alone assets and comprehensive mixed-use (predominantlyretail-based) developments in Hong Kong, but in all cases excluding hotels andserviced apartments. In line with such investment strategy, The Link REIT’sproperty portfolio is entirely situated in Hong Kong.


– 6 –

II. The Expanded Geographical Investment Scope

The Manager considers that an over-concentration of property investment in amarket within a single city is not conducive to the long-term development andsustainable growth of The Link REIT. As the Hong Kong real estate market islimited in scale and dominated by a number of major developers and establishedlandlords, expansion outside Hong Kong (like many other REITs in Asia thatinvest in more than one city) is important for The Link REIT’s long-term andsustainable growth.

Accordingly, the Manager proposes to expand the geographical scope of The LinkREIT’s investment strategy beyond Hong Kong so that The Link REIT shall havethe flexibility to invest in all classes of sustainable-income producingnon-residential properties (including but not limited to stand-alone assets andcomprehensive mixed-use (predominantly retail-based) developments in HongKong and other overseas jurisdictions, but in all cases excluding hotels andserviced apartments). The Manager is of the view that the ExpandedGeographical Investment Scope is fair and reasonable and in the interests of theUnitholders as a whole.

(a) Reasons for the Expanded Geographical Investment Scope

The reasons for the Expanded Geographical Investment Scope are asfollows:

� Greater investment opportunities. A geographically diverseinvestment strategy will provide The Link REIT with more investmentopportunities which could bring attractive yields and/or greater capitalappreciation potential than in Hong Kong. The ability to captureinvestment opportunities in fast-growing economies, such as the PRC,will also provide The Link REIT with long-term growth potential. Tofacilitate this, The Link REIT would require the flexibility toopportunistically invest in markets outside Hong Kong.

� Enhancement of stability in rental revenue level and ability to makestable distributions. As real estate markets in different jurisdictionsexperience different vacancy rates and rental growth cycles, ageographically diverse portfolio will provide The Link REIT with a morestable rental revenue level and this, in turn, will enhance The LinkREIT’s ability to make stable and sustainable distributions toUnitholders. A geographically diverse portfolio will also be lesssusceptible to any adverse changes which may occur due to the politicaland economic conditions in any particular market.

� Flexibility to maximise returns. Generally, a geographically diverseinvestment strategy would allow The Link REIT to tap the domesticcapital market in which the real estate is located for favourable fundingwhile capitalisation rates in those overseas real estate markets may be


– 7 –

higher than those in Hong Kong. The flexibility for the Manager to selectappropriate markets and leverage on different funding costs and yieldswill enable The Link REIT to enhance financial returns on itsinvestments and Unitholders’ returns in the long term.

� The trend for cross-border investments. The Manager notes that it isalso a common and growing market trend in the other regional REITmarkets for REITs to have investments in more than one geographicallocation. Many REITs listed in Hong Kong have geographically diverseinvestment strategies which facilitate cross-border investments in othercountries, such as the PRC. There are more opportunities for growth ifthe REIT has flexibility to invest beyond a single city.

� Investor expectations. The Manager has received feedback fromexisting investors that REITs with geographically diverse portfolios arepreferred so that the REIT’s portfolio is not tied to one economic cycle ina single jurisdiction. The Link REIT’s portfolio can benefit from thedifferent growth rate of different markets and at the same time, marketrisks are spread and minimised if the portfolio (being illiquid investmentsuch as real estate) is exposed to different economic cycles.

� Enhancement of Unitholders’ base. By enabling the Manager tocapitalise on investment opportunities outside Hong Kong, The LinkREIT will have a greater opportunity to attract investors with differentinvestment appetites thereby enlarging the universe of investorsinvesting in The Link REIT.

(b) General Considerations when Investing in Real Estate Assets outsideHong Kong

In selecting appropriate investments in overseas jurisdictions, the Managerwill proceed in a disciplined manner with considerations primarily being givento the management team’s expertise and experience, resources andcapability in the relevant jurisdiction. General external factors which theManager will also consider (without limitation) include:

� Investor confidence in the market. The Manager will considerinvesting in overseas markets in which investor confidence is strong asownership of properties in such markets is likely to make an investmentin the Units of The Link REIT more attractive and enhance itsUnitholders’ base.

� Stability of the market. The Manager will assess the economic,political and social conditions of a potential overseas market to assessthe risks related to such conditions and evaluate the feasibility of aninvestment in such a market.


– 8 –

� Maturity and development of the market. The Manager will considerwhether a particular country of investment has a well planned anddeveloped infrastructure network along with high accessibility forcommercial properties, as such factors enhance the value of theproperties located in that country. The legislative and regulatory regimeimpacting on the legal structure of an investment include, withoutlimitation, the certainty of interpretation of the relevant legislation andregulations in that overseas country, and the ease of enforcement ofjudgements in that country will also be considered.

� Growth potential of the market. The Manager will assess the growthpotential of an overseas market, including consideration of whetherthere is a high and rising demand for the type of properties which TheLink REIT intends to invest in and whether such demand is offset by anexcessive supply or rising costs and expenses related to propertymanagement.

� Availability of reliable market information and reputable serviceproviders. The Manager will consider investing in overseas markets inwhich there are reputable service providers and reliable marketinformation for the assessment of investment opportunities,implementation of the investment and management of the properties.

� Laws and taxation. The Manager will consider the relevant laws andregulations of a potential overseas market (particularly in respect ofproperty ownership), as well as its taxation regime, in evaluating thefeasibility of an investment in such a market.

III. Compliance with Laws and Regulations

In considering any investment opportunity, the Manager will have regard to, andcomply with, all applicable legal and regulatory requirements, including but notlimited to the requirements prescribed under the REIT Code. With regard toinvestment opportunities in the PRC and other overseas jurisdictions, theManager will further have regard to, and comply with, the Practice Note onOverseas Investments by SFC-authorised REITs contained in the REIT Code.

IV. Approvals Required

The Manager notes that in a circular to management companies ofSFC-authorised REITs dated 12 October 2007, the SFC has, among other things,clarified that in acquiring overseas or new types of properties, REIT managers donot have to seek re-approval of their licences or re-authorisation of the relevantREIT by the SFC before proceeding to make such acquisitions. Nevertheless, inmaking acquisition decisions, it is the Manager’s obligation to satisfy itself that ithas sufficient and appropriate skills and processes in place to manage the newproperties, and more generally, to have regard to its fiduciary duties to theUnitholders.


– 9 –

Pursuant to Clause 20.2.7 of the Trust Deed, the Manager shall ensure that theUnitholders are given sufficient prior notice, and where applicable, right to vote,with respect to any material change to The Link REIT, including without limitation,changes in its investment objectives. Also, pursuant to paragraph 10.7 of theREIT Code, a circular shall be issued by the Manager where there is a change inthe general character or nature of The Link REIT, such as its investment objectiveand/or policy.

Accordingly, the Manager proposes to seek Unitholders’ approval of SpecialResolution No. 1 as set out in the EGM Notice approving the ExpandedGeographical Investment Scope. Such Special Resolution will be decided on apoll at the EGM pursuant to the Trust Deed.

V. The Initial Focus of the Expanded Geographical Investment Scope

Hong Kong is considered part of the Greater China Region by asset allocators inthe global investment communities. Given the geographic proximity, closeeconomic co-operation, linguistic and cultural affinity between Hong Kong and thePRC, the Manager considers an expansion into the PRC to be a logical extensionof the business of The Link REIT.

Initially, the Manager intends to focus on appropriate investment opportunities inthe province of Guangdong and the PRD, particularly in the urban mid-marketretail sector given the growth of the middle class consumers in the area. Suchstrategy will be reviewed from time to time by the Manager and may be adjusteddepending on market conditions, in which case the Manager shall publish afurther announcement in compliance with the REIT Code, as appropriate. Whileexpanding the geographical scope of its investment strategy, the Manager intendsto invest in the same asset classes as stated in the 2012 Circular, namely, allclasses of substantial-income producing non-residential properties, including butnot limited to, stand-alone assets and comprehensive mixed-use (predominantlyretail-based) developments, but in all cases excluding hotels and servicedapartments.

The Manager will ensure that it has the resources and experienced personnel tooversee and monitor the asset investment and asset management strategies forits plan to expand into the PRC.

Investment into the PRC may involve certain risks in relation to financial aspectsand operational matters. For further details of these risks, please refer toparagraph B.VII of this Circular.


– 10 –

(a) Prospect of the PRC Economy and the PRC Retail Market

The discussions in paragraphs B.V(a), (b) and (d) below are primarily basedon the information and data provided in the Savills Research Report. Savillswas commissioned by the Manager to conduct a study to provide anindependent review of the PRC retail property market. The full text andsources of the Savills Research Report are set out in Appendix V to thisCircular.

� Fast GDP growth

The PRC is the second largest and one of the fastest growingeconomies in the world. The PRC recorded strong economic growth,recording an average annual real GDP growth rate of 14.3% from 2007to 2012, which was achieved amidst the global economic slowdown.According to the NBS, the GDP of the PRC in 2012 stood at RMB51,894billion (representing a real growth rate of 7.7%), and for the first threequarters of 2013, its real GDP reached RMB38,676.2 billion(representing a 7.7% increase from the corresponding period in 2012).

PRC GDP growth rate and forecast, 2002-2017F

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000YoY

GDP growth rate (Right Hand Side)GDP (Left Hand Side)US dollars (billion)

Source: Focus Economics, Savills Research Report

According to the statistics released by the World Bank, the projectedGDP growth rates of the PRC in 2013 and 2014 will still place thecountry ahead of other major economies in the world.


– 11 –

International GDP growth rates and forecast, 2005-2018E

11.3%12.7%

14.2%

9.6%9.2%

10.4%9.3%

7.8% 8.0% 8.2% 8.5% 8.5% 8.5% 8.5%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Brazil PRC India Japan Russia United Kingdom United States

YoY

Source: World Bank, Savills Research Report

� Rapid urbanisation

The rapid development of the country’s transportation infrastructure hasstimulated the pace of urbanisation in the PRC. According to the reportreleased by the NBS on 22 February 2013, the urbanisation rate hasaccelerated, as evidenced by the forecast 52.6% of urban residents atthe end of 2013. This represents an increase of approximately 1.3% ascompared with the end of 2012. The interconnectedness of the countryand its cities has consolidated the importance of key (or first-tier) cities.

The development of intra-city infrastructure (such as roads, bridges andmetro networks) has extended the boundaries of the cities. Thedisplacement of the population and the development of transportinfrastructure have created substantial opportunities for new shoppingclusters and regional shopping precincts.

� Urban wealth and the emergence of the middle class

The wealth of urban residents has also grown rapidly. According to dataof the NBS, since 1990 the urban disposable income per capita in thePRC has grown at a 13.5% CAGR. Larger cities such as Shanghai andBeijing and affluent coastal provinces such as Guangdong have highper capita income. The average disposable income of urban residents in2012 stood at RMB24,565 per capita, an increase of 12.7%year-on-year.


– 12 –

A study by McKinsey Global Institute (“McKinsey”) published in 2012suggested that the PRC households might be broadly classified byincome as “the affluent”, “the new mainstream”, “the value”, and “thepoor”. By 2020, it is estimated that “the new mainstream” segment willaccount for approximately half of the total population in the PRC. Thisnew mainstream segment comprised approximately 13.6 millionhouseholds in the PRC in 2010, and is expected by McKinsey toincrease to approximately 167.3 million households by 2020,representing a CAGR of 26.6%.

Number of urban households by annual households income, 2000-2020E

36

10 7

63

82

36

16

51

26

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2010 2020E

Poor (less than RMB37,000) Value (RMB37,000 to RMB106,000)New Mainstream (RMB106,000 to RMB229,000) Affluent (more than RMB229,000)

Million households, %

CAGR2000-2020E, %

100% = 147 226 328

20.4

26.6

1.2

-3.8

4.1

Source: McKinsey Report � Meet the 2020 Chinese Consumer

Continuing strong growth in the size and diversity of the middle classwill create new market opportunities for both domestic and internationalretailers, which in turn drives and shapes the development and thelandscape of the retail property sector of the PRC.

According to the NBS, retail sales have grown between 10% and 20%per annum since 2004. Urbanisation and the rising income of the middleclass support the growth of retail sales in the PRC, which according tothe information published by the CEIC Data, have increased fromRMB3.9 trillion in 2000 to RMB21.0 trillion in 2012. The Manageranticipates that the retail market and the real estate sector will continueto grow in the PRC.


– 13 –

Retail sales and nominal growth, Jan 1994-Oct 2013

0

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

500

1,000

1,500

2,000

2,500

Retail sales value (Left Hand Side) Retail sales growth rate (Right Hand Side)RMB (billion) YoY

Source: NBS, Savills Research Report

Retail sales growth has also trickled down to smaller cities. Retailersestablished in key mainland markets have looked to expand theirfootprint in new areas. Businesses also decentralise away from coastalcities to lower-tier cities, generating new jobs and boosting local incomelevels.


– 14 –

Retail sales per capita by tier city, 2002-2012

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Tier 1 Tier 2 Tier 3 Tier 4 Tier 5RMB

Source: NBS, Savills Research Report

(b) The Evolution of Retail Formats in the PRC

A growing middle class, on-going infrastructure development creating moreretail clusters for shoppers, and the PRC government’s policy of encouragingmore domestic consumption have supported the current growth in retailsales. These factors present increasing opportunities for shopping malldevelopers and owners.

Retail development in PRC cities has evolved from the initial phase ofpredominantly street shops and department stores in the central businessdistrict area to the increasing appearance of hypermarkets and shoppingmalls. Shopping malls will eventually become the dominant retail format.Macquarie Capital Securities Limited in its equity research paper – “BattleFor Successful Malls in China, 2013” – states that over the past decade, theshopping mall space in the 20 major PRC cities has grown significantly fromvirtually nothing to 56% of prime retail space. The report further states thatprime retail space in the 20 major PRC cities is expected to grow by 57%between the end of 2012 and the end of 2014, and that the shopping mallformat will be a major contributor of the growth.

The new retail formats will first appear in first-tier cities such as Shanghai,Beijing, Guangzhou and Shenzhen before gradually extending into second-or third-tier cities, as consumers in first-tier cities are often more willingadopters of new concepts compared with consumers in lower-tier cities.


– 15 –

Table for major retail formats in the PRC

Format Characteristics Emergence

High-street retail State-owned or individual landlords; typically low profile althoughretailers are now making more use of the high visibility.

First-tier: 1950s (early)

Department store Primarily state-owned or domestic, although international (Asian)operators are making inroads into the market.

First-tier: 1980s (early)Second-tier: 1980s (early)

Retail podium Part of mixed-use developments, typically of office towers indowntown locations but increasingly in residential developments insuburban locations.

First-tier: 1990s (early)Second-tier: 1990s (late)

Shopping mall Similar to retail podiums although larger in scale and held by onelandlord; typically fully enclosed but there are some semi-openshopping malls in some cities.


Outlet A relatively new concept; not as developed as in the US, outletstores are slowly emerging as car ownership continues to rise andconsumers place value and quality on an even footing.

First-tier: 2000s (late)Second-tier: 2000s (late)

Source: Savills Research Report

(c) The PRC mid-market retail sector as the initial focus of the Manager

� The Manager believes that the PRC high-end luxury retail sector iscrowded with established operators and real estate developers. At theother end of the spectrum, the Manager believes that the PRC low-endretail sector is fragmented and dominated by street shops which haveneither scalability nor replicability to fit the growth model of The LinkREIT. Therefore, the Manager considers that the PRC mid-market retailsector will provide attractive investment opportunities, which (given itsextensive experience in asset enhancement and asset management inthe Hong Kong retail sector) the Manager believes it is well positionedto exploit.

� Shift in retail consumption pattern. As income rises, retail salesvolume rises and there is a shift in retail consumption of the urbanmiddle class when higher-dollar-value spending on lifestyle items suchas personal care, better food and beverage and services will occupy arelatively higher proportion over spending on low-dollar-value items likedaily necessities. This favours the new retail format of “theme-focusedshopping” at shopping malls.


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� Higher awareness of mid-market brands. The urban middle classgroup is typically characterised by high education level and an outward(or Westernised) outlook. In terms of consumer spending, the urbanmiddle class is conscious of the concept of smart (or value-for-money)spending, and is willing to try new mid-market brands over conventionalbrands. New brands from Europe, North America, Korea and Japan arepositioning to capture such opportunities in the PRC and many of themwill target mid- and upper-mid-market shopping malls to open theirchain stores.

� Relatively less competition. The mid-market retail sector of the PRC isnot yet dominated by established real estate developers or bigcommercial landlords. Small or mid-size real estate developers tend tofocus on residential sales for cash-flow and turnover, and have lessincentive to hold commercial retail assets. Many of these small ormid-size developers lack the expertise to operate commercial retailassets; rather, they may have more incentive to either dispose of thecommercial retail assets to The Link REIT, or co-invest with The LinkREIT to leverage on the retail property expertise of the Manager.

� Relation with existing retail tenants. Most of the major Hong Kongretailers already have their operations in the PRC, particularly in thePRD. The consumer segment of many of these Hong Kong retailerscoincides with the same urban middle class as now being targeted bythe Manager. Many of these Hong Kong retailers have on-goingrelationships with the Manager and are familiar with and value the assetmanagement strategies of The Link REIT. Their brands are popular inlarge cities in the PRD and are anchors for attracting other PRCretailers to the assets which The Link REIT may acquire in such area.

� The Rise of Community Retail. The market for large-scale regionalshopping malls located in prime locations is now well developed in thePRC, while that of community shopping malls has fallen behind. Withimprovement in inter-city and intra-city transport infrastructure networks,the urban population is migrating to non-core locations where propertyprices are lower. This group of households has more disposable incometo enjoy a better quality of living. In addition, many newly distributedhousing units – given as compensation for those lost in thegovernment-led urban transformation programme – are located indecentralised locations, or in the suburban areas. There is significantdemand for day-to-day convenience shopping and weekend/holidayrecreation facilities from this group of decentralised population. The lackof community shopping malls which can provide one-stop shoppingfacilities from daily necessities-supermarket shopping to recreation andfamily-oriented elements presents attractive shopping mallsopportunities which fit The Link REIT’s business strategy and assetmanagement capability.


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(d) Geographically, the Manager plans to first examine investmentopportunities in Guangdong and the PRD

� Overview of Guangdong Province

Guangdong Province is a province in southern China with a total area ofapproximately 180,000 sq km. The province comprises two sub-provincialcities and 19 prefecture-level cities, including Guangzhou (the provincialcapital) and Shenzhen (a special economic zone), two of the economicallysignificant and populous cities in the PRC. Since 2005, GuangdongProvince has been the most populous province in the PRC and the largestprovince by GDP, which stood at approximately RMB5,700 billion in 2012,contributing one-eighth of the nation’s total GDP. The economy isdominated by the manufacturing and tertiary industries, contributing 48%and 46% of the total output of Guangdong Province in 2012, respectively.

Guangdong Province is also the most affluent province in the PRC. TheGDP per capita of Guangdong Province was RMB54,000 in 2012, whichwas significantly higher than the national average of RMB38,354. With alarge and wealthy population, private consumption is high and the retailmarket is prosperous. Guangdong Province’s retail sales contributed tomore than 10% of the nation’s total retail sales in 2012.

The transportation network is well developed in Guangdong Province,including eight airports (one international airport, two regional airportsand several smaller airports), 12 main railway lines, six high-speed trainlines (one still under construction), metro systems in operation in fourcities and several intra-city and inter-city light rail lines, in addition towell developed road network.


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Map: Guangdong Province

Shanwei

Shaoguan

Yangjiang

Zhanjiang

Source: Savills Research Report

� Overview of the PRD

The PRD is the main growth driver of the Guangdong Province. With atotal area of approximately 41,700 sq km, the PRD is one of the mosteconomically dynamic regions. Major cities in the PRD includeGuangzhou, Shenzhen, Dongguan, Foshan, Zhongshan, Zhuhai,Jiangmen, Huizhou and Zhaoqing. Of the three economic zonesestablished since the 1980’s, two are in the PRD (being Shenzhen andZhuhai).

Over 80% of Guangzhou Province’s GDP was generated from the PRD,at RMB4,789.7 billion in 2012. The PRD has transformed from anagriculture-oriented economy to a manufacturing platform of globalimportance. The area is now the leading producer of electrical andelectronic goods and components, watches and clocks, plastic products,garments and textiles, and a range of other products.

The PRD’s 2012 GDP per capita reached RMB84,563, which was 56%higher than that of Guangdong Province and approximately 2.2 timesthe PRC national average. These circumstances are also supported by


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the PRD’s retail sales figures, which stood at RMB1.7 trillion in 2012,accounting for 74.1% of Guangzhou Province’s total retail sales and8.0% of the national figure.

As an export-oriented and foreign-investment-driven economy, the PRDcontributed to approximately 9% of the PRC’s total GDP output in 2012,despite the fact that the area only accounts for 0.4% of the total landarea and 4% of the total population. Aside from foreign investments,private-owned enterprises have also been playing an increasinglysignificant role in the economy of the PRD, and Shenzhen, Dongguanand Foshan have been at the forefront of the private-sectordevelopment in the PRC.

With the completion of the transport infrastructure networks runningfrom city centres to decentralised areas of Guangdong Province and thePRD, shopping mall development is likely to shift from prime tonon-prime locations or to decentralised locations, supporting the growthof the second-tier and lower-tier cities in the PRD and the entire SouthChina region. These lower-tier cities also present opportunities for TheLink REIT to expand its business in the future.

Source: Hong Kong Highways Department

Infrastructure ProjectTarget

Completion

Guangzhou-Shenzhen-Hong Kong Express Rail Link（廣深港高速鐵路）

2015(1)

Hong Kong-Zhuhai-Macao Bridge（港珠澳大橋）(“HZMB”) 2016(2)

Liantang/Heung Yuen Wai Boundary Control Point（蓮塘/香園圍口岸）

2018(3)

Shen-Guan Intercity Line（深莞城際線） Before 2020(4)

Shen-Hui Intercity Line（深穗城際線） Before 2020(4)

Hui-Guan-Shen Intercity Line（穗莞深城際線） Before 2020(4)


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Sources:

(1) MTR, Express Rail Link Project Information, retrieved from website:http://www.expressraillink.hk, December 2013

(2) Hong Kong Highways Department, HZMB Project Overview, retrieved from website:http://hzmb.hk, December 2013

(3) Hong Kong Planning Department, boundary control point (BCP) information, retrievedfrom website: http://www.pland.gov.hk, December 2013

(4) 廣東投資招商網，廣東重點建設項目, retrieved from website: http://www.gdtzzs.gov.cn,December 2013

(e) Further opportunities

Given the ever changing market conditions, the Manager acting in theinterests of the Unitholders should from time to time review to determinewhether the initial focus on the mid-market retail sector of Guangdong andthe PRD is appropriate, and may adjust such focus to capitalise oninvestment opportunities in other major cities or other economic zones of thePRC outside the PRD. The Manager will make further announcement(s)about its investments in the PRC in accordance with the REIT Code.

(f) Business Strategy of the Manager

Asset enhancement, asset management, and asset acquisition remain thecore business strategies of the Manager in the drive to add value to The LinkREIT’s portfolio of assets and enhance the returns to Unitholders. TheManager intends to invest in the same asset classes as stated in the 2012Circular – that is, investing in all classes of sustainable-income producingnon-residential properties, including but not limited to, stand-alone assetsand comprehensive mixed-use (predominantly retail-based) developments(but in all cases excluding hotels and serviced apartments) – while (subjectto approval of Unitholders) expanding the geographical scope of itsinvestment strategy beyond Hong Kong. The Manager will also follow thesame acquisition strategy as stated in the 2012 Circular to focus on thefollowing key considerations in evaluating acquisition opportunities:

� Long-term investment. The Manager will seek to invest in propertiesfor the long term.

� Sustainable-income producing properties. The Manager will focus onsustainable-income producing properties with potential for long-termincome and capital growth.

� Yield accretion. The Manager will seek to acquire properties with thepotential to provide long-term yield-accretion to Unitholders.


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� Acquisition price. The Manager will seek to acquire properties with anattractive acquisition price vis-à-vis their cash flows, currentperformance and sustainable future potential.

� Economic conditions. The Manager will consider economic conditionsand market outlook, for example, in the context of financing foracquisitions.

� Complement the existing portfolio. The Manager will seek to acquireproperties which complement the existing portfolio and strengthen TheLink REIT’s market share vis-à-vis competition in the relevant area.

� Value-adding opportunities. The Manager will seek to acquireproperties with enhancement opportunities to increase investmentreturns and create value.

In the context of investment opportunities in the PRC, these acquisitiondisciplines will be refined to include:

� Location of target investment. As noted in paragraphs B.V(d) and (e)above, the Manager will first consider strategic commercial or retaillocations in Guangdong and the PRD.

� Asset type. As noted in paragraphs B.V(c) and (e) above, theManager’s primary focus will be on mid-market retail sector which isincome-producing.

� Asset class. The Manager will focus on REIT-compliant assets, andthose which are either capable of creating operational synergies byconsolidating, expanding and leveraging on regional tenants andshopper network, or have demonstrable upside potential after assetenhancement.

(g) Execution of the business strategy of the Manager

� Vigorous investment process

The Manager has already in place well-recognised high standards ofcorporate governance. Investments by The Link REIT in Hong Kong orany other jurisdictions will be subject to the same level of scrutiny andoversight by the Board. The executive Directors, as well as severalnon-executive and independent non-executive Directors, haveexperience on PRC investments. To maintain appropriate checks andbalances on management actions, matters which have a critical bearingon The Link REIT are specifically reserved for consideration by the fullBoard, including the approval of any acquisition of properties. Aspecifically-tasked Board committee – the Finance and Investment


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Committee of the Manager – will first evaluate each investmentopportunity proposed by the management and make recommendationsto the Board for approval.

In approaching PRC investment opportunities, management will adoptthe same prudent approach as in evaluation of any other investments.Factors from macro perspectives such as economic trends and changeof government policies to project-specific details on building and townplanning, area competitive analysis, local culture and retail trends, inaddition to financial return evaluation and capital management, will allbe critically examined in formulating proposals. External advice andexpertise will also be sought.

� Strategic co-operation with PRC partners

To support its investment process, the Manager may from time to timeand where desirable, seek to co-operate with reputable and establishedPRC developers.

In line with this execution strategy, on 19 December 2013, the Managerentered into a non-binding memorandum of understanding（戰略合作意向書）with 萬科企業股份有限公司 (China Vanke Co., Ltd.) (“China Vanke”)pursuant to which, and subject to Unitholders approving the ExpandedGeographical Investment Scope, the Manager and China Vanke agreedto jointly explore the feasibility of various options of strategicco-operation in the PRC. Consistent with the initial retail focusdescribed in paragraph B.V(c) above, the strategic co-operation optionswill focus on retail property investment opportunities in the PRC whichideally: (i) are located in densely populated communities in the PRCwith important transportation networks; and (ii) can provide a one-stopshopping experience to residents in the surrounding catchment area.For further details regarding the memorandum of understanding andChina Vanke, please refer to The Link REIT’s announcement dated19 December 2013.

� Key management personnel of the PRC operations

Under the supervision of the Board, a dedicated team responsible forthe PRC operations of the Manager, led by the Manager’s ChiefExecutive Officer (who is an executive Director and a responsible officerof the Manager for the purpose of the SFO), will implement the PRCbusiness strategy of The Link REIT as agreed with the Board. The teamhas substantial investment and asset management experience in thePRC. They will be supported by PRC locally-recruited managerial staffwho will be responsible for the day-to-day operations. Key members ofthe team responsible for supervising the PRC operations of theManager are as follows:


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Ms. Christine CHAN Suk HanDirector (Investment)

Ms. Chan oversees the asset investment of The Link REIT, includingacquisition, new market development, and the market study andresearch function. She has over 16 years of experience in the realestate and fund management industry. Before joining the Manager inMay 2013, Ms. Chan was the Director - Investment & Acquisition atHarvest Capital Partners Limited, a subsidiary of the China ResourcesGroup, leading asset and structured debt and equity investment,divestment, business development, and the setting up of private equityreal estate fund. Ms. Chan has extensive experience in the PRC andworked on landmark investment projects in cities such as Shanghai,Suzhou and Chongqing in addition to Hong Kong, with a gross assetvalue of approximately US dollars 2.60 billion. Ms. Chan also heldmanagerial positions in ARA Asset Management (Prosperity) Limitedand Hutchison Whampoa Properties Limited in earlier years. While withHutchison Whampoa Properties Limited, Ms. Chan was responsible forasset management in Shanghai and investment evaluation in first-tierand lower-tier cities of the PRC including Shanghai, Shenzhen, Tianjin,Xian, and Changsha.

Mr. Dick LEUNG Yuen DickDirector (Project & Asset Development)

Mr. Leung oversees The Link REIT’s asset enhancement initiatives,asset planning/development opportunities and explores businessdevelopment potential. He joined the Manager in August 2012 and hasover 20 years of experience in major property development projects inHong Kong and the PRC. Mr. Leung has extensive experience in largescale mall renovations, property development of mixed residential/commercial projects as well as corporate strategy, development andimplementation. Before joining the Manager, Mr. Leung was the ProjectDirector of Sun Hung Kai Properties Limited, and was the PrincipalConsultant (Property Development) to its former Chairman. He alsoadvised on the PRC strategy of the corporate during his service as suchPrincipal Consultant. During his 15 years of service at Sun Hung KaiProperties Limited, he was the company’s representative in the PRCexploring acquisition and business development opportunities andexecuted acquisition and co-operation agreements in first- andsecond-tier cities including Guangzhou, Beijing, Shanghai, andChengdu. Mr. Leung managed investments portfolio of approximatelyRMB25 billion in value across the PRC, overseeing businessdevelopment, infrastructure planning, master planning, building design,leasing and sales strategies, property management and setting up oflocal offices.


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Mr. Gordon WU Chi PingDirector (Property Management & Operations)

Mr. Wu oversees the property, facility and car park management andoperations of the asset portfolio of The Link REIT. He joined theManager in September 2011. Mr. Wu has over 24 years of experience inproperty management in both Hong Kong and the PRC, running a groupof management companies and training academies. Prior to joining theManager, he was an associate director of the Sino Group and managedmore than 180 properties with a workforce over 2,000 staff. Mr. Wu hashad extensive experience in real estate industry in the PRC since late1990s. Overseeing the leasing and property management functions, hewas the operations director for a 1.2 million square feet commercialcomplex development project of the Lai Sun Group in Shanghai. Duringhis last employment with the Sino Group, he set up propertymanagement teams in Guangzhou, Xiamen and Fuzhou to providemanagement services for a portfolio of residential properties andcommercial complexes in the PRC.

Ms. Amy HO Shui YungHead of Asset Planning & Development

Ms. Ho is responsible for the development and execution of asset plansof The Link REIT and coordinates the asset enhancement activities.Ms. Ho joined the Manager in December 2011. Prior to joining theManager, she had 20 years of real estate industry experience withmajor investment and asset management companies in both Hong Kongand the PRC including InfraRed NF Investment Advisers Limited,Grosvenor Limited and Hutchison Whampoa Properties Limited. Ms. Hospecialized in the asset management of retail shopping malls in thePRC, including several Tesco Living Mall joint venture projects acrossChina.

Mr. Francis LEE Koon YumHead of Risk Management

Mr. Lee oversees The Link REIT’s risk management and operationalcompliance matters. He joined the Manager in August 2013 and has 20years of global and local experience in risk management, audit, financeand internal control. Before joining the Manager, he worked for JohnSwire & Sons (H.K.) Limited as the Deputy Head of Group Internal AuditDepartment and was the in-charge of the operational audit projects ofSwire Properties in both the PRC (Beijing, Shanghai and Guangzhou)and Hong Kong. He had 4 years full-time secondment in Shanghai,Guangzhou and Shenzhen. In addition, he also travelled extensively inthe PRC on audits, finance and tax related matters.


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Mr. Keith NG Man KeungHead of Capital Markets

Mr. Ng is responsible for capital management aspects of The Link REITincluding financing strategy, arrangement of borrowings, financial riskmanagement, cash management and insurance matters. He also assistsin investor relation matters. Mr. Ng joined the Manager in June 2009and has over 20 years of experience in corporate treasury, accounting,finance and banking. Prior to joining the Manager, Mr. Ng held a seniortreasury role in Hutchison Whampoa Properties Limited where heoversaw all treasury and cash management matters for about 50property investment projects in the PRC. Prior to that, he held varioussenior treasury and finance roles in the Hongkong Land Group, wherehe played an active finance role in its first property development projectin the PRC, Central Park Beijing.

Mr. Eric YAU Siu KeiGeneral Manager, Investment & Corporate Finance

Mr. Yau is one of the responsible officers of the Manager for thepurpose of the SFO. He is also responsible for identifying anddeveloping merger and acquisition initiatives for The Link REIT as wellas assisting in the formulation of corporate finance and developmentstrategies. Mr. Yau has over 14 years’ experience in investment bankingand business development in Hong Kong and the PRC, with particularfocus on real estate and utilities. Prior to joining The Link REIT, Mr. Yauworked as an investment banker at various financial institutionsincluding DBS Asia Capital, UBS Investment Bank and Jardine Fleming.He executed capital markets and advisory transactions for clients inGreater China, including the listing of two real estate investment trustsin Hong Kong, establishment of a private real estate fund with PRCassets, and disposal of real estate portfolios in the PRC. Mr. Yau alsoworked at the CLP Group where he played an active role in thedevelopment of corporate strategic initiatives and investments.

VI. Differences in Relevant Laws and Regulations between the PRC and HongKong and Certain Key Features of the PRC Taxation

Unitholders should note that the taxation and property laws in the PRC and inparticular, the laws relevant to the rights of foreign investors (which may apply toThe Link REIT) and the entities through which they may invest in the PRC aredifferent from those in Hong Kong. Unitholders should carefully read and considerthe overview of the relevant laws and regulations in the PRC and comparison ofcertain aspects of the PRC property laws with the laws of Hong Kong, as morefully described in Appendix III to this Circular. Also, for a summary of the PRCtaxation which may be relevant to The Link REIT should it invest in the PRC,please refer to Appendix IV to this Circular. Notwithstanding the informationprovided in Appendix III and Appendix IV, Unitholders should seek advice from


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their own professional adviser on the accuracy of description on the difference inlaws and regulations between the PRC and Hong Kong and on the PRC taxation,and assess any impact such difference and/or such PRC taxation has on theindividual circumstances as relevant to them.

VII. Risks Relating to Investments in the PRC Property Market

Investment into the PRC may involve, without limitation, the followingcharacteristics and risks in relation to the financial aspects and operationalmatters, which are more fully described in Appendix II to this Circular.

(a) RMB is not freely convertible. If The Link REIT invests in the PRC propertymarket, the revenue generated from those investments would likely be inRMB, which is subject to foreign exchange controls and is currently not freelyconvertible into foreign currencies.

(b) Fluctuations in the exchange rate of RMB may increase finance costs andhave a material adverse impact on the level of distributions to Unitholders.

(c) The Link REIT may engage in hedging transactions, which will limit gainsand increase exposure to losses, and not offer full protection against interestrate and exchange rate fluctuations.

(d) The ability of The Link REIT’s PRC-incorporated companies to declaredividends is limited by the availability of retained earnings, which may resultin trapped cash in the PRC.

(e) The Link REIT may be subject to extensive PRC regulatory controls onforeign investment in the real estate sector.

(f) The taxation and property laws and, in particular, the laws relevant to therights of foreign investors and the entities through which they may invest areoften unclear in the PRC. Furthermore, the PRC is geographically large anddivided into various provinces and municipalities and as such, different laws,rules, regulations and policies apply in different provinces and they may havedifferent and varying applications and interpretations in different parts of thePRC.

(g) The PRC property market is volatile and may experience oversupply andproperty price fluctuations. The central and local governments of the PRCadjust monetary and other economic policies from time to time to preventand curtail the overheating of the PRC and local economies, and suchadjustments may affect the property market in the PRC.

(h) The PRC government has the power to resume compulsorily any land in thePRC pursuant to the provisions of applicable legislation. If The Link REITacquires any PRC properties which are subsequently resumed by the PRC


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government, the level of compensation that may be paid to The Link REITpursuant to this basis of calculation may be less than the price which TheLink REIT would have paid for such properties.

To safeguard against and mitigate the risks associated with investment in thePRC property market, the Manager will pursue vigorous internal control and riskmanagement standards which call for:

� The setting and periodic review of The Link REIT’s PRC business strategy bythe Board to ensure that it is in accordance with the requirements of theapplicable laws, the REIT Code, and the Trust Deed and that it is in theinterests of the Unitholders as a whole.

� Overseeing the implementation of such strategy by the Finance andInvestment Committee of the Manager to ensure that a particular investmentopportunity fits the financial criteria (for example, the gearing ratio aspermitted under the REIT Code) and the initial investment criteria as set forthabove.

� Overseeing and monitoring of compliance issues (including connected partytransactions, if arising out of any PRC investment) and internal control andrisk management issues by the Audit Committee of the Manager, with thesupport of the internal audit function of the Manager.

� The Board, the Finance and Investment Committee and the Audit Committeeof the Manager are all chaired by independent non-executive Directors, andare entitled to advice and assistance from external professional advisers.

� Making of all investment decisions, the setting of capital expenditure andoperating budgets only at the corporate, and not PRC regional, level of theManager.

� Strict compliance by regional operations staff with the specific guidelines setby corporate level management and the various policy and procedures set bythe risk management function of the Manager on key operational areas suchas human resources, accounting and financial reporting, treasury and capitalmanagement, use and custody of chops that are capable of producing legallybinding effect on The Link REIT, insurance of assets, bank accountoperation, legal document custody and record keeping to ensure fullcompliance with applicable law, the requirements of the REIT Code, theTrust Deed and the Manager’s compliance manual.

� The establishment of written contingency procedures to aid in the earlydetection and management of certain contingency events identified by thehead of the Manager’s risk management function from time to time.


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� Updating of the compliance manual of the Manager to comply with therequirements of the Practice Note on Overseas Investments bySFC-authorised REITs.

VIII. Recommendation

The Board considers that the Expanded Geographical Investment Scope is in theinterests of The Link REIT and the Unitholders as a whole and accordinglyrecommends Unitholders to vote in favour of Special Resolution No. 1 to beproposed at the EGM.

The Trustee has no objection to the Manager taking the Expanded GeographicalInvestment Scope for Unitholders’ approval.

SECTION C. PROPOSED INVESTMENT SCOPE TRUST DEED AMENDMENTS

I. Investment Scope Trust Deed Amendments

To facilitate the acquisition and holding of properties by The Link REIT outsideHong Kong, in accordance with and subject to Unitholders’ approval of theExpanded Geographical Investment Scope, the Manager proposes the followingconsequential amendments to the Trust Deed:

(a) Investment Policy. The Manager proposes to amend Clause 12.2.2 of theTrust Deed to specify that the investment policy of the Manager shall includeinvesting in real estate for the long term, focusing on sustainable-incomeproducing properties with the potential for long-term income and capitalgrowth and maintaining a large and diversified portfolio of non-residentialreal estate including but not limited to, stand-alone assets andcomprehensive mixed-use (predominantly retail-based) developments inHong Kong and other overseas jurisdictions, but in all cases excluding hotelsand serviced apartments.

(b) Definition of “Manager Subsidiaries” and Consequential Amendments.The Manager proposes to insert a new definition of “Manager Subsidiaries”into Clause 1.1 of the Trust Deed to refer to the subsidiaries that are allowedto be established or acquired by the Manager under Clause 20.8.1A of theTrust Deed. Such subsidiaries may be set up or acquired by the Manager inthe future to manage The Link REIT’s investments in the PRC and/or otheroverseas jurisdictions. As it is the Manager’s duty to properly monitor andensure proper performance by the Manager Subsidiaries, the Manager shallbe responsible for appointing and removing the directors of the ManagerSubsidiaries subject to the oversight of the Trustee. Consequentialamendments are also proposed to be made throughout the Trust Deed,including but not limited to amendments which: (i) clarify that the currentdefinition of “Special Purpose Vehicle” does not include the Manager andManager Subsidiaries; and (ii) ensure certain provisions also apply toManager Subsidiaries where applicable, including without limitation, the


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Manager’s responsibility to monitor the actions of the directors of anyManager Subsidiary, and its power to remove the directors of such ManagerSubsidiary subject to the oversight of the Trustee.

(c) Cash held outside Hong Kong. The Manager proposes that Clause 19.1 ofthe Trust Deed be amended to allow Cash (as defined in the Trust Deed)constituting the Deposited Property (as defined in the Trust Deed), wherenecessary, or where such Cash is derived directly or indirectly from realestate outside Hong Kong, to be held in an account in the name of a SpecialPurpose Vehicle outside Hong Kong and operated by the Trustee or theManager (or Manager Subsidiary) provided that the Trustee shall exercisedue powers of oversight with regard to the same.

(d) Records and Accounts. The Manager proposes to amend Clause 10.1 ofthe Trust Deed to clarify that records and accounts for Special PurposeVehicles and Manager Subsidiaries incorporated or registered in jurisdictionsoutside Hong Kong may be maintained in currencies other than Hong KongDollars.

(e) Transactions in Currencies. The Manager proposes to amend Clause 10.2of the Trust Deed to clarify that the Manager may accept payments for Unitsand payments made out of The Link REIT (including distributions of income)in a currency other than Hong Kong Dollars.

(f) Profits of Special Purpose Vehicle. The Manager proposes to insert a newClause 13.7A into the Trust Deed to clarify that the amount of profits of aSpecial Purpose Vehicle which is available for distribution will be governedby applicable laws and regulations in the jurisdiction in which such SpecialPurpose Vehicle is incorporated or registered.

(g) Definition of Tax. The Manager proposes to amend the definition of “Tax” inClause 1.1 of the Trust Deed to clarify that the term encompasses Tax (asdefined in the Trust Deed) imposed in any jurisdiction.

(h) Additional Adjustment to the Calculation of Total Distributable Income.Clause 13.5 of the Trust Deed currently provides that the Total DistributableIncome (as defined in the Trust Deed) of The Link REIT for a financial year isthe amount calculated by the Manager as representing the consolidatedaudited profit after tax attributable to Unitholders of The Link REIT and itssubsidiaries for that financial year, as adjusted for accounting purposes toeliminate the effects of Adjustments (as having the meaning ascribed to itunder Clause 13.6 of the Trust Deed) which have been recorded in the profitand loss account for that financial year.

The Manager proposes to amend Clause 13.6 of the Trust Deed to expandthe meaning of Adjustments to include any adjustments in accordance withthe generally accepted accounting principles in Hong Kong which increasethe amount recorded under the generally accepted accounting principles in


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the jurisdiction of the Special Purpose Vehicle, on which the cash availablefor distribution is based. Based on and in sole reliance upon the informationand assurances provided by the Manager and the auditor of The Link REIT,and having regard to the minimum distribution entitlement expressed inparagraph 7.12 of the REIT Code, the Trustee’s duties under the REIT Codeand the Trustee’s fiduciary duties, the Trustee has no objection to theproposed amended definition of Adjustments.

(i) Remuneration of the Trustee. Clause 16.2 of the Trust Deed currentlyprovides that the remuneration of the Trustee shall be such amount as shallbe agreed by the Manager and the Trustee and, for real estate situated inHong Kong, shall not be less than such amount as shall be equal to 0.008per cent. per annum, and shall not be more than such amount as shall beequal to 0.02 per cent. per annum, of the value of such real estate of TheLink REIT, as determined in the latest annual valuation report produced bythe Approved Valuer (as defined in the Trust Deed).

As requested by the Trustee, the Manager proposes to amend theremuneration threshold stated in Clause 16.2 of the Trust Deed in respect ofreal estate situated outside Hong Kong, so that the amount of remunerationpayable to the Trustee in the case of real estate situated outside Hong Kongshall be such amount as shall be agreed by the Manager and the Trustee,being not less than 0.03 per cent. per annum, and not more than 0.06 percent. per annum, of the value of such real estate of The Link REIT, asdetermined in the latest annual valuation report produced by the ApprovedValuer. In addition, as requested by the Trustee, the Manager proposes thatClause 16.2 of the Trust Deed be amended to the effect that where theTrustee is required by the Manager to undertake duties of an exceptionalnature or otherwise outside the scope of the Trustee’s normal duties in theordinary and normal course of business of The Link REIT, the remunerationof the Trustee shall include such additional amount as shall be agreed by theManager and the Trustee (the “Trustee’s Additional Fees”), provided that,unless otherwise approved by the Unitholders by way of an ordinaryresolution: (i) the aggregate amount of the Trustee’s Additional Fees thatmay be charged by the Trustee in relation to each transaction to be enteredinto by The Link REIT shall not exceed 0.05 per cent. of (a) the acquisitionprice (in the case of an acquisition of any real estate whether directly orindirectly to be held by The Link REIT) or (b) the sale price (in the case of asale or disposal of any real estate whether directly or indirectly held by TheLink REIT); and (ii) the aggregate amount of the Trustee’s Additional Feesthat is not related to any specific transaction described in (i) above that maybe charged by the Trustee for each Financial Year (as defined in the TrustDeed) shall not exceed an amount equal to 20 per cent. of the Trustee’sremuneration for that Financial Year calculated by reference to the latestannual valuation report produced by the Approved Valuer.


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The Manager is of the view that the Investment Scope Trust Deed Amendmentsare fair and reasonable, will provide greater procedural and administrative clarityto administer the Expanded Geographical Investment Scope, and other thanamendments in relation to “Manager Subsidiaries” (which is a concept unique toThe Link REIT given its internalised management structure) and the investmentscope of The Link REIT, are in line with the practice of other SFC-authorisedREITs.

In relation to the remuneration of the Trustee, the Manager is of the view that thehigher fee range in respect of real estate outside Hong Kong is reasonable andreflects the additional administrative work which is required to be undertaken withrespect to real estate outside Hong Kong and is also in line with otherSFC-authorised REITs which invest in real estate outside Hong Kong.

II. Approvals Required

Clause 25.1 of the Trust Deed provides that, save for certain limited exceptionsas certified by the Trustee in writing, the Manager and the Trustee are onlyentitled to modify, alter or add to the provisions of the Trust Deed by asupplemental deed with the approval of the Unitholders by way of a SpecialResolution and, if so required, the prior approval of the SFC.

Accordingly, the Manager proposes to seek Unitholders’ approval of SpecialResolution No. 2 as set out in the EGM Notice approving the Investment ScopeTrust Deed Amendments. Such Special Resolution will be decided on a poll at theEGM pursuant to the Trust Deed.

III. Recommendation

The Board considers that the Investment Scope Trust Deed Amendments are inthe interests of The Link REIT and the Unitholders as a whole and accordinglyrecommends Unitholders to vote in favour of Special Resolution No. 2 to beproposed at the EGM.

The Trustee has no objection to the Manager taking the Investment Scope TrustDeed Amendments for Unitholder’s approval.

SECTION D. OTHER PROPOSED AMENDMENTS TO THE TRUST DEED

I. Voting by Show of Hands

Paragraph 8 of the First Schedule to the Trust Deed currently provides that aresolution put to a meeting of Unitholders shall be decided on a poll and the resultof the poll shall be deemed to be the resolution of the meeting.

To provide the chairman of a meeting of Unitholders with flexibility to cater for anyexceptional circumstances that may arise during a meeting of Unitholders, theManager proposes to amend paragraph 8 of the First Schedule to the Trust Deed


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such that the chairman of a meeting of Unitholders may, in good faith, decide toallow a resolution which relates purely to a procedural or administrative matter tobe decided by way of a show of hands. For such purposes, “procedural oradministrative matters” are those that: (i) are not on the agenda of the meeting orin any supplementary circular to Unitholders; and (ii) relate to the chairman’sduties to maintain the orderly conduct of the meeting and/or allow the business ofthe meeting to be properly and effectively dealt with, whilst allowing allUnitholders a reasonable opportunity to express their views. This is in line withthe provisions of the Listing Rules in relation to voting by a show of hands bylisted companies in Hong Kong.

The Manager has applied to the SFC for a waiver from strict compliance withparagraphs 2.16, 2.23 and 9.9(h) of the REIT Code so as to allow, where thechairman of a meeting of Unitholders can, when he considers it to be in goodfaith, decide to allow a resolution which relates purely to the above-mentionedprocedural or administrative matters to be decided by a show of hands. Suchwaiver is expected to be conditional upon: (a) due approval by Unitholders ofSpecial Resolution No. 6 (as set out in the EGM Notice) at the EGM; and (b) theresolutions to be determined by a show of hands are only in respect of the“procedural or administrative matters” referred to in (i) and (ii) in the precedingparagraph.

II. Authorised Investments

As set out in the Trust Deed, The Link REIT is only allowed to invest in AuthorisedInvestments (as defined in the Trust Deed) which includes, without limitation,shares in the issued share capital of any Special Purpose Vehicle.

In line with market practice, the Manager proposes to amend and expand thedefinition of “Authorised Investments” to include: (i) real estate related assets; (ii)loans to any Special Purpose Vehicle and any goodwill and other intangibleassets acquired in relation to the acquisition of a Special Purpose Vehicle; (iii)any other assets or investments as permitted by the REIT Code from time to time;and (iv) investments in relation to arrangements for the purposes of enhancing thereturn on, or reducing the risks associated with, the Authorised Investments (or inrespect of The Link REIT generally), including investments in the form ofderivatives instruments for hedging purposes. A new definition of “Real EstateRelated Assets” is also proposed to be introduced into Clause 1.1 of the TrustDeed in connection with the above proposed amendments.

Further, pursuant to the REIT Code, a REIT may acquire uncompleted units in abuilding which is unoccupied and non-income producing or in the course ofsubstantial development, redevelopment or refurbishment, provided that theaggregate contract value of such real estate shall not exceed 10% of the total netasset value of the REIT at the time of acquisition. Accordingly, the Managerproposes to: (i) insert a new Clause 12.2.2A into the Trust Deed to clarify that TheLink REIT may undertake such activities, subject to the same limitations stated inthe REIT Code, or any such waiver from compliance with the REIT Code and/or


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such other approval as may from time to time be granted by the SFC; and (ii)expand the definition of “Authorised Investments” to additionally include anyimprovement or extension of or addition to or reconstruction or renovation or otherdevelopment of any real estate.

In light of the amendments to the definition of “Authorised Investments”,consequential changes have also been made to Clause 9.1 of the Trust Deed tospecify how the additional categories of Authorised Investments are to be valued.

III. Issue of Units and/or Convertible Instruments to Connected Person andOther Matters Relating to Issue of Units

(a) Amendments to facilitate Placing and Top-up Subscription Transactions

In line with market practice, the Manager proposes to amend Clause 8.1.4Bof the Trust Deed to introduce additional circumstances where Units and/orConvertible Instruments (as defined in the Trust Deed) can be issued,granted or offered to a Connected Person, without requiring the Manager toobtain Unitholders’ approval. Such circumstances arise when: (i) Units and/orConvertible Instruments are issued to a Connected Person within 14 daysafter such Connected Person has executed an agreement to reduce itsholding in the same class of Units and/or Convertible Instruments by placingsuch Units and/or Convertible Instruments to or with any person(s) who is/are not such Connected Person’s associate(s) (other than any ExcludedAssociate); (ii) the new Units and/or Convertible Instruments are issued at aprice not less than the placing price (which may be adjusted for the expensesof the placing); and (iii) the number of Units and/or Convertible Instrumentsissued to the Connected Person must not exceed the number of Units and/orConvertible Instruments placed by it, provided that: (a) an announcement isissued in accordance with paragraphs 10.3 and 10.4(k) of the REIT Codecontaining details of the placing and top-up subscription of Units and/orConvertible Instruments by the Connected Person; and (b) issuance of suchUnits and/or Convertible Instruments is sufficiently covered under the generalmandate permitted under Clause 8.1.4A of the Trust Deed and no specificUnitholders’ approval would otherwise have to be sought.

The Manager is of the view that such a provision is in line with thecorresponding practice in relation to placing and top-up subscriptiontransactions adopted by listed companies in Hong Kong under the ListingRules; and the limited scope under which it may operate affords sufficientprotection to the Unitholders. As a result of the proposed amendment toClause 8.1.4B of the Trust Deed, the Manager also proposes to include thenew definition of “Excluded Associate” in Clause 1.1 of the Trust Deed.

The Manager has applied to the SFC for a waiver from strict compliance withparagraph 6.2, Chapter 8, paragraph 10.7(b)(iv) and paragraph 12.2 of theREIT Code so as to allow the Manager to issue, grant or offer new Unitsand/or Convertible Instruments to a Connected Person, without the need for


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compliance with any reporting, announcement, disclosure or unitholders’approval requirements under Chapter 8, paragraph 10.7(b)(iv) and/orparagraph 12.2 of the REIT Code, or any valuation requirement underparagraph 6.2 of the REIT Code, in the circumstances where the issuancecomplies with the terms of the proposed revisions to Clause 8.1.4B of theTrust Deed above. The Manager shall, notwithstanding such waiver, issueannouncement(s) at the relevant time(s) in relation to a placing and top-upsubscription transaction pursuant to paragraph 10.4 of the REIT Code.

(b) Pricing of New Units

Currently, the Issue Price (as defined in the Trust Deed) of new Units issuedby the Manager is determined in accordance with Clause 8.2 of the TrustDeed. Clause 8.2.2 of the Trust Deed sets the pricing basis of new Units byreference to the “Market Price”, as determined in accordance with Clause8.2.2A of the Trust Deed. Although Unitholders may approve an issue of newUnits at a discount greater than 20% to the Market Price, there is nodiscretion for Unitholders to approve an issuance of new Units on a differentpricing basis.

In line with the practice of other SFC-authorised REITs, the Managerproposes to amend Clause 8.2.2 of the Trust Deed so as to allow theManager to issue, or agree to be issued, new Units at a discount of 20 percent. or more to the Market Price, subject to an ordinary resolution dulyapproved by Unitholders, and in accordance with the pricing basis asauthorised in such ordinary resolution. Such amendment will give theManager greater flexibility in determining the pricing of such new Units toaccommodate commercial needs.

(c) Offer of Units pursuant to Rights Issue

In line with market practice, the Manager proposes to insert a new Clause8.2.4 into the Trust Deed so as to provide the Manager with the discretionnot to extend an offer of Units pursuant to a rights issue to those Unitholderswith a registered address outside Hong Kong provided that the directors ofthe Manager consider such exclusion to be necessary or expedient onaccount either of the legal restrictions under the laws of the relevant place orthe requirements of the relevant regulatory body or stock exchange in thatplace. In such event, the rights or entitlement to the Units of such Unitholderswith a registered address outside Hong Kong will be offered for sale by theManager as the nominee and authorised agent of each such relevantUnitholder and at such price as the Manager may determine, and theManager will comply with all relevant provisions of the Listing Rules (as ifapplicable to The Link REIT), to the extent not inconsistent with all applicablerules and guidance issued by the SFC. Where necessary, the Trustee shallhave the discretion to impose such other terms and conditions in connectionwith such sale. The net proceeds of any such sale, if successful, afterpayment of the costs of sale, will be paid to the relevant Unitholders.


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In line with market practice, the Manager also proposes to insert a newClause 8.1.4C into the Trust Deed to clarify that an offer of Units and/orConvertible Instruments shall be considered and deemed to be made on apro rata basis notwithstanding certain situations, including but not limited to:(a) where the Manager exercises its discretion pursuant to Clause 8.2.4 ofthe Trust Deed above and/or (b) where and to the extent that Unitholders donot accept any offer of Units and/or Convertible Instruments within theapplicable period for acceptance (as determined by the Manager), such Unitsand/or Convertible Instruments may be offered or made available to, andtaken up by, other persons as determined by the Manager, subject tocompliance with all applicable laws, the REIT Code and the Listing Rules (asif applicable to The Link REIT). In respect of (b), in accordance with therelevant Listing Rules (as if applicable to The Link REIT), the Manager mustmake arrangements to: (i) dispose of the Units and/or ConvertibleInstruments not subscribed by allottees under provisional letters of allotmentor their renouncees by means of excess application forms, in which casesuch Units and/or Convertible Instruments must be available for subscriptionby all Unitholders and allocated on a fair basis; or (ii) dispose of Units and/orConvertible Instruments not subscribed by allottees under provisional lettersof allotment in the market, if possible, for the benefit of the persons to whomthey were offered by way of rights issue.

Further, in line with market practice, the Manager proposes to amend theTrust Deed so as to: (i) ensure that Clause 8.1.4 of the Trust Deed applies toConvertible Instruments as well as Units; and (ii) clarify that the threshold interms of number of Units that may be issued, other than on a pro rata basisto all existing Unitholders, without the approval of the Unitholders, shall beproportionally adjusted in the event of a consolidation, sub-division orre-designation of Units.

IV. Manager May Request Trustee to and the Manager itself May Borrow orRaise Money

In line with market practice, the Manager proposes to amend Clauses 12.10.1 and12.10.2 of the Trust Deed so as to: (i) allow borrowings when the Managerconsiders it beneficial to The Link REIT including for the purposes of payingdistributions to Unitholders (under the current provisions, such borrowings areonly allowed where they are considered necessary); (ii) clarify that suchborrowings may be effected through a borrowing by a Special Purpose Vehicle;(iii) clarify that the Trustee may guarantee such borrowings if instructed; (iv)whenever the Manager considers it necessary or beneficial to The Link REIT andsubject to compliance with all applicable laws and regulations including the REITCode, allow the Manager to secure the repayment of such moneys and interestcosts and other charges and expenses and accord such priority or subordinationin such a manner and upon such terms and conditions in all respects as it maythink fit and in particular by charging or mortgaging all or any of the Investments(as defined in The Trust Deed) provided that such security interests granted bythe Trustee shall not contain any restriction on the payment of distributions prior


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to any default under the borrowing in respect of the obligations secured by thesecurity; and (v) make consistent the Trustee’s borrowing and the Manager’sborrowing provisions.

The Manager also proposes to make an amendment to Clause 12.10.4 of theTrust Deed so as to clarify that the Manager may also invest in any AuthorisedInvestments for efficient portfolio management purposes subject to compliancewith the requirements under the REIT Code in order to enhance the performanceof The Link REIT.

V. Other Miscellaneous Amendments

(a) Liability in respect of Distribution of Entitlement

The Manager proposes to amend Clause 13.11.2 of the Trust Deed so as toclarify that the Manager shall deduct from each Unitholder’s DistributionEntitlement (as defined in the Trust Deed) all amounts which, amongstothers, are required to be deducted by law or by the Trust Deed, providedthat neither the Manager nor the Trustee shall be liable to account to anyUnitholder for any such payment made or suffered by the Manager or theTrustee (as the case may be) in good faith and in the absence of fraud,negligence, wilful default, a breach of the Trust Deed or a breach of trust (inthe case of the Trustee) notwithstanding that any such payments ought notto be, or need not have been, made or suffered.

(b) Timing of Despatch of Circular

As set out in the Trust Deed, the Manager is required to serve on theUnitholders a circular convening an extraordinary general meeting within 21Business Days of the announcement in relation to the termination or themerger of The Link REIT. The Manager proposes to amend Clauses 23.2and 24.2 of the Trust Deed so that the circular will be served within 21 days(instead of 21 Business Days) of the announcement. The Manager alsoproposes to amend Clause 31.5 of the Trust Deed to clarify that Unitholdersare informed of the voting results of any general meeting by way of anannouncement. Also, in view of the current practice of the unit registrar ofThe Link REIT, the Manager proposes to amend paragraph 4 of the FirstSchedule to the Trust Deed such that the Unitholders on which notice of anextraordinary general meeting is served are Unitholders on such latestpracticable date before the notice is sent as reasonably and practicablydetermined by the unit registrar of The Link REIT.

(c) Maximum Number of Proxies

Currently, the Trust Deed does not set out the maximum number of proxieswhich may be appointed by a Unitholder. For meeting administrativereasons, the Manager proposes to insert a new paragraph 11A into the FirstSchedule to the Trust Deed such that a Unitholder may have the right to


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appoint separate proxies to represent respectively such number of the Unitsheld by him as may be specified in his instrument(s) of proxy, provided thatthe number of proxies so appointed to attend on the same occasion shall notexceed two. For the avoidance of doubt, the new paragraph 11A furtherclarifies that where a Unitholder is a recognised clearing house within themeaning of the SFO, it may authorise such person or persons as it thinks fitto act as its representative (or representatives) at any meeting of Unitholdersprovided that, if more than one person is so authorised, the authorisationmust specify the number of Units each such person is so authorised.

(d) REIT Code/waiver and the Trust Deed

To enhance the clarity of the Trust Deed and to be in line with the practice ofother SFC-authorised REITs, the Manager proposes to amend Clause 27 ofthe Trust Deed such that the Manager and the Trustee shall (in theperformance of their respective duties under the Trust Deed) at all timescomply with applicable provisions of the REIT Code, subject to compliancewith any applicable waivers or exemptions given by the SFC in respect of theREIT Code. The amended Clause 27 shall also state that in the event of anyconflict or inconsistency between the provisions of the REIT Code and anysuch waivers or exemptions, and the provisions of the Trust Deed, then tothe extent of such conflict or inconsistency, the provisions of the REIT Codeand any such waivers or exemptions shall prevail.

(e) Other Minor Drafting Amendments

To enhance the clarity and consistency of the Trust Deed, the Managerproposes to: (i) amend the definition of “Holder” in Clause 1.1 of the TrustDeed; (ii) insert a customary definition of “Law” into Clause 1.1 of the TrustDeed; and (iii) amend Clause 31.3.6 of the Trust Deed so as to clarify that acircular in respect of changing of the level of fees and charges of The LinkREIT is only required if such alteration requires the approval of Unitholdersor is otherwise required under paragraph 10.6 of the REIT Code.

VI. Approvals Required

Reference is made to section C. II above for approval requirements foramendments to the Trust Deed.

Accordingly, the Manager proposes to seek Unitholders’ approval of each of theproposed Special Resolutions Nos. 3, 4, 5, 6 and 7 as set out in the EGM Noticeapproving, respectively, the above categories of the Other Trust DeedAmendments. Each of such Special Resolutions will be decided on a poll at theEGM pursuant to the Trust Deed.


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VII. Recommendation

The Board considers that each of the above categories of the Other Trust DeedAmendments is in the interests of The Link REIT and the Unitholders as a wholeand accordingly recommends Unitholders to vote in favour of each of the SpecialResolutions Nos. 3 to 7 to be proposed at the EGM.

The Trustee has no objection to the Other Trust Deed Amendments proposed bythe Manager and subject to Unitholders’ and the SFC’s prior approval, asupplemental deed will be entered into between the Manager and the Trustee toeffect the Other Trust Deed Amendments.

SECTION E. EXTRAORDINARY GENERAL MEETING

The EGM will be held at Salon 5 and 6, JW Marriott Ballroom, Level 3, JW MarriottHotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong on Tuesday, 18 February2014 at 10:00 a.m. for the purposes of considering and, if thought fit, passing with orwithout modifications, the Special Resolutions set out in the EGM Notice, which is setout on pages N-1 to N-5 of this Circular.

For the purpose of ascertaining Unitholders’ right to attend the EGM, the register ofUnitholders will be closed from Thursday, 13 February 2014 to Tuesday, 18 February2014, both days inclusive, during which period no transfer of Units will be registered. Inorder to be eligible to attend and vote at the EGM, all transfer documents accompaniedby the relevant unit certificates must be lodged with the unit registrar of The Link REIT,Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre,183 Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:30 p.m.on Wednesday, 12 February 2014.

With respect to each of the Special Resolutions to be proposed at the EGM, anyUnitholder who has a material interest in such resolution and that interest is differentfrom that of all other Unitholders, shall abstain from voting in respect of suchresolution. As at the date of this Circular, to the best of the Manager’s knowledge,information and belief, after having made resonable enquiries, the Manager takes theview that no Unitholder is required to abstain from voting on any of the SpecialResolutions to be proposed at the EGM in respect of the Matters Requiring Approval.

The voting on all the proposed Special Resolutions at the EGM will be taken by poll.

SECTION F. RESPONSIBILITY STATEMENT

The Manager and the Directors, collectively and individually, accept full responsibilityfor the accuracy of the information given in this Circular and confirm, having made allreasonable enquiries that, to the best of their knowledge and belief, there are no otherfacts the omission of which would make any statement in this Circular misleading.


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SECTION G. MISCELLANEOUS

A copy of the Trust Deed is available for inspection at the registered office of theManager at all times from 9:00 a.m. to 5:00 p.m. on Business Days in accordance withthe provisions of the Trust Deed. A copy of the proposed draft form of thesupplemental deed to effect the Investment Scope Trust Deed Amendments and theOther Trust Deed Amendments will be available for inspection at the registered officeof the Manager from 9:00 a.m. to 5:00 p.m. on Business Days from the date of thisCircular up to and including the date of the EGM.

Yours faithfully,By order of the board of directors ofThe Link Management Limited

(as manager of The Link Real Estate Investment Trust)Nicholas Robert SALLNOW-SMITH

Chairman


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The Manager proposes to seek Unitholders’ approval to make the amendments to theTrust Deed of which the full text or extract of the relevant clauses are reproduced inthis Appendix I, with the proposed insertions and deletions indicated by, respectively,the underlined text and the strike-through text below. All capitalised terms under Part Ato Part F of this Appendix I are terms defined in the Trust Deed and have thecorresponding meanings ascribed to them in the Trust Deed.

Where one or more Special Resolution(s) is not approved by the Unitholders,consequential amendments may be made to the provisions below if required (forexample, if the introduction of a defined term is not approved by the Unitholders in oneSpecial Resolution, but is used in the context of another Special Resolution that isapproved by Unitholders):

PART A. EXPANSION OF THE GEOGRAPHICAL SCOPE OF THE LINK REIT’SINVESTMENT STRATEGY

(Please refer to Special Resolution No. 2)

1. The definition of “Auditors” in Clause 1.1 of the Trust Deed be amended asfollows:

““Auditors” means the accountant or accountants for the time being appointed asauditors of the Trust by the Manager, and where the context permits or requires,include such auditor of each Manager Subsidiary or Special Purpose Vehicle;”

2. The definition of “Incentive Scheme” in Clause 1.1 of the Trust Deed be amendedas follows:

““Incentive Scheme” means any scheme which may be adopted by the Managerfrom time to time pursuant to Clause 8.1.6 for the purpose of providing equity orequity-linked incentives to certain management, executives and/or employees ofthe Manager or its subsidiary(ies)any Manager Subsidiary(ies) or any SpecialPurpose Vehicle (provided that such Special Purpose Vehicle is wholly-owned bythe Trustee) or to other specified participants, whether such incentives are in theform of options over Units or otherwise;”

3. The definition of “Liabilities” in Clause 1.1 of the Trust Deed be amended asfollows:

““Liabilities” means all the liabilities of the Trust whether incurred directly by theTrustee or by the Manager or its subsidiary(ies)a Manager Subsidiary or indirectlythrough a Special Purpose Vehicle (including, in each case, liabilities accrued butnot yet paid) determined by the Trustee or the Manager in consultation with theAuditors and any provision which the Trustee or the Manager decides inconsultation with the Auditors should be taken into account in determining theliabilities of the Trust;”

APPENDIX I TRUST DEED AMENDMENTS

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4. A new definition of “Manager Subsidiaries” be inserted in alphabetical order underClause 1.1 of the Trust Deed as follows:

““Manager Subsidiaries” shall have the meaning ascribed to it in Clause 20.8.1Aand, individually a “Manager Subsidiary”;”

5. The definition of “Special Purpose Vehicle” in Clause 1.1 of the Trust Deed beamended as follows:

““Special Purpose Vehicle” shall mean a special purpose vehicle that is ownedand controlled by the Trust in accordance with the REIT Code which for theavoidance of doubt, shall not include the Manager or the Manager Subsidiaries;”

6. The definition of “Tax” in Clause 1.1 of the Trust Deed be amended as follows:

““Tax” means any profits tax, property tax, income tax and any other taxes, duties,levies, imposts, deductions and charges and any interest, penalties or finesimposed in connection with any of them in any jurisdiction;”

7. Clause 10.1 of the Trust Deed be amended as follows:

“10.1 The Trust and its records and accounts shall be maintained in HongKong Dollars, unless and until the Manager and the Trustee agree thatsuch currency is not suitable because it is not in the interests of theHolders and decide that another currency shall be used. For theavoidance of doubt, records and accounts for Special Purpose Vehiclesand Manager Subsidiaries incorporated or registered in jurisdictionsoutside Hong Kong may be maintained in other currencies.”


“10.2 So long as the Trust and its records and accounts are maintained inHong Kong Dollars, payments for Units and payments out of the Trustwill be made in Hong Kong Dollars provided that the Manager mayaccept payments for Units and payments may be made out of the Trust(including distributions of income) in a currency other than Hong KongDollars and in such event, the equivalent amount in Hong Kong Dollarsof any sum paid in such other currency shall be calculated at such rate(whether official or otherwise) which the Manager shall deemappropriate in the circumstances having regard to any premium ordiscount which may be relevant and to the cost of exchange.”


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“12.1 Subject to the provisions of Clause 13, Clause 19.1 and Clause20.8.1A, all Cash and other Investments which ought in accordance withthe provisions of this Deed to form part of the Deposited Property shallbe paid or transferred to the Trustee or any Special Purpose Vehicleforthwith upon receipt by the Manager or the Manager Subsidiaries ...”

10. Clause 12.2.2 of the Trust Deed be amended as follows:

“12.2.2 The Manager, on behalf of the Trust, directly or indirectly throughSpecial Purpose Vehicles, may only invest in Real Estate and otherAuthorised Investments. Such Real Estate shall be generallyincome-producing. The investment policy of the Trust shall bedetermined by the Manager in its absolute discretion and shall includeinvesting in Real Estate for the long term, focusing on sustainableincome producing properties with the potential for long term income andcapital growth and maintaining a large and diversified portfolio ofnon-residential Real Estate including but not limited to, stand-aloneassets, and comprehensive mixed-use (predominantly retail-based)developments in Hong Kong and other overseas jurisdictions, but in allcases excluding hotels and serviced apartments.”


“12.4.3 The Manager shall have responsibility for the management of, and shallmanage (either directly or through the Manager Subsidiaries), theassets held by any such Special Purpose Vehicle, including as providedin Clause 12.4.4 and the Trustee shall, in accordance with theManager’s written instructions, exercise its powers of control asshareholder as provided in Clause 12.4.5. The Manager shall direct theTrustee to appoint and remove the directors of any Special PurposeVehicle and the Trustee, subject in all cases to Clause 19.2.1, shall onlyact in accordance with such instruction. The Trustee shall exercise itsrights as a shareholder of any Special Purpose Vehicle as directed bythe Manager. The reasonable costs and expenses of establishing,managing and maintaining and administering such any ManagerSubsidiary or Special Purpose Vehicle, whether incurred by theManager or by the Trustee shall be paid from the Deposited Property.”


“12.4.5 Notwithstanding any other provisions in this Deed, the Trustee shall,directly or indirectly, only upon written instruction by the Manager butsubject in all cases to Clause 19.2.1 exercise any rights as ashareholder to control such Special Purpose Vehicle (including, withoutlimitation, the obligation to provide powers of attorneys or proxies asprovided in Clause 15.1, the obligation to appoint directors of such


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Special Purpose Vehicle to the extent it is entitled to appoint suchdirectors and to ensure that the auditor and accounting principles andpolicies of any Special Purpose Vehicle are identical to those of theTrust). The Manager shall insofar as possible monitor the actions of thedirectors of any Manager Subsidiary and Special Purpose Vehicle and,where such actions are not consistent with the provisions of this Deedshall direct the Trustee to remove the directors (or any of them) of theSpecial Purpose Vehicle.”


“13.6 For the purposes of this Clause 13, “Adjustments” means the effectsof: (i) unrealised property revaluation gains, including reversals ofimpairment provisions; (ii) negative goodwill (credited); (iii) realisedgains on the disposal of properties; (iv) fair value gains on financialinstruments; (v) deferred tax charges/credits in respect of propertyrevaluation movements; and (vi) other material non-cash gains, in eachcase as recorded in the profit and loss account for the relevant FinancialYear; and (vii) any adjustments in accordance with the generallyaccepted accounting principles in Hong Kong which increase theamount recorded under the generally accepted accounting principles inthe jurisdiction of the Special Purpose Vehicle, on which the cashavailable for distribution is based.”

14. A new Clause 13.7A be inserted immediately after Clause 13.7 of the Trust Deedas follows:

“13.7A The amount of profits of a Special Purpose Vehicle which is availablefor distribution will be governed by applicable Laws and regulations inthe jurisdiction in which such Special Purpose Vehicle is incorporated orregistered.”


“16.1 Upon the authorisation of the Trust by the SFC pursuant to Section 104of the Securities and Futures Ordinance, the Manager shall be entitledto receive out of the Deposited Property the reimbursement of its costsand expenses reasonably incurred by the Manager (or delegate of theManager or the Manager Subsidiaries) in managing the Trust subject toa minimum of HK$15 million per calendar month (or such other amountas may be agreed between the Trustee and the Manager) payable inadvance on the first day of the relevant calendar month with theremaining balance (if any) payable within 7 calendar days of the accrualof such costs and expenses subject always to the condition that anyexcess of the remuneration paid to the Manager over the costs andexpenses actually incurred by the Manager (or delegate of the Manageror the Manager Subsidiaries) in any Financial Year (or part thereof inrespect of a broken period) shall be included in the Trust’s consolidated


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profit and loss accounts for the purposes of calculating TotalDistributable Income. The remuneration of the Manager for a brokenperiod shall be pro-rated on a time basis.”

16. Clause 16.1A of the Trust Deed be amended as follows:

“16.1A The costs and expenses reasonably incurred by the Manager (ordelegate of the Manager or the Manager Subsidiaries) in managing theTrust which the Manager shall be entitled to be reimbursed underClause 16.1 include the expenses incurred by the Manager (or delegateof the Manager or the Manager Subsidiaries) in relation to any IncentiveScheme including but not limited to any and all costs associated withthe issue of new Units pursuant to such Incentive Scheme.”

17. Clause 16.2 of the Trust Deed be deleted in its entirety and be substitutedtherefor the following as the new Clause 16.2:

“16.2 Remuneration of Trustee

Upon the authorisation of the Trust by the SFC pursuant to Section 104of the Securities and Futures Ordinance, the Trustee shall be entitled toreceive for its own account out of the Deposited Property, within 30days of the last day of every calendar month, the amount of theremuneration of the Trustee accrued to it and remaining unpaid. Theremuneration of the Trustee shall be such amount as shall be agreed bythe Manager and the Trustee and (a) (in the case of Real Estatesituated in Hong Kong) shall not be less than such amount as shall beequal to 0.008 per cent. per annum, and shall not be more than suchamount as shall be equal to 0.02 per cent. per annum; and (b) (in thecase of Real Estate situated outside Hong Kong) shall not be less thansuch amount as shall be equal to 0.03 per cent. per annum, and shallnot be more than such amount as shall be equal to 0.06 per cent. perannum, in each case of the Property Values of the relevant Real Estateas determined in the latest annual valuation report produced by theApproved Valuer. The remuneration of the Trustee shall be calculatedmonthly and shall be subject to a minimum amount of HK$150,000 permonth (or such other lower amount as may be agreed between theTrustee and the Manager) and shall be payable out of the DepositedProperty monthly in arrear. The remuneration payable to the Trustee fora broken period shall be pro-rated on a time basis. In the event that theManager and the Trustee agree to increase the remuneration of theTrustee by increasing such minimum percentage rate, such increasemay only take effect upon the expiry of not less than three months’notice to Holders. Any increase in the maximum percentage rate or anychange to the structure of the Trustee’s fee (other than the Trustee’sAdditional Fees as described below) may only be permitted by SpecialResolution at a Holders’ meeting convened in accordance with the FirstSchedule. Where the Trustee is required by the Manager to undertake


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duties of an exceptional nature or otherwise outside the scope of theTrustee’s normal duties in the ordinary and normal course of businessof the Trust, the Trustee is entitled to receive out of the DepositedProperty such additional amount as shall be agreed with the Managerfrom time to time (the “Trustee’s Additional Fees”), provided that,unless otherwise approved by the Holders by way of an OrdinaryResolution:

(i) the aggregate amount of the Trustee’s Additional Fees that may becharged by the Trustee in relation to each transaction to be enteredinto by the Trust shall not exceed 0.05 per cent. of: (a) theacquisition price (in the case of an acquisition of any Real Estatewhether directly or indirectly to be held by the Trust); or (b) the saleprice (in the case of a sale or disposal of any Real Estate whetherdirectly or indirectly held by the Trust); and

(ii) the aggregate amount of the Trustee’s Additional Fees that is notrelated to any specific transaction described in (i) above that maybe charged by the Trustee for each Financial Year shall not exceedan amount equal to 20 per cent. of the Trustee’s remuneration forthat Financial Year, calculated by reference to the latest annualvaluation report produced by the Approved Valuer, pursuant toClause 16.2(a) and (b).”


“19.1 The Trustee shall be responsible for the safe custody of the DepositedProperty held by it directly or of the Real Estate held through anySpecial Purpose Vehicle. Any Authorised Investments forming part ofthe Deposited Property shall be paid or transferred to, or to the order of,the Trustee or a Special Purpose Vehicle forthwith on receipt by theManager and be dealt with as the Trustee may think proper for thepurpose of providing for the safe custody thereof. For the avoidance ofdoubt, Cash constituting the Deposited Property may, where necessaryor where such Cash is derived directly or indirectly from Real Estateoutside Hong Kong, be held in an account in the name of a SpecialPurpose Vehicle outside Hong Kong and operated by the Trustee, orwith the approval of the Trustee, operated by the Manager (or ManagerSubsidiary), with due powers of oversight by the Trustee, and suchsafeguards, to ensure compliance with its obligations under the REITCode, and on such terms including indemnities, as may be required bythe Trustee. The Trustee may act as custodian...”


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“19.8 The Trustee shall have no liability for any act or omission of theManager, the Registrar, any Approved Valuer, any Manager Subsidiaryor any Special Purpose Vehicle or any directors of the foregoing.”


“20.2.4 maintain or cause to be maintained proper books and accounts andrecords of the Trust (including the books and accounts and records ofthe Manager and as well as of all Manager Subsidiaries, SpecialPurpose Vehicles and joint ownership arrangements) in Hong Kong inwhich shall be entered all transactions effected by the Manger Managerfor the account of the Trust and shall permit the Trustee from time totime on demand to examine and take copies of or extracts from anysuch books...”

21. Clause 20.8.1A of the Trust Deed be amended as follows:

“20.8.1A establish or otherwise acquire subsidiaries in or outside Hong Kong(collectively, the “Manager Subsidiaries”) for the limited purpose ofexercising such powers, discretions and carrying out such duties andobligations of the Manager under this Deed as the Manager maydetermine from time to time subject to compliance with all applicableLaws and regulations including the REIT Code which, for the avoidanceof doubt, shall not include holding Deposited Property; provided that theManager shall be liable for all acts or omissions of any suchsubsidiaryManager Subsidiary as if such acts or omissions were its ownacts or omissions, and shall be solely responsible for appointment orremoval of directors of the Manager Subsidiaries (and for the avoidanceof doubt, where such Manager Subsidiaries are not wholly-owned by theManager, appointment or removal of directors which the Manager isentitled to nominate) subject to the oversight of the Trustee theremuneration, costs and expenses of such subsidiary. For theavoidance of doubt, notwithstanding anything contrary in this Deed, anysubsidiary Manager Subsidiary referred to in this Clause 20.8.1A maybe held directly or indirectly by the Manager.;”


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“21.1.1 ... On retirement, the Trustee shall vest the Deposited Property in thenew trustee, and give the new trustee all books, documents, recordsand any other property held by or on behalf of the Trustee relating to theTrust (other than all books, documents, records and other property heldby the Manager, the Manager Subsidiaries and the Special PurposeVehicles if any).”

23. Clause 28 of the Trust Deed be amended as follows:

“28 The provisions set out in the Third Schedule relating to Holders anddirectors, senior and chief executives or officers of the Manager and theSpecial Purpose Vehicles shall have effect as if the same were includedherein.”


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PART B. AUTHORISED INVESTMENTS AND RELATED ACTIVITIES


1. The definition of “Authorised Investments” under Clause 1.1 of the Trust Deed beamended as follows:

““Authorised Investments” means:

(i) Real Estate as permitted under the REIT Code;

(ii) any improvement or extension of or addition to or reconstruction orrenovation or other development of any Real Estate;

(iii) Real Estate Related Assets;

(ii) (iv) Cash and Cash Equivalent Items;

(iii) (v) shares in the issued share capital of the Manager and all ManagerSubsidiariesits subsidiary(ies); and

(iv) (vi) shares in the issued share capital of, and loans to, any Special PurposeVehicle and any goodwill and other intangible assets acquired in relationto the acquisition of Special Purpose Vehicles any Special PurposeVehicle established or to be established by the Manager pursuant toClause 12.4,;

(vii) any other assets or investments as permitted by the REIT Code fromtime to time; and

(viii) investments in relation to arrangements for the purposes of enhancingthe return on, or reducing the risks associated with, the AuthorisedInvestments contemplated by paragraphs (i), (ii), (iii), (iv), (v), (vi) and(vii) of this definition, or of other Investments, or in respect of the Trustgenerally, including investments in the form of derivative instruments forhedging purposes,

in each case whether held by the Trustee directly or indirectly through a SpecialPurpose Vehicle pursuant to this Deed provided that there shall be nocrossholdings between: (a) the Manager and the Manager Subsidiaries; and (b)any Special Purpose Vehicle;”


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2. A new definition of “Real Estate Related Assets” be inserted in alphabetical orderunder Clause 1.1 of the Trust Deed, as follows:

““Real Estate Related Assets” means assets incidental to the ownership of RealEstate, including without limitation, furniture, carpets, furnishings, machinery andplant and equipment installed or used or to be installed or used in or inassociation with any Real Estate;”


“9.1 The Manager shall ensure that the Value of an Authorised Investment atany given date means:

...

9.1.3 (in the case of Investments falling within any paragraph of thedefinition of “Authorised Investment” which are in the nature ofshares in the issued share capital of the Manager and itssubsidiary(ies) the Manager Subsidiaries (if any)) afterconsultation with the Trustee, such Investments shall bevalued in accordance with the most recent audited financialstatements of the Manager (on a consolidated basis, whereapplicable); and

9.1.4 ...,;

9.1.5 (in the case of Investments falling within any paragraph of thedefinition of “Authorised Investment” which is in the nature ofa derivative instrument), the Value of such an Investment shallbe determined by the Manager, and shall be calculated asfollows:

(i) all calculations of investments quoted, listed, traded ordealt on any stock exchange, commodities exchange,futures exchange or over-the-counter market shall bemade by reference to the last traded price on theprincipal stock exchange for such investments as at theclose of business in such place on the day as of whichsuch calculation is to be made; and

(ii) where there is no stock exchange, commoditiesexchange, futures exchange or over-the-counter market,all calculations based on the value of investments quotedby any person, firm or institution making a market in suchinvestments (and if there is more than one such marketmaker, then such market maker as the Manager shalldesignate) shall be conducted in accordance with theprevailing generally accepted accounting principles inHong Kong; and


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9.1.6 (in the case of Investments falling within any paragraph of thedefinition of “Authorised Investment” which is not in the natureof a particular piece of Real Estate or subject to Clauses 9.1.2to 9.1.5) in accordance with the generally acceptedaccounting principles as promulgated by the Hong KongInstitute of Certified Public Accountants as are applicable inthe relevant Financial Year,

...”

4. A new Clause 12.2.2A be inserted immediately after Clause 12.2.2 of the TrustDeed as follows:

“12.2.2A The Manager may acquire Real Estate in the form of uncompleted unitsin or portions of a building which is unoccupied and non-incomeproducing or in the course of substantial development, redevelopmentor refurbishment, provided that the aggregate contract value of suchReal Estate shall not exceed 10% of the total Net Asset Value of theDeposited Property (or such other limit as provided in the REIT Code) atthe time of acquisition.”


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PART C. ISSUE OF UNITS AND/OR CONVERTIBLE INSTRUMENTS TO ACONNECTED PERSON AND OTHER MATTERS RELATING TO ISSUEOF UNITS


1. A new definition of “Excluded Associate” be inserted in alphabetical order underClause 1.1 of the Trust Deed as follows:

““Excluded Associate” means any person or entity who/which is an associate ofthe relevant Connected Person solely by virtue of the operation of paragraphs (b),(c), and/or (k) (in the case of paragraph (k), other than a related corporationcovered under paragraph (a) of the definition of “related corporation” in Schedule1 to the Securities and Futures Ordinance) of the definition of “associate” inSchedule 1 to the Securities and Futures Ordinance;”


“8.1.4 After the Listing Date, nNew Units and/or Convertible Instruments maybe offered on a pro rata basis to all existing Holders without the priorapproval of Holders other than where any such issue increases themarket capitalisation of the Trust by more than 50 per cent. in whichcase such issue shall require the prior approval of Holders by OrdinaryResolution at a meeting to be convened by the Manager in accordancewith the First Schedule.”


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3. Clause 8.1.4A of the Trust Deed be amended as follows:

“8.1.4A (i) Subject to Clause 8.1.4B, Units may be issued, or agreed(conditionally or unconditionally) to be issued, in any FinancialYear (whether directly or pursuant to any Convertible Instruments),otherwise than on a pro rata basis to all existing Holders, withoutthe approval of Holders, if:

(a) ...

PLUS

(b) ...

does not increase the number of Units that were outstanding at theend of the previous Financial Year by more than 20 per cent. (orsuch other percentage of outstanding Units as may, from time totime, be prescribed by the SFC) provided that such threshold interms of number of Units shall in the event of any consolidation orsub-division or re-designation of Units during that Financial Yearbe proportionally adjusted to give effect to such consolidation,sub-division or re-designation of Units....

(iii) For the purposes of thisthese Clauses 8.1.4A, 8.1.4B and 8.1.4Cand Clauses 8.2.2 and 8.2.2A:

...”

4. Clause 8.1.4B of the Trust Deed be amended as follows:

“8.1.4B Except pursuant to the Initial Public Offering or any Incentive Scheme,or a rights issue or as otherwise stated in Clause 17, an issue, grant oroffer of new Units or Convertible Instruments to a Connected Person(other than as part of an offer made to all Holders on a pro rata basis oran offer made pursuant to a reinvestment of distributions in accordancewith Clause 8.5) shall require specific prior approval of Holders byOrdinary Resolution at a meeting to be convened by the Manager inaccordance with the First Schedule., unless:

(i) Units and/or Convertible Instruments are issued to a ConnectedPerson within 14 days after such Connected Person has executed anagreement to reduce its holding in the same class of Units and/orConvertible Instruments by placing such Units and/or ConvertibleInstruments to or with any person(s) who is/are not such ConnectedPerson’s associate(s) (other than any Excluded Associate);


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(ii) the new Units and/or Convertible Instruments are issued at a pricenot less than the placing price to be determined in accordance withClause 8.2.2 of this Deed (which may be adjusted for the expensesof the placing); and

(iii) the number of Units and/or Convertible Instruments issued to theConnected Person must not exceed the number of Units and/orConvertible Instruments placed by such Connected Person,

provided that:

(a) an announcement shall be issued in accordance with paragraphs10.3 and 10.4(k) of the REIT Code containing details of the placingand top-up subscription of Units and/or Convertible Instruments bythe Connected Person; and

(b) issuance of such Units and/or Convertible Instruments issufficiently covered under the general mandate permitted underClause 8.1.4A of this Deed and no specific Holders’ approval wouldotherwise have to be sought.”

5. A new Clause 8.1.4C be inserted immediately after Clause 8.1.4B of the TrustDeed as follows:

“8.1.4C An offer of Units and/or Convertible Instruments shall be considered anddeemed to be made on a pro rata basis notwithstanding that (i) theManager may, after making due enquiry regarding the Law of theapplicable jurisdiction, determine that Units and/or ConvertibleInstruments are not to be offered to Holders with a registered addressoutside Hong Kong, and/or offer the Units and/or ConvertibleInstruments on a basis, or contain such other terms, providing for anysuch other exclusions or adjustments determined by the Manager, if theManager considers such exclusions or adjustments to be necessary orexpedient in relation to fractional entitlements or having regard to anyrestrictions or obligations under the Laws, or under the requirements ofany recognised regulatory body or stock exchange, of any territory orjurisdiction outside Hong Kong; and/or (ii) where and to the extent thatHolders do not accept any offer of Units and/or Convertible Instrumentswithin the applicable period for acceptance (as determined by theManager), such Units and/or Convertible Instruments may be offered ormade available to, and taken up by, other persons as determined by theManager, subject to compliance with all applicable Laws, the REIT Codeand the Listing Rules (as if applicable to the Trust).”


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“8.2.2 After the Listing Date, and for so long as the Units are admitted fortrading on the SEHK, the Manager may, subject to Clauses 8.1.4,8.1.4A and 8.2.1, effect or agree to effect the issue of Units on behalf ofthe Trust (whether directly, or pursuant to any Convertible Instruments(as defined in Clause 8.1.4A(iii))) on any Business Day at an Issue Priceper Unit that is equal to the Market Price (as defined in Clause 8.2.2A)or, in its discretion, at a discount of no more than 20 per cent. to theMarket Price (other than (i) a rights issue; (ii) a placing of Units for cashconsideration where the Manager can satisfy the SFC that the Trust isin a serious financial position and that the only way it can be saved is byan urgent rescue operation which involves an issue of Units at adiscount of more than 20 per cent. to the Market Price or there are otherexceptional circumstances; and (iii) a capitalisation issue) or at apremium to the Market Price or, where approval by way of an OrdinaryResolution is obtained as set out below in this Clause 8.2.2, on thepricing basis as authorised in such Ordinary Resolution. For theavoidance of doubt, the Issue Price shall, in the case of any ConvertibleInstruments, mean the initial price per Unit at which Units are to beissued pursuant to the exercise of any conversion, exchange orsubscription or similar rights under such Convertible Instruments, beforeany adjustments which may apply thereunder (the “Initial Issue Price”).An issue of, or agreement (whether conditional or unconditional) toissue, new Units at an Issue Price or Initial Issue Price (as the case maybe) that is at a discount of more than 20 per cent. or more to the MarketPrice (other than in situations (i), (ii) and (iii) of this Clause 8.2.2specified above) will require specific prior approval of Holders byOrdinary Resolution at a meeting to be convened by the Manager inaccordance with the First Schedule, and such approval may be subjectto such conditions as the Holders may approve, including withoutlimitation stating the basis of pricing, or authorising the Manager todetermine the pricing basis on such terms as are authorised under thatOrdinary Resolution.”

7. A new Clause 8.2.4 be inserted immediately after Clause 8.2.3 of the Trust Deedas follows:

“8.2.4 In relation to any rights issue, the Manager may, in its discretion, electnot to extend the rights issue to those Holders with a registered addressoutside Hong Kong provided that the directors of the Manager considersuch exclusion to be necessary or expedient on account either of thelegal restrictions under the Laws of the relevant place or therequirements of the relevant regulatory body or stock exchange in thatplace. In such event, the rights or entitlement to the Units of suchHolders with a registered address outside Hong Kong will be offered forsale by the Manager as the nominee and authorised agent of each suchrelevant Holder and at such price as the Manager may determine, and


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the Manager shall comply with the relevant provisions of the ListingRules (as if applicable to the Trust), to the extent not inconsistent withall applicable rules and guidance issued by the SFC. Where necessary,the Trustee shall have the discretion to impose such other terms andconditions in connection with such sale. The net proceeds of any suchsale, if successful, after payment of the costs of sale, will be paid to therelevant Holders.”


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PART D. MANAGER MAY REQUEST TRUSTEE TO, AND THE MANAGER ITSELFMAY, BORROW OR RAISE MONEY


1. Clause 12.10.1 (Trustee’s borrowing) of the Trust Deed be amended as follows:

“12.10.1 Subject to Clause 12.10.3 and compliance with all applicable Laws andregulations including the REIT Code, the Manager may, whenever it theManager considers it necessary or beneficial to the Trust (including forthe purposes of paying distributions to Unitholders) that moneys beborrowed or raised for the purposes of the Trust,: (a) instruct theTrustee in writing to guarantee or borrow or raise moneys on behalf ofthe Trust by the Trustee either directly or through Special PurposeVehicles (upon such terms and conditions as the Manager thinks fit andin particular by charging or mortgaging all or any of the Investments);and/or (b) secure the repayment of such moneys and interest costs andother charges and expenses and accord such priority or subordinationfor the payment obligations in such manner and upon such terms andconditions in all respects as the Manager may think fit and in particularby charging or mortgaging all or any of the Investments. Thethe Trusteeshall give effect to such written instruction, provided that the Trusteeshall not execute any guarantee, instrument, lien, charge, pledge,hypothecation, mortgage or agreement in respect of the borrowing orraising of moneys which (in the opinion of the Trustee) would render theTrustee’s liability to exceed the Deposited Property and that suchsecurity interests granted by the Trustee shall not contain any restrictionon the payment of distributions prior to any default under the borrowingin respect of the obligations secured by the security.”

2. Clause 12.10.2 (Manager’s borrowing) of the Trust Deed be amended as follows:

“12.10.2 Subject to Clause 12.10.3 and compliance with all applicable Laws andregulations including the REIT Code, the Manager may, whenever ittheManager considers it necessary or beneficial to the Trust (including forthe purposes of paying distributions to Unitholders) and desirable in theinterests of Holders to do so or considers it necessary to enable theTrust to meet any liabilities as aforesaid,: (a) raise or borrow any sum orsums of money on behalf of the Trust either directly or through SpecialPurpose Vehicles (upon such terms and conditions as the Managerthinks fit); (including, without limitation, the issue of securities in respectof any borrowing or any liability and the encumbering of any Investment)for the Trust and/or may(b) secure the repayment of such moneys andinterest costs and other charges and expenses and accord such priorityor subordination for the payment obligations in such manner and uponsuch terms and conditions in all respects as the Manager may think fitand in particular by charging or mortgaging all or any of the Investmentsprovided that such security interests granted by the Trustee shall not


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contain any restriction on the payment of distributions prior to anydefault under the borrowing in respect of the obligations secured by thesecurity.”


“12.10.4 ...In order to enhance the performance of the Trust, the Manager mayinvest in Cash Equivalent Items or other Authorised Investments forefficient portfolio management purposes and to ensure that any Cashheld by the Trust is managed efficiently in the best interests ofUnitholders...”


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PART E. VOTING BY SHOW OF HANDS


1. Paragraph 8 of the First Schedule to the Trust Deed be amended as follows:

“8 At any general meeting of Holders, a resolution put to the meeting shallbe decided on a poll (except where the chairman, in good faith, decidesto allow a resolution which relates purely to a procedural oradministrative matter to be decided by a show of hands) and the resultof the poll (or a show of hands in the circumstances above) shall bedeemed to be the resolution of the meeting. For the purposes of thisparagraph 8, “procedural or administrative matters” are those that: (a)are not on the agenda of the general meeting or in any supplementarycircular to Holders; and (b) relate to the chairman’s duties to maintainthe orderly conduct of the meeting and/or allow the business of themeeting to be properly and effectively dealt with, whilst allowing allHolders a reasonable opportunity to express their views.”

PART F. OTHER MISCELLANEOUS AMENDMENTS


1. Liability in respect of Distribution Entitlement

(a) Clause 13.11.2 of the Trust Deed be amended as follows:

“13.11.2 The Manager shall deduct from each Holder’s Distribution Entitlementall amounts which:

(i) are necessary to avoid distributing a fraction of a cent;

(ii) are required to be deducted by lawLaw or this Deed, provided thatneither the Manager nor the Trustee shall be liable to account toany Holder for any such payment made or suffered by the Manageror the Trustee (as the case may be) in good faith and in theabsence of fraud, negligence, wilful default, a breach of this Deedor a breach of trust (in the case of the Trustee) to any dulyempowered fiscal authority of Hong Kong or elsewhere for Taxesor other charges in any way arising out of or relating to anytransaction or whatsoever nature under this Deed notwithstandingthat any such payments ought not to be, or need not have been,made or suffered; or

(iii) are payable by the Holder in respect of the Trust, to the Trustee orthe Manager.”


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2. Timing of Despatch of Circular

(a) Clause 23.2 of the Trust Deed be amended as follows:

“23.2 The Manager shall serve on the Holders, within 21 Business Ddays ofthe announcement referred to in Clause 23.1, a circular convening anextraordinary general meeting containing the following information...”

(b) Clause 24.2 of the Trust Deed be amended as follows:

“24.2 The Manager shall serve on the Holders within 21 Business Ddays ofthe announcement referred to in Clause 24.1, a circular convening anextraordinary general meeting containing the following information...”

(c) Clause 31.5 of the Trust Deed be amended as follows:

“31.5 ... Holders shall be informed of the results of any Holders’ voting at suchgeneral meeting by way of a notice or an announcement.”

(d) Paragraph 4 of the First Schedule to the Trust Deed be amended as follows:

“... In this paragraph 4, “Holders” means the persons who were Holders on thedate seven days such latest practicable date before the notice under thisparagraph 34 was sent as reasonably determined by the Registrar, but excludingany persons who are known not to be Holders at the time of the meeting or at anyother relevant time...”

3. Maximum Number of Proxies

(a) New paragraph 11A be inserted into the First Schedule to the Trust Deed asfollows:

“11A Any Holder’s right to appoint a proxy shall include the right to appointseparate proxies to represent respectively such number of Units held byhim/her/it as may be specified in his/her/its instrument(s) of proxy butthe number of proxies so appointed by any Holder to attend on thesame occasion shall not exceed two. Without prejudice and in additionto the foregoing, where a Holder is a recognised clearing house withinthe meaning of the Securities and Futures Ordinance, it may authorisesuch person or persons as it thinks fit to act as its representative (orrepresentatives) at any meeting of Unitholders provided that, if morethan one person is so authorised, the authorisation must specify thenumber of Units each such person is so authorised. The person soauthorised will be entitled to exercise the same powers on behalf of therecognised clearing house as that clearing house (or its nominees)could exercise if it were a Holder.”


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4. REIT Code/waiver and the Trust Deed

(a) Clause 27 of the Trust Deed be amended as follows:

“In the event that the Trust is authorised by the SFC pursuant to Section 104 ofthe Securities and Futures Ordinance, the Manager and the Trustee shall (in theperformance of their respective duties under this Deed with respect to the Trust)at all times comply with applicable provisions of the REIT Code as if the samewere set out in this Deed and in so far as such provisions respectively relate tothem, subject to compliance with any applicable waivers or exemptions given bythe SFC in respect of the REIT Code. In the event of any conflict or inconsistencybetween the provisions of the REIT Code and any such waivers or exemptions,and the provisions of this Deed in relation to the Trust, then to the extent of suchconflict or inconsistency, the provisions of the REIT Code and any such waiversor exemptions shall prevail. In the event that the Units are listed on the SEHK, theManager shall at all times comply with applicable provisions of the Listing Rules(as if applicable to the Trust).”

5. Other Minor Drafting Amendments

(a) The definition of “Holder” under Clause 1.1 of the Trust Deed be amended asfollows:

““Holder” or “Unitholder” means the person for the time being entered on theRegister as the holder of a Unit and (where the context so permits) persons jointlyso entered;”

(b) A new definition of “Law” be inserted in alphabetical order under Clause 1.1 of theTrust Deed as follows:

““Law” means any law, statute, ordinance, code, rule, regulation, judgement,decree, order, writ, award, injunction or determination of any authority (whetherwith the force of law or not), including the REIT Code and any conditions imposedby the SFC on the authorisation of the Trust and the licence of the Manager underthe Securities and Futures Ordinance;”


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(c) Clause 31.3.6 of the Trust Deed be amended as follows:

“31.3 The Manager shall issue a circular to Holders in respect of transactionsthat pursuant to the REIT Code (or in the reasonable opinion of theTrustee or the Manager), require Holders’ approval, including, withoutlimitation:

...

31.3.6 changing the level of fees and charges of the Trust only ifsuch alteration requires the approval of Holders or isotherwise required under paragraph 10.6 of the REIT Code;”


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Investment into the PRC may involve, without limitation, the following characteristicsand risks in relation to the financial aspects and operational matters. Unitholdersshould consider carefully, together with all other information contained in thisCircular, the risk factors described below before deciding to vote on the MattersRequiring Approval.

(a) RMB is not freely convertible

If The Link REIT invests in the PRC property market, the revenue generated fromthose investments would likely be in RMB, which is subject to foreign exchangecontrols and is currently not freely convertible into foreign currencies.

The State Administration of Foreign Exchange of the PRC (the “SAFE”), under theauthority of the People’s Bank of China (the “PBOC”), is empowered with thefunctions of administering all matters relating to foreign exchange, including theenforcement of foreign exchange control regulations. Transactions involvingconversion between foreign currencies and RMB are subject to significant foreignexchange controls and the approval of the SAFE. The PRC government continuesto regulate conversion between RMB and foreign currencies, including Hong KongDollars, despite the significant reduction over the years by the PRC government incontrolling routine foreign exchange transactions on the current account. There isno assurance that the current policies regarding conversion of RMB into foreigncurrencies will not be subject to tighter controls or restrictions in the future. In thisregard, in the event that The Link REIT invests in the PRC property market, anychanges to the foreign exchange regulations of the PRC may result in foreignexchange losses to The Link REIT and subsequently reduce the distributionpayable to Unitholders.

In addition, there is no assurance that the PRC government will continue togradually liberalise the level of control over cross-border remittances in the futureor that new PRC regulations which have the effect of restricting the remittanceinto or out of the PRC will not be promulgated. The Link REIT’s results ofoperations and the amount distributable to Unitholders would be adverselyaffected by any changes to the foreign exchange and cross-border remittanceregulations in the PRC if it invests in the PRC property market.

(b) Fluctuations in the exchange rate of RMB

The Link REIT may be subject to exchange rate risk if it invests in the PRCproperty market in the future. The income and profit of The Link REIT from itsassets in the PRC are to be denominated in RMB. The value of RMB againstforeign currencies fluctuates and is affected by changes in the PRC andinternational political and economic conditions and by many other factors.Fluctuations in the exchange rate of RMB against foreign currencies maytherefore increase finance costs and have a material adverse impact on the levelof distributions to Unitholders.

APPENDIX II PRC RISK FACTORS

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(c) The Link REIT may engage in hedging transactions, which can limit gainsand increase exposure to losses, and not offer full protection againstinterest rate and exchange rate fluctuations

In the event that the Manager decides to invest in the PRC property market, TheLink REIT may enter into hedging transactions to protect itself from the effects ofinterest rate fluctuations on floating rate debt and exchange rate fluctuations.Hedging transactions may include entering into hedging instruments, purchasingor selling futures contracts, purchasing put and call options or entering intoforward agreements. However, hedging activities may not always have thedesired beneficial effect on the results of operations or financial condition of TheLink REIT. No hedging activity can completely insulate The Link REIT from risksassociated with changes in interest rates and exchange rates. Moreover, hedgingcould fail to protect or adversely affect The Link REIT because, among otherthings:

� the available hedging may not correspond directly with the risk for whichprotection is sought;

� the duration or nominal amount of the hedge may not match the duration ornominal amount of the related liability;

� the party owing money in the hedging transaction may default on itsobligation to pay;

� the credit quality of the party owing money on the hedge may be downgradedto such an extent that it impairs the ability of The Link REIT to sell or assignits side of the hedging transaction; and

� the value of the derivatives used for hedging may be adjusted from time totime in accordance with accounting rules to reflect changes in fair value.Downward adjustments and the significant loss in value of hedginginstruments due to a write down to fair value would reduce the net assetvalue of The Link REIT.

Hedging involves risks and typically involves costs, including transaction costs,which may reduce overall returns. These costs increase as the period covered bythe hedging increases and during periods of rising and volatile interest rates.These costs will also limit the amount of cash available for distributions toUnitholders.

(d) The ability of The Link REIT’s PRC-incorporated companies to declaredividends is limited by the availability of retained earnings, which may resultin trapped cash in the PRC

Under PRC law, a PRC enterprise is only permitted to declare and repatriatedividends on earnings after tax and deducting mandated reserves. Thesereserves, if set aside discretionally by the board of directors of a Sino-foreign joint


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venture or mandatorily by law, cannot be repatriated even if an enterprise has nolosses or likely prospect of losses or these reserves are not needed for theirprescribed purpose. Additionally, dividends may only be paid from earnings aftertax and after taking into account depreciation expense, which is a non-cashcharge. These reserves and depreciation expense potentially create a significantpool of trapped cash that cannot be used to pay dividends. If there are not enoughretained earnings for these reserves, the amount of dividends that can bedeclared by The Link REIT’s PRC-incorporated companies will be limited, therebypotentially reducing the amount of cash that can be used for distribution toUnitholders.

(e) The Link REIT may be subject to extensive PRC regulatory controls onforeign investment in the real estate sector

Pursuant to the Circular on Strengthening Administration of Approval and Filing ofForeign Investment in Real Estate Industry（關於加強外商投資房地產業審批備案管理的通知）, real estate enterprises funded by foreign capital are not permitted to seekprofit by purchasing and reselling real estate property in the PRC that is eithercompleted or under construction. The regulation is believed to be aimed atcontrolling inflow of foreign capital by curtailing the practice of reselling propertiesfor profit adopted by some foreign investors.

The promulgation of the regulation is an indication that the PRC government hasbeen imposing stricter policies on foreign investment in the real estate industry.There can be no assurance that the PRC government will not deem anytransaction of real estate property or any transfer of equity interest in real estatecompanies as making profit through transaction of real estate. There is also noassurance that the PRC government will not implement additional restrictions onforeign investment in the real estate industry and sale and purchase of real estateproperty by foreign investors. Such measures may adversely affect The LinkREIT’s future investments in the PRC as it may experience difficulty in remittingprofits generated from the onshore property companies or residual income fromliquidation of the onshore property companies to overseas.

In addition, in accordance with the laws and regulations of the PRC, any onshoreproperty companies to be established by The Link REIT for the purposes ofholding the PRC properties are required to obtain and maintain valid variouslicenses, permits, or satisfy filing requirements in order to commence and operatetheir business including, without limitation, certificate of approval, businesslicense, property management qualification certificate, and filing with the Ministryof Commerce of the PRC as a foreign invested real estate company. Theseonshore property companies are required to comply with applicable laws,regulations and standards and are subject to regular and random inspections forcompliance by the relevant PRC authorities. Failure to pass these inspections, orthe loss of or failure to obtain or renew any licenses and permits, could disrupt theoperations and business of these onshore property companies and the business,financial condition and results of operations of The Link REIT could also bematerially and adversely affected.


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(f) Uncertainties in the PRC legal system

The taxation and real estate laws and in particular, the laws relevant to the rightsof foreign investors and the entities through which they may invest are oftenunclear in the PRC.

The PRC legal system is based on written statutes and prior court decisions canonly be cited as reference. Since 1979, the PRC government has promulgatedlaws and regulations in relation to economic matters such as foreign investment,corporate organisation and governance, commerce, taxation and trade, with aview to developing a comprehensive system of commercial law. However, asthese laws and regulations are continually evolving in response to changingeconomic and other conditions, and because of the limited volume of publishedcases and their non-binding nature, any particular interpretation of PRC laws andregulations may not be definitive. The PRC may not accord equivalent rights (orprotection for such rights) to those rights investors might expect in countries withmore sophisticated real estate laws and regulations.

Furthermore, the PRC is geographically large and divided into various provincesand municipalities and as such, different laws, rules, regulations and policiesapply in different provinces and they may have different and varying applicationsand interpretations in different parts of the PRC. Legislation or regulations,particularly for local applications, may be enacted without proper prior notice orannouncement to the public. Accordingly, the Manager may not be aware of theexistence of new legislation or regulations if The Link REIT invests in the PRCproperty market in the future.

There is at present also no integrated system in the PRC from which informationcan be obtained in respect of legal actions, arbitrations or administrative actions.Even if an individual court-by-court search were performed, each court mayrefuse to make the documentation which it holds available for inspection.Accordingly, there is a risk that the PRC entities being acquired by The Link REITin the future may be subject to proceedings which may not have been disclosed.Agreements which are governed under PRC laws may be more difficult to enforceby legal or arbitral proceedings in the PRC than in countries with more maturelegal systems. Even if the agreements generally provide for arbitral proceedingsfor disputes arising out of the agreements to be in another jurisdiction, it may bedifficult for The Link REIT to obtain effective enforcement in the PRC of an arbitralaward obtained in that jurisdiction.

(g) The PRC property market is volatile

The PRC property market is volatile and may experience oversupply and propertyprice fluctuations. The central and local governments adjust monetary and othereconomic policies from time to time to prevent and curtail the overheating of thePRC and local economies, and such adjustments may affect the property marketin the PRC. The central and local governments also make policy adjustments andadopt new regulatory measures from time to time in a direct effort to control the


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over-development of the property market in the PRC. Such policies may lead tochanges in market conditions, including price instability and imbalance of supplyand demand. There is also no assurance that the PRC property sector in thefuture will not be over-developed. Any future over-development in the propertysector in the PRC may result in an oversupply of properties, including commercialproperties, and a fall of property prices as well as rental rates. All these wouldaffect the business and financial conditions and the results of operations of TheLink REIT if the Manager decides to invest in the PRC property market.

(h) Properties in the PRC may be resumed compulsorily

The PRC government has the power to resume compulsorily any land in the PRCpursuant to the provisions of applicable legislation. In the event of any compulsoryresumption of property in the PRC, the amount of compensation to be awarded isbased on the open market value of a property and is assessed on the basisprescribed in the relevant law. If The Link REIT acquires any PRC propertieswhich are subsequently resumed by the PRC government, the level ofcompensation that may be paid to The Link REIT pursuant to this basis ofcalculation may be less than the price which The Link REIT would have paid forsuch properties.


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Investors should note that the following statements are based on advice received bythe Manager regarding the relevant laws, regulations and practice in the PRC inforce as at the date of this Circular and may be subject to change.

REGULATIONS OF FOREIGN INVESTMENT INTO THE REAL ESTATE MARKET

On 11 July 2006, the PBOC, SAFE and other authorities jointly promulgated theOpinions on Regulating the Access to and Administration of Foreign Investment in theReal Estate Market（關於規範房地產市場外資准入和管理的意見）, which states that: (i) anoverseas entity or individual investing in real estate in China other than for self-use,shall apply for the establishment of a foreign invested real estate enterprise inaccordance with applicable PRC laws and shall only conduct operations within theauthorised business scope after obtaining the relevant approvals from and registeringwith the relevant governmental authorities; (ii) the registered capital of a foreigninvested real estate enterprise with a total investment of US$10 million or more shallnot be less than 50% of its total investment amount, whereas for foreign invested realestate enterprise with a total investment of less than US$10 million, the current ruleson registered capital shall apply; (iii) a newly established foreign invested real estateenterprise will first obtain an approval certificate and business license which are validfor one year. The formal approval certificate and business license can be obtained bysubmitting the land use right certificate to the relevant government departments afterthe land grant premium for the land has been paid; (iv) an equity transfer of a foreigninvested real estate enterprise or the transfer of its projects, as well as the acquisitionof a domestic real estate enterprise by foreign investors, must first be approved by theMinistry of Commerce or its local counterparty. The investor shall submit a letter ofguarantee to the Ministry of Commerce or its local counterparty confirming that it willabide with the land grant contract, the construction land planning permit and theconstruction works planning permit. In addition, the investor shall also submit the landuse right certificate, the evidence of alteration filing by construction authorities andevidence from the tax authorities confirming the tax payment situation; (v) foreigninvestors acquiring a domestic real estate enterprise through an equity transfer,acquiring the Chinese investors’ equity interest in an equity joint venture or throughany other methods shall pay the purchase funds in a lump sum and with its own capitaland shall ensure the proper treatment for enterprise’s employees and bank loans inaccordance with applicable PRC laws; (vi) if the registered capital of a foreign investedreal estate enterprise is not fully paid up, its land use right certificate has not beenobtained or the capital-fund in respect of the development project is less than 35% ofthe total investment amount of the project, the foreign invested real estate enterprise isprohibited from borrowing from any domestic or foreign lenders and SAFE shall notapprove the settlement of any foreign loans; (vii) neither the domestic investors nor theforeign investors in a foreign invested real estate enterprise shall in any mannerstipulate a fixed return clause or equivalent clause in contract, articles of association,equity transfer agreement or in any other documents; (viii) a branch or representativeoffice established by a foreign investor in China (other than a foreign invested realestate enterprise approved to be established), or a foreign individual working orstudying in the PRC for more than one year, is permitted to purchase commodity

APPENDIX III OVERVIEW OF THE RELEVANT LAWS AND REGULATIONSIN THE PRC AND COMPARISON OF CERTAIN ASPECTS OF

THE PRC PROPERTY LAWS WITH THE LAWS OF HONG KONG

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residential properties located in the PRC only for the purpose of self residence.Residents of Hong Kong, Macau and Taiwan and overseas Chinese may purchasecommodity residential properties of a stipulated floor area based on their livingrequirements in the PRC for self-residence purpose.

On 23 May 2007, the Ministry of Commerce and SAFE jointly issued the Notice of theMinistry of Commerce and the State Administration of Foreign Exchange on FurtherStrengthening and Regulating the Examination, Approval and Supervision of ForeignDirect Investment in Real Estate Industry（商務部、國家外匯管理局關於進一步加強、規範外商直接投資房地產業審批和監管的通知）, which requires all locally-approved foreign investedreal estate enterprises to be filed with the Ministry of Commerce for recordal. Nocapital injection or conversion of injected capital into RMB may take place before thisrecordal procedure is completed. The Ministry of Commerce has been publishing thenames of the foreign invested real estate enterprises that have completed the recordalprocedures on its website.

On 12 October 2011, the Ministry of Commerce issued the Notice of the Ministry ofCommerce on Issues concerning Cross-border Direct Investment in RMB（商務部關於跨境人民幣直接投資有關問題的通知）, under which, if a foreign investor intends to makeinvestment in the PRC real estate market with its RMB proceeds through settlement ofcross-border trades, profits or other returns from investments in the PRC or obtainedlawfully through other means outside the PRC, it shall be subject to the sameregulations that govern the approval and recordal of foreign invested real estateenterprises. However, the relevant provincial commerce authority shall report anyinvestment of RMB300 million or more to the Ministry of Commerce for its consent.Only with the consent of the Ministry of Commerce may the provincial commerceauthority process with the relevant approval procedures for such investment.

On 26 February 2013, the General Office of the State Council issued the Circular ofthe General Office of the State Council on Continuing the Regulation of Real EstateMarket (Guo Ban Fa [2013] No.17)（《國務院辦公廳關於繼續做好房地產市場調控工作的通知》國辦發[2013]17號）, requiring certain related cities to fine-tune the existing housepurchase restrictions on the basis of strict compliance with the Circular of the GeneralOffice of the State Council on Issues Concerning Further Property Regulating andControlling the Real Estate Market (Guo Ban Fa [2011] No. 1)（《國務院辦公廳關於進一步做好房地產市場調控工作有關問題的通知》國辦發[2011]1號）, which includes, among others: (i)if a city is subject to purchase restrictions, the restrictions shall apply to alladministrative regions of such city, and the types of houses subject to purchaserestrictions shall include all newly-constructed commodity housing（商品住房） andsecond-hand housing. The house purchase eligibility shall be examined before theconclusion of a house purchase contract (or a letter of intent). A family without localhousehold registration（戶口） that already owns one or more houses, or a familywithout local household registration that is unable to provide proofs for a certainnumber of consecutive years of local tax payment or social insurance contribution, isnot eligible for purchasing more houses in a city where there are purchase restrictions;(ii) with regard to cities with soaring housing prices, the local branches of the PBOC



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may further raise the percentage of the minimum down payment (which shall not belower than 60 per cent.) and the interest rates on loans for second houses (which shallnot be lower than 1.1 times of the benchmark interest rate), according to policyrequirements and the price control targets determined by the local governments fornewly-constructed commodity housing（商品住房）; and (iii) tax authorities shall levyindividual income tax on the sales of houses at 20 per cent. of the transfer gain in strictaccordance with the law if the original value of the houses sold can be verified throughhistorical information, such as information from tax collection and administration andhouse registration.

THE LAND AND PROPERTY SYSTEM OF THE PRC

The Land System

All land in the PRC (also the “State”) is either state-owned or collectively-owned,depending on the location of the land. All land in the urban areas is state-owned, andall land in the rural or suburban areas including land for houses and private plots infields and on hillsides are, unless otherwise prescribed by the state,collectively-owned. The State has the right to expropriate or take over land inaccordance with law if required for the benefit of the public. Although all land in thePRC is owned by the State or by collectives, private individuals, enterprises and otherorganisations are permitted to hold and develop land for which they are granted orallocated land use rights. Furthermore, those who obtain the State-owned land userights by means of grant（出讓）or assignment（轉讓）can lease the aforementionedland use rights to a third party. In April 1988, the Constitution of the PRC (the“Constitution”) was amended by the PRC National People’s Congress to allow for thetransfer of land use rights for value. In December 1988, the Land Administration Law（中華人民共和國土地管理法）of the PRC was amended to permit the transfer of land userights for value. Under the Provisional Regulations of the PRC Concerning the Grantand Assignment of the Right to Use State-owned Land in Urban Areas（中華人民共和國城鎮國有土地使用權出讓和轉讓暫行條例）(the “Urban Land Regulations”) promulgated inMay 1990, local governments at or above county level have the power to grant landuse rights for specific purposes and for a definite period to a land user pursuant to acontract for the grant of land use rights upon payment of a land grant premium. Underthe Urban Land Regulations, there are different maximum periods of grant for differentuses of land. They are generally as follows:

Use of land

Maximumperiod

(in years)

Commercial, tourism, entertainment 40Residential 70Industrial 50Education, scientific, cultural, public health and sports 50Comprehensive utilisation or Others 50



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Under the Urban Land Regulations, all local and foreign enterprises are permitted toacquire land use rights unless the law provides otherwise. The State may notexpropriate possession of lawfully granted land use rights prior to expiration of theterm of grant. If public interest requires the expropriation of possession by the Stateunder special circumstances during the term of grant, compensation must be paid bythe State. A land user may lawfully assign, mortgage or lease its land use rights to athird party, and such assignment, mortgage or lease will not extend the remainder ofthe term of grant.

Upon expiration of the term of grant, renewal is possible subject to the execution of anew contract for the grant of land use rights and payment of a premium. If the term ofthe grant is not renewed, the land use rights and ownership of any buildings thereonwill revert to the State without compensation.

The National People’s Congress adopted the PRC Property Law (the “Property Law”)（中華人民共和國物權法） in March 2007, which became effective on 1 October 2007.According to the Property Law, when the term of the right to use construction land forresidential (but not other) property purposes expires, it will be renewed automatically.

Grant of Land Use Rights

PRC law distinguishes between the ownership of land and the right to use land. Landuse rights can be granted by the State to a person to entitle him to the exclusive use ofa piece of land for a specified purpose within a specified term and on such other termsand conditions as may be prescribed. A land grant premium is payable on the grant ofland use rights. The maximum term that can be granted for the right to use a piece ofland depends on the purpose for which the land is used. As described above, themaximum limits specified in the relevant regulations vary from 40 to 70 yearsdepending on the purpose for which the land is used.

Under the Urban Land Regulations, there are three methods by which land use rightsmay be granted, namely by agreement, tender or auction.

On 11 June 2003, the Ministry of Land and Resources promulgated the Regulation onGrant of State-owned Land Use Rights by Agreement（協議出讓國有土地使用權規定）,which became effective on 1 August 2003. According to such regulation, if there is onlyone intended user on a piece of land, the land use rights (excluding land use rightsused for business purposes, such as commercial, tourism, entertainment andcommodity residential properties) may be granted by way of agreement. The local landbureau at municipal or county level, together with other relevant governmentdepartments including the urban planning authority, will formulate the plan on grant ofstate-owned land use rights by agreement（協議出讓方案）concerning issues includingthe specific location, boundary, purpose of use, area, term of grant, conditions of use,conditions for planning and designing, time of supply, and submit such plan as well asthe proposed minimum price of land grant premium, which is designated by the groupdecision based on the valuation result, to the relevant government for approval. The



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local land bureau at municipal or county level and the intended user will negotiate theland grant premium which shall not be lower than the minimum price approved by therelevant government and enter into the land grant contract based on such plan. If twoor more entities are interested in the land use rights proposed to be granted, such landuse rights shall be granted by way of tender, auction or listing-for-sale. Furthermore,according to the Rules Regarding the Grant of State-owned Land Use Rights by Wayof Tender, Auction and Listing-for-sale（招標拍賣掛牌出讓國有土地使用權規定）(the “LandUse Grant Rules”) which are effective from 1 July 2002, land use rights for propertiesfor commercial use, tourism, entertainment and commodity residential purposes canonly be granted through tender, auction and listing-for-sale.

Where land use rights are granted by way of tender, invitations to tender will be issuedby the local land bureau at municipal or county level. The invitation will set out theterms and conditions upon which the land use rights are proposed to be granted. Acommittee will be established by the relevant local land bureau to evaluate the tenderswhich have been submitted. The successful bidder will then be asked to sign the grantcontract with the local land bureau at municipal or county level and pay the relevantland grant premium within a prescribed period. The land bureau will consider thefollowing factors: the successful bidder shall be either the bidder who can satisfy thecomprehensive evaluation criteria of the tender, or who can satisfy the substantialrequirements of the tender and also offer the highest bid.

Where land use rights are granted by way of auction, a public auction will be held bythe relevant local land bureau at municipal or county level. The land use rights aregranted to the bidder with the highest bid. The successful bidder will be asked to enterinto a land grant contract with the local land bureau.

Where land use rights are granted by way of listing-for-sale, a public notice will beissued by the local land bureau at municipal or county level to specify the location,area and purpose of use of land and the initial bidding price, period for receiving bidsand terms and conditions upon which the land use rights are proposed to be granted.The land use rights are granted to the bidder with the highest bid and which satisfiesthe terms and conditions. The successful bidder will then enter into a grant contractwith the local land bureau.

Upon signing of the contract for the grant of land use rights, the grantee is required topay the land grant premium pursuant to the terms of the contract, and the contract willlater be submitted to the relevant local land bureau for the issue of the land use rightcertificate. Upon expiration of the term of grant, the grantee may apply for renewal ofthe term. Upon approval by the relevant local land bureau, a new contract shall beentered for renewing the grant, and a land grant premium shall be paid.

In September 2007, the Ministry of Land and Resources further promulgated theRegulations on the Grant of State-owned Construction Land Use Rights ThroughTender, Auction and Listing-for-sale（招標拍賣掛牌出讓國有建設用地使用權規定）to requirethat land for industrial use, except land for mining, must also be granted by tender,



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auction or listing-for-sale. Only after the grantee has paid the land grant premium in fullunder the land grant contract, can the grantee apply for the land registration and obtainthe land use right certificates. Furthermore, land use right certificates may not beissued in proportion to the land grant premium paid under the land grant contract.

The Ministry of Land and Resources promulgated Notice on Problems RegardingStrengthening the Supply and Regulation of Land Used for Real Estates Supply（關於加強房地產用地供應和監管有關問題的通知）(the “Notice”) on 8 March 2010. According to theNotice, the land provision for affordable housing, redevelopment of shanty towns andsmall/medium residential units for self-residence purpose should be no less than 70%of total land supply, and the land supply for large residential units will be strictlycontrolled and land supply for villa projects will be banned. The Notice also requiresthat the lowest land grant premium shall be no less than 70% of the basic land grantpremium in which the granted land is located and the real estate developers’ biddeposit shall be no less than 20% of the lowest grant premium. The land grant contractmust be executed within 10 working days after the land transaction is confirmed. Theminimum down payment of the land grant premium shall be 50% and must be paidwithin one month after the execution of the land grant contract. The remaining landgrant premium shall be paid in accordance with the contract, but no later than oneyear. If the land grant contract is not executed in accordance with the requirementabove, the land shall not be handed over and the deposit will not be returned. If noland grant premium is paid after the execution of the contract, the land will be takenback.

In September 2010, the Ministry of Land and Resources and the Ministry of Housingand Urban-Rural Development jointly issued the Notice On Further Strengthening theAdministration and Control of the Land-use and Construction of Real Estates（關於進一步加強房地產用地和建設管理調控的通知）, which stipulates, among other things, that theplanning and construction conditions and land use standards shall be specified when aparcel of land is to be granted, and the restrictions on the area of one parcel of landgranted for commodity residential properties shall be strictly implemented. Thedevelopment and construction of large low-density residential properties shall bestrictly restricted, and the floor area ratio for residential land is required to be morethan 1. In addition, a property developer and its shareholders will be prohibited fromparticipating in land bidding before any illegal behaviours in which it engages, such asland idle for more than one year on its own reasons, have been completely rectified.

Transfer of Land Use Rights

After land use rights relating to a particular area of land have been granted by theState, unless any additional restriction is imposed, the party to whom such land userights are granted may transfer, lease or mortgage such land use rights after certainstatutory conditions are met. The difference between a transfer and a lease is that atransfer involves the vesting of the land use rights by the transferor in the transfereeduring the term for which such land use rights are vested in the transferor. A lease, onthe other hand, does not involve a transfer of such land use rights by the lessor to the



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lessee. Furthermore, a lease, unlike a transfer, does not usually involve the paymentof a transfer price. Instead, a rent is payable during the term of the lease. Land userights cannot be transferred, leased or mortgaged if the provisions of the grantcontract, with respect to the prescribed period and conditions of investment,development and use of the land, have not been complied with. In addition, differentareas in the PRC have different conditions which must be fulfilled before the respectiveland use rights can be transferred, leased or mortgaged.

All transfers, mortgages and leases of land use rights must be evidenced by a writtencontract between the parties which must be registered with the relevant local landbureau at municipal or county level. Upon a transfer of land use rights, all rights andobligations contained in the contract pursuant to which the land use rights wereoriginally granted by the State are assigned to the transferee automatically.

Under the Administration Law of Urban Real Property of the PRC (2007 revision)（中華人民共和國城市房地產管理法（2007年修訂）） (the “Urban Real Property Law”), realproperty that has not been registered and of which a title certificate has not beenobtained in accordance with the law may not be assigned. Also, under the Urban RealProperty Law, if land use rights are acquired by means of grant, the real property shallnot be assigned before the following conditions have been met: (i) the land grantpremium for the grant of land use rights must have been paid in full in accordance withthe land grant contract and a land use right certificate must have been obtained; (ii)investment or development must have been made or carried out in accordance withterms of the land grant contract; (iii) where the investment or development involveshousing construction projects, more than 25% of the total amount of investment ordevelopment must have been made or completed; (iv) where the investment ordevelopment involves a large tract of land, conditions for use of the land for industrialor other construction purposes must have been satisfied; (v) where the real property isassigned with a completed building, the building ownership certificate is needed aswell.

Documents of Title

In the PRC, there are two registers for property interests. Land registration is achievedby the issue of a land use right certificate（土地使用證）by the relevant authority to theland user. It is the evidence that the land user has obtained land use rights which canbe assigned, mortgaged or leased. The building registration is the issue of a buildingownership certificate（房屋所有權證）or a real estate ownership certificate（房地產權證）tothe owner. It is the evidence that the owner has obtained building ownership rights inrespect of the building erected on a piece of land. According to the Land RegistrationRegulations（土地登記規則）(the “Registration Regulations”) promulgated by the StateLand Administration Bureau（國家土地管理局）, the predecessor of the Ministry of Landand Resources, on 28 December 1995 and implemented on 1 February 1996, the LandRegistration Measures （土地登記辦法） promulgated by the Ministry of Land andResources on 30 December 2007 and effective on 1 February 2008, and the BuildingRegistration Measures（房屋登記辦法）promulgated by the Ministry of Construction, the



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predecessor of the Ministry of Housing and Urban-Rural Development on 15 February2008 and effective on 1 July 2008, all land use rights and building ownership rightswhich are duly registered are protected by the law.

In connection with these registration systems, real estate and land registries havebeen established in the PRC. In most cities in the PRC, the above systems areseparate systems. However, in Shenzhen, Shanghai, Guangzhou and some othermajor cities, the two systems have been consolidated and a single composite realestate ownership certificate（房地產權證）will be issued evidencing both the land userights and the ownership of building erected on the land.

Mortgage

The grant of mortgage in the PRC is governed by the Security Law of the PRC（中華人民共和國擔保法）(the “Security Law”) promulgated by the Standing Committee of theNational People’s Congress in June 1995, the Measures for Administration ofMortgages of Urban Real Estate promulgated by the Ministry of Construction（城市房地產抵押管理辦法）in May 1997, as amended in August 2001, the PRC Property RightsLaw and relevant laws regulating real estates. Under the Security Law, any mortgagecontract must be in writing and must contain specified provisions including (i) the typeand amount of the principal indebtedness secured; (ii) the term of the obligation by thedebtor; (iii) the name, quantity, quality, state, location, ownership of or the right to useof the mortgaged property; and (iv) the scope of the mortgage. For mortgages of urbanreal properties, new buildings on a piece of land constructed after a mortgage contracthas been entered into will not be subject to the mortgage.

The validity of a mortgage depends on the validity of the mortgage contract,possession of the real estate certificate and/or land use right certificate of themortgagor and registration of the mortgage with authorities. If the loan in respect ofwhich the mortgage was given is not duly repaid, the mortgagee may sell the propertyto settle the outstanding amount and return the balance of the proceeds from the saleor auction of the mortgaged property to the mortgagor. If the proceeds from the sale ofsuch property are not sufficient to cover the outstanding amount, the mortgagee maybring proceedings before a competent court or arbitration tribunal (where there is anagreement to recover the amount outstanding through arbitration) in the PRC.

The Security Law also contains comprehensive provisions dealing with guarantees.Under the Security Law, guarantees may be in two forms: (i) guarantees whereby theguarantor bears the liability when the debtor fails to perform the payment obligation;and (ii) guarantees with joint and several liability whereby the guarantor and debtor arejointly and severally liable for the payment obligation. A guarantee contract must be inwriting and unless agreed otherwise, the term of a guarantee shall be six months fromthe due date of the principal obligation.



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The Security Law further provides that where indebtedness is secured by a guaranteeand mortgaged property, the guarantor’s liability shall be limited to the extent of theindebtedness that is not secured by the mortgaged property.

Lease

Both the Urban Land Regulations and the Urban Real Property Law permit leasing ofgranted land use rights and buildings thereon. However, leasing of land use rightsobtained by allocation（劃撥）and of buildings on such allocated land is regulated bythe Urban Land Regulations.

Leasing of urban real properties is also governed by the Administrative Measures forLeasing of Commodity Housing （商品房屋租賃管理辦法） issued by the Ministry ofHousing and Urban-Rural Development in December 2010, which became effective onFebruary 1, 2011. According to the Administrative Measures for Leasing of CommodityHousing, landlords and tenants are required to enter into lease contracts which mustcontain specified provisions, the floor area per tenant may not be less than theminimum living space stipulated by the local government where the building is located,no kitchens, lavatories, balconies or basement storerooms should be rented out asresidence, and the lease contract should be registered with the relevant constructionor property authorities at municipal or county level within 30 days after its conclusion. Ifthe lease contract is extended or terminated or if there is any change to the registereditems, the landlord and the tenant are required to effect alteration registration,extension of registration or deregistration with the relevant construction or propertyauthorities within 30 days after the occurrence of the alteration, extension ortermination.

The Contract Law of the People’s Republic of China（中華人民共和國合同法）promulgatedby the National People’s Congress in March 1999 and effective from October 1999provides among others, that the lease contract shall be in writing if its term is over sixmonths, and the term of any lease contract shall not exceed twenty years. During thelease term, any change in the ownership of the leased property does not affect thevalidity of the lease contract. The tenant may sub-let the leased property if it is agreedby the landlord and the lease contract between the landlord and the tenant is still validand binding. When the landlord is to sell a leased property under a lease contract, itshall give the tenant a reasonable advance notice before the sale, and the tenant hasthe priority right to buy such leased property on equal conditions. The tenant can waivesuch rights in the lease agreement.

The tenant must pay rent on time in accordance with the lease contract. In the event ofdefault of rental payment without reasonable cause, the landlord may ask the tenant topay within a reasonable period of time and may terminate the lease contract if thedefaulted tenant fails to pay by the prescribed time limit.



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Except as mentioned below or unless otherwise specified in the lease contract, if thelandlord wishes to terminate the lease before its expiry date, prior consent shall beobtained from the tenants who are entitled to be indemnified for any resulting loss.

The landlord has the right to terminate the lease contract if the tenant sub-lets theproperty without prior consent from the landlord, or causes loss to the leasedproperties resulting from using the property not in compliance with the usage asstipulated in the lease contract, or defaults in rental payment and fails to rectify suchdefault after a reasonable period as required by the landlord, or other circumstancesoccur allowing the landlord to terminate the lease contract under relevant PRC lawsand regulations.

Sale and Transfer of Property

Under the Administrative Measures for the Sale of Commodity Buildings（商品房銷售管理辦法）, commodity buildings may be put to post-completion sale only when the followingpreconditions have been satisfied: (a) the property development enterprise shall havea business license and a qualification certificate of a property development enterprise;(b) the enterprise shall obtain a land use right certificate or other approval documentsfor land use; (c) the enterprise shall have the construction works planning permit andconstruction works commencement permit; (d) the building shall have been completed,inspected and accepted as qualified; (e) the relocation of the original residents shallhave been completed; (f) the provision of essential facilities for supplying water,electricity, heating, gas, communication, etc. shall have been made ready for use, andother essential utilities and public facilities shall have been made ready for use, or adate for their construction and delivery shall have been specified; and (g) the propertymanagement plan shall have been completed.

Before the post-completion sale of a commodity building, a property developmententerprise shall submit the property development project manual and other documentsevidencing the satisfaction of preconditions for post-completion sale to the propertydevelopment authority.

According to the Urban Real Estate Law and the Provisions on Administration ofTransfer of Urban Real Estate promulgated by the Ministry of Construction（城市房地產轉讓管理規定）in August 1995, as amended in August 2001, a real estate owner maysell, bequeath or otherwise legally transfer real estate to another person or legal entity.When transferring a building, the ownership of the building and the land use rights tothe site on which the building is situated are transferred together. The parties totransfer must enter into a real estate transfer contract in writing and register thetransfer with the real estate administration authority having jurisdiction over thelocation of the real estate within 90 days of the execution of the transfer contract.



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Where the land use rights were originally obtained by grant, the real property may onlybe transferred on the condition that:

� the land grant premium has been paid in full for the grant of the land use rights asprovided by the land grant contract and a land use right certificate has beenproperly obtained;

� in the case of a project in which buildings are being developed, developmentrepresenting more than 25% of the total investment has been completed;

� in case of a development of a large tract of land, conditions for using such land forindustrial or other purposes have been satisfied; and

� in case of where completed building is involved, the building ownership certificatein respect of such building has been obtained.

If the land use rights were originally obtained by grant, the term of the land use rightsafter transfer of the real estate will be the remaining portion of the original termprovided for in the land grant contract after deducting the time that has been used bythe former land users. In the event that the assignee intends to change the use of theland provided for in the original grant contract, consent must first be obtained from theoriginal land use rights grantor and the planning administration authority at the relevantcity or county level and an agreement to amend the land grant contract or a new landgrant contract must be signed in order to, inter alia, change the use of the land andadjust the land grant premium accordingly.

If the land use rights were originally obtained by allocation, such allocated land userights may be changed to granted land use rights if approved by the governmentvested with the necessary approval power as required by the State Council. After thegovernment authorities vested with the necessary approval power approved suchchange, the grantee must complete the formalities for the grant of the land use rightsand pay the land grant premium according to the relevant statutes. Land for industry(including warehouse land, but excluding mining land), commercial use, tourism,entertainment and commodity housing development must be granted by tender,auction or listing-for-sale under the current PRC laws and regulations.

Property Management Rules in the PRC

According to the Regulation on Property Management（物業管理條例）enacted by theState Council on 8 June 2003 and enforced on 1 September 2003, as amended on 26August 2007 and effective on 1 October 2007, the State implements a qualificationscheme system in monitoring the property management enterprises and enterprisesengaging in property management shall obtain relevant qualifications from competentauthorities. According to the Measures for Administration of Qualifications of PropertyService Enterprises（物業管理企業資質管理辦法）enacted by the Ministry of Housing andUrban-Rural Development on 17 March 2004, as amended on 30 October 2007, a



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property service enterprise shall be classified as either class one, class two or classthree. The relevant authorities will issue the qualification certificates for propertyservice enterprises according to relevant criteria, including but not limited to, theregistered capital, the numbers of relevant technical personnel, the property serviceexperience and the service administration systems of the property service enterprise.According to the Regulation on Property Management, owners may engage or dismissa property management company with the consent of more than half of the ownerswho in the aggregate hold more than 50% of the total non-communal area of thebuilding. If the developer is to employ a property management enterprise before theformal employment of a property management enterprise by the owners after theformation of the owners’ meeting, it shall enter into a preparation stage propertymanagement services contract in writing with such property management enterprise.

COMPARISON OF CERTAIN ASPECTS OF THE PRC PROPERTY LAWS WITH THELAWS OF HONG KONG

The following is a general comparison of the legal protection of proprietary rights overreal estate conferred by the legal systems of PRC and Hong Kong:

PRC Hong Kong

General

Under the Urban Real Property Law, thelegitimate rights and interests of theowners over real estate shall be protectedby PRC law, on which no person mayunlawfully infringe.

In general, the legitimate rights andinterests of the owners over real estate inPRC are protected under PRC law.

General

Following Hong Kong’s reunification withthe PRC on 1 July 1997, the Basic Law ofHong Kong Special Administrative Regionbecomes the constitution of Hong Kong.Article 6 of the Basic Law provides thatthe Hong Kong Special AdministrativeRegion shall protect the right of privateownership of property in accordance withthe law. Under the concept of “onecountry, two systems”, Hong Kong enjoysa high degree of autonomy and its legalsystem is separate from that of the PRC.The proprietary rights of land owners overlanded properties in Hong Kong areprotected under Hong Kong law, whichconsists of the English common lawprinciples as well as the Hong Konglegislations.



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PRC Hong Kong

Land System in the PRC

PRC law distinguishes between theownership of land and the right to useland. According to the Constitution, allland in the cities is owned by the Statewhile land in the rural or suburban areas,unless otherwise specified by law, isowned by collectives. Houses sites（宅基地）, privately farmed crop land（自留地）and hilly land（自留山）are also owned bycollectives. The State may expropriate ortake over land and pay compensation inaccordance with law if such land isrequired for public interest.

Under the Urban Land Regulations, asystem for the grant and transfer of state-owned land in urban areas wasimplemented. Pursuant to this system, alllocal and foreign companies, enterprisesand other organisations and individuals,unless the law provides otherwise, arepermitted to acquire land use rights andto develop and operate properties inaccordance with PRC law.

System of Land Holding in Hong Kong

Land tenure in Hong Kong is essentiallyleasehold. Title to a landed property isderived from Government lease oragreements and conditions of grant (asthe case may be) granted by the HongKong Government. Owners of landedproperties in Hong Kong are effectivelylong leaseholders.

Due to historical reasons, the terms of theGovernment leases vary from short termleases to leases of up to 999 years.Article 120 of the Basic Law essentiallyprovides that all Government leases ofland granted, decided upon or renewedbefore the establishment of the HongKong Special Administrative Regionwhich extended beyond 30 June 1997,and all rights in relation to suchGovernment leases, shall continue to berecognised and protected under the lawof Hong Kong. Article 121 of the BasicLaw provides that as regards allGovernment leases of land granted orrenewed where the original Governmentleases contain no right of renewal, duringthe period from 27 May 1985 to 30 June1997, which extend beyond 30 June,1997 and expire not later than 30 June2047, the Government lessee is notrequired to pay any additional premium asfrom 1 July 1997, but an annual rentequivalent to 3% of the rateable value ofthe landed property concerned is payableto the Hong Kong Government.



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PRC Hong Kong

Under the Urban Land Regulations, localgovernments at or above county levelhave the power to grant land use rightsfor specific purposes and for a definiteperiod to a land user pursuant to acontract for the grant of land use rightsupon payment of a land grant premium.There are different maximum periods ofgrant for different uses of land. They aregenerally as follows:

� up to 70 years for residential use;

� up to 50 years for industrial use orfor public use;

� up to 40 years for commercial,tourism and entertainment uses; and

� up to 50 years for all other uses.

Upon expiration of the term of grant, it ispossible for a land user to renew suchterm subject to the execution of a newland grant contract and payment of a landgrant premium. If the term of the grant isnot renewed, the land use rights of theland and ownership of any buildingthereon will revert to the State withoutcompensation. According to the PropertyLaw, when the term of the right to useconstruction land for residential (but notother) property purposes expires, it willbe renewed automatically.

In general, the terms of the earlierGovernment leases are less restrictive.As society has become moresophisticated, extensive developmentrequirements, obligations and restrictionsare found in recent Government grants.Very often, the Government will provide arestriction on alienation in theGovernment lease – the grantee isrequired to comply with all the positiveobligations in the Government lease, suchcompliance being evidenced by theissuance of a certificate of compliance bythe Lands Department, before the granteeis in a position to sell/assign anyindividual unit of the development. If nosuch compliance has been issued, thegrantee can only sell/assign the unitsunless it shall have obtained the relevantprior written consent from the LandsDepartment. Any non-compliance of theterms of the Government grant mayrender the Government exercising itsrights of re-entry of the land.

Certain Government leases and certainlegislations in Hong Kong containGovernment’s right of resumption of theland or any part thereof for publicpurposes before expiry of the termsgranted. Compensation may be madepayable to the affected owners.



– III-14 –

PRC Hong Kong

Under the Urban Land Regulations, thereare three methods by which land userights may be granted, namely byagreement, tender or auction. Accordingto the Land Use Grant Rules which areeffective from 1 July 2002, land use rightsfor properties for commercial use,tourism, entertainment and commodityresidential purposes can only be grantedthrough tender, auction andlisting-for-sale.

On 11 June 2003, the Ministry of Landand Resources promulgated theRegulation on Transfer of State-ownedLand Use Rights by Agreement.According to this regulation, land userights may be granted by way ofagreement if it is not required underapplicable laws and regulations that theland be granted by tender, auction andlisting-for-sale.

Upon signing of the contract for the grantof land use rights, the grantee is requiredto pay the land grant premium inaccordance with the terms of the contract.Once the land grant premium is paid infull, the contract may be submitted to therelevant local bureau for the issue of aland use right certificate evidencing thegrant of land use rights.

Any individual or corporate legal entity,whether local or overseas, may ownlanded property in Hong Kong. Propertytransactions in Hong Kong attractpayment of ad valorem stamp duty (the“AVD”) in accordance with the StampDuty Ordinance (Chapter 117 of the Lawsof Hong Kong). On 26 October 2012, theFinancial Secretary made anannouncement to adjust the rates of thespecial stamp duty on disposal ofresidential properties and to extend theholding period of the properties in relationto special stamp duty. Any residentialproperty acquired on or after 27 October2012, either by an individual or acompany (regardless of its place ofincorporation), and resold within 36months will be subject to payment ofspecial stamp duty at the adjusted rates(up to 20% of the stated consideration ormarket value) for different holding periods(up to 36 months) of such property on topof the current ad valorem stamp duty. TheFinancial Secretary also announced thata buyer’s stamp duty at 15% of the statedconsideration or market value is payableon top of the current AVD if a residentialproperty is acquired after 27 October2012 by any person (including limitedcompany), except where he/she is a HongKong permanent resident or otherexemptions apply. On 22 February 2013,the Financial Secretary made furtherannouncement that the Governmentwould amend the Stamp



– III-15 –

PRC Hong Kong

In September 2007, the Ministry of Landand Resources further promulgated theRegulations on the Grant of State-ownedConstruction Land Use Rights ThroughTender, Auction and Listing-for-sale torequire that land for industrial use, exceptland for mining, must also be granted bytender, auction and listing-for-sale. Onlyafter the grantee has paid the land grantpremium in full under the land grantcontract, can the grantee apply for theland registration and obtain the land useright certificates. Furthermore, land useright certificates may not be issued inproportion to the land grant premium paidunder the land grant contract.

Subject to any restrictions imposed, theparty to which the land use rights isgranted may transfer such land userights. The transfer may be by way ofsale, exchange or gift. The term of landuse rights for the transferred land is theoriginal term granted under the grantcontract less the term which has alreadybeen enjoyed by the original grantee.

A transfer of land use rights must beevidenced by a written contract. Uponsuch transfer, all rights and obligationscontained in the original contract for thegrant of land use rights by the State aredeemed to be simultaneously transferredto the transferee, together with anybuildings and other fixtures on the land.The transfer must be duly registered atthe relevant local land bureau and a newland use right certificate will be issuedand the original land use right certificatewill be suspended.

Duty Ordinance to adjust the AVD ratesand to advance the charging of AVD onnon-residential property transactions fromthe conveyance on sale to the agreementfor sale. Any residential property (exceptthat acquired by a Hong Kong PermanentResident who does not own any otherresidential property in Hong Kong at thetime of acquisition) and non-residentialproperty acquired on or after 23 February2013, either by an individual or acompany, will be subject to the new ratesof AVD. The implementation of the newmeasures is subject to the enactment ofthe proposed legislative amendments.



– III-16 –

PRC Hong Kong

Under the Urban Real Property Law, inrelation to a transfer of land for whichland use rights were acquired by way ofgrant, the following conditions must bemet:

� the land grant premium must havebeen paid in full in accordance withthe land grant contract and a landuse right certificate must have beenobtained;

� investment in or development ofsuch land must have been made orcarried out in accordance with theterms of the land grant contract;

� if the investment or developmentinvolves the construction of buildingon the land, more than 25% of thetotal amount of investment ordevelopment must have been madeor completed; and

� where the investment ordevelopment involves a large tract ofland, conditions for the use of theland for industrial or otherconstruction purposes must havebeen met.



– III-17 –

PRC Hong Kong

Property Owners’ Committee Strata Title Ownership

According to the Regulation on PropertyManagement, owners may engage ordismiss a property management companywith the consent of more than half of theowners who in the aggregate hold morethan 50% of the total non-communal areaof the building. If the developer is toemploy a property management enterprisebefore the formal employment of aproperty management enterprise by theowners after the formation of the owners’meeting, it shall enter into a preparationstage property management servicescontract in writing with such real estatemanagement enterprise.

Strata-title ownership is commonly foundin Hong Kong’s multi-storey buildings.The structure is derived from the conceptthat all owners of the units are holding theland and the development jointly asco-owners. Such piece of land and thedevelopment built thereon are notionallydivided into a number of undividedshares. An owner of each unit holds acertain number of the allocated undividedshares, together with the exclusive rightto hold use occupy and enjoy his unit. Allowners of the development then sharethe use of such common part andcommon facilities of the developmentwhich are intended for common use. Theallocation of the undivided shares isusually made by the authorised person ofthe development with reference to thegross floor area of each unit. Immediatelyafter the first unit of a development isassigned, the developer, the firstpurchaser of a unit and the buildingmanager of the development will enterinto a document known as the Deed ofMutual Covenant and ManagementAgreement (the “DMC”), which sets outthe rights and obligations of the partiesvis-à-vis each other relating to theco-ownership and management of thedevelopment.

The system of building management inHong Kong is mainly based upon privatecontractual arrangements between theowners of units in the development byvirtue of a DMC. The governinglegislation for building management is theBuilding Management Ordinance(Chapter 344 of the Laws of Hong Kong),which also plays an important role in



– III-18 –

PRC Hong Kong

guarding against drafting in of unfairterms by the developer in the DMC and insetting out the framework for themandatory terms to be contained in aDMC, to the intent that the rights andobligations of the owners and the buildingmanager of the development areregulated for the purpose of co-ownershipand management of the development.The DMC is usually prepared inaccordance with the guidelines laid downby the Government and the rules laiddown by The Law Society of Hong Kong.It is commonly found in the newerGovernment leases that the terms of theDMC have to be approved by the LandsDepartment.

Documents of Title Land Registration

There are two types of title registrationsin the PRC, namely land registration andbuilding registration. Land registration iseffected by the issue of land use rightcertificate by the relevant authority to theland user evidencing that the land userhas obtained land use rights which can beassigned, mortgaged or leased. Thebuilding registration is the issue of abuilding ownership certificate or a realestate ownership certificate to the ownerevidencing that the owner has obtainedbuilding ownership rights in respect of thebuilding. According to the RegistrationRegulations, the Land RegistrationMeasures and the Building RegistrationMeasures, all land use rights and buildingownership rights which are dulyregistered are protected by law.

The present land registration system inHong Kong is a “deeds registration”system. The governing legislation is theLand Registration Ordinance (Chapter128 of the Laws of Hong Kong).Documents affecting landed properties inHong Kong are lodged with the LandRegistry for registration.

The Land Registry maintains a public landregister for recording interests in thelanded property in Hong Kong.Registration does not serve as a proofthat a person registered as the owner hasgood title to the property. The deedsregistration system simply confers priorityon registered documents and anyregistered document will become a publicrecord. Legal advice on title checkingshould be sought if one would like toascertain whether a person has good andmarketable title to a particular property.



– III-19 –

PRC Hong Kong

The two different systems are commonlymaintained separately in many cities inthe PRC. However, in Shenzhen,Guangzhou, Shanghai and some othermajor cities, the two system have beenconsolidated and a single composite realestate ownership certificate（房地產權證）will be issued to evidence both the landuse rights and the ownership of buildingserected on the land.

Hong Kong has enacted the Land TitlesOrdinance (Chapter 585 of the Laws ofHong Kong) in 2004. The new titleregistration system will transform thepresent system of deeds registration intoa system of title registration. Under thenew system, the title register will beconclusive evidence of title to theproperty. However, the date on which thenew system will be implemented is yet tobe ascertained.

Proving Title to Property

Before the title registration comes intoactual operation, title of a property has tobe proved by investigation of the originaltitle deeds (if they relate exclusively to aparticular property) or certified copies ofthe title deeds in order to ascertain theowner’s title is properly derived from hispredecessors in title and is notencumbered.

The Conveyancing and PropertyOrdinance (Chapter 219 of the Laws ofHong Kong) is the governing legislation ofthe conveyance of landed property inHong Kong. It was enacted in 1984. It hasbeen adopted from the relevant Englishstatutes and codified various common lawprinciples in real estate conveyanceaspects. Apart from this ordinance, therulings in the judgments of the courtcases play an important part indetermining whether the title to a propertyis in order.



– III-20 –

PRC Hong Kong

Leases/Tenancies in PRC Leases/Tenancies in Hong Kong

Both the Urban Land Regulations and theUrban Real Property Law permit leasingof granted land use rights and buildingsthereon.

Leasing of urban real properties is alsogoverned by the Administrative Measuresfor Leasing of Commodity House（商品房屋租賃管理辦法） issued by the Ministry ofHousing and Urban-Rural Development inDecember 2010, which became effectiveon February 1, 2011. According to theAdministrative Measures for Leasing ofCommodity Housing, landlords andtenants are required to enter into leasecontracts which must contain specifiedprovisions, the floor area per tenant maynot be less than the minimum living spacestipulated by the local government wherethe building is located, no kitchens,lavatories, balconies or basementstorerooms should be rented out asresidence, and the lease contract shouldbe registered with the relevantconstruction or property authorities atmunicipal or county level within 30 daysafter its conclusion. If the lease contractis extended or terminated or if there isany change to the registered items, thelandlord and the tenant are required toeffect alteration registration, extension ofregistration or deregistration with therelevant construction or propertyauthorities within 30 days after theoccurrence of the alteration, extension, ortermination.

The governing legislation of leasing andletting of landed property in Hong Kong isthe Landlord and Tenant (Consolidation)Ordinance (Chapter 7 of the Laws ofHong Kong) (the “LTCO”). Under theformer regime before the amendment ismade to the LTCO in 2004, a domestictenant is entitled to statutory renewal oftenancy provided he is willing to pay theprevailing market rent. Only on certainstatutory grounds of opposition stated inthe pre-amended LTCO, namelyself-occupation by the landlord, rebuildingby the landlord, use of property for anillegal purpose or illegal subletting etc,could the landlord refuse to renew thetenancy. This regime has been abolishedby the Landlord and Tenant(Consolidation) (Amendment) Ordinance2004 (the “Amendment Ordinance”)which came into effect on July 9, 2004.

Further, under the AmendmentOrdinance, the fixed term non-domestictenancy will end upon the expiration of itscontractual term and the landlord is nolonger required to give any statutorynotice to the tenant to end the tenancy,unless expressly required by the tenancy.



– III-21 –

PRC Hong Kong

The Contract Law of the People’sRepublic of China provides among others,that the lease contract shall be in writingif its term is over six months, and the termof any lease contract shall not exceedtwenty years. During the lease term, anychange in the ownership of the leasedproperty does not affect the validity of thelease contract. The tenant may sub-letthe leased property if it is agreed by thelandlord and the lease contract betweenthe landlord and the tenant is still validand binding. When the landlord is to sell aleased property under a lease contract, itshall give the tenant a reasonableadvance notice before the sale, and thetenant has the priority right to buy suchleased property on equal conditions.

The tenant must pay rent on time inaccordance with the lease contract. In theevent of default of rental payment withoutreasonable cause, the landlord may askthe tenant to pay within a reasonableperiod of time, and may terminate thelease contract if the defaulted tenant failsto pay by the prescribed time limit.

After the implementation of theAmendment Ordinance, in general, thelandlord and the tenant enjoy morefreedom in their negotiation on the termsof the letting. It is common practice inHong Kong for landlords, especially thosewho own the whole commercialdevelopments or residential blocks toimpose extensive obligations on thetenants, such as the covenants to payrent, management fees and rates, andsometimes promotion levy (particularly forlarge shopping arcades), to maintain theleased premises in a good condition, notto underlet, to comply with DMC, the landgrant, ordinances and other governmentalregulations. The landlord’s obligations areusually confined to the giving of “quietenjoyment” (in brief it means thenon-interference with the tenant’s rightsunder the tenancy agreement), paymentof government rent and the obligation torepair the structural part of the premises.The landlord or the tenant may institutelegal proceedings to enforce their rightsunder the tenancy.

A lease with a term exceeding three yearsshould be in a deed or it may not beeffective. A lease for longer than threeyears should also be registered in theLand Registry, otherwise it is likely to bedefeated by successors in title of thelandlord. Further, if an option to renew thetenancy is granted to the tenant, commonlaw cases laid down the ruling that thetenant should submit the tenancyagreement for registration in the LandRegistry in order to obtain priority againstthird party interest even though theoriginal term or the option term does notexceed three years.



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FOREIGN EXCHANGE CONTROLS

The lawful currency of the PRC is the RMB, which is subject to foreign exchangecontrols and is not freely convertible into foreign exchange at this time. SAFE, underthe authority of the PBOC, is empowered with the functions of administering all mattersrelating to foreign exchange, including the enforcement of foreign exchange controlregulations.

On 29 January 1996, the State Council promulgated the PRC Foreign CurrencyAdministration Rules （中華人民共和國外匯管理條例） (the “Foreign CurrencyAdministration Rules”) which became effective from 1 April 1996. The ForeignCurrency Administration Rules classifies all international payments and transfers intocurrent account items and capital account items. Current account items are no longersubject to SAFE approval while capital account items still are. The Foreign CurrencyAdministration Rules was subsequently amended on 14 January 1997 and on 5 August2008. Such amendment affirms that the State shall not restrict international currentaccount payments and transfers.

The Foreign Currency Administration Rules was amended by the State Council on 1August 2008 and came effective on 5 August 2008. Under the revised ForeignCurrency Administration Rules, the compulsory settlement of foreign exchange isdropped. As long as the capital inflow and outflow under the current accounts arebased upon real and legal transactions, individuals and entities may keep their incomein foreign currencies inside or outside China according to the provisions and terms tobe set forth by the SAFE. The foreign exchange income generated from currentaccount transactions may be retained or sold to financial institutions engaging in thesettlement and sale of foreign exchange. Whether to retain or sell the foreignexchange income generated from capital account transactions to financial institutionsis subject to approvals from the SAFE or its branches, except for otherwise stipulatedby the State. Foreign exchange or settled fund of foreign exchange of capital accountmust be used in the way as approved by the competent authorities and SAFE or itsbranches, and the SAFE or its branches are empowered to supervise the utilization ofthe foreign exchange or settled fund of foreign exchange of capital account and thealterations of the capital accounts. The RMB follows a managed floating exchange ratesystem in line with the market demand and supply. A domestic individual or entity whoconducts the overseas direct investment or overseas issue and transaction ofnegotiable securities and derivative financial products shall undergo registrationformalities with foreign exchange administrative authorities of the State. Furthermore,such individual or entity shall apply for the approval from or filing on such investment,issue or transaction with relevant authorities prior to the approval or filing if otherwiserequired by relevant PRC laws and regulations.

On 20 June 1996, PBOC promulgated the Administrative Regulation on ForeignExchange Settlement, Sale and Payment（結匯、售匯及付匯管理規定）(the “SettlementRegulations”) which became effective on 1 July 1996. The Settlement Regulationssuperseded the Provisional Regulations for the Administration of Settlement, Sale and



– III-23 –

Payment of Foreign Exchange （結匯、售匯及付匯暫行管理規定） and abolished theremaining restrictions on convertibility of foreign exchange in respect of currentaccount items while retaining the existing restrictions on foreign exchange transactionsin respect of capital account items. On the basis of the Settlement Regulations, thePBOC published the Announcement on the Implementation of Settlement and Sale ofForeign Exchange by Banks among Foreign Invested Enterprises（外商投資企業實行銀行結售匯工作實施方案）. The announcement permits foreign invested enterprises to open,on the basis of their needs, foreign exchange settlement accounts for current accountreceipts and payments of foreign exchange, and specialized accounts for capitalaccount receipts and payments at designated foreign exchange banks.

In January and April 2005, SAFE issued two regulations that require PRC residents toregister with and receive approvals from SAFE in connection with their offshoreinvestment activities. SAFE also announced that the purpose of these regulations is toachieve the proper balance of foreign exchange and the standardization of allcross-border flows of funds. On 21 October 2005, SAFE issued the Notice on IssuesRelating to the Administration of Foreign Exchange in Equity Finance and ReturnInvestment Activities by Domestic Residents through Offshore Special Purpose Vehicles（關於境內居民通過境外特殊目的公司融資及返程投資外匯管理有關問題的通知） (“Circular 75”)which became effective as of 1 November 2005. The notice replaced the tworegulations issued by SAFE in January and April 2005 mentioned above. According tothe notice, “special purpose vehicle”（特殊目的公司） refers to the offshore companyestablished or indirectly controlled by the PRC residents (both PRC domestic legalperson and natural person) for the special purpose of carrying out equity financing withtheir assets or interest in PRC domestic enterprise. Prior to the establishing orassuming control of such special purpose company, each PRC resident, whether anatural or legal person, must complete the overseas investment foreign exchangeregistration procedures with the relevant local SAFE branch. The notice appliesretroactively. As a result, PRC residents who have established or acquired control ofsuch offshore companies that have made onshore investments in the PRC in the pastare required to complete the relevant overseas investment foreign exchangeregistration procedures by 31 March 2006.

If the PRC residents fail to comply with Circular 75 and the relevant SAFE rules, thePRC subsidiary of the offshore special purpose vehicle may be prohibited fromdistributing its profits and proceeds arising from any reduction in capital, share transferor liquidation to its offshore parent company and the offshore parent company may berestricted in its ability to contribute additional capital into its PRC subsidiary. Moreover,failure to comply with the above SAFE registration requirements could result inliabilities under the relevant PRC laws for evasion of foreign exchange restrictions.Furthermore, according to a notice issued by SAFE on 11 May 2013, any foreigninvested enterprise should disclose to SAFE upon its foreign exchange registration asto whether its foreign investor is directly or indirectly owned or controlled by PRCresidents, and non-compliance with the registration requirement under Circular 75 will



– III-24 –

prevent a foreign invested enterprise from completing its foreign exchange registrationif its foreign investor is directly or indirectly owned or controlled by PRC residents untilsuch non-compliance has been remedied.

On 1 September 2006, the Ministry of Construction and SAFE promulgated the Circularon the Issues Concerning the Regulation of Foreign Exchange Administration of theReal Estate Market（關於規範房地產市場外匯管理有關問題的通知）. This circular states that:(i) where foreign exchange is remitted for a real estate purchase, the foreign purchasershall be subject to examination by the designated foreign exchange bank. The remittedfunds shall be directly remitted by the bank to the RMB account of the real estatedevelopment enterprise and no payment remitted from abroad by the purchasers shallbe kept in the foreign exchange account of current account of the real estatedevelopment enterprises; (ii) where the commercial house transaction fails to completeand the foreign purchaser intends to remit the purchase funds in RMB back to foreigncurrencies, the foreign purchaser shall be subject to examination by the designatedforeign exchange bank; (iii) when selling real estates in China and the purchase pricereceived in RMB is remitted to foreign currencies, the foreign purchaser shall besubject to examination by the local branch of SAFE; and (iv) if the registered capital ofa foreign invested real estate enterprise is not fully paid up, its land use right certificatehas not been obtained or the capital-fund in respect of development project is lessthan 35% of the total investment amount of the project, the foreign invested real estateenterprise is prohibited from borrowing from any foreign lenders and SAFE shall notprocess the foreign debt registration or examination and approval regarding thesettlement of foreign debt.

In July 2007, SAFE issued a Notice on the Distribution of the List of the First Group ofForeign Invested Real Estate Projects Filed with the Ministry of Commerce（關於下發第一批通過商務部備案的外商投資房地產項目名單的通知）. The notice stipulates, among otherthings, (i) that SAFE or its branches will no longer process foreign debt registrationsfor foreign invested real estate enterprises which obtain approval certificates from theMinistry of Commerce or its local counterparty and complete the recordal procedurewith the Ministry of Commerce on or after 1 June 2007 and (ii) that SAFE or itsbranches will no longer process foreign exchange registrations for foreign invested realestate enterprises which obtain approval certificates from local commerce authoritiesbut do not complete the recordal procedures with the Ministry of Commerce on or after1 June 2007. Although this notice was repealed on 10 May 2013, the aboverequirements are still valid as they were repeated in two current regulationspromulgated by SAFE, namely the Operation Guidelines for Administration ofRegistration of Foreign Debts（外債登記管理操作指引）issued on 28 April 2013 and theOperational Guidelines for Domestic Direct Investment Business（境內直接投資業務操作指引） issued on 10 May 2013. The Operation Guidelines for Administration ofRegistration of Foreign Debts also clarifies that any foreign invested real estateenterprise established before 1 June 2007 may borrow from foreign lender for anamount not larger than the difference between its total investment amount andregistered capital.



– III-25 –

On 29 August 2008, the General Affairs Department of SAFE issued a Notice Relatingto the Improvement of Business Operations with Respect to the Administration ofForeign Exchange Capital Payment and Settlement of Foreign Invested Enterprises（國家外匯管理局綜合司關於完善外商投資企業外匯資本金支付結匯管理有關業務操作問題的通知）. Thisnotice further regulates the administration of foreign exchange capital payment andsettlement of foreign invested enterprises within the PRC.

According to the notice, prior to applying for settlement of foreign exchange capitalwith designated banks, foreign invested enterprises must undergo capital verificationby an accounting firm. The designated banks should not engage in settlement offoreign exchange capital for foreign invested enterprises that have not completed theprocess of capital verification. Furthermore, the total amount of foreign exchangesettled by a designated bank for a foreign invested enterprise should not exceed thetotal capital audited. The designated banks must comply with the SAFE administrationrules regulating payment and settlement when engaging in foreign exchange capitalpayment and settlement with foreign invested enterprises.

Funds in RMB obtained by foreign invested enterprises through foreign exchangecapital settlement may only be used within the business scope approved by thegovernment authorities. Furthermore, such funds shall not be used for equityinvestments within the PRC unless otherwise stipulated. Except for foreign investedreal estate enterprises, foreign invested enterprises may not use funds in RMBobtained through foreign exchange capital settlement to purchase real estate for anypurposes other than its own occupancy. Should a foreign invested enterprise wish touse funds in RMB obtained through foreign exchange capital settlement to purchasesecurities, it must act in compliance with the relevant PRC regulations. Any transfer ofcapital funds for the sake of equity investment in the PRC by foreign investedenterprises approved by the Ministry of Commerce or its local counterparty must firstundergo examination and approval by the SAFE. The receipt and settlement in respectof profits obtained by PRC entities or individuals through the sale of shares or interestsin PRC enterprises to foreign investors must be conducted through a foreign exchangeaccount exclusively for assets realization. The opening of such account, and anyrelated transferal of funds, must undergo examination and approval by the localbranches of SAFE as provided by the relevant regulations.

On 13 May 2013, the SAFE issued the Provisions on the Administration of ForeignExchange in Domestic Direct Investments by Foreign Investors（外國投資者境內直接投資外匯管理規定） (the “Provisions”) and the relevant supporting documents, furtherregulating and clarifying the administration of foreign exchange in foreign directinvestments. Pursuant to the Provisions, the SAFE will process foreign exchangeregistrations for foreign direct investments, any enterprises or individuals who engagein foreign direct investments activities must undergo registration formalities with theSAFE and its local branches, and banks shall use information registered with the SAFEin handling businesses related to foreign direct investment.



– III-26 –

The following statements are by way of a general guide to investors only and do notconstitute tax advice. Investors are therefore advised to consult their professionaladvisors concerning possible taxation or other consequences of purchase, holding,selling or otherwise disposing of the Units under the laws of their country ofincorporation, establishment, citizenship, residence or domicile.

Investors should note that the following statements are based on advice received bythe Manager regarding taxation law, regulation and practice in force as at the dateof this Circular and may be subject to change.

PRC TAXATION

Enterprise Income Tax (“EIT”)

Under the PRC Enterprise Income Tax Law（中華人民共和國企業所得稅法）(“EIT Law”)and its implementation rules that became effective on 1 January 2008, foreign-investedenterprises (“FIEs”) and PRC domestic companies are subject to a uniform income taxrate of 25%. The EIT Law provides a five-year transition period for certain preferentialtax treatment which were available under the old foreign-invested enterprise incometax regime, e.g., the two-year tax exemption followed by 50% reduction of three years(“2+3 tax holiday”) for manufacturing FIEs set up before 16 March 2007.

In addition, under EIT Law, an enterprise established outside the PRC with its “defacto management body” within the PRC is considered a “resident enterprise” for PRCEIT purposes and will be subject to the PRC EIT at the rate of 25% on its worldwideincome. The “de facto management body” is defined as the organisational body thateffectively exercises overall management and control over production and businessoperations, personnel, finance and accounting, and properties of the enterprise. Itremains unclear how the PRC tax authorities will interpret such a broad definition andwhether The Link REIT will be deemed to be a PRC tax resident enterprise (“TRE”).

According to the EIT Law, dividends declared after 1 January 2008 paid by the PRCFIEs to their non-PRC parent companies will be subject to PRC withholding tax of 10%unless there is a tax treaty between the PRC and the jurisdiction in which the overseasparent company is incorporated, which specifically reduces such withholding tax, andsuch tax reduction is approved by the relevant PRC tax authorities.

Pursuant to an avoidance of double taxation arrangement between Hong Kong and thePRC, if the non-PRC parent company is a Hong Kong resident and directly holds a25% or more interest in the PRC enterprise, such tax rate may be lowered to 5%,subject to approvals by relevant PRC tax authorities.

In addition, the PRC State Administration of Taxation promulgated rules (“Circular601, Bulletin 30 and Circular 165”) concerning the determination of an applicant’sbeneficial owner status under tax treaties. These rules provide that tax treaty benefitswill be denied to conduit or shell companies without business substance, and a

APPENDIX IV PRC TAXATION

– IV-1 –

beneficial ownership analysis will be made based on a totality of facts of each caseand the “substance-over-form” principle to determine whether or not to grant tax treatybenefits.

Business Tax

Business tax is applicable to taxpayers that provide certain services (for example,construction, financing, entertainment, catering and telecommunication services) andtransfer immovable assets at a rate ranging from 3% to 20%, for instance, 3% onincome from telecommunications and construction services, up to 20% onentertainment services and 5% on the remaining services and transfer of immovableassets.

In addition, business tax is payable on the gross amount of all billings with respect toservices rendered within the PRC unless specific rules stipulate the use of a netamount.

An Urban Construction and Maintenance Tax together with an Education Surchargeare payable at a rate ranging from 6.0% to 12.0% of the business tax payable.

Value-added Tax (“VAT”)

The Provisional Regulations of the PRC Concerning VAT promulgated by the StateCouncil came into effect on 1 January 2009. Under these regulations and theImplementing Rules of the Provisional Regulations of the People’s Republic of ChinaConcerning VAT, VAT is imposed on goods sold in or imported into the PRC and onprocessing, repair and replacement services provided within the PRC. A VAT rate of17% is applicable on taxable items encompassing the sale of most tangible goods andthe provision of certain labour in respect of processing goods, repair and replacementservices undertaken in the PRC.

Started on 1 August 2013, a VAT Pilot Program came into force across the country.Transportation and modern services now fall into the scope of the VAT Pilot Program,and are now subject to VAT instead of business tax. The VAT rate for transportationservice and postal service is 11%, while it becomes 6% for certain in-scope modernservices. Income from leasing tangible goods is now subject to VAT at 17%.

An Urban Construction and Maintenance Tax together with Education Surcharge arepayable at a rate, in aggregate, ranging from 6.0% to 12.0% of the VAT.

Real Estate Tax (“RET”)

Properties owned by an enterprise will be subject to RET at variable rates dependingon locality. In certain localities, RET is applicable at a rate of 1.2% of the original valueof the building less a standard deduction which ranges from 10% to 30% of the originalvalue or 12% of the rental income.


– IV-2 –

Circular 698

On 10 December 2009, the Notice on Strengthening the Management on EnterpriseIncome Tax for Non-resident Enterprises Equity Transfer (“Circular 698”) was issuedby the State Administration of Taxation, which stipulates the PRC tax treatment andreporting obligations on “indirect” equity transfers undertaken by non-residententerprises (“offshore investors”). Under certain circumstances, specifieddocumentation should be provided to the PRC tax authorities in charge of the PRCenterprise whose equity interests have been indirectly transferred (within 30 days fromthe date of signing the share transfer agreement).

Circular 698 also introduced anti-abuse and anti-avoidance rules where the dominantpurpose of using the offshore entities is to avoid, reduce or defer PRC tax. In such acase, the PRC tax authorities can adopt a “look-through” approach and disregard theinterposed offshore entities, and consequently apply a 10% withholding tax on capitalgains derived by the offshore investor on the indirect transfer of PRC enterprises.

However, Circular 698 does not provide for clear guidance on various issues, forinstance, the tax basis, the allocation of transfer price to various PRC enterprises andtimeline for the formal binding decision of the tax authorities on a reported Circular 698transaction. It is expected that the State Administration of Taxation may issue newlydrafted indirect equity transfer rules to clarify or replace Circular 698, which mayaddress the above issues.

Land Appreciation Tax (“LAT”)

According to the PRC Interim Regulation on LAT implemented in January 1994 and itsimplementation rules of 1995, the LAT applies to both domestic and foreign investorsin real estate properties in the PRC. The tax is payable by a taxpayer on the capitalgains from the transfer of land use rights, buildings or other facilities on such land,after deducting “deductible items” that include the following:

� payments made to acquire land use rights;

� costs and charges incurred in connection with land development;

� construction costs and charges in the case of newly constructed buildings andfacilities;

� assessed value in the case of old buildings and facilities;

� taxes paid or payable in connection with the transfer of the land use rights,buildings or other facilities on such land; and

� other items allowed by the Ministry of Finance.


– IV-3 –

Where the taxpayer is developing a project, the applicable tax is payable onprovisional basis. At the end of the project or upon satisfaction of other statutoryconditions, taxpayers should file LAT clearance return for the whole project.

The tax rate is progressive and ranges from 30% to 60% of the gain, as follows:

Appreciation Value Tax Rate

Portion not exceeding 50% of deductible items 30%Portion over 50% but not more than 100% of deductible items 40%Portion over 100% but not more than 200% of deductible items 50%Portion over 200% of deductible items 60%

Urban Land Use Tax

According to the PRC Interim Regulations on Land Use Tax in respect of Urban Landpromulgated by the State Council in September 1988, the land use tax in respect ofurban land is levied according to the area of relevant land. The annual tax on urbanland was previously between RMB0.2 and RMB10 per square metre. An amendmentby the State Council in December 2006 changed the annual tax rate to betweenRMB0.6 and RMB30 per square metre of urban land.

Deed Tax

Deed tax is levied on the transfer of real property. The transferee/assignee is thetaxpayer. Generally, the rates range from 3% to 5% on the transfer price, dependingupon the locality where the transferred real property is located.

Stamp Duty

According to the PRC Interim Regulations on Stamp Duty promulgated by the StateCouncil in August 1988, property transfer instruments, including those in respect ofproperty ownership transfers, are subject to stamp duty at a rate of 0.05% of theamount stated therein.

Municipal Maintenance Tax

According to the PRC Interim Regulations on Municipal Maintenance Tax promulgatedby the State Council in 1985, a taxpayer of product tax, value-added tax or businesstax is required to pay a municipal maintenance tax calculated on the basis of producttax, value-added tax and business tax. The tax rate is 7% for a taxpayer in an urbanarea, 5% in a county or a town, and 1% for a taxpayer not in any urban area or countyor town.


– IV-4 –

Education Surcharge

According to the Interim Provisions on Imposition of Education Surcharge promulgatedby the State Council in April 1986 and amended in 1990 and in August 2005, anytaxpayer of value-added tax, business tax or consumption tax is liable for an educationsurcharge, unless such taxpayer is required to pay a rural area education surcharge asprovided by the Notice of the State Council on Raising Funds for Schools in RuralAreas. The Education Surcharge rate is 3% calculated on the basis of consumptiontax, value-added tax and business tax. In addition, on 7 November 2010, the Ministryof Finance published Notice on Issues Concerning Policies on Unifying LocalEducation Surcharge (Circular 98) which provides a uniform rate of 2% for the localeducation surcharge on the basis of value-added tax, business tax or consumption tax.


– IV-5 –

The Manager believes that the sources of certain information in this SavillsResearch Report are appropriate sources for such information and has takenreasonable care in extracting and reproducing such information. The Manager hasno reason to believe that such information is false or misleading or there is omissionof any other information which will render the information below to be false ormisleading. The information has not been independently verified by the Manager,the Trustee, or any other party (except for Savills as appropriate in respect of therelevant parts of their research report) and no representation is given as to itsaccuracy.

Savills Property Services (Shanghai)Company Limited

20/F Shanghai Central Plaza381 Huaihai Middle Road

Luwan DistrictShanghai 200020

China

T: +8621 6391 6688savills.com.cn

13 January 2014

The Board of DirectorsThe Link Management Limited(For itself as manager of The Link Real Estate Investment Trustand for and on behalf of The Link REIT)33/F, AXA Tower, Landmark East100 How Ming StreetKwun Tong, KowloonHong Kong

TrusteeHSBC Institutional Trust Services (Asia) Limited1 Queen’s Road CentralHong Kong

Dear Sir,

As requested we have prepared a Retail Market Overview for The Link ManagementLimited, in its capacity as manager of The Link Real Estate Investment Trust (“TheLink REIT”). The report includes a China macro economic summary and retail marketoverview, as well as overviews of the retail sectors in Guangdong Province, the PearlRiver Delta and the selected cities of Guangzhou, Shenzhen and Foshan.

APPENDIX V SAVILLS RESEARCH REPORT

– V-1 –

Contents

1) China market overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-3

1) Macro economic summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-3

a) Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-3

b) GDP trends and forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-6

c) Infrastructure and transport development trends . . . . . . . . . . . . . . . V-8

d) Population trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-11

e) Retail sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-14

f) Income growth, urbanisation and the Chinese middle class . . . . . . V-17

2) China retail property market overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-20

1) Typical retail formats in China: From department storesto shopping malls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-21

a) Department stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-22

b) Shopping malls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-24

2) Consumer spending patterns and trends . . . . . . . . . . . . . . . . . . . . . . . . . V-25

3) International retail brand evolution in China . . . . . . . . . . . . . . . . . . . . . . . V-26

4) Key retailers and national players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-26

a) Selected F&B stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-26

b) Selected fast-fashion brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-28

c) Selected hypermarkets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-29

5) Future development trends and potential opportunities forretail markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-31

6) Future outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-33

3) Overview of Guangdong Province, the PRD and selected cities . . . . . . . . . . . V-33

1) Guangdong Province . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-33

2) PRD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-35

3) Guangzhou. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-36

a) Overview of the city economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-36

b) Overview of the retail property market . . . . . . . . . . . . . . . . . . . . . . . V-42

4) Shenzhen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-49



5) Foshan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-62



Limitations on the report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-74


– V-2 –

1) China market overview

1) Macro economic summary

a) Background

China, the world’s most populous country with a population of over 1.35billion, is the world’s fastest growing major economy, having becomethe world’s second largest economy in 2010. The economy has beensupported by cheap labour, intensive investment and the aggressivedevelopment of its manufacturing base. In the early 2010s, China’seconomic growth rate began to slow amid domestic credit troubles,weakening international demand for Chinese exports and globaleconomic turmoil.

China’s central government, aware that the old growth model isbecoming unsustainable given both domestic and international factors,has in recent years promulgated the idea of shifting the economic focusfrom investment- and export-led to an internal-domestic-consumption-led model. The most recent indication of this has been the third plenarysession held in Beijing in early November 2013, in which seniorgovernment officials, including Xi Jinping, President of the People’sRepublic of China, outlined bold reforms which if properly implementedwill allow for the market to play a more decisive role in the economy.

While many obstacles remain, with the backing of the government itlooks like the next decade of the Xi Jinping/Li Keqiang leadership will beassociated with a period of reform comparable to that which was lastseen under the leadership of Deng Xiaoping when China began to openup to the rest of the world.


– V-3 –

Table 1: Key statistics, 1990-2012

Unit 1990 1995 2000 2005 2010 2011 2012

GDP RMB bil 1,867 6,079 9,921 18,494 40,151 47,310 51,894GDP index PY=100 103.8 110.9 108.4 111.3 110.4 109.3 107.7GDP per capita RMB 1,644 5,046 7,858 14,185 30,015 35,198 38,420Population Person mil 1,143 1,211 1,267 1,308 1,341 1,347 1,354Population (urban) Person mil 302 352 459 562 670 691 712Population (rural) Person mil 841 859 808 745 671 657 642Urbanisation % 26.4 29.0 36.2 43.0 49.9 51.3 52.6Population (household) Unit th 276,912 3,307 351,234 395,190 417,723 437,620 442,000Disposable income per capita (urban) RMB 1,510 4,283 6,280 10,493 19,109 21,810 24,565Consumption expenditure per capita (urban) RMB 1,279 3,538 4,998 7,943 13,471 15,161 16,674Net income per capita (rural) RMB 686 1,578 2,253 3,255 5,919 6,977 7,917Expenditure per capita (rural) RMB 903 2,138 2,652 4,127 6,992 8,642 9,606Consumption expenditure per capita (rural) RMB 585 1,310 1,670 2,555 4,382 5,221 5,908Real estate investment (REI) RMB bil 25.3 315.2 498.4 1,590.9 4,825.9 6,179.7 7,180.4Fixed asset investment (FAI) RMB bil 451.7 2,001.9 3,291.8 8,877.4 25,168.4 31,148.5 37,469.5Retail sales of consumer goods RMB bil 830 2,361 3,911 6,835 15,700 18,392 21,031

Source: CEIC

GDP

Figure 1: China GDP growth rate and forecast, 2002-2017F

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000YoY

GDP growth rate (Right Hand Side)GDP (Left Hand Side)US dollars (billion)

Source: Focus Economics, Savills Research

China has maintained strong growth over recent years, recording anaverage annual real GDP growth rate of 14.3% from 2007 to 2012,despite the global economic slowdown. GDP in 2012 stood atRMB51,894 billion, according to the National Bureau of Statistics (NBS),


– V-4 –

representing a real growth rate of 7.7% from the previous year. In thefirst three quarters of 2013, real GDP reached RMB38,676.2 billion,representing a 7.7% increase from the corresponding period in 2012.

Urbanisation and incomes

According to a report released by the NBS on 22 February 2013, theurbanisation rate has accelerated, evidenced by the forecast 52.6% ofurban residents at the end of 2013, up 1.3 percentage points (ppts)compared with the end of 2012. The wealth of urban residents has alsogrown rapidly, underpinned by the robust state of the national economy.The average disposable income of urban residents in 2012 stood atRMB24,565 per capita, an increase of 12.7% year-on-year (YoY).

Figure 2: China’s urbanisation levels, 1950-2050E

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0

200

400

600

800

1,000

1,200

1,400

1,600

Urban (Left Hand Side) Rural (Left Hand Side) Urbanisation rate (Right Hand Side)Million persons

Source: UN Population Division, Savills Research

Retail sales and inflation

Boosted by the rising per capita disposable incomes of China’s sizeablepopulation, the domestic market has expanded. Retail sales volume in2012 stood at RMB21,031 billion, reflecting strong underlyingpurchasing power. In the first three quarters of 2013, the retail salesvolume reached RMB16,881.7 billion, representing a 12.9% increasefrom the corresponding period in 2012. The inflation rate remainedunder control in 2012, with the yearly growth in CPI slowing to 2.6%, 2.7


– V-5 –

ppts below that of 2011. Experts at the National Development andReform Commission predict that CPI growth will rise to about 3.5% in2013, on the back of healthy economic growth.

Fixed asset investment (FAI)

FAI has maintained strong momentum, increasing at a six-yearcompound annual growth rate (CAGR) of 22.2% per annum from 2007to 2012. To maintain a balance between facilitating investment andstabilising price levels, the central bank has been carefully adjusting thebenchmark one-year lending rate. The rate recorded a generally risingtrend from 2009 to 2011 in order to prevent overheating in theinvestment market, after a sharp cut in rates in mid-2008 to tackle thenegative effects of the global financial crisis. The rate fell marginally in2012, again to speed up economic growth, given a rise in CPI of just2.6%. In the first three quarters of 2013, FAI reached RMB30,920.8billion, representing a 20.2% increase from the corresponding period in2012.

Real estate investment (REI)

China’s economic growth has fuelled the development of the real estateindustry. Total investment in real estate has increased substantially,registering RMB7,180.4 billion in 2012 and representing a CAGR of23.2% over the six years from 2007. Over the same period, a rapidlyincreasing trend has been recorded in both GFA under construction andarea completed. Property demand generated by economicdevelopments, urbanisation and rising resident spending power hasplayed a key role in the growth of the real estate industry, as well as theincrease in property values in China. In the first three quarters of 2013,REI reached RMB6,112.0 billion, representing a 19.7% increase fromthe corresponding period in 2012.

b) GDP trends and forecasts

China’s economic growth since 1978 has been sustained by a numberof factors:

� Demographic gains: a larger percentage of the population hasreached the working age

� Urbanisation: movement of the less productive rural workforce intourban centres and more productive jobs

� Large capital investment in infrastructure and labour-intensiveindustries

� Accession to the World Trade Organization


– V-6 –

� Globalisation and the exponential growth in global trade

� An undervalued currency, making Chinese exports verycompetitive on pricing.

Many of these factors which have previously driven the growth of theChinese economy have diminished in importance over the past fiveyears. China is starting to age, the number of individuals moving fromrural areas to urban is starting to slow, the manufacturing sector hasovercapacity, especially in sectors where state-owned enterprises aredominant, the volume of global trade growth has become more unstableand the Chinese renminbi is no longer widely believed to beundervalued.

Figure 3: GDP per capita, 2000-2018E

0

50

100

150

200

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300

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400

450

5002000 = 100

Brazil China IndiaJapan Russia United KingdomUnited States Germany France

Source: World Bank, Savills Research

The Chinese government is therefore looking for new ways to stimulategrowth in other sectors of the economy, and over the last five years, akey theme has been the growth of domestic consumption as a driver ofthe overall economy. Achieving this may be difficult, but the governmentis looking to improve social security spending, strengthen propertyownership rights and pay adequate compensation for land expropriation,among other initiatives, encourage individuals to spend more ratherthan save.


– V-7 –

Figure 4: International GDP growth rates and forecast, 2005-2018E

11.3%12.7%

14.2%

9.6%9.2%

10.4%9.3%

7.8% 8.0% 8.2% 8.5% 8.5% 8.5% 8.5%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Brazil PRC India Japan Russia United Kingdom United States

YoY

Source: World Bank, Savills Research

According to the statistics released by the World Bank, the projectedGDP growth rates of the PRC in 2013 and 2014 will still place thecountry ahead of other major economies in the world.

In recent years, especially with Xi Jinping and Li Keqiang leading thecountry, there is a greater expectation of further economic reforms tostimulate the economy, business activity and wealth generation. Notableannouncements from the third plenary session in Beijing in November2013 included Hukou reform for lower tier cities, the loosening of theone-child policy, a unified urban-rural land market, speeding up propertytax roll outs, allowing the market to play a more decisive role inresource allocation and pricing, and a rebalancing of governmentfinances. These have all been celebrated as positive steps on thecontinuing reform programme which are expected to be implementedover the new leadership’s term in office and hopefully beyond.

c) Infrastructure and transport development trends

The continuing development of the country’s transport network,including airports, expressways and railways, has stimulated the pace ofurbanisation and the inter-connectedness of the country and its cities.This has helped to consolidate the importance of key cities while alsostimulating economic growth and allowing the expansion of businessesinto lower tier cities.


– V-8 –

At the same time, the development of intra-city infrastructure, such asroads, bridges and metro networks, has extended the boundaries of thecities. Additionally, residential property prices have risen significantly inthe last decade, displacing low- to mid-income households to moresuburban locations. Land scarcity for residential development indowntown areas has also forced developers to move to more suburbanlocations in order to get access to developable land plots. These threefactors, among others, are transforming the landscape of cities in Chinato one more recognised in developed countries such as the US. Thedisplacement of the population and the development of transportinfrastructure have created substantial opportunities for new shoppingclusters and regional shopping precincts with good connections to tapinto new markets, predominately driven by residential catchment areasand commuter flow.

FAI

According to the 2012 “Economy and Operation of TransportationStatus” released by the Ministry of Transport, FAI in logistics-relatedtransport – mainly road, rail and water transportation – is expected toremain high, at RMB1.43 trillion in 2012.

Railway network

Figure 5: FAI in the railway network, 1997-2012

-30%

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

RMB (billion)

Fixed asset investment in railway (Left Hand Side) Growth rate (Right Hand Side)

YoY

Source: MOR, Savills Research


– V-9 –

The Ministry of Railways (MOR) plans to build 25,000 km of high-speedrailways, the major lines of which are expected to be completed by2020. As the centrepiece of the MOR’s expansion plans, a newnational-speed rail grid comprising eight high-speed rail corridors – fourrunning north to south and four from east to west – will be constructedover the existing railway network. Two north to south corridors(Beijing-Harbin and Beijing-Shanghai) have been completed so far,while the remaining projects are expected to start operation before2020.

Metro networks

Metro networks have also been planned and built in several citiesacross China. The opening of metro systems in most first-tier cities1

started in the late 1990s, followed by networks in second-tier YangtzeRiver Delta (YRD) cities (Hangzhou, Nanjing and Suzhou), and from thelate 2000s onwards, networks in second-tier Pearl River Delta (PRD)cities (Zhuhai, Foshan, Zhongshan and Dongguan).

With the completion of networks running from city centres todecentralised areas, shopping mall developments followed, moving fromprime to non-prime and decentralised locations over the last decade.Meanwhile, shopping malls, the current dominant retail format, havebeen presented with greater potential in second-tier and lower tier cities,as the degree of competition in first-tier cities intensifies. This issupported by the higher GDP growth, retail sales and disposableincomes recorded in lower tier cities in recent years.

Car ownership

While a growing metro network has improved accessibility to moreremote locations for commuters and lower income households, thedevelopment of the road network and increasing incomes have resultedin an explosion of car ownership. In the early 2000s, there were lessthan 10 million passenger cars in China, and by 2012 this figure hadrisen to close to 90 million vehicles, the equivalent of 65 vehicles per1,000 persons. This has tremendous implications for how people movewithin and between cities, and how they shop. Malls outside congestedregions with adequate car parking facilities are likely to benefit mostfrom this trend.

1 ‘Tier’ is used to classify Chinese cities, based primarily on economic indicators such as GDP,income, political and economic importance, and so on. First-tier cities: Beijing, Shanghai, Guangzhouand Shenzhen. Second-tier cities: Most provincial capital and some selected sub-provincial citiessuch as Chengdu, Chongqing, Hangzhou, Suzhou, Ningbo, Xiamen, Xian and Shenyang. Third-tiercities: Other provincial cities and some economically important cities such as Changchun, Changsha,Dongguan, Foshan, Harbin, Hefei, Nanning and Zhuhai. The above definition of ‘tier’ is usedthroughout this report.


– V-10 –

Figure 6: Car ownership levels, 1983-2012

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Car ownership (Left Hand Side) Cars per thousand population (Right Hand Side)Million passenger vehicles Vehicles per thousand population

Source: CEIC, Savills Research

d) Population trends

China has recorded more moderate population growth since 2006, withthe total population standing at 1.35 billion in 2012. With the change inpopulation structure, consumer behaviour is changing, leading to newmarket trends.

China is becoming an aged society, with the median age rising from 34to 37 years over the coming decade. Nevertheless, different regions willhave different age structures; the coastal regions where jobopportunities are most plentiful attract young workers, often leaving theirelderly parents and child dependents back in their home town.


– V-11 –

Figure 7: Population growth, 1950-2050E

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Age 0-14 (Left Hand Side) Age 15-64 (Left Hand Side)Age 64 and over (Left Hand Side) 5-year growth rate (Right Hand Side)


Many economically active city clusters will have a significantly youngerpopulation than the national average. This is particularly true in citiessuch as Shenzhen, where the population has grown rapidly in the lastdecade on the back of domestic migration, rather than naturalpopulation growth.

Figure 8: China’s age structure, 2010 Figure 9: China’s age structure, 2050E

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

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-8990-9495-99100+

Million persons

Male Female

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0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-8990-9495-99100+

Million persons

Male Female


In the March 2012 report, “Meet the 2020 Chinese Consumer” byMcKinsey, it was estimated that 20% of the total population in YRDcities will be over 65 years old by 2020, while the majority of thepopulation will be below 34 years in Guangzhou and Shenzhen. There


– V-12 –

is also a tendency to postpone life stages, as indicated by McKinsey.Young people are inclined to marry and have a family comparativelylater in life, in order to pursue more advanced education and securebetter jobs, implying that more time is spent on entertainment,recreation and travel by this segment of the population. China is not yeta double-income-no-kids (DINK) society, which applies to an increasingportion of the western world, but the movement towards a DINK societyis likely to continue.

Generation 2, who were born after 1985 at the beginning of a new era ofeconomic reform led by Deng Xiaoping, defined by McKinsey in theJune 2013 article “Mapping China’s Middle Class”, are becoming moreinfluential. These young consumers are inclined to assert theirindependent nature through their consumption patterns, which are morewesternised, favouring non-mainstream brands which provide a strongidentity. They are also heavy internet users who either shop online orread customer reviews of products online, and thus, are dominantdrivers of the e-tailing business.

Figure 10: Chinese consumers in their teens and early 20s

64

4641

2921

58

4336

2516

56

4033

2212

0

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50

60

70

Confident about personal income

growth

Loyal to brands Willing to trade up Often early adopter of new products /

services

Seek feedback / comments on internet before

buying

Upper-middle-class urban generation 2 members* Upper-middle-class urban population**Total urban population

% of respondents

Source: 2012 McKinsey survey of 10,000 Chinese consumers* People born after the mid-1980s and raised in a period of relative abundance.** Annual household incomes of RMB106,000 to RMB229,000.

As city centres become more densely populated, property prices areskyrocketing due to the stronger demand, while quality of life suffersand space shrinks. The expansion of transportation networks hasallowed people – the middle class in particular – to easily access the


– V-13 –

city centre while enjoying a better quality of life and more space in thesuburbs. Many shopping mall developers have identified this consumerdemand for daily necessities, as evidenced by the higher number offuture projects located in suburban areas than in core and primelocations.

Recent announcements at the third plenary session in Beijing indicatedthat the one-child policy will be relaxed to allow couples where only oneof the parents is an only child, to have two children. The previous policywas that only a couple where both parents were only children couldhave two children. While there have been no indications that this maybe relaxed further, there is the belief that the one-child policy will bereviewed again in the future and further reform steps may be taken.

e) Retail sales

Although China was known as the factory of the world at the start of thenew millennium, this perception has quickly changed. China has sinceemerged as the world’s largest auto market, retailers register recordsales growth in the country and Chinese tourists swamp luxury goodsstores in Paris, London and New York. Retail sales have grown between10% and 20% per annum since 2004, and during the global financialcrisis, China was one of the fastest growing markets in the world.

Figure 11: Retail sales and nominal growth, Jan 1994-Oct 2013

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2,500


Source: NBS, Savills Research


– V-14 –

Retail sales growth has also trickled down to smaller cities; retailersalready established in key mainland markets have looked to expandtheir footprint in new areas, while businesses looking to save costs haverelocated away from coastal cities to lower tier cities, generating newjobs and boosting income levels. As incomes have risen, China has notonly seen an increase in terms of expenditure levels and retail salesvolumes, but also a shift in the type of consumption. As disposableincomes have risen, expenditure on non-essentials has increased, inparticular on household facility, article & services2, transport &communications, and clothing.

Table 2: Urban household consumption expenditure per capita,1992-2012

(RMB) 1992 1995 2000 2005 2010 2011 2012CAGR

2005-2012

Medicine & medical services 42 110 318 601 872 969 1,064 8.5%

Residence 100 284 565 809 1,332 1,405 1,484 9.1%

Recreation, education & cultural services 147 331 670 1,097 1,628 1,852 2,034 9.2%

Food 884 1,772 1,971 2,914 4,805 5,506 6,041 11.0%

Clothing 235 479 500 801 1,444 1,675 1,823 12.5%

Miscellaneous 79 115 172 278 499 581 657 13.1%

Transport & communications 44 183 427 997 1,984 2,150 2,455 13.7%

Household facility, article & services 141 263 374 447 908 1,023 1,116 14.0%

Total 1,672 3,538 4,998 7,943 13,471 15,161 16,674 11.2%


2 Includes home decoration/material, furniture, home appliances and housing services.


– V-15 –

Figure 12: Retail sales per capita by tier city, 2002-2012

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Figure 13: Urban household consumption expenditure per capita, 1992-2012

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1992 1995 2000 2005 2010 2011 2012

Food ClothingHousehold facility, article & services Medicine & medical servicesTransport & communications Recreation, education & cultural servicesResidence Miscellaneous



– V-16 –

f) Income growth, urbanisation and the Chinese middle class

The emerging Chinese middle class is accumulating wealth at animpressive pace. According to the article, “Meet the 2020 ChineseConsumer”, published by McKinsey in 2012, China householdsmight be broadly classified by income as “the affluent”, “the newmainstream”, “the value” and “the poor”. Currently, more thanfour-fifths of China’s urban population consists of “valueconsumers”, whose household incomes, ranging from RMB37,000to RMB106,000 per annum, give them just enough to cover basicneeds. However, by the start of the next decade, it is estimatedthat “the new mainstream” segment will represent approximately51% of the total population in China. Many value consumers willbecome new mainstream consumers, with annual incomes ofbetween RMB106,000 and RMB229,000 – the level at which familycars and other luxuries become affordable. This new mainstreamsegment comprised approximately 13.6 million households inChina in 2010, and is expected by McKinsey to increase toapproximately 167.3 million households by 2020, representing aCAGR of 26.6%.

Figure 14: Number of urban households by annual household income, 2000-2020E

36

10 7

63

82

36

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51

26

0%

10%

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50%

60%

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100%

2000 2010 2020E

Poor (less than RMB37,000) Value (RMB37,000 to RMB106,000)New Mainstream (RMB106,000 to RMB229,000) Affluent (more than RMB229,000)

Million households, %

CAGR2000-2020E, %

100% = 147 226 328

20.4

26.6

1.2

-3.8

4.1

Source: McKinsey Report – Meet the 2020 Chinese Consumer


– V-17 –

Figure 15: Disposable income, expenditure and savings rates, 1993-2012

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Disposable income per capita in urban households (Left Hand Side)Consumption expenditure in urban households (Left Hand Side) Savings rate in urban households (Right Hand Side)

RMB


The global influence of the Chinese economy is also rising; from 1990 to2010, household consumption grew 4.8 fold (inflation adjusted) fromRMB871 billion to RMB14.0 trillion, with the country representing morethan 4.5% of global household consumption.

Rising incomes are partially driven by the continuing urbanisationprocess. Heavy investment in infrastructure has led to the fastexpansion of the transportation network, resulting in larger urban areas.The development of these areas boosts the local economy and thusincreases the urban household income, generating new consumptiondemand. China will be the world’s largest growth market for many yearsto come; the top 225 Chinese cities, by our estimates, will contribute29% of global GDP growth from 2007 to 2025.


– V-18 –

Figure 16: China’s contribution to global household consumption, 1990-2011

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Figure 17: Urban vs rural consumer expenditure levels, 1980-2012

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Urban household consumption expenditure per capita (Left Hand Side)

Rural household consumption expenditure per capita (Left Hand Side)

Ratio of urban household to rural household (Right Hand Side)

RMB



– V-19 –

In general, the country has been gradually transformed by themagnitude of the middle class. The middle class now plays a moreprominent role in almost every city. Nevertheless, there is a disparity inmiddle class growth between the higher and lower tier cities. The middleclass will be present in larger numbers in lower tier cities compared withfirst-tier cities. In 2002, 40% of China’s relatively small urban middleclass lived in first-tier cities, such as Beijing, Shanghai, Guangzhou andShenzhen. By 2022, the middle class in first-tier cities will likely fall toabout 16% of the total middle class population, as growth shifts to lowertier cities, especially those in the north and west. For third-tier cities, theproportion of upper-middle-class households should reach more than30% by 2022, up from 15% of the total middle class population in 2002.

Image 1: Market drivers of consumer demand

Source: Savills Research

Continued strong growth in the size and diversity of the middle class isexpected to create new market opportunities for both domestic andinternational retailers, which will in turn stimulate retail development.

2) China retail property market overview

The shopping mall is a relatively new concept in China. Up until the late 1980s,there were hardly any shopping malls in the country, with department stores beingthe dominant retail format at the time. However, according to Deloitte and CCFAin the “Report on Cooperative Development Between Shopping Centres andChain Brand Merchants in China, 2013”, at the end of 2011, China had a total of2,812 shopping malls representing an aggregate total retail floor area of 177million sq m. It is estimated that China’s shopping centres will increase at a rateof 300 per annum, and the total number of shopping malls is therefore expectedto reach 4,000 by 2015. The shopping mall currently is, and will continue to be,


– V-20 –

the dominant retail format in China. It is therefore important to gain an insight intohow this format has evolved, the key players and competitors, future developmenttrends and the outlook for the sector.

1) Typical retail formats in China: From department stores to shoppingmalls

Retail development in each city follows a very similar evolution, with a stronginitial emphasis on street shops and department stores in the CBD, followedby the gradual appearance of hypermarkets and shopping malls, the lattereventually becoming the dominant retail format. Macquarie’s equity researchpaper, “Battle For Successful Malls in China, 2013”, states that “shoppingmall space in the 20 major China cities has grown significantly from nearlynothing to 56% of prime retail space... prime retail space in the 20 majorChina cities is expected to grow by 57% to 75 million sq m between the endof 2012 and the end of 2014, and the shopping mall format will be a majorcontributor of the growth.”

Table 3: Major retail formats in China

Format Characteristics Emergence

High-street retail State-owned or individual landlords; typically low profile althoughretailers are now making more use of the high visibility.

First-tier: 1950s (early)

Department store Primarily state-owned or domestic, although international (Asian)operators are making inroads into the market.

First-tier: 1980s (early)Second-tier: 1980s (early)

Retail podium Part of mixed-use developments, typically of office towers indowntown locations but increasingly in residential developments insuburban locations.


Shopping mall Similar to retail podiums although larger in scale and held by onelandlord; typically fully enclosed but there are some semi-openshopping malls in some cities.


Outlet A relatively new concept; not as developed as in the US, outletstores are slowly emerging as car ownership continues to rise andconsumers place value and quality on an even footing.

First-tier: 2000s (late)Second-tier: 2000s (late)


The timing of retail development in each first-, second- or lower-tier city maynot be exactly the same but they all fall within a similar pattern. Specifically,new retail formats will first appear in first-tier cities such as Shanghai,Beijing, Guangzhou and Shenzhen before gradually disbursing into second-or third-tier cities, as consumers in first-tier cities are often more willingadopters of new concepts compared with their counterparts in lower tiercities.


– V-21 –

a) Department stores

The department store was the primary format for large-scale retail in theearly 1980s. This retail format remains fragmented without dominantoperators in the market. Most local operators tend to focus on aparticular region, although they are increasingly looking for nationalcoverage to match the expansion of some international operators.

Figure 18: Main department store operators by major city, Q4/2011

0

5

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40Number of stores

Inzone Parkson New World Dashang GroupVan's Intime Golden Eagle WangfujingMOI Bailian Pacific


Each region typically has one dominant player with an establishedlong-term presence in prime locations and which attracts strongrecognition from customers.


– V-22 –

Figure 19: Main department store operators and number of stores, Q4/2011

60

47

36

3431

26

22

21

2018 13

Inzone Parkson New World Dashang Group Van's Intime

BalianPacific

Golden Eagle Wangfujing MOI


Table 4: Selected department store operators

Departmentstore operator Region City level

No. ofstores Headquarters Positioning

Inzone YRD Second to third tier 60 Jinan Mid-highParkson National First to second tier 47 Kuala Lumpur MidHK New World National First to second tier 36 Hong Kong Mid-highDashang Group North Second to third tier 34 Dalian MidVan’s National First to third tier 31 Dalian MidIntime YRD Second to third tier 26 Hangzhou Mid-highGolden Eagle National First to third tier 22 Nanjing Mid-highWangfujing National First to second tier 21 Beijing Mid-highMOI National First to third tier 20 Shenzhen MidBailian YRD First to second tier 18 Shanghai MidPacific National First to second tier 13 Taipei Mid



– V-23 –

b) Shopping malls

Shopping malls did not appear until the late 1990s in China, and thereare primarily two types of mall currently in operation:

Shopping malls operated by overseas/Hong Kong developers andoften positioned at the high end

The first international shopping mall in Shanghai was Westgate mall,developed by the Hong Kong-based Hutchison Whampoa and locatedon Nanjing West Road, a primary retail precinct in Shanghai. The mall isanchored by Isetan Department Store, a cinema and a supermarket,and it has successfully attracted brands such as Burberry, SalvatoreFerragamo and Versace, making it one of the highest end shoppingmalls upon opening.

The success of Westgate mall led to the entry of more developers,including Hang Lung, Sun Hung Kai and Capitaland, facilitating andenhancing overall retail development in the city. Following Westgate,the opening of CITIC Square (in 2000) and Plaza 66 (in 2001) resultedin Nanjing West Road becoming one of the most high-end retail areas inthe city.

In Beijing, the first international shopping mall was World Trade Centerphase I (WTC), located in Chaoyang district and operated by KerryGroup. The project, positioned as a high-end shopping mall, opened in1990 with just 20,000 sq m of retail space. Similar to Westgate mall inShanghai, WTC also led to the development of Chaoyang district asBeijing’s first CBD.

Shopping malls operated by local developers and mostlypositioned in the mid market

TeeMall is considered to be the first shopping mall in Guangzhou. Theproject was developed by Guangdong Tianhe Cheng Group, a localdeveloper, and opened in 1996 with approximately 100,000 sq m ofretail GFA. At its launch, the TeeMall was a department store.

In Shanghai, the first shopping mall built by local developers wasNanfang Babaiban, owned and operated by Brilliance Group. Again, itwas originally a department store when built and was slowly convertedinto a shopping mall in 2000, and was subsequently anchored by ahypermarket, Carrefour. These malls mainly target the mass market andare frequently anchored by a popular department store.


– V-24 –

2) Consumer spending patterns and trends

A successful shopping mall must address consumers’ needs, and it istherefore important for all developers and landlords to understand the shiftsin consumer preferences and identify the changes in spending patternswhich have taken place over recent years.

Consumers are now spending more of their income on discretionary goodssuch as electronic products, household decoration, cosmetics, personal careproducts and cars, primarily as a result of rising income levels and changingspending patterns. The rising importance of discretionary spending over thepast ten years across the country has not only aided in the development ofshopping malls but has also driven trade mix changes within shopping malls,widening the choice of trade categories and brands offered, such as cafés,restaurants, lifestyle brands (eg, Muji and Hola), child pre-education facilities(eg, Gymboree, Fantastic Kids and English First) and interactiveentertainment venues, including cinemas, karaoke bars and ice skating rinks.

Moreover, higher incomes and the growing middle class have stimulated amove from unbranded to branded goods, with consumers seeking morevalue-added brands within a product or service category. Instead of merelyfulfilling their basic needs, consumers are becoming more concerned withdesign and quality, and in addition to price, comfort and practicality, peopleare increasingly looking for individuality in what they buy and wear.

Another important future spending trend will be that of ’trading up’;consumers will move away from the conventional demand for dailynecessities towards higher quality products. This will result in many existingbrands re-designing their products or opening new lines of business offeringmore premium products to accommodate various consumer needs. A classicexample of this, is the emergence of gourmet supermarkets in prime areas offirst-tier cities, as consumers opt for higher quality food items. This trend willalso attract more international retail brands with a greater variety of priceranges and trade categories to China.

While incomes are expected to rise across China as a whole, some citiesand regions are already significantly wealthier than others. This variation ineconomic profiles of different cities and different retail areas within the samecity will lead to differences in consumer spending patterns and spendingpower. These geographic disparities in spending across various retail areaswill remain significant over the next ten years, resulting in notably differenttrade mixes in shopping malls in different cities and different retail areaswithin the same city.


– V-25 –

3) International retail brand evolution in China

Image 2: The evolution of retail brands in China


Fast-food chains, such as KFC and McDonald’s, opened their first stores inthe early 1990s. Overseas fashion brands, particularly low- to mid-endfashion brands from Hong Kong, Taiwan and Southeast Asia, also started toenter China in the early 1990s, followed by international hypermarket chainsin the mid-1990s. Mid- to high-end fashion brands and mid-end F&B outlets,mainly from the US, entered the market after 2000.

Retailers who previously only manufactured products in the country alsostarted to view China as a market in itself by the mid-2000s. High-street andfast-fashion retailers made a decisive push into the China market after 2005.This trend is expected to continue to gain pace in the coming years.

Today, we find that most categories of retailers are now present. The onething lacking is a strong domestic brand presence which can compete at thesame level as the international brands. In the future, an expansion ofoperations and a broadening of product and service selection, as well as theconsolidation of smaller stores into larger flagship stores are expected.

4) Key retailers and national players

a) Selected F&B stores

A survey of the leading international fast-food chains in Chinaundertaken by Savills Research in 2012 sought to gauge the marketpenetration of overseas F&B brands and market size. KFC, McDonald’s


– V-26 –

and Pizza Hut together had approximately 430 stores in total inShanghai and Beijing at the end of 2012, far more than any other city inChina. Store numbers were 260 in Shenzhen, 190 in Guangzhou andbetween 50 and 150 in other second-tier cities, except Kunming.

Figure 20: Number of selected F&B outlets by city, 2013

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Costa Starbucks KFC Tai Hing Waipojia Café de Coral Tao Heung

Number of stores


� Shanghai and Beijing have significantly more chain stores (bothinternational and local brands) compared with Guangzhou andShenzhen.

� International chain stores, especially fast-food and coffee chains,will accelerate their expansion plans in second-tier and certainlower tier cities over the next few years.

� The presence of chain restaurants is limited in third-tier or lowertier cities in the PRD, reflecting the difference in taste preferencesin the area, with consumers tending to prefer local food brands.

� Fast-food brands which are popular in Hong Kong, Guangzhou andShenzhen can more easily penetrate lower tier cities in the PRD,eg, Café de Coral.


– V-27 –

Fast-food stores are widely accepted by Chinese consumers andoperators are now focusing on maintaining the performance of existingstores in response to increased competition from new entrants andcompeting F&B formats. Future opportunities for operators primarily liein lower tier cities and suburban developments in leading cities.

b) Selected fast-fashion brands

For many retailers entering the mainland market, it makes sense to startin Shanghai and Beijing, as both cities have a large population base,relatively high average disposable incomes, and some of the bestdeveloped and managed retail premises. As Shanghai and Beijing arethe key entry points and two of the most mature markets in China, withsome of the highest expenditures per capita, business travel andtourism figures, it is unsurprising that retailer store counts in thesemarkets are significantly higher than in second-tier cities. On average,the luxury retailers surveyed had four to five stores in Shanghai andBeijing, while mid- to high-end fashion retailers had ten to 11 andfast-fashion brands had nine to ten.

Many established retailers are now looking for the next market to meettheir expansion needs. Leading luxury brands have already establisheda presence in most first- and second-tier cities and are continuing toexpand aggressively. Mid- to high-end brands favour the second-tiercities of Hangzhou and Chengdu. Fast-fashion retailers, although lateentrants to the China market, have been the most aggressive inestablishing market share before the full benefit of the emerging middleclass is felt.


– V-28 –

Figure 21: Number of stores by city, 2013

0

5

10

15

20

25

30

35

40

45

50H&M Zara Uniqlo Mango MUJI

Number of stores


� Fast-fashion retailers have expanded quickly in all first- andsecond-tier cities in the last few years and will gradually move intocertain third- or lower tier cities over the next three years.

� Among the first-tier cities, international fast-fashion brands havebeen most aggressive in expanding and have opened more storesin Shanghai and Beijing, compared with Guangzhou andShenzhen, as Guangdong Province is a cloth manufacturing hubwhere consumers are more accustomed to individual brands.

� Among all the lower tier cities in the PRD region, internationalfast-fashion retailers are more likely to expand in Foshan andZhongshan due to the presence of experienced developers withprojects in those cities.

c) Selected hypermarkets

As Chinese consumers look for higher food quality at lower prices,hypermarkets are emerging as dominant players and setting marketstandards. The larger their operations, the stronger their bargainingposition with suppliers, and hence, the lower the costs. They also havebetter supply-chain management and quality control checks in place toensure the quality of their products.


– V-29 –

Hypermarkets in leading cities are generally located in decentralisedareas and in close proximity to residential communities, as they are inmany western countries, in order to lower overheads. Downtownlocations in top-tier cities are occupied by domestic incumbents andsmaller supermarkets. In lower tier cities, however, hypermarkets suchas Carrefour and Jusco are able to anchor centrally located stores, asthe projects are typically larger, with cheaper rents and more welcominglandlords looking to stimulate footfall.

In the last few years, it has also been noted that a few gourmetsupermarkets, both international and domestic, have entered first-tiercities, and are slowly moving into second-tier cities, adopting a cautiousapproach to selecting sites.

Figure 22: Number of international hypermarkets by city, 2013

0

5

10

15

20

25

30Carrefour Wal-mart Tesco Metro Vanguard

Number of stores


� Hypermarkets have the highest penetration rate in all first-tier citiesand are gradually moving into second- or lower tier cities.

� Dominant hypermarket players vary by region or city – Carrefour inShanghai, and most cities in Jiangsu and Zhejiang provinces,Vanguard in Guangzhou and Wal-mart in Shenzhen.


– V-30 –

5) Future development trends and potential opportunities for retailmarkets

The development of shopping malls in first-tier cities started in the late1990s, and from the early 2000s in second-tier YRD and PRD cities. Themarket for large-scale regional shopping malls located in prime locations isnow well developed, while that of community shopping malls has fallenbehind.

However, following the expansion of transport systems, allowing easieraccess to the cities, urban populations have shifted to non-core locations forthe higher quality of life and lower property prices. Housing distribution policyis another factor causing the spillover effect; newly distributed units given ascompensation for those lost in the government-led transformation of an areain the city tend to be in decentralised locations.

This decentralised population represents significant demand for day-to-dayconvenience shopping and weekend recreation facilities. The lack ofcommunity shopping malls, comprising supermarkets, F&B outlets andfamily-oriented elements, presents attractive development opportunities.

Taking Shanghai as an example, in 2000, only two metro lines werecompleted and the majority of malls were concentrated in core areas. By2012, 12 metro lines and one maglev line had been completed and retailclusters have developed along with the expansion of the railway network.Currently, several large-scale (over 80,000 sq m) shopping malls can befound at the endpoints of several metro lines, serving the day-to-day groceryand necessity needs of regional consumers, as well as their leisure andentertainment requirements.


– V-31 –

Map 1: Shanghai shopping malls, 2000 Map 2: Shanghai shopping malls, 2012

2

Changfeng /Middle Ring Road

Hongqiao /Zhongshan Park

Middle Huaihai Road

W. Nanjing Road

2Xinzhuang

E. Nanjing Road

Xujiahui

Lujiazui

Huamu

Wujiaochang

N. Sichuan Road

GFA < 50,000

50,000 < GFA < 80,000

GFA > 80,000

Prime

Secondary

Emerging

Changfeng /Middle Ring Road

Hongqiao /Zhongshan Park

Middle Huaihai Road

W. Nanjing Road

Xinzhuang

E. Nanjing Road

Xujiahui

Lujiazui

Huamu

Wujiaochang

N. Sichuan Road

vvv

GFA < 50,000

50,000 < GFA < 80,000

GFA > 80,000

Prime

Secondary

Emerging


Currently, there is a tendency for shopping malls to favour flagship stores,adding F&B and entertainment elements to foster a more attractive retailatmosphere and extend shoppers’ time spent in the mall. It is anticipated thatthe proportion of entertainment and F&B will increase over time and in somecases, become a dominant trade attracting consumers. A good example ofthis is the F&B and gourmet market in Shanghai Kerry Parkside.

Meanwhile, interactive elements, such as Apple stores, Samsung stores,Kidzinias and Snoopy Theme Parks, will become increasingly common infuture retail formats to enhance a project’s point of difference.

The application of technology will be another emphasis in shopping malldevelopments and is particularly important to mall operators. Applyingstate-of-of-the-art communication and information exchange capabilities willgrant mall operators a competitive advantage in attracting younger shopperswho are the most enthusiastic consumers of technology.

Mixed-use projects, which usually include residential, office and hotelcomponents, will be the dominant retail format of shopping centres for theforeseeable future. As new developments gradually move into lower tierlocations, more redevelopment as well as infill opportunities for primelocations in first-tier cities will be present to adapt to competition from newretail supply. While old shopping malls are repositioned to cater to thechanging retail environment, new ones will attempt to provide bettershopping experiences through improved designs, configurations, leasingstrategies, and other factors. The recent remodelling along Huaihai Middle


– V-32 –

Road in Shanghai is a good example, where Parkson and Printemps ChinaDepartment Store have been upgraded to better compete with the newlyopened shopping mall, iapm, developed by Sun Hung Kai Group.

The recent presence of upscale community malls catering to expat workersand families has attracted attention in the market. These malls tend to bemid-scale, with total floor space of approximately 40,000 sq m to 60,000 sqm, for example, Kerry Parkside in Huamu area, Pudong, Shanghai. At thesame time, the rise of community malls in newly developed areas, such asDreamport Living Mall located close to Zhongguancun in Beijing, is occurringin higher tier cities, with sizes ranging between 90,000 sq m and 120,000 sqm or more. The larger mass guarantees a better trade mix and a greaterbrand variety, encouraging shoppers to prolong their trips.

6) Future outlook

In conclusion, it is believed that there is still considerable market potential inmid-end shopping mall developments. Despite the fact that e-tailing has hadmore of an effect on mass-market products, which are relatively dominant inmid-end malls, and particularly in first-tier cities, mid-end malls still enjoythree advantages over luxury or low-end malls: 1) greater consumptiondemand from the middle class as a result of urbanisation; 2) less competitionfrom existing projects in decentralised areas compared with those in citycentres; and 3) market opportunities from the gap between luxury andlow-end malls through accurate differentiation strategies.

3) Overview of Guangdong Province, the PRD and selected cities

1) Guangdong Province

Guangdong Province is a province in southern China with a total area of179,800 sq km. The province comprises two sub-provincial cities and 19prefecture-level cities, including the provincial capital, Guangzhou, and theeconomic hub, Shenzhen, two of the most important and populous cities inChina. Since 2005, Guangdong Province has been the most populatedprovince in China and the largest province by GDP, which stood atRMB5,706.8 billion in 2012, contributing one-eighth of the nation’s total GDP.The economy is dominated by the manufacturing and tertiary industries,contributing 48% and 46% of total output in 2012 respectively.


– V-33 –

Map 3: Guangdong Province

Shanwei

Shaoguan

Yangjiang

Zhanjiang


Guangdong Province is also the most affluent province in China on a GDPper capita basis, at RMB54,000 in 2012, which is significantly higher than thenational average of RMB38,354. With a large and wealthy population, theretail market is supported by strong consumption demand. GuangdongProvince’s retail sales contributed more than 10% of the nation’s total retailsales in 2012. The province’s proximity to Hong Kong means that consumersadopt international tastes earlier than elsewhere in the country, making theregion one of the trend-setters of China.

A reform programme was implemented in Guangdong Province in 1979,allowing the establishment of three economic zones, including two in thePRD (Shenzhen and Zhuhai), while several preferential policies encouragedoverseas investment and boosted exports. This early market experiencemeans that the area enjoys greater autonomy in terms of fiscal and economicdirection, commerce and distribution, international trade and investment, andlabour and prices, compared with other jurisdictions in China.


– V-34 –

The transportation network is highly developed in Guangdong Province, andincludes eight airports (one international airport, two regional airports andseveral smaller ones), 12 main railway lines, six high-speed train lines (onestill under construction), four cities with metro systems in operation, severalintra-city and inter-city light rail lines, and a well-developed road network.

2) PRD

The PRD is the main growth driver of Guangdong Province, and is one of themost economically dynamic regions of China, since the launch of the reformprogramme in 1979. The zone comprises nine cities, including Guangzhou,Shenzhen, Dongguan, Foshan, Zhongshan, Zhuhai, Jiangmen, Huizhou andZhaoqing, and a total area of approximately 41,700 sq km.

Over 80% of Guangdong Province’s GDP is generated from the PRD, whichstood at RMB4,789.7 billion in 2012. Since the reform, the PRD hastransformed from an agriculture-oriented economy to a manufacturingplatform of global importance. The area is now the leading producer ofelectrical and electronic goods and components, watches and clocks, plasticproducts, garments and textiles, and a range of others products.

As an export-oriented and foreign-investment-driven economy, the PRDcontributed to approximately 9% of China’s 2012 GDP output, despite thefact that the area only encompasses 0.4% of the total land area and 4% ofthe total population. These figures show how impressive the economicdevelopment has been in the PRD so far. Moreover, the internationalisationof the Chinese economy largely arose within the PRD during the firstreforms.

Aside from foreign investments, private-owned enterprises are now playingan ever-growing role in boosting the region’s economy. Of all the cities in thePRD, Shenzhen, Dongguan and Foshan in particular have been at theforefront of private sector development.

Cities such as Shenzhen and Guangzhou are among the most affluent in theChinese mainland. In general, their consumption potential is considerablygreater than either Guangdong Province or China as a whole whenmeasured by GDP per capita. The PRD’s 2012 GDP per capita reachedRMB84,563, 56% higher than that of Guangdong Province and approximately2.2 times that of China overall. These circumstances are also supported bythe PRD’s retail sales figures, which stood at RMB1.7 trillion in 2012,accounting for 74.1% of Guangdong Province’s total retail sales and 8.0% ofthe national figure.


– V-35 –

3) Guangzhou

a) Overview of the city economy

Map 4: Guangzhou’s administrative divisions, district population and GDP contribution

District

2012permanentpopulation

2012 GDPcontribution

(’000) (%)

1 Yuexiu District 1,150 15.72 Liwan District 893 5.53 Haizhu District 1,576 7.44 Tianhe District 1,447 17.75 Baiyun District 2,252 8.86 Huangpu District 465 4.77 Panyu District 1,438 8.68 Huadu District 956 5.99 Nansha District 623 6.010 Luogang District 387 12.411 Zhengcheng County 1,049 5.512 Conghua County 604 1.8


Background

Guangzhou is a city with more than 2,000 years of history. As one of theearliest trading ports in China, Guangzhou was one of the origins of theMaritime Silk Road.

With a land area of 7,434.4 sq km, Guangzhou is the capital city ofGuangdong Province and serves as a political, economic, technological,educational and cultural centre. Located in the southeast of GuangdongProvince, Guangzhou is also the regional and transportation hub ofsouthern China, as well as the economic centre of the PRD, driven byits commercial and manufacturing industries. The city is the third largestin China by area and total GDP after Beijing and Shanghai.

Macro economics

Following a long history as one of China’s leading commercial ports, thecity’s economic development has resumed, particularly after theimplementation of the opening-up policy in the early 1990s. It has nowbecome a city with a strong secondary industry, primarily supported byan advanced manufacturing industry, as well as a developed tertiarysector, including the finance, logistics and services industries.


– V-36 –

In 2012, Guangzhou’s GDP stood at RMB1,355 billion, up by 10.5%from the previous year. As a result of industrial structural changes (fromtextile, food and building materials to IT, new materials, new energy andhealthcare/pharmaceuticals) and rising labour costs, GDP started toslow but still recorded 10.5% growth in 2012.

Guangzhou’s economic growth rate is expected to exceed the nationalaverage over the next decade as traditional economic hubs continue tomove up the value chain. The city’s forecast CAGR for 2011 to 2021 of7.6% is just below the forecast provincial growth rate of 7.7%.Guangzhou’s proximity and close integration with Hong Kong and therest of the PRD will continue to count in its favour.

Figure 23: Guangzhou’s GDP, 2003-2012

0%

2%

4%

6%

8%

10%

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14%

16%

18%

0

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800

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1,200

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1,600

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GDP (Left Hand Side) Real GDP Growth (Right Hand Side)RMB (billion) YoY


Meanwhile, Guangzhou’s 2012 GDP per capita, which stood atRMB105,909, was one of the highest nationally, surpassing that of bothShanghai and Beijing.


– V-37 –

Figure 24: Guangzhou’s GDP per capita, 2003-2012

-10%

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120,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GDP per Capita (Left Hand Side) GDP per Capita Growth (Right Hand Side)RMB YoY


Guangzhou’s population increased to 12.8 million people in 2012 havinggrown from 9.5 million in 2005. The population increase has been drivenby people moving to the city from elsewhere in the province. Incomparing the fifth (2000) and sixth (2010) censuses, the proportion ofexternal population to total floating population increased from 33.3% to37.5%.

The population growth rate slowed rapidly in 2011 and 2012 comparedwith previous years. The reason for this slowing is unknown. It ispresumed to have resulted from a slowdown in the export andmanufacturing sectors due to slower global economic growth andovercapacity, as well as automation and increasing competition fromother Asian countries. This would have led to less demand forlow-skilled workers, who would start seeking job opportunities in othercities, lowering the external population of Guangzhou.


– V-38 –

Figure 25: Guangzhou’s permanent population, 2006-2012

0%

1%

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8%

0

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4,000

6,000

8,000

10,000

12,000

14,000

16,000

2006 2007 2008 2009 2010 2011 2012

Permanent Population (Left Hand Side) Population Growth (Right Hand Side)Thousand persons YoY


Disposable incomes have followed GDP per capita relatively closelyover the last decade. Guangzhou’s disposable income increased toRMB38,053 per annum by 2012 up 10.5% YoY. Future growth rates areexpected to remain on a par with the national average over the nextdecade, with Guangzhou continuing to attract talent from lower tiercities in its hinterland.


– V-39 –

Figure 26: Guangzhou’s disposable income per capita, 2003-2012

6%

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0

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40,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Disposable Income per Capita (Left Hand Side) Disposable Income Growth (Right Hand Side)RMB YoY


Retail sales in Guangzhou reached RMB597.8 billion in 2012, rankingthird among the four first-tier cities. As a result of the city’s strongeconomy and fast rate of growth, expenditure patterns are now enteringinto a period of change, with more emphasis placed on entertainmentand leisure, instead of only on necessities. The more laid-back lifestyleof Guangzhou is believed to be one of the more significant contributingfactors to the predominance of leisure and F&B venues in the city.Guangzhou’s economy is still heavily reliant on international trade foremployment, and with the uncertainty in the global trade environment,recent income growth rates have been more volatile than in some othercities, whose economies are more focused on the domestic market.

Retail sales are expected to grow at slightly above the national averageat a real CAGR of 8.1% from 2011 to 2021.


– V-40 –

Figure 27: Guangzhou’s retail sales, 2003-2012

0%

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30%

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700

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012



Infrastructure and transportation

Baiyun International Airport, the second busiest by traffic movement inChina, replaced the old airport to meet fast-growing air traffic demand in2004. The first metro line in Guangzhou started operation in 1997.Currently, eight metro lines have been completed, including six metrolines, the Guangzhou-Foshan Line (also called the Guangfo Line) andthe Zhujiang New Town APM Line, a total length of 236 km. By 2020,the system will expand to over 500 km with a total of 15 lines inoperation.


– V-41 –

Map 5: Guangzhou’s metro network by 2013

Airport South

Renhe

LongguiJianghe wanggang

HuangbianJiangxia

Xiao-gangBaiyun Cultural Square

Baiyun ParkFeixiang Park

Guangzhou Railway StationXicun

XichangZhongshanbaTanwei

Jiaokou

BaiyundadaobeiYongtai

TongheJingxi Nanfang Hospital

MeihuayuanYantangGuangzhou East

Railway StationSanyuanliXiaobei Taojin

LinhexiZooYuexiuPark

Sun Yat-senMemorial Hall

Ximenkou

Peasant Movement Institute Dongshankou Yangji

Chen Clan Acedemy

TianheSports Center

Tianhe Sports Center SouthTianhenanHuangpu DadaoWomen & Children Medical CenterHuacheng DadaoOpera HouseHaixinsha

TiyuXiluMartyrs’ ParkGongyuanqian Shipaiqiao

Gangding

South China Normaxl University

Wushan

Tianhe Coach Terminal

Changshou Lu

Huangsha

Fangcun

Haizhu SquareTancun Keyun Lu

Huangcun

ChebeiThe 2nd Workers’ Cultural Palace

Jiangnan XiFenhuang Xincun

Shayuan

WuyangcunZhujiang New

TownLiede Yuancun

BaogangDadao

Changgang

Xiaogang

Sun Yat-senUniversity

Chigang PegodaLujiang

Kecun Chigang

Modiesha

Xingangdong

PazhouHuadiwan

Kengkou

XilangJushu

Longxi

FinancialHi-Tech Zone

Qiandenghu Lake

Leigang

Nangui LuChao’anZumiao

GuichengPujunbei LuTongji Lu

Jihua Park

Kuiqi Lu

Jiangtai Lu

Dongxiaonan

Nanzhou

Luoxi

Nanpu

Huijiang

Shibi

Guangzhou South Railway Station

Datang

Lijiao

Xiajiao

Dashi

Hanxi Changlong

Shiqiao Panyu Square

ChebeinanDongpu

SanxiYuzhu

Wanshengwei Dashandi Wenchong

Dashadong

Guanzhou

Higher Education Mega Center N.Higher Education Mega Center S.Xinzao

Shiji

Haibang

Dichong

Dongchong

Huangge Auto Town

Huangge

Jiaomen

Jinzhou

Ouzhuang1

5

8 APM Line

3

42

GuangfoLine


Guangzhou also plays a prominent role in the national railway network,as a gateway to the PRD through the Jingguang railway(Beijing-Guangzhou), the Guangshen railway (Guangzhou-Shenzhen),the Guangmao railway (Guangzhou-Maoming), the Guangmeishanrailway (Guangzhou-Meizhou-Shantou), the Wuhan-Guangzhouhigh-speed railway and the Guangzhou-Zhuhai Intercity Railway. Thecity also offers easy access to Hong Kong, which is only two hoursaway via the Guangzhou-Kowloon through train.

Outlook

In 2012, Guangzhou’s disposable income per capita was 95% ofShanghai’s, while expenditure per capita was 16% higher than that ofShanghai, implying that the retail market is relatively mature comparedwith other second-tier cities in the PRD. With the continuing growth indisposable incomes and retail sales, there remain opportunities for retaildevelopment, provided that there is comprehensive planning andaccurate positioning strategies.

b) Overview of the retail property market

Thanks to the proximity of Hong Kong and Macau, Guangzhou quicklydeveloped into the business and trade centre of southern China afterthe reforms which took place in 1979. A wide range of retail formats,such as shopping malls, department stores, commercial streets,underground malls and specialised markets, are all present in the citytoday.


– V-42 –

Major retail areas

There are four prime3 and four secondary4 retail areas: prime areas –Shang Xia Jiu, Beijing Road, Huanshi Dong and Tianhe Bei; secondaryareas – Jiangnan Xi, Zhujiang New Town, Panyu New Town and BaiyunNew Town.

Map 6: Major retail areas in Guangzhou


Shang Xia Jiu mainly comprises low-end retail stores and specialtystores which cater primarily to local youths and tourists. Projects hereinclude Shang Xia Jiu Shopping Street, Liwan Plaza, Hengbao Plazaand Metropolitan Plaza.

Beijing Road is a popular traditional shopping destination with a widerange of retail offerings, from mid-low to mid-high. A cluster of famousolder department stores operated by domestic developers attract bothinternational and domestic shoppers. Beijing Road Shopping Street,Grandbuy Department Store, Xin Da Xin Department Store and TeeMall(Beijing Road Branch) are the most well known projects in the area.

3 Target catchment coverage is city-wide.4 Target catchment coverage is regional.


– V-43 –

Huanshi Dong started to become more popular as Guangzhou’s firstcluster of five-star hotels and Grade A offices were developed. With itsbusiness ambience, the area caters especially to affluent Chinese,expats and senior management staff. Huangshi Dong, as a result, is themost high-end retail area in Guangzhou, with luxury specialty shoppingdestinations such as La Perle Square, Guangzhou Friendship Store andPoly Central Plaza.

Tianhe Bei is the most mature retail catchment in the city and severallarge-scale shopping malls and department stores catering to nearbywhite-collar workers are located in the area. Many international retailershave shown a preference for this area when establishing their first storeor a flagship store to cater to the mid- to high-income consumerdemand. TeeMall (Tianhe Bei Branch), Zhengjia Plaza, Grandbuy(Zhongyi Store), Victoria Plaza and Taigu Hui are the most influentialprojects here.

Jiangnan Xi is dominated by mid- and low-end shopping streets, retailstores and specialty stores which primarily cater to local youths.Leading projects in the area include Jiangnan Sunday Mall andGrandbuy Sunny Mall.

Zhujiang New Town is in the CBD area. Many future mid- to high-endshopping malls are scheduled to open in this emerging area, targetingwhite-collar workers as well as both international and domestic tourists.Existing projects such as Seasons Mall Spring and Mall of the World arethe current leading players in the area.

Panyu New Town is a newly developed retail area in the south of thecity. Mid- to high-income local residents in the town are the main targetcatchment of the shopping malls. A significant amount of future supplyof 1.3 million sq m will be launched in the area by 2016. Well knownprojects include Highsun Panyu Mall and Auyuan Plaza.

Baiyun New Town is in the north of the city and is a sub-CBD inGuangzhou. Mid- and high-end shopping malls, such as Baiyun WandaPlaza and G5 Mall, aim to serve demand from northern Guangzhouconsumers.

Existing stock

According to our research, total retail stock stood at 3.0 million sq m asat the end of 2012 and was primarily located in Tianhe Bei(approximately 1.0 million sq m). A considerable amount of retail stockis also present in emerging areas, with Zhujiang New Town and PanyuNew Town contributing the most, reaching approximately 350,000 sq min each zone. Shopping malls remain the dominant retail format inGuangzhou, accounting for more than 95% of the total stock.


– V-44 –

A number of international retailers have entered the Guangzhou market,including fashion brands (Uniqlo, H&M and Zara) and smaller fashionretailers (BAUHAUS, Diesel and Charles & Keith). A majority of retailerschoose Tianhe Bei as their first destination in the city, with a few fashionretailers expanding their presence to secondary areas. Gourmetsupermarkets, such as Ole, are also exploring the market at this stage.

Figure 28: Guangzhou’s existing retail stock by major retail area, 2012

0

200

400

600

800

1,000

1,200

Shang Xia Jiu

Beijing Road

Huanshi Dong

Tianhe Bei Jiangnan Xi

Zhujiang New Town

Panyu New Town

Baiyun New Town

Sq m thousand

Source: Savills ResearchNote: Retail projects (shopping malls and department stores) of more than 8,000 sq m

are included in our calculation.

Historical retail supply has been relatively stable, and is concentrated inprime areas such as Tianhe Bei, Beijing Road and Shang Xia Jiu.Supply then increased considerably in emerging areas, especiallyZhujiang New Town and Baiyun New Town. Good quality retail projects,such as Baiyun Wanda Plaza and G5 Mall among others, haveenhanced not only the various individual retail areas but also the overallGuangzhou retail market.


– V-45 –

Figure 29: Retail supply and stock in Guangzhou, 2010-2016E

0.0

0.5

1.0

1.5

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1,000

2010 2011 2012 2013E 2014E 2015E 2016E

Supply (Left Hand Side) Stock (Right Hand Side)Sq m thousand Sq m million

Source: Savills ResearchNote: Retail projects (shopping malls and department stores) of more than 8,000 sq m

are included in our calculation.

Market performance

The strong growth in consumption demand has supported the retailmarket. In Q2/2013, Guangzhou’s average first-floor shopping mall rentfor a fashion retailer with a store of 100 to 150 sq m was RMB42 per sqm per day, a quarter-on-quarter growth of 0.4%. Nevertheless, due toincreased competition from the completion of several projects bothwithin the city as well as in Hong Kong, falling rents have been recordedin the market since Q4/2012.

Tenants pay the highest rents on Beijing Road, where the averagefirst-floor rent at a shopping mall in a prime location can range betweenRMB50 and RMB100 per sq m per day. Shang Xia Jiu’s rents are thesecond highest at between RMB40 and RMB85 per sq m per day. Rentsin Huanshi Dong and Tianhe Bei reach RMB35 to RMB40 per sq m perday.

A significant disparity in rents between primary and secondary areas ispresent. Average first-floor rents in all four emerging areas are belowRMB15 per sq m per day, while higher rents have been recorded inprojects in Zhujiang New Town.


– V-46 –

Figure 30: Guangzhou’s average first-floor shopping mall rent, Q1/2009-Q2/2013

20

25

30

35

40

45

50

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2009 2010 2011 2012 2013

RMB per sq m per day

Source: Savills ResearchNote: First-floor rent in shopping malls is defined as rent paid by a fashion retailer with

a store of between 100 and 150 sq m.Note: Several new projects with lower rents were added to the basket in Q4/2012,

lowering the average rent.

The Chinese market as a whole continues to see a compression inyields in most property sectors and Guangzhou’s market is no different.Sustained overseas investment, as well as a significant new wave ofcapital from domestic investors, has resulted in a large weight of capitalchasing too few investment opportunities. This has led to rising capitalvalues and falling yields. Yields in the retail market tend to be slightlyhigher than in the office market, as the retail market requires specialisedasset management teams to extract the most value from investmentopportunities, something which most local investors currently lack.Consequently, foreign investors and asset managers still tend todominate the retail investment market, and the smaller pool of investorshas allowed yields to remain a little higher than in the office market.


– V-47 –

Future supply and outlook

From 2013 onward, more than 1.9 million sq m of new supply will enterthe market in the next four years, mostly in secondary areas, inparticular, Zhujiang New Town and Panyu New Town. A mix of overseasdevelopers, large domestic developers as well as local developers willhave a presence in the future Guangzhou retail market.

Due to greater competition among existing projects in central areas, it isexpected that future development opportunities will be in secondaryareas. As urbanisation continues to drive more footfall to secondaryareas, we expect to see stronger consumption demand from mid- tohigh-income shoppers, which will encourage the take-up of retail spaceand stimulate rental growth.

Despite the considerable future supply and the mixed signals fromvarious macro indicators, investment potential is still believed to bepresent in certain areas. At a district level, Huanshi Dong and TianheBei remain the most mature zones for high-end consumption among theprime locations, attracting international retailers, both luxury andfast-fashion. Rents are expected to remain fairly stable in the future,with potential for a modest upswing. Among the secondary areas,Zhujiang New Town and Panyu New Town are recommended for mid-and mid- to high-end retail projects. Adjacent to Guangzhou’s CBDarea, Zhujiang New Town has developed rapidly compared with othersecondary areas and greater potential in rental growth is expected,supported by demand from the large number of white-collar workers andresidents in the surrounding areas. Panyu New Town, on the otherhand, enjoys much greater consumption potential as it is the majorresidential cluster in southern Guangzhou.


– V-48 –

Table 5: Known future retail projects in Guangzhou, 2013-2016

Retail area Project name (CN) Project name (EN)Completion

date

RetailGFA(sq m)

Zhujiang New Town 花城匯三區 Mall of the World Phase III 2013 25,000Panyu New Town 永旺夢樂城 Aeon Mall 2013 170,000Panyu New Town 番禺萬達 Panyu Wanda Plaza 2013 190,000Panyu New Town 荔園新天地商業項目（一期） Lee Garden Mall Phase I 2013 60,000Zhujiang New Town 保利V座 Poly V 2014 28,000Zhujiang New Town 高德置地廣場秋冬 Gold Tak Landmark Project

(Phases 3 and 4)2014 100,000

Panyu New Town 聖鑫商業廣場（首期） Saint Fortune Shopping Mall 2014 113,000Panyu New Town 祈福超級MALL Clifford Mall 2014 300,000Panyu New Town 招商漢溪商業購物中心 Hanxi Mall 2014 200,000Panyu New Town 聖鑫商業廣場（二期） Saint Fortune Shopping Mall

(Phase II)2014 150,000

Tianhe Bei 宏城廣場 Hong Cheng Plaza 2015 110,000Zhujiang New Town 天匯廣場 Sun Hung Kai Liede Project 2015 100,000Zhujiang New Town 合和實業獵德項目 Hopewell Liede Project 2015 65,000Panyu New Town 荔園新天地商業項目（二期） Lee Garden Mall 2015 140,000Zhujiang New Town 東塔商場 East Tower retail podium 2016 74,000Panyu New Town 海博緣國際新城 Haiboyuan International New Town 2016 100,000

4) Shenzhen


Map 7: Shenzhen’s administrative divisions, district population and GDP contribution

District



(’000) (%)

1 Futian District 1,331 18.3

2 Luohu District 936 10.5

3 Nanshan District 1,109 21.9

4 Bao’an District 4,093 23.1

5 Longgang District 2,058 16.8

6 Yantian District 213 2.8

7 Guangming New District 492 3.9

8 Pingshan New District 317 2.7



– V-49 –

Background

Shenzhen is located on the southern tip of the Chinese mainland and onthe eastern bank of the Pearl River, neighbouring Hong Kong. As thefirst special economic zone (SEZ) at the forefront of reform in China,Shenzhen is one of China’s most important gateways to the world. TheSEZ was extended to include the entire city on 1 July 2010, increasingthe land area from 395.8 sq km to 1,952.8 sq km, and helping to easethe pressure on land usage.

Shenzhen, while typically associated with large-scale manufacturing forexport, has evolved its industrial base to include IT, media and financeas some of its most important growth industries, putting the city on agood footing to continue to grow in a changing economic environment.The city is home to one of China’s two key stock exchanges. Thepopulation, mostly migrants, is very young with the lowest average agein the whole of China, at roughly 30 years old. Shenzhen, with its stronglinks with Hong Kong, is expected to benefit from continued integration,and both domestic and overseas investment in Qianhai SEZ in the westof the city, which is expected to attract a number of Hong Kongcompanies.

Macro economics

The city is the high-tech and manufacturing hub of southern China,home to the world’s fourth busiest container port and the fourth busiestairport on the Chinese mainland. The high-tech, manufacturing, financialservices, modern logistics and cultural industries are mainstays of thecity. Some of China’s most successful high-tech companies, such asBYD, Hasee, Huawei, Tencent and ZTE, locate a major portion of theirbusiness in Shenzhen. Currently, new industries of strategic importanceand modern service industries are quickly becoming drivers of the city’seconomic growth.

Shenzhen’s GDP has grown over the past few years, with five-yearaverage growth of 11.0%, ranking fourth among all cities in China. Thisgrowth has been one of the most important factors in the developmentof the retail market, driving demand from a growing and increasinglywealthy citizen base. By 2012, the city’s GDP reached RMB1,295billion, YoY growth of 10%. The decreasing growth rate is primarily theresult of a slowing global economy and the recent upgrade of the overallindustrial structure.

As Shenzhen restructures its economy towards more finance and ITrelated sectors and develops closer ties with Hong Kong, it is rapidlymoving the focus of economic growth (especially in the tertiary sector)away from Guangzhou.


– V-50 –

Figure 31: Shenzhen’s GDP, 2003-2012

0%

5%

10%

15%

20%

25%

0

200

400

600

800

1,000

1,200

1,400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012



Shenzhen’s worst year in terms of GDP per capita growth was 2009,with growth rates slowing to below 2% from their mid-term average ofover 10%. Growth rates slowed as a result of the global financial crisisand a lack of a significant reduction in population growth. Despiteslowing trade and manufacturing in recent years, the concurrentslowdown in population growth (primarily resulting from migration) hasmeant that GDP per capita has continued to grow at healthy rates.


– V-51 –

Figure 32: Shenzhen’s GDP per capita, 2003-2012

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012



Shenzhen is known as a migrant city with a young demographic.Covering 1,991 sq km, the city has a total population of 10.5 million,with 72.7% of people being non-registered “hukou” in 2012. Accordingto Forbes China in 2011, Shenzhen was voted the most innovative cityin mainland China. Following the upgrade of the industrial structure, thelow-skilled labour force may have moved to other cities for jobopportunities, which likely explains the decreasing population growth inrecent years, as this growth tends to be driven by the externalpopulation.

Shenzhen’s population has grown rapidly since its formation, reaching10.5 million people by the end of 2012, while growth rates at the start ofthe century were recorded in the region of 3% to 5% per annum. Growthrates, as they did in Guangzhou, have slowed markedly in the last twoyears. As trade and manufacturing sectors have slowed, populationgrowth is now closer to 1% per annum.


– V-52 –

Figure 33: Shenzhen’s permanent population, 2006-2012

0%

1%

2%

3%

4%

5%

6%

0

2,000

4,000

6,000

8,000

10,000

12,000

2006 2007 2008 2009 2010 2011 2012



With the exception of 2009, disposable income per capita growth rateshave averaged close to 10% over the past few years. The fall indisposable incomes was a result of changes in the calculation methodand not in fact a marked slowdown in growth rates. In recent years,there has been a campaign to boost wages (especially minimum wages)in Shenzhen as the cost of living has risen and the demand for skilledversus semi-skilled labour continues to increase.


– V-53 –

Figure 34: Shenzhen’s disposable income per capita, 2005-2012

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2005 2006 2007 2008 2009 2010 2011 2012

Disposable Income per Capita (Left Hand Side)

Disposable Income Growth (Right Hand Side)

RMB YoY

Source: Shenzhen Statistics Bureau, Savills ResearchNote: Data prior to 2005 is not available as the Shenzhen Statistics Bureau changed

the calculation method in 2005.

Aside from a spike in 2005, resulting from a recalculation of retail salesby the Statistics Bureau, retail sales have grown at a relatively steadyrate over the last seven years with a minimum and maximum annualgrowth rate of 12.8% and 17.9% respectively, and a CAGR (2005 to2012) of 15.7%.

It is reasonable to conclude that the migrant population has driven amajority of total sales over the past decade. However, because theoverall migrant population is composed primarily of low-skilled andlow-income workers who tend to spend only on day-to-day necessities,it is likely that there is less potential for mid- to high-end consumption,such as spending on quality F&B and entertainment.

Retail sales growth rates over the next decade are expected to grow atsimilar rates to that of the province and slightly higher than its peerGuangzhou. Sales are primarily driven by local consumers rather thanthose from the surrounding areas and hence future growth in retail saleswill be dependent upon an increasing population, worker productivityand rising incomes. Retail sales will continue to be dominated by themass to mid end of the market which is supported by local consumers.


– V-54 –

Figure 35: Shenzhen’s retail sales, 2003-2012

0%

10%

20%

30%

40%

50%

60%

70%

0

50

100

150

200

250

300

350

400

450

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012




Shenzhen now has five metro lines with a total length of 177 km and anaverage passenger volume of 2.7 million passenger trips. The city isexpected to have an extra five lines by the end of 2016 and a total of 20lines in the long term, covering emerging areas such as Qianhai.

The city also boasts convenient access to Hong Kong with six landcrossing points on the border between Shenzhen and Hong Kong:

� Shenzhen Bay

� Huanggang

� Futian

� Luohu

� Shenzhen Rail Station

� Shatoujiao


– V-55 –

Map 8: Shenzhen’s current metro network

Airport East

Hourui

Xixiang

Gushu

Pingzhou

Baoti

Bao’an Center

Qianhaiwan

Fanshen

Lingzhi

HonglangNorth

Xingdong

Liuxiandong

Xili

UniversityTown

Tanglang

Changlingpi Minzhi

Hongshan

ShenzhenNorth RailwayStationBaishilong

Minle

Shangmeilin

Lianhua North

Children’sPalace

FutianJingtianXiangmiAntuoshan

XiangmeiNorth

LianhuaWest

QiaoxiangShenkang

Longsheng

Longhua

Qinghu

Shangtang

Wuhe

Bantian

Yangmei

Shangshuijing

Xiashuijing

Changlong

Liyumen

Daxin Taoyuan Shenda

Hongshuwan

Keyuan

Houhai

Dengliang

Haiyue

Wanxia

Dongjiaotou

Shuiwan

Sea World

Shekou Port

Chiwan

GaoxingyuanBaishizhou

Window ofthe World

QiaochengEast

Chegongmiao ShoppingPark

Convention &Exhibition Center

CivicCenter

Yitian

Futian Checkpoint

Gangxia

GangxiaNorth

Lianhuacun Huaxin Tongxinling Hongling

Shaibu

Cuizhu

Tianbei

Shuibei

Caopu

HuaqiangNorth

Yannan GrandTheater

Laojie

Buji

Mumianwan

Dafen

Danzhutou

Liuyue

Tangkeng

Henggang

Yonghu

He’au

Dayun

Ailian

Jixiang

LongchengSquare

Nanlian

Shuanglong

Hubei

Huangbeiling

Xinxiu

Yijing

Tai’an

Buxin

Baigelong

Guomao

Luohu

Huaqiang Rd

ScienceMuseum

OCT Zhuzilin Xiangmihu

Linhai

Baohua

LonghuaLine

LuobaoLine

ShekouLine

HuanzhongLine

LonggangLine

LonghuaLine

Huanzhong Line

LonggangLine

Shekou Line

Luobao Line


Outlook

Shenzhen’s proximity to Hong Kong and support from the centralgovernment means that further integration with Hong Kong is likely.Relevant policies such as the development of the Lok Ma Chau Loophave already been included in the city’s blueprint for the period up to2020.

On 3 July 2012, the State Council unveiled policies for the developmentof Qianhai as a pilot area for closer cooperation and the integration ofGuangdong Province and Hong Kong. The policies cover finance, tax,law, talent, education, healthcare and telecommunications. According tothe policies, Qianhai is allowed to explore widened offshore renminbiflow-back channels and cross-border loans, support Qianhai enterprisesto issue renminbi bonds in Hong Kong and allow the establishment offunds of funds (FOF). Full development of the area is planned for 2020.


– V-56 –


Major retail areas

Luohu Caiwuwei, Futian CBD and Nanshan CBD, along with OCT andMangrove Bay are the four primary retail areas in Shenzhen.

Map 9: Major retail areas in Shenzhen


Luohu Caiwuwei is the most expensive retail area in Shenzhen in termsof average shopping mall and street shop rents. International anddomestic tourists as well as high-income consumers are the mainshoppers in the area, where a cluster of fast-fashion brands and mid- tohigh-end malls, street shops and department stores can be found. Theleading projects are KK Mall and The Mixc.

Futian CBD has a considerable number of Grade A office buildings.Mid-end shopping malls are the area’s main retail format, cateringprimarily to white-collar workers through a wide range of F&B outlets.Raising the retail positioning with an emphasis on new fast-fashionbrands is a recent trend. COCO Park and Central Walk are the leadingprojects in the area.

Nanshan CBD is a regional retail hub which caters primarily to Nanshandistrict residents. The existing stock in the area totals almost 500,000 sqm, with another 27,000 sq m expected to be added to the market by2015. Consumers can find a diverse range of brands and trades inshopping malls and department stores here, the more well known onesbeing Coastal City and All City.


– V-57 –

OCT and Mangrove Bay primarily attract footfall from more affluent localand expat residents, as well as some international and domestictourists. Mid- to high-end street shops, department stores and shoppingmalls are the main retail formats in the area, such as Yitian HolidayPlaza and O’Plaza.

Existing stock

The total stock of existing projects as at the end of 2012 wasapproximately 1.7 million sq m, primarily located in Luohu Caiwuwei,Futian CBD and Nanshan CBD, with relatively little stock in OCT andMangrove Bay. A small amount of retail stock is also present inLonggang, a decentralised area. Mid-end and mid- to high-end shoppingmalls remain the dominant retail format in the city.

Following their entry in Beijing and Shanghai, international retailershave gradually looked to Shenzhen’s market. Luxury brands favourprime locations, particularly Luohu Caiwuwei, while fast-fashion brandshave a presence in all prime locations and a small presence indecentralised areas. Similarly, hypermarket retailers are now placingmore emphasis on Shenzhen based on the consumption potential.

Figure 36: Shenzhen’s existing retail stock by major retail area, 2012

0

100

200

300

400

500

600

Futian CBD OCT and Mangrove Bay

Luohu Caiwuwei Nanshan CBD Longgang Center

Sq m thousand

Source: Savills ResearchNote: Known retail projects (both shopping malls and department stores) of more than

20,000 sq m are included in our calculation.


– V-58 –

Retail supply in Shenzhen has differed significantly from year to year. In2012, retail supply started to pick up again when two mid- to large-scaleshopping malls entered the market.

Figure 37: Retail supply and stock in Shenzhen, 2010-2016E

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0

50

100

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300

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400

2010 2011 2012 2013E 2014E 2015E 2016E




Market performance

Historically, Shenzhen’s rents ranked third among all first-tier cities, andin Q2/2013, the city’s average first-floor rents reached RMB39.1 per sqm per day. Rents have now entered into a stable growth stage due tothe supply expected in the city, the diversification of consumptiondemand, as well as stabilising economic growth. Therefore, growth inrents will be relatively modest in the near future.

The highest rents are seen in Luohu Caiwuwei, at RMB62.5 per sq mper day on average, which is 2.5 to 3 times higher than that in FutianCBD, OCT and Mangrove Bay, and Nanshan CBD. Tenants indecentralised areas, such as Bao’an Center and Longgang Center, onthe other hand, pay very low rents of only RMB5 to RMB8 per sq m perday, reflecting the relatively early stage of development of thesemarkets.


– V-59 –

Figure 38: Shenzhen’s average first-floor shopping mall rent, Q1/2009-Q2/2013

20

25

30

35

40

45

50

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2009 2010 2011 2012 2013

RMB per sq m per day

Source: Savills ResearchNote: First-floor rent in shopping malls is defined as rent paid by a fashion retailer with

a store of between 100 and 150 sq m.

Average rents and estimated capital values have remained stable sinceQ1/2012. The average estimated capital value per sq m was recorded atRMB123,080 in Q2/2013. Gross yields have fallen since Q2/2009 to7.08% in Q2/2013. This trend implies that the city’s retail market hasbegun to enter a more mature phase of development.


From 2013 onward, total known future supply of more than 1.0 millionsq m will enter the Shenzhen market in the following four years. Thisfuture supply will be located in both primary areas (Nanshan CBD andFutian CBD) and decentralised areas (Longgang Centre and Bao’anCentre). Most of the future projects are shopping malls with total floorspace of between 78,000 sq m and 185,000 sq m, primarily positionedas mid- to high-end malls catering to more affluent consumers. Localdevelopers will have more presence in the future Shenzhen retailmarket, with a small presence from domestic and international players.

Although future retail supply is significant and greater competitionamong existing stock is anticipated, certain areas still have positiveinvestment prospects. As the most recently developed area, NanshanCBD’s current rents remain lower than the market average, owing to thefact that the majority of the existing stock is mid end and the projectscater primarily to local residents’ day-to-day demands. However, rents


– V-60 –

are expected to experience a significant growth in the long run, due tothe completion of several office towers in Houhai area, the maturity ofsurrounding high-end residential developments and the positiveinfluence from the enhancement of Qianhai area.

Futian CBD, similar to Nanshan CBD, features mid-end malls.Significant occupancy by fast-fashion retailers and F&B tradescompressed the growth of rents as they tend to pay turnover rentswithout base rents in projects located in prime locations. The futureprospects for Futian CBD are not driven by growing demand from localresidents but from the future completion of the Futian Railway Station,the transport hub along the Shenzhen-Hong Kong high-speed railway, in2016. Footfall brought by the transportation hub will boost consumptiondemand further.

OCT and Mangrove Bay remains another attractive investment target fordifferent reasons. With several well-known tourist attractions, a clusterof high-end residential projects and the future completion of metro line9, the area will see a higher rental growth in retail projects which arepositioned at the mid- to high-end and catering to both high-incomeshoppers and visitors.

Table 6: Known future retail projects in Shenzhen, 2013-2016

Retail area

Projectname(CN) Project name (EN)

Completiondate

RetailGFA(sq m)

Bao’an Center 海雅繽紛城 Haiya Mega Mall 2013 180,000OCT and Mangrove Bay 歡樂海岸 O’Plaza 2013 780,000Longgang Center 萬科廣場 V-Mall 2013 105,000Futian CBD 皇庭廣場 IA Mall 2014 80,800Futian CBD 世紀匯購物

中心CATIC Center 2014 100,000

Nanshan CBD 來福士廣場 Raffles City 2015 88,000Nanshan CBD 水灣1979 Shuiwan 1979 2015 35,550Bao’an Center 中糧大悅城 Cofco-property 2016 160,000Futian CBD 深圳中心 Shenzhen Center 2016 180,000


– V-61 –

5) Foshan


Map 10: Foshan’s administrative divisions, district population and GDP contribution

District



(’000) (%)

1 Chancheng District 1,105 17.9

2 Nanhai District 2,622 29.1

3 Shunde District 2,484 34.6

4 Sanshui District 648 11.1

5 Gaoming District 423 7.4


Background

Situated in the heart of the PRD, Foshan benefits from its location andplays a role as a transportation hub in both the PRD andGuangzhou-Foshan economic circle. Manufacturing is the dominantindustry, contributing more than 60% of the city’s total GDP. However,the dominating role of the manufacturing industry also constrains thedevelopment of tertiary industry. Following the government’s plans tointegrate all PRD cities, especially ties between Guangzhou andFoshan, an upgrade of the city’s industrial structure is forthcoming.

While previously dominated by inefficient state-owned enterprises,Foshan has seen a flourishing of private enterprises in recent years.The Foshan government wants to solidify its position as one of theleading manufacturing bases in Guangdong and plans to invest heavilyin infrastructure such as transportation and energy.

Macro economics

Foshan is one of the most competitive cities in China due to themanufacturing industry’s prominent role in the economy. The city sharesGuangzhou’s infrastructure and industry resources, such as IT, resultingin a strong growth momentum in GDP output. Meanwhile, emphasis onthe appliances, F&B, textiles, metal materials and fine chemistryindustries is another major economic driver.


– V-62 –

In 2012, Foshan’s GDP reached RMB670.9 billion, YoY growth of 8.2%,and its GDP per capita was RMB92,388, considerably higher than thePRD average and ranking in fourth place among its PRD peers. As thelocal economy matures, GDP growth has entered a stable growthperiod, with double-digit growth unlikely in the future.

Foshan, while unlikely to continue generating the same pace of growthrecorded at the start of the century, should still be able to record fairlysteady growth rates. Many companies and individuals are increasinglylooking at second-tier cities for opportunities. For companies, thesecities present opportunities in terms of lower overheads and lesscompetition for staff. For individuals, they present greater opportunitiesfor growth and increasing responsibilities as well as potentially gainfulemployment closer to their families. Many of the senior staff in thesebigger companies are likely to be employees who have worked infirst-tier cities but are originally from the second-tier cities in questionand would like to work closer to home, with local relationships andmarket knowledge.

Figure 39: Foshan’s GDP, 2003-2012

0%

5%

10%

15%

20%

25%

0

100

200

300

400

500

600

700

800

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012



Again, apart from a drop in GDP per capita in 2005 as a result ofchanges in the calculation methods, growth rates have remained fairlyhealthy. The highest growth rate in recent years was recorded in 2006when GDP per capita grew at a nominal rate of 19.4%, while the slowestgrowth was in 2009 at a nominal rate of 5.4%. The CAGR for 2005 to


– V-63 –

2012 was 11.7%. Continued gains in productivity and new businessinflows should help to push GDP per capita to new heights in comingyears.

Figure 40: Foshan’s GDP per capita, 2003-2012

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012



The city’s permanent population by 2012 was 7.3 million, over 50% ofwhich has moved from elsewhere in the country. More than 800,000people are from Hong Kong and Macau. Similar to other PRD peers, thepopulation growth reduction in recent years is primarily due to industrialstructural changes, which have reallocated low-skilled workers to inlandcities and further west in the country.

Similar to Guangzhou, the precise reasons for the slower populationgrowth rate in 2011 remain unknown. In common with Guangzhou, thedecrease may be a consequence of a slowdown in the exports andmanufacturing sectors, resulting from slower global economic growthand overcapacity, as well as automation and increasing competitionfrom other Asian countries.


– V-64 –

Figure 41: Foshan’s permanent population, 2006-2012

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2006 2007 2008 2009 2010 2011 2012



With gains in productivity and an increasingly employee-dominatedlabour market in recent years compared with the 1990s, disposableincomes have continued to rise. Disposable incomes increased at anominal rate of 12.6% to RMB34,580 per annum in 2012, representing anominal CAGR from 2005 to 2012 of 10.1%.


– V-65 –

Figure 42: Foshan’s disposable income per capita, 2003-2012

6%

7%

8%

9%

10%

11%

12%

13%

14%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Disposable Income per Capita (Left Hand Side)

Disposable Income Growth (Right Hand Side)

RMB YoY


Not until 2011 did the growth in retail sales experience a significantslowdown. Retail sales in 2012 reached approximately RMB202 billion,YoY nominal growth of only 5% from the previous year, considerablylower than the nominal CAGR from 2005 to 2012 of 17.6%. Therelatively weak growth momentum is due to the slowing domesticeconomy and possibly the higher inflation rate in 2011 of 5.5%.

Despite a slowdown in sales in the last couple of years, retail sales areexpected to pick up in the short term given the stabilising economicgrowth story, continued migration and substantial rises in disposableincomes over the last two years. Retail sales are anticipated to follow asimilar trajectory to that of Guangdong Province, and slightly higherthan the national average. Local shoppers consuming mass- to mid-endproducts will be the dominant driver of sales.


– V-66 –

Figure 43: Foshan’s retail sales, 2003-2012

0%

5%

10%

15%

20%

25%

30%

0

20

40

60

80

100

120

140

160

180

200

220

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012




There is no international airport in Foshan but the city is one hour awayfrom Guangzhou Baiyun International Airport.

Foshan is the connection point between the Guangzhou-Zhanjiangrailway and the national railway network, as well as the Jingguangrailway (Beijing-Guangzhou) and Jingjiu railway (Beijing-Kowloon). Thecity is also a stop on the Guangfo railway and the PRD RingExpressway.

At present, only one metro line, completed in 2010, is in operationbetween Guangzhou and Foshan. By 2020, there will be eight metrolines connecting Guangzhou and Foshan in the east and the west of thecity, with a total length of over 250 km.

Foshan has also invested RMB36 billion to construct an expresswaynetwork, including five expressways running north to south, nine runningwest to east and two ring roads. By 2012, the total length of the roadsystem was 5,010 km.


– V-67 –

Map 11: Foshan’s current metro network

LonghuaLine

LuobaoLine

ShekouLine

HuanzhongLine

Guangfo Line

Kuiqi Rd


Outlook

“Guangfo City Planning” is the pilot programme for the integration of thewhole PRD region, where Guangzhou and Foshan together are given acentral role as one of the core cities. Foshan is therefore expected toundergo a period of rapid and significant economic development,making the city more vibrant and competitive.


A decade after the first landmark retail project was completed, Foshan’sretail market development is now accelerating and becoming morediversified: older projects are being remodelled to adapt to the newretail environment, while new projects are very ambitious and are


– V-68 –

targeting similar trade mixes and brands to those of first-tier cities. Thecombination of renovated older developments and new projects hascreated a very competitive environment.

Main retail areas

In Foshan, Zumiao, Jihua Road and Guicheng are the primary retailareas, while Chengnan is the emerging area located in the south of thecity.

Map 12: Major retail areas in Foshan


Zhumiao is the traditional commercial city centre catering to localresidents in Foshan, as well as tourists from Lingnan and Zhumiao, withmid- to high-end retail formats, including street shops, hypermarkets,department stores, shopping malls and shopping streets. DongfangPlaza and Baihua Plaza are the leading projects in the area. The recentdevelopment of Lingnan Xintiandi will shift the target catchment fromtourists to local consumers.


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Jihua Road is the city-level business centre and the retail area with themost luxury brands in Foshan. A cluster of mid- to high-endhypermarkets, department stores and street shops cater to demandfrom local residents in Yayi and Chengnan areas, white-collar workers,business people as well as mid- to high-income consumers. In the area,the leading projects include Shunlian International Shopping Center andIn City Foshan.

Guicheng is full of mid-end and mid- to high-end street shops,hypermarkets, department stores and shopping malls primarily cateringto local residents in Nanhai district. The retail supply is relativelydispersed, with a tendency to expand northwards. Leading projectsinclude Nanhai Plaza, CapitaLand Plaza, Baihua Plaza and City Plaza.

Chengnan is an emerging retail area with a significant amount of futureretail supply expected in the following three years.

Existing stock

As at the end of 2012, the total retail stock in Foshan was approximately1 million sq m, primarily concentrated in Zumiao, Guicheng and JihuaRoad. The size of existing projects varies considerably, from 20,000 sqm to over 200,000 sq m. The shopping mall is the dominant retail formatin Foshan’s market.

With proximity to Guangzhou, Foshan has attracted several internationalretailers. Currently, all fast-fashion retailers, fashion retailers andhypermarkets are located in prime areas, particularly on Jihua Road.Brands with a presence in Foshan include UNIQLO, H&M, Zara, CKJeans, GUESS, MUJI and Walmart.

Retailers pay the highest rents in Zumiao of approximately RMB16 toRMB33 per sq m per day, followed by Guicheng (RMB16 to RMB20 persq m per day). The average first-floor rent is lower on Jihua Road andChengnan, at RMB7 to RMB16 per sq m per day and RMB6 to RMB12per sq m per day respectively. The disparity in rents between prime andsecondary areas is less significant compared with first-tier cities.


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Figure 44: Foshan’s existing retail stock by major retail area, 2012

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Historical retail supply has been relatively low. Supply has started toincrease in recent years, with over 2.0 million sq m of new supplyentering the market in both 2011 and 2012. By 2012, the existing retailstock, predominantly shopping malls, is primarily located in Zumiao andJihua Road, with projects ranging from 45,000 sq m to 196,000 sq m.These projects are mainly positioned as mid- to high-end and high-endmalls catering to mid- to high-income consumers.


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Figure 45: Foshan’s retail supply and stock, 2010-2016E

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A large amount of retail supply is expected in Foshan over the followingfour years. From 2013, approximately 1.4 million sq m of retail spacewill be launched in the Jihua Road, Guicheng and Chengnan areas. Themajority of the future retail supply is shopping malls with floor spaceranging from 25,000 sq m to 150,000 sq m.

The average size of the future retail projects in Jihua Road andGuicheng is approximately 70,000 sq m, while that in Chengnan islarger, up to 95,000 sq m on average. International and domesticplayers have more of a presence in the future Foshan retail market,compared with Guangzhou and Shenzhen, while a few of the futureprojects are from local developers or the city government.

Both Foshan’s total population and density of population rank in fourthplace in Guangdong Province. This considerable population serves as asolid base for retail market development. Considering the fact that thecity has only 57% of Guangzhou’s permanent population, there issizeable potential consumption demand, as Foshan’s GDP per capita isonly 10% less than that of Guangzhou’s, while retail sales are one-thirdof Guangzhou’s. If the external population is taken into consideration,consumption demand is more significant. Over the past decade, 1.4million people from elsewhere in China moved to Foshan, almost three


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times that of the natural increase in the local population. Meanwhile, theexpansion of the railway, metro and road systems will enhance businessand trade between Guangzhou and Foshan, which will in turn boostretail development in both cities.

As both domestic and international retailers and developers areinterested in entering or expanding their market share in Foshan, thecity’s retail market has experienced substantial growth over the past fewyears. Old projects are being upgraded while new developments arecompleted to a standard comparable with first-tier cities. Landlords willhave to focus on finding the appropriate market positioning of new mallsand ensure a strong local profile if projects are to succeed.

The investment prospects of all three primary retail areas, namelyZumiao, Jihua Road and Guicheng, remain positive.

Zumiao, which currently enjoys the highest average rents in the city, isFoshan’s traditional business centre. Meanwhile, a significant amount offootfall is generated by the scenery and tourist attractions in Lingnanarea, supporting consumption. The limited future supply implies strongerrental growth potential, and it will be the regeneration of old projectswhich will dominate the area’s future retail market instead.

Jihua Road is both Foshan’s modern business district and the core retailarea. The retail positioning in the area is at the higher end comparedwith Zumiao. Future supply is dominated by regeneration projects andretail components in mixed-use projects catering to local residents,white-collar workers and business people. Currently, rents are primarilyin the form of base rents or turnover rents, whichever is higher. In thefollowing five to ten years, Jihua Road is expected to be in the spotlight,which will lead to stable rental growth.

Meanwhile, influenced by the completion of the Guangfo metro line andthe promotion of Qiandenghu area, Guicheng has experienced asignificant increase in retail stock recently. The newly built shoppingmalls are equipped with better hardware and more experiencedretailers, gradually making them a popular destination for shoppers,especially those from Chengnan.


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Table 7: Foshan’s known future retail supply by area, 2014-2016

Retailareas Project name (CN) Project name (EN)

Completiondate

RetailGFA(sq m)

Jihua Road 恒福國際商業中心 Hengfu Mall 2013 25,000Guicheng 創鴻廣場 Comhope Plaza 2013 70,000Jihua Road 鵬瑞利季華廣場 Perennial Plaza 2013 69,000Guicheng 越秀城建項目 Yuexiu Project 2014 40,000Guicheng 怡豐城 Vivo City 2014 100,000Guicheng 南海萬達廣場 Wanda Plaza 2014 100,000Chengnan 世博嘉園 Shibo Jiayuan 2014 83,000Jihua Road 萬科廣場 Vanke Plaza 2014 85,000Jihua Road 王府井購物中心 Wanfujing Shopping

Center2014 100,000

Guicheng 南海萬科廣場 Nanhai Vanke Plaza 2014 55,000Guicheng 地鐵金融城 Financial City 2014 66,000Chengnan 蘇寧廣場 Suning Square 2014 120,000Guicheng 南海廣場二期 Nanhai Square Phase II 2015 70,000Guicheng 華南國際金融中心商業部分 Huanan Guoji 2015 50,000Chengnan 魁奇路地鐵站商業 Kuiqi Road Project 2015 105,000Jihua Road 綠地集團項目 Greenland Project 2016 70,000Chengnan 保利東灣商業中心 Dongwan Shopping Center 2016 80,000Chengnan 坊城MALL Fangcheng Mall 2016 90,000

Limitations on the report

This report contains forward-looking statements which state Savills Property Services(Shanghai) Company Limited’s (the “Consultant”) beliefs, expectations, forecasts orpredictions for the future. The Consultant stresses that all such forecasts andstatements, other than statements of historical fact, outlined in this report should beregarded as an indicative assessment of possibilities rather than absolute certainties.The process of making forecasts involves assumptions about a considerable number ofvariables which are very sensitive to changing conditions. Variations of any one maysignificantly affect outcomes and the Consultant draws your attention to this.

The Consultant therefore can give no assurance that the forecasts outlined in thisreport will be achieved or that such forecasts and forward-looking statements willprove to have been correct and you are cautioned not to place undue reliance on suchstatements. The Consultant undertakes no obligation to publicly update or revise anyforward-looking statements contained in this report, whether as a result of newinformation, future events or otherwise, except as required by law, and allforward-looking statements contained in this summary report are qualified by referenceto this cautionary statement.


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The report is prepared by the Consultant for information only. While reasonable carehas been exercised in preparing the report, it is subject to change and theseparticulars do not constitute, nor constitute part of, an offer or contract. Interestedparties should not rely on the statements or representations of fact but must satisfythemselves by inspection or otherwise as to the accuracy. No representation, warrantyor covenant, express or implied, is given and no undertaking as to accuracy,reasonableness or completeness of the information contained in this report. Inproducing this report, the Consultant has relied upon external third-party informationand on statistical models to generate the forward-looking statements. It should benoted, and it is expressly stated, that there is no independent verification of any of theexternal third-party documents or information referred to herein. This report is limitedto the matters stated in it and no opinion is implied or may be inferred beyond thematters expressly stated herein.

Yours sincerely,Savills Property Services (Shanghai) Company Limited

Siu Wing ChuDeputy Managing Director, Shanghai

Head of Retail, ChinaHead of Residential Sales, Shanghai


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of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong))(stock code: 823)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the unitholders(the “Unitholders”) of The Link Real Estate Investment Trust (“The Link REIT”) will beheld at Salon 5 and 6, JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong,Pacific Place, 88 Queensway, Hong Kong on Tuesday, 18 February 2014 at 10:00 a.m.for the purposes of considering and, if thought fit, passing with or withoutmodifications, each of the following resolutions as a Special Resolution:

Words and expressions that are not expressly defined in this notice of extraordinarygeneral meeting shall bear the same meaning as that defined in the circular dated 17January 2014 of The Link REIT (the “Circular”).

SPECIAL RESOLUTIONS

1. “THAT:

(A) pursuant to Clause 20.2.7 of the trust deed constituting The Link REIT(the “Trust Deed”) and subject to the passing of Special Resolution no. 2 asset out in this notice, approval be and is hereby given for the ExpandedGeographical Investment Scope as set out in the Circular, a copy of whichmarked A and signed by the chairman of meeting for identification purposesis presented to the meeting; and

(B) The Link Management Limited (as manager of The Link REIT)(the “Manager”), any director of the Manager and the Trustee each be and ishereby severally authorised to complete and do or cause to be done all suchacts and things (including without limitation executing such supplementaldeed to the Trust Deed and all other documents as may be required) as theManager, such director of the Manager or the Trustee, as the case may be,may consider expedient or necessary or in the interests of The Link REIT togive effect to the matters resolved upon in sub-paragraph (A) of thisresolution no. 1.”


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2. “THAT:

(A) subject to the passing of Special Resolution no. 1 as set out in this noticeand pursuant to Clause 25.1 of the Trust Deed, approval be and is herebygiven for the Investment Scope Trust Deed Amendments, as specifically setout in Part A of Appendix I to the Circular; and

(B) the Manager, any director of the Manager and the Trustee each be and ishereby severally authorised to complete and do or cause to be done all suchacts and things (including without limitation executing such supplementaldeed to the Trust Deed and all other documents as may be required) as theManager, such director of the Manager or the Trustee, as the case may be,may consider expedient or necessary or in the interests of The Link REIT togive effect to the matters resolved upon in sub-paragraph (A) of thisresolution no. 2.”

3. “THAT:

(A) pursuant to Clause 25.1 of the Trust Deed, approval be and is hereby givenfor the Trust Deed amendments relating to The Link REIT’s authorisedinvestments and related activities, as specifically set out in Part B ofAppendix I to the Circular; and


4. “THAT:

(A) pursuant to Clause 25.1 of the Trust Deed, approval be and is hereby givenfor the Trust Deed amendments relating to The Link REIT’s issuance of unitsand/or convertible instruments to a connected person (as defined in the REITCode) and other matters relating to issue of Units as specifically set out inPart C of Appendix I to the Circular; and

(B) the Manager, any director of the Manager and the Trustee each be and ishereby severally authorised to complete and do or cause to be done all suchacts and things (including without limitation executing such supplementaldeed to the Trust Deed and all other documents as may be required) as theManager, such director of the Manager or the Trustee, as the case may be,


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may consider expedient or necessary or in the interests of The Link REIT togive effect to the matters resolved upon in sub-paragraph (A) of thisresolution no. 4.”

5. “THAT:

(A) pursuant to Clause 25.1 of the Trust Deed, approval be and is hereby givenfor the Trust Deed amendments relating to the Manager’s and the Trustee’sability to borrow or raise money for The Link REIT, as specifically set out inPart D of Appendix I to the Circular; and


6. “THAT:

(A) pursuant to Clause 25.1 of the Trust Deed, approval be and is hereby givenfor the Trust Deed amendments relating to voting by a show of hands, asspecifically set out in Part E of Appendix I to the Circular; and


7. “THAT:

(A) pursuant to Clause 25.1 of the Trust Deed, approval be and is hereby givenfor the Trust Deed amendments relating to other miscellaneousamendments, as specifically set out in Part F of Appendix I to the Circular;and


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By order of the board of directors ofThe Link Management Limited

(as manager of The Link Real Estate Investment Trust)Ricky CHAN Ming TakCompany Secretary

Hong Kong, 17 January 2014

Notes:

(a) For the purpose of ascertaining Unitholders’ right to attend the above extraordinary general meeting(“EGM”), the register of Unitholders will be closed from Thursday, 13 February 2014 to Tuesday, 18February 2014, both days inclusive, during which period no transfer of units of The Link REIT(the “Units”) will be registered. In order to be eligible to attend and vote at the EGM, all transferdocuments accompanied by the relevant unit certificates must be lodged with the unit registrar of TheLink REIT, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:30 p.m. on Wednesday, 12February 2014.

(b) Any Unitholder entitled to attend and vote at the EGM is entitled to appoint one or more proxies toattend and vote on poll in his/her stead. A proxy need not be a Unitholder. If more than one proxy isappointed, the relevant proxy form(s) must specify the number of Units in respect of which each suchproxy is appointed.

(c) In the case of joint Unitholders, the vote of the senior who tenders a vote, whether in person or byproxy, shall be accepted to the exclusion of the votes of the other joint Unitholders and for thispurpose, seniority shall be determined by the order in which the names of the joint Unitholders standin the register of Unitholders in respect of the relevant Unit.

(d) In order to be valid, the instrument appointing a proxy, together with any power of attorney or otherauthority, if any, under which it is signed or a notarially certified copy of such power of attorney orother authority, if any, must be lodged with the unit registrar of The Link REIT, Computershare HongKong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai,Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjournedmeeting thereof.

(e) With regard to the proposed Special Resolutions nos. 2 to 7, please note that the Trust Deed isavailable in English only and the Chinese translation of any provisions of the Trust Deed provided inthe Chinese versions of this notice and Appendix I to the Circular are for reference only. In case ofany discrepancy, the English version shall prevail.

(f) The voting of all the proposed resolutions at the EGM will be taken by poll.


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(g) As at the date of this notice, the board of directors of the Manager comprises Mr. Nicholas RobertSALLNOW-SMITH as the Chairman and also an Independent Non-Executive Director; Mr. GeorgeKwok Lung HONGCHOY (Chief Executive Officer) and Mr. Andy CHEUNG Lee Ming (Chief FinancialOfficer) as Executive Directors; Mr. Ian Keith GRIFFITHS as Non-Executive Director; and Mr. WilliamCHAN Chak Cheung, Mr. Anthony CHOW Wing Kin, Dr. Patrick FUNG Yuk Bun, Mr. Stanley KO KamChuen, Ms. May Siew Boi TAN, Mr. David Charles WATT, Professor Richard WONG Yue Chim andMs. Elaine Carole YOUNG as Independent Non-Executive Directors.


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