Hongkong and Shanghai Hotels : Interim Results for the Period Ended 30 June 2016

THE HONGKONG AND SHANGHAI HOTELS, LIMITED

To: All Finance/Business/ Property /Travel Editors

THE HONGKONG AND SHANGHAI HOTELS, LIMITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2016

HIGHLIGHTS

• Revenue and EBITDA amounted to HK$2,606 million (2015: HK$2,690 million) and HK$525 million (2015: HK$642 million) respectively

• Underlying profit attributable to shareholders amounted to HK$152 million (2015: HK$265 million). The bulk of this decrease was due to the earnings disruption from the partial closures of The Peninsula Beijing and The Peninsula Chicago for extensive renovations. Excluding the operating results of these two hotels, our Group's EBITDA would be only 4% lower than the same period last year

• Profit attributable to shareholders amounted to HK$198 million (2015: HK$477 million), inclusive of the net gain on revaluation of investment properties which amounted to HK$54 million as compared to HK$236 million in the same period last year

• Earnings per share and underlying earnings per share of HK$0.13 (2015: HK$0.31) and HK$0.10 (2015: HK$0.17) respectively

• Interim dividend of 4 HK cents per share (2015: 5 HK cents per share)

• Shareholders' funds as at 30 June 2016 amounted to HK$36,225 million or HK$23.19 per share (31 December 2015: HK$36,427 million or HK$23.61 per share). Gearing remained at a conservative level of 10% (31 December 2015: 8%)

  Key developments

• The Peninsula Chicago completed its renovation project in April 2016 and its new room product has received positive feedback from guests

• The Peninsula Beijing is well advanced in its extensive RMB 890 million renovation, with the first phase to be completed in August 2016 and the second phase to be completed in spring 2017. The previous 525 rooms of the hotel are being combined to create 230 elegant new rooms and suites, which start from 60 square metres, making them the largest in Beijing and among the most spacious luxury hotel rooms in China

• On 26 July 2016, we signed non-binding Heads of Terms to change the structure of our 50:50 partnership with Grosvenor into a landlord and tenant relationship, whereby HSH will assume 100% ownership of the leasehold. Grosvenor will remain as the landlord under the Lease. This restructure will result in our Group funding all the remaining development costs, representing a significant increase in investment. In return for this additional investment, we will have 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

Hong Kong, 10 August 2016 - The Hongkong and Shanghai Hotels, Limited today announced its interim financial results for 2016.

"The first six months of 2016 have been challenging. Hong Kong, which is the largest geographic contributor to our Group, has been impacted by the well-publicised declines in tourism and high-end retail spending and a softening in the high-end residential market. There have also been challenges with unfortunate terrorist events disrupting tourism and business in global markets, as well as political uncertainty from the "Brexit" vote and subdued economic activity in general. These events have had varying impacts on our different businesses, with one of the most affected markets being Paris.

In the light of these circumstances, we are not dissatisfied with the operating results for the Group. While operating profit was down 31% and underlying profit attributable to shareholders down 43% as compared to the first six months last year, the bulk of this decrease was due to the earnings disruption from the partial closure of The Peninsula Beijing and The Peninsula Chicago due to the extensive renovation projects being undertaken at those hotels, as we had reported and forewarned in our 2015 annual report. Excluding the operating results of these two hotels, our Group's EBITDA would be only 4% lower than the same period last year which we regard as being quite creditable given the market circumstances.

As virtually all of our investment properties are located in Hong Kong, the property revaluation surplus for the six months at HK$54 million is substantially less than last year, although this is in line with the trend of softer real estate values in the city. Notwithstanding, we believe our valuations are prudent relative to other transactions we have witnessed in the market. After taking account of our operating earnings together with the property revaluation surplus, our profit attributable to shareholders of HK$198 million was down by 58% as compared to last year.

It is important to remember during a market downturn like this that our Group focuses on long-term investments and has successfully weathered many storms and cycles in its very long history. It is with considerable pride that we are celebrating the 150th anniversary of the establishment of our company, The Hongkong and Shanghai Hotels. We believe we are the world's oldest hotel group in continuous operation and we are the oldest company on the Hong Kong Companies Registry. As we celebrate this anniversary, our company has never been in better shape, with The Peninsula brand enjoying recognition as one of the leading luxury city hotel brands in the world. In an environment of consolidation and commoditisation in the hotel market globally, we are increasingly unique as an owner- operator, which we believe will serve us well over the long term. We have a valuable portfolio of quality hotel and other assets located in some of the most exceptional locations in the world, and we continue to invest in our real estate and people to ensure we maintain the exacting standards that have become synonymous with our brand. We have a strong

balance sheet with conservative gearing, which positions us well to weather any downturn or capitalise on opportunities to grow when presented.

The largest new project under development is The Peninsula London. As announced on 26 July 2016, we have signed Heads of Terms to change the structure of our partnership with Grosvenor into a landlord and tenant relationship, whereby HSH will assume 100% ownership of the leasehold. Grosvenor will remain as the landlord under the Lease. This will result in our Group funding all the remaining development costs, representing a significant increase in investment. In return for this additional investment, we will have full control over the development, management and future operations of the London Project, 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. This is a significant transaction for our Group, given the importance of London as a business and tourism destination. We take a long-term view and believe that many of the factors that make London such an important global city and desirable place to live and work will remain largely unaffected regardless of the outcome of the recent "Brexit" vote.

We have also continued to make progress with our committed projects for the developments of The Peninsula Yangon and The Peninsula Istanbul, although we continue to monitor the political and security situation in Turkey closely. We are also investing more heavily in our brand marketing, particularly in the digital arena.

Generally the outlook for our businesses remains challenging for the remainder of the year and we are therefore focused on cost containment and managing the margins of our operations.

A detailed review of our business performance is below.

Asia

The market in Hong Kong was challenging for tourism in the first half of the year, which was reflected in the reduced RevPAR of The Peninsula Hong Kong, although we were able to maintain our strong position in terms of market share. Overnight tourist arrivals to Hong Kong declined year-on-year by 3.2%. We continued to employ a strategy of drawing from a diverse base of customers, so that we are not dependent on any one geography or market segment. In the current market we have focused more marketing efforts on corporate business and groups to offset the softer demand from leisure travellers and we believe that the revenue and RevPAR drop of only 5% was a creditable result relative to the market. The Peninsula Office Tower was fully let although The Peninsula Arcade saw some softening in average rental rates along with the broader Hong Kong retail market. We are working closely with our key retail tenants to address the significant downturn in Hong Kong's high-end retail market, where we believe the long-term relationship we enjoy with many of our key tenants and our unique ability to offer access to Peninsula Hotel guests will help to support our tenants. We initiated a successful marketing campaign, Legendary Artisans, to promote our Arcade tenants by showcasing exclusive collection launches and culinary collaborations such as the Tiffany-inspired afternoon tea. The hotel's three-year collaboration with Britain's highly regarded Royal Academy of Arts, Love Art at The Peninsula, broke new ground 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 in March.

The Peninsula Shanghai reported a satisfactory first half of 2016 with occupancy increasing 2pp, and the average room rate increasing 4% over the same period last year. The hotel remains the market leader in RevPAR in the city and we were delighted to receive the accolade of Number 1 in Best City Hotels in Asia by Travel + Leisure magazine. Overall revenue was impacted by a new VAT reform which was implemented by the Chinese government on 1 May 2016. The domestic market remained strong with increasing numbers of guests from the Middle East and we are seeing a very strong trend towards last-minute bookings in mainland China. The Peninsula Arcade was fully occupied, and we are working with our tenants on renewed rental contracts to secure long-term partnerships. The Arcade