Hongkong and Shanghai Hotels : Annual Results for the Year Ended 31 December 2016

THE HONGKONG AND SHANGHAI HOTELS, LIMITED

To: All Finance/Business/Travel Editors

FOR IMMEDIATE RELEASE 20 MARCH, 2017

• Revenue and EBITDA amounted to HK$5,631 million (2015: HK$5,741 million) and HK$1,288 million (2015: HK$1,440 million) respectively

• Underlying profit attributable to shareholders amounted to HK$606 million (2015: HK$688 million). The earnings of the Company were affected by the partial closure of The Peninsula Beijing for its extensive renovation project

• Profit attributable to shareholders amounted to HK$675 million (2015: HK$1,000 million), inclusive of net property revaluation gain of HK$29 million (2015: HK$277 million)

• Earnings per share and underlying earnings per share of HK$0.43 (2015: HK$0.65) and HK$0.39 (2015: HK$0.45) respectively

• Final dividend of 15 HK cents per share (2015: 15 HK cents per share), making a total dividend of 19 HK cents per share for 2016 (2015: 20 HK cents per share)

• Shareholders' funds as at 31 December 2016 amounted to HK$36,359 million (2015:

  HK$36,427 million) or HK$23.20 per share (2015: HK$23.61 per share)

  Key developments

• In September 2016, we acquired the 50% remaining leasehold interest in The Peninsula London project from Grosvenor. This restructure will result in our Group having full control over the development, management and future operations of The Peninsula London, as well as be entitled to 100% of the proceeds from the future sales of the residential units in the project and the profits of the hotel. We are excited to move forward with this project given the importance of London as a business and tourism destination. Completion is expected in 2021

• Construction has started on the site of The Peninsula Istanbul and all conditions in the

  shareholders' agreement were met. Completion is expected in 2019

• For The Peninsula Yangon, the assignment and extension of the master lease and the approval of the Myanmar Investment Commission were obtained and the groundbreaking ceremony was held in February 2017. Completion is expected in 2021

• The Peninsula Beijing has completed the first phase of its renovation in August 2016 and the full inventory of 230 renovated rooms will be in operation by mid-2017. This extensive renovation has resulted in a doubling of the average room size, reducing the number of keys from 525 to 230, with a much higher average room rate being achieved

• The Peninsula Chicago completed its rooms renovation in April 2016, placing it at the top of the city in RevPAR for 2016

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Hong Kong, 20 March 2017

The Hongkong and Shanghai Hotels, Limited today announced its annual financial results for 2016. Mr Clement K.M. Kwok, Managing Director and Chief Executive Officer of The Hongkong and Shanghai Hotels, Limited (HSH) commented:

"I am proud to share that The Hongkong and Shanghai Hotels celebrated its 150th anniversary in 2016. Over many decades, our company has focused its business philosophy on the provision of luxury hospitality, giving people an experience that they treasure and enjoy, and not only to meet but to exceed our guests' expectations. This is the essence of our brand and reputation and has helped us weather many ups and downs over our long history. Our company remains well placed for the future, with The Peninsula brand enjoying recognition as one of the leading luxury city hotel brands in the world. We have a valuable portfolio of quality hotel and other assets located in some of the most exceptional locations in leading cities around the world.

While we always look at the long-term strategy and future of our business, 2016 proved to be a year of considerable global economic, political and security uncertainties. The "Brexit" vote, the US presidential elections, mixed economic performance in many of the countries in which we operate and continued terrorist incidents and threats all pose uncertainties to our business. In addition, sentiment in our main market of Hong Kong was negative towards tourism and retail business for much of 2016 although we believe we have seen some stabilisation since.

Given the circumstances in which we were operating, we believe our 2016 financial results for the Group were satisfactory. While operating profit and underlying profit attributable to shareholders declined compared to the same period last year, the bulk of this decrease was due to the earnings disruption arising from the partial closure of The Peninsula Beijing for the extensive renovation project being undertaken at that hotel, as we had reported and forewarned in our 2015 Annual Report. Excluding the results of The Peninsula Beijing, which was under renovation for the year, the underlying profit of the Group in 2016 would have remained flat, which we consider to be a creditable result in the light of the market circumstances.

2016 was a year that saw increasing consolidation and commoditisation in the hotel market globally, meaning that our Group is becoming increasingly unique as an owner-operator amongst the top international luxury brands. One of the benefits of being an owner-operator is that we can have more control over our assets and the timing of our investments. The Group has invested heavily in raising the standards of our existing hotel assets. This was our key strategy during 2016, with significant renovations at The Peninsula Chicago and The Peninsula Beijing and a new Grand "Fifth Avenue" Suite in The Peninsula New York.

With the renovation of The Peninsula Beijing being completed in the first half of 2017, our current programme of renovations on existing hotels has largely been completed and our focus for the next few years will be on the successful delivery and completion of our new hotel developments underway in London, Istanbul and Yangon.

Significant progress has been made on each of these projects during the year. For The Peninsula London, which is our largest project under development, we have restructured our

partnership with Grosvenor. As of 30 September 2016, HSH has increased its leasehold interest to 100% and we have taken over full control and responsibility for the development and management of the project. For The Peninsula Istanbul project, the shareholders' agreement that was signed with our Turkish partners in July 2015 became unconditional with the granting of satisfactory planning approvals from 30 December 2016. Good progress is being made and construction has been underway since June 2016. For The Peninsula Yangon project, the assignment and extension of the master lease and the approval of the Myanmar Investment Commission were obtained after an extended period of application, following which the groundbreaking ceremony was held on 16 February 2017.

BUSINESS PERFORMANCE

Our Group comprises three key divisions - hotels, commercial properties and clubs and services. These divisions are described in more detail in the following review.

Hotels Division

The Peninsula Hong Kong

The tourism market in Hong Kong was challenging in the beginning of the year, although the situation improved in the second half of 2016. Overnight visitor arrivals from non-mainland China markets increased more than 5% year-on-year, although total overnight arrivals declined. We remain optimistic that Hong Kong will continue to be an attractive destination for travellers and we are committed to working with industry peers and government departments to support new ideas and initiatives for Hong Kong's tourism industry.

As the flagship property of the Group, we were delighted to receive the accolade of "Best Hotel in the World for Service" from the readers of Conde Nast Traveller UK for The Peninsula Hong Kong in September 2016, as well as "Best Business Hotel in Asia Pacific" from Business Traveller. An enduring bastion of the Hong Kong dining scene, The Peninsula Hong Kong's Cantonese restaurant Spring Moon received a Michelin star in December 2016. These awards are a testament to our long-serving team of colleagues who combine the spirit of integrity, passion and commitment to provide the best experiences for our guests.

During the year, hotel occupancy declined slightly although we were able to maintain our position in terms of market share and an improved average room rate. We continued to have a well-balanced customer base with diverse market segmentation and we have placed a stronger focus on marketing efforts targeting corporate business and groups to strengthen both occupancy and rates.

The Peninsula Office Tower continues to perform well and was fully let throughout 2016, and the immediate outlook is stable. In spite of this, we are sensitive to the pressure on our tenants in The Peninsula Arcade as a result of the city-wide downturn facing the luxury retail market in Hong Kong. Many of our loyal tenants have been with us for decades, and we believe the long-term relationships we enjoy with them, coupled with our ability to offer access to Peninsula Hotel guests, will help to support their business needs. We are proactively working with our key retail tenants to establish marketing collaborations and promotional opportunities to support their business development efforts, such as the successful marketing campaign, "Legendary Artisans", which took place in the summer to promote the Arcade's tenants, showcasing exclusive collection launches and culinary collaborations such as the Tiffany-inspired "New York Spirit" Afternoon Tea.

In March 2016, the hotel's three-year collaboration with Britain's Royal Academy of Arts, "Love Art at The Peninsula", continued with the launch of a robotic sculptural installation entitled "The Ada Project" by British conceptual artist Conrad Shawcross RA, which generated extensive press coverage and standout reviews from the international art community during Art Basel HK, which has become a highly successful event for the city.

On 25 November 2016, the Group celebrated its 150th anniversary with a spectacular Gala party for around 2,000 VIP guests and media including a group of 20 VIP travel editors from around the world, which generated significant valuable coverage for Hong Kong and our hotel.

As part of the ongoing implementation of the Sustainable Luxury Vision 2020, the hotel continued to support the "Honing Skills for Hospitality" programme for selected secondary students studying hospitality from the ethnic minority community in Hong Kong, which included a five-week internship programme and an opportunity to learn about the hospitality industry.

The Peninsula Shanghai