Singapore Industry Focus Frasers Centrepoint Group · quick-asset turns for its residential...

ed: TH / sa: JC

Reaching new frontiers

Hosted Frasers Centrepoint Limited and REITs to a property day in Bangkok

Portfolios positioned well to weather slowdown in economic conditions regionally

Ongoing and planned refurbishments to drive value and performance for commercial portfolio

Asset recycling a key theme for the group

Frasers Centrepoint Property Day in Bangkok. We hosted a Frasers Centrepoint Property Day in Bangkok, tailored for Frasers Centrepoint Limited (FCL) and its REITs – Frasers Centrepoint Trust (FCT), Frasers Commercial Trust (FCOT) and Frasers Hospitality Trust (FHT). The group met over 30 investors during the event, who gained a better understanding of the group’s strategy and an update on the forward outlook given much discussed ongoing operational headwinds. Key discussion points are as follows:

Theme 1 – Dynamic group with strong ability to weather slowing growth environment. Diversification remains a key strategy for the group. For FCL, the aim is to diversify its geographic base and grow its recurring revenues base to 60-70% of PBIT, which offer strong income visibility to investors. This supports a high dividend yield of c.5%. Its S-REITs – FCT should see stable performance given its focus in the suburban retail sector while FCOT portfolio of Grade B and business park properties in Singapore is expected to weather the onslaught of new Grade A office space over the coming years. FHT's performance, however, is likely to remain mixed, dragged down by the weak Singapore hotel outlook, partially offset by robust performance for its Japan and Australia hotels.

Theme 2 – Asset refurbishments across its commercial portfolio to boost value in the medium term. Planned asset refurbishments and upgrades across its portfolio (retail, office and hospitality) are expected to boost values and attractiveness to tenants when completed. (i) FCL is currently spending S$50m on the upgrade of Centrepoint, (ii) FCT will be undertaking a major refurbishment at Northpoint Asset in view of integration with an extension wing, (iii) FCOT is looking to upgrade the ageing Alexandra Technopark and China Square Central to raise their attractiveness in view of competition while (iv) FHT is planning to refurbish Novotel Rockfords Darling Habour and Crowne Plaza Kobe.

Theme 3 – Asset re-cycling and acquisitionsh. Another key focus for FCL and its REITs is to continue growing their portfolios to boost ROEs and distributions. The recently acquired 35% stake in Golden Land Property Development PCL (GOLD) will allow the group to tap on its main shareholder expertise in Thailand while its other divisions (Hospitality, Commercial and Australia) remain on the lookout for opportunistic deals. In terms of asset re-cycling opportunities, the plan is to regularly divest stabilised assets to their listed REITs in order to recycle capital.

STI : 2,835.35

Analyst Derek Tan +65 6682 3716 [email protected]

Mervin Song CFA +65 6682 3715 [email protected]

Rachel Lih Rui Tan +65 66823713 [email protected]

Singapore Research Team

STOCKS

Source: DBS Bank

Prices as of 4 April 2016 Frasers Centrepoint Ltd : FCL is a real estate company with core businesses and assets across the residential, commercial and hospitality sectors in Singapore, China and Australia.

Frasers Centrepoint Trust : Frasers Centrepoint Trust is a retail real estate investment trust with a portfolio of shopping malls located in suburban areas in Singapore.

Frasers Commercial Trust : Singapore and Australian Commercial office-retail REIT.

Frasers Hospitality Trust : FHT is a hospitality stapled group comprising FH-REIT and FH-BT. FH-REIT is a S'pore based REIT which invests in hospitality assets. FH-BT is a S'pore based business trust which will be dormant as of the Listing Date.

DBS Group Research . Equity 5 Apr 2016

Singapore Industry Focus

Frasers Centrepoint Group

Refer to important disclosures at the end of this report

Price Mkt Cap Target Price Performance (%)

S$ US$m S$ 3 mth 12 mth Rating

Frasers Centrepoint Ltd 1.65 3,539 2.05 (0.3) (6.0) BUY

Frasers Centrepoint Trust

2.01 1,364 2.11 8.9 (0.5) BUY

Frasers Commercial Trust

1.30 757 1.53 2.8 (13.7) BUY

Frasers Hospitality Trust 0.80 809 0.83 7.4 (10.6) BUY

Industry Focus



Source: Company, DBS Bank


Company Real Estate Sector Geographical

exposure

(by Assets)

(%)

FY16F

Yield

(%)

FY17F

Yield

(%)

FY16F

P/E

(x)

FY17F

P/E

(x)

P/NAV

(x)

Frasers

Centrepoint

Limited

Residential /

Commercial

Singapore

Australia

Europe

China

Others

49%

31%

10%

7%

3%

5.2 5.2 8.4 8.1 0.7

Frasers

Centrepoint

Trust

Retail Singapore 100%

5.9 6.0 19.1 19.6 1.1

Frasers

Commercial

Trust

Commercial Singapore

Australia

62%

38% 7.7 7.8 15.1 14.9 0.8

Frasers

Hospitality

Trust

Hospitality Singapore

Australia

UK

Japan

Malaysia

43%

21%

20%

8%

8%

7.3 7.4 18.9 18.7 0.9


Industry Focus


Frasers Centrepoint Limited (FCL)

Breakdown by country (Asset Value of S$23bn as of

Dec’15)

Source: DBS Bank

Key Salient Points of Presentation and Datapoints 1. Diversified portfolio of properties. Frasers Centrepoint Limited (FCL) is one of the largest property developers in Singapore with asset size of over S$23bn as of 31st Dec’15. The group has a target to grow recurring revenues to 60-70% of PBIT in the medium term. To reach this target, FCL will be (i) completing a number of retail and office projects in Singapore by 2018, and (ii) Frasers Hospitality is also expected to see its footprint expand to 30,000 managed units by 2019, and coupled with contribution from Malmaison Hotel du vin Group (MHDV), which has a portfolio of 29 boutique lifestyle hotels and 2,082 keys within 25 regional cities in the UK, will further deepen its presence and clientele reach in Europe. 2. High-dividend property developer. FCL has one of the highest ROEs among property developers (c.8-11% over FY14A-15A) and dividend yield of close to 5% vs industry average ROE of close to 6% and dividend yield of c.2-3%. This is mainly due to the group’s efficient operating model of quick-asset turns for its residential development projects and its focus on a portfolio of recurring commercial portfolio (hotels, retail and office) which boost returns. 3. Golden Land acquisition. The group acquired close to a 35% stake in Golden Land Property Development PCL (GOLD) and management believes that this acquisition offers good synergies to FCL as both companies share similar investment philosophies with an aim to continue growing its recurring income base. GOLD also offers FCL the ability to tap into the growing real estate market in Thailand, supported by favourable market fundamentals.

Key Discussion Points 1. What is the outlook for Singapore residential sector? Management maintains a cautious view on the Singapore residential market given ongoing property curbs that limits speculative activity and thus volumes are expected to stay low. However, there is still demand in the Executive Condominium (EC) segment and projects that are in good locations, supported by proximity to MRTs. On that front, the group will be launching Parc Life (EC) soon and its recently won Siglap condominium project towards the end of 2016. 2. What is the outlook for Singapore's commercial sector? Management sees that its commercial portfolio in Singapore will deliver steady returns in the coming year. Its retail malls are mainly in the suburban area which are typically positioned towards necessity shopping which is less volatile to economic changes. Its commercial portfolio is mainly in the Grade B and business park segment which is better positioned against the onslaught of supply of Grade A office space over the coming years. While asking rents may be capped, management still expects to see positive rental reversions for its portfolio in 2016. The completion of Fraser Tower in the Central Business District (CBD) in 2018 will be timely as most of the large supply buildings will have been completed by then. 3. An update on Australian portfolio. FCL is considering to launch more units (up to c.3,000 units) in 2016-2017 in order capture the still positive sentiment in Sydney and Melbourne. As the primary target market are local buyers, demand for new houses remain firm in both cities supported by investments by the government to rejuvenate the cities. 4. Asset recycling opportunities. FCL regularly tap its listed REITs as capital recycling platforms which the group can divest mature yield properties to free up capital and reinvest in other higher-ROE projects. Subject to market conditions and re-investment opportunities, FCL aims to divest at least one property to its REITs every year in order to maintain a capital-efficient model.

Singapore49%

Australia 31%

Europe10%

China7%

Others3%

Industry Focus


Frasers Centrepoint Trust (FCT)

Breakdown by asset (Valuation)

Source: DBS Bank

Key Salient Points of Presentation: 1. Suburban mall sector will remain resilient despite ongoing uncertainties in the retail sector. With a slowing retail sales growth and the government's tight labour policies, retailers have been consolidating their presence across Singapore. Retail landlords have been guiding for a more moderate (3%-5%) rental increases in the coming year given the ongoing uncertainties. However, the suburban retail sector is expected to remain fairly resilient in view of the slowing economy. FCT's portfolio of malls is mainly located in the north of Singapore, where they have a substantial presence and market share. In addition, more than 50% of its tenant trades are in the necessity shopping, services and entertainment (i.e. supermarkets, F&B, restaurants, cinemas) which are less impacted by the rising threat of e-commerce on shopping. 2. Key asset Northpoint to undergo a major upgrade exercise starting Mar’16. Northpoint, the second largest in the portfolio will be undergoing an asset enhancement exercise come Mar’16 onwards in view to integrate the mall and the upcoming Northpoint City which is being developed by its sponsor, Frasers Centrepoint Limited (FCL). The enlarged mall will be 2.5x its current size and become the largest mall in the north. Management believes that the AEI is manageable and believes that FCT can continue to deliver stable distributions despite the ongoing phased renovations. 3. Visible pipeline of assets for acquisition. FCL has a significant presence in Singapore, owning and managing over 12 malls in Singapore. Among the malls owned by FCL, an acquisition

potential is Waterway Point, a recently completed mall in Punggol, which is seeing and expected to see strong growth in the resident population in the coming years. We see the acquisition of the mall to be positive as it will further diversify FCT’s portfolio. The timing of the acquisition of this mall is uncertain as management will like to see operations stabilising first before acquiring. A low gearing of 29% is supportive of any deal that might materialise in the medium term. Key Discussion Points 1. Is there a risk of new competition in Singapore? Competition from new malls is limited especially in the suburban area as new land sites for commercial development are usually limited and master-planned by the government. These new land sites are usually available only after the growth of the live-in population which means that there is already a inherent demand for retail facilities. . 2. Is FCT on the outlook for acquisition opportunities in Singapore and overseas? FCL has a significant presence in Singapore, owning and managing over 12 malls in Singapore. The most immediate opportunity is Waterway Point in Punggol, which recently opened. The acquisition of Northpoint City, will be a medium target once the integration with Northpoint (owned by FCT) is completed. Management is open about venturing overseas and see the markets of Malaysia and Australia as potential countries that they are keen on. 3. Target gearing and the outlook for its cost of funds. Current gearing of c.28% is conservative and within management's comfortable level of <35%. This allows FCT to debt fund acquisitions, if any. Interest cost is low at 2.4% and refinancing of upcoming debt is expected to see interest cost head up marginally. 4. An update on Bedok Mall. Bedok mall has passed its worst in terms of occupancy. A new gym has just opened and the trust is in discussion with a new anchor tenant to take up the remaining space.

Causeway Point45%

Northpoint27%

Changi City Point 13%

Yew Tee Point7%

Anchorpoint4%

Bedok Point4%

Industry Focus


Frasers Commercial Trust (FCOT)

Breakdown by country (Valuation)

Source: DBS Bank

Key Salient Points of Presentation: 1. Office portfolio in the fringe has proven to be less volatile. While Grade A office rents face headwinds due to an increase in new supply over the next 1-2 years, FCOT’s performance is likely to remain stable given its exposure is mainly to Grade B and business parks which have been proven to be more resilient. This is because of a more diversified tenant base (insurance, F&B, consulting, etc) compared to Grade A office space which has a higher concentration of clients in the financial sector. In the last quarter, Grade A CBD rents fell 4.6% y-o-y but Grade B CBD Core fell only 1.8%. 2. HP lease at Alexandra Technopark a key concern for investors. FCOT addressed investor concerns over HP (17.1% of gross rental income) leaving Alexandra Technopark (ATP) at the end of their lease in Mar’16/Nov’17 given that the group is currently building a built-to-suit project (BTS). FCOT believes it is not a certainty that HP will move completely out as the latter has other operations in other locations in Singapore which might be of immediate risk instead. In addition, should HP partially or fully move out, FCOT is confident of securing a replacement tenant given its attractive location at the fringe of CBD, or start on a asset refurbishment programme. We understand that management continues to see good enquiries from potential tenants which might minimise vacancy risk if HP moves out. 3. Rental reversions to remain positive despite office headwinds in Singapore and Australia. Despite the headwinds in the Singapore office market, FCOT guided for single-digit

rental reversions. In addition, more than 53% of FCOT’s portfolio (mainly related to its Australian properties) have inbuilt annual rental escalations (weighted average of 3.9% in FY16). Thus, FCOT remains positive on its DPU outlook for the coming year. Key Discussion Points 1. What is the outlook for FCOT’s Australian portfolio? Central Park in Perth is impacted by commodity slowdown. However, the property has limited expiries near term and the majority of lease are long term in nature. For 357 Collins Street in Melbourne, the demand outlook is positive on the back of growth in population (increase in net migration) and non-CBD tenants migrating into the CBD. Meanwhile, the Caroline Chisholm Centre is 100% leased to the Australian government till 2025 which provides good cashflow visibility. 2. Is FCOT on the outlook for acquisition opportunities? FCOT’s sponsor has several properties in Australia and Singapore which it could acquire. The manager is likely to look for opportunities in Australia first given higher yields. However, given the trading price of FCOT, the high cost of capital is prohibitive on any potential fund raising at this point. 3. Are there any asset enhancement opportunities in its portfolio? FCOT is considering an AEI at Alexandra Technopark as it is difficult to raise rents significantly beyond S$4 psf despite the good location of the property. The nearby Mapletree Business City has asking rents of between S$5-6 psf. The planned AEI is expected to help bridge this gap between the property and its competitors'. In addition, China Square Central is undergoing an upgrade currently, with the construction of a hotel nearby from the sponsor. 4. Are falling rents of Grade A offices a risk for Grade B rents? While falling Grade A rents might cap the ability for FCOT to raise rents at its portfolio, the manager believes that its tenants are not at risk of vacating given their smaller operational footprints.

29%

7%

26%

12%

11%

15%China Square Central (SG)

55 Market Street (SG)

Alexandra Technopark (SG)

357 Collins Street (Australia)

Caroline Chrisholm Centre (Australia)

Central Park (Australia)

Industry Focus


Frasers Hospitality Trust (FHT)

Breakdown by country (by valuation)

Source: DBS Bank

Salient Points in Management Presentation: 1. Australia remains a key growth driver for its portfolio. Due to the strong number of inbound tourists into Australia and limited supply of new hotel rooms in CBD Sydney (c.1,000 keys over the next few years), the strong performance (1Q16: +18% y-o-y in AUD RevPAR on a same-store basis) reported by FHT’s Australian portfolio recently is expected to continue. The positive outlook should also be underpinned by the redevelopment of the Sydney convention centre. Australia is FHT’s largest exposure representing c.32% of 1Q16 net property income (NPI). 2. AEI of InterContinental Singapore has been completed. The renovation costing S$26m at InterContinental Singapore which commenced in April 2015 was completed in February. FHT expects the refurbishment to result in an improvement in overall RevPAR as it allows the hotel to upsell to more corporate clients. However, due to the softness in the overall Singapore hospitality market, the expected improvement will take longer than initially expected. 3. Outlook for its London hotels. The recent terrorist attacks in Brussels have resulted in tourists avoiding London. In addition, the Brexit referendum in June has sapped corporate confidence resulting in fewer business trips to London. Thus, FHT is guiding for a softer performance for its London portfolio until at least the middle of this year. The UK portfolio (of which 4 out of 6 properties are located in London) contribute 21% of FHT’s 1Q16 NPI.

Key Discussion Points 1. What is the outlook for the Singapore hospitality market in 2016? Are we expecting a recovery? FHT is generally cautious on the Singapore hospitality market this year due to the increase in new room supply. However, FHT highlighted that the majority of the new supply is concentrated in the mid-tier/economy segment which is expected to fare the worst. This compares to FHT’s properties which are towards the luxury end. 2. An update on the asset enhancement and any other planned in the pipeline. For InterContinental Singapore, management feels that there is more upside to average daily rates (ADR) in the medium term post renovation. Feedback has been positive from travelers but due to the weak market conditions, pre-renovation and post-renovation rates have remained the same. There are plans for a refurbishment exercise at Novotel Rockford Darling Habour and ANA Crowne Plaza Kobe in the coming quarters to enhance the product offering. Renovations are expected to be fairly extensive and FHT is planning to space out the renovations into phases in order to minimize disruptions. No plans and capex budgets are shared yet given that plans are still being finalized. 3. How does FHT manage its FX risk? FHT hedges its income on a 6-month forward rolling basis to reduce income volatility to distributions and they intend to maintain this going forward. 4. In which market is FHT most interested in expanding? FHT is positive and is seeing interesting opportunities in the markets of Europe, Japan and Australia, all of which the sponsor has presence in (managed residences or owned). However, the ability to complete acquisitions is constrained by the ability to raise equity given current market conditions. 5. What is management optimal gearing level? Current gearing of 39% is optimal level in management and any potential new acquisitions might require a equity fund raising. Management might consider a perpetual issue, subject to market conditions.

Singapore43%

Malaysia8%

Japan8%

Australia 21%

UK 20%

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: JC

BUY Last Traded Price: S$1.65 (STI : 2,835.35) Price Target : S$2.05 (24% upside) Potential Catalyst: Capital recycling Where we differ: Our estimates are in line with consensus Analyst Derek Tan +65 6682 3716 [email protected] Rachel Lih Rui Tan +65 66823713 [email protected]

Price Relative

Forecasts and Valuation FY Sep (S$m) 2015A 2016F 2017F 2018F Revenue 3,562 2,850 3,186 3,525 EBITDA 1,146 1,247 1,303 1,356 Pre-tax Profit 1,197 1,012 1,046 1,087 Net Profit 724 566 588 613 Net Pft (Pre Ex.) 483 566 588 613 Net Pft Gth (Pre-ex) (%) 16.6 17.2 3.8 4.3 EPS (S cts) 25.0 19.6 20.3 21.2 EPS Pre Ex. (S cts) 16.7 19.6 20.3 21.2 EPS Gth Pre Ex (%) 16 17 4 4 Diluted EPS (S cts) 25.0 19.6 20.3 21.2 Net DPS (S cts) 8.60 8.60 8.60 8.60 BV Per Share (S cts) 225 236 248 260 PE (X) 6.6 8.4 8.1 7.8 PE Pre Ex. (X) 9.9 8.4 8.1 7.8 P/Cash Flow (X) 7.0 nm 167.6 25.3 EV/EBITDA (X) 15.5 15.0 14.9 14.7 Net Div Yield (%) 5.2 5.2 5.2 5.2 P/Book Value (X) 0.7 0.7 0.7 0.6 Net Debt/Equity (X) 0.8 0.9 0.9 0.8 ROAE (%) 11.2 8.5 8.4 8.3 Earnings Rev (%): (5) (5) - Consensus EPS (S cts): 29.9 20.7 31.0 Other Broker Recs: B: 8 S: 0 H: 0

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

Strength in diversity Growing developer with high yields. Frasers Centrepoint Limited (FCL) is one of the largest property developers in Singapore with asset size of over S$23bn as of 31st Dec’15. The group has a target to grow recurring revenues to 60-70% of PBIT in the medium term. To reach this target, FCL will be (i) completing a number of retail and office projects in Singapore by 2018, and (ii) Frasers Hospitality is also expected to see its footprint expand to 30,000 managed units by 2019, including the recent acquisition of the Malmaison Hotel du vin Group (MHDV). FCL is also one of the highest yielding property developer, offering an attractive prospective yield of >5.0%. Golden Land acquisition to bring strategic synergies. The group acquired close to a 35% stake in Golden Land Property Development PCL (GOLD) and management believes that this acquisition offers good synergies to FCL as both companies share similar investment philosophies with an aim to continue growing its recurring income base. GOLD also offers FCL the ability to tap into the growing real estate market in Thailand, supported by favourable market fundamentals. Asset recycling into its listed S-REITs. FCL will continue to demonstrate its ability to capitalise value by strategically divesting matured assets to its listed REITs. The group is thus able to free up capital, improve its balance sheet position and recycle capital to projects with higher returns. Valuation: We have a BUY recommendation on FCL, with a target price of S$2.05 based on a 30% discount to RNAV. We think that FCL is attractive at 0.7x P/Bk NAV and believe that the stock is trading at this level largely due to its tight liquidity constraints. Key Risks to Our View: Dependent on the outlook of Australia's real estate market, currency outlook. The group derives an estimated 30% of PBIT and from Australia which is dependent on the real estate market and whose returns could be impacted by the weakening AUD/SGD exchange rate. At A Glance Issued Capital (m shrs) 2,900 Mkt. Cap (S$m/US$m) 4,785 / 3,539 Major Shareholders (%) TCC Assets Ltd 59.2 Interbev Investment Limited 28.4

Free Float (%) 12.4 3m Avg. Daily Val (US$m) 0.21 ICB Industry : Real Estate / Real Estate Investment & Services


Singapore Company Guide

Frasers Centrepoint Ltd Version 3 | Bloomberg: FCL SP | Reuters: FRCT.SI Refer to important disclosures at the end of this report

88

108

128

148

168

188

208

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

Relative IndexS$

Frasers Centrepoint Ltd (LHS) Relative STI INDEX (RHS)

ASIAN INSIGHTS VICKERS SECURITIES Page 2

Company Guide

Frasers Centrepoint Ltd

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Growing recurring revenues from its commercial and hospitality divisions. Frasers Centrepoint Limited (FCL) is one of the largest property developers in Singapore with asset size of over S$23bn as of 31st Dec’15. The group has a target to grow recurring revenues to 60-70% of PBIT in the medium term. To reach this target, the investment property division (commercial) will gain incremental income from the completions of Punggol Point (retail) in 2016, Northpoint City (retail) and Frasers Towers (commercial) from 2018 onwards, which will boost its earnings further while Centrepoint Mall is expected to undergo a S$50m makeover to boost traffic and revenues post completion in 2H16. Frasers Hospitality is also expected to see its footprint expand to 30,000 managed units by 2019. In addition, the recent acquisition of the Malmaison Hotel du vin Group (MHDV), which has a portfolio of 29 boutique lifestyle hotels and 2,082 keys within 25 regional cities in the UK, will further deepen its presence and clientele reach. We see cross-selling opportunities and synergies between MHDV and the Frasers brand, propelling the division’s performance to greater heights. Sustainable high dividend. FCL has one of the highest ROEs among property developers (c.8-11% over FY14A-15A) and dividend yield of close to 5% vs industry average ROE of close to 6% and dividend yield of c.2-3%. This is mainly due to the group’s efficient operating model of quick-asset turns for its residential development projects and its focus on a portfolio of recurring commercial portfolio (hotels, retail and office) which boost returns. Golden Land acquisition. The group acquired close to a 35% stake in Golden Land Property Development PCL (GOLD) and management believes that this acquisition offers good synergies to FCL as both companies share similar investment philosophies with an aim to continue growing its recurring income base. GOLD also offers FCL the ability to tap into the growing real estate market in Thailand, supported by favourable market fundamentals. Asset recycling into its listed S-REITs. FCL will continue to demonstrate its ability to capitalise value by strategically divesting matured assets to its listed REITs. The group is thus able to free up capital, improve its balance sheet position and recycle capital to projects with higher returns.

Revenue Trend

Asset Breakdown (Value of S$23bn as of Dec’15)

EBIT Margin (%)

RNAV RNAV S$'m

Surpluses from:

Commercial Portfolio (Office, retail, hotels) (531)

Stakes in REITs (102)

Frasers Australand 550

Fee income : Hotel Mgmt 1,054

Fee income : REITs 368

NPV development projects 672

Total Surpluses 2,012

Add:

Book NAV 7,803

Gross Development Value 9,815

less: preference shares (1,293)

less: MI (2,848)

Add: MI Attributable to REITs 2,813

RNAV 8,486

RNAV/share ($) 2.93

Discount 30%

TP ($) 2.05


0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

2013 2014 2015 2016F 2017F 2018F

S$'m

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2013 2014 2015 2016F 2017F 2018F

(%)

Singapore49%

Australia 31%

Europe10%

China7%

Others3%


Company Guide


Balance Sheet:

Balance sheet remains strong. Debt/equity ratio is expected to remain fairly stable at between 0.85-0.9x over FY15F-17F which is within management's comfortable range. Debt maturity profile remains long at 3.3 years with an average cost of debt of 3.3%. Fixed rate percentage of its loans remains high at 73%.

Share Price Drivers:

Replenishing land bank key to income sustainability. The group currently has 9.3m sq ft of development space, mainly in Australia. It is actively looking for efficient means to replenish its land bank especially in Singapore but remains selective, given the sustained high land prices seen in recent government land tenders. The ability to secure additional land banks at lower prices will mean upside to RNAVs and could re-rate the stock. Relaxation of property cooling measures in Singapore. Expectations of policy relaxation (especially cyclical measures like the Buyers’ and Sellers’ stamp duties) might improve buyers’ market sentiment and spark a revival in transactional volumes in the Singapore residential market. This is also expected to lift sentiment on property stocks, which we believe will enable FCL to close the gap between its stock price and NAV. Gains from asset recycling into its listed S-REITs to boost share prices. Recycling activities are perceived positively by investors as FCL is able to free up capital by selling its matured assets to its listed REITs, which will improve the group’s balance sheet position and recycle capital to projects with higher returns.

Key Risks:

Small free float. The stock has a low free float with 87.9% of the company held by major shareholders TCC Group and Thai Beverage, thus leading to low liquidity. Dependent on the outlook of Australia's real estate market, currency outlook. The group derives an estimated 30% of PBIT from Australia which is dependent on the real estate market and whose returns could be impacted by the weakening AUD/SGD exchange rate.

Company Background

Frasers Centrepoint Ltd (FCL) is a one of Singapore’s main real estate companies with assets exceeding S$23bn as of Jun-15. The group has four key core businesses focused on residential, commercial, hospitality and industrial sectors spanning 77 cities across Asia, Australasia, Europe and the Middle East.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


0.1

0.1

0.1

0.1

0.1

0.2

0.2

0.2

0.2

0.2

0.2

0.00

0.20

0.40

0.60

0.80

1.00

2014A 2015A 2016F 2017F 2018F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

2014A 2015A 2016F 2017F 2018F

Capital Expenditure (-)

S$m

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2014A 2015A 2016F 2017F 2018F

Avg: 9.5x

+1sd: 10.6x

+2sd: 11.7x

‐1sd: 8.4x

‐2sd: 7.4x

6.6

7.6

8.6

9.6

10.6

11.6

12.6

13.6


(x)

Avg: 0.65x

+1sd: 0.81x

+2sd: 0.98x

‐1sd: 0.49x

‐2sd: 0.32x

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1


(x)


Company Guide


Income Statement (S$m)

FY Sep 2014A 2015A 2016F 2017F 2018F Revenue 2,203 3,562 2,850 3,186 3,525 Cost of Goods Sold (1,432) (2,479) (1,556) (1,875) (2,127) Gross Profit 771 1,082 1,294 1,311 1,398 Other Opng (Exp)/Inc (151) (257) (195) (219) (242) Operating Profit 620 825 1,098 1,093 1,156 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 145 279 108 169 160 Net Interest (Exp)/Inc (43.8) (149) (194) (216) (229) Exceptional Gain/(Loss) 86.1 241 0.0 0.0 0.0 Pre-tax Profit 807 1,197 1,012 1,046 1,087 Tax (128) (184) (156) (161) (167) Minority Interest (179) (241) (226) (233) (242) Preference Dividend 0.0 (46.9) (64.3) (64.3) (64.3) Net Profit 501 724 566 588 613 Net Profit before Except. 415 483 566 588 613 EBITDA 778 1,146 1,247 1,303 1,356 Growth Revenue Gth (%) 7.3 61.7 (20.0) 11.8 10.6 EBITDA Gth (%) 34.3 47.2 8.9 4.5 4.1 Opg Profit Gth (%) 21.3 33.0 33.1 (0.5) 5.8 Net Profit Gth (Pre-ex) (%) 3.6 16.6 17.2 3.8 4.3 Margins & Ratio Gross Margins (%) 35.0 30.4 45.4 41.2 39.6 Opg Profit Margin (%) 28.2 23.2 38.5 34.3 32.8 Net Profit Margin (%) 22.7 20.3 19.9 18.4 17.4 ROAE (%) 8.4 11.2 8.5 8.4 8.3 ROA (%) 3.2 3.3 2.3 2.3 2.2 ROCE (%) 3.7 3.4 4.2 4.0 4.0 Div Payout Ratio (%) 35.8 34.4 44.0 42.4 40.6 Net Interest Cover (x) 14.2 5.5 5.7 5.1 5.1


Driven mainly by the contribution from (i) locked in profits from its residential segment (Singapore, China and Australia) , (ii) serviced residence segment (new mgmt contracts)


Company Guide


Quarterly / Interim Income Statement (S$m)

FY Sep 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 Revenue 1,072 442 1,010 1,037 672 Cost of Goods Sold (631) (126) (547) (1,176) (420) Gross Profit 441 316 464 (138) 252 Other Oper. (Exp)/Inc (161) (143) (202) 249 (73.8) Operating Profit 280 173 262 110 178 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 40.7 24.5 51.8 162 32.9 Net Interest (Exp)/Inc (43.8) (46.0) (21.9) (37.8) (32.7) Exceptional Gain/(Loss) 17.5 43.5 0.0 180 (1.3) Pre-tax Profit 294 195 292 415 177 Tax (47.5) (20.2) (53.7) (62.8) (35.6) Minority Interest (59.9) (32.1) (56.7) (92.4) (42.7) Net Profit 187 143 182 213 98.7 Net profit bef Except. 169 99.6 182 32.8 100.0 EBITDA 337 214 333 292 241 Growth Revenue Gth (%) 31.6 (58.8) 128.8 2.7 (35.3) EBITDA Gth (%) 40.0 (36.4) 55.3 (12.3) (17.4) Opg Profit Gth (%) 44.1 (38.1) 51.1 (57.9) 61.6 Net Profit Gth (Pre-ex) (%) 93.1 (41.2) 82.2 (81.9) 204.4 Margins Gross Margins (%) 41.1 71.5 45.9 (13.3) 37.5 Opg Profit Margins (%) 26.1 39.3 25.9 10.6 26.5 Net Profit Margins (%) 17.4 32.4 18.0 20.5 14.7

Balance Sheet (S$m)

FY Sep 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 1,415 1,991 1,951 1,911 1,871 Invts in Associates & JVs 806 585 693 863 1,022 Other LT Assets 12,652 14,150 14,235 14,385 14,534 Cash & ST Invts 904 1,393 1,194 1,259 1,485 Inventory 4.12 7.47 7.58 9.17 10.4 Debtors 812 844 950 455 504 Other Current Assets 4,700 4,096 6,252 8,011 9,000 Total Assets 21,291 23,067 25,283 26,893 28,426 ST Debt 1,538 1,020 1,020 1,020 1,020 Creditor 1,594 1,315 2,525 3,057 3,478 Other Current Liab 157 218 180 186 192 LT Debt 7,824 9,255 9,755 10,255 10,755 Other LT Liabilities 555 608 608 608 608 Shareholder’s Equity 7,012 7,803 8,120 8,459 8,823 Minority Interests 2,612 2,848 3,074 3,307 3,549 Total Cap. & Liab. 21,291 23,067 25,283 26,893 28,426 Non-Cash Wkg. Capital 3,764 3,415 4,504 5,232 5,844 Net Cash/(Debt) (8,458) (8,882) (9,581) (10,016) (10,290) Debtors Turn (avg days) 92.3 84.8 114.9 80.5 49.6 Creditors Turn (avg days) 410.1 196.8 608.3 608.3 608.3 Inventory Turn (avg days) 1.1 1.1 1.8 1.8 1.8 Asset Turnover (x) 0.1 0.2 0.1 0.1 0.1 Current Ratio (x) 2.0 2.5 2.3 2.3 2.3 Quick Ratio (x) 0.5 0.9 0.6 0.4 0.4 Net Debt/Equity (X) 0.9 0.8 0.9 0.9 0.8 Net Debt/Equity ex MI (X) 1.2 1.1 1.2 1.2 1.2 Capex to Debt (%) 10.8 0.4 0.0 0.0 0.0 Z-Score (X) 0.9 1.0 1.0 1.0 1.0


Boosted by recognition of property sales in Australia

We forecast net debt/equity to decline marginally


Company Guide


Cash Flow Statement (S$m)

FY Sep 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 721 955 1,012 1,046 1,087 Dep. & Amort. 13.0 781 40.8 40.8 40.8 Tax Paid (128) (184) (193) (156) (161) Assoc. & JV Inc/(loss) (145) (279) (108) (169) (160) Chg in Wkg.Cap. 126 302 (1,052) (734) (618) Other Operating CF (1,080) (891) 0.0 0.0 0.0 Net Operating CF (491) 684 (300) 28.5 189 Capital Exp.(net) (1,007) (45.3) 0.0 0.0 0.0 Other Invts.(net) (1,017) (1,501) (86.0) (150) (150) Invts in Assoc. & JV 164 (57.9) 0.0 0.0 0.0 Div from Assoc & JV 70.4 350 0.0 0.0 0.0 Other Investing CF (3,103) (146) 0.0 0.0 0.0 Net Investing CF (4,892) (1,401) (86.0) (150) (150) Div Paid (119) (249) (249) (249) (249) Chg in Gross Debt 5,090 936 500 500 500 Capital Issues 1,598 649 0.0 0.0 0.0 Other Financing CF (787) (111) (64.3) (64.3) (64.3) Net Financing CF 5,781 1,225 187 187 187 Currency Adjustments (3.1) (8.4) 0.0 0.0 0.0 Chg in Cash 394 500 (199) 65.3 226 Opg CFPS (S cts) (21.4) 13.2 26.0 26.3 27.9 Free CFPS (S cts) (51.8) 22.1 (10.4) 0.98 6.53


Target Price & Ratings History

Source: DBS Bank

S.No. DateClosing

PriceTarget Price

Rat ing

1: 28 Apr 15 1.90 2.36 BUY

2: 11 May 15 1.83 2.36 BUY

3: 11 Aug 15 1.65 2.36 BUY

4: 04 Nov 15 1.61 2.36 BUY

5: 17 Dec 15 1.67 2.05 BUY

6: 08 Jan 16 1.65 2.05 BUY

7: 18 Jan 16 1.60 2.05 BUY

8: 04 Feb 16 1.60 2.05 BUY

9: 16 Feb 16 1.58 2.05 BUY

10: 16 Mar 16 1.58 2.05 BUY

Note : Share price and Target price are adjusted for corporate actions.

1 2

3

4

56

7 8

9

10

1.37

1.47

1.57

1.67

1.77

1.87

1.97

Apr-15 Aug-15 Dec-15

S$

Assumed S$150m capex for AEI


BUY

Last Traded Price: S$2.01 (STI : 2,835.35) Price Target: S$2.11 (5% upside,6% yield) Potential Catalyst: Northpoint’s integration with Northpoint City to become the desitination mall Where we differ: In line with consensus Analyst Derek Tan +65 6682 3716 [email protected] Singapore Research Team Mervin Song CFA +65 6682 3715 [email protected]

Price Relative

Forecasts and Valuation FY Sep (S$ m) 2015A 2016F 2017F 2018F Gross Revenue 189 184 186 203 Net Property Inc 131 127 128 143 Total Return 171 97 95 107 Distribution Inc 106 110 110 112 EPU (S cts) 11.7 10.5 10.3 11.5 EPU Gth (%) 4 (10) (3) 12 DPU (S cts) 11.6 11.9 11.9 12.1 DPU Gth (%) 4 2 0 1 NAV per shr (S cts) 191.3 189.9 188.4 187.9 PE (X) 17.1 19.1 19.6 17.4 Distribution Yield (%) 5.8 5.9 5.9 6.0 P/NAV (x) 1.1 1.1 1.1 1.1 Aggregate Leverage (%) 28.2 28.8 29.5 29.6 ROAE (%) 6.2 5.5 5.4 6.1 Distn. Inc Chng (%): - - - Consensus DPU (S cts): 12.0 11.9 12.0 Other Broker Recs: B: 12 S: 2 H: 3


Northern Lights

FCT is one of our top picks in the retail sector. We maintain our BUY recommendation, with a revised TP of S$2.11. While many other S-REITs are expected to face declining DPU over the next couple of years due to the slowing Singapore economy, FCT offers investors a steady DPU profile. This arises from FCT’s current conservative strategy of paying the majority of its management fees in cash, which enables FCT to temporarily increase payment of fees in units to sustain DPU. Near-monopoly of shopping malls in the north. Northpoint and Causeway Point together contribute c.71% of FCT’s NPI. Both malls have performed well in recent years, delivering strong tenant sales growth and rental reversions after successful AEI works. With limited retail supply in the north of Singapore and strong population growth (88% over the next five to ten years), we believe that FCT will be a beneficiary of increase in retail spending and demand for shop space. Earnings kicker upon integration of Northpoint with Northpoint City in 2018. Upon the completion of the AEI and integration of Northpoint and Northpoint City in 2018, the quality of FCT’s earnings will improve. Its position in the North will be further strengthened by having the destination mall to-be. Valuation:

Our DCF-backed TP is S$2.11, after imputing the Northpoint AEI. Stock offers a total return of >10%. Key Risks to Our View:

Near-term fall in NPI margin. As Northpoint’s average occupancy drops to 76% during its AEI period (Mar 2016-Sep 2017), some narrowing in the portfolio NPI margin is expected. Interest rate risks. About 74% of current borrowings have been hedged into fixed rate debt, distributions could therefore be impacted by near-term interest rate volatility. At A Glance Issued Capital (m shrs) 918 Mkt. Cap (S$m/US$m) 1,844 / 1,364 Major Shareholders (%) Frasers Centrepoint Ltd 41.4 Schroders Plc 5.6

Free Float (%) 58.5 3m Avg. Daily Val (US$m) 1.5 ICB Industry : Real Estate / Real Estate Investment Trust



Frasers Centrepoint Trust Version 3 | Bloomberg: FCT SP | Reuters: FCRT.SI Refer to important disclosures at the end of this report

90

110

130

150

170

190

210

1.4

1.6

1.8

2.0

2.2

2.4

2.6

Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

Relative IndexS$

Frasers Centrepoint Trust (LHS) Relative STI INDEX (RHS)


Company Guide



Earnings Drivers:

Northpoint AEI is the turnkey to accelerate growth. We remain excited about the planned AEI and integration of the Northpoint asset with the extension wing currently built by the Sponsor. With an enlarged footprint, we see Northpoint as a key driver in accelerating growth in the medium term. Our positive stance comes from the group having close to 75% market share of retail malls (comparable malls basis), and entrenching itself further as a major player in the northern part of Singapore. We are positive on the AEI given that (i) the northern region has the lowest retail space density in Singapore; (ii) the fast population growth in the North region should support retail spending in the medium term; and (iii) relatively low occupancy costs in the 15-17% range. FCT is in a strong negotiating position with tenants who want their shops in the north (For detailed analysis on Northpoint’s AEI, please refer to the Company Focus Report: Igniting the northern start, published on 7 Mar 2016). Moderate uplift in rentals from first reversionary cycle at Changi City Point. We expect c.10% uplift in rentals at Changi City Point which is undergoing its first reversionary cycle/tenant remixing exercise, as the Manager looks to cater to the working population needs at Changi Business Park, and increasing student population at the newly opened Singapore University of Technology and Design (SUTD). Acquisition growth potential from Sponsor pipeline. FCT can purchase retail assets from its Sponsor, Frasers Centrepoint Limited (FCL). We believe a potential target to be Waterway Point, in which the Sponsor has a 33% stake, which has completed recently and is understood to be trading well. Given a one- or two-year stabilisation period, a realistic timeline for this acquisition would be in 2016-2017. An acquisition value of S$300-400m (given estimated development costs of S$1bn) would allow FCT to grow its portfolio considerably. We have not priced in this acquisition

Net Property Income and Margins (%)


Distribution Paid / Net Operating CF

Interest Cover (x)


65.4%

67.4%

69.4%

71.4%

73.4%

75.4%

0

20

40

60

80

100

120

140

160

180

200

2014A 2015A 2016F 2017F 2018F

S$ m

Net Property Income Net Property Income Margin %

64%

65%

66%

67%

68%

69%

70%

71%

72%

26

27

28

29

30

31

32

33

34

35

4Q20

13

1Q20

14

2Q20

14

3Q20

14

4Q20

14

1Q20

15

2Q20

15

3Q20

15

4Q20

15

1Q20

16


0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

2014A 2015A 2016F 2017F 2018F

(x)

4.40

4.60

4.80

5.00

5.20

5.40

5.60

5.80

6.00

6.20

2014A 2015A 2016F 2017F 2018F

(x)


Company Guide


Balance Sheet:

Healthy balance sheet. Gearing to remain <30%, one of the lowest in the S-REIT universe, and well within the Manager’s comfortable level of 35%. The Trust recently issued a S$60m 4-year MTN at 2.9% interest rate, thereby significantly refinancing its FY15 debt obligations. Debt years stand at 1.45, which is fairly short relative to other S-REITs. The next major tranche is a S$264m loan (37% of borrowings) secured on Northpoint due in July 2016, and we understand that there will be interest rate savings as some expensive hedges embedded in the loan roll off.


Keep an eye on the risk-free rate. As a yield play, FCT’s share price is sensitive to fluctuations in the risk-free rate. Anticipated hikes in the US Fed Funds rate have a negative impact on the stock. Correspondingly, any delay in rate hikes would be a positive catalyst for share price performance. Key Risks:

Interest rate risks. About 74% of current borrowings have been hedged into fixed rate debt, and the Manager has guided that it does not intend to hedge 100% in a relatively benign interest rate environment. Distributions could be impacted by near-term interest rate volatility. Near-term fall in NPI margin. Northpoint contributes 28% of the portfolio’s total NPI. As Northpoint’s average occupancy drops to 76% during the AEI period (Mar 2016-Sep 2017), some narrowing in portfolio NPI margin is expected. While we believe FCT is able to maintain its DPU payout by tweaking management fees, however, prolonged disruptions from integration to the upcoming Northpoint City could affect rental income from Northpoint in the medium term.

Company Background

Frasers Centrepoint Trust (FCT) is a retail real estate investment trust with a portfolio of shopping malls located in suburban areas in Singapore. Its two largest assets are Causeway Point and Northpoint.

Aggregate Leverage (%)

ROE (%)

Distribution Yield (%)

PB Band (x)


10.0%

15.0%

20.0%

25.0%

30.0%

2014A 2015A 2016F 2017F 2018F

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2014A 2015A 2016F 2017F 2018F

Avg: 5.7%

+1sd: 6.1%

+2sd: 6.6%

‐1sd: 5.3%

‐2sd: 4.9%

4.0

4.5

5.0

5.5

6.0

6.5

7.0

2012 2013 2014 2015

(%)

Avg: 1.08x

+1sd: 1.18x

+2sd: 1.28x

‐1sd: 0.98x

‐2sd: 0.89x

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Apr-12 Apr-13 Apr-14 Apr-15

(x)


Company Guide


Income Statement (S$ m)

FY Sep 2014A 2015A 2016F 2017F 2018F Gross revenue 169 189 184 186 203 Property expenses (51) (58) (57) (58) (61) Net Property Income 118 131 127 128 143 Other Operating expenses (15) (16) (16) (16) (17) Other Non Opg (Exp)/Inc 0 0 0 0 0 Net Interest (Exp)/Inc (18) (19) (20) (22) (24) Exceptional Gain/(Loss) 4 5 0 0 0 Net Income 96 107 97 95 107 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Income After Tax 96 107 97 95 107 Total Return 165 171 97 95 107 Non-tax deductible Items 4 7 13 15 5 Net Inc available for Dist. 95 106 110 110 112 Growth & Ratio Revenue Gth (%) 6.8 12.1 (2.5) 0.6 9.6 N Property Inc Gth (%) 5.8 11.0 (2.8) 0.3 11.5 Net Inc Gth (%) 3.8 12.4 (9.7) (1.9) 12.8 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 70.0 69.2 69.1 68.9 70.1 Net Income Margins (%) 56.6 56.8 52.6 51.3 52.8 Dist to revenue (%) 56.6 56.2 59.5 59.4 55.2

Managers & Trustee’s fees to sales %) 8.6 8.3 8.9 8.9 8.3

ROAE (%) 6.0 6.2 5.5 5.4 6.1 ROA (%) 4.1 4.2 3.8 3.7 4.1 ROCE (%) 4.6 4.6 4.4 4.4 4.9 Int. Cover (x) 5.6 6.0 5.6 5.1 5.2


Top line to see weakness from the planned AEI at Northpoint over FY16-17F


Company Guide


Quarterly / Interim Income Statement (S$ m)

FY Sep 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 Gross revenue 47 47 47 47 47 Property expenses (14) (14) (14) (16) (14) Net Property Income 33 34 33 32 34 Other Operating expenses (4) (4) (4) (4) (4) Other Non Opg (Exp)/Inc 0 0 0 0 0 Net Interest (Exp)/Inc (5) (5) (5) (4) (4) Exceptional Gain/(Loss) 2 3 0 1 0 Net Income 27 29 26 26 26 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Net Income after Tax 27 29 26 26 26 Total Return 22 26 22 25 27 Non-tax deductible Items 3 (2) 1 (64) 1 Net Inc available for Dist. 27 27 27 26 28 Growth & Ratio Revenue Gth (%) 1 1 (1) 1 (1) N Property Inc Gth (%) 5 2 (2) (4) 6 Net Inc Gth (%) 6 9 (12) 1 2 Net Prop Inc Margin (%) 69.7 70.6 69.8 66.8 71.3 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Balance Sheet (S$ m)

FY Sep 2014A 2015A 2016F 2017F 2018F Investment Properties 2,400 2,464 2,487 2,514 2,518 Other LT Assets 75 63 63 63 63 Cash & ST Invts 47 22 28 26 28 Inventory 0 0 0 0 0 Debtors 0 0 0 0 0 Other Current Assets 0 0 0 0 0 Total Assets 2,522 2,549 2,578 2,604 2,609 ST Debt 95 278 278 278 278 Creditor 40 32 40 41 45 Other Current Liab 18 18 18 18 18 LT Debt 644 440 463 490 494 Other LT Liabilities 26 27 27 27 27 Unit holders’ funds 1,699 1,755 1,753 1,751 1,749 Minority Interests 0 0 0 0 0 Total Funds & Liabilities 2,522 2,549 2,578 2,604 2,609 Non-Cash Wkg. Capital (58) (50) (58) (58) (62) Net Cash/(Debt) (692) (696) (712) (742) (743) Ratio Current Ratio (x) 0.3 0.1 0.1 0.1 0.1 Quick Ratio (x) 0.3 0.1 0.1 0.1 0.1 Aggregate Leverage (%) 29.3 28.2 28.8 29.5 29.6 Z-Score (X) 1.4 1.5 1.4 1.4 1.4


Gearing to remain within management’s comfortable range


Company Guide


Cash Flow Statement (S$ m)

FY Sep 2014A 2015A 2016F 2017F 2018F Pre-Tax Income 96 107 97 95 107 Dep. & Amort. 0 0 0 0 0 Tax Paid 0 0 0 0 0 Associates &JV Inc/(Loss) (7) (6) (6) (6) (6) Chg in Wkg.Cap. (6) 2 9 0 4 Other Operating CF 18 16 11 13 3 Net Operating CF 100 120 110 103 108 Net Invt in Properties (299) (5) (23) (28) (4) Other Invts (net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 5 5 6 6 6 Other Investing CF (2) 0 0 0 0 Net Investing CF (296) (1) (17) (22) 2 Distribution Paid (94) (106) (110) (110) (112) Chg in Gross Debt 150 (21) 23 28 4 New units issued 162 0 0 0 0 Other Financing CF (20) (18) 0 0 0 Net Financing CF 197 (145) (87) (83) (109) Currency Adjustments 0 0 0 0 0 Chg in Cash 2 (26) 7 (2) 2 Operating CFPS (S cts) 12.6 12.8 11.1 11.1 11.2 Free CFPS (S cts) (23.4) 12.5 9.6 8.1 11.3



Source: DBS Bank

S.No. DateClosing

PriceTarget Price

Rat ing

1: 23 Apr 15 2.11 2.20 BUY

2: 30 Jun 15 2.06 2.20 BUY

3: 20 Aug 15 1.92 2.05 BUY

4: 07 Oct 15 1.96 2.05 BUY

5: 08 Jan 16 1.83 2.04 BUY

6: 04 Feb 16 1.90 2.04 BUY

7: 07 Mar 16 1.93 2.11 BUY


12

3

4

5

67

1.71

1.81

1.91

2.01

2.11

2.21


S$

Estimated capex of S$45m for AEI at Northpoint


BUY Last Traded Price: S$1.30 (STI : 2,835.35) Price Target : S$1.53 (18% upside) (Prev S$1.53) Potential Catalyst: Better-than-expected results Where we differ: Estimates are in line with consensus Analyst Mervin Song CFA +65 6682 3715 [email protected] Derek Tan +65 6682 3716 [email protected]

Price Relative

Forecasts and Valuation FY Sep (S$ m) 2014A 2015A 2016F 2017F Gross Revenue 119 142 155 160 Net Property Inc 91 102 113 115 Total Return 87 75 67 69 Distribution Inc 57 68 78 80 EPU (S cts) 8.9 9.6 8.6 8.7 EPU Gth (%) (1) 8 (11) 2 DPU (S cts) 8.5 9.7 9.9 10.1 DPU Gth (%) 8 15 2 2 NAV per shr (S cts) 161.3 154.1 153.0 152.0 PE (X) 14.6 13.5 15.1 14.9 Distribution Yield (%) 6.5 7.5 7.7 7.8 P/NAV (x) 0.8 0.8 0.8 0.9 Aggregate Leverage (%) 36.8 36.0 36.1 36.2 ROAE (%) 5.6 6.1 5.6 5.7 Distn. Inc Chng (%): - - Consensus DPU (S cts): 9.9 10.2 Other Broker Recs: B: 5 S: 0 H: 0


Riding past uncertainties

Firing on all fronts. We maintain our BUY call, TP of S$1.53. FCOT offers an attractive yield of >7.6%, which is compelling in our view, given limited downside risks. We believe that its portfolio of mainly Grade B office assets, business parks will weather the current downturn in CBD rents over FY16-17F. FY16F is a year of gestation. FCOT delivered a strong rebound in DPU of 15% in FY15, driven partly by (a) expiry of under-rented master lease at Alexandra Technopark which offered significant upside to revenues, and (b) acquisition of 257 Collins Street in Melbourne. Looking ahead, we believe that FY16F will be a year of gestation for the REIT as the manager looks to consolidate its position and optimise its portfolio performance given increasing headwinds in the Singapore office market and slowing Australian economy. Secure earnings with steady growth. FCOT’s portfolio enjoys a high occupancy of 96.5% and a long WALE of 3.9 years. In addition, >30% of leases have annual rental escalations of c.3%, which provides in-built income growth. With no debt expiring until FY17, and close to 80% of interest costs hedged into fixed rates. FCOT is well positioned to ride out the economic downturn in Australia, as well as near-term interest rate volatility. Valuation: We maintain our BUY call and DCF-based TP of S$1.53. At its current price, FCOT offers investors a dividend yield of c.7.7-7.8% over FY15-16F, one of the highest among office-focused S-REITs. Key Risks to Our View: Unfavourable forex movements. As FCOT derives c.45% of its NPI in AUD while distributions are based in SGD, foreign currency fluctuations will have an impact on distributions. The Manager has hedged its AUD exposure on a rolling basis of 6-9 months to mitigate against forex risk. At A Glance Issued Capital (m shrs) 790 Mkt. Cap (S$m/US$m) 1,023 / 757 Major Shareholders (%) Frasers Centrepoint Ltdf 27.1

Free Float (%) 72.9 3m Avg. Daily Val (US$m) 0.68 ICB Industry : Real Estate / Real Estate Investment Trust



Frasers Commercial Trust Version 3 | Bloomberg: FCOT SP | Reuters: FRCR.SI Refer to important disclosures at the end of this report

90

110

130

150

170

190

210

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

Relative IndexS$

Frasers Commercial Trust (LHS) Relative STI INDEX (RHS)


Company Guide



Earnings Drivers:

Office portfolio in the fringe has proven to be less volatile. While Grade A office rents face headwinds due to an increase in new supply over the next 1-2 years, FCOT’s performance is likely to remain stable given its exposure is mainly to Grade B and business parks which have been proven to be more resilient. This is because of a more diversified tenant base (insurance, F&B, consulting, etc) compared to Grade A office space which has a higher concentration of clients in the financial sector. In the last quarter, Grade A CBD rents fell 4.6% y-o-y but Grade B CBD Core fell only 1.8%. Rental reversions to remain positive despite office headwinds in Singapore and Australia. Despite the headwinds in the Singapore office market, FCOT guided for single-digit rental reversions. In addition, more than 53% of FCOT’s portfolio (mainly related to its Australian properties) have in-built annual rental escalations (weighted average of 3.9% in FY16). Thus, FCOT remains positive on its DPU outlook for the coming year. Acquisition of 257 Collins Street to boost DPU growth. FCOT announced the proposed acquisition of 257 Collins Street in Melbourne, Australia, from its Sponsor’s Australand entity, for an all-in consideration of A$237.7m. With a WALE of 5.3 years, full occupancy and in-built rental escalation clauses of 3.75-4% p.a., the property is expected to further offer improved income visibility for FCOT from FY16 onwards. We estimate contribution from this property to be 1.6% DPU accretive in FY16F. HP lease at Alexandra Technopark a key concern for investors. FCOT addressed investor concerns over HP (17.1% of gross rental income) leaving Alexandra Technopark (ATP) at the end of its lease in Mar’16/Nov’17 given that the group is currently building a built-to-suit project (BTS). FCOT believes it is not a certainty that HP will completely move out as HP has other operations in other locations in Singapore which might be of immediate risk instead. In addition, should HP partially or fully move out, FCOT is confident of securing a replacement tenant given its attractive location at the fringe of CBD or start an asset refurbishment programme. We understand that management continues to receive good enquiries from potential tenants which might minimise vacancy risk if HP moves out. Asset enhancements to boost value. FCOT is considering an AEI at Alexandra Technopark and China Square Central in the medium term in order to boost value and earnings growth for the REIT in the medium term.




Interest Cover (x)


68.0%

70.0%

72.0%

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

0

20

40

60

80

100

120

140

160

180

200

2013A 2014A 2015F 2016F 2017F

S$ m


66%

68%

70%

72%

74%

76%

78%

21

23

25

27

29

31

4Q20

13

1Q20

14

2Q20

14

3Q20

14

4Q20

14

1Q20

15

2Q20

15

3Q20

15

4Q20

15

1Q20

16


0.2

0.4

0.6

0.8

1.0

1.2

1.4

2013A 2014A 2015F 2016F 2017F

(x)

3.20

3.40

3.60

3.80

4.00

4.20

4.40

2013A 2014A 2015F 2016F 2017F

(x)


Company Guide


Balance Sheet:

Gearing expected to remain steady at c.36%. We project FCOT to maintain a gearing of about 36%, which is within management’s comfortable range of 35-40%. We do not expect the manager to look to raise gearing beyond current levels and future acquisitions are likely to be funded through a combination of debt/equity. Well-spread debt maturity profile. The Trust has no refinancing needs until FY2017, and has hedged 81% of gross borrowings, giving it a measure of protection against short-term fluctuations in interest rates. However, we expect interest rates to climb slowly going forward in line with market expectations of a rate hike.


More acquisitions. In addition to the Australand office portfolio, FCL has several Singapore assets which could be injected into the REIT in the medium term, with Alexandra Point being the most likely target, and price in the c.S$200m range. Update on HP lease. An update on the renewal of HP, a major tenant at Alexandra Technopark, will remove any uncertainties that investors have on the group’s earnings sustainability. Key Risks:

Rising interest rates. Any increase in interest rates will result in higher interest payments that FCOT. We note that the trust has hedged in close to 80% of its interest into fixed-rated debt. Unfavourable forex movements . As FCOT derives c.49% of its income from AUD while distributions are based in SGD, foreign currency fluctuations will have an impact on distributions. The Manager has hedged out its AUD exposures on a 6-9month rolling basis.

Company Background

Frasers Commercial Trust (FCOT) is a real estate investment trust that invests in income-producing commercial office properties in Singapore and Australia. As of 30th Sept 2014, FCOT’s portfolio was worth an aggregate S$1.8bn. 66% of its assets are derived from its properties in Singapore and the remaining 34% from Australia.


ROE (%)


PB Band (x)


10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2013A 2014A 2015F 2016F 2017F

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2013A 2014A 2015F 2016F 2017F

Avg: 6.3%

+1sd: 7%

+2sd: 7.7%

‐1sd: 5.5%

‐2sd: 4.8%

4.2

5.2

6.2

7.2

8.2

9.2

2012 2013 2014 2015

(%)

Avg: 0.84x

+1sd: 0.92x

+2sd: 1.01x

‐1sd: 0.75x

‐2sd: 0.66x

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

Apr-12 Apr-13 Apr-14 Apr-15

(x)


Company Guide



FY Sep 2013A 2014A 2015A 2016F 2017F Gross revenue 118 119 142 155 160 Property expenses (27) (28) (40) (42) (46) Net Property Income 91 91 102 113 115 Other Operating expenses (14) (14) (15) (16) (16) Other Non Opg (Exp)/Inc 19 2 (1) 0 0 Net Interest (Exp)/Inc (21) (21) (22) (23) (23) Exceptional Gain/(Loss) 0 0 0 0 0 Net Income 75 58 65 74 75 Tax (8) 2 5 (7) (7) Minority Interest 0 0 0 0 0 Preference Dividend (7) 0 0 0 0 Net Income After Tax 59 60 70 67 69 Total Return 154 87 75 67 69 Non-tax deductible Items (103) (30) (7) 11 11 Net Inc available for Dist. 51 57 68 78 80 Growth & Ratio Revenue Gth (%) (11.0) 0.5 19.6 9.1 3.4 N Property Inc Gth (%) (11.3) (0.4) 12.5 11.0 1.4 Net Inc Gth (%) (28.1) 1.1 16.8 (3.6) 2.0 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 76.9 76.2 71.6 72.9 71.5 Net Income Margins (%) 50.0 50.3 49.1 43.4 42.8 Dist to revenue (%) 43.5 48.2 47.7 50.4 49.7




Driven mainly from acquisition of 257 Collins Street, positive rental reversions for portfolio


Company Guide



FY Sep 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 Gross revenue 35 35 35 37 40 Property expenses (10) (10) (10) (10) (10) Net Property Income 25 25 24 27 29 Other Operating expenses (3) (3) (3) (4) (4) Other Non Opg (Exp)/Inc 0 0 (1) 0 (1) Net Interest (Exp)/Inc (5) (5) (5) (6) (6) Exceptional Gain/(Loss) 0 0 0 6 0 Net Income 17 16 15 23 19 Tax (1) (1) (1) 8 (1) Minority Interest 0 0 0 0 0 Net Income after Tax 15 14 14 31 18 Total Return 15 14 14 31 18 Non-tax deductible Items 1 2 2 (12) 2 Net Inc available for Dist. 17 16 16 19 20 Growth & Ratio Revenue Gth (%) 11 (2) 0 7 6 N Property Inc Gth (%) 7 (3) (2) 13 7 Net Inc Gth (%) (22) (6) (3) 124 (43) Net Prop Inc Margin (%) 71.8 71.0 70.1 73.6 74.1 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Balance Sheet (S$ m)

FY Sep 2013A 2014A 2015A 2016F 2017F Investment Properties 1,811 1,825 1,955 1,958 1,961 Other LT Assets 0 0 0 1 1 Cash & ST Invts 43 47 62 62 58 Inventory 0 0 0 0 0 Debtors 8 9 9 9 9 Other Current Assets 1 1 8 8 8 Total Assets 1,863 1,882 2,034 2,037 2,037 ST Debt 127 0 0 0 0 Creditor 22 22 30 30 30 Other Current Liab 7 4 10 13 13 LT Debt 572 692 732 735 738 Other LT Liabilities 73 72 56 56 56 Unit holders’ funds 1,049 1,091 1,207 1,203 1,200 Minority Interests 12 0 0 0 0 Total Funds & Liabilities 1,863 1,882 2,034 2,037 2,037 Non-Cash Wkg. Capital (20) (17) (22) (26) (26) Net Cash/(Debt) (657) (645) (670) (673) (680) Ratio Current Ratio (x) 0.3 2.2 2.0 1.8 1.7 Quick Ratio (x) 0.3 2.2 1.8 1.6 1.6 Aggregate Leverage (%) 37.6 36.8 36.0 36.1 36.2 Z-Score (X) 4.3 4.4 4.1 4.2 4.2


Driven from Australia acquisitions

Gearing to remain stable


Company Guide



FY Sep 2013A 2014A 2015A 2016F 2017F Pre-Tax Income 75 58 65 74 75 Dep. & Amort. 0 0 0 0 0 Tax Paid 0 (2) (1) (3) (7) Associates &JV Inc/(Loss) 0 0 0 0 0 Chg in Wkg.Cap. (26) 10 2 0 0 Other Operating CF 4 16 23 7 7 Net Operating CF 52 82 89 78 76 Net Invt in Properties (31) (3) (197) (3) (3) Other Invts (net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 0 Other Investing CF 1 0 0 0 0 Net Investing CF (31) (3) (197) (3) (3) Distribution Paid (77) (49) (54) (78) (80) Chg in Gross Debt (31) 2 58 3 3 New units issued 0 0 142 0 0 Other Financing CF (344) (27) (22) 0 0 Net Financing CF (451) (74) 124 (75) (77) Currency Adjustments 14 0 (1) 0 0 Chg in Cash (416) 5 15 (1) (4) Operating CFPS (S cts) 12.0 10.7 11.9 9.9 9.7 Free CFPS (S cts) 3.2 11.7 (14.8) 9.5 9.3



Source: DBS Bank

S.No. DateClosing

PriceTarget Price

Rat ing

1: 28 Apr 15 1.54 1.74 BUY

2: 30 Jun 15 1.53 1.79 BUY

3: 21 Jul 15 1.55 1.76 BUY

4: 19 Aug 15 1.35 1.51 BUY

5: 26 Oct 15 1.42 1.53 BUY


1

2

3

4 5

1.09

1.19

1.29

1.39

1.49

1.59


S$

Minimal capex assumed


BUY Last Traded Price: S$0.80 (STI : 2,835.35) Price Target : S$0.83 (4% upside,7% yield) Potential Catalyst: Acquisitions/better-than-expected results Where we differ: Our estimates are more conservative than consensus Analyst Mervin Song CFA +65 6682 3715 [email protected] Derek Tan +65 6682 3716 [email protected]

Price Relative

Forecasts and Valuation FY Sep (S$ m) 2015A 2016F 2017F 2018F Gross Revenue 129 119 122 124 Net Property Inc 106 98 100 102 Total Return 135 58 59 60 Distribution Inc 94 80 81 82 EPU (S cts) 1.5 4.2 4.3 4.3 EPU Gth (%) (69) 189 1 0 DPU (S cts) 7.6 5.9 5.9 5.9 DPU Gth (%) 28 (23) 0 0 NAV per shr (S cts) 85.7 85.3 84.5 83.7 PE (X) 54.7 18.9 18.7 18.7 Distribution Yield (%) 9.5 7.3 7.3 7.4 P/NAV (x) 0.9 0.9 0.9 1.0 Aggregate Leverage (%) 38.6 38.8 38.9 39.0 ROAE (%) 1.7 4.9 5.0 5.1 Distn. Inc Chng (%): - - - Consensus DPU (S cts): 4.4 4.5 4.7 Other Broker Recs: B: 1 S: 3 H: 5


Acquisitions to drive growth

Strength in diversity. We maintain our BUY call on FHT with a TP of S$0.83. While investors should be concerned about its exposure to the Singapore market, we believe investors have overlooked the fact that the majority of the FHT’s portfolio (c.60%) is located in markets which are experiencing tailwinds. In addition, FHT’s core Singapore asset, InterContinental Hotel is about to complete its extensive renovations (end-Feb-16), which should allow the property to outperform the overall Singapore market. Exposure to growing markets. Approximately 50% of FHT’s 1Q16 NPI was sourced from the growing markets of Australia (32%) and Japan (16%). FHT’s Australian and Japanese properties are beneficiaries of growing foreign tourists. In fact, FHT's recent purchase of Sofitel Sydney Wentworth deepens its exposure to the growing Sydney hospitality market. Clear and visible acquisition pipeline. Through the strong support of its sponsor (Frasers Centrepoint Limited) and strategic partner (TCC Group), FHT has a clear and visible acquisition pipeline. This robust pipeline consists of 17 hotels and serviced residences located across Asia, Australia and Europe. Valuation:

Maintain BUY, TP of S$0.83 based on DCF. Stock offers a total return of 11%, supported by a high yield of 7.3%. Key Risks to Our View:

FX volatility. A key risk to our positive outlook is a significantly weaker AUD, MYR, JPY and GBP as Australia, Malaysia, Japan and UK contributes c.78% of FHT’s NPI. At A Glance Issued Capital (m shrs) 1,368 Mkt. Cap (S$m/US$m) 1,094 / 809 Major Shareholders (%) Golden Development Pte Ltd 19.3 Golden Landmark Pte Ltd 10.7 Far East Organization

10.2

Free Float (%) 42.3 3m Avg. Daily Val (US$m) 0.08 ICB Industry : Financials / Real Estate Investment Trusts



Frasers Hospitality Trust Version 3 | Bloomberg: FHT SP | Reuters: FRHO.SI Refer to important disclosures at the end of this report

82

102

122

142

162

182

202

222

0.6

0.7

0.7

0.8

0.8

0.9

0.9

1.0

1.0

Jul-14 Dec-14 May-15 Oct-15 Mar-16

Relative IndexS$

Frasers Hospitality Trust (LHS) Relative STI INDEX (RHS)


Company Guide

Frasers Hospitality Trust


Earnings Drivers:

Leasing structure provides downside protection. Through the fixed rental component of the master lease agreements with its sponsor, FHT’s downside is protected in the event of large external shocks such as SARS and volatility in the underlying hospitality markets. Based on our estimates, these fixed rentals represent 43-45% of FHT’s NPI. Expect continued strength from Australia and Japan. We expect the strong performance from Australia, Japan and UK to continue going forward. For Australia and Japan, both markets are benefitting from a growing number of international visitors which rose by 8% and 47% y-o-y in 2015 respectively. According to industry consultants, this should translate into RevPAR growth of 3-5% over the coming year. Medium upside from renovations at InterContinental Singapore. FHT recently completed a S$26m renovation of its InterContinental Singapore. The project will involve: (1) refurbishment of the public space including F&B areas and gymnasium (May-15 to Sep-15), and (2) renovation of rooms (Apr-15 to Feb-16) as well as the addition of four rooms which will take the total room count to 410. Following the repositioning of the hotel to a more contemporary and up-market position, we expect a boost in average daily rates (ADRs) but slower than earlier anticipated due to the softness in the Singapore hospitality market. Near-term headwinds from Malaysia, Singapore and UK. While the majority of FHT’s markets are on the rise and its main property in Singapore, InterContinental Singapore is insulated through a drawdown of income support, the REIT faces some headwinds from the slowing Kuala Lumpur and Singapore hospitality markets. Nevertheless, overall exposure to Westin Kuala Lumpur and Frasers Suites Singapore is contained at c.10% and c.11% of group NPI respectively. In addition, due to the recent terrorist attacks in Brussels and talk of “Brexit” affecting business sentiment, FHT’s London hotels have the challenge of navigating a period of weaker demand until at least the middle of 2016.




Interest Cover (x)


77.6%

79.6%

81.6%

83.6%

85.6%

87.6%

89.6%

0

20

40

60

80

100

120

140

160

180

200

2014A 2015A 2016F 2017F 2018F

S$ m


76%

77%

78%

79%

80%

81%

82%

83%

84%

85%

18

23

28

33

38

43

4Q20

13

1Q20

14

2Q20

14

3Q20

14

4Q20

14

1Q20

15

2Q20

15

3Q20

15

4Q20

15

1Q20

16


0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

2014A 2015A 2016F 2017F 2018F

(x)

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2014A 2015A 2016F 2017F 2018F

(x)


Company Guide


Balance Sheet:

Optimal gearing. We project FHT to maintain a gearing of 39-40% over the coming years. This is at an optimal level from management's perspective given its regional exposure. However, given regulatory limit of 45%, further acquisitions are likely to be funded through a combination of equity/debt or even perpetuals.


Investors realising FHT is not a pure Singapore play. FHT’s share price has corrected significantly in line with other hospitality REITs as investors have turned more cautious on the outlook for the Singapore hospitality market. However, we believe investors have “thrown the baby out with bath water” as FHT’s main exposure is the growing markets of Australia and Japan. In addition, InterContinental Singapore, FHT’s main Singapore asset has just completed its extensive AEI programme in Feb-16, which should enable FHT to partially insulate itself against the headwinds in Singapore. Visible acquisition pipeline. Sponsor FCL and strategic partner TCC Group have granted right of first refusals (ROFR) over 40 properties, which would more than double FHT’s existing room count. This visible pipeline provides FHT with DPU-accretive acquisition opportunities, which should drive its earnings and share price higher over the medium term. Key Risks:

Interest rate risk. Any increase in interest rates will result in higher interest payments that the REIT has to make annually to service its loans. This will reduce the income available for distribution. To mitigate this risk, FHT has fixed c.88% of its debt. Foreign currency risks. Exposure to multi-currency earnings (GBP, AUD, JPY and MYR) could lead to DPU volatility as DPU is paid in SGD. Hospitality sector is a volatile business. Exposure to volatility in regional economies and seasonal factors could affect the performance of the assets located in different countries. FHT manages this risk by having a geographically diversified portfolio.

Company Background

Frasers Hospitality Trust (FHT) is a hospitality stapled group comprising FH-REIT and FH-BT. FH-REIT is a Singapore-based REIT which invests in hospitality assets. FH-BT is a Singapore-based business trust which will be dormant as of the Listing Date. FHT operates 13 mid- and upper-scale hotels and serviced residences in key gateway cities located in Singapore, Japan, UK, Australia, Malaysia and Japan.


ROE (%)


PB Band (x)


20.0%

25.0%

30.0%

35.0%

40.0%

2014A 2015A 2016F 2017F 2018F

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2014A 2015A 2016F 2017F 2018F

Avg: 3.5%

+1sd: 7.7%

+2sd: 11.8%

‐1sd: ‐0.6%

-4.2

-2.2

-0.2

1.8

3.8

5.8

7.8

9.8

11.8

2012 2013 2014 2015

(%)

Avg: 0.99x

+1sd: 1.08x

+2sd: 1.17x

‐1sd: 0.9x

‐2sd: 0.8x

0.7

0.8

0.9

1.0

1.1

1.2

1.3

Jul-14 Dec-14 May-15 Oct-15 Mar-16

(x)


Company Guide



FY Sep 2014A 2015A 2016F 2017F 2018F Gross revenue 102 129 119 122 124 Property expenses (19) (23) (21) (21) (22) Net Property Income 83 106 98 100 102 Other Operating expenses (11) (21) (13) (13) (13) Other Non Opg (Exp)/Inc 0 (31) 0 0 0 Net Interest (Exp)/Inc (12) (17) (20) (21) (22) Exceptional Gain/(Loss) 0 0 0 0 0 Net Income 60 37 65 66 67 Tax (6) (18) (7) (7) (8) Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Income After Tax 55 19 58 59 60 Total Return 55 135 58 59 60 Non-tax deductible Items 16 (42) 22 23 23 Net Inc available for Dist. 71 94 80 81 82 Growth & Ratio Revenue Gth (%) (0.2) 26.1 (7.6) 2.2 2.1 N Property Inc Gth (%) (1.9) 26.8 (7.1) 2.1 2.0 Net Inc Gth (%) (3.5) (65.5) 208.5 1.6 1.3 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 81.7 82.1 82.6 82.5 82.5 Net Income Margins (%) 53.5 14.6 48.8 48.5 48.1 Dist to revenue (%) 69.4 72.8 67.6 67.0 66.4




Driven mainly from the acquisition of Sofitel Wentworth Sydney and positive RevPAR growth from Japan, Australia, offsetting the weakness from Malaysia and SG.


Company Guide



FY Sep 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 Gross revenue 50 24 24 31 31 Property expenses (8) (5) (4) (5) (5) Net Property Income 42 19 19 26 26 Other Operating expenses (10) (4) (3) (5) (4) Other Non Opg (Exp)/Inc 11 0 4 (19) 4 Net Interest (Exp)/Inc (5) (3) (4) (5) (5) Exceptional Gain/(Loss) (27) (2) 3 0 0 Net Income 10 10 19 (3) 22 Tax (2) (1) (2) (13) (1) Minority Interest 0 0 0 0 0 Net Income after Tax 8 9 17 (16) 20 Total Return N/A N/A N/A N/A N/A Non-tax deductible Items (18) 5 9 (38) 3 Net Inc available for Dist. 30 14 27 23 24 Growth & Ratio Revenue Gth (%) N/A (52) (1) 30 2 N Property Inc Gth (%) nm (55) 1 34 3 Net Inc Gth (%) nm 18 89 nm nm Net Prop Inc Margin (%) 83.4 79.0 81.1 83.3 83.9 Dist. Payout Ratio (%) N/A N/A N/A N/A N/A Balance Sheet (S$ m)

FY Sep 2014A 2015A 2016F 2017F 2018F Investment Properties 1,672 1,960 1,964 1,968 1,971 Other LT Assets 0 9 9 9 9 Cash & ST Invts 18 52 55 55 56 Inventory 0 0 0 0 0 Debtors 2 8 6 6 6 Other Current Assets 0 3 0 0 0 Total Assets 1,692 2,032 2,033 2,037 2,042 ST Debt 0 0 0 0 0 Creditor 2 24 20 20 21 Other Current Liab 6 7 8 9 9 LT Debt 674 785 789 792 796 Other LT Liabilities 28 44 44 44 44 Unit holders’ funds 982 1,172 1,172 1,172 1,172 Minority Interests 0 0 0 0 0 Total Funds & Liabilities 1,692 2,032 2,033 2,037 2,042 Non-Cash Wkg. Capital (6) (20) (23) (23) (24) Net Cash/(Debt) (657) (733) (734) (737) (740) Ratio Current Ratio (x) 2.6 2.1 2.1 2.1 2.1 Quick Ratio (x) 2.6 2.1 2.1 2.1 2.1 Aggregate Leverage (%) 39.9 38.6 38.8 38.9 39.0 Z-Score (X) 0.0 0.0 0.0 0.0 0.0


Gearing to remain close to management's comfortable level of 40%


Company Guide



FY Sep 2014A 2015A 2016F 2017F 2018F Pre-Tax Income 60 37 65 66 67 Dep. & Amort. 0 0 0 0 0 Tax Paid 0 0 (5) (7) (7) Associates &JV Inc/(Loss) 0 0 0 0 0 Chg in Wkg.Cap. (1) (9) 1 0 0 Other Operating CF 13 83 22 23 23 Net Operating CF 73 112 83 82 83 Net Invt in Properties (23) (1,917) (4) (4) (4) Other Invts (net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 0 Other Investing CF 0 0 0 0 0 Net Investing CF (23) (1,917) (4) (4) (4) Distribution Paid (71) (71) (80) (81) (82) Chg in Gross Debt 10 795 4 4 4 New units issued 0 1,147 0 0 0 Other Financing CF 0 (13) 0 0 0 Net Financing CF (61) 1,858 (77) (78) (79) Currency Adjustments 0 0 0 0 0 Chg in Cash (11) 52 3 1 1 Operating CFPS (S cts) 6.4 9.3 6.0 5.9 5.9 Free CFPS (S cts) 4.3 (140.6) 5.8 5.7 5.7



Source: DBS Bank

S.No. DateClosing

PriceTarget Price

Rat ing

1: 05 May 15 0.92 0.95 BUY

2: 12 May 15 0.88 0.96 BUY

3: 16 Jul 15 0.82 0.89 BUY

4: 21 Jan 16 0.73 0.83 BUY

5: 01 Feb 16 0.74 0.83 BUY


12

3

4

5

0.65

0.70

0.75

0.80

0.85

0.90

0.95


S$

Minimal capex forecasted

Industry Focus


DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd,

its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may

be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to

change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard

to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of

addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal

or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of

profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This

document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or

persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it

may not contain all material information concerning the company (or companies) referred to in this report.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research

department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction

in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 5 Apr 2016, the

analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended

in this report (“interest” includes direct or indirect ownership of securities).

Industry Focus


COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have proprietary positions in

Frasers Centrepoint Trust, Frases Commercial Trust, Frasers Hospitality Trust recommended in this report as of 29 Feb 2016

2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity

securities of Frasers Commercial Trust, Frasers Hospitality Trust as of 29 Feb 2016.

4. Compensation for investment banking services:

DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for

investment banking services from Frasers Commercial Trust, Frasers Hospitality Trust as of 29 Feb 2016.

DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for

Frasers Commercial Trust, Frasers Hospitality Trust in the past 12 months as of 29 Feb 2016.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

Industry Focus


United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd

12 Marina Boulevard, Marina Bay Financial Centre Tower 3

Singapore 018982

Tel. 65-6878 8888

Company Regn. No. 196800306E

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