Langham Hospitality Investments (1270.HK) Initiation of …xqdoc.b0.upaiyun.com/13fa2070733173fb3532289c.pdf · See Appendix A-1 for Analyst Certification, Important Disclosures and

See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures.

Citi Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

3 July 2013 │ 24 pages Hotels, Resorts & Cruise Lines (GICS) │ Real Estate Investment Trusts (Citi) Asia │ Hong Kong

Langham Hospitality Investments (1270.HK) Initiate at Buy: Premium Hotel Brand with Attractive Valuation

A decent yield play with three hotel properties in Hong Kong — We initiate coverage on Langham Hospitality Investments (LHI) shares at Buy. LHI focuses on the HK hotel segment – a market we view as having a decent medium-term outlook. Considering its hotel locations, brand recognition and potential growth outlook, we believe LHI deserves a valuation premium over its closet peer Regal REIT (1881.HK), now trading at FY13E yield of 6.5%. LHI’s valuation at FY13E yield of 7.6% (clean yield: 7.0%) looks attractive, in our view. Our DDM-based target price of HK$4.74 (implying 6.4% yield) is based on cost of equity at 8.0%, reflecting latest market expectations for rising interest rates in the medium to long term.

Strengths — 1) Direct beneficiary of buoyant conditions for HK hotel industry. The initial portfolio comprises two high-tariff A and one high-tariff B hotels in Hong Kong, where we see limited supply and a growing demand outlook for both types of hotels in the medium term. 2) High-quality assets situated in prime locations in Kowloon, which should be well placed to attract existing and new customers and increase RevPAR levels for organic growth. 3) Low-risk portfolio with diversified sources of revenue and customer base, hence a lower concentration risk. 4) International recognition of Langham Brands, which manages and/or owns 15 hotels in 11 cities globally, with an established and growing recognition.

Potential yield-accretive acquisitions from Great Eagle to drive further growth — Parent company Great Eagle has granted rights of first refusal (ROFR) to LHI. This enables LHI to pursue yield-accretive opportunities from Great Eagle’s future development portfolio and third parties. Currently Great Eagle, through Langham Hotels International, owns 11 hotels globally. The support from Great Eagle should give LHI access to a pipeline of hotels for future acquisitions.

Key risks — i) Any slowdown in HK visitor arrival growth due to economic weakness, epidemics or other factors; ii) rising interest rates; iii) reliance on just three properties; iv) conflicts of interest related to Great Eagle.

Initiation of Coverage

Griffin Chan +852-2501-2438 [email protected]

Ken Yeung +852-2501-2713 [email protected]

Oscar Choi +852-2501-2737 [email protected]

Buy 1Price (02 Jul 13) HK$4.00Target price HK$4.74Expected share price return 18.5%Expected dividend yield 7.6%Expected total return 26.1%Market Cap HK$8,000M US$1,031M

Price Performance (RIC: 1270.HK, BB: 1270 HK)

Statistical Abstract

Year to Net Profit Diluted EPS EPS growth P/E P/B ROE Yield

31 Dec (HK$K) (HK$) (%) (x) (x) (%) (%)

2011A na na na na na na na

2012A na na na na na na na

2013E* 453,590 0.23 na 17.8 0.7 4.1 7.6

2014E 493,821 0.24 7.7 16.5 0.7 4.5 8.1

2015E 516,234 0.25 3.4 16.0 0.8 4.7 8.1

Source: Powered by dataCentral; * Annualized

Citi Research

Equities

Langham Hospitality Investments (1270.HK) 3 July 2013 Citi Research

2

Fiscal year end 31-Dec

2011 2012 2013E 2014E 2015E

Valuation Ratios

P/E adjusted (x) na na 17.6 16.4 15.8 P/E reported (x) na na 17.6 16.4 15.8 P/BV (x) na na 0.7 0.7 0.7 Dividend yield (%) na na 7.6 8.2 8.2 Per Share Data (HK$) EPS adjusted na na 0.23 0.24 0.25 EPS reported na na 0.23 0.24 0.25 BVPS na na 5.51 5.43 5.36 NAVps ordinary na na na na na DPS na na 0.31 0.33 0.33

Profit & Loss (HK$K)

Net operating income (NOI) na na 679,831 724,787 763,203 G&A expenses na na -17,000 -17,850 -18,743 Other Operating items na na -1,000 -960 -948 EBIT including associates na na 661,831 705,977 743,512 Non-oper./net int./except. na na -157,843 -157,287 -156,883 Pre-tax profit na na 503,988 548,690 586,630 Tax na na -50,399 -54,869 -70,396 Extraord./Min. Int./Pref. Div. na na 0 0 0 Reported net income na na 453,590 493,821 516,234 Adjusted earnings na na 453,590 493,821 516,234 Adjusted EBIT na na 661,831 705,977 743,512 Adjusted EBITDA na na 662,831 706,937 744,460 Growth Rates (%) NOI na na na 6.6 5.3 EBIT adjusted na na na 6.7 5.3 EPS adjusted na na na 7.7 3.4

Cash Flow (HK$K)

Operating cash flow na na 736,523 750,335 769,980 Depreciation/amortization na na 1,000 960 948 Net working capital na na -14,492 -15,536 -19,067 Investing cash flow na na 4,557 5,013 5,317 Capital expenditure na na -800 -900 -1,000 Acquisitions/disposals na na 0 0 0 Financing cash flow na na -693,703 -740,708 -763,019 Borrowings na na 0 0 0 Dividends paid na na -564,503 -611,508 -633,819 Change in cash na na 47,377 14,639 12,278

Balance Sheet (HK$K)

Total assets na na 18,159,550 18,207,979 18,255,026 Cash & cash equivalent na na 47,377 62,017 74,295 Net fixed assets na na 17,504,800 17,504,740 17,504,792 Total liabilities na na 7,146,054 7,223,091 7,292,711 Total Debt na na 6,732,000 6,766,000 6,800,000 Shareholders' funds na na 11,013,495 10,984,888 10,962,316

Profitability/Solvency Ratios

EBIT margin adjusted (%) na na 81.7 81.5 81.4 ROE adjusted (%) na na 4.1 4.5 4.7 ROA adjusted (%) na na 2.5 2.7 2.8 Net debt to equity (%) na na 60.7 61.0 61.4 Interest coverage (x) na na 4.2 4.5 4.7

For further data queries on Citi's full coverage universe please contact Citi Research Data Services at [email protected]


3

Summary Investment Thesis 4 Key Strengths 6

1. Direct Beneficiary of Buoyant Conditions for HK Hotel Industry 6 2. High-Quality Assets Situated in Prime Locations in Kowloon 8 3. Low-Risk Portfolio with Diverse Revenue Sources, Customers 9 4. International Recognition of Langham Brands 10 5. Potential Yield-Accretive Acquisitions to Drive Growth 11

Valuation 12 DDM-Based Target Price of HK$4.74 12 NAV Analysis 12 Sensitivity Analysis 13 Sector and Peer Valuations 13

Key Risks 15 Macro Risks 15 Company-Specific Risks 15

Financial Statements Analysis 16 Steady Dividend Growth in Medium Term 16 Balance Sheet – Manageable Gearing for Further Growth 17 Cash Flow – 100% Payout FY13-FY15 18

Langham Hospitality Investments 19 Company description 19 Investment strategy 19 Valuation 19 Risks 19

Appendix A-1 20

Contents


4

The first fixed single investment trust in HK with initial focus on three prime HK hotel assets

Langham Hospitality Investments Limited (LHIL) principally invests in and owns a portfolio of hotels with an initial focus on hotels in Asia. The current portfolio comprises three hotels in Hong Kong, namely The Langham, Langham Place Hotel and Eaton Hong Kong, with a total of 1,629 rooms. Its trust, Langham Hospitality Investments (LHI), is a fixed single investment trust that only invests in LHIL. Each share stapled unit comprises three components: 1) a unit in LHI, 2) beneficial interest in a specifically identified ordinary share in LHIL held by the Trustee-Manager, and 3) a specifically identified preference share in LHIL. The hotels will be leased to an indirect wholly-owned subsidiary of Great Eagle – the ultimate parent company of LHIL – for a term of 14 years in return for a rental income. In addition, each of the hotels will be managed by the hotel manager, another wholly-owned subsidiary of Great Eagle, for an initial term of 30 years.

Key strengths

1. Direct beneficiary of buoyant conditions for HK hotel industry. The initial portfolio comprises of two high-tariff A and one high-tariff B hotels in Hong Kong, where we see limited supply and a growing demand outlook for both types in the medium term.

– According to Savills, HK visitor arrivals are projected to grow at a CAGR of 10.3% from 2012-2015, reaching an estimated 65.3mn arrivals by 2015. On the supply side, between 2013 and 2018, an additional supply of 10,163 hotel rooms is forecasted to be released onto the market according to Savills, representing a CAGR of only 2.4% from 2012-2018.

– Due to growing demand with limited new supply of hotel rooms, Savills expects overall occupancy of HK hotels should improve to 95% in 2015 from 89% in 2012 with increasing room rates, driving RevPAR to increase at a CAGR of 10% from 2012-2015. LHIL should be a direct beneficiary.

2. High-quality assets situated at prime locations in Kowloon. Each of the three hotels is located in a prime, strategic location on the Kowloon Peninsula and should be well placed to continue to attract existing and new customers as well as to sustain and increase RevPAR levels.

– The Langham is a luxury hotel located close to Canton Road in the heart of Tsim Sha Tsui, one of the busiest commercial, shopping and leisure destinations in Hong Kong. It is located near to Harbour City, one of the largest shopping malls in Hong Kong.

– Langham Place Hotel is the only large-scale luxury hotel located in the heart of Mong Kok and is part of one of the largest mixed-use real estate developments in Hong Kong comprising The Langham Place Shopping Mall and Grade A offices.

– Eaton is the largest hotel in Hong Kong (in terms of the total number of rooms). It is located on Nathan Road in Yau Ma Tei, which is the key arterial road linking Tsim Sha Tsui and Mong Kok and a popular tourist area given its close proximity to well-known open-air local markets, such as the night market on Temple Street, the Ladies’ Market and the Jade Market.

3. Low-risk portfolio with diversified sources of revenue and customer base. Each of the three hotels has a diverse customer base in terms of geographical origin and segment, is differentiated from the other hotels in terms of market position and customer mix, and has a diverse business mix. Such a well

Summary Investment Thesis


5

diversified portfolio should lower concentration risk from any particular revenue source and customer segment.

4. International recognition of Langham Brands. The hotels are operated under Langham brands which are licenses from the hotel manager. Langham Brands manages and/or owns 15 hotels in 11 cities globally, with established and growing international recognition, and with plans to operate another 10 hotels over the next three years.

Potential yield-accretive acquisitions from Great Eagle to drive further growth

Great Eagle will continue to be a major shareholder of the hotel trust group. It has granted the Great Eagle rights of first refusal (ROFR) to the group. This enables the group to pursue yield-accretive opportunities from Great Eagle’s future development portfolio and third parties. Currently Great Eagle, through Langham Hotels International, owns 11 hotels globally. The support from Great Eagle should give the group access to a pipeline of hotels for future acquisitions.

Deserving of a premium over Regal REIT

There is only one listed hotel REIT in Hong Kong – Regal REIT (1881.HK) – which is directly comparable with LHIL. However, when we compare their hotel locations, brand recognition, and potential growth outlook, we believe LHI deserves a valuation premium over Regal REIT, which is now trading at implied FY13E dividend yield of 6.5%. Our target price of HK$4.74 on LHI implies yield of 6.4%. Regionally, Singapore-listed hotel REITs including Ascott Residence Trust (ASRT.SI), CDL Hospitality Trusts (CDLT.SI) and Far East Hospitality Trust (FAEH.SI) are now trading at implied FY13E dividend yields of 6.1% to 6.8%. LHI’s current yield of 7.6% (clean yield: 7.0%) looks appealing, in our view.

Delivering a dividend CAGR of 6.0% over FY13-15E

We estimate LHIL to deliver dividend CAGR of 6.0% over FY13-FY15E. We believe this steady growth will primarily be fueled by the continuous positive growth in RevPAR on its three hotel properties in Hong Kong, together with a similar growth pace for its food & beverage revenue.

Target price HK$4.74 based on dividend discount model

We adopt Dividend Discount Model (DDM) as our primary approach to value REITs and benchmark to the implied dividend yield. Our target price of HK$4.74 on LHI implies yield of 6.4%. For The Langham and Langham Place Hotel, we have assumed room rate to grow at 6% per annum for 2013 and 2014, and 5% for subsequent years, while we estimate room rate growth of 8% in 2013, 7% in 2014 and 5% for subsequent years in Eaton HK. By using an 8.0% discount rate and assuming a terminal growth rate at 1.5% for all three hotels, we set our target price at HK$4.74. We conservatively assume cost of equity at 8.0%, reflecting latest market expectations for rising interest rates in medium to long term, which is driven by other macroeconomic factors. (For details please refer to our sector report dated 30 May 2013 - Hong Kong Property - What if US Interest Rates Normalise?)

Key risks

Key risks include: i) Any slowdown in HK visitor arrival growth due to economic weakness, epidemics or other factors; ii) rising interest rates; iii) reliance on just three properties; iv) conflicts of interest related to Great Eagle.

https://ir.citi.com/7BlaDnqsSkL8MxNa2euHw5BQ%2biBQBg28wK6n7wgepKhm9ZBAbBjZQpF%2fjMcAnQcBkGPxUv67NHU%3d�


6

LHI’s initial hotel portfolio comprises three Hong Kong hotels, namely The Langham, Langham Place Hotel and Eaton Hong Kong with a total of 1,629 rooms. The portfolio consists of the following hotel properties:

Figure 1. LHI – Summary Statistics on the Three Hotels

Hotel The Langham Langham Place Hotel Eaton Total Address 8 Peking Road, Tsim Sha Tsui,

Kowloon, HK 555 Shanghai Street, Mong Kok,

Kowloon, HK 380 Nathan Road, Yau Ma Tei,

Kowloon, HK

Year of Commencement of Operations 1994 2004 1990 HKTB Rating High Tariff A High Tariff A High Tariff B GFA ('000, sqft) 375 580 339 1,294 No. of Rooms 498 666 465 1,629 No. of F&B Facilities 5 5 5 15 No. of Ballrooms 1 1 3 5 No. of Meeting / Function Rooms 4 3 2 9 Average Room Rate in FY12 (HK$) 2,239 1,866 1,198 1,780* Occupancy Rate in FY12 86.1% 89.2% 94.9% 89.8%* RevPAR in FY12 (HK$) 1,927 1,665 1,138 1,599* Revenue in FY12 (HK$, '000) 578,210 694,736 350,513 1,623,459

Source: Company; Citi Research. * Weighted average across all three hotels.

Other than just simply a trust which should offer investors exposure to stable dividends together with potential NAV growth, LHIL differentiates itself from other commercial landlords/REITs in a variety of major areas, discussed below.

1. Direct Beneficiary of Buoyant Conditions for HK Hotel Industry

The initial portfolio comprises of two high-tariff A and one high-tariff B hotels in Hong Kong, where we see limited supply and a growing demand outlook in the medium term.

Future supply remains limited

Between 2013 and 2018, an additional supply of 10,163 hotel rooms is forecast to be released onto the market according to Savills, representing a CAGR of only 2.4% from 2012-2018. This supply is expected to be concentrated in Wanchai District, Yau Tsim Mong District and Eastern District with 2,187 rooms, 1,509 rooms and 1,387 rooms, respectively.

There are 22 hotels in the pipeline with 100 rooms or above, three of which will offer over 600 rooms and are considered to be large-scale projects. Hopewell Centre Two, with 1,024 rooms, will be the largest hotel in terms of hotel room provision between now and 2018, followed by an 840-room hotel project on Oil Street, North Point. The majority of other future hotels are relatively small in scale.

Only 1,379 out of the 10,559 hotel rooms (13.1%) to be completed over the next five years may fall into the high-tariff A category, all of them located in core tourist areas. Potential high-tariff B and medium-tariff hotel supply coming on-stream represents 40.3% and 46.6% of future hotel completions from 2013 to 2018, respectively.

Key Strengths

Figure 2. Hong Kong Hotel Supply by District (2013 – 2018E)

Yau Tsim Mong, 15%

Wong Tai Sin, 10%

Central & Western, 7%

Eastern District, 13%

Islands, 3%

Wan Chai, 22%

Tsuen Wan, 6%

Southern District, 1%

Sham Shui Po, 1%

Kowloon City, 3% Kwai Tsing, 10%

Kwun Tong, 3%

Shatin, 5%

Sai Kung, 0%

Source: Company; Citi Research

Figure 3. HK – Estimated Hotel Supply by Segment (2013 – 2018E)

Hotel Category Number of Rooms High Tariff A 1,379 High Tariff B 3,858 Medium Tariff 4,926 Total 10,163

Source: HKTB; Savills; Citi Research


7

Figure 4. Hong Kong Major Hotel Supply Above 100 Rooms (2013 – 2018E)

Projects No. of Rooms Planned Year of Completion Discovery Bay Resort & Spa 325 2013 Courtyard Marriot 548 2013 Hotel Indigo Hong Kong Island 138 2013 Dosett Regency, Hong Kong Tusen Wan 548 2013 A proposed hotel at 180-188 Pau Chung Street 161 2013 A proposed hotel at 114-116 Austin Road 155 2013 The Kush Hotel 199 2013 Penta Kowloon 695 2013 China Grand Hotel 214 2013 A proposed hotel at 132-140 Bonham Strand 199 2013 A proposed hotel at 320-322 Kwun Tong Road 200 2014 A proposed hotel at Cheung Wing Road / Kwok Shui Road 380 2014 A proposed hotel at 100-110 Kwai Cheong Road 596 2014 A proposed hotel at 14-20 Merlin Street 351 2014 Kong Link Hotel 121 2014 Austin Hotel 100 2014 A proposed hotel at 1-21 Dundas Street 148 2014 A proposed hotel at 373 Queen's Road East 299 2015 A proposed hotel at Low Block, 26 Harbour Road 120 2016 A proposed hotel at Oil Street, North Point 840 2017 A proposed hotel at 20-24 Tai Yau Street 334 2017 Hopewell Center II 1,024 2018 Total 7,695


Another potential source of hotel supply is from the revitalization of industrial buildings; however, there have been only two special waivers executed for industrial buildings to be converted into hotels, both located in Kwun Tong. The number of rooms provided in these two projects has not yet been confirmed. As current hotel room provision in Kwun Tong only accounts for 2% of the total room stock, these two revitalization projects will not have a significant impact on overall stock.

Future demand continues to grow

The size of the mainland China tourist market and its growing wealth, coupled with positive prospects for intra-Asian tourism and long-haul demand, are expected to generate sustainable growth in visitor arrival numbers for Hong Kong over the next three years, despite competition from other Asian countries. Nevertheless, the pace of growth is expected to be more moderate than in previous years due to a a high base of comparison, as well as more uncertainties in the external environment. According to Savills, HK visitor arrivals are projected to grow at a CAGR of 10.3% from 2012-2015, which should reach estimated 65.3mn arrivals by 2015.

Figure 6. HK – Visitor Arrival Forecasts (2013 - 2015E) Figure 7. HK – Average Occupancy Rate Projections (2013 – 2015E)

Total YoY % Change 2013 53,631,000 +10.3* 2014 59,164,000 10.3 2015 65,268,000 10.3

Year All hotels High Tariff A High Tariff B Medium Tariff 2013 90% 86% 92% 93% 2014 94% 90% 95% 98% 2015 95% 91% 96% 98%

Source: HKTB; Savills; Citi Research. * 10.3% being the long-term visitor arrivals trend growth from 1985 to 2011

Source: Savills; Citi Research

Hotel room demand is well supported by growing numbers of increasingly affluent mainland Chinese visitors, long-haul visitors and high-spending business travelers,

Figure 5. HK – Forecast Future Supply of Hotel Rooms (2012 – 2018)

5,048

19,566

25,258

17,522

5,048

24,492

29,116

18,9011,0241,174204741

2,5254,495

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2012 2013 2014 2015 2016 2017 2018 Total2018

Unclassified Medium Tariff High Tariff B High Tariff A New Rooms

77,557

67,394

No. of Rooms

CAGR (2012-2016): 2.8%

CAGR (2012-2018): 2.4%

Source: Savills; Citi Research


8

barring any unforeseen shocks. Future hotel room supply is unlikely to meet projected demand, based on current known hotel developments in the pipeline.

Figure 9. HK – RevPAR Growth Rates Projections (2003 – 2015E)

Year All hotels High Tariff A High Tariff B Medium Tariff 10-year (2003-2012) historical average (% p.a.) 10.3 9.6 11.6 11.3 Projected average growth rates, 2013-2015 (% p.a.) 10.1 10.2 10.2 9.8


2. High-Quality Assets Situated in Prime Locations in Kowloon

Each of the three hotels is located in a prime, strategic location on the Kowloon Peninsula which should be well-placed to continue to attract existing and new customers as well as to sustain and increase RevPAR levels.

The Langham is a luxury hotel located close to Canton Road in the heart of Tsim Sha Tsui, one of the busiest commercial, shopping and leisure destinations in Hong Kong. One of the largest shopping malls in Hong Kong, Harbour City, is located nearby.

Langham Place Hotel is the only large-scale luxury hotel located in the heart of Mong Kok and is part of one of the largest mixed-use real estate developments in Hong Kong, comprising The Langham Place Shopping Mall and Grade A offices.

Eaton is the largest hotel in Hong Kong (in terms of the total number of rooms). It is located on Nathan Road in Yau Ma Tei, which is the key arterial road linking Tsim Sha Tsui and Mong Kok and a popular tourist area given its close proximity to well-known open-air local markets, such as the night market on Temple Street, the Ladies’ Market and the Jade Market.

The supply of new large-scale luxury hotels in Tsim Sha Tsui, Mong Kok and Yau Ma Tei in the next four years is expected to be very limited. As a result, we believe that it is currently difficult to foresee any new hotels opening in the vicinity of the hotels of a size and scale that could compete with the hotels, and that this will support and provide the potential to increase the hotels’ RevPAR.

Figure 12. Future Hotel Supply in Mong Kok (2013 – 2015E)

Project No. of Hotel Rooms Completion 123-127 Tung Choi Street 50 2013 372-378 Portland Street 50 2013 Lodgewood 87 2013 476 Nathan Road, MK 88 2013 179 Prince Edward Road West 50 2014 1-21 Dundas Street 148 2014 68 Portland Street 78 2014 3-5 Temple Street 48 2014 Novotel Extension 75 2015 Total 674

Source: HKTB; Citi Research

Figure 8. Langham Place Hotel – Hotel Exterior


Figure 10. The Langham – Hotel Exterior


Figure 11. Eaton Hong Kong – Hotel Exterior

Source: Citi Research


9

Figure 13. Future Hotel Supply in Tsim Sha Tsui (2013 – 2017E)

Project No. of Hotel Rooms Completion 5, 7 & 7A Hillwood Road 59 2013 5 Observatory Court 155 2013 114 - 116 Austin Road 155 2013 1 - 3 Minden Avenue 76 2013 5 Kimberly Street 52 2013 Pop Hotel (Tsim Sha Tsui) 71 2014 6 Knutsford 50 2014 2 Carnarvon Road 62 2014 2 Austin Avenue 15 2014 Austin Hotel 100 2014 HSRS Red Hotel 22 2014 38-40A Hill Road 84 2016 18-24 Salisbury Road (New World Centre Development, Hotel 2) Unknown Unknown 18-24 Salisbury Road (New World Centre Development, Hotel 3) Unknown Unknown 13-17 Observatory Road Unknown Unknown 7-7B Cameron Road Unknown Unknown Total 835

Source: HKTB; Citi Research

3. Low-Risk Portfolio with Diverse Revenue Sources, Customers

Each of the three hotels has a diverse customer base in terms of geographical origin and segment, is differentiated from the other hotels in terms of market position and customer mix, and has a diverse business mix.

Diverse geographical origin of customers: The hotels have been actively managed to ensure they have a diversified customer base in terms of geographical origin of customers to reduce our exposure to customers from any particular global region. For FY12, 20.7% of the hotels’ total percentage of room revenue was generated by customers from China, 30.6% from Asia (excluding China and Australia & New Zealand), 13.8% from Australia & New Zealand, 12.6% from the U.S. and 7.5% from the United Kingdom. We believe that with this diverse customer profile, the hotels are well-positioned to capture growth from the long-haul markets as well as continued growth from China and the Asia-Pacific region.

Diversified customer segments: The hotels have a diversified mixture of customer segments. In FY12, room revenue (excluding miscellaneous revenue and service charges) from retail, corporate and travel trade segments accounted for approximately 48.9%, 18.5% and 18.1%, respectively, of its total percentage of room revenue. We note that corporate and travel trade segments provide a degree of revenue stability, while retail customers provide the hotels with the ability to adjust room rates on a real-time basis to seek to maximize RevPAR. The hotels have upside potential in the future since they have the flexibility to increase the proportion of retail customers (that typically pay higher room rates and are more profitable for the group) when the opportunity arises.

Differentiated hotels with a different mix of customers: Each of the hotels occupies a different market position in terms of tariff rating and/or pricing, is located in a different area of Kowloon, and targets a different mix of customers. We believe that this helps reduce the group’s exposure to the impact of adverse conditions in any particular market segment and reduces the scope of the hotels to compete against each other, thereby reducing the risk of cannibalization.

Figure 14. LHI – Diversified Geographical Origin of Customers

Others, 5%

Rest of Asia, 31%

China, 21%

Australia / NZ, 14%

US, 12%Europe ex UK, 10%

UK, 7%


Figure 15. LHI – Diversified Customer Segments

Others, 14.5%

Travel Trade, 18.1%

Corporate, 18.5%

Retail, 48.9%



10

As an example of diversity between the hotels, during FY10-12, The Langham and Langham Place Hotel derived more revenue from corporate customers as compared to travel trade customers, while Eaton derived more revenue from travel trade than corporate customers. The Langham has also historically derived more revenue from customers from China as compared to the other hotels, which the group believes is due in part to its proximity to luxury retailers that are popular with Chinese tourists.

Figure 16. LHI – Customer Segment Breakdown Figure 17. LHI – Geographical Origin of Customers

3.09.6

2.1

8.510.9

17.014.4 28.1

23.2 18.79.4

48.6 48.8 49.5

8.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

The Langham Langham Place Hotel Eaton

Others Group Travel Trade Corporate Retail

25.816.9 18.7

14.2 12.6

11.616.0

7.7

9.89.6

10.3

7.96.1

9.4

25.4 33.3 35.3

5.4 4.0 6.0

14.1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

The Langham Langham Place Hotel Eaton

China Australia / NZ US Europe ex UK UK Rest of Asia Others

Source: Company; Citi Research Source: Company; Citi Research

Diversified business mix: The hotels offer a range of facilities and services in addition to hotel rooms, including a selection of food & beverage outlets, meeting and conference facilities, banquet services and spa facilities. In FY12, the hotels collectively earned c.57.4% of their revenue from hotel rooms, c.39.2% of their revenue from food & beverage (which includes conferences and banquets) and c.3.3% of their revenue from other sources.

The quality of the hotel’s food & beverage offerings enables them to develop a customer base that is not affected by changes in demand from overseas travelers. For example, in 2008 and 2009 during the global financial crisis, while there was a decrease in RevPAR, the group’s food & beverage revenue remained relatively stable. We noted that in FY12, the majority of the hotels’ food & beverage revenue was derived from customers who were not staying at the hotels.

4. International Recognition of Langham Brands

The hotels are operated under “The Langham”, “Langham Place” and “Eaton” brands which are licensed from the Hotel Manager.

“The Langham” brand has a long history with roots dating back to 1865 with the opening of The Langham Hotel in London, England. Langham Brands manages and/or owns 15 hotels in 11 cities globally currently, with established and growing international recognition, and plans to operate another 10 hotels over the next three years.

The hotels should also benefit from being marketed and advertised by Langham Hotel Services, which is responsible for marketing and advertising the Langham Brands, pursuant to the Centralised Services and Marketing Agreements. The

Figure 18. LHI – Balanced Revenue Contribution in FY12

Room, 58%

Food and Beverage,

39%

Other Hotel Operations,

3%



11

hotels will also be linked to the Global Distribution System through the Central Reservations System, which enables guests to book rooms at the hotels through the www.langhamhotels.com website and which is linked to the Global Distribution System connecting the hotels to the majority of travel agents around the world. Management believes that the strong brand recognition has enabled the hotels to command prices at the high end of their competitive market segments. We believe that there are significant benefits for the hotels to be managed under the Langham Brands and that the brands will be enhanced by further international expansions currently underway.

5. Potential Yield-Accretive Acquisitions to Drive Growth

Granted Great Eagle ROFR for acquisition pipeline: Great Eagle has granted the Great Eagle rights of first refusal (ROFR) to the group which is designed to minimize conflicts of interest or competition between Great Eagle and the group and which also enables the group to pursue opportunities that are yield accretive or beneficial to the group both from Great Eagle’s future development portfolio and third parties.

Figure 19. LHI – Details of the ROFR Granted by Great Eagle

1 Perpetual ROFR with no expiry 2 The date on which none of the hotel properties owned by the Group is leased to or managed by the Great Eagle Group 3 The date on which the Great Eagle Group, directly or indirectly, ceases to be interested in not less than 30% of the Share Stapled Units

Effective Date (starting from the inception date)

4 The date on which the Share Stapled Units cease to be in function 1 Any completed, stand-alone hotel in Asia in which the Great Eagle Group owns an over 30% interest and that is being managed under the

Langham Brands or other Eaton Brands, which the Great Eagle Group proposes to sell 2 Any completed, stand-alone hotel in Asia to be operated under the Langham Brands or other Eaton Brands in which the Great Eagle Group is

offered an opportunity to acquire an over 30% interest 3 Any uncompleted, stand-alone hotel development project in Asia to be operated under the Langham Brands or other Eaton Brands on completion

and any completed hotel to be segregated from the multi-purpose development of which it forms a part, and in which the Great Eagle Group owns an over 30% interest, provided that completion or segregation, as applicable, occurs prior to the expiry of the Great Eagle ROFR

Four Scenarios ROFR May Apply to

4 Any completed, stand-alone hotel in Asia in which Great Eagle owns an over 30% interest that it brands as a hotel under the Langham Brands or other Eaton Brands


In Hong Kong’s highly competitive hotel landscape, it is not easy to identify and acquire hotels. Support from Great Eagle is expected to give the group access to a pipeline of hotels for future acquisitions. Management believes that the Great Eagle ROFR will support the group’s long-term growth and facilitate expansion of its hotel portfolio, and in doing so, diversify its geographic exposure in and beyond Asia and help it to take advantage of growth in Asia. Currently Great Eagle, through Langham Hotels International, owns 11 hotels globally.

Figure 20. LHI – Extensive International Hospitality Portfolio of Great Eagle

No. Hotel Interest Location No. of Rooms 1 The Langham, London 100.0% London 378 2 The Langham, Auckland 100.0% Auckland 411 3 The Langham, Boston 100.0% Boston 318 4 The Langham, Melbourne 100.0% Melbourne 376 5 The Langham, Sydney 100.0% Sydney 96 6 The Langham, Pasadena 100.0% Los Angeles 411 7 The Langham Xintiandi 33.3% Shanghai 347 8 Delta Chelsea Hotel* 100.0% Toronto 1,590 9 The Langham, Chicago* 100.0% Chicago TBC 10 Langham Place, New York* 100.0% New York TBC 11 The Langham, Dalian** 50.0% Dalian 350

Source: Company; Citi Research. *To be opened in FY13; ** To be opened in FY16


12

DDM-Based Target Price of HK$4.74

We estimate LHIL’s fair valuation at HK$4.74. Our valuation is based on a Dividend Discount Model (DDM), which are commonly used to value REIT vehicles. Our DDM includes the following assumptions:

A discount rate of 8.0%, which is based on a risk-free rate of 2%, risk premium of 5% and an equity beta of 1.2. Terminal growth rate is fixed at 1.5%.

The Langham Hong Kong: Room rate to grow at 6% per annum for 2013 and 2014, and 5% for 2015 onwards. Occupancy rates for 2013, 2014 and 2015 are 87%, 88% and 89% respectively.

Langham Place Hotel: Room rate to grow at 6% per annum for 2013 and 2014, and 5% for 2015 onwards. Occupancy rates for 2013, 2014 and 2015 are 90%, 91% and 92% respectively.

Eaton Hong Kong: Room rate to grow at 8% in 2013, 7% in 2014 and 5% per annum for subsequent years. Occupancy rates for 2013, 2014 and 2015 are 95%, 96% and 96% respectively.

Food & Beverage revenue: Forecasted to grow at 8.5%, 7.4% and 5.9% for 2013, 2014 and 2015 respectively.

No change in number of available rooms.

No growth budgeted for asset enhancement initiatives and acquisitions.

Figure 21. LHI – Dividend Discount Model

FY13E FY14E FY15E FY16E FY17E FY18E FY19E Terminal Value Distributable Income (HK$mn) 333 612 634 653 687 725 764 11,925 Distribution % 100% 100% 100% 100% 100% 100% 100% 100% Distribution (HK$mn) 333 612 634 653 687 725 764 11,925

Number of units (million units) 2,000 2,021 2,044 2,069 2,094 2,122 2,151 2,151 No. of Units under Distribution Waiver (150) (150) (100) (100) (50) - - - Adjusted No. of units (million units) 1,850 1,871 1,944 1,969 2,044 2,122 2,151 2,151 DPU (HK$/Share) 0.180 0.327 0.326 0.331 0.336 0.342 0.355 5.545 Discount Period (Yrs) 0.6 1.6 2.6 3.6 4.6 5.6 6.6 7.6 PV (HK$) 0.172 0.289 0.267 0.251 0.236 0.222 0.214 3.092 NPV/sh (HK$) 4.74

Source: Citi Research estimates

NAV Analysis

As an alternative valuation method, we calculate the NAV of LHIL, though this is not a commonly used methodology for REIT vehicles.

By using a cap rate of 4.75% on FY13E adjusted gross operating profits, we estimate the NAV to be HK$5.50/sh (see table below).

Valuation


13

Figure 22. LHI – Breakdown of NAV

Forward-2013 NAV (HK$m) NAV/share (HK$) % of NAV % of GAV The Langham Hong Kong 6,493 3.25 59.1% 36.7% Langham Place Hotel Hong Kong 7,481 3.74 68.1% 42.3% Eaton Hong Kong 3,599 1.80 32.7% 20.3% Eaton shops 118 0.06 1.1% 0.7% Gross Asset Value 17,690 8.85 160.9% 100.0% Net Debt (6,698) (3.35) -60.9% -37.9% NAV 10,992 5.50 100.0% 62.1%


Sensitivity Analysis

We believe LHI is sensitive to the changes in discount rate and long-term growth rate. Our sensitivity analysis is as follows:

Figure 23. LHI – Sensitivity to Discount Rate and Long-term Growth Rate

Discount Rate 7.0% 7.5% 8.0% (Base Case) 8.5% 9.0%

0.0% 4.74 4.41 4.13 3.87 3.65 0.5% 4.99 4.62 4.31 4.03 3.78 1.0% 5.29 4.87 4.51 4.20 3.93 1.5% 5.63 5.15 4.74 4.40 4.10 2.0% 6.04 5.48 5.02 4.63 4.29

Long

term

G

row

th R

ate

2.5% 6.55 5.88 5.34 4.89 4.51


Sector and Peer Valuations

Sector average at 5.6% FY13E dividend yield for HK- and Singapore-listed hotel REITs

LHIL is a hotel company governed by its trust LHI to guarantee dividend payout of 100% of its cash earnings during FY13 to FY15 and not less than 90% payout for subsequent years in each case after certain deductions such as operating expenses of LHI. We believe investors will generally benchmark its implied dividend yield with HK- and Singapore-listed hotel REITs. Currently, market estimates of the implied dividend yield for HK- and Singapore-listed peers are 6.6% for FY13E and 7.2% for FY14E. Based on our estimates, our forecast LHIL’s dividends represent a FY13E dividend yield of 7.6% (clean yield: 7.0%). For FY14E, we estimate its dividend yield will be 8.1%.


14

Figure 24. LHI – Peer Valuation Comparison– REIT and Property Names

Asset 28 Jun13 Market Citi Est. NAV P/E P/B Yield Stock RIC Exposure Price Cap

(USDm) Rating NAV Disc FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E

HK / SGP Hotel REIT Langham Hospitality Inv 1270.HK H 4.03 1,039 1 5.50 -27% 17.8* 16.5 16.0 0.7 0.7 0.8 7.6%* 8.1% 8.1% Regal REIT* 1881.HK H 2.35 987 NR NR NA 16.2 14.4 13.3 0.5 0.5 0.5 6.6% 7.3% 8.0% CDL Hospitality Trust* CDLT.SI H 1.70 1,304 NR 1.62 5% 14.8 14.2 14.2 1.0 1.0 1.0 6.8% 6.9% 7.1% Ascott Residence Trust * ASRT.SI H 1.29 1,287 NR NR NA 18.7 17.6 17.2 1.0 1.1 1.1 6.9% 7.1% 7.1% Far East Hospitality Trust* FAEH.SI H 0.97 1,227 NR NR NA 17.3 16.7 15.8 1.2 1.2 1.2 6.2% 6.5% 6.6% Average - HK / SGP Hotel REIT NA 16.9 15.9 15.3 0.9 0.9 0.9 6.6% 7.2% 7.4% Hong Kong REIT The Link REIT 0823.HK R 38.15 11,251 2 39.02 -2% 25.9 24.0 22.3 1.1 1.1 1.1 3.8% 4.2% 4.5% MGCCT MACT.SI O/R 0.95 1,986 1 0.95 0% nm 21.9 20.7 1.0 1.0 1.0 0.4% 5.8% 6.4% Champion REIT* 2778.HK O/R 3.56 2,615 NR 7.61 -53% 21.1 20.1 20.0 0.5 0.5 0.5 5.5% 5.3% 5.5% Prosperity REIT* 0808.HK O/I 2.47 442 NR 4.27 -42% 20.1 18.9 16.9 0.6 0.6 0.6 5.8% 6.2% 7.2% Fortune REIT* 0778.HK R 7.09 1,556 NR 9.27 -24% 21.6 20.3 17.3 0.8 0.8 0.8 5.1% 5.4% 6.0% Sunlight REIT* 0435.HK O/R 3.17 660 NR 6.29 -50% NA 18.1 16.6 0.5 0.5 0.5 5.4% 5.9% 6.5% Average - Hong Kong REIT -28% 22.2 20.5 19.0 0.7 0.7 0.7 4.3% 5.5% 6.0% Singapore REIT Ascendas REIT AEMN.SI I 2.23 4,227 2 1.94 15% 16.2 16.5 16.2 1.1 1.1 1.1 6.2% 6.2% 6.3% K-REIT Asia KASA.SI O 1.30 2,742 2 1.21 7% 27.5 26.9 26.2 1.1 1.1 1.1 5.9% 6.0% 5.8% Mapletree Commercial Trust MACT.SI O/R 1.19 1,940 1 1.06 12% 19.4 18.8 18.7 1.1 1.1 1.1 5.4% 5.6% 5.6% CapitaCommercial Trust CACT.SI O/R 1.47 3,325 2 1.65 -11% 20.3 21.1 18.6 0.9 0.9 0.9 5.5% 5.3% 6.0% Suntec REIT SUNT.SI O/R 1.58 2,811 2 2.27 -31% 22.8 21.4 19.0 0.7 0.7 0.7 5.8% 6.1% 6.7% CapitaMall Trust CMLT.SI R 2.00 5,446 1 1.74 15% 22.4 21.6 20.8 1.1 1.1 1.1 5.1% 5.2% 5.4% Mapletree Indl MAPI.SI I 1.32 1,722 1 1.10 20% 14.8 14.8 14.2 1.2 1.2 1.2 7.0% 7.0% 7.3% Mapletree Logist MAPL.SI I 1.10 2,112 2 N/A N/A 16.6 15.8 15.6 1.2 1.2 1.2 6.2% 6.5% 6.6% Frasers Centerpt FCRT.SI R 1.87 1,217 2 1.49 26% 18.7 18.4 18.4 1.3 1.2 1.2 5.9% 6.0% 6.0% Average - Singapore REIT 7% 19.9 19.5 18.6 1.1 1.1 1.1 5.9% 6.0% 6.2% Average -11% 19.7 18.6 17.6 0.9 0.9 0.9 5.6% 6.2% 6.5%

Source: Source: Companies; Citi Research estimates; Note: O – Office; H – Hotel; R – Retail; I – Industrial; *Consensus for stocks not under Citi’s coverage, Annualized for Langham Hospitality Inv

LHI’s closet peer: Regal REIT (1881.HK)

Given LHI’s three hotels in the initial portfolio are all located in Hong Kong, we believe investors will treat LHI mainly as a Hong Kong hotel REIT play. There is only one listed hotel REIT in Hong Kong, Regal REIT (1881.HK), which is directly comparable with LHI. However, when we compare their asset quality, asset location, brand recognition and potential growth outlook, we believe LHI deserves a valuation premium over Regal REIT, which is now trading at an implied FY13E dividend yield of 6.5%. Regionally, Singapore-listed hotel REITs including Ascott Residence Trust (ASRT.SI), CDL Hospitality Trusts (CDLT.SI) and Far East Hospitality Trust (FAEH.SI) are now trading at implied FY13E dividend yields of 6.1% to 6.8%. Indeed, we believe LHI has offered investors a leaner fee structure which should help the group to generate more returns for unitholders.

Figure 25. LHI – Comparison with Closet Peer: Regal REIT

Stock RIC Asset Description No of rooms Market Cap (US$m)

Implied FY13 dividend yield

Hotel Brand Name

Acquisition opportunities

Risk Level

LHI 1270.HK 3 Hotels in Kowloon Peninsula 1,629 1,005 7.6% (clean yield: 7.0%)

Langham / Good First rights of refusal/ External acquisitions

Low to Medium

Regal REIT 1881.HK 6 Hotels located in both city and sub-urban areas

3,984 941 6.6% Regal / Average Buy from related parties/ External acquisitions

Medium



15

Macro Risks

Slowdown in HK visitor arrival growth: The Hong Kong hospitality industry has been and will continue to be significantly impacted by potential customers’ desire and willingness to travel to and stay in Hong Kong. The industry may also be adversely affected by cyclical or macroeconomic slowdown, an outbreak of any epidemics, or other factors.

Intensifying competition: LHI’s performance would be negatively affected by intensifying competition in the hotel industry in Hong Kong from both peers and other accommodation options in Hong Kong currently existing or which may come into operation in the future.

Policy risks: The laws and policy measures in Hong Kong and any jurisdictions where the company may operate in the future may affect the valuation and performance of the hotel assets. Any tightening measures and policy changes with regard to building regulations, operation licenses and health & safety regulations could adversely affect the bottom line and cash flow.

Rising interest rates: Any change in interest rates will increase LHI’s financing costs and may have a material adverse effect on the business, results of operations, financial condition and prospects.

Company-Specific Risks

Heavy reliance on three properties for its performance: LHI depends on three hotel assets only – The Langham, Langham Place Hotel and Eaton Hotel – for revenue, exposing LHI to significant geographical and asset class risks. As a result, any negative conditions with respect to these three properties would impact the overall performance of LHI.

Potential conflicts of interest with the Great Eagle Group – The Great Eagle Group maintains several key roles and financial relationships with regards to LHI that could lead to conflicts of interest. The Great Eagle Group has interests in and / or manages several hotels and hospitality-related assets which may compete with any hotels that the company acquires in the future.

Risk of termination of hotel management agreements: The hotel manager may fail to conduct day-to-day operations and marketing of the hotels in an efficient and effective manner or at all. Additionally, any of the hotel management agreements be terminated prior to their expiration could result in operation disruption alongside extra efforts and charges in relation to retaining and replacement of a hotel manager and refurbishment and rebranding of the hotels.

Failure to obtain or renew operation licenses: The hotel licenses for The Langham, Langham Place Hotel and Eaton Hotel will expire in 2014, 2015 and 2014, respectively. In the event that the application for any subsequent renewal of a hotel license is rejected, it may affect the operation and value of the corresponding hotel.

Termination of the Great Eagle ROFR: The Great Eagle ROFR (a right of first refusal Great Eagle has granted to the company as specified in the relevant agreements) will expire five years after the listing date. It may also be terminated earlier, and LHI may be unable to exercise the ROFR.

Key Risks


16

Steady Dividend Growth in Medium Term

6.0% CAGR dividend growth in FY13-FY15E: We estimate LHIL to deliver a CAGR dividend growth of 6.0% in FY13-FY15E. We believe such steady growth will primarily be fueled by the continuous positive growth in RevPAR on its three hotel properties in Hong Kong, together with a similar growth pace on its food & beverage revenue. In our room rate assumptions, we have factored in a growth of 6-8% for FY13E, 6-7% for FY14E and 5% for subsequent years for all three hotels in the initial portfolio. As a result, we forecast LHIL can deliver a distributable income of HK$565mn (annualized) for FY13E, HK$612mn for FY14E and HK$634mn for FY15E.

Figure 26. LHI – Income Statement (HK$’000)

Year to 31 Dec 2013E (Annualized) 2014E 2015E Base income 225,000 225,000 225,000 Variable income 579,591 635,089 681,935 Retail rentals 5,624 5,624 6,201 Gross Rental Revenue 810,215 865,713 913,136 Other Income 5,357 5,913 6,317 Total Revenues 815,572 871,626 919,453 Hotel management fee (82,105) (89,080) (95,013) Global marketing fee (20,334) (21,836) (23,131) Government rent and rates (25,417) (27,295) (28,913) Admin expenses (17,000) (17,850) (18,743) Depreciation (1,000) (960) (948) Other expenses (2,529) (2,716) (2,876) Operating Profit 667,188 711,890 749,830 Finance Costs (163,200) (163,200) (163,200) Change in FV of Investment Prop - - - Pretax Profit 503,988 548,690 586,630 Taxation (50,399) (54,869) (70,396) Net Profit 453,590 493,821 516,234 Adjustments Hotel management fee paid in units 82,105 89,080 95,013 Amortisation of debt upfront fee 34,000 34,000 34,000 Depreciation 1,000 960 948 Deferred Taxations 20,160 21,948 17,599 Less: FFE Reserve (26,351) (28,300) (29,975) Distributable Income 564,503 611,508 633,819 DPU before distribution waiver 0.2823 0.3026 0.3101 DPU after distribution waiver 0.3051 0.3268 0.3260 Clean yield before distribution wavier 7.0% 7.5% 7.7% Div yield after distribution wavier 7.6% 8.1% 8.1%


Total room revenue to be over HK$1bn in FY13E (annualized): We estimate the combined three hotels’ room revenue should be over HK$1bn in FY13E (annualized). Langham Place Hotel should be the largest contributor and is estimated to generate HK$433mn in FY13E. The Langham and Eaton Hong Kong should generate estimated room revenue of HK$375mn and HK$209mn respectively.

Financial Statements Analysis


17

Figure 27. LHIL – Hotel Adjusted GOP Breakdown (HK$, ’000)

Year to 31 Dec 2013E (Annualized) 2014E 2015E

The Langham Hong Kong Room Revenue 375,320 402,412 427,334Food and Beverage 229,409 245,969 261,202 Other income 16,198 17,368 18,443 Subtotal - The Langham 620,927 665,748 706,979 Langham Place Hotel Hong Kong Room Revenue 432,740 463,801 492,343 Food and Beverage 294,891 316,057 335,507 Other income 27,574 29,553 31,372 Subtotal – Langham Place Hotel 755,204 809,411 859,221 Eaton Hong Kong Room Revenue 208,617 225,570 236,849 Food and Beverage 166,894 180,456 189,479 Other income 5,086 5,500 5,775 Subtotal – Eaton Hong Kong 380,597 411,526 432,102 Total Hotel revenue 1,756,729 1,886,685 1,998,302 Total room revenue 1,016,677 1,091,783 1,156,525 Total F&B revenue 691,193 742,482 786,187 Cost of sales and services - Cost of inventories 187,191 199,152 208,935 - Direct staff costs and related expenses 344,668 366,392 386,069 - Other direct costs 137,529 147,703 156,441 Sales, hotel admin and property operation - Staff costs and related expenses 113,761 117,174 120,689 - Administration and general 41,479 42,309 43,155 - Sales and marketing 32,978 33,637 34,310 - Property operation and maintenance 22,163 22,606 23,058 - Utility costs 48,973 50,443 51,451 Total Hotel expenses 928,742 979,415 1,024,109 Adjusted GOP 827,987 907,270 974,193 GOP margin 47% 48% 49%


Balance Sheet – Manageable Gearing for Further Growth

We estimate LHIL’s balance sheet is mainly composed of its investment properties (three Hong Kong hotels) held under market price, together with its borrowings and funds from unitholders. We have assumed no revaluation surplus on its rental properties over our forecasted period, and therefore both assets and liabilities side should remain relatively unchanged in the next few years. Gearing (total debt / total assets) is at 37%, which we consider manageable, while we believe further acquisitions would be funded by issuing new units.

Estimated debt of HK$6.8bn is benchmarked to HIBOR. We estimate current all-in interest rates are around 2.4%, including 0.5% debt amortization fee per annum. The weighted average debt maturity is three years. Debt is denominated in HK dollars and naturally hedges LHIL’s exposure to HK dollars.


18

Figure 28. LHIL – Balance Sheet (HK$’000)

Year to 31 Dec 2013E 2014E 2015E Plant and Equipment 4,800 4,740 4,792 Investment properties 17,500,000 17,500,000 17,500,000 Non-Current Assets 17,504,800 17,504,740 17,504,792 Trade and other receivables 81,021 86,571 91,314 FFE Reserve 526,351 554,651 584,626 Cash and cash equivalents 47,377 62,017 74,295 Current Assets 654,750 703,239 750,234 Trade and other payables 267,371 285,685 301,335 Current tax payable 40,511 43,286 45,657 Current Liabilities 307,882 328,971 346,992 Total Assets Less Current Liabilities 17,851,668 17,879,008 17,908,035 Loans and borrowings 6,732,000 6,766,000 6,800,000 Deferred tax liabilities 106,173 128,120 145,719 Long term Liabilities 6,838,173 6,894,120 6,945,719 Net Assets 11,013,495 10,984,888 10,962,316 Shareholders' Funds 11,013,495 10,984,888 10,962,316 Total Capital Employed 11,013,495 10,984,888 10,962,316


Figure 29. LHIL – Key Financial Ratios

2013E 2014E 2015E ROE 4.1% 4.5% 4.7% ROA 2.5% 2.7% 2.8% Total Debt/Total Assets 37.1% 37.2% 37.3% Net Gearing 60.7% 61.0% 61.4% Dividend Payout Ratio 100.0% 100.0% 100.0% Interest Cover 4.1x 4.4x 4.6x


Cash Flow – 100% Payout FY13-FY15 LHIL’s dividend policy is to pay out 100% of its total distributable income in FY13 to FY15. The Trust’s distributable income will be adjusted for non-cash items, and therefore the cash flow statement will show a steady cash balance over the period. In view of required major hotel renovations on the three hotels, LHIL has budgeted a FF&E Reserve which will set aside 1.5% of total hotel income every year.

Figure 30. LHIL – Cash Flow Statement (HK$’000)

Year to 31 Dec 2013E (Annualized) 2014E 2015E Profit for the year 453,590 493,821 516,234 Non Cash Items Adjustment 291,346 302,197 323,239 Change in Working Capital (14,492) (15,536) (19,067) NCF from Operating Activities 730,443 780,482 820,406 Tax paid 6,079 (30,146) (50,426) NCF before investing activities 736,523 750,335 769,980 NCF from Investing activities 4,557 5,013 5,317 Interest paid (129,200) (129,200) (129,200) Dividends paid (564,503) (611,508) (633,819) NCF before Financing activities 741,080 755,348 775,297 NCF from Financing activities (693,703) (740,708) (763,019) Change in Cash & Cash Equivalent 47,377 14,639 12,278 Beginning Cash Balance - 47,377 62,017 Ending Cash Balance 47,377 62,017 74,295



19

Langham Hospitality Investments Company description

Langham Hospitality Investments (LHI) principally invests in and owns a portfolio of hotels with an initial focus on Asia. The current portfolio comprises three hotels in Hong Kong: The Langham, Langham Place Hotel and Eaton Hong Kong, with a total of 1,629 rooms and average occupancy rate of 89.8% in 2012. The hotels are leased to and managed by its parent company, Great Eagle, in return for a rental income. Investment strategy

We assign LHI shares a Buy rating with a target price of HK$4.74. LHI focuses on the HK hotel segment – a market we view as having decent medium-term outlook. Considering its hotel locations, brand recognition and potential growth outlook, we believe LHI deserves a valuation premium over its closet peer Regal REIT. LHI’s current yields look attractive, in our view. Key strengths include: 1) Direct beneficiary of buoyant conditions for HK hotel industry, with limited supply and a growing demand outlook in the medium term; 2) High-quality assets situated in prime locations in Kowloon, which should be well placed to attract existing and new customers and increase RevPAR levels; 3) Low-risk portfolio with diversified sources of revenue and customer base, hence a lower concentration risk; 4) International recognition of Langham Brands, which manages and/or owns 15 hotels in 11 cities globally; 5) Potential yield-accretive acquisitions from Great Eagle to drive further growth. Valuation

We estimate LHI’s fair valuation at HK$4.74/sh. Our valuation is based on a Dividend Discount Model (DDM), which are commonly used to value comparable REIT vehicles. Our DDM includes the following assumptions: an 8.0% cost of equity, which we derive using a market risk premium of 5%, a risk-free rate of 2% and an equity beta of 1.2. We also assume a terminal growth rate of 1.5%, which we believe reflects the longer-term inflation-adjusted rental growth potential of properties owned by LHI.

As an alternative valuation method, we calculate the NAV of LHIL, though this is not a commonly used methodology for REIT vehicles. By using a cap rate of 4.75% on FY13E adjusted gross operating profits, we estimate the NAV to be HK$5.50/sh. Risks

Downside risks which could impede the shares from reaching our target price include: a) Any slowdown in HK visitor arrival growth due to economic weakness, epidemics or other factors; b) Intensifying competition; c) Rising interest rates, which would increase LHI’s financing costs and could impact the business; d) Reliance on just three properties; e) Potential conflicts of interest related to Great Eagle Group; f) Risk of termination of hotel management agreements; g) Failure to obtain or renew operation licenses; h) Termination of the Great Eagle ROFR.


20

Appendix A-1 Analyst Certification

The research analyst(s) primarily responsible for the preparation and content of this research report are named in bold text in the author block at the front of the product except for those sections where an analyst's name appears in bold alongside content which is attributable to that analyst. Each of these analyst(s) certify, with respect to the section(s) of the report for which they are responsible, that the views expressed therein accurately reflect their personal views about each issuer and security referenced and were prepared in an independent manner, including with respect to Citigroup Global Markets Inc and its affiliates. No part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this report.

IMPORTANT DISCLOSURES

3.6

3.8

4.0

4.2

4.4

4.6

J A S O N D J2011

F M A M J J A S O N D J2012


F M A M J J

1

Date Rating Target Price Closing Price1 8-Oct-11 Stock rating system changed

Date Rating Target Price Closing Price1 8-Oct-11 Stock rating system changed

Langham Hospitality Investments(1270.HK)Ratings and Target Price HistoryFundamental Research

HKD

* Indicates change Rating/target price changes above reflect Eastern Standard Time

CoveredNot covered

3.6

3.8

4.0

4.2

4.4

4.6

J A S O N D J2011



F M A M J J

Langham Hospitality Investments(1270.HK)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)

HKD

* Indicates change Rating/target price changes above reflect Eastern Standard Time

CoveredNot covered

Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of Mapletree Logistics Trust, Mapletree Commercial Trust, Ascendas REIT, Langham Hospitality Investments, Suntec REIT.

Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from Mapletree Logistics Trust, Mapletree Commercial Trust, Ascendas REIT, Langham Hospitality Investments, Suntec REIT, Keppel REIT, Mapletree Industrial Trust, Frasers Centrepoint Trust.

Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from Mapletree Logistics Trust, Mapletree Commercial Trust, Langham Hospitality Investments, Suntec REIT, Mapletree Industrial Trust.

Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from Mapletree Logistics Trust, CapitaMall Trust, The Link REIT, Mapletree Commercial Trust, Ascendas REIT, Langham Hospitality Investments, Suntec REIT, Mapletree Industrial Trust, Frasers Centrepoint Trust in the past 12 months.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): Mapletree Logistics Trust, Mapletree Commercial Trust, Ascendas REIT, Langham Hospitality Investments, Suntec REIT, Keppel REIT, Mapletree Industrial Trust, Frasers Centrepoint Trust.


21

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securities-related: Mapletree Logistics Trust, CapitaMall Trust, Mapletree Commercial Trust, Ascendas REIT, Langham Hospitality Investments, Suntec REIT, Mapletree Industrial Trust, Frasers Centrepoint Trust.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, non-securities-related: Mapletree Logistics Trust, CapitaMall Trust, The Link REIT, Ascendas REIT, Langham Hospitality Investments, Suntec REIT, Frasers Centrepoint Trust.

Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability which includes investment banking revenues.

The Firm is a market maker in the publicly traded equity securities of The Link REIT.

For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citi Research product ("the Product"), please contact Citi Research, 388 Greenwich Street, 28th Floor, New York, NY, 10013, Attention: Legal/Compliance [E6WYB6412478]. In addition, the same important disclosures, with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures. Valuation and Risk assessments can be found in the text of the most recent research note/report regarding the subject company. Historical disclosures (for up to the past three years) will be provided upon request.

Citi Research Equity Ratings Distribution 12 Month Rating Relative Rating Data current as of 30 Jun 2013 Buy Hold Sell Buy Hold SellCiti Research Global Fundamental Coverage 48% 40% 12% 6% 88% 6%

% of companies in each rating category that are investment banking clients 53% 50% 45% 58% 51% 49%Guide to Citi Research Fundamental Research Investment Ratings: Citi Research stock recommendations include an investment rating and an optional risk rating to highlight high risk stocks. Risk rating takes into account both price volatility and fundamental criteria. Stocks will either have no risk rating or a High risk rating assigned. Investment Ratings: Citi Research investment ratings are Buy, Neutral and Sell. Our ratings are a function of analyst expectations of expected total return ("ETR") and risk. ETR is the sum of the forecast price appreciation (or depreciation) plus the dividend yield for a stock within the next 12 months. The Investment rating definitions are: Buy (1) ETR of 15% or more or 25% or more for High risk stocks; and Sell (3) for negative ETR. Any covered stock not assigned a Buy or a Sell is a Neutral (2). For stocks rated Neutral (2), if an analyst believes that there are insufficient valuation drivers and/or investment catalysts to derive a positive or negative investment view, they may elect with the approval of Citi Research management not to assign a target price and, thus, not derive an ETR. Analysts may place covered stocks "Under Review" in response to exceptional circumstances (e.g. lack of information critical to the analyst's thesis) affecting the company and / or trading in the company's securities (e.g. trading suspension). As soon as practically possible, the analyst will publish a note re-establishing a rating and investment thesis. To satisfy regulatory requirements, we correspond Under Review and Neutral to Hold in our ratings distribution table for our 12-month fundamental rating system. However, we reiterate that we do not consider Under Review to be a recommendation. Relative three-month ratings: Citi Research may also assign a three-month relative call (or rating) to a stock to highlight expected out-performance (most preferred) or under-performance (least preferred) versus the geographic and industry sector over a 3 month period. The relative call may highlight a specific near-term catalyst or event impacting the company or the market that is anticipated to have a short-term price impact on the equity securities of the company. Absent any specific catalyst the analyst(s) will indicate the most and least preferred stocks in the universe of stocks under consideration, explaining the basis for this short-term view. This three-month view may be different from and does not affect a stock's fundamental equity rating, which reflects a longer-term total absolute return expectation. For purposes of NASD/NYSE ratings-distribution-disclosure rules, most preferred calls correspond to a buy recommendation and least preferred calls correspond to a sell recommendation. Any stock not assigned to a most preferred or least preferred call is considered non-relative-rated (NRR). For purposes of NASD/NYSE ratings-distribution-disclosure rules we correspond NRR to Hold in our ratings distribution table for our 3-month relative rating system. However, we reiterate that we do not consider NRR to be a recommendation.

Prior to October 8, 2011, the firm's stock recommendation system included a risk rating and an investment rating. Risk ratings, which took into account both price volatility and fundamental criteria, were: Low (L), Medium (M), High (H), and Speculative (S). Investment Ratings of Buy, Hold and Sell were a function of the Citi Research expectation of total return (forecast price appreciation and dividend yield within the next 12 months) and risk rating. Additionally, analysts could have placed covered stocks "Under Review" in response to exceptional circumstances (e.g. lack of information critical to the analyst's thesis) affecting the company and/or trading in the company's securities (e.g. trading suspension). Stocks placed "Under Review" were monitored daily by management and as practically possible, the analyst published a note re-establishing a rating and investment thesis. For securities in developed markets (US, UK, Europe, Japan, and Australia/New Zealand), investment ratings were:Buy (1) (expected total return of 10% or more for Low-Risk stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for Speculative stocks); Hold (2) (0%-10% for Low-Risk stocks, 0%-15% for Medium-Risk stocks, 0%-20% for High-Risk stocks, and 0%-35% for Speculative stocks); and Sell (3) (negative total return). For securities in emerging markets (Asia Pacific, Emerging Europe/Middle East/Africa, and Latin America), investment ratings were:Buy (1) (expected total return of 15% or more for Low-Risk stocks, 20% or more for Medium-Risk stocks, 30% or more for High-Risk stocks, and 40% or more for Speculative stocks); Hold (2) (5%-15% for Low-Risk stocks, 10%-20% for Medium-Risk stocks, 15%-30% for High-Risk stocks, and 20%-40% for Speculative stocks); and Sell (3) (5% or less for Low-Risk stocks, 10% or less for Medium-Risk stocks, 15% or less for High-Risk stocks, and 20% or less for Speculative stocks).

Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in investment and/or risk rating, or a change in target price (subject to limited management discretion). At other times, the expected total returns may fall outside of these ranges because of market price movements and/or other short-term volatility or trading patterns. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock's expected performance and risk.

NON-US RESEARCH ANALYST DISCLOSURES Non-US research analysts who have prepared this report (i.e., all research analysts listed below other than those identified as employed by Citigroup Global


22

Markets Inc.) are not registered/qualified as research analysts with FINRA. Such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 and NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. The legal entities employing the authors of this report are listed below:

Citigroup Global Markets Asia Griffin Chan; Ken Yeung; Oscar Choi Citigroup Global Markets Singapore PTE LIMITED Adrian Chua, CFA

OTHER DISCLOSURES

The subject company's share price set out on the front page of this Product is quoted as at 02 July 2013 04:10 PM on the issuer's primary market.

Citigroup Global Markets Inc. and/or its affiliates has a significant financial interest in relation to Suntec REIT. (For an explanation of the determination of significant financial interest, please refer to the policy for managing conflicts of interest which can be found at www.citiVelocity.com.)

For securities recommended in the Product in which the Firm is not a market maker, the Firm is a liquidity provider in the issuers' financial instruments and may act as principal in connection with such transactions. The Firm is a regular issuer of traded financial instruments linked to securities that may have been recommended in the Product. The Firm regularly trades in the securities of the issuer(s) discussed in the Product. The Firm may engage in securities transactions in a manner inconsistent with the Product and, with respect to securities covered by the Product, will buy or sell from customers on a principal basis.

Securities recommended, offered, or sold by the Firm: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources that the Firm believes to be reliable, we do not guarantee its accuracy and it may be incomplete and condensed. Note, however, that the Firm has taken all reasonable steps to determine the accuracy and completeness of the disclosures made in the Important Disclosures section of the Product. The Firm's research department has received assistance from the subject company(ies) referred to in this Product including, but not limited to, discussions with management of the subject company(ies). Firm policy prohibits research analysts from sending draft research to subject companies. However, it should be presumed that the author of the Product has had discussions with the subject company to ensure factual accuracy prior to publication. All opinions, projections and estimates constitute the judgment of the author as of the date of the Product and these, plus any other information contained in the Product, are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice. Notwithstanding other departments within the Firm advising the companies discussed in this Product, information obtained in such role is not used in the preparation of the Product. Although Citi Research does not set a predetermined frequency for publication, if the Product is a fundamental research report, it is the intention of Citi Research to provide research coverage of the/those issuer(s) mentioned therein, including in response to news affecting this issuer, subject to applicable quiet periods and capacity constraints. The Product is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in the Product must take into account existing public information on such security or any registered prospectus.

Investing in non-U.S. securities, including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of the U.S. Securities and Exchange Commission. There may be limited information available on foreign securities. Foreign companies are generally not subject to uniform audit and reporting standards, practices and requirements comparable to those in the U.S. Securities of some foreign companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. In addition, exchange rate movements may have an adverse effect on the value of an investment in a foreign stock and its corresponding dividend payment for U.S. investors. Net dividends to ADR investors are estimated, using withholding tax rates conventions, deemed accurate, but investors are urged to consult their tax advisor for exact dividend computations. Investors who have received the Product from the Firm may be prohibited in certain states or other jurisdictions from purchasing securities mentioned in the Product from the Firm. Please ask your Financial Consultant for additional details. Citigroup Global Markets Inc. takes responsibility for the Product in the United States. Any orders by US investors resulting from the information contained in the Product may be placed only through Citigroup Global Markets Inc.

The Citigroup legal entity that takes responsibility for the production of the Product is the legal entity which the first named author is employed by. The Product is made available in Australia through Citi Global Markets Australia Pty Ltd. (ABN 64 003 114 832 and AFSL No. 240992), participant of the ASX Group and regulated by the Australian Securities & Investments Commission. Citigroup Centre, 2 Park Street, Sydney, NSW 2000. The Product is made available in Australia to Private Banking wholesale clients through Citigroup Pty Limited (ABN 88 004 325 080 and AFSL 238098). Citigroup Pty Limited provides all financial product advice to Australian Private Banking wholesale clients through bankers and relationship managers. If there is any doubt about the suitability of investments held in Citigroup Private Bank accounts, investors should contact the Citigroup Private Bank in Australia. Citigroup companies may compensate affiliates and their representatives for providing products and services to clients. The Product is made available in Brazil by Citigroup Global Markets Brasil - CCTVM SA, which is regulated by CVM - Comissão de Valores Mobiliários, BACEN - Brazilian Central Bank, APIMEC - Associação dos Analistas e Profissionais de Investimento do Mercado de Capitais and ANBID - Associação Nacional dos Bancos de Investimento. Av. Paulista, 1111 - 11º andar - CEP. 01311920 - São Paulo - SP. If the Product is being made available in certain provinces of Canada by Citigroup Global Markets (Canada) Inc. ("CGM Canada"), CGM Canada has approved the Product. Citigroup Place, 123 Front Street West, Suite 1100, Toronto, Ontario M5J 2M3. This product is available in Chile through Banchile Corredores de Bolsa S.A., an indirect subsidiary of Citigroup Inc., which is regulated by the Superintendencia de Valores y Seguros. Agustinas 975, piso 2, Santiago, Chile. The Product is made available in France by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. 1-5 Rue Paul Cézanne, 8ème, Paris, France. The Product is distributed in Germany by Citigroup Global Markets Deutschland AG ("CGMD"), which is regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin). CGMD, Reuterweg 16, 60323 Frankfurt am Main. Research which relates to "securities" (as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)) is issued in Hong Kong by, or on behalf of, Citigroup Global Markets Asia Limited which takes full responsibility for its content. Citigroup Global Markets Asia Ltd. is regulated by Hong Kong Securities and Futures Commission. If the Research is made available through Citibank, N.A., Hong Kong Branch, for its clients in Citi Private Bank, it is made available by Citibank N.A., Citibank Tower, Citibank Plaza, 3 Garden Road, Hong Kong. Citibank N.A. is regulated by the Hong Kong Monetary Authority. Please contact your Private Banker in Citibank N.A., Hong Kong, Branch if you have any queries on or any matters arising from or in connection with this document. The Product is made available in India by Citigroup Global Markets India Private Limited, which is regulated by Securities and Exchange Board of India. Bakhtawar, Nariman Point, Mumbai 400-021. The Product is made available in Indonesia


23

through PT Citigroup Securities Indonesia. 5/F, Citibank Tower, Bapindo Plaza, Jl. Jend. Sudirman Kav. 54-55, Jakarta 12190. Neither this Product nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable capital market laws and regulations. This Product is not an offer of securities in Indonesia. The securities referred to in this Product have not been registered with the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market laws and regulations. The Product is made available in Israel through Citibank NA, regulated by the Bank of Israel and the Israeli Securities Authority. Citibank, N.A, Platinum Building, 21 Ha'arba'ah St, Tel Aviv, Israel. The Product is made available in Italy by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. Via dei Mercanti, 12, Milan, 20121, Italy. The Product is made available in Japan by Citigroup Global Markets Japan Inc. ("CGMJ"), which is regulated by Financial Services Agency, Securities and Exchange Surveillance Commission, Japan Securities Dealers Association, Tokyo Stock Exchange and Osaka Securities Exchange. Shin-Marunouchi Building, 1-5-1 Marunouchi, Chiyoda-ku, Tokyo 100-6520 Japan. If the Product was distributed by SMBC Nikko Securities Inc. it is being so distributed under license. In the event that an error is found in an CGMJ research report, a revised version will be posted on the Firm's Citi Velocity website. If you have questions regarding Citi Velocity, please call (81 3) 6270-3019 for help. The Product is made available in Korea by Citigroup Global Markets Korea Securities Ltd., which is regulated by the Financial Services Commission, the Financial Supervisory Service and the Korea Financial Investment Association (KOFIA). Citibank Building, 39 Da-dong, Jung-gu, Seoul 100-180, Korea. KOFIA makes available registration information of research analysts on its website. Please visit the following website if you wish to find KOFIA registration information on research analysts of Citigroup Global Markets Korea Securities Ltd. http://dis.kofia.or.kr/fs/dis2/fundMgr/DISFundMgrAnalystPop.jsp?companyCd2=A03030&pageDiv=02. The Product is made available in Korea by Citibank Korea Inc., which is regulated by the Financial Services Commission and the Financial Supervisory Service. Address is Citibank Building, 39 Da-dong, Jung-gu, Seoul 100-180, Korea. The Product is made available in Malaysia by Citigroup Global Markets Malaysia Sdn Bhd (Company No. 460819-D) (“CGMM”) to its clients and CGMM takes responsibility for its contents. CGMM is regulated by the Securities Commission of Malaysia. Please contact CGMM at Level 43 Menara Citibank, 165 Jalan Ampang, 50450 Kuala Lumpur, Malaysia in respect of any matters arising from, or in connection with, the Product. The Product is made available in Mexico by Acciones y Valores Banamex, S.A. De C. V., Casa de Bolsa, Integrante del Grupo Financiero Banamex ("Accival") which is a wholly owned subsidiary of Citigroup Inc. and is regulated by Comision Nacional Bancaria y de Valores. Reforma 398, Col. Juarez, 06600 Mexico, D.F. In New Zealand the Product is made available to ‘wholesale clients’ only as defined by s5C(1) of the Financial Advisers Act 2008 (‘FAA’) through Citigroup Global Markets Australia Pty Ltd (ABN 64 003 114 832 and AFSL No. 240992), an overseas financial adviser as defined by the FAA, participant of the ASX Group and regulated by the Australian Securities & Investments Commission. Citigroup Centre, 2 Park Street, Sydney, NSW 2000. The Product is made available in Pakistan by Citibank N.A. Pakistan branch, which is regulated by the State Bank of Pakistan and Securities Exchange Commission, Pakistan. AWT Plaza, 1.1. Chundrigar Road, P.O. Box 4889, Karachi-74200. The Product is made available in the Philippines through Citicorp Financial Services and Insurance Brokerage Philippines, Inc., which is regulated by the Philippines Securities and Exchange Commission. 20th Floor Citibank Square Bldg. The Product is made available in the Philippines through Citibank NA Philippines branch, Citibank Tower, 8741 Paseo De Roxas, Makati City, Manila. Citibank NA Philippines NA is regulated by The Bangko Sentral ng Pilipinas. The Product is made available in Poland by Dom Maklerski Banku Handlowego SA an indirect subsidiary of Citigroup Inc., which is regulated by Komisja Nadzoru Finansowego. Dom Maklerski Banku Handlowego S.A. ul.Senatorska 16, 00-923 Warszawa. The Product is made available in the Russian Federation through ZAO Citibank, which is licensed to carry out banking activities in the Russian Federation in accordance with the general banking license issued by the Central Bank of the Russian Federation and brokerage activities in accordance with the license issued by the Federal Service for Financial Markets. Neither the Product nor any information contained in the Product shall be considered as advertising the securities mentioned in this report within the territory of the Russian Federation or outside the Russian Federation. The Product does not constitute an appraisal within the meaning of the Federal Law of the Russian Federation of 29 July 1998 No. 135-FZ (as amended) On Appraisal Activities in the Russian Federation. 8-10 Gasheka Street, 125047 Moscow. The Product is made available in Singapore through Citigroup Global Markets Singapore Pte. Ltd. (“CGMSPL”), a capital markets services license holder, and regulated by Monetary Authority of Singapore. Please contact CGMSPL at 8 Marina View, 21st Floor Asia Square Tower 1, Singapore 018960, in respect of any matters arising from, or in connection with, the analysis of this document. This report is intended for recipients who are accredited, expert and institutional investors as defined under the Securities and Futures Act (Cap. 289). The Product is made available by The Citigroup Private Bank in Singapore through Citibank, N.A., Singapore Branch, a licensed bank in Singapore that is regulated by Monetary Authority of Singapore. Please contact your Private Banker in Citibank N.A., Singapore Branch if you have any queries on or any matters arising from or in connection with this document. This report is intended for recipients who are accredited, expert and institutional investors as defined under the Securities and Futures Act (Cap. 289). This report is distributed in Singapore by Citibank Singapore Ltd ("CSL") to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this report. Please contact your Citigold//Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this report. This report is intended for recipients who are accredited investors as defined under the Securities and Futures Act (Cap. 289). Citigroup Global Markets (Pty) Ltd. is incorporated in the Republic of South Africa (company registration number 2000/025866/07) and its registered office is at 145 West Street, Sandton, 2196, Saxonwold. Citigroup Global Markets (Pty) Ltd. is regulated by JSE Securities Exchange South Africa, South African Reserve Bank and the Financial Services Board. The investments and services contained herein are not available to private customers in South Africa. The Product is made available in Spain by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. 29 Jose Ortega Y Gasset, 4th Floor, Madrid, 28006, Spain. The Product is made available in the Republic of China through Citigroup Global Markets Taiwan Securities Company Ltd. ("CGMTS"), 14 and 15F, No. 1, Songzhi Road, Taipei 110, Taiwan and/or through Citibank Securities (Taiwan) Company Limited ("CSTL"), 14 and 15F, No. 1, Songzhi Road, Taipei 110, Taiwan, subject to the respective license scope of each entity and the applicable laws and regulations in the Republic of China. CGMTS and CSTL are both regulated by the Securities and Futures Bureau of the Financial Supervisory Commission of Taiwan, the Republic of China. No portion of the Product may be reproduced or quoted in the Republic of China by the press or any third parties [without the written authorization of CGMTS and CSTL]. If the Product covers securities which are not allowed to be offered or traded in the Republic of China, neither the Product nor any information contained in the Product shall be considered as advertising the securities or making recommendation of the securities in the Republic of China. The Product is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security or financial products. Any decision to purchase securities or financial products mentioned in the Product must take into account existing public information on such security or the financial products or any registered prospectus. The Product is made available in Thailand through Citicorp Securities (Thailand) Ltd., which is regulated by the Securities and Exchange Commission of Thailand. 18/F, 22/F and 29/F, 82 North Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand. The Product is made available in Turkey through Citibank AS which is regulated by Capital Markets Board. Tekfen Tower, Eski


24

Buyukdere Caddesi # 209 Kat 2B, 23294 Levent, Istanbul, Turkey. In the U.A.E, these materials (the "Materials") are communicated by Citigroup Global Markets Limited, DIFC branch ("CGML"), an entity registered in the Dubai International Financial Center ("DIFC") and licensed and regulated by the Dubai Financial Services Authority ("DFSA") to Professional Clients and Market Counterparties only and should not be relied upon or distributed to Retail Clients. A distribution of the different Citi Research ratings distribution, in percentage terms for Investments in each sector covered is made available on request. Financial products and/or services to which the Materials relate will only be made available to Professional Clients and Market Counterparties. The Product is made available in United Kingdom by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. This material may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA and further details as to where this may be the case are available upon request in respect of this material. Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB. The Product is made available in United States by Citigroup Global Markets Inc, which is a member of FINRA and registered with the US Securities and Exchange Commission. 388 Greenwich Street, New York, NY 10013. Unless specified to the contrary, within EU Member States, the Product is made available by Citigroup Global Markets Limited, which is regulated by Financial Services Authority. Pursuant to Comissão de Valores Mobiliários Rule 483, Citi is required to disclose whether a Citi related company or business has a commercial relationship with the subject company. Considering that Citi operates multiple businesses in more than 100 countries around the world, it is likely that Citi has a commercial relationship with the subject company. Many European regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising as a result of publication or distribution of investment research. The policy applicable to Citi Research's Products can be found at https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures. Compensation of equity research analysts is determined by equity research management and Citigroup's senior management and is not linked to specific transactions or recommendations. The Product may have been distributed simultaneously, in multiple formats, to the Firm's worldwide institutional and retail customers. The Product is not to be construed as providing investment services in any jurisdiction where the provision of such services would not be permitted. Subject to the nature and contents of the Product, the investments described therein are subject to fluctuations in price and/or value and investors may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Certain investments contained in the Product may have tax implications for private customers whereby levels and basis of taxation may be subject to change. If in doubt, investors should seek advice from a tax adviser. The Product does not purport to identify the nature of the specific market or other risks associated with a particular transaction. Advice in the Product is general and should not be construed as personal advice given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. Prior to acquiring any financial product, it is the client's responsibility to obtain the relevant offer document for the product and consider it before making a decision as to whether to purchase the product. With the exception of our product that is made available only to Qualified Institutional Buyers (QIBs) and other product that is made available through other distribution channels only to certain categories of clients to satisfy legal or regulatory requirements, Citi Research concurrently disseminates its research via proprietary and non-proprietary electronic distribution platforms. Periodically, individual Citi Research analysts may also opt to circulate research posted on such platforms to one or more clients by email. Such email distribution is discretionary and is done only after the research has been disseminated via the aforementioned distribution channels. Citi Research simultaneously distributes product that is limited to QIBs only through email distribution. The level and types of services provided by Citi Research analysts to clients may vary depending on various factors such as the client’s individual preferences as to the frequency and manner of receiving communications from analysts, the client’s risk profile and investment focus and perspective (e.g. market-wide, sector specific, long term, short-term etc.), the size and scope of the overall client relationship with Citi and legal and regulatory constraints. Citi Research product may source data from dataCentral. dataCentral is a Citi Research proprietary database, which includes Citi estimates, data from company reports and feeds from Reuters and Datastream.

© 2013 Citigroup Global Markets Inc. Citi Research is a division of Citigroup Global Markets Inc. Citi and Citi with Arc Design are trademarks and service marks of Citigroup Inc. and its affiliates and are used and registered throughout the world. All rights reserved. Any unauthorized use, duplication, redistribution or disclosure of this report (the “Product”), including, but not limited to, redistribution of the Product by electronic mail, posting of the Product on a website or page, and/or providing to a third party a link to the Product, is prohibited by law and will result in prosecution. The information contained in the Product is intended solely for the recipient and may not be further distributed by the recipient to any third party. Where included in this report, MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. The Firm accepts no liability whatsoever for the actions of third parties. The Product may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the Product refers to website material of the Firm, the Firm has not reviewed the linked site. Equally, except to the extent to which the Product refers to website material of the Firm, the Firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of the Firm) is provided solely for your convenience and information and the content of the linked site does not in anyway form part of this document. Accessing such website or following such link through the Product or the website of the Firm shall be at your own risk and the Firm shall have no liability arising out of, or in connection with, any such referenced website.

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST

http://www.citivelocity.com/�

Documents

Langham Hospitality Investments (1270.HK) Initiation of …xqdoc.b0.upaiyun.com/13fa2070733173fb3532289c.pdf · See Appendix A-1 for Analyst Certification, Important Disclosures and