Star Properties Cayman Islands : VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF AND SHAREHOLDERS' LOAN OWING BY METROPOLITAN GROUP (BVI) LIMITED AND NOTICE OF EXTRAORDINARY GENERAL MEETING

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Star Properties Group (Cayman Islands) Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.

Star Properties Group (Cayman Islands) Limited

()

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1560)

1. VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF

THE ENTIRE ISSUED SHARE CAPITAL OF AND SHAREHOLDERS' LOAN

OWING BY METROPOLITAN GROUP (BVI) LIMITED

AND

(2) NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee

and the Independent Shareholders

A letter from the Board is set out on pages 9 to 48 of this circular. A letter from the Independent Board Committee containing its recommendation is set out on pages 49 to 50 of this circular. A letter from Sinolink Securities (HK) Co. Ltd., the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 51 to 96 of this circular.

A notice convening the EGM of Star Properties Group (Cayman Islands) Limited to be held at 11/F, TG Place, No.10 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong on 30 September 2020 at 3:00 p.m. is set out on pages EGM-1 to EGM-2 of this circular. A form of proxy for use at the EGM is also enclosed.

Whether or not you are able to attend the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company's Hong Kong branch share registrar, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case maybe). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so wish.

This circular is in English and Chinese. In case of any inconsistency, the English version shall prevail.

15 September 2020

		CONTENTS
			Page
DEFINITIONS.......................................................................................................................		1
LETTER FROM THE BOARD...........................................................................................	9
LETTER FROM THE INDEPENDENT BOARD COMMITTEE..................................	49
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER..................................	51
APPENDIX I	-	FINANCIAL INFORMATION OF THE GROUP....................	I-1
APPENDIX II	-	ACCOUNTANTS' REPORT.......................................................	II-1
APPENDIX III	-	MANAGEMENT DISCUSSION AND ANALYSIS OF
		THE TARGET GROUP...........................................................	III-1
APPENDIX IV	-	UNAUDITED PRO FORMA FINANCIAL
		INFORMATION OF THE ENLARGED GROUP................	IV-1
APPENDIX V	-	PROPERTY VALUATION REPORT........................................	V-1
APPENDIX VI	-	MANAGEMENT DISCUSSION.................................................	VI-1
		AND ANALYSIS OF THE GROUP
APPENDIX VII	-	ADJUSTMENT MECHANISM
		TO THE CONVERSION PRICE............................................	VII-1
APPENDIX VIII	-	GENERAL INFORMATION......................................................	VIII-1
NOTICE OF EXTRAORDINARY GENERAL MEETING.............................................	EGM-1

DEFINITIONS

In this circular, the following expressions shall, unless the context requires otherwise, have the following meanings.

"Acquisition"	the acquisition of the Sale Share and the Sale Loan by the
	Company from the Vendor pursuant to the Acquisition Agreement
"Acquisition Agreement"	the sale and purchase agreement dated 21 July 2020 entered
	into between the Company and the Vendor in relation to the
	Acquisition
"Board"	the board of the Directors
"Business Day"	any day (excluding Saturdays, Sundays and days on which a
	tropical cyclone warning no.8 or above or a "black" rainstorm
	warning signal is hoisted in Hong Kong at any time between
	9:00 a.m. and 5:00 p.m.) on which banks are generally open for
	business in Hong Kong
"BVI"	British Virgin Islands
"CB Conditions"	the terms and conditions of the Convertible Bonds
"Celinal"	means Celinal Limited, a company incorporated under the laws of
	the British Virgin Islands with limited liability
"Company" or	Star Properties Group (Cayman Islands) Limited, a company
"Star Properties"	incorporated in the Cayman Islands with limited liability and the
	issued Shares of which are listed on the Main Board of the Stock
	Exchange (stock code: 1560)
"close associate"	has the meaning ascribed to it under the Listing Rules
"Completion"	completion of the Acquisition
"Completion Date"	means the date falling the 5th Business Day after all the
	Conditions have been fulfilled or waived, or such other date as
	may be agreed by the Vendor and the Company in writing
"Conditions"	the condition(s) precedent for Completion as set out in the section
	headed "Conditions precedent" in this circular
"connected person(s)"	has the meaning ascribed to it under the Listing Rules
"controlling shareholder"	has the meaning ascribed to it under the Listing Rules

- 1 -

	DEFINITIONS
"Controlling Shareholders"	means the controlling shareholders of the Company
"Consideration"	the aggregate consideration for the Acquisition
"Conversion Price"	the price at which each Conversion Share will be issued upon
	a conversion of all or any part of the Convertible Bonds, being
	HK$0.5 as adjusted from time to time in accordance with the CB
	Conditions
"Conversion Share(s)"	new Share(s) to be allotted and issued to the holder(s) of the
	Convertible Bonds upon exercise of the conversion rights
	attaching to the Convertible Bonds
"Convertible Bonds"	the 3% coupon perpetual convertible bonds in the aggregate
	principal amount of HK$418,000,000 which will be issued by the
	Company to the Vendor to settle part of the Consideration
"COVID-19"	the novel coronavirus identified as the source of a global outbreak
	in late 2019
"Crystal Cay"	means Crystal Cay Assets Limited, a company incorporated in the
	BVI, which (i) is beneficially owned by Mr. Chan as to 100% as at
	the date of the Acquisition Agreement; and (ii) is to be held by the
	Target Company as to 100% immediately upon completion of the
	Reorganisation
"Crystal Cay Group"	means Crystal Cay and its subsidiaries as at the Latest Practicable
	Date
"Deed of Guarantee"	the deed of guarantee dated 10 June 2020 executed by Mr. Chan
	to guarantee the punctual payment of rent and due performance
	and observance by Noble Empire of all terms and conditions of
	the Tenancy Agreement for the term from 1 March 2020 to 28
	February 2023 and renewed term (if any) under the Tenancy
	Agreement
"Deposit"	the deposit of HK$42,000,000, which shall be payable to Vendor
	under the Acquisition Agreement, details of which are set out
	under the section headed "Consideration and payment terms" of
	this circular
"Director(s)"	the director(s) of the Company

- 2 -

	DEFINITIONS
"EGM"	the extraordinary general meeting of the Company to be
	convened and held for the Shareholders to consider and, if though
	fit, approve the Acquisition Agreement and the transactions
	contemplated thereunder
"Existing Target Group"	means the Target Company, and Metropolitan Lifestyle Holdings
	(BVI) and its subsidiaries, as at the date of the Acquisition
	Agreement
"Enlarged Group"	the Group upon Completion
"FY2017"	the financial year ended 31 December 2017
"FY2018"	the financial year ended 31 December 2018
"FY2019"	the financial year ended 31 December 2019
"Group"	the Company and its subsidiaries
"HK$" or "HKD"	Hong Kong dollars, the lawful currency of Hong Kong
"Hong Kong"	the Hong Kong Special Administrative Region of the People's
	Republic of China
"Independent Board	means the independent committee of the Board comprising all of
Committee"	the independent non-executive Directors, established to advise the
	Independent Shareholders in respect of the Acquisition
"Independent Financial	means Sinolink Securities (HK) Company Limited, a corporation
Adviser"	licensed to carry out Type 1 (dealing in securities), Type 2 (dealing
	in futures contracts), Type 4 (advising on securities), Type 6
	(advising on corporate finance) and Type 9 (asset management)
	regulated activity under the SFO, being the independent financial
	adviser appointed by the Company to advise the Independent
	Board Committee and the Independent Shareholders in respect of
	the Acquisition
"Independent Shareholders"	the Shareholders other than Mr. Chan and his associates who
	are required to abstain from voting on the resolutions approving
	the Acquisition Agreement and the transactions contemplated
	thereunder
"Kwun Tong Site Project"	our property development project situated at Nos. 107-109 Wai
	Yip Street, Kwun Tong, Kowloon, Hong Kong

- 3 -

	DEFINITIONS
"Latest Practicable Date"	10 September 2020, being the latest practicable date to ascertain
	certain information contained herein before the printing of this
	circular
"Listing Rules"	the Rules Governing the Listing of Securities on the Stock
	Exchange
"Long Stop Date"	means 31 October 2020 or such later date as the Vendor and the
	Company may agree in writing
"Metropolitan Apartment"	means Metropolitan Apartment Limited, a company incorporated
	in Hong Kong, which (i) is beneficially owned by Mr. Chan
	as to 85% as at the date of the Acquisition Agreement; and (ii)
	is held indirectly by the Target Company as to 85% as at the
	Latest Practicable Date and immediately upon completion of the
	Reorganisation
"Metropolitan Fine Wine"	means Metropolitan Fine Wine Limited, a company incorporated
	in Hong Kong, which (i) is beneficially owned by Mr. Chan
	as to approximately 80.75% as at the date of the Acquisition
	Agreement; and (ii) is held indirectly by the Target Company as
	to approximately 80.75% as at the Latest Practicable Date and
	immediately upon completion of the Reorganisation
"Metropolitan Lifestyle	means Metropolitan Lifestyle Holdings (BVI) Limited, a
Holdings (BVI)"	company incorporated in the BVI with limited liability and a
	wholly-owned subsidiary of the Target Company as at the Latest
	Practicable Date
"Metropolitan Lifestyle	means Metropolitan Lifestyle Holdings (BVI), Metropolitan
Holdings (BVI) Group"	Fine Wine, Metropolitan Wine Cellar Group, Metropolitan
	Workshop, Metropolitan Apartment, Metropolitan Production,
	Metropolitan Storage Group
"Metropolitan Production"	means Metropolitan Production Limited, a company incorporated
	in Hong Kong, which (i) is beneficially owned by Mr. Chan as
	to 75% as at the date of the Acquisition Agreement; (ii) is held
	indirectly by the Target Company as to 75% as at the Latest
	Practicable Date and immediately upon completion of the
	Reorganisation
"Metropolitan Storage"	means Metropolitan Storage Limited, a company incorporated
	in Hong Kong, which (i) is beneficially owned by Mr. Chan
	as to approximately 78% as at the date of the Acquisition
	Agreement; and (ii) is held indirectly by the Target Company
	as to approximately 78% as at the Latest Practicable Date and
	immediately upon completion of the Reorganisation

- 4 -

	DEFINITIONS
"Metropolitan Storage Group"	means Metropolitan Storage and its subsidiaries
"Metropolitan Wine Cellar"	means Metropolitan Wine Cellar Limited, a company incorporated
	in Hong Kong, which (i) is beneficially owned by Mr. Chan
	as to approximately 80.75% as at the date of the Acquisition
	Agreement; and (ii) is to be held indirectly by the Target Company
	as to approximately 80.75% as at the Latest Practicable Date and
	immediately upon completion of the Reorganisation
"Metropolitan Wine	means Metropolitan Wine Cellar and its subsidiaries
Cellar Group"
"Metropolitan Workshop"	means Metropolitan Workshop Limited, a company incorporated
	in Hong Kong, which (i) is beneficially owned by Mr. Chan
	as to 85% as at the date of the Acquisition Agreement; and (ii)
	is held indirectly by the Target Company as to 85% as at the
	Latest Practicable Date and immediately upon completion of the
	Reorganisation
"Mr. Chan"	means Mr. Chan Man Fai Joe, an executive Director and
	controlling shareholder of the Company
"Noble Empire"	Noble Empire Investments Limited, a company incorporated in
	Hong Kong and a wholly-owned subsidiary of Metropolitan Wine
	Cellar
"Palico Development"	means Palico Development Limited, a company incorporated in
	Hong Kong with limited liability
"Palico Development Property"	all That Units Nos. 4 and 6 on 11th Floor of Block A, Sea View
	Estate, No.2 Watson Road, Hong Kong
"Parties"	means, collectively, the Vendor and the Company, and
	individually, a "Party"
"PRC"	the People's Republic of China, which, for the purpose of
	this circular, shall exclude Hong Kong, the Macau Special
	Administrative Region of the PRC and Taiwan

- 5 -

	DEFINITIONS
"Previous Acquisition	the sale and purchase agreement dated 24 January 2020 entered
Agreement"	into between the Company and the Vendor in relation to the
	acquisition of the Sale Share and all obligations, liabilities and
	debts owing or incurred by Metropolitan Group (BVI) Limited and
	its subsidiaries at an aggregate consideration of HK$420,000,000,
	details of which are set out in the announcement of the Company
	dated 24 January 2020 and the circular of the Company dated 27
	March 2020
"Reorganisation"	the reorganization of the Existing Target Group conducted prior
	to Completion, comprising (i) the acquisition of the Crystal Cay
	Group by the Target Company; and (ii) the assignment of the Sale
	Loan to the Target Company
"Ritzy Soar"	means Ritzy Soar Limited, a company incorporated under the
	laws of the British Virgin Islands with limited liability and is an
	indirect wholly-owned subsidiary of the Company
"Sale Loan"	all obligations, liabilities and debts owing or incurred by
	the Target Group to the Vendor on or at any time prior to
	the Completion whether actual, contingent or deferred and
	irrespective of whether or not the same is due and payable on
	Completion
"Sale Share"	one (1) ordinary share of the Target Company to be sold by the
	Vendor to the Company, representing all the issued and fully paid
	up shares of the Target Company as at the date of Acquisition
	Agreement and as at Completion
"Seongsu Vision"	Seongsu Vision Co. Limited, a company incorporated in the South
	Korea with limited liability
"SFC"	Securities and Futures Commission of Hong Kong
"SFO"	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
"Share(s)"	ordinary share(s) in the share capital of the Company

- 6 -

	DEFINITIONS
"Shareholder(s)"	holder(s) of the Share(s)
"Specific Mandate"	the specific mandate to be sought from the Independent
	Shareholders at the EGM for the allotment and issue of the
	Conversion Shares upon exercise of the conversion rights
	attaching to the Convertible Bonds
"Stock Exchange"	The Stock Exchange of Hong Kong Limited
"Tack Lee Project"	our property development project situated at Nos. 107-111 Tung
	Chau Street, Tai Kok Tsui, Kowloon, Hong Kong
"Takeovers Code"	the Hong Kong Code on Takeovers and Mergers
"Target Company"	Metropolitan Group (BVI) Limited, a company incorporated in the
	BVI with limited liability and a direct wholly-owned subsidiary
	of the Vendor, which will hold the companies being the subject of
	the Acquisition after the completion of the Reorganisation
"Target Group"	the Target Company and its subsidiaries immediately after the
	completion of the Reorganisation, comprising the Crystal Cay
	Group and the Metropolitan Lifestyle Holdings (BVI) Group, and
	a "Target Group Company" shall mean any of them
"Tenancy Agreement"	the tenancy agreement dated 10 June 2020 entered into by Noble
	Empire (as tenant) and an independent third party (as landlord) in
	respect of the property situated at Unit No. 2 on 4th Floor of Block
	A, Sea View Estate, No. 2 Watson Road, Hong Kong for a term of
	3 years commencing from 1 March 2020 to 28 February 2023
"Transactions"	the acquisition of the Sale Share and the Sale Loan by
	the Company from the Vendor and any other transactions
	contemplated under the Acquisition Agreement, including the
	issue of the Convertible Bonds by the Company to satisfy part of
	the Consideration and the allotment and issue of the Conversion
	Shares upon exercise of the conversion rights attaching to the
	Convertible Bonds under the Specific Mandate
"Vendor"	Metropolitan Lifestyle (BVI) Limited, a company incorporated in
	the BVI with limited liability and is indirectly held as to 100% by
	Mr. Chan as at the Latest Practicable Date

- 7 -

	DEFINITIONS
"Yuen Long Site Project"	our property development project situated at No. 21, Wang Yip
	Street West, Yuen Long, New Territories, Hong Kong
"Warranties"	the representations, warranties and undertakings of the Vendors as
	set out in the Acquisition Agreement
"%"	per cent.

- 8 -

LETTER FROM THE BOARD

Star Properties Group (Cayman Islands) Limited

(	)
(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 1560)
Executive Directors:	Registered Office:
Mr. Chan Man Fai Joe (Chairman)	Clifton House
Ms. Cheung Wai Shuen	75 Fort Street
Mr. Liu Hon Wai	PO Box 1350
Prof. Pong Kam Keung	Grand Cayman KY1-1108
Non-executive Director:	Cayman Islands
Head Office and Principal
Mr. Yim Kwok Man
Independent Non-executive Directors:	Place of Business:
11/F, TG Place,
Ms. Chan Wah Man Carman	No. 10 Shing Yip Street,
Mr. Lee Chung Ming Eric	Kwun Tong, Kowloon,
Dr. Wong Wai Kong	Hong Kong

15 September 2020

To the Shareholders

Dear Sir or Madam,

1. VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE
   ISSUED SHARE CAPITAL OF AND SHAREHOLDERS' LOAN OWING
   BY METROPOLITAN GROUP (BVI) LIMITED

AND

1. NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

Reference is made to the announcements of the Company dated 24 January 2020 and 30 June

2020 and the circular of the Company dated 27 March 2020 in relation to the Previous Acquisition Agreement and the transactions contemplated thereunder.

- 9 -

LETTER FROM THE BOARD

As disclosed in the announcement of the Company dated 30 June 2020, as certain condition(s) under the Previous Acquisition Agreement have not been fulfilled or waived by the long stop date of 30 June 2020, the Previous Acquisition Agreement has lapsed on 30 June 2020 pursuant to the terms thereof and shall cease to be of any effect and neither party shall have any obligations and liabilities thereunder. The refund of the deposit paid under the Previous Acquisition Agreement has been made by the Vendor to the Company on the same day.

The Board considers that it will be in the interest of the Company and its Shareholders as a whole, if, upon the termination of the Previous Acquisition Agreement, the Company and the Vendor could enter into the Acquisition Agreement as soon as possible because:

1. the Company has formulated its business strategy for the forthcoming second half of 2020 and the next few years on the assumption that the transactions contemplated under the Previous Acquisition Agreement having been completed by 30 June 2020. The Company considers that the proposed Acquisition would help to minimize the disruption and adjustment of the business plan and strategy of the Group (as the disruption and adjustment of the business plan and strategy of the Group may result in the Group incurring extra operation costs);
2. with a view to implementing the transactions contemplated under the Previous Acquisition Agreement, the Group negotiated with various banks for the release of certain personal guarantees and new facilities (the "New Facilities") with revised terms have been granted by the banks which originally would become effective upon/after the completion of the transactions contemplated under the Previous Acquisition Agreement.
   The New Facilities were available to the Group for only a specified term. The Group has further negotiated with the banks and the relevant facility letter(s) for the New Facilities has to be executed by mid-October. The existing personal guarantees are expected to be released upon Completion. Entering into the Acquisition Agreement and the transactions contemplated thereunder as soon as possible can help to avoid incurring extra costs by the parties to the Previous Acquisition Agreement for renegotiating for the approval of the grant of the New Facilities by the banks; and
3. if completion of the proposed Acquisition is further delayed, the auditors to the Group will be required to adopt new reference date for the determination of the financial information of the Group to be disclosed in the circular in compliance of the Listing Rules for which the Company will need to incur extra professional charges and fees.

On 21 July 2020 (after trading hours of the Stock Exchange), the Company (as purchaser) and the Vendor (as vendor) entered into the Acquisition Agreement, pursuant to which the Company conditionally agreed to acquire, and the Vendor conditionally agreed to sell, the Sale Share and Sale Loan, at an aggregate consideration of HK$460,000,000, which will be satisfied by (i) part payment in cash; and (ii) allotment and issue of the Convertible Bonds. The Conversion Shares will be allotted and issued under the Specific Mandate to be sought from the Independent Shareholders at the EGM.

Principal terms of the Acquisition Agreement are set out below.

- 10 -

LETTER FROM THE BOARD

2. THE ACQUISITION AGREEMENT

Date:	21 July 2020
Parties:	(i)	the Company (as purchaser); and
	(ii)	Metropolitan Lifestyle (BVI) Limited (as vendor);

Assets to be acquired

The assets to be acquired under the Acquisition Agreement comprise (i) the Sale Share; and (ii) the Sale Loan. The Sale Share represent the entire issued share capital of the Target Company as at the date of the Acquisition Agreement and Completion. The Sale Loan shall represent all obligations, liabilities and debts owing or incurred by the Target Group to the Vendor on or at any time prior to the Completion whether actual, contingent or deferred and irrespective of whether or not the same is due and payable on Completion. The outstanding unaudited indebtedness owing by the Target Group to the Vendor as at 31 March 2020 was approximately HK$259,177,000.

Pursuant to the terms of the Acquisition Agreement, it is one of the conditions precedent that the Reorganisation shall be completed prior to Completion. It is expected that, upon completion of the Reorganisation, the Target Group will hold the various interests in the businesses and properties (details of which are set out in the section headed "Information on the Target Group" below) which are the subject of the Acquisition. Please refer to the section headed "Information on the Target Group" below for further information on the business and financial information of the Target Group.

Consideration and payment terms

The Consideration shall be HK$460,000,000 in aggregate, which shall comprise the purchase price for the Sale Loan (representing the dollar-to-dollar equivalent of the amount of the Sale Loan) and the purchase price for the Sale Share (which shall be the aggregate Consideration less the purchase price for the Sale Loan).

Subject to the terms of the Acquisition Agreement, the Consideration shall be payable by the Company to the Vendor in the following manner:

1. the Deposit, being HK$42,000,000, shall be paid by the Company as deposit and part payment of the Consideration upon the signing of the Acquisition Agreement; and
2. the sum of HK$418,000,000, being the balance of the Consideration, shall be satisfied by the Company by way of the issue and delivery of the Convertible Bonds in the name of the Vendor on Completion.

- 11 -

LETTER FROM THE BOARD

Basis of the Consideration

The Consideration was determined after arm's length negotiations between the Company and the Vendor on normal commercial terms with reference to, including without limitation, to

1. the market value of the property interests held by the Target Group of HK$930.2 million as at 31 March 2020 based on the valuation conducted by an independent property valuer based on market approach adopting a direct comparison method; and (ii) the net asset value of the Target Group as at 31 March 2020.

As disclosed in the circular of the Company dated 27 March 2020, since the outstanding audited indebtedness owing by the Target Group to the Vendor as at 30 September 2019 was approximately HK$216.2 million, the purchase price of the Sale Share under the Previous Acquisition Agreement would be approximately HK$203.8 million, representing a discount of HK$31 million or approximately 13.2% to the adjusted combined net asset value of the Target Group as at 30 September 2019 of approximately HK$234.8 million (after taken into account of the adjustment of the market value of the property interest of the Target Group).

Since the outstanding audited indebtedness owing by the Target Group to the Vendor as at 31 March 2020 was approximately HK$259.2 million, the purchase price of the Sale Share (which shall be the aggregate Consideration less the purchase price for the Sale Loan) would be approximately HK$200.8 million, representing a discount of HK$4.6 million or approximately 2.24% to the unaudited adjusted combined net asset value of the Target Group as at 31 March 2020 of approximately HK$205.4 million (after taken into account the adjustment of the market value of the property interest of the Target Group).

The drop of 2.7% in the assessed market values of the properties as at 31 March 2020 against that of 30 September 2019 was the overall result of the valuation by the independent property valuer (Jones Lang LaSalle Corporate Appraisal and Advisory Limited) during the valuation period.

From market evidence and the analysis of the independent property valuer, different property sectors react differently despite the whole Hong Kong economy is affected by the pandemic.

The independent property valuer observed that the industrial property market was still performing well and the achieved unit rate of the sale transactions was maintained at similar levels during this valuation period while there were downward price adjustments for office and retail premises. The valuation amount of these office and retail premises in the properties portfolio of the Target Group contributed more than 50% of the total valuation sum and the independent property valuer has cut the valuation by 4.4% from 30 September 2019 to 31 March 2020, individually dropped ranged from 3% to 7%.

- 12 -

LETTER FROM THE BOARD

The market value of the properties decreased by HK$0.5 million from HK$930.2 million as at 31 March 2020 to HK$929.7 million as at 30 June 2020 which was solely due to the property located in Korea. The adjusted net asset value of the Target Group as at 31 March 2020 was approximately HK$204.9 million, after taking into account the market value of the properties of HK$929.7 million as at 30 June 2020. The purchase price for the Sale Share of approximately HK$200.8 million would be with a discount of approximately 2.00% to the adjusted net asset value of the Target Group of approximately HK$204.9 million.

Based on the market research and analysis by independent property valuer, from 31 December 2019 to 31 May 2020, the total market value of the Hong Kong properties of the Target Group decreased due to the worsening economic environment and market sentiment in these few months. However, with the gradual recovery of economy with signs of normalization of business activities in May and June 2020, the market situation become stable. The valuer has conducted further research and analysis of market comparables and market trend and noted that the real estate market is rather stable in late May to June 2020. In this regard, the market value of the Hong Kong properties of the Target Group remain unchanged between 31 May 2020 and 30 June 2020.

The market value of the property in Korea ("Korean Property") is attributable to approximately 6.1% of the total market value of the properties held by the Target Group as at 31 May 2020. Based on the preliminary communication with the independent property valuer, the value of Korean Property in Korean Won ("KRW") remained unchanged from 31 May 2020 to 31 July 2020. Whilst the exchange rate of Korean Won (KRW) to HK Dollars (HKD) appreciated from HKD1 to approximately KRW160 as at 31 May 2020 to HKD1 to approximately KRW154 as at 31 July 2020, which represents appreciation of approximately 3.8%. Hence, the Korean Property in HKD increased by approximately HK$2.2 million from approximately HK$56.8 million as at 31 May 2020 to approximately HK$59.0 million as at 31 July 2020, which is due to the appreciation of the KRW to HKD during this period. According to property valuation report set out in Appendix V, the market value of Korean Property as at 30 June 2020 is HK$58,600,000 (as at 31 May 2020: HK$56,800,000).

In the view of the recent surge of COVID-19 cases since early July 2020, there may be further impact to the market value of the properties held by the Target Group, since the market value of properties may be affected by the market conditions at the relevant time. On the other hand, in August 2020, the Hong Kong Monetary Authority has adjusted upward the applicable loan-to-value ratio cap for mortgage loans on non-residential properties by 10%. As a result, the market value of the properties held by the Target Group, which are non- residential properties, may benefit from such policy adjustment. Besides, the number of new COVID-19 infections in Hong Kong has significantly dropped since the end of August 2020, and the Hong Kong Government has started the relaxation of the social distancing rules step by step. In addition, in view of the anticipated launch of vaccine in early 2021 and the continuous inflow of capital into Hong Kong (as reflected by the expenditure of The Hong Kong Monetary Authority of approximately HK$119 billion in intervening through numerous market actions during April 2020 to August 2020 to dampen the effects of urging capital inflows), it is expected that the market sentiment will be slowly rebound and the property market would remain stable.

- 13 -

LETTER FROM THE BOARD

To further enhance the position of the Company, the Directors further requested the initial Conversion Price with a premium of approximately 25% to the closing price of the Shares on the date of the Acquisition Agreement which is further explained under the section headed "3. Issue of the Convertible Bonds".

Based on the above (including potential growth of the properties held by the Target Group and the prospect of the businesses of the Target Group), it is expected that the Target Group will be able to maintain stability in the midst of social events and surge in COVID-19.

A larger discount (i.e. approximately 13.2%) was applied in the purchase price of the Sale Share under the Previous Acquisition Agreement, as compared to a smaller discount (i.e. approximately 2.24%) in relation to the purchase price of the Sale Share under the Acquisition Agreement, when comparing to the adjusted combined net asset value of the Target Group, mainly due to the uncertainty of the impact of COVID-19 when the Previous Acquisition Agreement was entered into, details of which are set out as follows:

1. the market value of the property interests held by the Target Group of HK$956 million was based on the valuation conducted by an independent property valuer as at 30 September 2019 based on market approach adopting a direct comparison method. The Board considered that there would likely be a decline of around 3.2% on the market value of the property interests held by the Target Group after 30 September 2019 due to the outbreak of COVID-19. In the weeks following the first confirmed case of COVID-19 in Hong Kong on 23 January 2020, comprehensive testing and quarantine rules were imposed in Hong Kong. Having taken the potential impact of COVID-19 into account, the Company negotiated a discount of HK$31 million to the market value of the property interests held by the Target Group as at 30 September 2019, which was reflected by the discount of approximately 13.2% to the adjusted combined net asset value of the Target Group as at 30 September 2019.

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LETTER FROM THE BOARD

The market value of the property interests held by the Target Group of HK$930 million was based on the valuation conducted by an independent property valuer as at 31 March 2020 based on market approach adopting a direct comparison method. As at late May 2020, the number of new COVID-19 cases was around zero or single digit every day in Hong Kong and the businesses of the Target Group had recovered considerably (details of which are set out in the section headed "information on the Target Group" below). Further, based on the valuation conducted by an independent property valuer, the market value of the property interests held by the Target Group as at 30 June 2020 remained relatively stable at approximately HK$929.7 million, which is more or less the same as compared to the market value of the property interests held by the Target Group as at 31 March 2020. It demonstrates that the effect of the outbreak of COVID-19 in Hong Kong has been fully reflected in the market value of the property interests held by the Target Group as at 31 March 2020. Therefore, no significant discount was applied on the Sale Share based on the market value of the property interests held by the Target Group as at 31 March 2020. A discount of HK$4.6 million was applied based on rounding issue only; and

1. the Target Group recorded a loss of approximately HK$31.7 million for the three months ended 31 March 2020, which was mainly attributable to the net valuation loss on investment properties of approximately HK$32.7 million. After excluding the net valuation loss on investment properties of approximately HK$32.7 million, the Target Group recorded a profit of approximately HK$1.0 million for the three months ended 31 March 2020. The revenue of the Target Group recorded an increase by 12.8%, to approximately HK$13.2 million, for the three months ended 31 March 2020, as compared to the unaudited revenue of approximately HK$11.7 million for the three months ended 31 March 2019.

The Directors considered that the Consideration (with 2.24% discount of the purchase price of the Sale Share to the adjusted net asset value of the Target Group as at 31 March 2020) is fair and reasonable and in the interest of the Company and its shareholders as a whole because of (i) the overall properties portfolio of the Target Group and (ii) that the Target Group recorded a profit (excluding the net valuation loss on the investment properties) for the three months ended 31 March 2020. To further enhance the position of the Company, the Directors further requested the initial Conversion Price with a premium of approximately 25% to the closing price of the Shares on the date of the Acquisition Agreement which is further explained under section headed "3. Issue of the Convertible Bonds".

The cash component of the Consideration will be financed by the internal resources of the Group.

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LETTER FROM THE BOARD

Conditions precedent

Completion is conditional upon fulfilment or waiver (as the case may be) of the following Conditions:

1. the Vendor's title to the Sale Share and the Sale Loan being in order and free from all encumbrances;
2. all the Warranties remaining true and accurate and not misleading as at Completion and no events having occurred that would result in any breach of any of the Warranties or provisions of the Acquisition Agreement by the Vendor;
3. the Vendor having facilitated the Company to undertake a legal, financial and business due diligence investigation in respect of the Target Group and the results of such due diligence investigation being reasonably satisfactory to the Company;
4. the Reorganisation having been duly completed;
5. all necessary consents in relation to the transactions contemplated under the Acquisition Agreement, including without limitation such consents (if required) of the Stock Exchange and the SFC and any relevant governmental or regulatory authorities and other relevant third parties in Hong Kong or elsewhere which are required for the entering into, execution, delivery and performance of the Acquisition Agreement and the transactions contemplated thereunder, including but not limited to the listing of, and the permission to deal in, any Conversion Shares which may be issued to the Vendor upon conversion of the Convertible Bonds, having been obtained;
6. approval having been obtained from the Independent Shareholders at the EGM convened for approving the Acquisition Agreement and the transactions contemplated thereunder;
7. the transactions contemplated under the Acquisition Agreement not having been deemed by the Stock Exchange as a reverse takeover of the Company under the Listing Rules; and
8. the release of the personal guarantees given by the Controlling Shareholders in favour of the banks in relation to loans taken out by the Target Group.

The Vendor shall use its reasonable endeavours to procure the fulfillment of the Conditions. The Company may at any time by notice in writing to the Vendor waive any of the Conditions (other than Conditions (v), (vi) and (vii)) or any part thereof on such terms as it may decide.

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LETTER FROM THE BOARD

None of the Conditions has been fulfilled or waived as at the Latest Practicable Date. As at the Latest Practicable Date, the Company has no intention to waive any of the Conditions.

If any of the Conditions are not fulfilled (or waived by the Company) on or before the Long Stop Date, the Vendor shall forthwith on the Long Stop Date repay the full amount of the Deposit without any interest to the Company, and the Acquisition Agreement shall cease and determine (save and except certain clauses specified in the Acquisition Agreement) and neither party shall have any obligations and liabilities thereunder save for any antecedent breaches of the terms thereof.

Completion

Completion shall take place on the 5th Business Day after all the Conditions have been fulfilled or waived, or such other date as may be agreed by the Vendor and the Company in writing.

3. ISSUE OF THE CONVERTIBLE BONDS

The Convertible Bonds shall be issued by the Company on the date of Completion to settle part of the Consideration for the purchase of the Sale Share and the Sale Loan.

The terms of the Convertible Bonds have been negotiated on an arm's length basis and the principal terms of which are summarised below:

Issuer:	The Company
Principal amount:	HK$418,000,000
Maturity date:	The Convertible Bonds are perpetual in term and have no
	maturity date
Interest rate:	The Convertible Bonds bear a coupon rate of 3% per annum.
	The coupon shall accrue on the outstanding principal amount
	of the Convertible Bonds and be payable annually subject to
	the Company's sole discretion to defer the coupon payment for
	a maximum period of 10 years from the date when the relevant
	coupon payment fall due by giving notice to the holders of the
	Convertible Bonds
Conversion Price:	The initial Conversion Price is HK$0.50 per Conversion Share
	subject to adjustments, details of which are summarized below

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	LETTER FROM THE BOARD
Conversion Shares:	Assuming the conversion rights attaching to the Convertible
	Bonds are exercised in full at the initial Conversion
	Price of HK$0.50 per Conversion Share, a maximum of
	836,000,000 new Shares will be issued upon conversion
	of the Convertible Bonds (subject to adjustments), which
	represent (i) approximately 130.32% of the existing issued
	share capital of the Company as at the Latest Practicable Date;
	and (ii) approximately 56.58% of the issued share capital of
	the Company as enlarged by the allotment and issue of the
	Conversion Shares upon full conversion of the Convertible
	Bonds at the initial Conversion Price
Conversion Period:	The holders of the Convertible Bonds may convert such
	Convertible Bonds (in whole or in part) into Conversion
	Shares during the period commencing from the date of issue
	of the Convertible Bonds up to the date which falls on the
	10th anniversary of the date of issue of the Convertible Bonds
	(the "Conversion Period") to the extent all or part of the
	Convertible Bonds remain outstanding.
	Upon expiry of the said Conversion Period, no conversion
	rights could be exercised and the amount outstanding under
	the Convertible Bonds (if any) will become an unlisted straight
	perpetual bond of the Company.
Conversion:	Provided that any conversion of the Convertible Bonds
	does not result in (i) a mandatory offer under rule 26 of the
	Takeovers Code on the part of the holder and/or any party(ies)
	acting in concert with it; and (ii) the public float of the Shares
	being less than 25% (or such percentage as required by the
	Listing Rules) of the issued Shares, the bondholder shall,
	subject to compliance with the procedures set out in the CB
	Conditions, have the right at any time during the Conversion
	Period to convert the whole or part of the outstanding principal
	amount of the Convertible Bonds registered in its name into
	Shares, provided further that any conversion shall be made in
	amounts of not less than a whole multiple of HK$1,000,000
	on each conversion (or if the outstanding principal amount
	of the Convertible Bonds is less than HK$1,000,000 on such
	conversion, the whole of such outstanding principal amount of
	the Convertible Bonds).

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	LETTER FROM THE BOARD
Redemption:	The Company may, at any time, by serving at least ten (10)
	days' prior written notice on the holder of the Convertible
	Bonds with the total amount proposed to be redeemed specified
	therein, redeem the Convertible Bonds (in whole or in part) at
	100% of the principal amount of such Convertible Bonds.
Adjustments to the	The Conversion Price shall from time to time be adjusted upon
Conversion Price:	the occurrence of certain events in relation to the Company
	including but not limited to the following:
	(i)	an alteration of the number of the Shares by reason of
		consolidation or subdivision;
	(ii)	an issue (other than in lieu of a cash dividend) by the
		Company of Shares credited as fully paid by way of
		capitalisation of profits or reserves (including any share
		premium account or capital redemption reserve fund);
	(iii)	a capital distribution being made by the Company to
		the Shareholders, whether on a reduction of capital or
		otherwise, to Shareholders (in their capacity as such)
		or a grant by the Company to Shareholders (in their
		capacity as such) of rights to acquire for cash assets of
		the Company or any of its subsidiaries;
	(iv)	an offer of new Shares for subscription by way of rights,
		or grant any options or warrants to subscribe for new
		Shares, being made by the Company to the Shareholders
		(in their capacity as such) at a price which is less than
		80% of the then market price of the Share;
	(v)	an issue wholly for cash being made by the Company
		of securities convertible into or exchangeable for or
		carrying rights of subscription for new Shares, if in any
		case the total effective consideration per Share initially
		receivable for such securities is less than 80% of the then
		market price of the Shares, or such rights of conversion
		or exchange or subscription attached to any such
		securities being modified so that the said total effective
		consideration per Share initially receivable for such
		securities is less than 80% of the then market price of the
		Shares;

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LETTER FROM THE BOARD

	(vi) an issue being made by the Company wholly for cash
	of Shares (other than Shares issued on the exercise of
	conversion rights attaching to the Convertible Bonds or
	on the exercise of any other rights of conversion into, or
	exchange or subscription for, Shares) at a price per Share
	less than 80% of the then market price of the Shares; and
	(vii) an issue being made by the Company of Shares for the
	acquisition of asset at the total effective consideration
	per Share which is less than 80% of the then market
	price of the Shares.
Transferability:	Subject to the prior written consent by the Company and
	compliance with the Listing Rules and other applicable laws
	and regulations, the Convertible Bonds may be transferred or
	assigned by the holder(s) of the Convertible Bonds in whole or
	in part in multiples of HK$1,000,000 to any party.
Voting rights:	The Convertible Bonds shall not carry any voting rights.
Status:	The obligations of the Company arising under the Convertible
	Bonds constitute general, unconditional, unsecured and
	unsubordinated obligation of the Company and rank pari
	passu and rateably without preference (with the exception
	of obligations accorded preference by mandatory provisions
	of applicable law) equally with all other present and future
	unsecured and unsubordinated obligations of the Company.
	The status of the holders of the Convertible Bonds ("CB
	holders") is different from the ordinary Shareholders in such
	respects that, inter alia, (i) the CB holders, by holding the
	Convertible Bonds, do not have any voting rights in the general
	meetings of the Company like the ordinary Shareholders; (ii)
	the CB holders are entitled to repayment under the Convertible
	Bonds but not any dividends to be declared by the Company;
	(iii) the CB holders are repaid their interest payment first and
	if any profits remain, these are distributed to the ordinary
	Shareholders in accordance with the dividends policy of the
	Company; and (iv) if the Company shall be wound up, the
	CB holders or creditors will have priorities over the ordinary
	Shareholders in their payment and the surplus assets remaining
	after payment to all creditors shall be divided among the
	ordinary Shareholders.

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	LETTER FROM THE BOARD
Listing:	No application will be made by the Company for the listing
	of the Convertible Bonds on the Stock Exchange or any other
	stock exchange.

The initial Conversion Price of HK$0.50 per Conversion Share represents:

1. a premium of approximately 25.00% to the closing price of HK$0.40 per Share as quoted on the Stock Exchange on the date of the Acquisition Agreement;
2. a premium of approximately 23.76% to the average closing price of approximately HK$0.404 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to the date of the Acquisition Agreement;
3. a premium of approximately 23.00% to the average closing price of approximately HK$0.407 per Share as quoted on the Stock Exchange for the last ten consecutive trading days immediately prior to the date of the Acquisition Agreement;
4. a discount of approximately 54.75% to the net assets value per Share attributable to the Shareholders of the Company of approximately HK$1.105 as at 31 December 2019;
5. a discount of approximately 70.11% to the net asset value per share attributable to the Shareholders of the Company of approximately HK$1.673 as at 31 March 2020;
6. a discount of approximately 69.61% to the net asset value per share attributable to the Shareholders of the Company of approximately HK$1.645 as at 30 June 2020; and
7. a premium of approximately 11.11% to the closing price of the Company's shares at the Latest Practicable Date.

The Conversion Price was determined based on arm's length negotiations between the parties with reference to the prevailing market prices of the Shares.

The Directors consider that the adjustment provisions to the Conversion Price contained in the CB Conditions of the Convertible Bonds are based on market comparable terms and are fair and reasonable.

The initial Conversion Price of HK$0.5 per Conversion Share represents that the Conversion Price is at a premium of approximately 25.00%, 23.76%, 23.00% and 19.05% of the market price on the date of the Acquisition Agreement, average trading price for the last five consecutive trading days immediately prior to the date of the Acquisition Agreement, for the last ten consecutive trading days immediately prior to the date of the Acquisition Agreement and on the Latest Practicable Date respectively, which is within the range with the market comparable. The conversion price of HK$0.65 per conversion share represents a discount of approximately 7.14%, 7.67% and 7.67% of the market price on the date of the Previous Acquisition Agreement, average trading price for the last five consecutive trading days immediately prior to the date of the Previous Acquisition

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LETTER FROM THE BOARD

Agreement and for the last ten consecutive trading days immediately prior to the date of the Previous Acquisition Agreement. To enhance the position of the Company, the Directors requested the initial Conversion Price with a premium to the closing price of the Shares. The initial Conversion Price of the Acquisition Agreement is at premium over the trading price of the Shares while it was at discount to the trading price of the Shares in the previous transaction.

The initial Conversion Price represents a discount of 54.75% to the net asset value of the Company as at 31 December 2019, which is higher than the discount of 40.42% of the conversion price of the previously proposed convertible bonds to the net asset value of the Company as at 31 December 2019. First, by comparing to other companies principally engaging in the property development business that are listed on the Main Board of the Stock Exchange which have significant properties reserves (including but not limited to investment properties and properties held for sales/development), it is noted that it is not uncommon for the share price of such companies to be at a discount to their respective net asset values. Additionally, there are also many other reasons that explain why the share price of the Company is at a discount to its net asset value. Since the Convertible Bonds can be converted into Shares which can be traded by the public, the holder of the Convertible Bonds normally compare the Conversion Price with the stock price of the Shares instead of the net asset value per Share. Hence, the Conversion Price is more correlated to the share price of the Shares than the net asset value of the Shares.

As disclosed above, according to the terms of the Convertible Bonds, the bondholder shall have the right at any time during the Conversion Period to convert the whole or part of the outstanding principal amount of the Convertible Bonds registered in its name into Shares, provided that, among other things, any conversion of the Convertible Bonds does not result in a mandatory offer under rule 26 of the Takeovers Code on the part of the holder and/or any party(ies) acting in concert with it. As such, the issue of the Conversion Shares is not expected to result in a change of control of the Company.

Specific Mandate

The Conversion Shares will be allotted and issued under the Specific Mandate to be approved by the Independent Shareholders at the EGM. An application will be made to the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares. The Conversion Shares, when allotted and issued, will rank pari passu in all respects with each other and with the other Shares then in issue at the time of issue of the Conversion Shares.

4. INFORMATION ON THE TARGET GROUP Principal businesses of the Target Group

The Target Company is an investment holding company. As at the Latest Practicable Date, the Target Group Companies operate the following businesses under the "Metropolitan" brand with its self-owned and leased properties: (i) serviced apartment business, (ii) wine cellar and fine wine business, (iii) storage business and workshop business and (iv) production and other investment holding business.

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LETTER FROM THE BOARD

1. Serviced apartment business

Metropolitan Apartment is principally engaged in the business of operation of serviced apartments in Hong Kong. The business of Metropolitan Apartment commenced in 2012 and all suites provided by Metropolitan Apartment are fully furnished with flexible terms by monthly renewal. The target customers of Metropolitan Apartment are short-term overseas employees, local residents and college students.

Metropolitan Apartment operates a total of 28 serviced apartments on self-owned properties for rental which are situated at No.16 & No. 18 Yiu Wa Street, Causeway Bay and 3/F, 14 Yiu Wa Street, Causeway Bay, Hong Kong.

Types of serviced apartments include (i) co-living apartments (ranging from 80 to 120 sq.ft. in size), (ii) contemporary studios (ranging from 180 to 230 sq.ft. in size), (iii) studios with terrace (ranging from 230 to 390 sq.ft. in size with a terrace of approximately 20 to 180 sq.ft. each), and (iv) family studios (which are 400 sq.ft. to 700 sq.ft. in size).

The valuation of the properties used by Metropolitan Apartment for its apartment business and held by Crystal Cay Group conducted by an independent property valuer was HK$169,100,000 as at 30 June 2020.

The occupancy rate of the serviced apartments operated by Metropolitan Apartment were almost over 85.0% each year from 2012 to 2018. From the third quarter of 2019, due to the social unrest in Hong Kong and the outbreak of COVID-19, the occupancy rate of the serviced apartments has dropped approximately 70% in February 2020. However, the occupancy rate of the serviced apartments has gradually rebounded to approximately 78.2%, 78.2% and 79.4% as at 31 March 2020, 30 April 2020 and 31 May 2020, respectively, but slightly decreased to 77.0% as at 31 July 2020 respectively. It was believed that the good reputation, high standard of hygienic conditions and quality services had helped in attracting more referrals from existing tenants. Also, the monthly leasing renewal arrangement gives the flexibility to tenants who demand for short term leasing.

Subject to Completion, in relation to future development, Metropolitan Apartment intends to explore opportunities for new apartments in high density districts in Hong Kong such as Central, Happy Valley, Tsim Sha Tsui and Yuen Long by acquisition or joint venture. It is anticipated that Metropolitan Apartment will continue to provide comfortable living experience with a variety and flexible living arrangements for discerning customers. Also, Metropolitan Apartment intends to launch a tenant referral program to boost engagement and increase outreach.

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LETTER FROM THE BOARD

2. Wine cellar and fine wine businesses

Metropolitan Wine Cellar Group is principally engaged in the business of provision of professional fine wine storage services. Metropolitan Fine Wine is principally engaged in wine trading.

Metropolitan Wine Cellar is a participating company of the Wine Storage Management Systems (WSMS) Certification Scheme of the Hong Kong Quality Assurance Agency (HKQAA). It complies with the requirements of Fine Wine Storage Management Systems Standard of HKQAA Wine Storage Management Systems Certification Scheme: 2013 applicable to provision of 24-hour wine storage rental services for fine wine. As at the Latest Practicable Date, there are a total of 232 wine lockers and 131 private cellars located in rented and self-owned properties of Metropolitan Wine Cellar Group in Seaview Estate, Tin Hau, Hong Kong, which are provided for storage of wine. Capacity of each wine locker ranges from 24 to 432 bottles or 2 to 36 cases and that of each private cellar ranges from 132 to 9,360 bottles or 11 to 780 cases.

In 2008, the zero wine duty policy has been launched, and wine and spirits business flourished in Hong Kong. Metropolitan Wine Cellar was established in 2011 in view of the contemplated need for storage of wine and it aimed to provide professional storage facilities to customers. It expanded from utilizing a rented property of approximately 10,000 sq.ft. only in 2011 to acquiring a self-owned property of approximately 3,000 sq.ft. to provide its wine storage service. In 2019, there was further expansion and an additional rented property of approximately 3,000 sq.ft. has since been used for providing wine storage facilities to customers. As at the Latest Practicable Date, the total storage area available is over 16,000 sq.ft.. Metropolitan Wine Cellar had less than 20% occupancy rate for 1 shop in 2011 when it was established, and had attained up to 95% occupancy rate for 3 shops in 2019. For the new cellar on 9/F which was opened in February 2019, the occupancy rate reached 85% within one year. This shows that there is high demand for wine storage in the market.

Metropolitan Fine Wine mainly targets local Hong Kong residents and offers products delivery. Supplementing the fine wine storage services offered by Metropolitan Wine Cellar Group, Metropolitan Fine Wine designates a transportation company to deliver the wines and provides an inland transit insurance coverage within Hong Kong, subject to a limit of HK$50,000 per bottle of wine (cost value) and HK$2,000,000 (per conveyance) insurance coverage. Its products include dessert wine, red wine, sparkling wine, white wine, rose wine, champagne and spirits such as whiskey, cognac and brandy, and are sourced from different countries including France, United Kingdom, Portugal, Australia, the United States of America, Chile, Italy and Spain. The core and main selection of its wines comprises "old world" wines, especially French wines which account for 80% of its inventory.

The growth in fine wine trading in Hong Kong is obvious since consumers in Asia are increasingly wine savvy and their demand for wine remains strong. With government support, assistance and deregulation of wine imports, the wine business has boomed in Hong Kong. It is expected that the wine trading will grow continuously in the coming five to ten years.

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LETTER FROM THE BOARD

Recently, the outbreak of COVID-19 slightly slowed down the wine cellar occupancy and fine wine trading as it influenced all other retail businesses. Wine cellar occupancy rate decreased from 95% in December 2019 to 90.5% in July 2020. As for fine wine, Metropolitan Fine Wine changed its sales strategy from offline trading to online trading as customers are staying at home for safety and health reasons. Crisis creates opportunities, online trading penetrates into a bigger market not only locally but internationally. Metropolitan Wine Cellar Group has a wine cellar business to power up the wine trading business of Metropolitan Fine Wine. If customers ordering online cannot pick up the wines immediately or do not want to stock up too many bottles of wine at home, they can choose to store them temporarily at the cellar of Metropolitan Wine Cellar Group.

In respect of the wine cellar and wine trading businesses of the Target Group, the turnover for the 2nd quarter of 2020 amounted to HK$4,361,942, which is approximately 34% higher than the turnover for the 2nd quarter of 2019 (which amounted to HK$3,247,161), in which (a) the wine trading business contributed to an increase of approximately 22% (from HK$2,114,903 for the 2nd quarter of 2019 to HK$2,574,164 for the 2nd quarter of 2020), and it keeps the turnover in July 2020 at approximately HK$653,000, which is slightly higher than the turnover in June 2020 (approximately HK$648,000); and (b) the storage contributed to an increase of approximately 58% (from HK$1,132,258 for the 2nd quarter of 2019 to HK$1,787,778 for the 2nd quarter of 2020).

The valuation of the properties used by Metropolitan Wine Cellar Group and held by Crystal Cay Group conducted by an independent property valuer was HK$33,000,000 as at 30 June 2020.

3. Storage and workshop businesses

Metropolitan Storage Group is principally engaged in the business of provision and operation of 24-hour storage service to the public in Hong Kong. Metropolitan Storage Group was established in December 2016. Its first store was in Yuen Long, within one year development, there were a total of six stores located in Yuen Long, Fo Tan, Kwai Chung and Chai Wan. Due to the increasing demands from domestic users and corporate users, Metropolitan Storage Group expanded its business from 6 stores to 14 stores until 2019. Both households and corporate customers are Metropolitan Storage Group's target customers. Metropolitan Workshop is principally engaged in the business of provision of 24-hour coworking spaces ranging from private rooms/shared offices, dedicated desks, hot desks, and virtual offices to memberships in multi-location, providing flexible price plans and all equipped workspace perfect for freelancers, entrepreneurs, smaller companies and corporates. The operation of the storage and workshop businesses of the Target Group are under the same management team.

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LETTER FROM THE BOARD

Metropolitan Storage Group operates its mini-storage business in 14 branches located in Chai Wan, San Po Kong, Lai Chi Kok, Fo Tan, Yuen Long, Kwai Chung, Tsing Yi and Tai Po as at the Latest Practicable Date. It provides mini storage services with size of each mini- storage unit ranging from 8 sq.ft. to over 40 sq.ft.. Metropolitan Storage Group has a total of approximately 2,000 mini-storage units in these 14 branches. The mobility of the storage clients were limited; therefore Metropolitan Storage Group would need to fulfill its obligations under the licence agreements with the clients and the term for each of such licence agreements is long. For the selection of its premises, Metropolitan Storage Group selected the landlord who offers long term lease to ensure that it can fulfill its obligations under the agreements with the client. Since the beginning of 2019, the occupancy rate of Metropolitan Storage is on an upward trend. The average increasing rate is around 1.5% per month from 51.9% in January 2019 to 69.7% in December 2019. In 2020, the occupancy rate has further increased from approximately 70.11% as at 31 January 2020 to approximately 75.53%, 77.91% and 79.84% as at 31 May 2020, 30 June 2020 and 31 July 2020, respectively. The occupancy rate is expected to reach over 80% at the end of 2020.

The recent outbreak of COVID-19 had no impact on Metropolitan Storage in 2020. The occupancy rate had increased by over 10% in 2020. After Lunar New Year, there is a huge demand for storage space because many retails business will trend to online market. Metropolitan Storage Group has entered into a provisional agreement for tenancy in June 2020 to rent premises in Chai Wan to further expand its coverage in Chai Wan.

Also the mini-storage business in Hong Kong was established over 15 years ago, and it is proven that there is a huge demand for this service. There has been stable increase in occupancy due to (i) increasing demands of storage as more people start up online business and need storage space; and (ii) that some businesses are re-structuring by streamlining manpower or using co-working space. Metropolitan Storage Group plans to expand to 5-10 new stores (which are expected to locate at the Hong Kong Island, Kowloon East and/or Kowloon West) by 2022.

The co-working spaces of Metropolitan Workshop are located at self-owned properties. It started at The Galaxy, Kwai Chung in 2015. Since then Metropolitan Workshop has set up camp in an array of convenient locations across the city including Central, Admiralty, Wan Chai, Tin Hau, and Kwai Chung, all equipped with workspaces which are desired by freelancers, entrepreneurs, smaller companies and corporates. The company has grown to provide more than 200 private work spaces and 450 work desks with 435 active members. Each of the locations has its own style so members can pick and choose the environment that best suited their needs.

Metropolitan Workshop positions itself between co-working spaces and business centers, providing a higher privacy to existing co-working spaces and cheaper option for business center tenants. The target audience is a well-mixed group of individuals from startups to satellite offices, company industries including but not limited to, marketing, finance, insurance, recruitment, fashion, IT solution, consultants and blockchain development. The company also developed an online member portal including meeting room booking, member's

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LETTER FROM THE BOARD

directory, direct messaging and a benefits section introducing members to professional services like company secretary to offering discounts from nearby restaurants. The recent coronavirus outbreak has an impact for new members to get on board and for existing customers to renew their contracts for the months of January and February 2020. Average occupancy rate of private work desks declined from an average of 81% in 2019 to 74% and 72% in January 2020 and February 2020, respectively. Subsequently, the average of overall occupancy rate as at 31 May 2020 has increased to 75%, and further increased to 79% as at July 2020, indicating that the business is rebounding back to normal. Metropolitan Workshop believes that the flexibility from its co-working space could cater for customers looking to scale up or down quickly during both the market highs and lows.

In relation to future development, it is anticipated that Metropolitan Workshop would be launching new workspace in Yuen Long, which is called "Always on my mind", offering 44 new work desks at the end of September 2020. The current market sentiment is offering new opportunities for Metropolitan Workshop to work with traditional landlords from providing design and offering office solution to providing office management services. Metropolitan Workshop anticipates to continue to increase its footprint in Hong Kong and actively seek opportunities in the overseas market.

Seongsu Vision, a Target Group Company, which is an investment holding company holding a property situated in Seongsu, Seoul, South Korea will also be acquired under the Acquisition. The property held by Seongsu Vision is currently a bare site that does not have any building erected on it. It has a site area of approximate 5,180 sq.ft.. Upon completion of the Acquisition, the Company intends to develop it into a high end prestigious commercial building with 10 floors, rooftop and 3 underground floors for workshop business. The expected new gross floor area after development is approximately 32,285 sq.ft.. As at the Latest Practicable Date, the Company has already owned two construction sites in Seongsu area, South Korea. It is believed that the acquisition of Seongsu Vision would bring synergy to the Company from construction, operation and development aspects. Together with the other two sites in Seongsu area, it is expected that the Company will be able to establish a strong brand image and the three sites would be developed and regarded as a landmark in the Seongsu area.

The valuation of the properties used by Metropolitan Workshop and held by Crystal Cay Group conducted by an independent property valuer was HK$649,200,000 as at 30 June 2020.

4. Production and other investment holding business

Metropolitan Production is principally engaged in the business of provision of marketing solution and consultancy services, film or advertisement production, organization of local and overseas events and music concerts and artist management.

Metropolitan Production has organised varies famous local and oversea singer concerts in Hong Kong such as Namie Amuro - "Finally" Final Tour 2018, Mr. "Everyone Concert 10" and HOTCHA "Are U My Best Friend" 10th Anniversary Concert, Sherman Chung "R U SHER?" Live in Concert and DStage Music Concert.

- 27 -

LETTER FROM THE BOARD

Metropolitan Production provides film production as well as professional photography services to well-known organisations. It produced a short video named "PANAM98" which won "Best Cinematography" Award from 5th Microfilm Production Support Scheme (Music).

To develop and promote brand image of Star Properties, Metropolitan Production has developed Star Properties' Facebook Fanpage as well as its Instagram for corporate communication purpose since 2017. Moreover, it has produced a series of promotional videos for stimulating sales volume of "The Rainbow".

Metropolitan Production has developed two social media platforms, namely as "DStage" and "Memories Hong Kong". DStage aims to provide a stage for young people to perform different types of art while Memories Hong Kong aims to promote local tourism and business through producing videos for website and Facebook as well as organising competitions and performances. Both platforms have collaboration with Star Properties, since "Memories Hong Kong" promotes particular locations with links to Star Properties' projects, such as "Our Memories in Yuen Long Drawing Competition", and "DStage" supports the development of other businesses and the corporate social responsibility of Star Properties, such as "DStage Music Concert".

In relation to future development, Metropolitan Production intends to produce TV programmes for sale to local and overseas digital channels and organise more music concerts. In addition, it intends to continue to expand DStage and Memories Hong Kong by local and overseas networking partnership in order to attract more advertisers and sponsors from different industries. Moreover, Metropolitan Production intends to prepare and develop valuable promotional plans and medium to support Star Properties' growth and development.

The Target Group put a lot of effort on market and business development in the beginning stages. The Target Group has allocated huge costs on business set up, administrative and marketing. The goal is to differentiate itself from its competitors by its classical and impressive environment. It is expected that after the brand has become well established and merged into the Group, the market share and sales of the Target Group will continue to grow.

The economic structure and business trend has been changed after the midst of social events and the surge in COVID-19 cases in Hong Kong. The storage and workshop business (accounting for over 70% of segment revenue in the Target Group) are experiencing a demand surge. Although supply chains have been upended due to the virus' spread, logistics is a sector that has experienced a crisis and a boost at the same time as food deliveries and online shopping come to the rescue of people who cannot leave their homes. Also, more demand for contract services could result from corporations downsizing and reducing permanent payrolls and may lead to more demand for small working spaces, which is beneficial to Metropolitan Workshop business.

Based on the above (including the prospect of the businesses of the Target Group), it is expected that the Target Group will be able to maintain stability in the midst of social events and surge in COVID-19.

- 28 -

LETTER FROM THE BOARD

As at the Latest Practicable Date, apart from the properties described above, the following property interests are held by the Target Group:

1. farmland with an area of approximate 97,052 sq.ft. situated in Yuen Long, New Territories, Hong Kong, which is held by Mark Wealthy Limited, a Target Group Company, is now leased to 2 leasees to operate the farmland as commercial/ organic farm and being held as an investment property. The property lies within an area zoned "Agriculture" in Kam Tin South Outline Zoning Plan. Currently, it forms part of the land bank of the Target Group. It is anticipated that a substantial change of land use by statutory resumption or lease modification is expected to be granted in the future; and
2. a shop located on 1/F podium of the Admiralty Centre, Admiralty, Hong Kong, which is held by Well Sure Corporation Limited, a Target Group Company, is being held as an investment property and is currently leased to an independent third party for a monthly rent of HK$45,000 from 11 August 2019 to 10 August 2021. In consideration of impact of coronavirus outbreak to retails business, a 10% rent concession was offered to the leasee for the period from 1 March 2020 to 31 May 2020 and 20% rent concession was offered to the lease for the period from 1 June 2020 to 30 September 2020. During the above rent concession periods, the monthly rent shall be HK$40,500 and HK$36,000 respectively. The Company intends that the shop will continue to be held as an investment property upon completion of the Acquisition. The shop is expected to generate a stable rental income for the Company during the term of the lease.

Mark Wealthy Limited and Well Sure Corporation Limited are Target Group Companies which will be acquired under the Acquisition. The valuation of the above property interests held by Mark Wealthy Limited and Well Sure Corporation Limited conducted by an independent property valuer was HK$78,375,000 as at 30 June 2020.

Reorganisation

The purpose of the Reorganisation is to procure the Target Group Companies to become members of the Target Group. Under this objective, the Reorganisation would involve the following steps:

Stage 1:Acquisition of the entire issued share capital of Crystal Cay by the Target Company

The Target Company will acquire the entire issued share capital of Crystal Cay from Galaxy Properties (BVI) Limited at a consideration of US$2 for the total number of issued shares of Crystal Cay to be transferred (i.e. 2 shares).

The shares of Crystal Cay will be transferred at a consideration representing the nominal value of the relevant shares of Crystal Cay as such transfer is part of the internal organisation between the subsidiaries within the same group.

- 29 -

LETTER FROM THE BOARD

Stage 2:Acquisition of the Target Company by the Company

Step 1 - The Target Group Companies will assign loans to the Target Company

Immediately before Completion, the Target Group Companies will assign all the loans owing by the Target Group Companies to the Vendor as at the Completion Date to the Target Company.

Step 2 - The Company will acquire the Sale Share and the Sale Loan

The Company will acquire the Sale Share and the Sale Loan pursuant to Acquisition Agreement on Completion.

Set out below is the shareholding structure of (i) the Target Group Companies as at the date of execution of the Acquisition Agreement; (ii) the Target Group upon completion of the Reorganisation and immediately before Completion; and (iii) the Target Group immediately after Completion:

- 30 -

- 31 -

1. as at the date of execution of the Acquisition Agreement

Mr. Chan

100%

	Crystal Harbour Holdings Ltd				100%
		100%				Galaxy Real
					Estate Holdings
						(BVI) Limited
	Vendor
							100%
		100%
					Galaxy
						Properties
	Target Company
			(BVI) Limited
							100%
		100%
						Crystal Cay
	Metropolitan Lifestyle Holdings (BVI)
		Group

80.75%

80.75%

85%

85%

75%

78%

Metropolitan

Metropolitan

Metropolitan

Metropolitan

Metropolitan

Metropolitan

Wine Cellar

Fine Wine

Workshop

Apartment

Production

Storage Group

Group

Notes:

1. Crystal Cay Group refers to Crystal Cay and its subsidiaries, including Advalue Group Limited, Creative Sky Limited, Eternal Great Development Limited, Far Orient International Limited, Golden Abacus Global Limited, Golden Green Corporation Limited, Grand Silver (Hong Kong) Limited, Great Dawn Holdings Limited, Magical Time Global Limited, Manhattan Corporation Limited, Maritime Century Holdings Limited, Mark Wealthy Limited, Numeric City Limited, Rainbow Value Investments Limited, Seongsu Vision Co Limited, Sunny Generation Limited, Well Sure Corporation Limited, and Wise City Holdings Limited.
2. Metropolitan Wine Cellar Group refers to Metropolitan Wine Cellar and its subsidiaries, including Noble Empire, and Seaview Empire Investments Limited.
3. Metropolitan Storage Group refers to Metropolitan Storage and its subsidiaries, including Charm Luck (Hong Kong) Limited, Cheer Luck International Industrial Limited, CW Luck Limited, East Luck Properties Limited, Faithful Luck (H.K.) Limited, FTIII Luck Limited, Kowloon Luck Limited, LCKI Luck Limited, Metro Luck Development Limited, Metro Storage Limited, Nice Luck Enterprise Limited, NT Luck Limited, NTII Luck Limited, Rainbow Luck Limited, and Rich Luck Enterprise Limited.

BOARD THE FROM LETTER

- 32 -

1. upon completion of the Reorganisation and immediately before Completion

Mr. Chan

100%

Crystal Harbour Holdings Ltd

100%

Vendor

100%

Target Company

100%

Crystal Cay

Metropolitan Lifestyle Holdings (BVI)

Group (Note 1)

Limited

80.75%

80.75%

85%

85%

75%

78%

Metropolitan

Metropolitan

Metropolitan

Metropolitan

Metropolitan

Metropolitan

Fine Wine

Wine Cellar

Workshop

Apartment

Production

Storage Group

Group (Note 2)

(Note 3)

Notes:

1. Crystal Cay Group refers to Crystal Cay and its subsidiaries, including Advalue Group Limited, Creative Sky Limited, Eternal Great Development Limited, Far Orient International Limited, Golden Abacus Global Limited, Golden Green Corporation Limited, Grand Silver (Hong Kong) Limited, Great Dawn Holdings Limited, Magical Time Global Limited, Manhattan Corporation Limited, Maritime Century Holdings Limited, Mark Wealthy Limited, Numeric City Limited, Rainbow Value Investments Limited, Seongsu Vision Co Limited, Sunny Generation Limited, Well Sure Corporation Limited, and Wise City Holdings Limited.
2. Metropolitan Wine Cellar Group refers to Metropolitan Wine Cellar and its subsidiaries, including Noble Empire, and Seaview Empire Investments Limited.
3. Metropolitan Storage Group refers to Metropolitan Storage and its subsidiaries, including Charm Luck (Hong Kong) Limited, Cheer Luck International Industrial Limited, CW Luck Limited, East Luck Properties Limited, Faithful Luck (H.K.) Limited, FTIII Luck Limited, Kowloon Luck Limited, LCKI Luck Limited, Metro Luck Development Limited, Metro Storage Limited, Nice Luck Enterprise Limited, NT Luck Limited, NTII Luck Limited, Rainbow Luck Limited, and Rich Luck Enterprise Limited.

BOARD THE FROM LETTER

- 33 -

1. immediately after Completion

The Company

100%

Target Company

100%

Crystal Cay Group		Metropolitan Lifestyle Holdings (BVI)

80.75%	80.75%	85%	85%	75%	78%
Metropolitan			Metropolitan		Metropolitan		Metropolitan		Metropolitan		Metropolitan
		Wine Cellar
Fine Wine				Workshop		Apartment		Production		Storage Group
		Group

Notes:

1. Crystal Cay Group refers to Crystal Cay and its subsidiaries, including Advalue Group Limited, Creative Sky Limited, Eternal Great Development Limited, Far Orient International Limited, Golden Abacus Global Limited, Golden Green Corporation Limited, Grand Silver (Hong Kong) Limited, Great Dawn Holdings Limited, Magical Time Global Limited, Manhattan Corporation Limited, Maritime Century Holdings Limited, Mark Wealthy Limited, Numeric City Limited, Rainbow Value Investments Limited, Seongsu Vision Co Limited, Sunny Generation Limited, Well Sure Corporation Limited, and Wise City Holdings Limited.
2. Metropolitan Wine Cellar Group refers to Metropolitan Wine Cellar and its subsidiaries, including Noble Empire, and Seaview Empire Investments Limited.
3. Metropolitan Storage Group refers to Metropolitan Storage and its subsidiaries, including Charm Luck (Hong Kong) Limited, Cheer Luck International Industrial Limited, CW Luck Limited, East Luck Properties Limited, Faithful Luck (H.K.) Limited, FTIII Luck Limited, Kowloon Luck Limited, LCKI Luck Limited, Metro Luck Development Limited, Metro Storage Limited, Nice Luck Enterprise Limited, NT Luck Limited, NTII Luck Limited, Rainbow Luck Limited, and Rich Luck Enterprise Limited.

BOARD THE FROM LETTER

LETTER FROM THE BOARD

Financial Information of the Target Group

Set out below is the audited financial information of the Target Group for the financial years ended 31 December 2017, 2018 and 2019; and for the three months ended 31 March 2020 (assuming that the members of the Target Group have been consolidated throughout the relevant periods):

				For the
				three months
	For the year ended		ended
		31 December		31 March
	2017	2018	2019	2020
	(HK$'000)	(HK$'000)	(HK$'000)	(HK$'000)
Profit/(Loss) before taxation and
extraordinary items	48,314	23,951	21,694	(36,810)
Profit/(Loss) after taxation and
extraordinary items	43,656	17,539	15,609	(31,659)

According to the audited financial information of the Target Group, the net asset value of the Target Group as of 31 March 2020 was approximately HK$205,395,000. The original acquisition cost of the Target Group Companies, in aggregate, was approximately HK$618,000,000.

The Target Group was on a decreasing trend of the profitability from FY2017 to FY2019, which was mainly attributable to the decreasing trend of net valuation gains on investment properties of approximately HK$56.3 million, HK$41.9 million and HK$38.6 million for FY2017, FY2018 and FY2019, respectively. The revenue was on an increasing trend from HK$35.0 million in FY2017 to HK$55.6 million in FY2019. As the Target Group has started several business expansion plans in FY2017, the early operating costs from new expansion have decreased the profitability of the Target Group from FY2017 to FY2018, but the continuous growth in revenue due to the expansion has improved the profitability of the Target Group from FY2018 to FY2019. The revenue improved from HK$45 million for FY2018 to HK$56 million for FY 2019 and the gross profit margin ratio also improved from 73% for FY 2018 to 84% for FY 2019.

The Target Group recorded a loss of approximately HK$31.7 million for the three months ended 31 March 2020, which was mainly attributable to the net valuation loss on investment properties of approximately HK$32.7 million. After excluding the net valuation loss on investment properties of approximately HK$32.7 million, the Target Group recorded a profit of approximately HK$1.0 million for the three months ended 31 March 2020. By excluding the net valuation loss which is not directly related to the business operation of the Target Group, the profitability has showed further improvement for the three months ended 31 March 2020. The gross profit margin ratio improved from 82% for the three months ended 31 March 2019 to 92% for the three months ended 31 March 2020.

- 34 -

LETTER FROM THE BOARD

In view of the continuous improvement on the profitability of the Target Group's business operation, by excluding the net valuation gains of losses on investment properties, as illustrated above, the Directors consider that the Acquisition is fair and reasonable, and in the interest of the shareholders (including the independent shareholders) of the Company.

All information relating to the Target Group, including information relating to the financial information of the Target Group and the businesses of the Target Group, as disclosed in this circular has been provided by the Vendor. The financial information of the Target Group as set out above is extracted from the audited financial statements of the Target Group. Please refer to the accountants' report on the Target Group as set out in Appendix II of this circular for details.

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and its financial results will be consolidated into the financial statements of the Group.

5. FUTURE FULLY EXEMPT CONTINUING CONNECTED TRANSACTION

Prior to the entering into of the Acquisition Agreement, Mr. Chan, who is an executive Director and hence connected person of the Company, has executed the Deed of Guarantee to guarantee the punctual payment of rent and due performance and observance by Noble Empire (a wholly-owned subsidiary of Metropolitan Wine Cellar and a Target Group Company) of all terms and conditions of the Tenancy Agreement for the term from 1 March 2020 to 28 February 2023 and renewed term (if any) under the Tenancy Agreement.

The transactions contemplated under the Deed of Guarantee will constitute financial assistance received from a connected person upon Completion. Pursuant to Rule 14A.90 of the Listing Rules, financial assistance received by the Group from Mr. Chan under the Deed of Guarantee is fully exempt as it is conducted on normal commercial terms and it is not secured by any assets of the Group. The Company is therefore exempt from the reporting, announcement and independent shareholders' approval requirements as set out in Chapter 14A of the Listing Rules.

- 35 -

LETTER FROM THE BOARD

6. CHANGES IN THE SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below is the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) upon Completion but prior to the exercise of conversion rights under the Convertible Bonds and the allotment and issue of the Conversion Shares; and (iii) immediately after the allotment and issue of the Conversion Shares upon the exercise of the conversion rights under the Convertible Bonds in full (assuming that the Conversion Price is HK$0.5 per Conversion Share and there is no issue or repurchase of Shares from the Latest Practicable Date other than the Conversion Shares):

					Upon Completion	Immediately after
					but prior to the	the allotment and issue
					exercise of conversion	of the Conversion Shares
					rights under the	upon the exercise of
					Convertible Bonds and	the conversion rights
	As at the Latest	the allotment and issue	under the Convertible
	Practicable Date	of the Conversion Shares	Bonds in full
									(Note 5)
	Number of	Approximate	Number of		Approximate	Number of	Approximate
	Shares	%		Shares	%		Shares	%
Mr Chan and his close associates
Mr. Chan	2,500,000		0.39		2,500,000	0.39		2,500,000			0.17
Star Properties Holdings (BVI)
Limited (Note 1)	432,140,800	67.36	432,140,800	67.36		432,140,800			29.25
Vendor (Note 6)	-	-	-		-	836,000,000		56.58
Subtotal	434,640,800		67.75		434,640,800	67.75		1,270,640,800			86.00
Others
Ms. Cheung Wai Shuen (Note 3)	300,000		0.05	300,000	0.05		300,000			0.02
Ms. Chan Wah Man (Note 4)	156,000	0.02	156,000	0.02		156,000			0.01
Mr. Lam Kin Kok	1,558,000		0.24		1,558,000	0.24		1,558,000			0.11
Eagle Trend (BVI) Limited (Note 2)	38,259,200	5.96	38,259,200	5.96		38,259,200		2.59
Public Shareholders	166,584,000		25.97		166,584,000	25.97		166,584,000			11.27
Total	641,498,000		100		641,498,000	100		1,477,498,000			100

Notes:

1. (a) Star Properties Holdings (BVI) Limited is an investment holding company incorporated in the BVI with limited liability and is wholly-owned by Mr. Chan. By virtue of the SFO, Mr. Chan is deemed to be interested in all shares in which Star Properties Holdings (BVI) Limited is interested.
2. 1. As Star Properties Holdings (BVI) Limited is directly held as to 100% by Mr. Chan, it is a close associate of Mr. Chan.
3. Eagle Trend (BVI) Limited is an investment holding company incorporated in the BVI with limited liability and is wholly-owned by Mr. Lam Kin Kok. By virtue of the SFO, Mr. Lam Kin Kok is deemed to be interested in all shares in which Eagle Trend (BVI) Limited is interested.

- 36 -

LETTER FROM THE BOARD

1. Ms. Cheung Wai Shuen is an executive Director.
2. Ms. Chan Wah Man Carman is an independent non-executive Director.
3. For illustration purpose only as the conversion of the Convertible Bonds is subject to the restrictions that the conversion does not result in (i) a mandatory general offer under the Takeovers Code; and (ii) the public float of the Shares being less than 25% (or such percentage as required by the Listing Rules) of the issued
   Shares.
4. As the Vendor is indirectly held as to 100% by Mr. Chan, the Vendor is a close associate of Mr. Chan.
5. The authorised share capital of the Company is HK$10,000,000. As at the Latest Practicable Date, there are 641,498,000 issued Shares and the issued share capital of the Company is HK$6,414,980.

The shareholding of the existing public Shareholders will decrease from approximately 25.97% to approximately 11.27% immediately after the allotment and issue of the Conversion Shares upon the exercise of the conversion rights under the Convertible Bonds in full, representing a dilution by approximately 14.70% (for illustration purpose only as the conversion of the Convertible Bonds is subject to the restrictions that the conversion does not result in (i) a mandatory general offer under the Takeovers Code; and (ii) the public float of the Shares being less than 25% (or such percentage as required by the Listing Rules) of the issued Shares). Although the shareholding interest of the existing public Shareholders will be diluted, having taking into account, among others, (i) the welcoming prospects of the businesses of the Target Group in Hong Kong, attributable to, among others, the future trend of the global property, the strong management team of the Target Group, value of the brand name "Metropolitan" and the opportunities of redevelopment available to the Target Group; (ii) the reasons for and benefits of the Acquisition, details of which are set out under the section headed "7. Reasons for and benefits of the Acquisition" in this letter; (iii) the fairness and reasonableness of the Consideration; (iv) the fairness and reasonableness of the terms of the Convertible Bonds; and (v) the positive financial impact to the Group due to the stable revenue from lease income to be generated from the Target Group and the decrease in gearing ratio of the Group from approximately 172.5% to 166.3% on a pro forma basis as per the information from Appendix IV, the Director considered that the issue of Convertible Bond and the Acquisition are fair and reasonable, and in the interest of the Company and its shareholders (including the independent shareholders) as a whole.

- 37 -

LETTER FROM THE BOARD

7. REASONS FOR AND BENEFITS OF THE ACQUISITION

In assessing the fairness and reasonableness of the Acquisition, the Board has considered the following:

1. Strong synergy between the Group's property development business and the businesses of the Target Group

Upon completion of the Reorganisation, the Target Company will have acquired the operating entities which operate the business of provision of stylish living space including apartments, workshops, storages and wine cellar. An integrated approach has been developing in the global property sector in recent years whereby living spaces are integrated with different life-style facilities such as wine cellar, flexible storage space and co-working space. The Directors believe that the provision of this type of living space with life-style element will become the future trend of the global property market, including the property market in Hong Kong. There is also synergy to the Group by operating the life-style business in its developing projects such as Kwun Tong Site Project, Yuen Long Site Project, Tack Lee Project, etc. which may in turn increase the value of different developed properties in the future.

1. Enhancement of the Group's portfolio of investment properties with regular income

The Company is principally engaged in property development and property investment for sale, rental or capital appreciation, provision of property management services and provision of finance. As at 31 December 2019, the Group's portfolio of investment properties comprised car parking spaces and an industrial unit located in Hong Kong with a total carrying value of approximately HK$52.0 million. Revenue amounting to approximately HK$474,000 was generated from property investment segment for the year ended 31 December 2019.

The Board considers that the acquisition of an established brand, namely, the "Metropolitan" brand, together with its underlying investment properties will allow the Group to strengthen and enhance the value of its asset base, and at the same time generating stable and regular income for the Group. The revenue from lease income generated from the Target Group in FY2017, FY2018, FY2019 and the three months ended 31 March 2020 were approximately HK$25.6 million, HK$31.0 million, HK$44.9 million and HK$12.1 million respectively, representing strong growth of lease income by more than 20% per year since FY2017. In addition, according to the independent property valuer, the rental income to be generated and the value of the investment properties are expected to be enhanced by the provision of value added services operated under the lifestyle-related businesses such as coworking space and flexible storage space, as compared to leasing out the whole properties directly to independent third parties. As at 31 March 2020, the Target Group's portfolio of investment properties located in Hong Kong and Korea is with a total carrying value of approximately HK$930.2 million. Revenue from lease income amounting to approximately HK$12.1 million was generated from the Target Group's portfolio of investment properties for the three months ended 31 March 2020.

- 38 -

LETTER FROM THE BOARD

Having considered the above-mentioned benefits to the Group, the Directors consider that the use of the brand "Metropolitan" is a long term plan of the Group's development. Metropolitan Group put a great effort and resources in developing its brand and reputation. The Director considers that the Acquisition is fair and reasonable and is in the interest of the Company and the Shareholders as a whole.

1. Opportunities of future redevelopment

Opportunities for redevelopment are available in respect of some of the properties owned by the Target Group, which may enhance the portfolio for properties development. After Completion, the Company intends to hold the acquired properties for rental purpose, and the Group has no development plan thereof as at the Latest Practicable Date.

In light of the Board's belief and the potential in the business of the Target Group, the Board is of the view that the Acquisition is a suitable opportunity for the Group to broaden its range of investments to increase its revenue sources and/or enhance its profitability and it will tap into services which are to complementary the Group's property development business.

Experienced management team

The Group's experienced management team are highly responsive to market conditions, closely monitoring the market conditions and sometimes having to adjust the rental and license fee in response to the change of market. Also, the Group's property management team and construction services team closely monitor the property management and maintenance of the Group's properties.

Mr. Chan Man Fai Joe, being the Chairman of the Group and an executive Director, is also the founder of Target Group. Mr. Chan has over 20 years of experience in property investment and strategic development experience. He is responsible for overseeing the corporate management, strategic planning and the corporate development of the Target Group since incorporation.

Upon Completion, Mr. Chan will supervise the management team, including property management, construction, finance and sales and marketing team of the Group to overview the corporate management, strategic planning and operation of the Target Group.

- 39 -

LETTER FROM THE BOARD

Determination of settlement method of the Consideration

Issue of Convertible Bonds

The Board has considered the following factors and concluded that satisfying the Consideration substantially by the issuance of Convertible Bonds is in the interests of the Company and its Shareholders as a whole:

1. the Group's principal business activities include, amongst other things, property development and investments, which are capital intensive activities. The Board considers that through the issuance of the Convertible Bonds, the Group will be able to maintain relatively more flexibility in applying its cash resources where needed in order to cater for its business needs;
2. the issuance of Convertible Bonds will not have any immediate dilution effect until the relevant holders convert the Convertible Bonds into Shares; and
3. following issuance of the Convertible Bonds, the Company will bear a coupon rate of 3% per annum. This represents significant advantage over other means of financing e.g. bank borrowings and shareholder's loan from Mr. Chan to the
   Company (with an interest rate of 4.5%) where the relevant finance costs are much higher.

Other alternative settlement methods considered

The Board has considered alternative settlement method such as issuance of other types of debt securities. However, taking into account the relatively higher finance costs as well as the impact on the gearing ratio of the Company, the Board considers that the issuance of other debt securities may (1) depend on the extent of borrowing, resulting in possible breach of financial covenants of the Group's existing borrowings regarding the gearing ratio; (2) have an adverse financial impact on the Group's financial position and affect its future fundraising ability; and (3) reduce the Group's liquidity due to the payment of interests and repayment of such debt securities, and will in turn hinder its business development options and therefore the potential return and interest of the Company and its Shareholders.

Notwithstanding the above, the Board has considered other possible fundraising methods for settlement of the balance of the Consideration (i.e. HK$418,000,000), such as placing or subscription of new Shares by independent third parties and right issues to raise funds. Raising the requisite funds through placing or subscription of new Shares will involve specific mandate requiring Shareholders' approval, given the number of Shares exceeds the limit under the general mandate granted to the Directors on 12 April 2020 (assuming that the placing or subscription price is equal to the Conversion Price of the Convertible Bonds under the Acquisition).

- 40 -

LETTER FROM THE BOARD

The Directors, after approaching four securities firms, found that it is difficult to secure placing agents and subscribers in light of the sizable amount of securities involved in the placing or subscription. Also, due to the substantial amount of the Shares required to be issued in order to settle the balance of the Consideration of HK$418,000,000, the potential investors normally require a substantial placing discount to the trading price of the Shares as advised by the placing agents.

The Directors have not adopted rights issue to settle the balance of the Consideration due to the low trading volume and liquidity of the Shares of the Company. During the 12 months prior to the date of the Acquisition Agreement, and up to and including the Latest Practicable Date, the monthly average trading volume to the total issued shares of the Company were lower than 0.5%. The Directors consider that it may be difficult for the Group to obtain favorable terms on rights issue for the Acquisition, which is not beneficial to the shareholders of the Company as a whole. Also, after approaching few securities firms, the Directors were of the view that it is difficult to find the independent third parties who are willing to be underwriter without any favourable terms, which is not beneficial to the shareholders of the Company. Without underwriter taking up its full entitlement for the right issues, the substantial shareholder cannot apply to take up its full entitlement for the rights issue if it is not fully underwritten due to the public float issue. Hence, the rights issue may not be able to proceed.

In view of above, when comparing the various fund raising methods including settlement by other equity fund raising method such as issue of new Shares and right issues with the issue of the Convertible Bonds to settle the balance of the Consideration, the Directors are of the view that placement and right issue may not be the best option in the context of the Acquisition and therefore are not in the interest of the Company and the Shareholders as a whole.

After taking into account of all possible settlement methods, the Board considered that settling the Consideration by way of issuance of Convertible Bonds is in the interests of the Company and its Shareholders as a whole.

The Board considers that the Acquisition is fair and reasonable, and in the interest of the Company and its shareholders as a whole. Please refer to the section headed "Reasons For and Benefits of the Acquisition" of this circular in relation to:

1. strong synergy between the Group's property development business and the businesses of the Target Group;
2. enhancement of the Group's portfolio of investment properties with regular income;
3. opportunities of the future development.

The Board considers that the issue of the Convertible Bonds is fair and reasonable, and in the interest of the Company and its shareholders as a whole. Please refer to the section headed "Determination of the settlement method of the Consideration - Issue of the Convertible Bonds".

- 41 -

LETTER FROM THE BOARD

Although there is coupon rate of 3% per annum of the Convertible Bonds, it is the best financing way to the Company comparing to other financing methods as disclosed in the section headed "Determination of the settlement method of the Consideration - Other alternative settlement methods considered".

In addition, the Sale Loan of approximately HK$259.2 million at 31 March 2020 would be settled by the Convertible Bonds upon the completion of the Acquisition. Taking into account of the relevant finance cost including the interest rate of the short-term loan to the Company advanced by Mr. Chan of 4.5% per annum and the interest rate from 3.5% to 7% per annum of the bank loans of the Company, the Sale Loan of approximately HK$259.2 million at 31 March 2020 will be settled by the issue of Convertible Bonds with a lower interest rate of 3%.

To conclude, having considered that (i) the issue of the Convertible Bonds will not have adverse impact to the gearing ratio of the Company; and (ii) the interest rate of the Convertible Bonds is lower than other available financing methods, although the annual interest expenses is higher than the annualised profit of the Target Group (excluding the valuation gain/losses), the Board considered the issue of the Convertible Bonds is fair and reasonable, and in the interest of the Company and its shareholders as a whole as the Acquisition is fair and reasonable, and in the interest of the Company and its shareholders as a whole.

The Directors consider that the Acquisition is fair and reasonable and in the interests of the Company and its shareholders (including the independent shareholders) as a whole in the light of below reasons:

1. the impact of COVID-19 on the market value of the properties held by the Target Group has been taken into account in determining the Consideration as explained under the section headed "Basis of the Consideration" of this circular;
2. there are strong synergy between the Group's property development business and business of the Target Group. The Acquisition will bring in a regular income to the Group's portfolio of investment properties and opportunities for future redevelopment as explained under the section headed "Reasons for and Benefits of the Acquisition" of this circular;
3. alterative settlement methods and fund raising methods have been taken into consideration but taking into account the relatively higher finance costs as well as the impact on the gearing ratio of the Company, the Board considers that the issuance of Convertible Bonds is fair and reasonable as explained under the section headed "Determination of settlement method of the consideration" of this circular;

- 42 -

LETTER FROM THE BOARD

1. the Target Group shows an improvement of its business operation profitability after excluding the net valuation gains or loss on investment properties which are not directly related to the business operation of the Target Group as explained under the section headed "Financial Information of the Target Group" of this circular: (i) the decreasing trend of the profitability of the Target Group from 2017 to 2019 and the loss recorded for the three months ended 31 March 2020 were mainly due to decreasing of net valuation gains or loss on investment properties;
   (ii) by excluding the net valuation gains, the profitability had dropped from 2017 to 2018 during the business expansion period but showed improvement from 2018 to 2019; (iii) the Target Group recorded a profit of approximately HK$1.0 million for the three months ended 31 March 2020 after excluding the net valuation loss on investment properties;
2. the economic structure and business trend has been changed after the midst of social events and surge in COVID-19 cases in Hong Kong, the storage and workshop business (accounting for over 70% of segment revenue in the Target Group) are experiencing a demand surge. Although supply chains have been upended due to the virus' spread, logistics is a sector that has experienced a crisis and a boost at the same time as food deliveries and online shopping come to the rescue of people who cannot leave their homes. Also, more demand for contract services could result from corporations downsizing and reducing permanent payrolls and may lead to more demand for small working spaces, which is beneficial to Metropolitan Workshop business. In light of the prospect of the businesses of the Target Group, it is expected that the Target Group will be able to maintain stability in the midst of social events and surge in COVID-19 as disclosed in page 27 of this circular;

- 43 -

LETTER FROM THE BOARD

1. as for the valuation of properties portfolio of the Target Group, as explained in page 12 of this circular, the drop of 2.7% in the assessed market values of the properties as at 31 March 2020 against that of 30 September 2019 was the overall result of the valuation of properties portfolio of the Target Group. In view of the recent surge of COVID-19 cases since early July 2020, there may be further impact to the market value of the properties held by the Target Group, since the market value of properties may be affected by the market conditions at the relevant time. On the other hand, in August 2020, the Hong Kong Monetary Authority has adjusted upward the applicable loan-to-value ratio cap for mortgage loans on non-residential properties by 10%. As a result, the market value of the properties held by the Target Group, which are non-residential properties, may benefit from such policy adjustment. Besides, the number of new COVID-19 infections in Hong Kong has significantly dropped since end of August 2020, and the Hong Kong Government has started the relaxation of the social-distancing rules step by step. In addition, in view of the anticipated launch of vaccine in early 2021 and the continuous inflow of capital into Hong Kong (as reflected by the expenditure of The Hong Kong Monetary Authority of approximately HK$119 billion in intervening through numerous market actions during April 2020 to August 2020 to dampen the effects of urging capital inflows), it is expected that the market sentiment will be slowly rebound and the property market would remain stable; and
2. in view of the growing and sustainable business of the Target Group and there was no capital commitment of the Target Group as at 31 March 2020, the Target Group is not expected to have any foreseeable capital need. Though the outstanding unaudited indebtedness owing by the Target Group to the Vendor increased from HK$216.2 million as at 30 September 2019 to approximately HK$259.2 million as at 31 March 2020, it is mainly due to the repayment of bank borrowings of HK$31.7 million and cash injection by the Vendor. After considering the continuous growth of the business of the Target Group and working capital forecast of the Enlarged Group, the Directors are of the view that the Enlarged Group would have sufficient working capital upon completion of the Acquisition. Please refer to the section headed "Financial effects of the Acquisition" of this circular for details.

Based on the above, the Directors (excluding Mr. Chan who is required to abstain from voting and the independent non-executive Directors who will express their views after considering the advice from the Independent Financial Adviser) are of the view that the terms of the Acquisition Agreement are on normal commercial terms, fair and reasonable, and the Transactions are in the interests of the Company and its Shareholders as a whole.

To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, save and except for Mr. Chan who was materially interested in the Transactions and therefore had abstained from voting on the Board resolutions approving the Acquisition Agreement and the transactions contemplated thereunder, none of the other Directors had a material interest in the Transactions.

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LETTER FROM THE BOARD

8. FINANCIAL EFFECTS OF THE ACQUISITION

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and thus the assets, liabilities and the financial results of the Target Group will be consolidated into those of the Group. For details of the unaudited pro forma financial information of the Enlarged Group, please refer to Appendix IV to this circular.

Assets and liabilities

Based on the unaudited pro forma financial information as set out in Appendix IV to this circular, assuming that Completion had taken place on 30 June 2020, the total assets of the Group would have increased from approximately HK$2,947.9 million to approximately HK$4,022.1 million on a pro forma basis, the total liabilities of the Group would have increased from approximately HK$1,892.5 million to approximately HK$2,603.1 million on a pro forma basis, and the net assets of the Group would have increased from approximately HK$1,055.4 million to approximately HK$1,419.0 million on a pro forma basis.

Earnings

Based on the unaudited pro forma financial information as set out in Appendix IV to this circular, assuming that Completion had taken place on 1 January 2019, the net profit attributable to shareholders of the Group for the year ended 31 December 2019 would have increased by approximately HK$24.2 million from approximately HK$5.3 million to HK$29.5 million on a pro forma basis.

The outstanding indebtedness owing by the Target Group to the Vendor increased from HK$216.2 million as at 30 September 2019 to approximately HK$259.2 million as at 31 March 2020. The increase was mainly due to the repayment of bank borrowings of HK$31.7 million and the increase in the cash position of the Target Group.

There was no capital commitment of the Target Group as at 31 March 2020 as set out in Note 32 in Appendix II of the draft Circular and the business of the Target Group is growing and sustainable with profit generating (excluding the net valuation loss of the investment properties) for the three months ended 31 March 2020, assuming that there is no additional capital needs of the Target Group subsequent to 31 March 2020. The Target Group will be financed by its own operating cash flow and the financing by revolving loans upon Completion.

After considering the continuous growth of the business of Target Group and reviewing the working capital forecast of the Enlarged Group prepared by the management, the Directors are of the view that the Enlarged Group would have sufficient working capital upon completion of the Acquisition.

After considering the reasons for and benefits of the Acquisition, the potential growth of the Target Group business and the fairness and reasonableness of the Consideration, the Board considers that the Acquisition is fair and reasonable, and in the interest of the Company and its shareholders as a whole.

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LETTER FROM THE BOARD

9. INFORMATION OF THE GROUP

The Group is principally engaged in property development and property investment for sale, rental or capital appreciation, provision of property management services and provision of finance.

10. INFORMATION OF THE VENDOR

The Vendor is an investment holding company and is indirectly held as to 100% by Mr. Chan as at the Latest Practicable Date.

11. LISTING RULES IMPLICATION

As one or more of the applicable percentage ratios (as defined under Chapter 14 of the Listing Rules) in respect of the Transactions exceed 100%, the Transactions constitute a very substantial acquisition for the Company and are therefore subject to the reporting, announcement and shareholders' approval requirements under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, the Vendor is indirectly held as to 100% by Mr. Chan, who is a Director and controlling shareholder of the Company. As such, the Vendor is an associate of Mr. Chan and thus connected person of the Company. Therefore, the Transactions also constitute a connected transaction of the Company under Chapter 14A of the Listing Rules and are subject to the approval of the Independent Shareholders at the EGM.

12. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

An Independent Board Committee, comprising all the independent non-executive Directors, has been established to consider the terms of the Acquisition Agreement and the transactions contemplated thereunder, and to advise the Independent Shareholders as to whether the terms of the Acquisition Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. Sinolink Securities (HK) Co. Ltd. has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

13. EGM

The EGM will be held by the Company at 11/F, TG Place, No.10 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong on 30 September 2020 at 3:00 p.m. to consider and, if thought fit, approve the Acquisition Agreement and the transactions contemplated thereunder. A notice convening the EGM is set out on pages EGM-1 to EGM-2 of this circular.

As at the Latest Practicable Date, Mr. Chan and his associates are interested in, in aggregate, 434,640,800 Shares, representing approximately 67.75% of the total issued share capital of the Company. Mr. Chan and his associates are required to abstain from voting on the relevant resolution to approve the Acquisition Agreement and the transactions contemplated thereunder at the EGM.

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LETTER FROM THE BOARD

Save as disclosed above, to the best knowledge, information and belief of the Directors, having made all reasonable enquiries, no other Shareholder has any material interest in the Acquisition, and therefore no other Shareholder is required to abstain from voting on the relevant resolution approving the Acquisition Agreement and transactions contemplated thereunder at the EGM.

To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, there is (i) no voting trust or other agreement or arrangement or understanding entered into by or binding upon any Shareholders; and (ii) no obligation or entitlement of any Shareholder as at the Latest Practicable Date, whereby it/he has or may have temporarily or permanently passed control over the exercise of the voting right in respect of its/his Shares to a third party, either generally or on a case-by-case basis.

All resolutions to be proposed at the EGM will be voted on by poll. A form of proxy for the EGM is enclosed with this circular. Whether or not you intend to be present at the EGM, you are advised to read the notice and to complete the form of proxy and return it to the Company's branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time fixed for the EGM. The completion of a form of proxy will not preclude you from attending and voting at the EGM in person and any adjourned meeting thereof should you so wish, and in such event, the form of proxy shall be deemed to be revoked.

14. RECOMMENDATIONS

The Board (including the independent non-executive Directors whose views have been set out in this circular after taking into consideration the advice of the Independent Financial Adviser) considers that (although the Acquisition is not in the ordinary and usual course of business of the Company) the terms of the Acquisition Agreement are on normal commercial terms and fair and reasonable, and the entering into of the Acquisition Agreement is in the interests of the Company and the Shareholders as a whole. Accordingly, the Board (including the independent non-executive Directors) recommend the Independent Shareholders to vote in favour of the resolution for approving the Acquisition Agreement and the transactions contemplated thereunder to be proposed at the EGM.

15. ADDITIONAL INFORMATION

Your attention is also drawn to the letter from the Independent Board Committee, the letter from the Independent Financial Adviser and the additional information as set out in the appendices to this circular.

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LETTER FROM THE BOARD

WARNING

As Completion is subject to fulfilment or waiver (as the case may be) of the conditions precedent to the Acquisition Agreement, the Acquisition may or may not proceed. Shareholders and potential investors of the Company should exercise caution when dealing in the Shares.

Yours faithfully,

By Order of the Board

Star Properties Group (Cayman Islands) Limited

Chan Man Fai Joe

Chairman

- 48 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Star Properties Group (Cayman Islands) Limited

()

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1560)

15 September 2020

To the Independent Shareholders

Dear Sir or Madam,

1. VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO
   THE ACQUISITION OF
   THE ENTIRE ISSUED SHARE CAPITAL OF AND SHAREHOLDERS' LOAN OWING BY METROPOLITAN GROUP (BVI) LIMITED

AND

(2) NOTICE OF EXTRAORDINARY GENERAL MEETING

We refer to the circular dated 15 September 2020 issued by the Company, of which this letter forms part (the "Circular"). Unless otherwise specified, capitalised terms defined in the Circular shall have the same meanings when used herein.

The Independent Board Committee has been formed to advise you in relation to the Acquisition, details of which are set out in the section headed "Letter from the Board" contained in the Circular. Sinolink Securities (HK) Company Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. The text of the letter from the Independent Financial Adviser containing its recommendations and the principal factors it has taken into account in arriving at its recommendations are set out on pages 51 to 96 of the Circular.

Having considered the terms and conditions of the Acquisition Agreement, as well as the advice and recommendations of the Independent Financial Adviser set out in its letter, we consider that (although the Acquisition is not in the ordinary and usual course of business of the Company), the terms of the Acquisition Agreement are on normal commercial terms and fair and reasonable, and the entering into of the Acquisition Agreement is in the interests of the Company and the Shareholders as a whole.

- 49 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

On the basis above, we recommend the Independent Shareholders to vote in favour of the resolution approving the Acquisition Agreement and the transactions contemplated thereunder at the EGM.

Yours faithfully,

for and on behalf of

the Independent Board Committee of

Star Properties Group (Cayman Islands) Limited

Chan Wah Man Carman	Lee Chung Ming Eric	Wong Wai Kong
Independent non-executive	Independent non-executive	Independent non-executive
Director	Director	Director

- 50 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from Sinolink Securities (HK) Company Limited, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, setting out their opinion in respect of the Acquisition for the purpose of inclusion in the circular.

Units 2503, 2505-06, 25/F, Low Block,

Grand Millennium Plaza,

181 Queen's Road Central,

Hong Kong

15 September 2020

To the Independent Board Committee and the Independent Shareholders of   Star Properties Group (Cayman Islands) Limited

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN

RELATION TO

THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF AND

SHAREHOLDERS' LOAN OWING BY METROPOLITAN GROUP (BVI) LIMITED

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Acquisition contemplated under the Acquisition Agreement, details of which are set out in the Letter from the Board (the "Letter from the Board") contained in the circular of the Company to the Shareholders dated 15 September 2020 (the "Circular"), of which this letter forms part. Unless otherwise defined, capitalised terms used in this letter shall have the same meanings as defined in the Circular.

Reference is made to the announcement of the Company dated 24 January 2020 and 30 June

2020 and the circular of the Company dated 27 March 2020 in relation to the Previous Acquisition Agreement and the transactions contemplated thereunder.

As disclosed in the announcement of the Company dated 30 June 2020, as certain condition(s) under the Previous Acquisition Agreement have not been fulfilled or waived by the long stop date of 30 June 2020, the Previous Acquisition Agreement has lapsed on 30 June 2020 pursuant to the terms thereof and shall cease to be of any effect and neither party shall have any obligations and liabilities thereunder. The refund of the deposit paid under the Previous Acquisition Agreement has been made by the Vendor to the Company on the same day.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Board considers that it will be in the interest of the Company and its Shareholders as a whole, if, upon the termination of the Previous Acquisition Agreement, the Company and the Vendor could enter into the Acquisition Agreement as soon as possible because:

1. the Company has formulated its business strategy for the forthcoming second half of 2020 and the next few years on the assumption that the transactions contemplated under the Previous Acquisition Agreement having been completed by 30 June 2020. The Company considers that the proposed Acquisition would help to minimize the disruption and adjustment of the business plan and strategy of the Group (as the disruption and adjustment of the business plan and strategy of the Group may result in the Group incurring extra operation costs);
2. with a view to implementing the transactions contemplated under the Previous Acquisition Agreement, the Group negotiated with various banks for the release of certain personal guarantees and new facilities (the "New Facilities") with revised terms have been granted by the banks which originally would become effective upon/after the completion of the transactions contemplated under the Previous Acquisition Agreement.
   The New Facilities were available to the Group for only a specified term. The Group has further negotiated with the banks and the relevant facility letter(s) for the New Facilities has to be executed by mid-October. The existing personal guarantees are expected to be released upon Completion. Entering into the Acquisition Agreement and the transactions contemplated thereunder as soon as possible can help to avoid incurring extra costs by the parties to the Previous Acquisition Agreement for renegotiating for the approval of the grant of the New Facilities by the banks; and
3. if completion of the proposed Acquisition is further delayed, the auditors to the Group will be required to adopt new reference date for the determination of the financial information of the Group to be disclosed in the circular in compliance of the Listing Rules for which the Company will need to incur extra professional charges and fees.

On 21 July 2020 (after trading hours of the Stock Exchange), the Company (as purchaser) and the Vendor (as vendor) entered into the Acquisition Agreement, pursuant to which the Company conditionally agreed to acquire, and the Vendor conditionally agreed to sell, the Sale Share and the Sale Loan, at an aggregate consideration of HK$460,000,000, which will be satisfied by (i) part payment in cash; and (ii) allotment of issue of the Convertible Bonds. The Conversion Shares will be allotted and issued under the specific mandate to be sought from the Independent Shareholders at the EGM.

As one or more of the applicable percentage ratios (as defined under Chapter 14 of the Listing Rules) in respect of the Acquisition exceed 100%, the Acquisition constitutes a very substantial acquisition for the Company and is therefore subject to reporting, announcement and shareholders' approval requirements under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, the Vendor is indirectly held as to 100% by Mr. Chan, who is a Director and controlling shareholder of the Company. As such, the Vendor is an associate of Mr. Chan and thus a connected person of the Company. Therefore, the Transactions also constitute a connected transaction of the Company under Chapter 14A of the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The EGM will be convened and held for the purpose of considering and, if thought fit, approve the Acquisition Agreement and the transactions completed thereunder. Given the ultimate beneficial owner of Metropolitan Lifestyle (BVI) Limited, being the Vendor of the Sale Shares and Sale Loan is Mr. Chan, a Director and one of the controlling shareholders of the Company, Mr. Chan will be required to abstain from voting on the proposed resolutions at the EGM.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising Dr. Wong Wai Kong, Mr. Lee Chung Ming Eric and Ms. Chan Wah Man Carman, being all the independent non-executive Directors has been formed to give recommendation to the Independent Shareholders in relation to the transactions contemplated under of the Acquisition Agreement. We, Sinolink Securities (HK) Company Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in this respect, in particular as to whether (i) the terms of the Acquisition Agreement are fair and reasonable as far as the Independent Shareholders are concerned, (ii) the Acquisition is on normal commercial terms (although the Acquisition is not in the ordinary and usual course of the business of the Group) as well as whether the Acquisition is in the interests of the Company and Shareholder as a whole.

OUR INDEPENDENCE

As at the Latest Practicable Date, we did not have any equity interests in any member of the group of the Company, nor have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the group of the Company, nor have any interest in any asset of the any member of the group of the Company. In the past two years, we have acted as the independent financial adviser to the Company in relation to the major and connected transaction in relation to the acquisition under the Previous Acquisition Agreement. Apart from normal advisory fee and expenses payable to us in connection with the aforementioned appointment and this appointment, no arrangement exists whereby we shall receive any other fees or benefits from the Company. Accordingly, we consider that the aforementioned previous appointment would not affect our independence, and that we are independent pursuant to Rule 13.84 of the Listing Rules.

BASIS OF OUR OPINION

In formulating our view and recommendation to the Independent Board Committee and the Independent Shareholders, we have reviewed, amongst other things:

1. the Group's annual report for the years ended 31 December 2017, 2018 and 2019 (the "Annual Reports") and the Group's interim result announcement for the six months ended 30 June 2020 (the "Interim Result Announcement");
2. the Acquisition Agreement;
3. the accountants' report of the Target Group;
4. the valuation report dated 30 June 2020 prepared by Jones Lang LaSalle Corporate Appraisal and Advisory Limited (the "Independent Valuer");

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. other information as set out in the Circular.

We have also discussed the valuation methodologies, bases and assumptions adopted for the valuation of the Properties with the Independent Valuer. We have also conducted site visits on the properties to be held by the Target Group.

We have relied on the information, opinions and representations contained or referred to in the Circular and provided to us by the Company, the Directors and the management of the Company (the "Management"), which the Directors consider to be complete, accurate and relevant. We have assumed that all the information, opinions and representations contained or referred to in the Circular were true, accurate and complete at the time they were made and continue to be true and accurate as at the date of the Circular. We have also assumed that all the statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiry. We have no reason to doubt that any relevant information has been withheld, nor are we aware of any fact or circumstance, which would render the information provided and representations and opinions made to us by the Company, the Directors and the Management untrue, inaccurate or misleading.

We consider that we have reviewed sufficient information to enable us to reach an informed view. The Directors have confirmed that no material facts or representations have been withheld or omitted from the information provided and referred to in the Circular. We have not, however, carried out any independent verification of the information provided by the Company, the Directors and the Management, nor have we conducted an independent investigation into the business and affairs, financial condition and future prospects of the Company, Vendor or their respective subsidiaries or associated companies. Our opinion is necessarily based on the financial, economic, market and other conditions in the effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that we have no obligation to update this opinion to take into account the subsequent development (including any material change in market and economic conditions) or to update, revise or reaffirm our opinion. Nothing contained in this letter of advice should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. THE ACQUISITION
   1. Background of the Acquisition

On 21 July 2020 (after trading hours of the Stock Exchange), the Company (as purchaser) and the Vendor (as vendor) entered into the Acquisition Agreement, pursuant to which the Company conditionally agreed to acquire, and the Vendor conditionally agreed to sell, the Sale Shares and Sale Loan, at an aggregate consideration of HK$460,000,000, which will be satisfied by (i) part payment in cash; and (ii) allotment of issue of the Convertible Bonds.

In formulating our opinion in respect of the Acquisition and the transactions contemplated thereunder, we have taken into account the following principal factors and reasons:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Information of the Group

The Company is principally engaged in property development and property investment for sale, rental or capital appreciation, provision of property management services and provision of finance.

The table below sets out a summary of the audited consolidated financial information of the Group for the three years ended 31 December 2017, 2018 and 2019, as extracted from the Annual Reports and the unaudited consolidated financial information of the Group for the six months ended 30 June 2019 and 2020, as extracted from the Interim Result Announcement:

Summarised financial results of the Group

	For the year		For the six months
ended 31 December	ended 30 June
2017	2018		2019	2019	2020
HK$'000	HK$'000	HK$'000 HK$'000	HK$'000
(audited)	(audited)	(audited)	(unaudited) (unaudited)

Revenue

Sales of properties

• and provision of
• property management

	services	729,215	668,212	112,473	22,572	2,438
Rental income from
	leasing of investment
	properties	2,029	735	474	212	648
Interest income from
	provision of finance	1,146	2,720	7,032	3,596	3,184
Total Revenue	732,390	671,667	119,979	26,380	6,270
Profit/(loss) before tax	122,261	241,576	12,241	(2,053)	352,003
Profit/(loss) for the period	95,814	191,827	5,297	(3,464)	349,871

For the year ended 31 December 2018

According to the Group's annual report for the year ended 31 December 2018 ("2018 Annual Report"), the Group's revenue is derived from (i) sales of properties and provision of property management services; (ii) rental income from leasing of investment properties; and (iii) interest income from provision of finance. We note that the Group's revenue for the year ended 31 December 2018 had a decrease of approximately 8.3% to approximately HK$671.7 million as compared to approximately HK$732.4 million for the year ended 31 December 2017, which was mainly due to revenue recognition for the completion and delivery of only first phase sold units from property development project "The Rainbow" to the buyers during the year from the property development segment.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We note that the profit after tax of the Company had increased by approximately 100.2% to HK$191.8 million for the year ended 31 December 2018 as compared to the year ended 31 December 2017, which was mainly due to the profit recognition of "The Rainbow" and the Company was benefited from the Revitalisation Measures, a special waiver was granted by the Lands Department to change the land use from industrial to commercial and thus, the profit margin of "The Rainbow" increased.

For the year ended 31 December 2019

According to the Group's 2019 Annual Report, the revenue of the Group for the year ended 31 December 2019 was approximately HK$120.0 million, which was mainly derived from property development and provision of finance in the amount of approximately HK$112.5 million and HK$7.0 million, respectively, and representing an decrease of approximately HK$551.7 million as compared to the year ended 31 December 2018. We noted that the reasons for such decrease were due to (i) completion and delivery of 2 motorcycle car parking spaces amounted to approximately HK$0.8 million in the year ended 31 December 2019 as compared to 8 car parking spaces amounted to approximately HK$10.5 million for the year ended 31 December 2018 in The Galaxy; (ii) completion and delivery of 4 parking spaces and 2 workshop units amounted to approximately HK$24.3 million for the year ended 31 December 2019 as compared to 12 car parking spaces amounted to approximately HK$14.1 million for the year ended 31 December 2018 in The Star; and (iii) completion and delivery of 7 units amounted to approximately HK$86.1 million in the year ended 31 December 2019 as compared to 108 units amounted to approximately HK$653.1 million for the year ended 31 December 2018 in The Rainbow. The Group also recorded an increase of revenue in the provision of finance segment from approximately HK$2.7 million for the year ended 31 December 2018 to HK$7.0 million for the year ended 31 December 2019. It is mainly attributable to provide credit facilities for the completed projects due to the increase of completed projects, namely The Star and The Rainbow.

For the six months ended 30 June 2020

The revenue of the Group for the six months ended 30 June 2020 was approximately HK$6.3 million, which was mainly generated from provision of finance in the amount of approximately HK$3.2 million and provision of construction and fitting out works in the amount of approximately HK$1.4 million. It represented a decrease of approximately HK$20.1 million as compared to the revenue in the amount of approximately HK$26.4 million generated during the six months ended 30 June 2019, which was mainly due to no revenue was recognised for the property development segment during the six months ended 30 June 2020. However, the Group recorded a profit of approximately HK$349.9 million for the six months ended 30 June 2020 due to the gain on disposal of a subsidiary of approximately HK$383.2 million during the period.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at 30 June 2020, the Group had three completed projects, namely, (a) The Galaxy; (b) The Star and (c) The Rainbow; and five projects under development, namely, (d) Yuen Long site; (e) Kwun Tong site; (f) Tack Lee Project; (g) Seongsu Project and (h) Sausage Project. The Group entered into a sales and purchase agreement on 31 December 2019 to sell the entire issued share capital and shareholder's loan of the holding company of CWK Project to an independent third party at the consideration of HK$980.0 million ("the Disposal"). The Disposal was completed and a gain on the Disposal of approximately HK$383.2 million which was recognized for the six months ended 30 June 2020.

Summarised financial position of the Group

		As at 31 December	As at 30 June
	2017	2018	2019	2020
	HK$'000	HK$'000	HK$'000	HK$'000
	(audited)	(audited)	(audited)	(unaudited)
Non-current assets	86,418	219,617	225,036	204,457
Current assets	2,377,089	3,103,673	3,264,727	2,739,756
Current liabilities	1,821,292	2,530,372	2,780,467	1,892,329
Non-current liabilities	249	305	177	177
Net assets	641,966	792,613	709,119	1,055,367

As at 31 December 2019, the non-current assets of the Group amounted to approximately HK$225.0 million, of which approximately HK$164.8 million were loan receivables, approximately HK$52.0 million were investment properties and approximately HK$6.1 million were financial assets at fair value through profit or loss. The current assets of the Group amounted to approximately HK$3,264.7 million as at 31 December 2019, representing an increase of 5.2% as compared to 31 December 2018. The increase in current assets was mainly due to the increase in property for sale and as well as the new development project as disclosed in the 2019 Results Announcement. The current assets as at 31 December 2019 mainly consisted of properties held for sale of approximately HK$3,153.1 million; bank balances and cash of approximately HK$62.3 million; trade and other receivables of approximately HK$32.6 million; and stakeholder's accounts of approximately HK$6.1 million. As at 31 December 2019, the current liabilities of the Group amounted to approximately HK$2,780.5 million, which represented an increase of approximately 9.9% as compared to approximately HK$2,530.4 million as at 31 December 2018. The increase of current liabilities was mainly due to the increase of borrowing, trade and other payables and amount due to a director during the year ended 31 December 2019. The current liabilities as at 31 December 2019 mainly consisted of borrowing of approximately HK$2,580.2 million; trade and other payables of approximately HK$104.3 million and tax liabilities of approximately HK$56.7 million. The non-current liabilities as at 31 December 2019 only consisted deferred tax liabilities in the amount of approximately HK$0.2 million. The Group had net assets in the amount of approximately HK$709.1 million as at 31 December 2019, representing a decrease of approximately 10.5% as compared to approximately HK$792.6 million as at 31 December 2018. The decrease in net assets was mainly due to the decrease of loan receivable, stakeholder's accounts and bank balances and cash.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at 30 June 2020, the non-current assets of the Group amounted to approximately HK$204.5 million, of which approximately HK$149.6 million were loan receivables, approximately HK$47.0 million were investment properties and approximately HK$6.1 million were financial assets at fair value through profit or loss. The current assets of the Group amounted to approximately HK$2,739.8 million as at 30 June 2020, representing a decrease of 16.0% as compared to 31 December 2019. The decrease in current assets was mainly due to the decrease in properties under development. The current assets as at 30 June 2020 mainly consisted of properties held for sale of approximately HK$2,622.1 million; bank balances and cash of approximately HK$73.7 million; trade and other receivables of approximately HK$25.3 million; and stakeholder's accounts of approximately HK$6.1 million. As at 30 June 2020, the current liabilities of the Group amounted to approximately HK$1,892.3 million, which represented a decrease of approximately 32.0% as compared to approximately HK$2,780.5 million as at 31 December 2019. The decrease of current liabilities was mainly due to the decrease of borrowing, trade and other payables and amount due to a director during the six months ended 30 June 2020. The non-current liabilities as at 30 June 2020 only consisted deferred tax liabilities in the amount of approximately HK$0.2 million. The Group had net assets in the amount of approximately HK$1,055.4 million as at 30 June 2020, representing an increase of approximately 48.8% as compared to approximately HK$709.1 million as at 31 December 2019. The increase in net assets was mainly due to the decrease of borrowings and increase of bank balances and cash.

3. Information on the Target Group

3.1 Background of the Target Group

The Target Company is an investment holding company incorporated in the British Virgin Islands with limited liabilities. Pursuant to the Acquisition Agreement, it is one of the conditions precedent that the Reorganisation shall be completed prior to Completion. It is expected that, upon completion of the Reorganisation, the Target Group will hold the various interest in the businesses and properties which are the subject of the Acquisition, including the business activities under the "Metropolitan" brand with its self-owned and leased properties, including (i) serviced apartment business; (ii) wine cellar and fine wine business; (iii) storage and workshop business; and (iv) production and other investment holding business. The shareholding structure of the Target Group immediately before the Completion is proposed to be set out as follow:

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Mr. Chan

100%

Crystal Harbour Holdings Ltd

100%

Vendor

100%

Target Company

100%

Crystal Cay		Metropolitan Lifestyle Holdings (BVI)
Group (Note 1)		Limited

80.75%

80.75%

85%

85%

75%

78%

Metropolitan

Metropolitan

Metropolitan

Metropolitan

Metropolitan

Metropolitan

Fine Wine

Wine Cellar

Workshop

Apartment

Production

Storage Group

Group (Note 2)

(Note 3)

Notes:

(1)

Crystal Cay Group refers to Crystal Cay Assets Limited and its subsidiaries, including Advalue Group Limited, Creative Sky Limited, Eternal

Great Development Limited, Far Orient International Limited, Golden Abacus Global Limited, Golden Green Corporation Limited, Grand

Silver (Hong Kong) Limited, Great Dawn Holdings Limited, Magical Time Global Limited, Manhattan Corporation Limited, Maritime

Century Holdings Limited, Mark Wealthy Limited, Numeric City Limited, Rainbow Value Investments Limited, Seongsu Vision Co Limited,

Sunny Generation Limited, Well Sure Corporation Limited, and Wise City Holdings Limited.

(2)

Metropolitan Wine Cellar Group refers to Metropolitan Wine Cellar Limited and its subsidiaries, including Noble Empire Investments

Limited, and Seaview Empire Investments Limited.

(3)

Metropolitan Storage Group refers to Metropolitan Storage Limited and its subsidiaries, including Charm Luck (Hong Kong) Limited, Cheer

Luck International Industrial Limited, CW Luck Limited, East Luck Properties Limited, Faithful Luck (H.K.) Limited, FTIII Luck Limited,

Kowloon Luck Limited, LCKI Luck Limited, Metro Luck Development Limited, Metro Storage Limited, Nice Luck Enterprise Limited, NT

Luck Limited, NTII Luck Limited, Rainbow Luck Limited, and Rich Luck Enterprise Limited.

ADVISER FINANCIAL INDEPENDENT THE FROM LETTER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Serviced apartment business

Metropolitan Apartment principally engages the operation of serviced apartments in Hong Kong. It currently operates 28 serviced apartments on self- owned properties for rental which are situated at No. 16 & No. 18 Yiu Wa Street, Causeway Bay and 3/F, 14 Yiu Wa Street, Causeway Bay, Hong Kong. The business of Metropolitan Apartment commenced in 2012 and all suites provided by Metropolitan Apartment are fully furnished with flexible terms by monthly renewal. The types of serviced apartments Metropolitan Apartment offers including (i) co-living apartments (ranging from 80 to 120 sq. ft in size);

1. contemporary studios (ranging from 180 to 230 sq. ft in size); (iii) studio with terrace (ranging from 230 to 390 sq. ft. in size with a terrace of approximately 20 to 180 sq. ft. each); and (iv) family studio (which are 400 sq. ft. to 700 sq. ft. in size). It mainly targets short-term overseas employees, local residents and college students.

The valuation of the properties used by Metropolitan Apartment for its apartment business conducted by the Independent Valuer HK$169,100,000 as at 30 June 2020. Metropolitan Apartment (i) is beneficially owned by Mr. Chan as to 85.0% as at the date of the Acquisition Agreement; and (ii) is to be held indirectly by the Target Company as to approximately 85.0% immediately upon completion of the Reorganisation.

Wine cellar and fine wine businesses

Metropolitan Wine Cellar Group and Metropolitan Fine Wine principally engage provision of professional fine wine storage services and wine trading, respectively. Metropolitan Wine Cellar was established in 2011 and is a participant of the Wine Storage Management Systems (WSMS) Certification Scheme of the Hong Kong Quality Assurance Agency (HKQAA). It also complies with the requirement of Fine Wine Storage Management Systems Standard of HKQAA Wine Storage Management Systems Certification Scheme: 2013 applicable to provision of 24-hour wine storage rental services for fine wine. The wine storage facilities are located in rented and self-owned properties in Tin Hau, Hong Kong, where the total storage area available is over 16,000 sq. ft. and there are a total 232 wine lockers and 131 private cellars as at the Latest Practicable Date. The capacity of each wine locker ranges from 24 to 432 bottles or 2 to 36 cases and that of each private cellar ranges from 132 to 9,360 bottles or 11 to 780 cases. Supplementing the fine wine storage services offered by Metropolitan Wine Cellar Group, Metropolitan Fine Wine mainly targets Hong Kong local customer and offer product delivery services. The major wine products include dessert wine, red wine, sparkling wine, white wine, rose wine, champagne and spirits that are sourced from Europe, Australia, the United States of America and South America.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The valuation of the properties used by Metropolitan Wine Cellar Group and held by Crystal Cay Group for its fine wine storage business conducted by the Independent Valuer was HK$33,000,000 as at 30 June 2020. Metropolitan Wine Cellar Group and Metropolitan Fine Wine are both (i) beneficially owned by Mr. Chan as to 80.75% as at the date of the Acquisition Agreement; and (ii) to be held indirectly by the Target Company as to approximately 80.75% immediately upon completion of the Reorganisation.

Storage and workshop businesses

Metropolitan Storage Group and Metropolitan Workshop principally engage the provision and operation of 24-hour storage service to the public in Hong Kong and 24-hourco-working spaces, respectively. The operation of storage and workshop businesses is under the same management team. Metropolitan Storage Group operates the mini-storage business in 14 branches with a total number of approximately 2,000 units located in Chai Wan, San Po Kong, Lai Chi Kok, Fo Tan, Yuen Long, Kwai Chung, Tsing Yi and Tai Po as at the Latest Practicable Date, and the sizes of each mini-storage unit ranging from 8 sq. ft. to over 40 sq. ft.. Due to the mobility of the storage clients were limited, Metropolitan Storage Group needs to fulfill its obligations under the licence agreements with the clients and the term for each of such licence agreements is long. Metropolitan Workshop operates its co-working spaces at its self-owned properties located in Central, Admiralty, Wanchai, Tin Hau and Kwai Chung. It positions itself between co-working spaces and business centers, which provides a higher privacy to existing co-working spaces and cheaper option for business owners. The target customers are freelancers, entrepreneurs and smaller companies. It provides more than 200 private work spaces and 450 work desks with 435 active members as at the Latest Practicable Date. Under the Acquisition, the Company will also acquire 100% of the issued share capital of Seongsu Vision, a Target Group Company, which is an investment holding company holding a property situated in Seongsu, Seoul, South Korea. This property is currently a bare site for potential development of workshop business.

The valuation of the properties used by Metropolitan Workshop and held by Crystal Cay Group conducted by the Independent Valuer was HK$649,200,000 as at 30 June 2020. Metropolitan Storage Group and Metropolitan Workshop (i) are beneficially owned by Mr. Chan as to 78.0% and 85.0% as at the date of the Acquisition Agreement; and (ii) to be held indirectly by the Target Company as to approximately 78.0% and 85.0%, respectively, immediately upon completion of the Reorganisation.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Production and other investment holding business

Metropolitan Production principally engages in provision of marketing solution and consultancy services, film or advertisement, production and organization of local and overseas music concert, artist management and film production, as well as professional photography services to well-known organisations. It has developed two social media platforms, namely as "DStage" and "Memories Hong Kong". DStage is aimed to provide a stage for young people to perform different types of art while Memories Hong Kong is aimed at promoting local tourism and business through producing videos for website and Facebook as well as organising competitions and performances. It also produced a series of promotional videos for promoting the "The Rainbow", and promote the brand image of Star Properties by developing its Facebook and Instagram fan pages. Metropolitan Production (i) is beneficially owned by Mr. Chan as to 75.0% as at the date of the Acquisition Agreement; and (ii) to be held indirectly by the Target Company as to approximately 75.0% immediately upon completion of the Reorganisation.

In addition to the properties as described above, the Target Group also hold the following properties;

1. farmland with an area of approximate 97,052 sq.ft. situated in Yuen Long, New Territories, Hong Kong, which is held by Mark Wealthy Limited, a Target Group Company, is now leased to 2 leases to operate as commercial/farm and being held as an investment property. The property lies within an area zoned "Agriculture" in Kam Tin South Outline Zoning Plan. Currently, it is served as a land bank of the Target Group. A substantial change of land use by statutory resumption or lease modification is expected by the Group in the coming future; and
2. a shop located on 1/F podium of the Admiralty Centre, Admiralty, Hong Kong, which is held by Well Sure Corporation Limited, a Target Group Company, is being held as an investment property and is currently leased to an independent third party for a monthly rent of HK$45,000 from 11 August 2019 to 10 August 2021. The Group considers that the shop will continue to be held as an investment property upon completion of the Acquisition. The Target Group offered (i) a 10% rent discount to the leasee from the period from 1 March 2020 to 31 May 2020; and (ii) a 20% rent discount from 1 June 2020 and 30 September 2020, considering the negative impacts of the COVID-19 outbreak to the retail business. The shop is expected to generate stable rental income for the Group during the term of lease.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Mark Wealthy Limited and Well Sure Corporation Limited are Target Group Companies which are 100% indirectly owned by the Target Company and will be acquired under the Acquisition. The valuation of the above property interests held by Mark Wealthy Limited and Well Sure Corporation Limited conducted by the Independent Valuer was HK$78,375,000 as at 30 June 2020.

3.2 Financial information of the Target Group

The table below sets out a summary of the audited financial information of the Target Group (i) for the three financial years ended 31 December 2017, 2018 and 2019;

1. for the three months ended 31 March 2019 and 2020 of the Target Group (assuming the Reorganisation had been completed):

Summarised financial results of the Target Group

				Three months ended
	Year ended 31 December	31 March
	2017	2018	2019	2019	2020
	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
				(unaudited)
Revenue	35,044	45,255	55,581	11,735	13,226
Profit before income tax	48,314	23,951	21,694	(7,577)	(36,810)
Profit for the year/period	43,656	17,539	15,609	(7,711)	(31,659)

The revenue of the Target Group for the years ended 31 December 2017, 2018 and 2019 and the three months ended 31 March 2019 and 2020 was mainly derived from storage and workshop operations and wine operations.

The revenue of the Target Group for the year ended 31 December 2018 amounted to approximately HK$45.3 million, representing an increase of approximately 29.1% as compared to the year ended 31 December 2017. The increase was mainly due to (i) higher occupancy rate of workshop business and new operation of storage business in Chai Wan, Fo Tan, Kwai Chung, Yuen Long and (ii) increase sales of wine operation due to higher sales volume of fine wine retail business and higher occupancy rate of wine cellars leased. The revenue of the Target Group for the year ended 31 December 2019 amounted to approximately HK$55.6 million, representing an increase of approximately 22.8% as compared to the year ended 31 December 2018. The increase was mainly attributable to the more stable operation and good reputation built by the storage and workshop business. The profit for the year ended 31 December 2018 amounted to approximately HK$17.5 million, representing a decrease of approximately HK$26.1 million as compared to the year ended 31 December 2017, which was not in line with the increase of revenue for the year ended 31 December 2018. This was mainly due to

1. the Target Group recorded net valuation gain on investment properties in the amount of approximately HK$41.9 million for the year ended 31 December 2018, represented a decrease of approximately 25.6% as compared to the year ended 31 December 2017;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. the increase in administrative and other operating expenses of approximately 39.4% for the year ended 31 December 2018 as compared to the year ended 31 December 2017 due to additional co-working spaces and storage units were added to the workshop and storage operation; and (iii) the increase in finance costs of approximately 94.9% for the year ended 31 December 2018 as compared to the year ended 31 December 2017 due to increase in interest cost for new bank borrowings raised for acquiring a new property for workshop and business expansion of workshop and storage business during the year ended 31 December 2018. The profit for the year ended 31 December 2019 amounted to approximately HK$15.6 million, representing a decrease of approximately 11.0% as compared to the year ended 31 December 2018, which was not in line with the increase of revenue for the year ended 31 December 2019. This was mainly due to (i) the Target Group recorded net valuation gain of approximately HK$38.6 million for the year ended 31 December 2019, represented a decrease of approximately 8.0% as compared to the year ended 31 December 2018; and (ii) the increase in administrative and other operating expenses of approximately 17.2% as compared to the year ended 31 December 2018 due to further expansion of storage and workshop business in Chai Wan and Fo Tan which incurred additional expenses during the period.

The revenue of the Target Group for the three months ended 31 March 2020 amounted to approximately HK$13.2 million, representing an increase of approximately 12.7% as compared to the three months ended 31 March 2019, which was mainly due to the increasing occupancy rate of those sites of storage business newly operated for the year ended 31 December 2019. The Target Group recorded net loss in the amounts of approximately HK$31.7 million for the three months ended 31 March 2020, representing a decrease of approximately 310.6% as compared to the three months ended 31 March 2019, which was mainly due to the Target Group recorded net valuation loss of approximately HK$32.7 million for the three months ended 31 March 2020, which was mainly due to the general downward of Hong Kong's property market after the outbreak of COVID-19. After excluding the net valuation loss on investment properties of approximately HK$32.7 million, the Target Group recorded a profit of approximately HK$1.0 million for the three months ended 31 March 2020.

Summarised financial position of the Target Group

				As at 31
		As at 31 December		March
	2017	2018	2019	2020
	HK$'000	HK$'000	HK$'000	HK$'000
Non-current assets	779,498	976,954	1,047,695	1,015,329
Current assets	74,132	41,534	54,907	55,000
Current liabilities	567,668	696,974	776,081	780,489
Non-current liabilities	71,576	93,316	90,301	84,445
Net assets	214,386	228,198	236,220	205,395

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at 31 March 2020, the non-current assets of the Target Group amounted to approximately HK$1,015.3 million, which mainly consisted of investment properties in the amount of approximately HK$930.2 million and property, plant and equipment in the amount of approximately HK$82.5 million. The non- current assets as at 31 March 2020 decrease mainly due to the decrease value of investment properties of approximately HK$32.1 million. The current assets of the Target Group as at 31 March 2020 was amounted to approximately HK$55.0 million, which mainly included inventories of approximately HK$8.7 million; deposits, prepayments and other receivables of approximately HK$18.0 million; and cash and bank balances of approximately HK$26.1 million. The Target Group recorded current liabilities in the amount of approximately HK$780.5 million as at 31 March 2020, which mainly consisted bank borrowings due for repayment within one year or after one year but contains a repayable on demand clause in the amount of approximately HK$476.8 million; and amounts due to an equity owner which are repayable on demand in the amount of approximately HK$259.2 million. The net current liabilities of the Target Group is approximately HK$725.5 million as at 31 March 2020. For details of the liquidity of the Enlarged Group after the Completion, please refer to "6. Financial effects of the Acquisitions". The increase of total current liabilities as at 31 March 2020 as compared to as at 31 December 2019 was mainly due to increase in amount due to an equity owner. The non-current liabilities of the Target Group as at 31 March 2020 was amounted to approximately HK$84.4 million, which mainly consisted approximately HK$35.6 million of lease liabilities and approximately HK$48.9 million of deferred tax liabilities. The net assets value of the Target Group was approximately HK$205.4 million as at 31 March 2020.

3.3 The outbreak of recent social events and COVID-19

As enquired with the Directors, the outbreak of the social events and COVID-19 would cause slight impact on the Target Group's financial performance for the first quarter of 2020 in relation to slight decrease in the occupancy rate of serviced apartment business, storage and workshop business, and wine cellar and fine wine business.

For serviced apartment business, the occupancy rate has dropped from approximately 85% each year from 2012 to 2018 to approximately 70% in February 2020. However, the occupancy rate of the serviced apartments has gradually rebounded to approximately 78.2%, 78.2% and 79.4% as at 31 March 2020, 30 April 2020 and 31 May 2020, respectively, but slightly decreased to 77% as at 31 July 2020 due to its surge in COVID-19 cases in Hong Kong since July 2020. However, The Directors believe that good reputation, high standard hygienic conditions and good services helped in attracting more referrals from existing tenants. Also, the monthly leasing renewal arrangement gives the flexibility to the customers who demand for short term leasing.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For wine cellar businesses, the occupancy rate decreased from approximately 95% in December 2019 to approximately 90.5% in July 2020. As for fine wine, Metropolitan Fine Wine changed its sales strategy from offline trading to online trading as customers are staying at home for safety and health reasons. Crisis creates opportunities, online trading penetrates into a bigger market not only locally but internationally. Metropolitan Wine Cellar Group has a wine cellar business to power up the wine trading business of Metropolitan Fine Wine. If customers order from online but cannot pick up the wines immediately or do not want to stock up too many bottles of wine at home, they can choose to store their wine orders temporarily at the cellar of Metropolitan Wine Cellar Group.

For storage and workshop businesses, the outbreak of COVID-19 has an impact for new members to get on board and for existing customers to renew their contracts for the months of January and February 2020. Average occupancy rate of private work desks declined from an average of 81% in December 2019 to 74% and 72% in January 2020 and February 2020, respectively. Subsequently, the average of overall occupancy rate as at 31 May 2020 has rebounded back to 75% and further increased to 79% as at July 2020. Metropolitan Workshop is seeing a market recovery at the beginning of April 2020. After Lunar New Year, there is a huge demand for storage space because many retails business tend to online market. Metropolitan Storage Group has entered provisional agreement in June 2020 to rent premises in Chai Wan to further expand its coverage in Chai Wan. Metropolitan Workshop believes that the flexibility from its coworking space could cater for customers looking to scale up or down quickly during both the market highs and lows. According to the Company, the COVID-19 outbreak had no impact on the storage business, as the occupancy rate increased approximately 5.9% to 75.53%, 77.91% and 79.84% as at 31 May 2020, 30 June 2020 and 31 July 2020 as compared to December 2019 with an occupancy rate of 69.7%. The occupancy rate is expected to over 80% at the end of 2020.

The Target Group have established epidemic prevention and control working group to undertake various precautionary measures to prevent any widespread of COVID-19 in the properties and office, such as (i) enhancing the hygienic level of the properties and the offices by cleaning and sanitising areas including offices and properties regularly; (ii) performing compulsory daily temperature checks of all employees before work; (iii) minimising in-person meetings to the extent possible; and

1. requesting the employees to wear masks at all time during work and report to the Target Group promptly whenever they feel unwell.

The Directors confirm that, as at the Latest Practicable Date, no employees of the Target Group has been infected with the COVID-19 and that the COVID-19 has so far had not caused a material impact on the Target Group's operations, based on the current available information and the business of Target Group was not suspended due to the outbreak up to the Latest Practicable Date.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors believe that the economic structure and business trend has been changed after the midst of social events and the surge in COVID-19 cases in Hong Kong. The storage and workshop business (accounting for over 70% of segment revenue in the Target Group) are experiencing a demand surge. Although supply chains have been upended due to the virus's spread, logistics is a sector that has experienced a crisis and a boost at the same time as food deliveries and online shopping come to the rescue of people who cannot leave their homes. Also, more demand for contract services could result from corporations downsizing and reducing permanent payrolls and may lead to more demand for small working spaces, which is beneficial to Metropolitan Workshop business.

As disclosed in the section headed "3.2 Financial information of the Target Group", the Target Group recorded a decreasing trend in its net profit from the year ended 31 December 2017 to 31 December 2019 and from three months ended 31 March 2019 to 31 March 2020. However, this was mainly due to the decrease of net valuation gain on investment properties, a one-off gain on disposal of an investment property, increase in finance costs due the expansion of workshop and storage business and one- off net valuation loss on investment properties. The revenue of the principal business of the Target Group was in increasing trend during the same year/period. According to the "2019 Economic Background and 2020 Prospects" published by the Office of the Government Economist and the Financial Secretary's Office of the Government of Hong Kong, the deterioration of the Hong Kong economy was particularly sharp in the second half of 2019 due to the local social incidents involving violence hurt the overall economic sentiment and disrupted a wide range of economic activities. The overall economy would be heavily weighted on by the situation of the COVID-19, the development in US-Mainland trade relations and the local social incidents in 2020. The Hong Kong economy is forecast to grow by -0.15% to 0.5% in 2020. As mentioned above, the outbreak of the COVID-19 had minimal impacts on the Target Group's business as up to the Last Practicable Date, which proved that the Target Group's business is sustainable and able to cope with the overall challenging economic sentiment. Therefore, we are of the view that the Acquisition is fair and reasonable, and in the interest of the Company and its shareholder as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. The principal terms of the Acquisition Agreement

4.1 The Acquisition Agreement

The principal terms of the Acquisition Agreement are set out below:

Date

21 July 2020

Parties

1. The Company (as purchaser); and
2. Metropolitan Lifestyle (BVI) Limited (as vendor).

Assets to be acquired

Pursuant to the Acquisition Agreement, the assets to be acquired comprise (i) the Sale Share; and (ii) the Sale Loan. The Sale Share represent the entire issued capital of the Target Company as at the date of the Acquisition Agreement and Completion. The Sale Loan shall represent all obligations, liabilities and debts owing or incurred by the Target Group to the Vendor on or at any time prior to the Completion whether actual, contingent or deferred and irrespective of whether or not the same is due payable on Completion. It is expected that the Target Group will hold the various interest in the businesses and properties upon the completion of the Reorganisation, which are the subjects of the Acquisition. Please refer to section headed "4. Information on the Target Group" of Letter from the Board and Appendix II of this circular for details further information on the business and financial information of the Target Group.

4.2 Consideration

The Consideration is HK$460.0 million in aggregate, which shall comprise the purchase price of the Sale Loan (representing the dollar-to-dollar equivalent of the amount of the Sale Loan) in the amount of approximately HK$259.2 million as at 31 March 2020 and the purchase price for the Sale Share (which shall be the aggregate Consideration less the purchase price for the Sale Loan) in the amount of HK$200.8 million. The Consideration will be payable by the Company to the Vendor as (i) the Deposit, being HK$42.0 million, shall be paid by the Purchaser as deposit and part payment of the consecution upon signing of the Acquisition Agreement and (ii) the sum of HK$418.0 million, being the balance of the Consideration, shall be satisfied by the Company by way of the issue and delivery of the Convertible Bonds in the name of the Vendor on Completion.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Basis of the Consideration

As stated in the Letter from the Board, the Consideration was determined after arm's length negotiations between the Company and the Vendor on normal commercial terms with reference to, including without limitation, to (i) the market value of the property interests held by the Target Group of HK$930.2 million as at 31 March 2020 based on the preliminary valuation conducted by the Independent Valuer based on market approach adopting a direct comparison method; and (ii) the net asset value of the Target Group is approximately HK$205.4 million as at 31 March 2020 (after taken into account the adjustment of the market value of the property interest of the Target Group). Please refer to Appendix V to and Appendix II to the Circular for the valuation report of the properties and financial information of the Target Group, respectively.

The outstanding indebtedness owing by the Target Group to the Vendor as at

31 March 2020 increased to approximately HK$259.2 million due to the short-term financing by the Vendor to the Target Group for loan restructuring, the purchase price of the Sale Share (which shall be the aggregate Consideration less the purchase price for the Sale Loan) would be approximately HK$200.8 million, representing a discount of approximately 2.24% to the unaudited adjusted combined net asset value of the Target Group as at 31 March 2020 of approximately HK$205.4 million (after the adjustment of the market value of the property interest of the Target Group).

The adjusted net asset value of the Target Group as at 31 March 2020 would be approximately HK$204.8 million (after the adjustment of the market value of the property interest of the Target Group of approximately HK$929.7 million as at 30 June 2020). The purchase price for the Sale Share of approximately HK$200.8 million would be with a discount of approximately 2.0% to the adjusted net asset value of the Target Group of approximately HK$204.8 million.

The market value of the property interests held by the Target Group decreased from HK$956 million as at 30 September 2019 to HK$930.2 million as at 31 March 2020, representing a slight decrease of 2.7% only, and the market value of the properties held by the Target Group further dropped approximately HK$0.5 million to HK$929.7 million as at 30 June 2020. Given that the recent surge of COVID-19 since July 2019 and social unrest in Hong Kong, the Independent Valuer confirmed that they carried the valuation taking into account of comparable transactions with reference to the Price Indices Report on the private factories, private offices, private domestic and retail published by the Rating and Valuation Department. It is observed that the industrial property market remained relatively stable; however, the office and retail premises in the portfolio experienced downward price adjustment ranged from 2% to 7%, which was mainly due to the disruption of economic activities caused by the COVID-19. In addition, the value of the property located in Korea appreciated from HK$55.4 million as at 30 September 2019 to HK$57.3 million as at 31 March 2020, which was mainly

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

due to the initial development investment including site improvement cost that the Target Group made and increased the value of the said property during the period. Such appreciation off sets the downward value of the properties located in Hong Kong, which resulted the decrease of approximately 2.7% of the property portfolio value of the Target Group from 30 September 2019 to 31 March 2020.

The Directors are of the view that there may be a further impact on the market value of the properties held by the Target Group depends on the situation of the COVID-19 pandemic. The number of new COVID-19 infections in Hong Kong has significantly dropped since end of August 2020, and the Hong Kong Government started relaxing the social-distancing rules step by step. On the other hand, in view of the expected launch of vaccine in early 2021 and the continuous inflow of capital into Hong Kong (reflected by The Hong Kong Monetary Authority spending approximately HK$119 billion intervening through numerous market actions during April 2020 to August 2020 to dampen the effects of surging capital inflows), the Directors are of the view that the market sentiment will be slowly rebound and the property market could remain stable. Between the date of the Previous Acquisition Agreement and the date of the Acquisition, and as mentioned under "3.3 The outbreak of recent social events and COVID-19", the business of the Target Group remained stable during this period, which was able to demonstrate that the business activities of the Target Group are sustainable. Given that (i) the benefits that the Acquisition will bring to the Group, as mentioned under "7. Reasons for and benefits of the acquisition" in the Letter from the Board; (ii) the positive financial impact to the Enlarged Group after the Acquisition; and (iii) the Directors had requested the initial Conversion Price with a premium of approximately 25% to the closing price of the Share on the date of the Acquisition Agreement; we are of the view that the Consideration with 2.24% discount of the purchase price of the Sales Share to the adjusted net asset value of the Target Group as at 31 March 2020 is still fair and reasonable.

For terms related to the conditions precedent and Completion, please refer to the paragraphs headed "Conditions precedent" and "Completion" under the section head "2. The Acquisition Agreement" in the Letter from the Board of this circular.

1. Market value of the properties held by the Target Group

To access the fairness and reasonableness of the Consideration, we have considered the valuation of the properties to be held by the Target Group (the "Properties") prepared by the Independent Valuer of the Company. The appraised value of the Properties was in an aggregate amount of HK$929.7 million as at 30 June 2020. Please refer to Appendix V to this circular for the valuation report of the Properties.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have performed works as required under Rule 13.80 of the Listing Rules in respect of the valuation of the Properties performed by the Independent Valuer. We have reviewed and discussed with the Independent Valuer (i) the experiences of the Independent Valuer in valuing properties in similar to those Properties and its relationship with the Group and other parties to the Agreement; (ii) the scopes of works of the Independent Valuer's engagement for assessment of the valuation of the Properties; (iii) the methodology of, and basis and assumptions adopted; and (iv) the steps and due diligence measures taken by the Independent Valuer.

We have discussed with the Independent Valuer in relation to their experiences and understand that valuation undertaken was supervised by Mr. Eddie T. W. Yiu, a senior director of the Independent Valuer and the director-in-charge of the valuation report. He is a chartered surveyor with 26 years of experience in valuation of properties in Hong Kong as well as relevant experience in the other Asian countries including Korea and the Philippines. Therefore, we are satisfied with the qualification and experience of the Independent Valuer in preparation of the valuation report.

We have also reviewed the terms of engagement of the Independent Valuer for the valuation of the Properties to the appropriateness of the scope of work and noted the scope of work performed by the Independent Valuer is consistent with the market practice and appropriate to give the opinion. There were no limitation on the scope of work which might adversely impact the degree of assurance given by the Independent Valuer in the valuation report. The independent Valuer confirmed that (i) except for its engagements in respect of 3 property valuation on the Group's other projects between 2017 to 2020, it has no current or prior relationship with the Group and its connected persons; (ii) the professional fees received from the engagements as mentioned above for the Group are standard professional fees charged at market rates. Although the Independent Valuer was appointed for the Group's previous engagements, given that the Independent Valuer acted independently in each of those engagements and received at market rates, we consider that the previous engagements would not affect the independence of the Independent Valuer in performing the valuation work on the Properties.

We noted that the Independent Valuer carried the valuation on a market value basis and adopted direct comparison method when conducting the valuation for the Properties. For properties that are used for serviced apartment business, the Independent Valuer adopted both of direct comparison method and adopted income capitalization method. We reviewed the valuation report of the Properties prepared by the Independent Valuer the methodology of, and basis and assumptions adopted in arriving at the valuation of the Properties as 30 June 2020. We understand the Independent Valuer that the valuation report was prepared in compliance with all requirements contained in Chapter 5 of the Listing Rules; the RICS Valuation - Professional Standard published by the Royal Institution of Chartered Surveyors; the HKIS Valuation Standards published by the Hong Kong Institute of Surveyors; and the International Valuation Standards published by the International Valuation Standards Council.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The direct comparison method was adopted when assessing the value of the properties which are held for sale and held under development and is based on comparing the property to be valued directly with other comparable properties; which have recently transferred their legal ownership. As set out in the valuation report, for assessing the properties held for sale and development, the Independent Valuer identified and analysed various relevant sales evidence in the locality which have similar characteristics as the subject property such as nature and use of the property. We have discussed with the Independent Valuer the selection criteria on the comparable properties that they used to assess the valuation on the properties which are held for sale or held for under development and noted that comparables are the similar properties located within the area with available price information. We also noted some of the properties which are held for investment were also adopted the direct comparison method instead of the income capitalization method. We have also enquired with the Independent Valuer and understood that due to active transactions in the Hong Kong property market, and the durations of the rental leases are usually under three years; therefore, using direct comparison method for those properties would reflect the real value of such properties. Base on the above, we concur with the view of the Independent Valuer that the comparables used in valuation are reasonable as compare to the Target Group's properties which are held for sale and held under development.

The income capitalization method was adopted when assessing the value of the properties which are held for investment is income-driven and properties have been rented to third parties under the existing and it is based on the capitalization of the net income potential by adopting appropriate capitalization rate, which is derived from analysis of sale transactions and the interpretation of prevailing investment requirements and expectations. Income capitalization method was also adopted for properties used for service apartment business, as accommodation fees are the major income of the service apartment business. We have discussed with the Independent Valuer and reviewed the list of leasing information and parameters provided by the Independent Valuer and noted that such information is from lease data readily available in the market. We also noted that the Independent Valuer had carried out site inspection on the exterior and where possible, the interior of the properties in January 2020 and obtained relevant information from the relevant government departments and have made relevant enquiries; and no irregularities were noted.

We consider the methodology and basis adopted by the Independent Valuer determined the market values of the Properties are appropriate, given (i) the methodologies adopted by the Independent Valuer are common and appropriate for determining the market value, which are so in compliance with valuation standards; and

1. the bases and assumptions for the valuations of the Properties are fair and reasonable for our further assessment on the Consideration.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. Adjusted net asset value of the Target Group

The adjusted net asset value of the Target Group attributable to equity shareholders of the Target Company as at 31 March 2020 amounted to approximately HK$204.8 million (after taking into account the market value of the property interests of the Target Group of approximately HK$929.7 million as at 30 June 2020). The purchase price for the Sale Share of approximately HK$200.8 million would be a discount of approximately 2.0% to the adjusted net asset value of the Target Group 204.8 million.

Our analysis on the Consideration

We conducted a research on the website of the Stock Exchange for companies which:

1. are currently listed on the Main Board of Stock Exchange;
2. have conducted transactions on acquisition/disposal of properties/land and related business between 21 April 2020 and 20 July 2020, being three months period immediately prior the date of the Acquisition Agreement (the "Comparison Period") which constitute a notifiable transaction;
3. considerations are determined with reference of the net asset value of the target group; and
4. are not in trading suspension.

We consider the Comparison Period reveals the prevailing market transactions regarding acquisition/disposal of properties and contains enough information to have an understanding on the recent transactions in relation of properties/land. Based on the above criteria, we have, on our best effort, identified 5 comparable transactions (the "Transaction Comparables") which we consider are exhaustive based on the said criteria and the representative samples as those transaction involved the acquisition/ disposal of properties/land. At the same time, however, Shareholders should note that the business, operation and prospects of the Company are not the same as the companies of the Transaction Comparables and we have not conducted any on-depth investigation into their business and operations. Set out below is a summary of the nature of transaction and the basis for determination of the consideration for the Transaction Comparables.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

					Premium/
					(discount) of
					consideration
					over/(to)
	Stock	Date of			the net asset
Company Name	code	announcement	Nature of transaction	Basis of consideration	value %
					(note 1)
China Tangshang	674	9-Apr-20	Acquisition of the target	With reference to the land	9.9
Holdings Limited			group which indirectly	in Dongguan original
			holds 35% equity	bidding price and the
			interest in a company	35% equity interest in
			owning a land in	the project company
			Dongguan	held by the target
				company
Chuang's China	298	3-May-20	Disposal of a wholly-	With reference to the	(2.4)
Investments			owned subsidiary	aggregate of the
Limited			which is principally	completion net asset
			engaged in property	value of the target
			investment with its	company adjusting
			property located at	with the property
			London	value, together with the
				bank indebtedness and
				shareholder's loan of
				the target company

Ta Yang Group	1991	11-May-20	Disposal of the properties
Holdings Limited			which comprise an
			aggregate of 88 rooms
			with a total gross floor
			area of approximately
			7,717.55 sq.m. from
			two of the five hotel
			buildings

With reference to the

41.6

financial position of the target company, the agreed valuation of the property based on a unit price of RMB32,000 per sq.m. and prevailing market price

Golden Faith Group 2863	8-Jun-20	Acquisition of the target	With reference to	(1.8)
Holdings Limited		company which holds	the indication
		properties situated	valuation of the
		at Hong Kong, car	properties, indication
		parking space, the club	calculation of the club
		membership and the	membership, unaudited
		legal ownership of a	net asset value of the
		vehicle	target company

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

					Premium/
					(discount) of
					consideration
					over/(to)
	Stock	Date of			the net asset
Company Name	code	announcement	Nature of transaction	Basis of consideration	value %
					(note 1)
China Water Industry	1129	10-Jun-20	Disposal of the entire	With reference to the	(24.2)
Group Limited			equity interest in	unaudited net asset
			Huizhou Swan Heng	value of approximately
			Chang Property	RMB32.4 million as
			Development	at 30 April 2020, the
			Company Limited	preliminary valuation
			which established in	under market approach,
			the PRC with limited	the expected unaudited
			liability which owns	gain on disposal, and
			the land with a total site	the total liabilities of
			area of approximately	the disposed company
			35,725 sq.m. and is
			engaged in the project
				Minimum	(24.2)
				Maximum	41.6
				Average	4.6
The Company	1560	21-Jul-20	Acquisition of the	With reference to the	(2.0)
			Target Company	valuation of the
			which holds certain	properties as at
			properties that and	30 June 2020 and
			various interests	adjusted net assets
			of business under	value of the Target
			the "Metropolitan"	Group as at 31 March
			brand	2020

Note 1: The adjusted net asset value is market/valuer valuation less total liabilities as state in the announcement

As shown in the above table, all the consideration of the Transaction Comparables were based on both or either of the property valuation and/or the net asset value of the target companies. Therefore, we consider it is a common practice to make reference to the property valuation and/or net asset value of the target companies in determination of the consideration for acquisition or disposal of properties. We noted that the consideration of the Transactions ranged from a discount of approximately 24.2% to a premium of approximately 41.6% to/over the respective net asset value of the target company with an average premium of approximately 4.6%. The discount of approximately 2.0% of the Consideration to the adjusted net asset value of the Target Group is within the range of the Transaction Comparables.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above and having consider particular that (i) the methodology and basis adopted by the Independent Valuer determined the market values of the Properties; (ii) it is common for the consideration of transaction relating to property business making to be based on property valuation and/or the net asset value of the target companies; and (iii) the discount of approximately 2.0% of the Consideration to the adjusted net asset value of the Target Group is within the range of the Transaction Comparables, we are of the view that the Consideration is fair and reasonable so far as the Independent Shareholders are concerned.

4.3 Convertible Bonds

Set out below is the summarized key terms of the Convertible Bonds and please refer to page 17 to 21 of the Letter from the Board for details:

Issuer:	The Company
Principal amount:	HK$418,000,000
Maturity date:	The Convertible Bonds are perpetual in term and have
	no maturity date
Interest rate:	The Convertible Bonds bear a coupon rate of 3% per
	annum. The coupon shall accrue on the outstanding
	principal amount of the Convertible Bonds and be
	payable annually subject to the Company's sole
	discretion to defer the coupon payment for a maximum
	period of 10 years from the date when the relevant
	coupon payment fall due by giving notice to the holders
	of the Convertible Bonds
Conversion price:	The initial Conversion Price is HK$0.50 per Conversion
	Share subject to adjustments for adjustment provisions
	summarized (details of which are summarized below)
Conversion Shares:	Assuming the conversion rights attaching to the
	Convertible Bonds are exercised in full at the initial
	Conversion Price of HK$0.50 per Conversion Share,
	a maximum of 836,000,000 new Shares will be issued
	upon conversion of the Convertible Bonds (subject
	to adjustments), which represent (i) approximately
	130.32% of the existing issued share capital of the
	Company as at the Latest Practicable Date; and (ii)
	approximately 56.58% of the issued share capital of
	the Company as enlarged by the allotment and issue
	of the Conversion Shares upon full conversion of the
	Convertible Bonds at the initial Conversion Price

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Conversion period:	The holders of the Convertible Bonds may convert such
	Convertible Bonds (in whole or in part) into Conversion
	Shares during the period commencing from the date
	of issue of the Convertible Bonds up to the date which
	falls on the 10th anniversary of the date of issue of
	the Convertible Bonds (the "Conversion Period") to
	the extent all or part of the Convertible Bonds remain
	outstanding.
	Upon expiry of the said Conversion Period, no
	conversion rights could be exercised and the amount
	outstanding under the Convertible Bonds (if any) will
	become an unlisted straight perpetual bond of the
	Company.
Conversion:	Provided that any conversion of the Convertible Bonds
	does not result in (i) a mandatory offer under rule 26
	of the Takeovers Code on the part of the holder and/
	or any party(ies) acting in concert with it; and (ii) the
	public float of the Shares being less than 25% (or such
	percentage as required by the Listing Rules) of the issued
	Shares, the bondholder shall, subject to compliance with
	the procedures set out in the CB Conditions, have the
	right at any time during the Conversion Period to convert
	the whole or part of the outstanding principal amount
	of the Convertible Bonds registered in their name into
	Shares, provided further that any conversion shall be
	made in amounts of not less than a whole multiple of
	HK$1,000,000 on each conversion (or if the outstanding
	principal amount of the Convertible Bonds is less than
	HK$1,000,000 on such conversion, the whole of such
	outstanding principal amount of the Convertible Bonds).
Adjustments to	The Conversion Price shall from time to time be
Conversion Price:	adjusted upon the occurrence of certain events in
	relation to the Company including but not limited to the
	following:
	(i)	an alteration of the number of the Shares by reason
		of consolidation or subdivision;

(ii) an issue (other than in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. a capital distribution being made by the Company to the Shareholders (which includes a payment of cash dividends subject to certain conditions, details of which are set out in Appendix VII of this circular), whether on a reduction of capital or otherwise, to Shareholders (in their capacity as such) or a grant by the Company to Shareholders (in their capacity as such) of rights to acquire for cash assets of the Company or any of its subsidiaries;
2. an offer of new Shares for subscription by way of rights, or grant any options or warrants to subscribe for new Shares, being made by the Company to the Shareholders (in their capacity as such) at a price which is less than 80% of the then market price of the Share;
3. an issue wholly for cash being made by the Company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares, if in any case the total effective consideration per Share initially receivable for such securities is less than 80% of the then market price of the Shares, or such rights of conversion or exchange or subscription attached to any such securities being modified so that the said total effective consideration per Share initially receivable for such securities is less than 80% of the then market price of the Shares;
4. an issue being made by the Company wholly for cash of Shares (other than Shares issued on the exercise of conversion rights attaching to the Convertible Bonds or on the exercise of any other rights of conversion into, or exchange or subscription for, Shares) at a price per Share less than 80% of the then market price of the Shares; and
5. an issue being made by the Company of Shares for the acquisition of asset at the total effective consideration per Share which is less than 80% of the then market price of the Shares.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Our analysis on the Conversion Price

The Conversion Price was determined based on arm's length negotiations between the parties with reference to the prevailing market prices of the Shares. The initial Conversion Price of HK$0.50 per Conversion Share represents:

1. a premium of approximately 25.00% to the closing price of HK$0.40 per Share as quoted on the Stock Exchange on the date of the Acquisition Agreement;
2. a premium of approximately 23.76% to the average closing price of approximately HK$0.404 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to the date of the Acquisition Agreement;
3. a premium of approximately 23.00% to the average closing price of approximately HK$0.407 per Share as quoted on the Stock Exchange for the last ten consecutive trading days immediately prior to the date of the Acquisition Agreement;
4. a discount of approximately 54.75% to the net assets value per Share attributable to the Company of approximately HK$1.105 as at 31 December 2019; and
5. a discount of approximately 70.11% to the net asset value per share attributable to the Shareholders of the Company of approximately HK$1.673 as at 31 March 2020;
6. a discount of approximately 69.61% to the net asset value per share attributable to the Shareholders of the Company of approximately HK$1.645 as at 30 June 2020; and
7. a premium of approximately 11.11% to the closing price of the Company's shares at the Latest Practicable Date.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In assessing the fairness and reasonableness of the terms of the Convertible Bonds, we have reviewed and identified 9 transactions announced by companies in relation issuance of Convertible Bonds in Hong Kong Dollars listed on the Stock Exchange, (excluding H-shares listed companies which capital structures are different from that of the Company as not all the issued shares of H-share listed company can be traded on the Stock Exchange such as its A-share or domestic shares). For the purpose of our analysis, the basis of our selection of the CB/CN Comparables is as follows:

1. an acquisition; and
2. the acquisition is fully or partly settled by the issue of convertible bonds/ notes under general or specific mandate as consideration.

We consider that the selection of comparable companies within 12-month period to be sufficient and appropriate for our analysis as it has covered the prevailing market conditions and sentiments in the Hong Kong stock market at the time which the terms of the convertible bonds/notes were determined.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Taking into account that the terms of the CB/CN Comparables are determined under similar market conditions and sentiments as the issue of the Convertible Bond/ Note, we consider that the CB/CN Comparables may reflect the recent market trend of an acquisition involving issuance of convertible bonds as full or partial settlement of consideration. As such, we consider the CB/CN Comparables are fair and representative samples for comparison. It should be noted that all the companies involved in the CB/CN Comparables may have different principal activities, market capitalisation, profitability, and financial position as compared with those of the Company. Circumstances leading the CB/CN Comparables companies to issue convertible bonds may differ from that of the Company. The analysis is meant to be used as a general reference to similar types of transactions in Hong Kong, and we consider them to be one of the appropriate basis to assess the fairness and reasonableness of the terms of the Convertible Bonds/Notes. The table below summarizes our findings:

Premium/(Discount) of conversion price over/(to) the closing price per share (%)

						on the last five	Premium/	Premium/
					on the date	trading days prior	(Discount) of	(Discount) of
					of the	to the date of the	conversion price	market price		Conversion price
				Interest	corresponding	corresponding	over/(to) the	over/(to) the		being subject to
		Date of	Maturity	Rate	announcement	announcement	net asset	net asset		adjustment?
Company	Stock Code	Announcement	(Years)	(%)	(%)	(%)	value (%)(a)	value (%)(b)	(a)-(b)	(Yes/No)
China Dili Group	1387	27-Apr-20	10	0	(8.4)	N/A	(4.0)	4.2	(8.2)	Yes
Hong Kong Finance	7	6-Apr-20	3	0	31.6	30.2	24.9	(5.1)	30.0	Yes
Investment Holding Group
Limited
TL Natural Gas Holdings	8536	3-Apr-20	3	0	6.7	3.2	7.9	(1.1)	9.0	Yes
Limited
Hao Tian Development Group	474	5-Mar-20	3	0	28.2	25.5	(45.0)	(57.1)	12.1	Yes
Limited
TL Natural Gas Holdings	8536	19-Jan-20	3	0	6.1	6.9	0.9	(5.0)	5.9	Yes
Limited
Code Agriculture (Holdings)	8153	6-Dec-19	4	0	122.2	132.6	N/A	N/A	N/A	Yes
Limited					(Note 2)	(Note 2)	(Note 3)	(Note 3)
Anchorstone Holdings Limited	1592	21-Nov-19	2	0	9.1	8.7	128.5	109.5	19.0	Yes
			(Note 1)
Newtree Group Holdings	1323	27-Sep-19	3	0	(3.8)	(3.8)	239.8	233.4	6.4	Yes
Limited
Hao Tian International	1341	10-Sep-19	3	5	16.7	16.7	102.1	73.2	28.9	Yes
Construction Company
Limited
		Maximum	10	5	31.6	30.2	239.8	233.4	30.0
		Minimum	3	0	(8.4)	(3.8)	(45.0)	(57.1)	(8.2)
		Average	4	1	10.8	12.5	56.9	44.0	12.9
		Median	3	0	7.9	8.7	16.4	1.6	10.6
		The Company	Perpetual	3	25.0	23.8	(54.8)	(63.8)	9	Yes

Source: The announcement of relevant companies published on the Stock Exchange's website

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

1. The day falling on the second anniversary of the first issue date of the convertible bonds, which can, at the sole and absolute discretion of the holder of the convertible bonds, be extended to the date falling on the third anniversary of the relevant date of issue of the convertible bonds.
2. These Transactions Comparables (Code Agriculture (Holdings) Limited and China City Infrastructure Group Limited) are considered as outliers as their premiums are extremely high as compared to other comparables. Based on the information available from the website of the Stock Exchange, we note that the share price of Code Agriculture (Holdings) Limited ranged from approximately HK$0.015 to HK$0.176 for a period of 12-month from the date of announcement and the share prices formed a decreasing trend starting from the third quarter of September 2019 which resulted in extremely high premium. Also, as disclosed in the circular of China City Infrastructure Group Limited, we note that the conversion price of China City Infrastructure Group Limited was determined referencing to the 2018 interim report (which as approximately HK$0.49 per Share) and the subscription price of HK$0.50 per Share for subscription of new Shares as announced in 2017.
3. With reference to the interim report of Code Agriculture (Holdings) Limited for the six months ended 30 September 2019, Code Agriculture (Holdings) Limited recorded total deficit attributable to owners of the Company as at 30 September 2019; therefore, we are not able to analyse the premium/discount of conversion price over/to its net asset value attributable to its shareholders per share.

As demonstrated in the above table, we noted that the conversion prices of the CB/CN Comparables ranged from a discount of approximately 8.4% and 3.8% to a premium of approximately 31.6% and 30.2% to/over the respective closing prices of their shares on the last trading day and last five trading days prior to date of the respective announcements, respectively. As such, the Company's premium of approximately 25.0% and 23.8% to the respective closing prices of its shares on the last trading day and last five trading days prior to the date of the announcement are within the range of the CB/CN Comparables.

In addition, if we compare the conversion price to the net asset value of the Company of a discount of 54.8% with the comparable companies ranging from the discount of 45.0% to premium of 239.8%, with an average of 56.9% of the CB/ CN Comparables, it may seem that the conversion price of the Company is deeply discounted relative to the CB/CN Comparables. However, we consider this may not be an appropriate comparison because the existing market capitalisation of a company is not solely base on net asset value of a company alone and investors value different companies on a whole range of factors (including but not limited to the future prospects of a company, the management experience, asset quality, etc). As such, each company is trading on different discount/premium to its net asset value. Without reference to the existing market capitalisation of the company, a

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

pure comparison of the conversion price to the net asset value fails to take into account of all the other factors and thus not accurately demonstrating whether the conversion price is fair or not. A more accurate comparison should be comparing the differences between (i) the premium/discount of conversion price over the net asset value ("Conversion Price Ratio") and (ii) the premium/discount of market price over the net asset value ("Market Price Ratio"). This difference reflects how much premium/discount is the conversion price is relative to the market price to its net asset value. The higher the differences (if positive), the higher the premium is the Conversion Price to the market price, which is favorable to the existing shareholders. Based on the above, the difference between the Conversion Price Ratio of the Company is at a premium of 9% to the Market Price Ratio, which is within the range of discount of 8.2% to premium of 30.0% and close to the median of 10.6.

Therefore, we concur with the view of the Directors that the Conversion Price is fair and reasonable as far as the Company and the Independent Shareholders are concerned.

Our analysis on other major terms of the Convertible Bonds/Note

Maturity

We noted that the maturity terms of the CB/CN Comparables range from 1 year to 10 years. The Convertible Bonds are perpetual in term and have no maturity date. The following advantages were considered for issuing the perpetual Convertible Bonds (i) it allows the Company to save refinancing or issuing costs in the long run and (ii) it will allow the Company to have longer period of time for necessary financial arrangement without immediate cash outlay for the redemption of the Convertible Bonds.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Interest rate

As for interest rate of the Convertible Bonds, it is 3.00% per annum which falls within the range of the interest rate of the CB/CN Comparables from 0 to 5% per annum. We have also made reference to the recent prime lending rate of Hong Kong. Prime rate is the interest rate that commercial banks charge their corporate customers. We noted that the prime lending rate was relatively stable between July 2019 and June 2020 in the range of 5.0% to 5.13%. According to the 2019 Annual Report, the range of the ranges of the effective interest rates of the Group's borrowings are 3.5% and 2.25-4.6% for fixed-rate borrowings and variable-rate borrowings for the year ended 31 December 2019, respectively. Bank borrowings are secured by the Group's assets, such as properties held for sale, investment properties and pledged bank deposits. The comparison of historical prime lending rate between July 2019 and June 2020 as compared to the interest rate of the Convertible Bonds is illustrated as follows:

		Comparison of historial Hong Kong Prime Lending Rate with
				interest rate of Convertible Bonds
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-19	-19	-19	-19	-19	-19	-20	-20	-20	-20	-20	-20
Jul	Aug	Sep	Oct	Nov	Dec	Jan	Feb	Mar	Apr	May	Jun
			Hong Kong Prime Lending Rate(%)	Interest Rate(%)

Source: Hong Kong Monetary Authority

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above and having considered (i) the interest rate of the Convertible Bonds is lower than the average of the historical prime lending rate between July 2019 and June 2020 and within the range of the CB/CN Comparable Companies; and (ii) the interest rate of the Convertible Bonds is lower than the effective interest rate of the Group's borrowings for the year ended 31 December 2019 and the Convertible Bonds do not require collateral, we consider that the interest rate of the Convertible Bonds with maturity term of perpetual is justifiable as it can secure the Company with a fixed finance cost in the long run.

Adjustments to Conversion Prices

According to the terms of Convertible Bonds, the Conversion Price is subject to adjustment upon occurrence of corporate events which include consolidation, sub-division and reclassification of the Shares, capitalisation issue, capital distributions, rights issues of Shares or options over Shares or other securities of the Company, issue of Shares or other securities of the Company in discount, modification of rights of conversion and other offer of securities. We have also reviewed the adjustment terms of the conversion price of the CB/CN Comparables, the conversion prices of all the CB/CN Comparables are subject to adjustment upon occurrence of similar dilutive events. Therefore, we are of the view that the adjustment and relevant adjustment everts are usual and normal adjustment terms as other convertible bonds in the market.

We have also reviewed other terms of the Convertible Bonds such as conversion restriction, voting rights, etc and compared with that of the CB/CN Comparables and we are not aware of any unusual terms.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.4 Potential Dilution effect on shareholding interests

As at the Latest Practicable Date, the Company has 641,498,000 Shares in issue. Set out below the shareholding structure of the Company is the shareholding structure of the Company (i) as at the Latest Practicable Date; (ii) upon Completion but prior to the exercise of conversion rights under the Convertible Bonds and the allotment and issue of the Convention Shares; and (iii) immediately upon full conversion of the Convertible Bond (for illustration purpose only) based on the best knowledge, information and belief of the Directors:

							Upon Completion			Immediately after
							but prior to the			the allotment and issue
							exercise of conversion			of the Conversion Shares
							rights under the			upon the exercise of
							Convertible Bonds and			the conversion rights
		As at the Latest			the allotment and issue			under the Convertible
		Practicable Date			of the Conversion Shares	Bonds in full
												(Note 5)
		Number of	Approximate	Number of	Approximate	Number of	Approximate
		Shares	%	Shares	%		Shares	%
Mr Chan and his close associates
Mr. Chan	2,500,000			0.39	2,500,000			0.39		2,500,000			0.17
Star Properties Holdings (BVI)
Limited (Note 1)	432,140,800		67.36	432,140,800			67.36	432,140,800		29.25
Vendor (Note 6)	-	-	-	-	836,000,000		56.58
Subtotal	434,640,800			67.75	434,640,800			67.75		1,270,640,800			86.00
Others
Ms. Cheung Wai Shuen (Note 3)	300,000		0.05	300,000			0.05	300,000			0.02
Ms. Chan Wah Man (Note 4)	156,000		0.02	156,000			0.02	156,000		0.01
Mr. Lam Kin Kok	1,558,000			0.24	1,558,000			0.24	1,558,000		0.11
Eagle Trend (BVI) Limited
(Note 2)	38,259,200		5.96	38,259,200			5.96	38,259,200		2.59
Public Shareholders		166,584,000		25.97	166,584,000			25.97	166,584,000		11.27
Total		641,498,000			100	641,498,000			100		1,477,498,000			100

Notes:

1. (a) Star Properties Holdings (BVI) Limited is an investment holding company incorporated in the BVI with limited liability and is wholly-owned by Mr. Chan. By virtue of the SFO, Mr. Chan is deemed to be interested in all shares in which Star Properties Holdings (BVI) Limited is interested.
2. 1. As Star Properties Holdings (BVI) Limited is directly held as to 100% by Mr. Chan, it is a close associate of Mr. Chan.
3. Eagle Trend (BVI) Limited is an investment holding company incorporated in the BVI with limited liability and is wholly-owned by Mr. Lam Kin Kok. By virtue of the SFO, Mr. Lam Kin Kok is deemed to be interested in all shares in which Eagle Trend (BVI) Limited is interested.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. Ms. Cheung Wai Shuen is an executive Director.
2. Ms. Chan Wah Man Carman is an independent non-executive Director.
3. For illustration purpose only as the conversion of the Convertible Bonds is subject to the restrictions that the conversion does not result in (i) a mandatory general offer under the Takeovers Code; and (ii) the public float of the Shares being less than 25% (or such percentage as required by the Listing Rules) of the issued Shares.
4. As the Vendor is indirectly held as to 100% by Mr. Chan, the Vendor is a close associate of Mr. Chan.
5. The authorised share capital of the Company is HK$10,000,000. As at the Latest Practicable Date, there are 641,498,000 issued Shares and the issued share capital of the Company is HK$6,414,980.

According to the terms of the Convertible Bonds as stated in the Letter from the Board, any conversion of the Convertible Bonds shall not result in a mandatory offer under rule 26 of the Takeovers Code on the part of the holder and/or any party(ies) acting in concert with it; which the Conversion Shares is not expected to result in a change of control of the Company and the minimum float of the Shares shall never be lower than 25%, which represent the limitations to the exercise of the Conversion Rights and dilution impact.

We noted that the shareholding of the existing Public Shareholders will decrease from approximately 25.97% to approximately 11.27%, assuming after the allotment and issue of the Conversion Shares upon the exercise of the conversion rights under the Convertible Bonds in full, representing a dilution of approximately 14.70%. The net asset value is approximately HK$1.65 per share of the Group as at 30 June 2020. Assuming the Acquisition is completed by 30 June 2020 and after the allotment and issue of the Conversion Shares upon the exercise of the conversion rights under the Convertible Bonds in full, the net asset value of the Enlarged Group would decrease to approximately HK$0.96 per share. Taking into account that (i) the terms of the Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholder as a whole as mentioned in this letter; (ii) the positive financial impart of the Target Group's business as it will generate stable revenue from lease income to the Group and the sustainability of the Target Group's business; (iii) the "Reasons of the Acquisition" as stated in this letter; (iv) the fairness and reasonableness of the Consideration and the terms of the Convertible Bonds as stated in this letter; and (v) issuance of convertible bonds is considered as the best option as mentioned in the Letter from the Board and '4.5 Other alternatives settlement methods considered' as compared to other alternative methods; and (vi) although the allotment and issue of Conversion Shares might dilute the shareholding interests of the existing public Shareholders in future, which may be seen as a disadvantage to the existing Shareholders, the Conversion Price is set at a 25% premium to the share price at the date of the Acquisition Agreement, which means that despite the dilution, the value of the shares held by existing Shareholders will actually increase by this 25% premium as the holder of the Conversion Shares converts. In addition, the conversion of Convertible Bonds are subject to restriction and the controlling shareholder shall never reach more than 75%. As such, we are of the view that the possible dilution effects on the shareholding interests of the public Shareholders and net asset value per share is acceptable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above, we consider that the issue of Convertible Bonds and the Conversion Price is fair and reasonable and in the interest of the Company and its Shareholder as a whole.

4.5 Other alternative settlement methods considered

As set out in the Letter from the Board, the Board has considered other alternative possible settlement methods, such as issuance of other types of debt securities, placing or subscription of new Shares by independent third parties and right issues to raise funds.

With respect to issuance of other types of debt securities, the Board is of the view that the interest rate of issuance of other types of debt securities is much higher than the interest rate of the Convertible Bonds. Assuming the interest rate of the debt securities is 10% (with reference to past bank borrowing with only corporate guarantee by the Company), the finance cost will be at HK$41.8 million per annum, while the finance cost of the Convertible Bonds with 3% per annum will be HK$12.5 million, which is much lower than using debt securities. Also, if the Consideration is settled by debt securities, the borrowing will increase by HK$418.0 million and hence the gearing ratio will increase accordingly. On the other hand, if the Consideration is settled by Convertible Bonds, the debt component of the Convertible Bonds will be eventually transferred to equity upon conversion, which implies that there will be no increase in the borrowing and no impact on the gearing ratio (for illustrative purpose only).

With respect to placing and subscription of new Shares by independent third parties, those methods are considered to be relatively costly and time consuming. The fund raising needs of HK$418.0 million, for the settlement of the balance of the Consideration. Raising funds through placing or subscription of new Shares will involve specific mandate requiring Shareholders' approval, given the number of Shares exceeds the limit under the general mandate granted to the Directors on 12 April 2020 (assuming that the placing or subscription price is equal to the Conversion Price of the Convertible Bonds under the Acquisition). If rights issue or open offer is considered as the settlement method, additional time and costs may also be incurred, among others, (i) preparing relevant administrative and compliance works; (ii) engaging more professional parties which would lead to an increase in professional fees required, underwriting commissions and/or placing commissions; (iii) completing the fund raising exercises due to the relatively complicated and time consuming trading arrangements involved; and (iv) the difficulty for the Company to obtain favorable terms on right issue for the Acquisition in relation to low trading volume and liquidity of the Shares of the Company during the past twelve months. The Directors, after approaching four securities firms in early June 2020, found that it is difficult to secure placing agents and subscribers in light of the sizable amount of securities involved in the placing or subscription. Also, due to the substantial amount of the Shares required to be issued in order to settle the balance of the Consideration of HK$418.0 million, the potential investors normally require a substantial placing discount to the trading price of the Shares as advised by the placing agents.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The annual interest expense with the coupon rate of 3% per annum of the Convertible Bonds is approximately HK$12.5 million. After considering the above possible settlement methods, we are of the view that (i) issuance of other types of debt securities may inevitably incur interest costs and may have adverse financial impact on the Group's financial position; (ii) raising funds through issuance of new shares to independent third parties, rights issues or open offer is relatively more costly and time consuming and the Company may not be able to procure commercial underwriting at favorable terms in a timely manner; (iii) the benefits that the Acquisition will bring to the Group, as mentioned under "7. REASONS FOR AND BENEFITS OF THE ACQUISITION" in the Letter from the Board; (iv) analysis of other fund raising methods as stated in "4.5 Other alternative settlements methods considered" of this letter; (v) analysis of the interest rate of the Convertible Bond as stated in "4.3 Convertible Bonds" in this letter; and (vi) comparing the interest rate of the short-term loan to the Company advanced by Mr. Chan of 4.5% per annum; therefore, we concur with the Board that the issuance of Convertible Bonds to settle the Consideration is in the interests of the Company and its Shareholders as a whole.

5. Reasons for the Acquisition

As disclosed in the annual report of the 2019 Annual Report, it is the Group's strategy to source for the best development opportunities to replenish its land reserve and build up a brand as a property developer that delivers high quality buildings with modern and stylish design to customers.

Upon the completion of the Reorganisation, the Target Company will hold operating entities which operate the business of provision of stylish living space including serviced apartments, workshops, storage and wine cellars. As advised by the Directors, this is an integrated approach that had been developing in the global property section in recent years whereby living spaces are integrated with different life-style facilities such as wine cellar, storage space and co-working space, which the Directors also believes that the provision of this type of stylish living space will become the trend in the global property market, including Hong Kong. The Directors consider there is synergy to the Group by operating the life-style business in the Group's developing projects such as in Kwun Tong Site Project, Yuen Long Site Project, Tack Lee Project, etc. which may in turn increase the value of different developed properties in the future.

The principal business of the Company is to engage in property development and property investment for sale, rental or capital appreciation, provision of property management services and provision of finance. As stated in the 2019 Annual Report, the revenue generated from property investment segment for the year ended 31 December 2019 was approximately HK$474,000. As advised by the Directors, the acquisition of an established brand, namely, the "Metropolitan" brand, together with its underlying investment properties and business will allow the Group to strengthen and enhance the value of its asset base, and generating stable and regular income for the Group at the same time. The revenue generated from lease income increase more than 20% per year

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

since 2017, from approximately HK$25.6 million for the year ended 31 December 2017 to approximately HK$31.0 million for the year ended 31 December 2018 and further increased to approximately HK$44.9 million for the year ended 31 December 2019. The Independent Valuer is also of the view that the rental income to be generated from leasing out the whole property directly to the independent third party or the value of the investment properties are expected to be enhanced by the provision of value added services operated under the lifestyle-related businesses such as serviced apartments, coworking and storage space.

Promising outlook of the industry

• Serviced apartment business

With Hong Kong being top tourist and business destination for travellers around the world, the demand for serviced apartments in Hong Kong has increased and the popularity is on the rise. Serviced apartments are a cost-efficient way to experience living in prime areas in Hong Kong, such as Happy Valley or Causeway Bay, without paying for the high hotel nightly rates in these areas as well as enjoying hotel standards and services.

According to the article "Residents Leasing" published by Savills Research and Consultancy in October 2019, we noted from the rental indices of serviced apartment which offers more affordable options when compared to the traditional apartments or hotels as the property prices in Hong Kong Island are on the high side. The rental indices of traditional apartments in Hong Kong Island increased from 100 in the first quarter of 2003 to 194 in the first quarter of 2019. Meanwhile, the rental indices of hotel and serviced apartment increased from 100 in the first quarter of 2003 to approximately 180 and approximately 150, respectively. Most serviced apartments are in inner-city areas, offering convenience for transportation and business centres and is a good alternative if travellers need proximity to an inner city address.

The serviced apartments in Hong Kong are the new trend of accommodation, an alternative way for people who are most likely to rent for a short-term like a month or two, the serviced apartment can offer a more flexible lease terms and meanwhile they provide a home-from-home experience that a living environment is more spacious than a hotel room. For instances, Metropolitan Serviced Apartment's co-living apartment provides spacious sharing area with fully equipped in-room facilities, including but not limited to cooking utensils, microwave oven and hob. According to South China Morning Post, apart from renting for short-term, the permanent residents consist of three major groups, including high-net-worth retirees, company executives and expatriates, the major reasons they choose to stay in serviced apartments in Hong Kong are attributable to i) high quality customer services, housekeeping and on-site repair and maintenance services; ii) security and safety and; iii) Hong Kong is a business hub which they could enjoy convenient regional and international travel options.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• Wine cellar and fine wine businesses

According to Census and Statistic Department and Statista, the total market value of alcoholic beverages increased consecutively over the years and the revenue in the alcoholic beverages market amounts to approximately US$2.5 billion in 2020 and the market is expected to grow annually by 3.2% (CAGR 2020-2023). This is attributable to the growth of middle class population in Hong Kong who can afford alcohol beverages (which classified as income of household is or over HK$ 50,000), the number of domestic household of middle class population increased from approximately 500,000 in July 2015 to approximately 668,400 in July 2018. Also, sales from off-trade distribution channels such as grocery stores and convenience stores in Hong Kong maintained relatively stable of over HK$5,500 million from 2015 to 2019.

Wine products in Hong Kong can be split into two selling price segments:

1. Fine Wines, which includes red and white wines with a selling price of less than HK$1,000 per bottle, and (ii) Premier Collectible Wines, which covers red and white wines with a selling price at or above HK$1,000 per bottle. Premier Collectible Wines typically consist of boutique wines, rare wines, collector wines, and vintages that are well sought by wine connoisseurs. Premier Collectible Wines are wines originating from prestigious vineyards and regions known for producing the high quality wines paired with good grape production years, and usually have limited availability in the open market.

According to HKTDC research on wine industry in Hong Kong and Commerce and Economic Development Bureau, global attention has shifted to Asia when shrinking wine consumption across much of Europe. Consumers in Asia are increasingly wine savvy and their demand for wine remains strong. The wine sales in Asia totaled US$54.9 billion or 2.8 billion litres in 2018, up 8.0% in value and up 2.6% in volume per annum in the past five years. For 2019 to 2023, it is forecast that wine sales in Asia will grow 4.0% per annum in value and 1.2% per annum in volume. The outlook for the mainland market is also promising, with sales totaling US$25.5 billion or 1.7 billion litres in 2018, up 6.2% and 2.6% respectively per annum over the past five years. For 2019 to 2023 growth is forecast at 4.1% per annum in value and 1.1% per annum in volume.

Due to the growing demand for wine in Asia and the removal of wine duty since 2008, there has been sustained growth in wine imports and related business in Hong Kong. Hong Kong has become a regional wine trading and distribution hub, as well as the largest wine auction centre in the world. In addition to new entries, international wine companies and their specialist partners have increasingly moved to Hong Kong. With Hong Kong recognised as the region's culinary centre, a growing local trend has been for restaurants and hotels to host food and wine appreciation sessions, occasions where various wines are paired with Asian cuisine. There is also a food matching competition presided over by a number of Asian experts during the course of the HKTDC Hong Kong International Wine and Spirits Fair.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• Storage and workshop businesses

According to 'Self-storage in Hong Kong: A Growing Niche' and 'The Self-storage Association Asia Annual Survey' published by Colliers International and Ipsos in 2014 and 2019 respectively. The self-storage industry began to develop and establish a strong presence in emerging markets across the region within the last decade. Beginning with Japan, Hong Kong and Singapore, it has put down roots in Thailand, India, the Philippines, South Korea, Indonesia and many other Asian countries. The Hong Kong government provides public housing to meet grassroots families' housing needs, with an average living space of 13.3 square meters per person in 2019. There are approximately 1.1 million private residential units in Hong Kong. About 8% of the private housing is classified as "large units" with a saleable area of over 1,076 sq ft, while the rest are classified as "small-medium size units".

In Hong Kong, where people live in small, expensive flats and typically lack space to store their items such as old books and clothes, the self-storage industry has expanded quickly since the first facility opened in 2001. Hong Kong with its booming economy, dense population and high property prices, is one of the first cities to embrace the mini storage concept, and retained its position as the only Asian market where the industry has kept all its options open. The percentage of operators for storage business who favoured local expansion increased (rising from 22% in 2016 to 38% in 2017).

Also, the self-storage investment opportunity has often been overlooked because the existing size of the sector is relatively small in Hong Kong. Virtually all of the 2.8 million sq ft of self-storage area is established in existing industrial buildings, which represents only a small portion of the more than 200 million sq ft of existing industrial property stock. There is a shift of investment demand from traditional to non-traditional property sectors in view of higher returns. Self- storage gained real estate investors' interest because the sector provides a better return when compared with the traditional option of buying industrial premises simply to lease out.

According to the article 'Hong Kong's flexible work space offering grows 50% in three years' published by Jones Lang LaSalle in 2018, the demand for flexible offices - including co-working spaces and serviced offices - has been growing faster in Asia Pacific than anywhere else in the world. The region's stock of flexible floor space is growing at 35.7% per year compared to 25.7% in the US and 21.6% in Europe. In Hong Kong, the flexible work space offering has grown by 50% in three years with almost 90% of all new offerings in the past five years, coming over in the past two years.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Moreover, new scheme implemented by the Government such as "Space Sharing Scheme for Youth" initiative, that supports creative and emerging industries, about 90,000 sq. ft. of shared work spaces has been set aside for startups and those in arts and culture-related work at discounted rental rates starting in 2018. These work spaces are located in Wanchai, Wong Chuk Hang, Lai Chi Kok, Kwun Tong and Tsuen Wan.

• Production business

According to HKTDC, Hong Kong is the marketing services capital of Asia, which provides a strong presence of multinational agencies and the regional headquarters of the multinational agencies are set up in Hong Kong in order to focus their regional business. They offer a full range of marketing services such as advertising, brand/image consulting as there is high demand for one-stop solution in marketing.

The world of digital marketing continues to evolve and marketers have now shifted to digital platforms for promoting their brands through online TV and music streaming platforms. Traditional marketing uses more direct forms of advertising and marketing such as traditional TV and radio sources. The marketing trends in digital marketing focus on visuals and video content, since consumers are more likely to purchase a product online after watching a video.

According to "Hong Kong's digital spending to surge to US$5.8b by 2022 as consumers turn to mobile media" published by South China Morning Post in June 2018, revenue generated from digital sources in Hong Kong such as video and social media advertising is expected to reach US$5.8 billion by 2022. As consumers are increasing use of mobile devices to watch streaming videos and read news, it is highly effective to attract customers. Although revenue generated from non-digital advertising are higher than digital advertising, consumers are turning to digital platforms and will prompt advertisers to shift their spending. Hong Kong's internet advertising market is expected to increase from US$456 million in 2017 to US$732 million in 2022. Mobile internet advertising revenues will account for approximately 39% by 2022, from approximately 32% in 2017.

In the light of the above, we concur with the view of the Directors that the Acquisition (i) will create synergy between the Group's property development business and the businesses of the Target Group; (ii) will enhance the Group's the Group's portfolio of investment properties with regular income; and (iii) will give the Group opportunities to tap into the new business segments which the prospects are promising. It is in the interests of the Company and Independent Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6. Financial effects of the Acquisition

Upon the Completion of the Acquisition, the Target Company will become an indirect wholly-owned subsidiary of the Company and its assets, liabilities and financial results will be consolidated into the consolidated financial statement of the Group.

Earnings

According to the unaudited pro forma financial information of the Enlarged Group set out in Appendix IV to the Circular, assuming the Acquisition had been completed on 1 January 2019, the profit for the year ended 31 December 2019 would have increased by approximately HK$24.2 million from approximately HK$5.3 million to HK$29.5 million.

Cash flow

The total cash consideration is HK$42.0 million. The consideration of HK$418.0 million will be satisfied by way of the issue and delivery of the Convertible Bonds and will not have immediately cash outflow for the Acquisition. Therefore, the Group shall have immediate cash out flow for the Acquisition of approximately HK$43.8 million (including the estimated professional fees and transaction costs directly attributable to the Acquisition of approximately HK$1.8 million.

Net asset value

Based on the unaudited pro forma financial information of the Enlarged Group set out in Appendix IV to the Circular, assuming the Acquisition had been completed on 30 June 2020, the unaudited pro forma consolidated total assets and total liabilities of the Enlarged Group would have increased to approximately to HK$4,022.1 million and HK$2,603.1 million, respectively. The unaudited net asset value of the Enlarged Group would be approximately HK$1,419.0 million.

Gearing

Based on the unaudited pro forma financial information of the Enlarged Group set out in Appendix IV to the Circular, assuming the Acquisition had been completed on 30 June 2020, the unaudited pro forma gearing ratio of the Enlarged Group would have decreased from approximately 172.5% of the gearing ratio of the Group as at 30 June 2020 to approximately 166.3% (calculated based on the total borrowings as a percentage of total equity).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Net current liabilities

The net current liabilities of the Target Group is approximately HK$725.5 million as at 31 March 2020, which was mainly due to (i) the long-term bank borrowings due for repayment within one year or after one year but contains a repayable on demand clause and; and (ii) the amounts due to an equity owner which were repayable on demand clause. Based on the unaudited pro forma financial information of the Enlarged Group set out in Appendix IV to the Circular, assuming the completion of the Acquisition would have taken place at 30 June 2020, the current ratio of the Enlarged Group will decrease from approximately 1.45 of the Group as at 30 June 2020 to approximately 1.14 and result a negative effect on the Enlarged Group's liquidity position. Despite that the Target Group has recorded net current liabilities, we consider that this is mainly due to the accounting treatment of (i) the long term bank borrowings due for repayment after one year (approximately HK$367.0 million) and (ii) amounts due to the equity owner which amounts to approximately HK$259.2 million. Since both loans contains a repayable on demand clause, in terms of accounting treatment, both were classified under current liabilities. However, fundamentally the long term bank borrowings will only be due after one year and also the equity owner has confirmed that he has no intention to call upon the loan after Completion nor within one year, the above two loans should be long term in nature. Should the above two loans be excluded, the Enlarged Group's position (based on 30 June 2020) should be illustrated as follow:

	As at 31 March 2020
		(HK$'000)
Net current assets of the Group (as at 30 June 2020)	851,087
Current assets of the Target Group	55,000
LESS: Current liabilities of the Target Group	780,489
ADD: Long term bank borrowings due
for repayment after one year	367,000
ADD: Amounts due to the equity owner	259,177
	751,775

Therefore, the Enlarged Group should have recorded a net current asset position if the two loans are excluded. Having considered the above, we are of the view that the net current liabilities position of the Target Group as at 31 March 2020 will not affect the liquidity of the Enlarged Group after completion of the Acquisition.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

OPINION AND RECOMMENDATION

Taking into consideration the factors and reasons as stated above, we are of the opinion that the terms of the Acquisition Agreement are on normal commercial terms (although the Acquisition is not in the ordinary and usual course of the business of the Group), and fair and reasonable so far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolutions to approve the Acquisition Agreement at the EGM.

Yours faithfully,

For and on behalf of

Sinolink Securities (HK) Company Limited

Ken Wong	Dixi He
Managing Director	Director

Mr. Ken Wong is a licensed person registered with the Securities and Futures Commission and a responsible officer to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance. He has over 17 years of experience in the field of corporate finance advisory in Hong Kong.

Ms. Dixi He is a licensed person registered with the Securities and Futures Commission and a representative to carry out Type 1 (dealing in securities) and responsible officer to carry out Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance. She has around 7 years of experience in the field of corporate finance advisory in Hong Kong.

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APPENDIX I	FINANCIAL INFORMATION OF THE GROUP

1. FINANCIAL INFORMATION OF THE GROUP

The audited consolidated financial statements of the Group for each of the three years ended 31 December 2017, 31 December 2018 and 31 December 2019 respectively and the unaudited consolidated financial statements of the Group for the six months ended 30 June 2020, together with the relevant notes thereto are disclosed in the following documents, which were published on both the Stock Exchange's website (http://www.hkexnews.hk) and the Company's website (www. starproperties.com.hk):

• the annual report of the Company for the year ended 31 December 2017 published on
  12 March 2018 (pages 49-118) https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0312/ltn20180312425.pdf;
• the annual report of the Company for the year ended 31 December 2018 published on
  12 March 2019 (pages 57-140) https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0312/ltn20190312393.pdf; and
• the annual report of the Company for the year ended 31 December 2019 published on 26
  March 2020 (pages 62-149) https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0326/2020032601243.pdf
• the interim results announcement of the Company for the six months ended 30 June
  2020 published on 31 August 2020 (pages 1-23) https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0831/2020083101747.pdf

2. INDEBTEDNESS OF THE ENLARGED GROUP

As the close of business on 31 July 2020, being the latest practicable date for the purpose of

this indebtedness statement prior to the printing of this circular, the total indebtedness of the Enlarged Group amounted to HK$2,585.0 million, and comprised (i) secured bank borrowings amounted to HK$1,990.4 million; (ii) unsecured bank borrowings amounted to HK$288.8 million; (iii) amounts due to a director amounted to HK$264.2 million and (iv) lease liabilities amounted to HK$41.6 million.

1. Secured bank borrowings

Certain bank borrowings amounted to HK$1,960.4 million which were secured by the pledge of the Enlarged group's investment properties, properties held for sale and properties under development and a bank borrowing amount to HK$30.0 million were secured by the pledged bank deposits of a subsidiary of the Company; and certain of such secured bank borrowings amounted to HK$1,817.5 million were guaranteed by entities within the Group and/or the director, and the remaining secured bank borrowings amounted to HK$172.9 million were not guaranteed.

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APPENDIX I	FINANCIAL INFORMATION OF THE GROUP

1. Unsecured bank borrowings

All the unsecured bank loans amounted to HK$288.8 million were guaranteed by entities within Enlarged Group and/or the director.

1. Amount due to a director

All the amount due to a director amounted to HK$264.2 million were unsecured and unguaranteed.

1. Lease liabilities

Lease liabilities of the Enlarged Group amounted to HK$41.6 million were secured by the rental deposits paid and not guaranteed.

Save as disclosed above and apart from intra-group liabilities, the Enlarged Group did not have any outstanding debentures issued and outstanding, or authorised or otherwise created but unissued, term loans, other borrowings or indebtedness in the nature of borrowing including bank overdrafts, liabilities under acceptances (other than normal trade bills), acceptance credits, material hire purchase commitments, mortgages and charges, material contingent liabilities and guarantees outstanding at the close of business on 31 July 2020, being the latest practicable date for the purpose of ascertaining the indebtedness of the Enlarged Group prior to the printing of this circular.

3. WORKING CAPITAL STATEMENT OF THE ENLARGED GROUP

The Directors, after due and careful enquiry, are of the opinion that taking into account of the Acquisition and the present financial resources available to the Enlarged Group including but not limited to its internally generated revenue and funds, cash and cash equivalents on hand, banking facilities available to the Enlarged Group, and in the absence of unforeseen circumstances, the working capital available to the Enlarged Group is sufficient for the Enlarged Group's requirements for at least 12 months from the date of this circular.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, and save as disclosed in the interim result announcement of the Company for the six months ended 30 June 2020, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2019, the date to which the latest published audited financial statements of the Group were made up.

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