Stay in the game - brokingrfs.cimb.com · replacement unit, ... The hotel industry was in the...

December 13, 2017

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Property - Overall Stay in the game

■ Kicking tyres in the en-bloc market ■ Expect robust residential demand in 2018 ■ Office sector continues to shine ■ Hotel sector has upside risk potential

Analyst(s)

LOCK Mun Yee

T (65) 6210 8606 E [email protected]

YEO Zhi Bin T (65) 6210 8669 E [email protected]

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Navigating Singapore│Property - Overall│December 13, 2017

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TABLE OF CONTENTS

Overweight on developers, Neutral on REITs ................................................................................ 5

Three themes for 2018 ................................................................................................................... 6

Valuation and recommendation ..................................................................................................... 8

Developers - A year of reinvestment and execution ...................................................................... 9

S-REITs – resume running on twin legs ....................................................................................... 11

Residential .................................................................................................................................... 16

Office ............................................................................................................................................ 26

Retail ............................................................................................................................................ 29

Industrial ....................................................................................................................................... 32

Hospitality ..................................................................................................................................... 34

Company Briefs… ........................................................................................................................ 36


Sector Note

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFACustomEntityStatement

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Property - Overall Stay in the game ■ Ground checks on the en-bloc market found robust replacement appetite. ■ Residential demand strength to continue into 2018. ■ Office sector continues to shine. ■ Hotel sector has upside risk potential. ■ Maintain Overweight on developers, Neutral on REITs. Our preferred picks are UOL,

CIT, FCT, FLT and FEHT.

Kicking tyres on the en-bloc ground After the run-up in property stocks in 2017 aided by a buoyant en-bloc market, we did on-ground checks across nine en-bloc projects to determine the underlying strength of residential replacement demand as well as the wealth creation effect from the unlocking of capital. Our study found that sellers remain prudent, with 87% of our sample buying a replacement unit, budgeting 40-70% of their sale proceeds for it, and keeping the remainder largely as savings or boosting their lifestyle, i.e. more travelling.

Expect robust residential demand to continue into 2018 The findings above show that replacement appetite would help to underpin demand in the coming year, in addition to organic household formation and upgrade appetite. We estimate private home demand to reach 11,000-12,000 in 2018 against potential launch of 10,000 units. We project private home prices to rise by up to 5% in 2018. The anticipated high take-up rate should continue to propel property stocks to outperformance, in our view.

Office sector continues to shine The office sub-sector continues to show the most supportive supply/demand dynamics for a rental recovery. In addition, economic growth has broadened to the services sector, another positive sign for potential demand for office space. Overall new supply totalled 1.2m sq ft annually between 2018-2020, though new CBD supply is limited. We project rents to rise by up to 10% in 2018. As the share prices of office REITs have run up, we prefer to have office exposure through landlords such as UOL.

Upside risks for hotel sector The hotel industry was in the doldrums over the past three years due to an overhang from incoming supply. With new hotel room additions projected to average 1.7% in 2018 and our expectations of tourist arrivals growing 3% p.a., we see room for upside surprise in the hotel sector, with a more meaningful rate uplift towards 2H18. We now project a stronger revenue per available room (RevPAR) growth of 5% in 2018 vs. 3% previously. FEHT is our preferred pick in the sector as it had been a relative valuation laggard.

Maintain Overweight on developers, stay Neutral on REITs We retain our preference for developers. On the back of a property market recovery, we anticipate developers with more Singapore exposure such as UOL and CIT to continue outperforming. Within the S-REITs space, we prefer FCT and FLT given their stronger earnings growth profile. While FEHT is at present a Hold, we think investors who take a medium-term view of potential accretive acquisition upside surprise could be rewarded. Downside risks to our rating include a slower-than-expected property market recovery.

Figure 1: Summary of our en-bloc survey results

SOURCES: CIMB RESEARCH

Singapore

Overweight (no change)

Highlighted companies

City Developments ADD, TP S$13.15, S$12.31 close

Singapore and overseas residential earnings to underpin CIT’s near-term growth. Resumption of land banking in Singapore should underpin RNAV expansion.

Frasers Logistics & Industrial Trust ADD, TP S$1.20, S$1.11 close

We favour FLT as one of our core holdings. Exposure to favourable Australian industrial property. Ability to tap sponsor pipeline a driver to growth.

UOL Group ADD, TP S$9.62, S$8.64 close

UOL has a high recurrent income base, from rentals, hotels and investment holdings. It has good office exposure through UIC. The stock is trading at 26% discount to RNAV.

Frasers Centrepoint Trust ADD, TP S$2.38, S$2.24 close

We like FCT for its exposure to stable non-discretionary retail. Robust earnings growth to resume with the completion of its asset enhancement at Northpoint North Wing.

Far East Hospitality Trust HOLD, TP S$0.69, S$0.71 close

We believe that FEHT is highly likely to acquire sponsor’s Oasia Hotel Downtown by year-end. We understand that the asset has stabilised and likely lean towards debt to fund acquisition.

Summary valuation metrics

Insert

Analyst(s)

LOCK Mun Yee



P/E (x) Dec-17F Dec-18F Dec-19F

City Developments 19.97 17.32 15.35

UOL Group 17.88 18.07 17.37

Far East Hospitality Trust 21.08 20.60 19.55

Frasers Centrepoint Trust 12.05 19.53 18.98

Frasers Logistics & Industrial Trust 16.79 18.44 17.77

P/BV (x) Dec-17F Dec-18F Dec-19F

City Developments 1.21 1.15 1.09

UOL Group 0.79 0.77 0.74

Far East Hospitality Trust 0.79 0.80 0.80

Frasers Centrepoint Trust 1.11 1.12 1.12

Frasers Logistics & Industrial Trust 1.25 1.26 1.28

Dividend Yield Dec-17F Dec-18F Dec-19F

City Developments 1.39% 1.60% 1.80%

UOL Group 1.64% 1.64% 1.64%

Far East Hospitality Trust 5.70% 5.83% 6.11%

Frasers Centrepoint Trust 5.37% 5.57% 5.67%

Frasers Logistics & Industrial Trust 6.42% 6.58% 6.81%

Age group Buy a replacement unit Buy an investment unitInvestments into non-

real estate products

Others (lifestyle and

other uses)

30-40 ● x ● ●

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50-60 ● ● ● ●

60-70 ● x ● ●*Note: ● = All Yes, X = All No , Items in red denote mixed responses

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Figure 2: Singapore developers' peer comparison table

SOURCE: CIMB RESEARCH, COMPANY

Figure 3: Singapore S-REITs' peer comparison table


Price Tgt Px Mkt Cap RNAV Prem./(Disc.)

(lc) (lc) (US$ m) FY17F FY18F FY19F FY17F to RNAV (%) FY17F FY18F FY17F FY18F

Aspen (Group) Holdings Ltd ASPEN SP Add 0.20 0.29 128 5.5 4.2 7.7 0.53 -62% 2.54 1.81 3.3% 4.8%CapitaLand CAPL SP Add 3.51 4.25 11,032 16.2 17.3 14.7 5.31 -34% 0.83 0.81 2.8% 2.6%City Developments CIT SP Add 12.65 13.15 8,512 20.5 17.8 15.8 16.44 -23% 1.24 1.18 1.3% 1.6%Frasers Centrepoint Ltd FCL SP Add 2.09 2.37 4,495 18.1 15.0 12.6 3.39 -38% 0.68 0.67 4.1% 4.1%Global Logistic Properties GLP SP Hold 3.36 3.38 11,680 138.9 40.8 36.2 3.38 -1% 1.35 1.34 1.7% 1.7%Guocoland GUOL SP Add 2.21 2.82 1,935 19.3 7.4 13.9 3.76 -41% 0.69 0.65 3.2% 3.2%Hatten Land Ltd HATT SP Add 0.19 0.38 193 7.8 7.6 6.3 0.69 -73% 3.45 2.39 0.0% 1.3%Ho Bee Land HOBEE SP Add 2.42 3.39 1,192 12.3 10.8 10.6 5.21 -54% 0.53 0.51 2.9% 3.3%Hongkong Land Holdings Ltd HKL SP Add 7.20 9.10 16,940 16.5 15.8 16.0 14.00 -49% 0.54 0.56 2.8% 2.9%Perennial Real Estate Holdings PREH SP Add 0.87 1.08 1,072 na 82.3 14.7 1.79 -51% 0.53 0.53 0.4% 0.3%UOL Group UOL SP Add 8.72 9.62 5,431 18.0 18.2 17.5 12.02 -27% 0.80 0.77 1.6% 1.6%Wing Tai Holdings WINGT SP Add 2.30 2.32 1,318 37.9 90.4 42.4 3.57 -36% 0.54 0.54 1.3% 2.6%Singapore average 21.3 18.2 17.1 -37% 0.77 0.76 2.3% 2.4%

Div. Yield (%)Company

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13 Dec 17

Hospitality

Ascott Residence Trust ART SP $1.21 $1,925 31.9% 1.24 0.98 $1.16 H 5.9% 6.1% 6.1%

Ascendas Hospitality Trust ASCHT SP $0.88 $725 32.2% 0.92 0.95 NA NR 6.5% 6.6% 7.0%

CDL Hospitality Trust CDREIT SP $1.66 $1,473 38.7% 1.47 1.13 $1.62 H 5.1% 6.0% 6.2%

Far East Hospitality Trust FEHT SP $0.71 $974 32.1% 0.89 0.79 $0.69 H 5.7% 5.8% 6.1%

Frasers Hospitality Trust FHT SP $0.76 $1,040 33.4% 0.77 0.99 NA NR 6.6% 6.8% 6.8%

OUE Hospitality Trust OUEHT SP $0.83 $1,110 38.1% 0.76 1.09 $0.84 A 6.1% 6.1% 6.4%

Simple Average 34.4% 0.99 6.0% 6.2% 6.4%

Industrial

AIMS AMP AAREIT SP $1.43 $671 33.1% 1.53 0.93 NA NR 7.8% 7.5% 7.7%

Ascendas REIT AREIT SP $2.70 $5,766 33.1% 2.13 1.27 $2.72 H 5.8% 5.9% 6.1%

Cache Logistics Trust CACHE SP $0.85 $671 43.6% 0.77 1.11 $0.79 H 8.6% 7.9% 7.8%

ESR-REIT EREIT SP $0.56 $544 36.7% 0.63 0.89 $0.57 H 7.1% 7.2% 7.7%

Frasers Logistics & Industrial Trust FLT SP $1.12 $1,259 29.3% 0.94 1.19 $1.20 A 6.4% 6.5% 6.8%

Keppel DC REIT KDCREIT SP $1.42 $1,184 32.1% 0.96 1.48 $1.37 H 5.2% 5.3% 5.4%

Mapletree Industrial Trust MINT SP $2.03 $2,832 30.0% 1.41 1.44 $1.94 H 5.6% 5.6% 6.1%

Mapletree Logistics Trust MLT SP $1.31 $2,964 33.7% 1.03 1.27 $1.21 H 5.7% 6.0% 6.4%

Sabana Shariah SSREIT SP $0.46 $352 37.0% 0.57 0.80 NA NR na na na

Soilbuild Business Space REIT SBREIT SP $0.66 $510 37.9% 0.72 0.92 NA NR 8.5% 7.4% 7.1%

Viva Industrial Trust VIT SP $0.96 $681 39.1% 0.79 1.21 NA NR 7.7% 8.0% 7.4%

Simple Average 35.1% 1.09 6.8% 6.7% 6.9%

Office

CapitaLand Commercial Trust CCT SP $1.89 $5,047 33.9% 1.75 1.08 $1.68 H 4.3% 4.5% 4.5%

Frasers Commercial Trust FCOT SP $1.45 $868 34.7% 1.57 0.92 $1.46 H 6.8% 6.8% 6.8%

Keppel REIT KREIT SP $1.24 $3,093 38.8% 1.41 0.88 $1.20 H 5.4% 5.5% 5.5%

OUE Commercial REIT OUECT SP $0.72 $823 36.4% 0.86 0.84 $0.68 H 6.6% 6.3% 6.3%

Suntec REIT SUN SP $2.07 $4,063 36.8% 2.09 0.99 $1.83 R 4.8% 4.8% 4.8%

Simple Average 36.1% 0.94 5.6% 5.6% 5.6%

Retail

CapitaLand Mall Trust CT SP $2.12 $5,564 34.7% 1.92 1.10 $2.15 H 5.1% 5.0% 5.1%

Frasers Centrepoint Trust FCT SP $2.21 $1,513 29.0% 2.02 1.09 $2.38 A 5.4% 5.6% 5.7%

Mapletree Commercial Trust MCT SP $1.60 $2,472 36.4% 1.37 1.17 $1.75 A 5.4% 5.5% 5.6%

SPH REIT SPHREIT SP $1.03 $1,956 25.4% 0.95 1.08 $1.06 H 5.4% 5.5% 5.5%

Starhill Global REIT SGREIT SP $0.77 $1,235 35.4% 0.92 0.83 $0.83 H 6.4% 6.6% 6.7%

Simple Average 32.2% 1.06 5.5% 5.6% 5.7%

Retail Ex-Sin

CapitaLand Retail China Trust CRCT SP $1.66 $1,097 36.7% 1.58 1.05 NA NR 6.3% 6.5% 6.9%

Lippo Malls Indonesia Retail Trust LMRT SP $0.42 $867 30.6% 0.37 1.12 $0.43 H 8.7% 8.5% 8.5%

Mapletree Greater China Commercial Trust MAGIC SP $1.19 $2,483 38.5% 1.24 0.96 $1.20 H 6.2% 6.2% 6.3%

Simple Average 35.3% 1.04 7.1% 7.1% 7.2%

Healthcare

First REIT FIRT SP $1.40 $808 32.6% 1.01 1.39 $1.39 H 6.1% 6.5% 6.5%

Parkway Life REIT PREIT SP $2.85 $1,276 37.4% 1.68 1.70 $2.93 H 4.8% 4.4% 4.5%

RHT Health Trust RHT SP $0.82 $487 23.0% 0.84 0.98 $0.92 H 7.3% 5.9% 7.0%

Simple Average 31.0% 1.35 6.1% 5.6% 6.0%

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Stay in the game

Overweight on developers, Neutral on REITs

We see 2018 as a turnaround year for the physical property sector in Singapore as it moves past the wall of oversupply brought about by over-investment in prior years. Fuelled by broadening economic growth and reduced supply drags, private residential prices should revert to a firmer uptrend, and office rents and hotel room rates should recover, in our view. That said, while we remain positive on the sector, we think the outperformance of property developers and S-REITs in 2017 may have priced in some of this recovery and hence we would be relatively more stock selective at this point.

We maintain our Overweight stance on property developers as we believe the sector may still have legs to run, underpinned by attractive valuations and robust demand. The sector is now trading at 32% discount to RNAV, which is still below its long-term mean discount. We project the residential sector to be propelled by still-strong developer reinvestment activities, aided by strong balance sheets, as well as the resumption of asset turn through more new launches. We expect end-buyer demand to remain robust, aided by new household formation and en-bloc replacement demand. As office rents recover and negative reversion spread narrows, improved earnings outlook will also underpin the developers’ office portfolio value, thus supporting RNAV growth.

We expect S-REITs earnings to resume its northward trajectory on organic and inorganic prospects from 2018, based on our projection of a 2.2% sector DPU growth. Furthermore, with lower cost of capital, S-REITs are poised to tap new inorganic growth prospects, which have not been factored into our existing estimates. However, given the sector's FY18 yield of 5.6%, normalising to slightly above mean, and the prospect of incremental rate hikes, we retain our Neutral rating for now.


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Three themes for 2018

Residential – spinning the en-bloc wheel of fortune

We anticipate the share price performance of property developers to be fuelled by strong end-buying demand momentum while investments into new land bank and deployment of balance sheet capacity continue to provide uplift to RNAVs. Historically, the sector's share price outperformance, as evidenced by the FSTREH index, tracks fairly closely to residential sales momentum and take- up rates. Our correlation back-test, using annual sales, take-up rates and launch data since 1999, show that property stocks are most highly correlated to take-up rates, at 79% correlation, followed by sales volume at 68% correlation, and a much slimmer 59% for new launches. Based on our expectation of 10,000 units of new launches and volume demand of 11,000-12,000 for 2018, we project take-up rates to remain high in 2018. As such, we believe property developer stocks would continue to be in demand. Our top picks for developers are UOL (Add, TP S$9.62) and City Dev (Add, TP S$13.15), both of which have upcoming Singapore residential launches that could benefit from the ongoing buying momentum.

Figure 4: FSTREH vs. new launches, sales and take up rates

SOURCE: CIMB RESEARCH, URA, BLOOMBERG

Office continues to shine

Amongst the various property sub-sectors, the office segment shows the most supportive supply/demand dynamics for a rental recovery. New supply over 2018-2020 should average 1.2m sq ft annually, in our estimate. However, CBD supply would be much lower at 0.65m sq ft p.a. over the same period. This will be supportive of CBD office rents. We project office rents to rise by up to 10% in 2018, largely led by centrally located office properties. As the share prices of office S-REITs have run up significantly, we prefer to have office exposure via landlords such as UOL. We like KREIT’s (Hold, TP S$1.20) premium office portfolio and would be a buyer on share price weakness.

Upside risk to hotel recovery

We think there is upside risk to the hotel recovery story. The hotel industry was in the doldrums over the past three years with RevPAR declines even as tourist arrivals continued to grow. This was partly a function of changing profile of tourists as well as higher than average supply of new hotel rooms coming onstream over 2015-2017. Looking ahead, we expect new hotel room completions to decline to 1.7% of total stock in 2018 (vs. an estimated 4% in 2017). Meanwhile, visitor arrivals continue to be healthy -- we forecast growth of 3% in 2018. Against this demand and supply backdrop, we have raised our RevPAR projections to +5% for 2018 (against our previous assumption of +3%). We believe the scope for rate recovery could be more meaningful towards 2H18. FEHT (Hold, TP S$0.69) is our preferred pick in the sector as it had been a

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relative valuation laggard. Potential acquisition of the Oasia Hotel Downtown could provide more upside to our current earnings estimates and target price for FEHT.


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Valuation and recommendation

We retain our preference for developers (Overweight) over S-REITs (Neutral). Against the backdrop of a Singapore property market recovery, we anticipate developers with more Singapore residential and commercial exposure to continue outperforming. Our top developer picks are UOL and City Dev for Singapore residential exposure with catalyst coming from new upcoming launches. For S-REITs, we like FCT and FLT and take a medium-term view on FEHT in view of its potential acquisition upside surprise.

UOL (Add, TP S$9.62)

UOL is our top pick among developer stocks. Its residential and commercial property portfolio is predominantly focused in Singapore. UOL has become a major office landlord post consolidation of UIC’s earnings. Together, they own a total of 5.69m sq ft of office and retail space in Singapore, located in both the CBD and city fringe areas. This put the group in a good position to benefit from the office sector recovery. On the residential front, it has c.729 attributable residential units that could be launched from 2018. These sites were acquired mainly in 2H16 before the run-up in land prices. Our TP of S$9.62 is pegged to a 20% discount to RNAV. Potential corporate exercise for its 49.8%-owned associate UIC may provide additional catalyst for share price performance.

City Developments (CIT, Add, TP S$13.15)

CIT is the bellwether property stock in Singapore. It is trading at an attractive 24% discount to RNAV of S$16.44. The group has locked in c.S$1.76bn worth of total residential sales in 9M17. It plans to launch three projects totaling 1,175 units in 1H18. Recent acquisition of the Amber Park en-bloc site has potentially increased its total residential inventory to c.1,800-1,900 units. In Dec 2017, the group announced an offer to buy the remaining 34.8% of Britain's Millennium & Copthorne Hotels (M&C) it does not already own for £6.20/share. When completed, we anticipate the deal to further accrete CIT’s RNAV given that the offer price is below M&C’s book value. CIT's balance sheet remains strong with debt-to-equity ratio of 0.13x as at end-3Q17 and should remain low even after factoring in the funding required to complete the M&C and Amber Park deals. Our target price of S$13.15 is pegged to a 20% discount to RNAV.

Frasers Centrepoint Trust (FCT, Add, TP S$2.38)

We continue to like FCT for its exposure to the more stable non-discretionary retail segment. We believe the trust will continue to deliver robust earnings growth as it has moved past the peak of asset enhancement initiative (AEI) at Northpoint North Wing. The latter is 95% leased, with average rents tracking 9% higher post renovation. The stock is trading at projected 5.6-5.7% FY18-19 DPU yield, based on our estimates.

Frasers Logistics and Industrial Trust (FLT, Add, TP S$1.20)

We continue to favour FLT as one of our core REIT holdings. In addition to exposure to the favourable Australian industrial property dynamics, its ability to tap its sponsor’s Australian development pipeline, in an increasingly low availability environment of prime assets in Australia, would enable it to deliver inorganic growth over the medium term. The stock is trading at 6.5-6.8% FY18-19 DPU yield, based on our forecast.

Far East Hospitality Trust (FEHT, Hold, TP S$0.69)

FEHT is our preferred pick amongst hotel S-REITs as it is a relative valuation laggard. It is trading at 0.79x P/BV vs. CDREIT and OUEHT's c.1.08-1.13x P/BV. Although currently a Hold, investors with a strong view that an accretive-acquisition of Oasia Hotel Downtown could occur soon could add the stock before the fact. Given FEHT's present low gearing of 32.1% as at end-3Q17, we believe this acquisition could be potentially more debt-funded, thus making it more accretive to bottomline.


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Developers - A year of reinvestment and execution

If 2017 can be seen as a year of reinvestment for developers, then 2018 would be a year of reinvestment and execution as developers begin to asset turn their land inventory, in addition to buying land. We think it will be another year of outperformance for property stocks, particularly those with launch-ready projects that could be rolled out over the next 12 months.

Outperformance of property developer stocks…

Property stocks have been on the rise this year, clocking a 28.7% YTD total return against 24.9% for S-REITs and outperforming the 23.3% total returns for the broader FSSTI Index. This was due to low valuations, further fuelled by growing signs of a property market recovery, especially in the office and residential sectors.

… as valuations normalise

Property stocks are currently trading at a 32% discount to RNAV, still at midway between mean and -1 s.d. discount to mean. However, we note that RNAVs have been adjusted over time. To assess how much of the stocks’ performance were due to valuation normalisation, we compare current share prices to the trough RNAV in Jul 2016. Comparing these two points shows us that property stocks would have been trading at a 21% discount to the Jul 16 RNAV i.e. if RNAVs had not changed. This is at the long-term mean discount level and indicates that much of the run-up in share prices from Jul 16 to Dec 17 was due to a normalisation to long-term valuations. In terms of price-to-book ratio, developers are trading at 0.87x P/BV.

Figure 5: Sector discount to RNAV Figure 6: Sector P/BV

SOURCE: CIMB RESEARCH, BLOOMBERG, COMPANY SOURCE: CIMB RESEARCH, COMPANY, BLOOMBERG

Improved earnings visibility from extending land bank

Developers are expected to enjoy improved earnings visibility over the next few years thanks to the recent landbanking exercises. After the recent bout of buying, we believe some developers should have enough stock for an estimated 1-2 years’ worth of new launches, i.e. City Dev (Add, TP S$13.15), UOL (Add, TP S$9.62), Oxley Holdings (Non-rated, S$0.615), and Chip Eng Seng (Non-rated, S$0.935). This would likely enable them to leverage on the rising residential prices and extend their earnings visibility when these projects are launched. This could likely act as share price catalysts.

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Figure 7: Estimated unlaunched sales inventory of major developers as at Dec 2017


Balance sheets remain robust

The net debt to total equity ratios of property developers remain well below 1x as at end-3Q17. We believe that even after factoring in the remaining funding costs for land acquisitions, their net gearing levels should likely remain healthy. This puts them in a good position to continue reinvesting for growth.

Figure 8: Gearing levels of major developers as at 3Q17


Company Stake Total units

City Dev

New Futura 100% 124

South Beach Residences 50% 190

Tampines Ave 10 (Parcel C) 100% 861

Amber Park enbloc (est) 80% 700

Total 1,875

UOL

Raintree Gardens 50% 729

Amber Rd 100% 140

Nanak Mansion enbloc 50% 180

Total 1,049

Wing Tai

Serangoon North Ave 1 40% 505

FCL

Jiak Kim St 100% 525

Oxley

Rio Casa enbloc 35% 1,472

Serangoon Ville enbloc 40% 1,052

Mayfair Gardens enbloc (est) 100% 350

Total 2,874

Allgreen

Crystal Tower enbloc (est) 100% 104

Royalville enbloc (est) 100% 257

Fourth Ave 100% 445

Total 806

Chip Eng Seng

Woodleigh Lane 60% 735

Changi Garden enbloc (est) 100% 320

Total 1,055

Guocoland

Wallich Residences 80% 162

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S-REITs – resume running on twin legs

S-REITs has also had a good run YTD, recording a 24.9% total return YTD. Valuations have reverted to mean with the S-REIT sector delivering FY17F dividend yield of 5.5% and P/BV of 1.07x. The sector’s strong performance was due to narrowing of yield as the 10-year bond yield compressed from 2.4% in the beginning of 2017 to 2.1% in Dec and narrowing of yield spread from 430bps at the start of the year to 340bps currently.

Figure 9: S-REIT sector’s dividend yield Figure 10: S-REIT sector’s P/BV

SOURCE: CIMB RESEARCH, COMPANY, BLOOMBERG SOURCE: CIMB RESEARCH, COMPANY, BLOOMBERG

S-REITs, on the whole, delivered fairly stable results for 9M17 as rental growth performed in line with our expectations, augmented by inorganic growth drivers. We project S-REITs to deliver FY17F DPU growth of -0.7% compared to the +1.8% in FY16. The dip was likely due to the adverse impact of negative rental reversions in office and industrial sectors, weaker hospitality performance, income vacuum from asset enhancement initiatives and asset sales, partly offset by contributions from new acquisitions and divestment gain payouts. Moving forward, we project S-REIT DPU to expand by 2.2% in 2018 and 2.1% in 2019, led by full-year contributions from new acquisitions made in 2017, the completion of asset enhancement exercises, as well as positive rental momentum as the oversupply concerns dissipate.

Aggregate leverage ratio stood at 33% at end-3Q17 and we expect it to remain in the 33-35% range, even after taking account the acquisitions completed post-3Q17. Given the strong market liquidity and robust investor appetite, most acquisitions were accompanied by some component of equity fund-raising, which kept leverage low.

Figure 11: S-REITs’ projected DPU growth Figure 12: S-REITs’ aggregate leverage ratio (at end-3Q17)

2%

4%

6%

8%

10%

12%

14%

M-04 J-05 N-06 M-08 J-09 N-10 M-12 J-13 N-14 M-16 J-17

S-REIT yield

Ave: 5.8%

-1SD: 7.7%

+1SD: 4.0%

0.4

0.6

0.8

1.0

1.2

1.4

1.6

M-04 J-05 N-06 M-08 J-09 N-10 M-12 J-13 N-14 M-16 J-17

P/BV

-1SD: 0.81x

Ave: 1.03x

+1SD: 1.25x

1.8%

-0.7%

2.2%2.1%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

FY16 FY17 FY18f FY19f

DPU growth

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

VIT

KR

EIT

MA

GIC

MLT

*

OU

EH

T

SB

RE

IT

AA

RE

IT

PR

EIT

SU

N

ER

EIT

MC

T

SS

RE

IT

CA

CH

E*

SG

RE

IT

OU

EC

T

FC

OT

MIN

T*

CC

T*

CR

CT

*

CD

RE

IT

MU

ST

*

KD

CR

EIT

AR

EIT

AS

HT

FIR

T

FE

HT

FH

T

AR

T

CT

FLT

FC

T

LM

RT

RH

T

SP

HR

EIT

Average: 33%

* post 3Q17


12

SOURCE: CIMB RESEARCH SOURCE: CIMB RESEARCH, COMPANY

S-REITs are well hedged against the rising interest rate environment, with c60-99% of their debt on fixed rates. Debt maturity profile average 3 years, thus providing good visibility on potential credit cost pressures.

Figure 13: S-REITs debt profile


Outlook for 2018

We maintain our Neutral stance on S-REITs in 2018 and adopt a bottom-up approach to stock picking, preferring S-REITs with visible organic/inorganic growth drivers and attractive valuations. Our top picks are FCT and FLT and we see upside potential for FEHT should the earnings-accretive acquisition of Oasia Hotel Downtown occur.

Interest rate recalibration to be orderly

Our fixed income strategists indicated in CIMB’s macro and strategy outlook report titled “2018: Sensibilities at the exit queue” on 17 Nov 2017 that “…2018 will continue to witness the withdrawal of easy monetary policy through both the interest rate and QE mechanisms as the US FOMC, ECB and BoJ are likely to maintain an orderly recalibration... Our central case is for policy normalisation to be protracted, gradual, and at varying speeds, amid an incomprehensive global economic recovery. In the absence of exciting catalysts from monetary policy, trade and government spending will remain important factors for market analysis in 2018. Geopolitical and political risk events will also be an important part of alpha calculus.…”.

Against this backdrop and post-valuation normalisation in 2017F, we expect S-REITs to perform in line with the broader market in 2018.

REIT Total asset

(S$m)

Total debt

(S$m)

Gearing Cost of debt Ave. debt

maturity (yrs)

% fixed

debt

Interest

cover (x)

Office

CCT 8926 3024 33.9% 2.7% 2.9 85.0% 5.1

FCOT 2159 750 34.7% 3.1% 2.5 80.7% 4.1

KREIT 8755 3397 38.8% 2.6% 3.0 76.0% 4.4

SUN 8880 3268 36.8% 2.6% 2.8 65.0% 4.0

OUECT 3187 1176 36.9% 3.5% 3.0 91.8% 3.2

Retail

CT 11132 3863 34.7% 3.2% 4.8 na 4.8

FCT 2752 798 29.0% 2.3% 2.34 55.0% 6.9

MCT 6344 2328 36.4% 2.7% 3.9 81.2% 4.9

SPHREIT 3347 850 25.4% 2.8% 2.1 85.9% 6.3

SGREIT 3223 1140 35.4% 3.1% 3.8 99.0% 4.1

Industrial

AREIT 10290 3409 33.1% 2.9% 3.3 79.3% 5.9

CACHE 1258 549 43.6% 3.5% 2.0 62.7% 4.0

EREIT 1349 495 36.7% 3.7% 2.3 93.9% 3.6

FLT 2095 615 29.3% 2.8% 3.0 72.0% 8.3

KDCREIT 1689 543 32.1% 2.2% 2.5 67.0% 10.6

MINT 3833 1148 30.0% 2.9% 3.2 76.7% 7.2

MLT 5495 1846 33.7% 2.3% 4.7 91.0% 5.6

Hospitality

ART 5060 1614 31.9% 2.4% 4.6 87.0% 4.6

CDREIT 2789 929 33.3% 1.8% 1.9 38.2% 7.2

FEHT 2483 797 32.1% 2.5% 3.3 41.7% 4.3

OUEHT 2255 859 38.1% 2.8% 1.7 83.0% 4.5

Healthcare

FIRT* 1342 416 31.0% c.4.1%-4.2% c.1.6 90.9% 5.5

PREIT 1760 655 37.3% 1.1% 2.9 na 11.2

RHT 929 215 23.1% 6.2% na 57.2% 5.9

Overseas-centric S-REITs

LMRT 2025 581 28.7% na 2.2 70.0% 4.3

MAGIC 5964 2383 38.5% 2.7% 3.4 76.0% 3.9

Total/ave. 109320 37645 34.4% 2.9% 3.0 75.3% 5.5


13

Figure 14: Projected 2- to 10-year interest rates Figure 15: Projected US$/S$ exchange rates

SOURCE: CIMB RESEARCH SOURCE: CIMB RESEARCH

S-REIT sector DPU to return to growth track in 2018

Historically, S-REITs’ share price performance moved in close tandem with earnings growth outlook. Based on our current DPU projections, which do not factor in any new acquisitions, the hospitality sector offers the best DPU growth prospects for 2018, followed by the industrial and office sectors.

Figure 16: Projected S-REIT DPU growth by sector


Office remains our sub-sector top pick, hospitality moves up to second place

In terms of sub-sector ranking, we continue to prefer office exposure due to the supportive supply/demand dynamics for rental expansion. We have the moved hospitality sub-sector up to second place on the back of clearer RevPAR growth momentum. The industrial and retail sub-sectors fall in line after that.

Office

As Singapore gradually moves past the wall of new supply that entered the market in the past 2-3 years, we expect rental recovery to be uneven in 2018F. Office rents started to improve in 3Q17. We expect the upturn to continue, closing the negative reversion gap in 2018F, as we project office rentals to rise by 5-10% during the year. The improvement is likely to be led by the core central business district (CBD) area as new supply dries up (until 2021F) and new builds are now largely pre-committed. City fringe and non-prime office rents may lag overall sector recovery in the near term, with the ongoing flight to quality. That said, we think non-CBD spot rents would remain stable from now on. However, with office REIT yields compressing to 4.4-5.0% for FY18, we believe much of the expected rental recovery could be priced in. Among the laggards,

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4Q17f 1Q18f 2Q18f 3Q18f 4Q18f

%

2y 10y

1.350

1.355

1.360

1.365

1.370

1.375

1.380

1.385

4Q17f 1Q18f 2Q18f 3Q18f 4Q18f

USDSGD

2.4%

-2.8%

0.8%

0.1%

-5.2%

-9.3%

6.9%

3.9%

11.1%

2.1%

2.9%

2.8%

0.7%

0.3%

1.6%

1.2%

-9.5%

2.0%

0.4%

4.0%

4.1%

2.2%

0.0%

0.1%

-10% -5% 0% 5% 10% 15%

FY16

FY17

FY18f

FY19f

Overseas retail Healthcare Retail Industrial Hospitality Office


14

we prefer Keppel REIT (KREIT, Hold, TP: S$1.25) and among the landlords, we favour UOL Group Ltd (UOL, Add, TP: S$9.62) is our preferred exposure into this sector.

Hospitality

Visitor arrivals continued to be healthy, increasing by 4% yoy in 8M17, led by the Chinese as Singapore’s top-sourced market. We expect tourist arrivals growth momentum to sustain in 2018F and project an increase of 3%. Meanwhile, the supply of new hotel rooms in 2017F is likely to be fully operational in 2018, while the new supply is expected to taper off in 2018 to 1.7% total room stock growth vs. a 5-year CAGR of 5.1% (2012-17F). Hence, we raise our 2018 REVPAR growth projection to 5% vs 3% previously. Far East Hospitality Trust (FEHT, Hold, TP: S$0.69) is our preferred pick in the sub-sector with its laggard valuation vs. peers, with potential upside risk to earnings should the earnings-accretive acquisition of Oasia Hotel Downtown occur. We have not factored this into our current earnings estimates.

Industrial

DPU growth for industrial S-REITs continues to be driven by inorganic growth as they continue to acquire assets both in Singapore and overseas. In Singapore, while the manufacturing PMI has gained in strength YTD, on-the-ground sentiment remains mixed, based on our checks. We project new supply of factory space to moderate in 2018F. While new warehouse completions peaked in 2017F, we believe that 2018F will be a year of digestion. Hence, we project multiple-user factory space rents to stabilise in 2018F, while warehouse rents are likely to continue to ease by 3% over the same period.

Given the patchy organic rental growth performance of industrial S-REITs, we prefer those with inorganic growth prospects. Among the big-caps, we prefer Ascendas REIT (AREIT, Hold, TP: S$2.72) as it has been a relative laggard vs. peers. Additionally, we continue to favour Frasers Logistics Trust (FLT, Add, TP: S$1.20) due to the favourable Australian industrials sub-sector dynamics and its ability to tap into its sponsor’s Australian development pipeline.

Retail

We project retail S-REITs to deliver average DPU growth of 1.6% in FY18. We expect this to largely come from the resumption of earnings growth following the completion of asset enhancement initiatives, particularly at FCT’s Northpoint North Wing, as well as organic rental improvement at FCT’s other properties, MCT’s VivoCity and SPH REIT’s portfolio of properties. While overall retail rents could continue to slip in 2018F, we believe retail S-REITs would achieve slight improvement in rents due to their more active mall management efforts to drive tenant sales and shopper traffic.

Low cost of capital heightens inorganic growth driver

Cost of capital has declined as the recent run-up in S-REIT share prices has pushed P/V multiples above 1x P/BV, thus making equity an effective form of currency. In addition, debt funding cost has remained low. With a positive yield gap between cap rates and overall funding costs, we expect S-REITs’ inorganic growth prospects to remain bright. In Jun-Dec 2017, the acquisitions of S-REITs and their sponsors amounted to cS$6.4bn. Earnings contribution from these purchases should largely underpin our FY18 S-REITs DPU growth projection of 2.2%.


15

Figure 17: S-REITs acquisitions (Jun-Dec 2017) Figure 18: S-REITs equity fund-raising exercises (Jun-Dec 2017)

SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, COMPANY

We anticipate S-REITS to remain in an acquisitive mode throughout 2018, in particular for S-REITs with strong sponsor development pipelines. While no timeline has been confirmed, we believe REITs such as FCT, FLT, CT, SPHREIT and FEHT could potentially expand their property portfolios by acquiring these properties when they stabilize.

Figure 19: Selected S-REITs’ potential asset acquisitions


SREIT Property Acquisition cost

KREIT 50% of 311 Spenser St A$347.8m

SUN 50% of 477 Collins St A$414.2m

AREIT 100 Wickham St, Queensland A$83.8m

EREIT 8 Tuas Sth Land S$95m

FLT Portflio of 7 Australian properties A$169.3m

MINT 40%/60% acquisition by MINT/Mapletree Invts of US data centre portfolio US$750m

MLT Mapletree Logistics Hub Tsing Yi HK$4800m

CCT Asia Square Tower 2 S$2115.7m

CRCT 51%/49% acquisition by CRCT/Capitaland of Rock Square Gungzhou RMB3340.7m

MUST 500 Plaza Drive, New Jersey US$115m

LMRT Lippo Plaza Jogja S$61.1m

Kediri Town Square S$37m

Lippo Plaza Kendari S$33.2m

FIRT Siloam Hospitals Yogjakarta S$27m

CDREIT 94.5% of Pullman Munich Hotel €100.6m

KDC REIT B10 Data Centre, Dublin €66m

SREIT Fund raising exercise

MUST US$80.5m private placement of 97m new units @ US$0.83/unit

FLT S$78.8m private placement of 78m new units @ S$1.01/unit

CDREITS$255.4m rights issue through issue of 199.5m new units @S$1.28/unit

on a 20 rights for every 100 unis basis

CCTS$700m rights issue through issue of 513.5m new units @ S$1.363/unit

on a 166 right for every 1000 units

CRCT S$103.8m private placement of 63.4m new units @t S$1.612/unit

MINT S$155.7m private placement of 81.9m new units @t S$1.90/unit

MLT S$353.5m private placement of 300.9m new units @ S$1.175/unit

S$286.5m non-renounceable preferential offering of 250.2m new units @

S$1.145/unit on a 1 new unit for every 10 existing units

S-REIT Property

SPHREIT Seletar Mall

FCT Waterway Point, Northpoint South Wing

FEHT Oasia Hotel Downtown

SUN Remaining effective 25% in Southgate Complex, one office block of Park Mall redevelopment

FLT Sponsor's Australian development pipeline

CT Westgate, Star Vista

MLT Sponsor's properties in Vietnam and China


16

Residential

A blockbuster year

2017 has been a blockbuster year in terms of property transactions with a 45% yoy surge in primary market transactions to 10,340 units for the first 10 months of the year, and a 64% jump in secondary market deals to 13,037 units over the same period, on the back of the emergence of green shoots of recovery in the property market, as well as pent up demand. This was accompanied by an even steeper absorption of unsold developer inventory, as sales momentum outpaced new launches of 6,041 units for 10M17. As a result, private home prices rose 0.5% qoq in 3Q17, its first uptick in 15 quarters.

Figure 20: Unsold private housing inventory Figure 21: Primary and resale private home transactions

SOURCE: CIMB RESEARCH, URA SOURCE: CIMB RESEARCH, URA

En-bloc fervour to continue into 2018

Consequently, developers, both local and foreign, resumed landbanking activities with a vengeance, tapping both the government land sale tenders as well as the en-bloc auctions, often at higher land prices. This caused the government to sound warnings of possible runaway price inflation.

En-bloc transactions are unique to Singapore. Simply put, according to the 99.co website, an en-bloc sale is a collective sale of two or more units in a development to a single purchaser. The logic of en-bloc sales is such that in a land-scarce country like Singapore, where development of different areas and neighbourhoods may vary over time, the ability to rejuvenate or redevelop these land parcels would encourage optimal use of land resources. As property prices rise and land utilisation density increases over time, we think this will present existing owners with the opportunity to recycle or unlock value of their assets.

The government land sale programme, as well as the en-bloc market, are the two largest sources of landbank for developers. YTD, developers have bought S$5.9bn of government land sales (GLS) sites and have been awarded S$7.3bn of en-bloc sites. This compares to S$3.4bn-3.5bn worth of total land transactions annually between 2014 and 2016, and close to the S$8bn mark in 2012.

0

5000

10000

15000

20000

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2006Q3 2008Q1 2009Q3 2011Q1 2012Q3 2014Q1 2015Q3 2017Q1

Unsold units

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1996Q1 1999Q1 2002Q1 2005Q1 2008Q1 2011Q1 2014Q1 2017Q1

Secondary market sales Primary market sales


17

Figure 22: Historical en-bloc transactions Figure 23: List of GLS transacted YTD

SOURCE: CIMB RESEARCH, MEDIA RELEASES SOURCE: CIMB RESEARCH, URA

The 23 en-bloc deals are spread over suburban and city fringe locations and have been concentrated more towards the eastern and north-eastern parts of Singapore.

As they stand, the en-bloc transactions, when fully completed, would create 3,571 more (or richer) millionaires in Singapore. To understand the knock-on effects of this capital unlocking in the broader economy, key questions would include: what could be the wealth multiplier effect and what is the impact on the supply and demand dynamics in the real estate sector?

Figure 24: Location map of en-bloc deals

SOURCE: CIMB RESEARCH

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1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Value (S$m) No of deals Average

Date land

awarded Location

Site area

(sm)

GFA

(sm) Developer

18/1/2017 Perumal Rd 3,848 16,161 Low Keng Huat

15/2/2017 West Coast Vale 16,378 45,860 China Construction (South Pacific) Devt Co Ltd

18/4/2017 Toh Tuck Rd 18,721 26,210 SP Setia Intl

3/5/2017 Tampines Ave 10 (Parcel C) 21,718 60,810 City Dev

23/5/2017 Stirling Rd 21,110 88,660 Logan Property/ Nanshan

24/5/2017 Woodleigh MRT Station 25,441 89,043 SPH/Kajima

14/7/2017 Woodleigh Lane 19,547 58,641 Chip Eng Seng/KSH/Heeton

2/8/2017 Serangoon North Ave 1 17,189 42,973 Kepland/Wing Tai

3/10/2017 Beach Road 22,202 88,313 Guocoland/Guoco Group

Tender closed Jiak Kim St 13,482 51,231 Frasers Centrepoint

Tender closed Fourth Ave 18,532 33,358 Allgreen Properties

Pending West Coast Vale 19,592 54,857

● denotes foreign developer


18

Figure 25: List of en-bloc projects transacted from May 16-Dec 17

SOURCE: CIMB RESEARCH, MEDIA RELEASES

Ground checks – where will the en-bloc money go?

For the purposes of our property report, one of the key questions is whether the strong jump in demand seen in 2017 could be repeated in 2018, coming from not just replacement demand but also from the wealth creation effects of capital unlocking or would demand remain just a function of household formation and in-migration appetite.

To help answer the first two questions, we conducted a quick survey on how en-bloc sellers would spend their windfall gains. Each respondent was asked the following questions:

i) Would you buy a replacement unit and what type?

ii) Would you buy another unit for investment?

iii) Would you diversify wealth into other investment products such as stocks and bonds?

iv) Would you use windfall gains for other expenditures such as travelling, lifestyle, cash (for retirement fund) etc.? Please give examples of planned uses.

This study is not intended to be exhaustive or definitive given that the bulk of the en-bloc transactions are still pending completion, rather the study is aimed at getting an idea on how the en-bloc millionaires are planning to go forward.

Admittedly, our sample size is not big but diversified enough to give a feel to our queries and offer interesting observations. We have collected responses from a small sample of 31 respondents from across 9 projects, spanning across both the HUDC as well as private condo developments. These respondents are between 30 and 70 years old, with a bias towards the 50-70-year age group which make up 71% of our sample pool.

Key observations from this study are:

i) 87% of the respondents will buy a replacement unit, 13% has more than 1 unit and will not need to find replacement housing. 33% of all respondents will buy a replacement unit of a similar type or in a similar location, 35% will downgrade to

En-bloc projects LocationAcquisition

price (S$m)

Existing no of

units

Avg proceeds

/unit (S$m)

Shunfu Ville Marymount 638 358 1.78

Harbour View Gardens Pasir Panjang 33.25 14 2.38

Raintree Gardens Pasir Panjang 334.2 175 1.91

120 Grange Rd Orchard 48.5 18 2.69

One Tree Hill Gardens Orchard Blvd 65 13 5.00

Rio Casa Hougang 575 286 2.01

Eunosville Eunos 765.8 330 2.32

The Albracca Meyer Rd 69.1 11 6.28

Serangoon Ville Serangoon North 499 244 2.05

Toho Green Yio Chu Kang 8.4 6 1.40

Tampines Court HUDC Tampines 970 560 1.73

Seraya Crescent townhouse Upper Thomson 25.74 6 4.29

Sun Rosier Bartley 271 78 3.47

Jervois Gardens River Valley 72 17 4.24

Nanak Mansion Meyer Rd 201.1 36 5.59

Amber Park East Coast 906.7 200 4.53

Normanton Park Buona Vista 830.1 488 1.70

Changi Garden Changi 248.8 84 2.96

Florence Regency Hougang 629 336 1.87

Dunearn Court Bukit Timah 36.3 12 3.03

Casa Contendre Newton 72 11 6.55

Mayfair Gardens Bukit Timah 311 124 2.51

How Sun Park Townhouse How Sun Rd 81 20 4.05

Lodge 77 Upper East Coast 29 12 2.42

Crystal Tower Ewe Boon Rd 181 28 6.45

Royalville Sixth Ave 478 104 4.60


19

the public resale housing market while 19% plan to upgrade. The budget for a replacement unit could range at between 40% and 70% of the total proceeds.

ii) 6% of the respondents will buy another unit for investment (with a caveat of looking for a better price) or planning to fund children’s property down-payment.

iii) 29% of the respondents will put some proceeds into investments such as stocks and bonds, 52% are unsure of their plans at this point in time.

iv) 100% of the respondents will increase liquid assets in the form of retirement nest egg, in cash or into CPF. As well as looking to boost lifestyle including overseas travelling and discretionary shopping. Other options include funding children’s education and reinvesting proceeds into their businesses.

Figure 26: Summary of survey results


Figure 27: Summary of responses to buying a replacement housing unit

Figure 28: Summary of responses to buying an investment property unit


Figure 29: Summary of responses on investing in non-real estate products such as stocks and bonds

Figure 30: Summary to responses on improving lifestyle and other uses of funds such as retirement fund, keep cash, travel, etc.


Age group Buy a replacement unit Buy an investment unitInvestments into non-

real estate products

Others (lifestyle and

other uses)

30-40 ● x ● ●

40-50 ● x ● ●

50-60 ● ● ● ●

60-70 ● x ● ●*Note: ● = All Yes, X = All No , Items in red denote mixed responses

Similar type33%

Upgrade19%

Downgrade35%

No13%

Buying6%

Not buying81%

Not sure14%

Yes29%

No19%

Not sure52%

Yes100%


20

2018 primary home sales projected at 11,000-12,000

We think private home demand could be sustained at 11,000-12,000 units in 2018 on the back of i) additional demand from displaced en-bloc buyers, ii) pent up and upgrader appetite and organic demand from new household formation, and iii) sustained foreign buying given the relative attraction of Singapore property vis-a-vis other regional markets.

En-bloc replacement take-up should shore up demand in 2018 and 2019 Based on the collective sales that have been closed so far, there are 3,571 households that could be displaced when their developments taken out of circulation. This represents 30-35% of 2017 demand. Our survey above suggests a 1-for-1 replacement appetite with a small proportion of investment demand. We expect a portion of this take up to be felt in 2018 and the remainder in 2019, assuming a 1-1.5 year transaction completion timeline.

Furthermore, there are a number of developments that could be up for collective sale, once the existing owners reach the 80% collective agreement threshold.

Upgrader demand and new household formation

Singapore resident households have increased to 1.26m at the end of 2016. Over the period of 2010-2017, there was an average of 20,571 new households formed annually. This was led largely by the net number of new marriages formed and the remaining from migration and other factors. The number of new marriages have been fairly stable over the past 3 decades and we anticipate that it would remain at these levels in 2018F. Hence, this is likely to form the backbone for housing demand.

Furthermore, the government has adopted a clear immigration policy with Singapore facing falling fertility rates and an ageing population and labour force. According to the government’s 2013 Population White Paper, assuming the current fertility rate of 1.2 and no immigration, Singapore could be facing 0.7 citizens entering working age for every 1 citizen exiting. This will put tremendous pressure on the resident labour force. Hence, the Singapore government targets to expand its total population base to 6.5m-6.9m by 2030F, from the present 5.6m. The targeted population mass is expected to be made up of a core resident population of 4.2m-4.4m. This translates to an average projected population growth rate of 1.1-1.6% that will continue to underpin long-term demand for housing.

In addition, given the larger number of Housing and Development Board (HDB) stock that would be reaching their 5-year minimum occupation period (MOP), we believe there could be more HDB upgrading activity. This timeline also coincides with the maturity in timing of the government ruling in Aug 13 that does not allow newly-minted PRs to buy public housing within 3 years of obtaining their residency status. This could likely result in higher HDB resale transactions and upgrading activity going forward.

Figure 31: Projected population growth rate Figure 32: New household formation

SOURCE: CIMB RESEARCH, SINGSTAT SOURCE: CIMB RESEARCH, SINGSTAT

1.5%

2.3%

2.8%

2.5%

1.3-1.6%

1.1-1.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1970-1980 1980-1990 1990-2000 2000-2010 2010-2020f 2020-2030f

Period Average marriages (less divorces) Average resident HH formed

1990-1999 20,641 24,100

2000-2009 17,301 23,050

2010-2017 20,157 20,571


21

Furthermore, based on our calculations, mass market housing and 5-room HDB resale flats remain affordable. Buyers of mass market housing with household income in the 80th decline and upwards, would allocate 30% of their income towards mortgage installment, while buyers of 5-room HDB flats with average household income would need to apportion 24% of their monthly income towards mortgage payment.

Figure 33: Residential affordability ratio

SOURCE: CIMB RESEARCH, SIN GSTAT, HDB, URA

Foreign purchases should remain stable According to the Urban Redevelopment Authority’s (URA) statistics, foreign (non-permanent resident) purchasers of private residential properties on Singapore’s primary and resale markets amounted to 1,426 units YTD or 6.2% of total sales. While foreign transaction volume YTD was 34.7% above the 2016 level, it has stayed fairly constant as a percentage of total sales YTD. For comparison, in 2014, foreign purchases comprised 9% market share. The top 3 sources of foreign buyers YTD were China, Malaysia and Indonesia (which accounted for 48% of total foreign purchases).

Singapore’s residential property offers good value relative to home prices in other developed markets such Hong Kong, New York, London, Melbourne and Sydney. We estimate Singapore’s private property and HDB prices at 10.4x and 4.8x of annual income as of 1H17, which are attractive compared to other major cities. As such, we believe Singapore would continue to enjoy robust investment demand from foreign purchasers in future.

Figure 34: Foreign buyers as % of sales Figure 35: Chinese, Indonesians, Malaysians are top 3 foreign buyers

Note: Jan-Dec 2017 (YTD)

SOURCE: CIMB RESEARCH, URA

Note: Jan-Dec 2017 (YTD)


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Figure 36: House price-to-annual income ratio by country

SOURCE: CIMB RESEARCH, DEMOGRAPHIA

Are oversupply concerns exaggerated?

In addition to supply from government land tenders, the impact of new residential units from the redevelopment of en-bloc projects are likely to be felt from 2022 onwards, assuming these projects would need at least 1-1.5 years to be launch-ready, and 4 years to complete. We estimate the 23 en-bloc land parcels could be redeveloped into c.14,000 apartments of 750-900 sq ft each, assuming all the deals are completed.

Based on our assumptions, new completions will peak in 2017 and decline from 2018 onwards. Even with the anticipated new private residential units from the en-bloc projects, and new government land sites, new private residential completions, excluding HDB and EC units, could average 7,556 units annually between 2018 and 2023, compared to an annual average of 18,721 units between 2015 and 2017.

We think this moderated completion scenario should be supportive of a gradual price appreciation in the medium term.

Figure 37: Projected new completions by region Figure 38: Estimated new completions, including en-bloc supply

SOURCE: CIMB RESEARCH, URA SOURCE: CIMB RESEARCH, URA, MEDIA RELEASES

From a top-down perspective, we assess the residential based on occupier basis. We use population per occupied unit as a proxy of demand. The tight supply situation seen during the early-2010 period has been addressed, with population per unit declining from a high of 4.4 persons/unit to an estimated 4.1 in 2017. Based on our calculations, this ratio would remain stable between 2018 and 2022 at about 4x, above the low in early-2002, even after factoring in the additional en-bloc supply.

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Figure 39: Population per occupied housing stock and annual supply

SOURCE: CIMB RESEARCH, SINGSTAT, HDB, URA

In terms of new launches, we project an estimated 10,000-11,000 units could be put onto the market this year. Major launches could include CDL’s Tampines Ave 10, Logan Property/Nanshan’s Stirling Rd site, SPH/Kajima’s Bidadari site as well as the Shunfu Ville, Rio Casa and Serangoon Ville en-bloc redevelopment parcels.

Figure 40: Selected major projects that could be launched in 2018


Government land sale (GLS) may increase

The government kept land supply fairly stable in 1H18, with a total 8,045 residential units and 63,960 sqm of commercial space in the confirmed and reserve list under the 1H18 government land sale programme. This is slightly lower than the 8,125 units offered during 2H17. No new hotel land parcels have been scheduled. As the government continues to pace land supply moderately through its auction programme, we think this signals a paced recovery in the private residential market.

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Perumal Rd 200 Harbour View Gardens 57

Twin View 520 Raintree Gardens 729

Toh Tuck Rd 327 Rio Casa 1,472

Tampines Ave 10 (Parcel C) 861 Serangoon Ville 1,052

Stirling Rd 1,110 New Futura 124

Bidadari 825 8 St Thomas Walk 250

Woodleigh Lane 735 Nim Collection 98

Serangoon North Ave 1 505 Total 4,986

Wallich Residences 162

South Beach Residences 190

Total 5,751


24

Figure 41: Government land sale programme


Figure 42: 1H18 government land sale programme


Expect property prices to rise by up to 5% in 2018

According to URA, the private property price index (PPI) saw a 0.5% qoq uptick in private home prices, its first upward recovery since 2013. The price recovery was largely felt in the Outside Central Region, with a 0.7% uptick in 3Q while those in the Core Central Region experienced a 0.2% qoq rise. However, HDB resale price index saw a 0.6% qoq decline. At the current level, property prices are 11% below the recent peak in 2013, but still 8% above the 2008 peak.

In terms of rental, the overall URA rental index remained flat qoq in 3Q17. Rents in the core central region and suburban areas continued to slip, partly offset by an uptick in city fringe rents. We believe rents will continue to be soft over the next 9-12 months, dragged by the still-high vacancy rate of 8.4% at end 3Q17.

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Silat Avenue (2) 2.5 3.5 1,125 0 450 Mar-18 URA

Mattar Road 0.62 3 250 0 0 Mar-18 URA

Dairy Farm Rd 3,4 1.97 2.1 500 0 4,000 May-18 URA

Jalan JurongKechil (3) 1.49 1.4 280 0 0 Jun-18 URA

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ClementiAvenue 1 (3)(7) 1.88 3.5 640 0 0 Jun-18 URA

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Current residential net yield ranges from 2.2% for Core Central Region properties to 2.5% for suburban assets.

Figure 43: URA PPI vs. HDB resale price index (RPI) Figure 44: Primary and resale private home transactions


Will there be policy headwinds?

Following the buoyant land sale market and the surge in take-up rates in 2017, the government has taken to cautioning the public about significant end-product price hikes, as land replacement costs have risen significantly. We believe Singapore households have strong balance sheets, thanks to the government’s credit-tightening policies since 2013, and we expect them to remain strong as property prices rise moderately over time.

Looking at the household balance sheets and interest rate outlook, we believe, the risk of policy tightening is fairly low at this point, as credit-tightening measures introduced by the government in 2013 are still in place. Furthermore, the financial assets of Singapore households (including pension funds, stocks and shares, insurance and cash but excluding property) make up 56% of total household assets as at 3Q17, back to the high last seen in 2006. In addition, mortgages from financial institutions have remained fairly constant at 18% of total loans in 1Q-3Q17, down from 19% in 1Q-3Q16.

To mitigate the issue of rising land prices and developers’ need to replenish inventory, we believe the government would continue to pace land supply through its land sale programme.

Figure 45: Financial assets and mortgage as % of HH assets Figure 46: Chart on 3-month Sibor

SOURCE: CIMB RESEARCH, SINGSTAT SOURCE: CIMB RESEARCH, MAS, BLOOMBERG

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26

Office

First rental recovery in eight quarters

The Singapore office leasing market saw a 0.4% qoq increase in rents in 3Q17, its first uptick in eight quarters. The improvement was driven mainly by a recovery in prime Grade A rents. According to property consultant CBRE, prime Grade A office rents rose 1.7% qoq to S$9.10psf/mth in 3Q although they still remain below 3Q16’s level. The improvement in Grade A office rents is evidenced by a flight to quality by tenants as the rental gap narrowed between Grade A and B buildings.

Figure 47: Central Region office price vs rental index Figure 48: Rental performance of different office segments


Meanwhile, 3Q17 net absorption was a positive 107,640 sq ft compared to a negative take-up in 2Q17, bringing 9M17 take-up to 53,820 sq ft. Island-wide occupancy dipped to 86.7% as at 3Q due to the lumpy completion of Marina One during the quarter.

Figure 49: Demand, supply and occupancy of office space


Expect office rents to expand by up to 10% in 2018

Going forward, we anticipate office rents to continue their northward trend due to i) easing of supply pressure from both the purpose-built and quasi-office segments, particularly in the CBD area, and ii) relocation and expansion appetite in tandem with better and more broad-based economic growth.

Looking at supply as a whole, we note that the supply pressure is easing for both the purpose-built office space as well as quasi-office space (business parks) segments. Based on URA statistics, there are minimal new business parks due

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for completion post 2017, while new CBD supply is also tapering between now and 2020. We think this will be supportive of a recovery in prime Grade A office rents in the near term while those in the city fringe and business parks space should stabilise over the medium term, as the rental gap between prime and non-prime space widens.

Figure 50: Total supply of office and quasi-office space Figure 51: Schedule of office completions


On the demand front, based on Singstat data, net business formation (i.e. total formations less cessations) have risen in 2017 compared to 2016, particularly in the technical, IT and financial services industries. In addition, the most recent GDP data for Singapore showed that growth had broadened to the services sector. The government’s GDP growth forecast has been upped to 3.0-3.5% for 2017F, before moderating slightly to projected 1.5%-3.5% in 2018. Nonetheless, this still bodes well for appetite for the office space.

Demand has been driven by relocation as well as expansion appetite. Major leases tied in 3Q17 include Arup (38,000 sq ft, Frasers Tower), Temasek units (40,000 sq ft, DUO Tower), WeWork (38,000 sq ft, Beach Centre), The Great Room (36,000 sq ft, Centennial Tower), Lloyds Merchant Bank (15,000 sq ft, CapitaGreen) and Loomis Sayles Investment Associates (6,000 sq ft, Ocean Financial Centre).

Figure 52: Net business formation by sector Figure 53: Asking office rents by location

SOURCE: CIMB RESEARCH, SINGSTAT SOURCE: CIMB RESEARCH, CORPORATE LOCATIONS

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Raffles Place/New Downtown 6.80-12.00 7.00-14.00 6.50-14.00

Robinson Rd/Shenton Way 5.50-9.50 5.20-10.50 5.50-9.50

Tanjong Pagar 4.50-11.00 5.50-11.00 5.30-11.00

City Hall/Marina Centre/Beach Rd 4.50-12.00 6.00-11.00 5.50-12.50

Orchard Rd/Dhoby Ghaut 3.80-11.00 4.30-10.50 4.80-12.00

Chinatown River Valley 5.50-9.20 5.50-8.00 5.50-8.00

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28

In terms of cap rates, valuation cap rates for office properties held by office landlords have shown a compression of 10-15bps to 3.6-3.75%. Meanwhile, office transactions are done at lower than these levels. The latest purchase of Asia Square Tower 2 by CCT was at an initial yield of 3.6% (based on an 88% occupancy level). With interest rate outlook remaining benign, we think cap rates are likely to remain low in the near term.

Figure 54: Office transactions in 2017 Figure 55: Office current vs. passing yields

SOURCE: CIMB RESEARCH, MEDIA RELEASES SOURCE: CIMB RESEARCH, CBRE

Given the sharp run-up in share prices of office REITs, we prefer to have exposure to the office sector via office landlords such as UOL. UOL and its associate UIC owns 5.69m sqft of office and retail space, largely in the CBD and city fringe areas. This will enable them to leverage on the office rental recovery and capital value upside. While we like KREIT’s premium office portfolio, share price has done well and we would be buyers on weakness.

Property Buyer Transaction value (S$m) Value (S$psf) Est cap rate (%)

One George St (50%) FWD Insurance 591.6 2650 3.2

TripleOne Somerset (70%) Shun Tak Hldgs 880.4 2200 na

GSH Plaza Fullshare Holdings 663.7 2900 na

PwC Building Manulife 747 2100 na

Asia Square Tower 2 CCT 2094 2689 3.6

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29

Retail

Slow slide down

The Singapore retail sector has continued to face challenges with the URA 3Q17 retail price and rental index slipping an average 8% and 4.2% respectively from the end-2016 level. This was accompanied by a negative absorption of 312,156 sq ft as retailers and landlords continue to adapt to the structural challenges in the industry. As a result, vacancy levels rose 0.7% pt YTD to 8.2% island-wide. The vacuum was more felt in the Central Area compared to the Fringe Area.

Figure 56: URA retail price index Figure 57: URA retail rental index


It’s not all doom and gloom

However, it is not all negative news. For one, Singapore retail sales (ex-motor vehicles) appear to have strengthened this year while demand, in terms of retail rental contracts signed, seemed to have picked up over the same period.

Singapore retail sales (ex-motor vehicle) have been improving on a yoy basis since Feb 2017. Although the preliminary Sep 17 index showed a slight decline, it is still a lesser retracement when compared to Feb 17.

Singapore continued to enjoy demand from new-to-market streetwear brands such as Hotwind and fashion label Urban Revivo from China, as well as Guiseppe Zanotti and PABLO. Hotwind plans to have 3-5 stores in Singapore by end-2017, while Urban Revivo aims to set up 10 outlets in the country by 2020. Other names such as Chloe, Balmain, Lumine and Gucci Kids are also opening new stores in Singapore. Toys 'R' Us has also expanded its store count.

To continue getting traction with shoppers, retailers are also doing strategic retrofits and makeovers to include more experiential offerings. To counter the impact of online shopping, retailers are also getting more creative with more unique and experiential offerings, such as Nespresso Singapore’s in-store café, Longchamp’s boutique with new made-to-measure atelier service, the first official retail Apple Store in South East Asia at Knightsbridge Mall, and Magnum Pleasure Store, to name but a few.

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Figure 58: Retail sales index Figure 59: Retail rental contracts vs value

SOURCE: CIMB RESEARCH, SINGSTAT SOURCE: CIMB RESEARCH, SINGSTAT

A deeper look into demand for retail space showed that the number of retail rental contracts signed have been rising from early-2017 and is now at its highest level since 2015. In terms of value, the value per contract on the average had slipped from its peak in end-2015, due in part, we suspect, to falling rents and retailers being more selective to the size and location of space taken to improve sales productivity. We believe sales efficiency would remain key for retailers and as a result, would continue to be selective of size and location of any new stores.

Bumper supply in 2018

On the supply front, 2018 will see c1.8m sq ft of retail space coming onstream before tapering down to less than 1m sq ft of new inventory annually in 2019 and 2020. The completions in 2018 will be largely from Northpoint City South Wing, Project Jewel in Changi, Paya Lebar Quarter and completion of AEIs at Raffles Hotel and Century Square in Tampines. This is equivalent to 2.8% of total retail stock in Singapore. While some of the properties such as Northpoint City South Wing are already 90+% pre-committed, we think this large inflow of supply could mean more competition for the tenant retail dollar. As such, we believe retail rents would continue to come under pressure.

Figure 60: Schedule of retail completions


Outlook

Thus, we think that overall retail rents could slip 2-3% in 2018. However, for malls that are actively managed by REITs landlords, we think reversionary rents could be a positive 0-3%, due to more active strategy to drive shopper traffic and tenant sales.

Cap rates have compressed by 40-50bps this year following the Jurong Point transaction at S$2.2bn or at S$3,342psf. This equates to a net property yield of 4.2%. Going forward, we think cap rates should remain stable at these levels.

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Amongst retail S-REITs, we would prefer FCT given its exposure to the more stable non-discretionary retail segment. Completion of the Northpoint North Wing asset enhancement would likely translate to a stronger earnings growth trajectory in the medium term. Post makeover, the area is 95% leased and rent average 9% higher than before.


32

Industrial

Be selective amid supply pressures

Despite the continued strength in the manufacturing sector in Singapore, industrial REITs’ feedback is that on-the-ground sentiment remains mixed. Singapore’s manufacturing output increased 14.6% yoy in Oct 17. Excluding the volatile biomedical manufacturing, output grew 25.8% yoy.

On the other hand, according to JTC, the price index for all industrial space fell by 7.4% yoy/0.9% qoq in 3Q17, while the rental index fell by 3.2% yoy/1.1% qoq. Occupancy declined 0.5% pt yoy/0.1% pt qoq to 88.6% in the quarter. In terms of supply, about 2.3m sqm of industrial space are estimated to come on stream from now until end-2018, representing about 5% of the current industrial stock. As a comparison, the average annual supply and demand of industrial space was around 1.8m sq m and 1.3m sq m in the past three years.

Outlook

We believe that the continued supply of competing industrial space and exit of tenants would continue to exert pressure on rental and occupancy rates. To this end, we advise investors to be selective. We continue to be positive on business parks, given the minimal new supply and Singapore’s focus on higher-value activities. We expect occupancy for business parks to recover to 86.2% by end-17F and 87.5% by end-18F (end-16: 83%). We project that median rent could strengthen by 3% (from current S$3.90 psf pm) in the next 12 months.

In addition, while the peak of warehouse supply is over, we believe that 2018 would be a year of digestion. New supply in 2017 was almost 3x that of annual absorption (10-year average). We project occupancy for warehouse to recover from a low of 85% at end-17F to 87.4% by end-18F. We expect rents to ease by another 3% in 2018F (current spot rent at S$1.61 psf pm, down 2.4% yoy).

We project occupancy for multiple-user factory and single-user factory to hover at c.86% and c.90% respectively for 2018F. 0.7k sq m of total factory supply (excluding business parks) are expected to be completed in 2018F, lower than the past 5-year average of 1.1m sq m. Meanwhile, annual net absorption has been fairly stable at 0.6m sq m. Industrialists are showing a flight to quality, where higher specification developments are seeing better success in leasing as well as holding up in rents. In addition, we believe that tenant displacement will continue, as the 3-year grace period for the revised subletting policy ends by 2017. We expect rents to stabilise in 2018F (current spot rent at S$1.61 psf pm, down 4.2% yoy).

Given that organic performance of industrial REITs continues to be flat, we prefer REITs which have an inorganic growth angle. Among the big-caps, we prefer AREIT (Hold, S$2.72). In terms of investing momentum and unit price performance, the REIT has been a relative laggard compared to MINT (Hold, S$1.94) and MLT (Hold, S$1.21). Additionally, we continue to favour FLT (Add, S$1.20) due to the favorable Australian industrials dynamics and its ability to tap its sponsor’s Australian development pipeline. This is especially as there is an increasingly low availability of prime assets in Australia.


33

Figure 61: Annual net absorption, supply and occupancy of multiple-user factory

Figure 62: Annual net absorption, supply and occupancy of single-user factory

SOURCES: CIMB RESEARCH, JTC SOURCE: CIMB RESEARCH, JTC

Figure 63: Annual net absorption, supply and occupancy of warehouse

Figure 64: Annual net absorption, supply and occupancy of business parks

SOURCES: CIMB RESEARCH, JTC SOURCES: CIMB RESEARCH, JTC

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34

Hospitality

Confident of a recovery in 2018F, with upward bias for a stronger rebound

Visitor arrivals continued to be healthy, growing at 4% yoy for 8M17. Chinese arrivals, Singapore’s top-source market, increased 7.6% yoy for the period, while there was also robust growth from Indian arrivals (+14.3% yoy). We also note the quality of arrivals, as reflected by tourism receipts. According to STB, tourism receipts for 1H17 increased by 10% yoy, outpacing the growth in arrivals for the comparable period (+5% yoy).

Going into 2018, we expect the arrivals momentum to sustain, noting that 2018 is an even year (biennial events are held on even years). We forecast 3% yoy growth in arrivals for 2018F.

Meanwhile, supply is expected to taper off in 2018F, after the past 5-year CAGR of 5.1%. Horwath HTL estimates that 1.7% of total room stock is expected to be added in 2018F (2017F: 4% new supply). In addition, we note that some of the new supply in 2017F has been pushed to 2018F. It was initially anticipated that the bulk of the additional room supply in 2017F would come from the upscale/luxury segment. However, some of these new rooms would now only come on stream in 2018F. Around 50% of new supply in 2017F is now expected to be mid-tier.

For 8M17, overall industry RevPAR inched up 0.5% yoy. Economy hotels registered the best performance, posting a 4.9% improvement in RevPAR; mid-tier hotels saw a 1.6% yoy decline in RevPAR.

As 60% of new supply in 2017F would only come in the last quarter, consensus views that a meaningful recovery would only take place in 2H18, after a digestion period in 4Q17-1H18. However, channel checks have revealed that competition is seemingly rationale at this juncture. Hence, we believe that there could be some upward bias for an earlier- and stronger-than-anticipated recovery.

Putting demand and supply together, we are now forecasting a c.5% improvement in RevPAR for 2018F (prev. c.3%).

With recovery in sight and better operating metrics, hospitality REITs have done well this year. To date, both CDREIT (Hold, S$1.62) and OUEHT (Add, S$0.84) have gained around 25%. The star in 3Q17 was OUEHT. Its property at Orchard Road, Mandarin Orchard Singapore (MOS), recorded an 8% improvement in RevPAR. FEHT’s hotels’ RevPAR inched up 0.4% yoy while CDREIT’s Singapore hotels’ RevPAR dipped 1.4% yoy in 3Q17. Nonetheless, we highlight that CDREIT moved its room rates up by 0.8% yoy – the first increase in the last five years – potentially signalling some shift of pricing power back to the hoteliers.

FEHT (Hold, S$0.69) is our preferred pick in the sector as it is a relative valuation laggard. It is trading at a c.0.8x current P/BV vs. CDREIT and OUEHT, which are trading c.1.1x P/BV. Although a Hold, investors with a strong view that an accretive-acquisition of Oasia Hotel Downtown could occur soon could add the stock before the fact. Under a scenario analysis, we had estimated a 4.5-12% accretion to FEHT’s FY18F DPU – a 1% accretion in DPU could translate into a c.1% increase in TP.


35

Figure 65: Hotel room supply is expected to taper in 2018F, with only 1.7% of current room stock expected to be added

Figure 66: We project 3-4% yoy growth for visitor arrivals for 2017F-19F

SOURCES: CIMB RESEARCH, COMPANY REPORTS, HORWATH HTL SOURCES: CIMB RESEARCH, STB

Figure 67: Due to a push back in openings, most of the new supply in 2017F is now expected to be mid-tier

Figure 68: We are forecasting c.5% yoy increase in RevPAR for 2018F-19F

SOURCES: CIMB RESEARCH, HORWATH HTL SOURCES: CIMB RESEARCH, STB

63,850

67,506 2,517

1,139

45,000

50,000

55,000

60,000

65,000

70,000

75,000

End-2016 2017 2018 End-2018

Hotel Supply as at End-2016 Estimated Hotel Supply by End-2018

Estimated Future Hotel Supply

3.9%1.7%

Title:

Source:


17.1

17.6 18.1

-20%

-10%

0%

10%

20%

30%

40%

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

International visitor arrivals % yoy chg (RHS)

(m)

Title:

Source:


-

500

1,000

1,500

2,000

2,500

3,000

2017F 2018F 2019F

Upscale/Luxury Mid-tier Economy

44%

29%

50%

87%21%

50%13%

27%

27%

23%

(rooms)

2014 2015 2016 2017F 2018F 2019F

Visitor arrivals (m) 15.09 15.23 16.40 17.06 17.57 18.10

Average length of stay (days) 3.71 3.61 3.43 3.45 3.45 3.45

Visitor days (m) 56.02 55.03 56.26 58.86 60.62 62.44

Total hotel demand (m room

nights)

12.17 12.86 13.62 14.25 14.79 15.42

New hotel room supply 2,032 3,858 2,942 2,517 1139 1465

Available hotel room nights (m) 14.24 15.13 16.16 16.80 17.09 17.46

RevPAR (S$) 220.6 208.6 198.8 198.1 208.1 218.8

RevPAR (yoy % chg) -1.0% -5.4% -4.7% -0.3% 5.1% 5.1%


36

Company Briefs…

Property Devt & Invt│Singapore│December 13, 2017

Company Brief



CapitaLand Business as usual ■ Singapore residential continues to see good take-up but minimal remaining inventory.

China's 3Q17 EBIT was dragged down by lower handover but sales remained good. ■ Recurrent income likely to be boosted by the joint acquisition of Rock Square in

Guangzhou, with CRCT. ■ Maintain Add and S$4.25 target price.

Brisk Singapore residential sales ● On the residential front, the group clocked in 108 units in sales in 3Q17 (valued at

S$373m), mainly from Victoria Park Villas (94% sold), Interlace, Sky Habitat (90% sold) and Marine Blue (74% sold). Going into 4Q17, we expect contributions from newly-acquired Asia Square Tower 2 (by CapitaLand Commercial Trust, CCT) to add to its Singapore group earnings.

Slower handover a drag on 3Q performance ● China 3Q17 EBIT was 20% lower yoy as only 1,630 residential units (worth

Rmb3.24bn) were handed over during the quarter (vs. 3,254 units in 3Q16, Rmb4.68bn). CAPL has a remaining Rmb13.8bn worth of pre-sales (of which c.Rmb1.4bn will be recognised in 4Q17) and another 605 new units to be launched in the same period. This will continue to extend the group’s China residential income visibility, in our view.

● Meanwhile, other overseas markets, such as Vietnam, continue to lock in higher sales volume and value in 3Q17.

High occupancy at mall portfolio, expanding management contracts ● CAPL's retail portfolio enjoyed high occupancy, in excess of 92%, as at 3Q17, as well

as greater shopper traffic and tenant sales growth. This helped push same-mall NPI growth to 7.9% in China and 13.8-23.1% in Japan and India. Recent joint acquisition of Rock Square in Guangzhou, with indirect wholly-owned subsidiary CapitaLand Retail China Trust (CRCT), should also boost recurring income.

● CAPL has expanded its mall management contracts to seven with the addition of Alibaba Shanghai Centre in Aug 17. This will boost its fee revenue and retail network.

Ascott continues to grow via organic and inorganic means ● The Ascott unit reported higher EBIT in 3Q17, thanks to a stable portfolio revenue per

available unit (REVPAU) and additional contributions from newly-acquired or opened properties. It recently acquired its first property in the Silicon Valley and planned to develop the lyf Funan Singapore and Ascott Sudirman Jakarta. This will enable the group to move towards its 80,000-units under management target by 2020.

Healthy balance sheet with net debt-to-equity ratio at 0.43x ● CAPL's net debt-to-equity ratio stood at 0.43x at end-Sep post the consolidation of

CapitaLand Mall Trust (CMT), CRCT and RCS Trust (RCST). Average debt maturity is 3.3 years and about 72% of its debt is on fixed rates. This puts the group in a strong position to continue deploying capital into its core markets of Singapore and China as well as Vietnam and Japan, in our view.

Maintain Add ● Our RNAV to S$5.31 is based on current target prices for its REITs. Accordingly, our

RNAV-based target price for CAPL is S$4.25, based on a 20% discount to RNAV. Continued reinvestment into new RNAV-accretive projects and capital recycling are key potential re-rating catalysts. Downside risks include slower-than-expected redeployment of capital.

SOURCE: COMPANY DATA, CIMB FORECASTS

Singapore

ADD (no change) Consensus ratings*: Buy 17 Hold 5 Sell 0

Current price: S$3.49

Target price: S$4.25

Previous target: S$4.25

Up/downside: 21.8%

CIMB / Consensus: -0.1%

Reuters: CATL.SI

Bloomberg: CAPL SP

Market cap: US$10,969m

S$14,823m

Average daily turnover: US$26.01m

S$35.26m

Current shares o/s 4,247m

Free float: 53.1% *Source: Bloomberg

Source: Bloomberg

Price performance 1M 3M 12M

Absolute (%) -2.5 -6.7 12.2

Relative (%) -3.8 -13.8 -5.2

Major shareholders % held Temasek Holdings 40.9

Blackrock 6.0

Insert

Analyst(s)

LOCK Mun Yee


Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Total Net Revenues (S$m) 4,762 5,252 5,730 5,165 4,718

Operating EBITDA (S$m) 1,199 1,271 1,987 1,906 2,263

Net Profit (S$m) 1,129 1,190 921 862 1,014

Core EPS (S$) 0.18 0.21 0.22 0.20 0.24

Core EPS Growth 5.8% 18.3% 4.5% (6.4%) 17.6%

FD Core P/E (x) 23.41 19.79 18.95 20.24 17.21

DPS (S$) 0.090 0.100 0.097 0.092 0.092

Dividend Yield 2.59% 2.86% 2.77% 2.62% 2.64%

EV/EBITDA (x) 28.14 24.85 17.32 18.35 16.38

P/FCFE (x) NA 12.8 329.8 6.5 7.3

Net Gearing 47.7% 41.4% 51.0% 51.4% 57.3%

P/BV (x) 0.83 0.84 0.82 0.80 0.78

ROE 4.30% 4.97% 5.17% 4.72% 5.41%

CIMB/consensus EPS (x) 1.06 0.96 1.13

93.0

103.4

113.8

2.80

3.30

3.80

Price Close Relative to FSSTI (RHS)

20

40

60

Dec-16 Mar-17 Jun-17 Sep-17

Vo

l m

Property Devt & Invt│Singapore│CapitaLand│December 13, 2017

38

BY THE NUMBERS

SOURCE: CIMB RESEARCH, COMPANY DATA

Profit & Loss

(S$m) Dec-16A Dec-17F Dec-18F Dec-19F

Total Net Revenues 5,252 5,730 5,165 4,718

Gross Profit 1,982 2,162 1,949 1,780

Operating EBITDA 1,271 1,987 1,906 2,263

Depreciation And Amortisation (68) (66) (69) (67)

Operating EBIT 1,203 1,922 1,837 2,196

Financial Income/(Expense) (395) (359) (398) (409)

Pretax Income/(Loss) from Assoc. 708 489 481 471

Non-Operating Income/(Expense) 0 0 0 0

Profit Before Tax (pre-EI) 1,516 2,051 1,920 2,258

Exceptional Items 391 0 0 0

Pre-tax Profit 1,907 2,051 1,920 2,258

Taxation (403) (448) (420) (494)

Exceptional Income - post-tax

Profit After Tax 1,504 1,603 1,500 1,765

Minority Interests (314) (682) (638) (750)

Pref. & Special Div 0 0 0 0

FX Gain/(Loss) - post tax

Other Adjustments - post-tax

Net Profit 1,190 921 862 1,014

Recurring Net Profit 882 921 862 1,014

Fully Diluted Recurring Net Profit 882 921 862 1,014

Balance Sheet


Total Cash And Equivalents 4,793 2,510 2,486 1,007

Properties Under Development

Total Debtors 1,859 2,028 1,828 1,670

Inventories 4,837 7,603 7,030 7,172

Total Other Current Assets 277 302 272 249

Total Current Assets 11,765 12,443 11,616 10,098

Fixed Assets 781 796 806 819

Total Investments 32,752 33,628 34,728 36,822

Intangible Assets 442 482 434 397

Total Other Non-Current Assets 0 0 0 0

Total Non-current Assets 33,976 34,906 35,968 38,037

Short-term Debt 2,373 2,435 2,492 2,559

Current Portion of Long-Term Debt

Total Creditors 4,685 5,111 4,607 4,209

Other Current Liabilities 670 731 659 602

Total Current Liabilities 7,728 8,276 7,757 7,370

Total Long-term Debt 12,479 12,800 13,101 13,456

Hybrid Debt - Debt Component

Total Other Non-Current Liabilities 1,233 1,345 1,212 1,108

Total Non-current Liabilities 13,712 14,146 14,314 14,563

Total Provisions 0 0 0 0

Total Liabilities 21,440 22,422 22,071 21,933

Shareholders' Equity 17,605 18,058 18,483 18,983

Minority Interests 6,696 6,868 7,030 7,220

Total Equity 24,300 24,927 25,513 26,202

Cash Flow


EBITDA 1,271 1,987 1,906 2,263

Cash Flow from Invt. & Assoc.

Change In Working Capital 2,250 (2,473) 227 (416)

Straight Line Adjustment

(Incr)/Decr in Total Provisions

Other Non-Cash (Income)/Expense 66 (64) (14) 5

Other Operating Cashflow (568) (575) (625) (589)

Net Interest (Paid)/Received 0 0 0 0

Tax Paid (350) (376) (352) (414)

Cashflow From Operations 2,670 (1,502) 1,140 848

Capex (791) (1,309) (1,309) (1,309)

Disposals Of FAs/subsidiaries 124 1,035 1,035 1,035

Disposals of Investment Properties

Acq. Of Subsidiaries/investments 0 0 0 0

Other Investing Cashflow 0 0 0 0

Cash Flow From Investing (667) (274) (274) (274)

Debt Raised/(repaid) (635) 1,828 1,828 1,828

Proceeds From Issue Of Shares 0 0 0 0

Shares Repurchased 0 0 0 0

Dividends Paid (383) (468) (438) (515)

Preferred Dividends

Other Financing Cashflow (540) (520) (520) (520)

Cash Flow From Financing (1,559) 841 870 793

Key Ratios

Dec-16A Dec-17F Dec-18F Dec-19F

Revenue Growth 10.3% 9.1% (9.9%) (8.6%)

Operating EBITDA Growth 6.0% 56.3% (4.1%) 18.7%

Operating EBITDA Margin 24.2% 34.7% 36.9% 48.0%

Net Cash Per Share (S$) (2.37) (2.99) (3.08) (3.53)

BVPS (S$) 4.14 4.25 4.35 4.47

Gross Interest Cover 2.66 4.59 4.28 5.00

Effective Tax Rate 21.1% 21.9% 21.9% 21.9%

Net Dividend Payout Ratio 53.0% 50.8% 50.8% 50.8%

Accounts Receivables Days 114.4 123.8 136.2 135.3

Inventory Days 659 636 830 882

Accounts Payables Days 489.5 501.1 551.5 547.6

ROIC (%) 18% 106% 54% 67%

ROCE (%) 3.15% 5.00% 4.60% 5.35%

Return On Average Assets 3.05% 4.65% 4.47% 5.02%

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F

12-mth Fwd FD P/E (x)

CapitaLand City Developments UOL Group

Key Drivers


Unbooked Presales (m) (S$) N/A N/A N/A N/A

Unbooked Presales (area: m sm) N/A N/A N/A N/A

Unbooked Presales (units) N/A N/A N/A N/A

Unsold attrib. landbank (area: m sm) N/A N/A N/A N/A

Gross Margins (%) N/A N/A N/A N/A

Contracted Sales ASP (per Sm) (S$) N/A N/A N/A N/A

Residential EBIT Margin (%) N/A N/A N/A N/A

Investment rev / total rev (%) N/A N/A N/A N/A

Residential rev / total rev (%) 50.2% 114.8% 54.1% N/A

Invt. properties rental margin (%) 21.7% 21.7% 21.7% 21.7%

SG&A / Sales Ratio (%) N/A N/A N/A N/A


Company Brief



City Developments Steady as she goes ■ Locked in total sales of S$1.76bn in 9M17. Planned new launches in 2018F should

extend residential development visibility. ■ Rental income stable; hotel operations saw slight RevPAR expansion in 9M17. ■ Maintain Add and TP of S$13.15.

Sold 365 residential units in Singapore in 3Q17 ● City Developments Ltd (CDL) has locked in total sales of S$1.76bn in 9M17. Sales

remained healthy as the group sold 365 units in Singapore valued at c.S$0.6bn in 3Q17. Gramercy Park is more than 89% sold while Forest Woods is 90% taken up. The Criterion EC is now 80% pre-sold.

Three new launches slated for 1H18 ● Looking ahead, we expect CDL to book in profits from the Brownstone EC (completed

in Oct 2017) in addition to progressive billings from ongoing projects. It plans to launch three projects totalling 1,175 units, by 1H18. They are New Futura, Tampines Ave 10 and South Beach Residences.

● CDL also successfully tendered for the Amber Park enbloc site for $906.7m. This will continue to extend residential earnings visibility as well as enable it to leverage on the recovery in the private residential market, in our view.

Hotel performed better in improved RevPAR ● Hotel PBT rose 34% yoy to S$74m in 3Q17 due to a 2.5% higher group revenue per

available room (RevPAR) during the quarter, contributions from the Grand Millenium Auckland (started from end-2016) as well as higher land sales. In Dec 2017, CDL revised up its cash offer for the remaining stake in listed Millennium & Copthorne Hotels (M&C) that it does not own to £6.20/share comprising a cash offer of £6/share and special dividend of £0.20/share.

● The full ownership of M&C will enable CDL to provide M&C with direct access to its larger infrastructure and to leverage on its network and financial resources. Investment property portfolio remains well occupied

● On the leasing front, rental PBT jumped significantly yoy to S$72m, thanks to the S$38m gain from the sale of its Osaka office building. In terms of operations, CDL's office portfolio occupancy remained at 92.5%, while its retail portfolio is 97.5% leased. The group has another 32% of office and 39% of retail NLA to be renewed over 4Q17-2018F.

Gradual increase in take-up for China projects ● Overseas projects continue to see higher sales qoq with the Hong Leong City Centre

P1 and P2 now 83% and 49% sold, respectively. The Park Court Aoyama The Tower is more than 75% booked. The group recently divested 70% and 50% of the Huang Huayuan and Eling Residences, respectively, to China Vanke for a total of Rmb986m, to enable the group to leverage on the latter’s local experience and expertise.

Maintain Add rating ● Our RNAV of S$16.44 reflects the latest Amber Park enbloc acquisition as well as

latest market price and TP for listed M&C and CDL Hospitality Trusts (CDLHT). Our TP of S$13.15 is based 20% discount to RNAV. We maintain our Add call as CDL remains lowly geared at 0.13x at end-Sep 2017 and has a large balance sheet capacity for further acquisitions. Downside risk includes slower-than-expected deployment of capital.


Singapore





Up/downside: 6.8%


Reuters: CTDM.SI

Bloomberg: CIT SP


S$11,194m


S$25.45m

Current shares o/s 909.3m


Source: Bloomberg


Absolute (%) 0.9 6.8 46

Relative (%) -0.4 -0.3 28.6

Major shareholders % held Hong Leong 35.2

Aberdeen 7.9

Insert

Analyst(s)

LOCK Mun Yee




Operating EBITDA (S$m) 840 979 1,106 1,256 1,354

Net Profit (S$m) 704.0 653.2 588.1 678.3 765.4

Core EPS (S$) 0.52 0.54 0.62 0.71 0.80

Core EPS Growth (24.2%) 4.0% 14.3% 15.3% 12.8%

FD Core P/E (x) 23.75 22.83 19.97 17.32 15.35

DPS (S$) 0.16 0.16 0.17 0.20 0.22

Dividend Yield 1.30% 1.30% 1.39% 1.60% 1.80%

EV/EBITDA (x) 20.09 16.40 13.99 10.82 9.62

P/FCFE (x) 22.98 14.81 10.10 6.26 8.75

Net Gearing 26.0% 19.2% 12.7% (3.8%) (8.8%)

P/BV (x) 1.31 1.26 1.21 1.15 1.09

ROE 5.68% 5.63% 6.19% 6.81% 7.30%


92.0

112.0

132.0

152.0

7.50

9.50

11.50

13.50


5

10


Vo

l m

Property Devt & Invt│Singapore│City Developments│December 13, 2017

40

BY THE NUMBERS


Profit & Loss



Gross Profit 2,066 1,778 2,122 2,341

Operating EBITDA 979 1,106 1,256 1,354


Operating EBIT 757 886 1,030 1,123




Profit Before Tax (pre-EI) 748 858 991 1,112

Exceptional Items 166 0 0 0

Pre-tax Profit 914 858 991 1,112

Taxation (151) (142) (164) (184)


Profit After Tax 763 716 827 928





Net Profit 653 588 678 765

Recurring Net Profit 514 588 678 765

Fully Diluted Recurring Net Profit 514 588 678 765

Balance Sheet


Total Cash And Equivalents 3,673 4,616 6,925 7,957


Total Debtors 1,166 1,405 1,671 1,671

Inventories 12 10 12 13

Total Other Current Assets 5,229 4,515 4,515 4,515


Fixed Assets 5,136 5,265 5,389 5,506

Total Investments 0 0 0 0


Total Other Non-Current Assets 4,581 4,592 3,158 3,169


Short-term Debt 1,911 1,998 2,099 2,213


Total Creditors 1,602 1,438 1,769 1,886


Total Current Liabilities 3,659 3,563 4,018 4,265



Total Other Non-Current Liabilities 774 774 774 774





Minority Interests 2,115 2,212 2,323 2,449

Total Equity 11,409 11,931 12,533 13,212

Cash Flow


EBITDA 979.2 1,106.3 1,255.7 1,354.4


Change In Working Capital 329.7 293.1 86.8 131.5



Other Non-Cash (Income)/Expense 221.9 248.1 264.4 242.5

Other Operating Cashflow (93.0) (108.1) (123.4) (100.5)

Net Interest (Paid)/Received (123.6) (140.0) (141.0) (142.0)

Tax Paid (156.7) (176.4) (203.8) (228.5)

Cashflow From Operations 1,157.4 1,223.1 1,138.8 1,257.3

Capex (705.4) (350.0) (349.0) (348.0)

Disposals Of FAs/subsidiaries


Acq. Of Subsidiaries/investments 0.0 0.0 0.0 0.0

Other Investing Cashflow 999.8 21.8 777.4 84.5

Cash Flow From Investing 294.5 (328.2) 428.4 (263.5)

Debt Raised/(repaid) (658.9) 268.4 309.5 349.3

Proceeds From Issue Of Shares 0.0 0.0 0.0 0.0

Shares Repurchased 0.0 0.0 0.0 0.0

Dividends Paid (237.4) (175.8) (200.8) (225.0)

Preferred Dividends

Other Financing Cashflow (444.8) (96.7) 580.1 (142.0)

Cash Flow From Financing (1,341.2) (4.1) 688.8 (17.7)

Key Ratios


Revenue Growth 18.2% (13.9%) 19.3% 10.3%

Operating EBITDA Growth 16.5% 13.0% 13.5% 7.9%


Net Cash Per Share (S$) (2.30) (1.59) 0.50 1.22

BVPS (S$) 9.74 10.18 10.70 11.28





Inventory Days 2.29 2.54 2.16 2.24


ROIC (%) 4.26% 5.14% 6.04% 7.31%

ROCE (%) 4.58% 5.27% 5.87% 6.20%


5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0




Key Drivers









Investment rev / total rev (%) N/A N/A N/A N/A

Residential rev / total rev (%) 44.7% 33.0% 41.9% 45.6%

Invt. properties rental margin (%) 51.2% 64.0% 55.6% 52.2%



Company Brief



UOL Group Robust operations ■ Beneficiary of the Singapore office and residential sector recovery. ■ Visible new residential launch pipeline for FY18F. ■ Large recurring income base from expanded rental and hotel base. ■ Maintain Add with a target price of S$9.62.

Beneficiary of the Singapore office and residential recovery ● UOL has become a major office landlord post consolidation of UIC’s earnings. As at

3Q17, UOL/UIC had a total of 5.69m sq ft of office and retail space in Singapore, located within the CBD as well as in the city fringe and suburban areas. This puts the group in a good position to benefit from the recovery in the office leasing market. In addition, its relatively cheap residential landbank should enable the group to ride the residential sector recovery.

Existing projects are selling well ● Property development revenue rose 41% yoy to S$291.5m with billings from existing

projects, such as Principal Garden (83% sold) and The Clement Canopy (70% sold) as well as from UIC’s consolidated projects Alex Residences (88% sold) and Pollen & Bleu and V on Shenton (73% sold). Excluding the consolidation effect, revenue dipped 3% yoy due to the completion of Riverbank @ Fernvale.

Good pipeline of new residential projects ● The group has an attributable pipeline of 729 units that could be launched from 2018.

These include the Raintree Garden enbloc site as well as the two land parcels in the East Coast area. We reckon UOL could generate decent margins from these sites as part of them was acquired in 2016 before the recent sharp run-up in land prices.

New hotels add to hotel revenue ● UOL's hotel operations saw a 24% rise in revenue in 3Q17, thanks to a 1% rise in

Singapore RevPAR and a 2% improvement in Australia hotel revPAR. There was also additional revenue from the Pan Pacific Melbourne, which was acquired in Jul 2017. To optimise asset returns, UOL plans to redevelop the Pan Pacific Orchard into a new 340-room hotel from 2Q18 onwards. Looking ahead, UOL expects the operating environment in China and Myanmar to remain challenging due to incoming supply.

Robust balance sheet ● Its balance sheet remains strong with a post consolidation net-debt-to-equity ratio of

0.37x at end-Sep 2017 and net debt of S$3.39bn. This puts the group on good footing to reinvest its capital, in our view.

Maintain Add ● Our RNAV of S$12.02 embeds our target price for UOB and the mark-to-market value

of UIC’s assets, which had benefited from the cap rate compression of office and retail properties. Our target price of S$9.62 is based on a 20% discount to RNAV. We maintain our Add rating. Downside risks include slower office rental recovery.


Singapore





Up/downside: 11.3%

CIMB / Consensus: 0.7%

Reuters: UTOS.SI

Bloomberg: UOL SP


S$7,272m


S$13.18m



Source: Bloomberg


Absolute (%) -1.3 7.2 39.4

Relative (%) -2.6 0.1 22

Major shareholders % held Wee related vehicles (incl Haw Par) 31.2

United Overseas Bank 9.8

Schroders 5.0

Insert

Analyst(s)

LOCK Mun Yee




Operating EBITDA (S$m) 344.5 341.9 448.6 818.2 827.0

Net Profit (S$m) 391.4 287.0 397.5 402.1 418.3

Core EPS (S$) 0.44 0.40 0.48 0.48 0.50

Core EPS Growth (44.4%) (9.3%) 21.1% (1.0%) 4.0%

FD Core P/E (x) 19.64 21.66 17.88 18.07 17.37

DPS (S$) 0.15 0.15 0.14 0.14 0.14

Dividend Yield 1.74% 1.74% 1.64% 1.64% 1.64%

EV/EBITDA (x) 27.79 27.69 33.91 18.05 17.64

P/FCFE (x) 150.3 30.2 18.1 10.5 11.7

Net Gearing 26.5% 23.6% 24.3% 18.4% 15.6%

P/BV (x) 0.87 0.86 0.79 0.77 0.74

ROE 4.48% 3.99% 4.59% 4.30% 4.34%


95.0

105.0

115.0

125.0

135.0

5.60

6.60

7.60

8.60

9.60


2

4

6


Vol m

Property Devt & Invt│Singapore│UOL Group│December 13, 2017

42

BY THE NUMBERS


Profit & Loss



Gross Profit 556 622 696 683

Operating EBITDA 342 449 818 827


Operating EBIT 275 376 643 654




Profit Before Tax (pre-EI) 391 528 650 674

Exceptional Items (37) 0 0 0

Pre-tax Profit 354 528 650 674

Taxation (48) (72) (89) (92)


Profit After Tax 306 456 561 582





Net Profit 287 397 402 418

Recurring Net Profit 319 397 402 418

Fully Diluted Recurring Net Profit 319 397 402 418

Balance Sheet


Total Cash And Equivalents 302 719 1,250 1,712


Total Debtors 100 440 492 483

Inventories 1 5 1 1

Total Other Current Assets 1,191 3,215 3,239 3,263


Fixed Assets 1,166 2,831 2,780 2,730



Total Other Non-Current Assets 24 199 223 219


Short-term Debt 728 1,912 1,812 1,869


Total Creditors 203 862 964 946


Total Current Liabilities 982 2,870 2,840 2,878



Total Other Non-Current Liabilities 326 673 408 401





Minority Interests 508 4,718 4,863 5,016

Total Equity 8,635 13,924 14,352 14,804

Cash Flow


EBITDA 341.9 448.6 818.2 827.0


Change In Working Capital 260.0 103.7 (2.5) (33.9)



Other Non-Cash (Income)/Expense (66.6) (79.7) 167.9 153.1

Other Operating Cashflow (10.6) 103.8 (125.7) (113.1)

Net Interest (Paid)/Received (25.7) (24.1) (42.2) (40.0)

Tax Paid (33.5) (57.9) (71.2) (73.8)

Cashflow From Operations 465.6 494.4 744.4 719.3

Capex (66.3) (125.0) (124.0) (123.0)

Disposals Of FAs/subsidiaries


Acq. Of Subsidiaries/investments

Other Investing Cashflow (65.1) (54.9) (27.5) 24.5

Cash Flow From Investing (131.4) (179.9) (151.5) (98.5)

Debt Raised/(repaid) (105.2) 78.1 100.0 0.0

Proceeds From Issue Of Shares 1.1 92.7 0.0 0.0

Shares Repurchased

Dividends Paid (64.3) (119.5) (119.5) (119.5)

Preferred Dividends

Other Financing Cashflow (90.2) (24.1) (42.2) (40.0)

Cash Flow From Financing (258.5) 27.2 (61.7) (159.5)

Key Ratios


Revenue Growth 12.7% 12.0% 11.8% (1.9%)

Operating EBITDA Growth (0.8%) 31.2% 82.4% 1.1%


Net Cash Per Share (S$) (2.54) (4.03) (3.14) (2.74)

BVPS (S$) 10.10 10.95 11.28 11.64





Inventory Days 0.29 0.95 0.88 0.27


ROIC (%) 9.1% 14.6% 9.7% 9.9%

ROCE (%) 2.57% 2.63% 3.62% 3.66%


5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0




Key Drivers









Investment rev / total rev (%) 45.4% 46.7% 47.2% 50.0%

Residential rev / total rev (%) 50.9% 48.0% 43.4% 40.0%

Invt. properties rental margin (%) N/A N/A N/A N/A


REIT│Singapore│December 13, 2017

Company Brief



Frasers Centrepoint Trust Returning to a stronger earnings growth path ■ Earnings momentum to resume growth path from FY18 onwards. ■ Better 4QFY17 results driven by higher occupancy and positive rental reversion. ■ NPNW’s post-asset enhancement initiative (AEI) rental and leasing activity on track

with management expectations. ■ Low gearing provides room for inorganic growth. ■ Maintain Add with an unchanged DDM-based TP of S$2.38.

Boost from a stronger NPNW ● FCT’s earnings momentum is on a stronger growth path with improved occupancy at

Northpoint North Wing (NPNW) after an asset enhancement exercise that took place from Mar 16 to Sep 17. More importantly, FCT indicated that NPNW’s average gross rent will improve by at least 9% post AEI; 95% of the space has been pre-committed. This will continue to drive forward bottomline growth, even after taking into account a slight reduction in NLA post AEI.

Higher portfolio occupancy, positive rental reversion ● Portfolio occupancy rose to 92% as at end-4QFY17, with a higher take-up of 81.6% at

NPNW upon the completion of its AEI and 4.5%/3.5%-pt rises in CCP/Bedok Point’s occupancy. Meanwhile, average portfolio rental reversion was up 8.3% in 4QFY17 and 5.1% in FY17 due to tenancy renewals and rejigging of tenant mix, except for Bedok Point, which saw a negative reversion of 21.3%. Nonetheless, the impact from the latter is minimal as the property makes up only 2.8% of FCT’s total FY17 NPI.

NPNW’s post AEI rental uplift on target with FCT’s expectations ● Although portfolio shopper traffic and tenant sales dipped 9.9% and 2% yoy,

respectively, in 4QFY17, we believe these operating metrics should improve once the integration with the South Wing is completed and NPNW stabilises. According to FCL, the North and South Wings are 90% leased and the South Wing is on track to open progressively from Dec 17 onwards.

Room for inorganic growth with gearing of 29% ● FCT has 29.2% of gross rental income expiring in FY18F and another 26.9% in

FY19F, the bulk of which is at Causeway Point and CCP. We expect FCT to continue enjoying positive rental reversions for its portfolio given its still-manageable occupancy cost. In the medium term, the trust can also explore inorganic growth prospects given its healthy balance sheet and gearing of 29%.

Maintain Add ● We continue to like FCT for its exposure to the more stable non-discretionary retail

segment. We believe the trust will continue to deliver robust earnings growth as it has moved past the peak of AEI at NPNW. Our DDM-based target price of S$2.38 assumes a cost of equity of 7.3%. Downside risks could come from slower-than-expected rental reversion.


Singapore





Up/downside: 6.3%


Reuters: FCRT.SI

Bloomberg: FCT SP


S$2,073m


S$2.16m



Source: Bloomberg


Absolute (%) 2.8 4.2 15.5

Relative (%) 1.5 -2.9 -1.9

Major shareholders % held Fraser Centrepoint Ltd 41.2

Schroders Plc 6.0

Capital Group 4.1

Insert

Analyst(s)

LOCK Mun Yee



Financial Summary Sep-16A Sep-17A Sep-18F Sep-19F Sep-20F

Gross Property Revenue (S$m) 183.8 181.6 190.4 196.8 202.8

Net Property Income (S$m) 129.9 129.6 137.3 141.8 146.0

Net Profit (S$m) 123.4 193.9 105.7 109.9 113.8

Distributable Profit (S$m) 108.1 110.6 114.8 118.3 122.2

Core EPS (S$) 0.11 0.11 0.11 0.12 0.12

Core EPS Growth (0.47%) (2.22%) 5.82% 3.07% 2.71%

FD Core P/E (x) 20.37 20.83 19.68 19.10 18.59

DPS (S$) 0.12 0.12 0.12 0.13 0.13

Dividend Yield 5.25% 5.31% 5.55% 5.64% 5.78%

Asset Leverage 28.3% 29.0% 29.5% 29.6% 29.8%

BVPS (S$) 1.93 2.02 2.01 2.00 1.99

P/BV (x) 1.16 1.11 1.12 1.12 1.12

Recurring ROE 5.72% 5.44% 5.65% 5.86% 6.03%

CIMB/consensus DPS (x) 1.01 0.99 1.00

93.0

95.8

98.6

101.4

104.2

107.0

1.800

1.900

2.000

2.100

2.200

2.300


1

2

3

4


Vol m

REIT│Singapore│Frasers Centrepoint Trust│December 13, 2017

44

BY THE NUMBERS


Profit & Loss

(S$m) Sep-17A Sep-18F Sep-19F Sep-20F

Rental Revenues 161.6 170.3 176.4 182.2

Other Revenues 20.0 20.2 20.3 20.5

Gross Property Revenue 181.6 190.4 196.8 202.8

Total Property Expenses (52.0) (53.1) (55.0) (56.8)

Net Property Income 129.6 137.3 141.8 146.0

General And Admin. Expenses 0.0 0.0 0.0 0.0

Management Fees (14.5) (14.6) (14.7) (14.8)

Trustee's Fees (2.6) (2.6) (2.6) (2.6)

Other Operating Expenses 0.0 0.0 0.0 0.0

EBITDA 112.5 120.1 124.5 128.6

Depreciation And Amortisation 0.0 0.0 0.0 0.0

EBIT 112.5 120.1 124.5 128.6

Net Interest Income (17.6) (18.8) (19.0) (19.2)

Associates' Profit 4.4 4.4 4.4 4.4

Other Income/(Expenses) 0.0 0.0 0.0 0.0

Exceptional Items 94.7 0.0 0.0 0.0

Pre-tax Profit 193.9 105.7 109.9 113.8

Taxation 0.0 0.0 0.0 0.0

Minority Interests 0.0 0.0 0.0 0.0

Preferred Dividends 0.0 0.0 0.0 0.0

Net Profit 193.9 105.7 109.9 113.8

Distributable Profit 110.6 114.8 118.3 122.2

Balance Sheet




Other Long-term Assets 0 0 1 1


Total Cash And Equivalents 14 18 22 26

Inventories 0 0 0 0

Trade Debtors 0 0 0 0

Other Current Assets 4 4 4 4

Total Current Assets 18 22 26 30

Trade Creditors 33 34 35 36

Short-term Debt 152 152 152 152


Total Current Liabilities 202 204 205 206

Long-term Borrowings 646 665 675 685

Other Long-term Liabilities 31 31 31 31

Total Non-current Liabilities 677 696 706 716


Minority Interests 0 0 0 0

Preferred Shareholders Funds

Total Equity 1,872 1,872 1,882 1,891

Cash Flow


Pre-tax Profit 193.9 105.7 109.9 113.8

Depreciation And Non-cash Adj. 13.2 14.4 14.6 14.8

Change In Working Capital 2.0 1.6 1.1 1.1

Tax Paid 0.0 0.0 0.0 0.0

Others (91.1) 3.6 2.9 3.0


Capex (27.8) (16.0) (16.1) (16.2)

Net Investments And Sale Of FA (40.4) 4.4 4.3 4.3

Other Investing Cashflow 0.0 0.0 0.0 0.0


Debt Raised/(repaid) 278.0 20.0 20.0 20.0

Equity Raised/(Repaid) 0.0 0.0 0.0 0.0

Dividends Paid (108.2) (114.8) (118.3) (122.2)

Cash Interest And Others (228.9) (18.8) (19.0) (19.2)

Cash Flow From Financing (59.2) (113.6) (117.3) (121.4)

Total Cash Generated (9.3) 0.1 (0.4) (0.6)

Free Cashflow To Firm 49.9 113.7 116.8 120.8

Free Cashflow To Equity 313.5 114.9 117.8 121.6

Key Ratios

Sep-17A Sep-18F Sep-19F Sep-20F

Gross Property Revenue Growth (1.21%) 4.87% 3.32% 3.05%

NPI Growth (0.23%) 6.00% 3.26% 2.96%

Net Property Income Margin 71.3% 72.1% 72.1% 72.0%

DPS Growth 1.16% 4.46% 1.55% 2.50%


Effective Tax Rate 0% 0% 0% 0%

Net Dividend Payout Ratio 57% 109% 108% 107%

Current Ratio 0.09 0.11 0.13 0.15

Quick Ratio 0.09 0.11 0.13 0.15

Cash Ratio 0.07 0.09 0.11 0.13


3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%


Rolling Dividend Yield

CapitaLand Mall Trust Frasers Centrepoint Trust

Mapletree Commercial Trust

Key Drivers

Sep-17A Sep-18F Sep-19F Sep-20F

Rental Rate Psf Pm (S$) 14.0 14.2 14.5 14.9

Acq. (less development) (US$m) N/A N/A N/A N/A

RevPAR (S$) N/A N/A N/A N/A

Net Lettable Area (NLA) ('000 Sf) 1,086 1,070 1,070 1,070

Occupancy (%) 91.1% 93.4% 94.2% 94.2%

Assets Under Management (m) (S$) 2,668.1 2,684.1 2,700.2 2,716.4

Funds Under Management (m) (S$) N/A N/A N/A N/A


Company Brief



Frasers Logistics & Industrial Trust Why you can keep FLT in your pocket ■ Two key investment merits for the REIT – its ability to tap its sponsor’s Australian

development pipeline, and a favourable Australian industrial market. ■ Our desktop research found the Australian industrials remaining firmly in an up-cycle. ■ We believe FLT will continue its acquisition rate of A$150m-200m p.a. over the next

two years; this could catalyse the stock. Maintain Add, with an unchanged TP.

Why you can keep FLT in your pocket ● FLT’s ability to tap the Australian development pipeline of sponsor Frasers

Centrepoint Ltd (FCL) via Frasers Property Australia (FPA), and a favourable Australian industrial market are two key investment merits for the REIT. This is especially so in view of the increasingly low availability of prime assets in Australia, mopped by capital chasing core assets.

● This puts FLT at an advantage vs. the other S-REITs which are diversifying into Australia. Furthermore, its maiden portfolio acquisition of seven properties demonstrates strong sponsor commitment.

FLT could maintain A$150m-200m acquisition rate over FY18F-19F ● Given FPA’s development pipeline of A$850m (based on completed value), we

believe FLT could maintain an acquisition rate of A$150m-200m over the next two years.

● If we were to incorporate this, we would derive a DDM-based TP of S$1.23. Thinking longer term (>three years), as Australian property market peaks and contingent on market cycles, we cannot exclude the possibility that FLT could acquire assets from Geneba Properties, FCL’s European logistics and industrials platform.

Australian industrials in an up-cycle… ● Our desktop research found the Australian industrials remaining firmly in an up-cycle.

We highlight some of the metrics tracked by Knight Frank which include vacancy, take-up and average letting up period. These metrics all point to an “up”.

● In summary, Sydney remains the strongest market, thanks to limited available space and strong economic activity. Melbourne is also benefiting from good demand and population growth. Brisbane remains challenging but the worst is likely over, in our view.

… as evident by cap rate compression ● FLT’s portfolio cap rate firmed down 16bp to 6.71% in 4QFY17, led by Australia's

eastern seaboard states. The tightest market was New South Wales (NSW), which felt 24bp compression. South and Western Australia experienced 66bp and 33bp expansion, respectively. Eastern seaboard cities make up 97.3% of FLT’s asset under management (AUM).

Maintain Add; acquisitions and stronger A$ to propel the REIT ● In view of FLT's portfolio transaction and a stronger A$, we project a 2-year DPU

CAGR of 4.6% until FY19F. We maintain our Add call and DDM-based TP.

● Potential re-rating catalysts are accretive-acquisitions. Downside risk could come from an unexpected downturn in Australia industrials.


Singapore





Up/downside: 8.4%


Reuters: FRAE.SI

Bloomberg: FLT SP


S$1,687m


S$5.47m



Source: Bloomberg


Absolute (%) -1.8 3.3 18.7

Relative (%) -3.1 -3.8 1.3

Major shareholders % held FCL 19.7

Nikko AM 6.4

TCC Group 6.0

Insert

Analyst(s)

YEO Zhi Bin


LOCK Mun Yee T (65) 6210 8606 E [email protected]

Financial Summary Sep-17A Sep-18F Sep-19F Sep-20F

Gross Property Revenue (A$m) 163.1 160.4 167.1 170.7

Net Property Income (A$m) 134.0 136.0 142.1 145.1

Net Profit (A$m) 97.76 89.46 94.36 96.75

Distributable Profit (A$m) 101.5 108.7 114.2 116.9

Core EPS (A$) 0.060 0.059 0.061 0.062

Core EPS Growth (2.29%) 4.59% 1.66%

FD Core P/E (x) 18.06 18.48 17.67 17.38

DPS (A$) 0.070 0.071 0.074 0.075

Dividend Yield 6.45% 6.57% 6.85% 6.95%

Asset Leverage 29.0% 29.4% 29.7% 29.9%

BVPS (A$) 0.88 0.87 0.86 0.85

P/BV (x) 1.23 1.25 1.26 1.28

Recurring ROE 13.0% 6.7% 7.1% 7.3%


93.0

97.5

102.0

106.5

111.0

0.800

0.900

1.000

1.100

1.200


5

10

15

20


Vo

l m

REIT│Singapore│Frasers Logistics & Industrial Trust│December 13, 2017

46

BY THE NUMBERS


Profit & Loss

(A$m) Sep-18F Sep-19F Sep-20F

Rental Revenues 160.4 167.1 170.7

Other Revenues

Gross Property Revenue 160.4 167.1 170.7

Total Property Expenses (24.4) (25.1) (25.6)

Net Property Income 136.0 142.1 145.1

General And Admin. Expenses

Management Fees (13.1) (13.4) (13.6)

Trustee's Fees (0.3) (0.3) (0.3)

Other Operating Expenses (2.4) (2.4) (2.4)

EBITDA 120.2 125.9 128.8

Depreciation And Amortisation

EBIT 120.2 125.9 128.8

Net Interest Income (18.5) (18.7) (18.9)

Associates' Profit

Other Income/(Expenses)

Exceptional Items 0.0 0.0 0.0

Pre-tax Profit 101.7 107.2 109.9

Taxation (12.2) (12.9) (13.2)

Minority Interests

Preferred Dividends

Net Profit 89.5 94.4 96.8

Distributable Profit 108.7 114.2 116.9

Balance Sheet


Total Investments 1,916 1,921 1,926

Intangible Assets 0 0 0

Other Long-term Assets 3 3 3

Total Non-current Assets 1,919 1,924 1,929

Total Cash And Equivalents 43 38 32

Inventories

Trade Debtors 6 6 6

Other Current Assets 0 0 0

Total Current Assets 49 44 38

Trade Creditors 36 37 38

Short-term Debt

Other Current Liabilities 3 3 3

Total Current Liabilities 39 40 41

Long-term Borrowings 579 584 589

Other Long-term Liabilities 19 19 19

Total Non-current Liabilities 598 603 608

Shareholders' Equity 1,331 1,325 1,318

Minority Interests


Total Equity 1,331 1,325 1,318

Cash Flow


Pre-tax Profit 101.7 107.2 109.9

Depreciation And Non-cash Adj. 18.5 18.7 18.9

Change In Working Capital (7.3) 1.3 0.9

Tax Paid (12.2) (12.9) (13.2)

Others 13.1 13.4 13.6

Cashflow From Operations 113.9 127.8 130.1

Capex (5.0) (5.0) (5.0)

Net Investments And Sale Of FA 0.0 0.0 0.0

Other Investing Cashflow

Cash Flow From Investing (5.0) (5.0) (5.0)

Debt Raised/(repaid) 5.0 5.0 5.0

Equity Raised/(Repaid)

Dividends Paid (108.7) (114.2) (116.9)

Cash Interest And Others (18.5) (18.7) (18.9)

Cash Flow From Financing (122.2) (127.9) (130.8)

Total Cash Generated (13.3) (5.1) (5.7)

Free Cashflow To Firm 108.9 122.8 125.1

Free Cashflow To Equity 95.3 109.1 111.2

Key Ratios

Sep-18F Sep-19F Sep-20F

Gross Property Revenue Growth (1.63%) 4.19% 2.14%

NPI Growth 1.53% 4.44% 2.14%

Net Property Income Margin 84.8% 85.0% 85.0%

DPS Growth 1.92% 4.20% 1.50%

Gross Interest Cover 6.49 6.74 6.83

Effective Tax Rate 12.0% 12.0% 12.0%

Net Dividend Payout Ratio 122% 121% 121%

Current Ratio 1.26 1.09 0.93

Quick Ratio 1.26 1.09 0.93

Cash Ratio 1.10 0.93 0.77

Return On Average Assets 4.54% 4.79% 4.92%

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

Jan-13A Jan-14A Jan-15A Jan-16A Jan-17A

Rolling Dividend Yield - Frasers Logistics & Industrial Trust Key Drivers

Sep-18F Sep-19F Sep-20F

Rental Rate Psf Pm (A$) 0.8 0.8 0.9

Acq. (less development) (US$m) N/A N/A N/A

RevPAR (A$) N/A N/A N/A

Net Lettable Area (NLA) ('000 Sf) 14,341 14,532 14,532

Occupancy (%) 99.3% 99.3% 99.3%

Assets Under Management (m) (A$) 1,916.0 1,921.0 1,926.0

Funds Under Management (m) (A$) N/A N/A N/A


Company Brief



Far East Hospitality Trust Light at the end of the tunnel; acquisition in sight ■ 3Q17 hotel RevPAR inched up 0.4% yoy. We believe that was due to low base-effect,

and there could be continued improvements in 4Q17F. ■ With incoming supply tapering in 2018F, we expect 3% yoy improvement in RevPAR

in FY18F. For SR, we expect a yoy improvement in FY18F with stabilised occupancy. ■ Maintain Hold. However, investors with a strong view that an accretive-acquisition

could occur soon may want to add the stock before the fact.

3Q17: Light at the end of the tunnel ● While FEHT's headline 3Q17 DPU of 1.03 Scts (-8% yoy) was not exactly impressive,

we were encouraged by the underlying trends. We believe FEHT is now seeing light at the end of the tunnel. Its hotel revenue per available room (RevPAR) inched up 0.4% yoy in 3Q17, the first uptick FEHT has seen in this downcycle.

Uptick in hotel RevPAR ● 3Q17 hotel RevPAR inched up 0.4% yoy to S$143 (9M17 RevPAR fell 1.8% yoy). The

improvement came from higher occupancy (+1% pt yoy to 89.4%) and flattish average daily rate (ADR). Qoq, FEHT saw better contribution from the corporate segment. Among the portfolio, the three “Village” hotels fared better yoy. Orchard Parade was slightly affected by room refurbishment. The first phase of its room refurbishment has been completed, and the second phase is slated for completion by 1Q18F.

Occupancy in SR stabilises ● 3Q17 serviced residences (SR) revenue per available unit (RevPAU) declined 3.4%

yoy on lower occupancy (-1% pt yoy to 89%) and ADR (-2.3% yoy). That said, SR's performance saw a marked improvement qoq, with the occupancy gap that impacted trading in 1H17 closed in the quarter. In addition, revenue from commercial premises (accounted for 20.3% of 3Q17 revenue) declined 4.5% yoy on lower occupancy and marginal decrease in rental rates. The weakness was within our expectation.

Can the improvements be sustained? ● With c.60% of new supply only coming on stream in 4Q17, consensus is of the view

that sustained improvements in Singapore hotels' RevPAR would only come in 2H18F. Specifically for FEHT, due to low base-effects, we see continued improvements in RevPAR in 4Q17F. With incoming supply tapering in 2018F, we forecast 3% yoy increase in FEHT's RevPAR in FY18F (driven by ADR increase). Likewise, for SR, we expect RevPAU improvement in FY18F, with occupancy stabilising.

Maintain Hold; acquisition in sight ● We maintain our forecasts, DDM-based TP and Hold rating. On an “as-it-is” basis,

FEHT remains a Hold. However, investors with a strong view that an accretive-acquisition of Oasia Hotel Downtown could occur soon could add the stock before the fact. Under a scenario analysis, we estimated a 4.5-12% accretion to FEHT’s FY18F DPU from the acquisition. Upside/downside risks to our Hold call stem from Singapore hospitality market and favourable/unfavourable acquisitions.


Singapore

HOLD (no change) Consensus ratings*: Buy 1 Hold 4 Sell 1




Up/downside: -2.5%


Reuters: FAEH.SI

Bloomberg: FEHT SP

Market cap: US$974.5m

S$1,317m


S$1.07m



Source: Bloomberg


Absolute (%) 1.4 6.8 20.3

Relative (%) 0.1 -0.3 2.9

Major shareholders % held Far East Organization 53.3

Aberdeen 6.0

Vanguard Group 0.9

Insert

Analyst(s)

YEO Zhi Bin


LOCK Mun Yee T (65) 6210 8606 E [email protected]


Gross Property Revenue (S$m) 114.6 109.1 105.2 108.3 113.5

Net Property Income (S$m) 103.7 98.4 94.7 97.8 102.6

Net Profit (S$m) 33.22 30.07 61.25 63.27 67.28

Distributable Profit (S$m) 82.22 78.14 73.60 75.98 80.35

Core EPS (S$) 0.039 0.037 0.034 0.034 0.036

Core EPS Growth (11.9%) (6.9%) (7.9%) 2.4% 5.4%

FD Core P/E (x) 18.08 19.42 21.08 20.60 19.55

DPS (S$) 0.046 0.044 0.040 0.041 0.043

Dividend Yield 6.48% 6.13% 5.70% 5.83% 6.11%

Asset Leverage 32.4% 33.1% 33.5% 33.9% 34.0%

BVPS (S$) 0.94 0.91 0.90 0.89 0.88

P/BV (x) 0.76 0.78 0.79 0.80 0.80

Recurring ROE 4.11% 3.96% 3.72% 3.84% 4.09%


89.0

94.0

99.0

104.0

109.0

114.0

0.500

0.550

0.600

0.650

0.700

0.750


5

10

15


Vo

l m

REIT│Singapore│Far East Hospitality Trust│December 13, 2017

48

BY THE NUMBERS


Profit & Loss


Rental Revenues 109.1 105.2 108.3 113.5

Other Revenues

Gross Property Revenue 109.1 105.2 108.3 113.5

Total Property Expenses (10.7) (10.5) (10.5) (10.9)

Net Property Income 98.4 94.7 97.8 102.6

General And Admin. Expenses

Management Fees (11.5) (11.1) (11.2) (11.4)

Trustee's Fees (0.3) (0.5) (0.5) (0.5)

Other Operating Expenses (0.8) (1.0) (1.0) (1.0)

EBITDA 85.7 82.1 85.1 89.7

Depreciation And Amortisation

EBIT 85.7 82.1 85.1 89.7

Net Interest Income (19.8) (20.2) (20.9) (21.3)

Associates' Profit (0.0) (0.7) (0.9) (1.1)

Other Income/(Expenses)

Exceptional Items (35.8) 0.0 0.0 0.0

Pre-tax Profit 30.1 61.2 63.3 67.3

Taxation (0.0) 0.0 0.0 0.0

Minority Interests 0.0 0.0 0.0 0.0

Preferred Dividends

Net Profit 30.1 61.2 63.3 67.3

Distributable Profit 78.1 73.6 76.0 80.3

Balance Sheet




Other Long-term Assets 0 0 0 0


Total Cash And Equivalents 15 15 15 14

Inventories

Trade Debtors 9 10 10 11

Other Current Assets 30 40 50 50

Total Current Assets 54 64 75 75

Trade Creditors 2 2 2 2

Short-term Debt 292 295 298 299


Total Current Liabilities 304 308 311 312

Long-term Borrowings 531 543 555 559

Other Long-term Liabilities 8 8 8 8

Total Non-current Liabilities 539 551 563 567


Minority Interests


Total Equity 1,646 1,646 1,646 1,646

Cash Flow


Pre-tax Profit 30.1 61.2 63.3 67.3

Depreciation And Non-cash Adj. 19.9 20.9 21.9 22.4

Change In Working Capital 0.0 (0.6) (0.2) (0.4)

Tax Paid (0.0) 0.0 0.0 0.0

Others 46.1 10.9 11.1 11.2


Capex (8.1) (5.0) (5.0) (5.0)

Net Investments And Sale Of FA (5.1) (10.0) (10.0) 0.0

Other Investing Cashflow


Debt Raised/(repaid) 5.1 15.0 15.0 5.0

Equity Raised/(Repaid) 0.0 0.0 0.0 0.0

Dividends Paid (78.7) (73.6) (76.0) (80.3)

Cash Interest And Others (19.2) (19.5) (20.2) (20.6)

Cash Flow From Financing (92.8) (78.1) (81.2) (95.9)

Total Cash Generated (10.0) (0.6) (0.2) (0.4)

Free Cashflow To Firm 82.8 77.5 81.0 95.5

Free Cashflow To Equity 68.7 73.0 75.7 80.0

Key Ratios


Gross Property Revenue Growth (4.85%) (3.55%) 3.00% 4.76%

NPI Growth (5.11%) (3.75%) 3.33% 4.85%

Net Property Income Margin 90.2% 90.0% 90.3% 90.4%

DPS Growth (5.4%) (7.0%) 2.3% 4.8%



Net Dividend Payout Ratio 262% 120% 120% 119%

Current Ratio 0.18 0.21 0.24 0.24

Quick Ratio 0.18 0.21 0.24 0.24

Cash Ratio 0.05 0.05 0.05 0.05


4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

9.00%


Rolling Dividend Yield

CDL Hospitality Trust Far East Hospitality Trust OUE Hospitality Trust

Key Drivers


Rental Rate Psf Pm (S$) N/A N/A N/A N/A

Acq. (less development) (US$m) N/A N/A N/A N/A

RevPAR (S$) 138.4 132.8 136.8 143.7

Net Lettable Area (NLA) ('000 Sf) N/A N/A N/A N/A

Occupancy (%) 87.0% 87.0% 87.0% 87.0%

Assets Under Management (m) (S$) N/A N/A N/A N/A

Funds Under Management (m) (S$) N/A N/A N/A N/A


49

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(a) CapitaLand, CapitaLand Mall Trust, CDL Hospitality Trust, Far East Hospitality Trust, Frasers Centrepoint Trust, Frasers Logistics & Industrial Trust, Mapletree Commercial Trust, OUE Hospitality Trust, UOL Group

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53

herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc.

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

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2017, Anti-Corruption 2017

AAV – Very Good, n/a, ADVANC – Excellent, Certified, AEONTS – Good, n/a, AMATA – Very Good, n/a, ANAN – Excellent, n/a, AOT – Excellent, Declared, AP – Excellent, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Excellent, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Declared, BCP - Excellent, Certified, BCPG – Very Good, n/a, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, n/a, BEC – Very Good, n/a, , BGRIM – not available, n/a, BH - Good, n/a, BJC – Very Good, Declared, BJCHI – Very Good, Declared, BLA – Very Good, Certified, BPP – Good, n/a, BR - Good, Declared, BTS - Excellent, Certified, CBG – Good, n/a, CCET – Good, n/a, CENTEL – Very Good, Certified, CHG – Very Good, Declared, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, n/a, DEMCO – Excellent, Certified, DIF – not available, n/a, DTAC – Excellent, Certified, EA – Very Good, n/a, ECL – Very Good, Certified, EGCO - Excellent, Certified, EPG – Very Good, n/a, GFPT - Excellent, Declared, GGC – not available, Declared, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Excellent, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Certified, ICHI – Excellent, n/a, III – not available, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Very Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Certified, M – Very Good, n/a, MACO – Very Good, n/a, MAJOR – Very Good, n/a, MAKRO – Very Good, Declared, MALEE – Very Good, n/a, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Excellent, Declared, PLAT – Very Good, Certified, PSH – Excellent, Certified, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RATCH – Excellent, Certified, ROBINS – Excellent, Certified, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Very Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Very Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI – Very Good, Declared, SPA - Good, n/a, SPALI - Excellent, n/a, SPRC – Excellent, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, n/a, TCAP – Excellent, Certified, THAI – Very Good, n/a, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Excellent, Certified, TICON – Very Good, Declared, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Very Good, Declared, TMB - Excellent, Certified, TNR – Good, n/a, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Excellent, Declared, TTW – Very Good, n/a, TU – Excellent, Declared, TVO – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a.

Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into:

- Companies that have declared their intention to join CAC, and

- Companies certified by CAC

Rating Distribution (%) Investment Banking clients (%)

Add 53.5% 4.3%

Hold 35.9% 2.6%

Reduce 9.7% 0.2%

Distribution of stock ratings and investment banking clients for quarter ended on 30 September 2017

1285 companies under coverage for quarter ended on 30 September 2017


54

CIMB Recommendation Framework

Stock Ratings Definition:

Add The stock’s total return is expected to exceed 10% over the next 12 months.

Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.

Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition:

Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.

Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.

Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition:

Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.

Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.

Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

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