Hong Kong Property: Expert Call on Real Estate with Knight Frank

Research evidence excerpt

Hong Kong Property: Expert Call on Real Estate with Knight Frank

UpdateMValuation Methodology and Risks

Henderson Land (0012.HK)

Base-case value, derived from sum-of-the-parts valuation. We value the core business by

applying a 30% discount to our forward NAV estimate, 1SD above historical average.

Risks to Upside

n Faster-than-expected home price recovery

n Improving DP margin

n Better-than-expected premiums for agricultural landbank conversion

n Sale of non-core assets at low cap rate

Risks to Downside

n Higher-than-expected interest rate

n Weak sell-through of new project launch

n Rising balance of shareholders' loans

Sun Hung Kai Properties (0016.HK)

Base-case scenario value, derived from a sum-of-the-parts approach.

Development properties: DCF (WACC 8.5% HK, 11% China)

Investment properties: cap rates (HK office 4.75%, HK retail 5.75%, China office and retail 8%).

Target NAV discount at 25%, 1.5SD above its historical average.

n Sustainable recovery in primary residential sales in HK

n Better-than-expected sell-through of project launches

n Faster ramp-up on new investment projects

n Macro risk, medium-term interest rate increases and regulatory concerns

n Weaker-/slower-than-expected residential sales in HK and China

n Sluggish demand and slow sell-through of residential units in HK

n Weaker office and retail rentals in HK/China

Link REIT (0823.HK)

Base case scenario value, derived from a target 12-month forward dividend yield of 5.65%.

The target forward dividend yield is composed of a 4.05% 10-year US Treasury yield (MSe by

end-2026) and a spread of 1.6% (1SD above long-term average since 2011).

n Upcoming rates cut for further yield compression

n Potential REIT inclusions of Stock Connect to boost fund flows

n Possible value-accretive acquisitions