Singapore Industry Focus

Singapore REITs
DBS Group Research . Equity 2 Sep 2011

Safe and Sound

S-REITs showed its mettle in recent market volatility Strength in balance sheet, preference in Retail and selected Industrial REITs for stability Top picks CMT, MCT, MLT, Cache and FCOT

STI :

2,885.26

Analyst Derek TAN CPA +65 6398 7966 derektan@dbsvickers.com LOCK Mun Yee +65 6398 7972 munyee@dbsvickers.com

S-REIT resilience amidst volatility. In the recent equity market sell off, the FSTREI (S-REIT index) while corrected by some 5% versus the 12% and 25% fall in the STI and FSTREH (property developers index) respectively. S-REITs now offer a prospective a FY11-12F distribution yield of 6.5%-6.7%, which represent a 500 bps spread above the long-term government bond. It is now closer to - 1SD of the sector historical yield trading range. With earnings forecasted to be growing steadily and supported by an expected strong S$, we believe that S-REITs continue to offer a compelling investment proposition for income investors. Seeking sustainable growth-preference in Retail and selected Industrial REITs. We re-iterate our preference for retail REITs. They should continue to deliver earnings growth in the coming quarters on the back of sustained positive consumer sentiment. Even in the event of an economic downturn, retail REITs exposure in necessity shopping (eg. Supermarkets, F&B outlets) have kept earnings fairly stable. Industrial S-REITs also offer strong stability and visibility given a larger proportion of their income deriving from master-lease structures. While we continue to see Hospitality REITs delivering good numbers going into a seasonally busier 2H11, we believe that growth momentum should be slowing down given a higher base effect. Balance sheet robust; unlikely to see a repeat of previous round of equity-fund raisings back in 2008/2009. Post GFC in 2008/09, S-REITs have beefed up their balance sheets, emerging stronger to better weather any potential economic downturn. Debt maturity profiles have improved, with annual maturities backed by stable annual cash flows from rental income. The low interest rate environment also enabled S-REITs to lower average debt costs and now have almost 84% of their debt tied on fixed rated loans. As such, a scenario of a 50bps hike in rates, have a rather muted -2.2% to 0.0% impact on FY12 distributable income. Picks in Retail and selected Industrial REITs. We see value emerging in CMT (BUY, TP S$2.05) which is our big cap pick with attractive FY11-12F yields of c5.3-5.9%. MCT (BUY, TP S$1.09) is attractive for its strong organic growth coming off from a first renewal cycle at its Vivo city retail mall. Amongst the industrial REITs, MLT (BUY, TP S$1.07) stands out post an active 1H11 and is poised to deliver strong earnings growth into 2H11. We continue to see relative value amongst the smaller cap S-REITs - Cache (BUY, TP S$1.07) and FCOT (BUY, TP S$1.05), which offer higher than average yields with limited earnings downside.

TOP PICKS
Price S$ Mkt Cap Target Price US$m S$

Rating

Yield
FY12

Capitamall Trust Mapletree Commercial Trust Mapletree Logistics Trust Cache Logistics Trust Frasers Commercial Trust

1.87 0.84 0.89 0.97 0.84

4,941 1,296 1,791 510 439

2.05 1.09 1.07 1.11 1.05

BUY BUY BUY BUY BUY

5.8% 6.9% 7.2% 8.8% 7.7%

Source: DBS Vickers

S-REIT Yield average

14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Mar-03 S-REIT Yields Mean +1 SD -1 SD 10 yr Gov t Bond

S -REIT Yie lds

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Source: Bloomberg, DBS Vickers

www.dbsvickers.com Refer to important disclosures at the end of this report ed: MY / sa: JC

Industry Focus Singapore REITs

Resilient asset class. Stock prices have also demonstrated its resilient nature in the recent equity market sell off, the FSTREI (S-REIT index) while falling by 5%, it is lesser than the 12% and 25% fall in the STI and FSTREH (property developers index) respectively. On a YTD basis, the FSTREI outperformed both the STI and FSTREH by 2% and 15%. FSTREI continue to show price resilience against STI , developers
1.1 1.0 1.0 0.9 0.9 0.8 0.8 0.7 J an-11 F STREI index F STREH Index F SSTI F eb-11 Mar-11 Apr-11 May -11 J un-11 J ul-11 Aug-11 (X )

Yield spread at c500bps closer to 1SD

8.0% Y ield Spread v s 10 y ear bond 7.0% 6.0% 5.0% S-REIT 4.0% 3.0% 2.0% 10 Yr Bond 1.0% 0.0% Mar-03 +1 SD Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Ave -1 SD

Source: Bloomberg, DBS Vickers

1st Aug FSTREI FSSTI FSTREH 682.45 3,215.27 675.68

1 Sep 643.23 2,885.26 588.53

st

% Chg -5% -12% -25%

Growing yields over FY10-12. Looking ahead, we are forecasting the S-REIT sector to deliver an average FY10-12F DPU CAGR of 5.2%, ranging from -3.0% to 11.0%, with organic growth strongest from the retail and hospitality sectors, with hospitality REITs expected to deliver the higher end of growth expectations. Industrial REITs are also expected to deliver decent 5.2% growth on the back of completion of acquisitions, which should start contributing to earnings in 2H11 and beyond. Retail/Hospitality sectors offer higher growth prospects

Source: Bloomberg, DBS Vickers

S-REITs continue to offer stability. Current global economic uncertainties and volatile market conditions has made investors to look towards equities that offer stable returns and S-REITs, in our view, fit that criteria perfectly. S-REITs offer currently offer a prospective FY12 yield of 6.5% - which is over 500 bps spread above the long-term government bond. This is an attractive level as its currently closer to the 1SD of the sectors historical trading range (long term average spread of c3.0%). Furthermore, S-REITs earnings have proven to be relatively defensive and is expected to continue growing, while a strong S$ and supported by a low interest rate environment are key attributes that we believe will continue to support investor interests in the sector going forward.

Industrial REITs Office REITs Retail REITs Hospitality/ Healthcare REITs S-REIT sector

FY10A-12F DPU CAGR 5.2% -3.0% 5.7% 11.3% 4.7%

Inflation Rate * 4.2% 4.2% 4.2% 4.2% 4.2%

+/+1.0% -5.3% +1.5% +7.3% 0.7%

* As per DBS Economist forecast

Retail REITs, selected Industrial REITs still the preferred sectors that offer good growth with low earnings volatility. In terms of preference, as per our previous reports in S-REITs still a growth story and Sustainable Growth, we re-literate our preference towards Retail REITs and selected Industrial S-REITs whom we believe offer sustainable growth through organic and inorganic means which is backed by an earnings structure that has relatively lower volatility in earnings. We believe that Retail REITs are likely to enjoy robust organic growth through continued positive rental reversions supported by sustained positive retail sales growth and low employment

Page 2

Industry Focus Singapore REITs

rate in Singapore. In addition, we expect an uplift in retail sales from the influx of tourists in 2H11, a seasonally stronger half for tourism due to the school holidays. Industrial REITs, likewise should also see relatively stable earnings, as they tend to have a larger proportion of its earnings tied on long leases, with annual / CPI-pegged stepups, boosting income visibility. Hospitality REITs should continue to see positive RevPAR growth in 2011 we have seen RevPAR rising by close to 11% YTD to S$210/night (vs DBSV expectations of 12% for full year). 2H11 earnings should continue to remain positive with high occupancies and room rates from the strong inflows from leisure tourists and the annual Sept FormulaOne event. However, growth is expected to moderate due to a higher base effect. Our view on Office REITs remain moderate, as they are expected to continue reporting negative rental reversions. Nevertheless, we note that the narrowing gaps between passing and signing rents, as such their earnings growth profile should remain pretty flattish in 2H11. S-REIT lease expiry profile (by revenue)
REITs a-itrust A-REIT ART CMT CCT CRCT Cache CREIT CDREIT FCOT K-REIT MLT MINT MCT P-REIT SGREIT Suntec Sector Industrial Industrial Hospitality Retail Office/mixed Retail Industrial Industrial Hospitality Office/mixed Office/mixed Industrial Industrial Retail Healthcare Retail Office/mixed Yr End FY11/12 FY12/13 FY13/14 FY14/15 Mar Mar Dec Dec Dec Dec Dec Dec Dec Sept Dec Mar Mar Mar Dec Dec Dec 25% 14% 60% 18% 12% 15% 0% 6% 60% 3% 0% 11% 23% 26% 0% 16% 23% 18% 14% 60% 33% 19% 18% 0% 4% 60% 29% 8% 11% 26% 39% 0% 12% 24% 29% 23% 60% 33% 27% 16% 0% 17% 60% 14% 11% 8% 27% 16% 0% 40% 25% 28% 49% 60% 16% 41% 51% 100% 73% 60% 54% 82% 70% 24% 19% 0% 33% 28%

A strong Singapore dollar to continue to weigh on S-REITs profitability. The Singapore dollar has appreciated over 6% YTD against the USD and is one of the strongest performing Asian currencies YTD. Looking ahead, DBS economist expects the Singapore dollar to continue to remain strong and remain on an appreciation trend. S-REITs distributions are paid out in Singapore dollars, while their earnings source could come from a diverse source due to their multi-jurisdiction exposures. As such, S-REITs with overseas exposure, should result in translation losses as we have seen in recent quarters; with underlying income stronger compared to reported earnings. REITs with majority offshore assets (>50% of income from overseas exposures) include CRCT, a-itrust and ART they are likely to feel the impact of a strengthening S$ against various regional currencies esp. Rp and RMB and in the case of ART, a basket of currencies of USD, EUR and Pound. We note that while MLT, has also has a large portion of their income in overseas currencies (HKD, RMB, JPY, KRW). However, we note that they have substantially hedged their incomes. S-REITs country exposure
By % Revenues REITs ART A-REIT a-itrust CCT CMT CRCT CREIT Cache CDL HT K-REIT FCOT MINT MLT MCT P-REIT SGREIT SUN Spore 19% 100% 100% 100% 100% 100% 100% 85% 90% 56% 100% 49% 100% 63% 60% 100% 10% 5% 25% 37% 14% 6% 11% 7% 21% SE Asia 22% Japan /Korea 5% HK /China 7% India Aust/ NZ Europe 2% 45%

100%

15% 10% 34%

* Note that MLT, KREIT is reported in terms of NLA * Note that for CDL Hospitality Trust and Ascott Residence Trust, while they are short stay business, we have taken expiry to be c60%, given the presence of fixed income and master leases contributing close to c40% of earnings.

Source: various REITs, DBS Vickers

Page 3

Industry Focus Singapore REITs

Earnings sensitivity exercise Actual better than perception

Investors perception of S-REITs earnings risk has always been more bearish than what did actually transpire. While various S-REIT sub-sectors saw different magnitude in spot rental/room rate declines, we note that retail sector was the most resilient, which remained pretty flattish. Industrial REITs seeing 5-10% decline in average rentals, office REITs saw a hefty >50% decline in average asking rents from the peak while hospitality REITs saw RevPAR declining over 25% before bottoming out. From a net property income perspective, earnings however remained rather steady, where S-REITs - delivering c4% growth in net property income (ranging from 7% to +11%); albeit part of this growth is attributed to its acquisition activities.

20% due to lower occupancy and room rates from slower business travel and visitor arrivals. S-REITs DPU growth profile (%) back in FY09
Starhill Global REIT Mapletree Logistics Trust Capitamall Trust CapitaRetail China Trust CapitaCommercial Trust Ascendas REIT Frasers Commercial Trust K-Reit Asia Cambridge Industrial Trust Parkway Life Real Estate Investment Trust Suntec REIT Frasers Centrepoint Trust CDL Hospitality Trusts Ascott REIT Ascendas India Trust -60% -50% -40% -30% -20% -10% 0% 10% 20%

Equity Raisings

RevPAR declines

Looking ahead, we believe the scenario of 2008/2009 GFC happening is unlikely, given that there were different market dynamics at play back then. Looking ahead, we see minimal -6% Office 4% 9% downside to earnings for S-REITs given their phased rental 11% Retail 8% 9% expiry profile, which limits any potential downside risk to 11% Industrials 11% 5% reversion in any particular year, coupled with the support of 34% Hospitality/Healthcare -7% 25% long term leases in certain Industrial/Office and Retail REITs, 9% S-REIT sector total 4% 9% * We have removed new listing in Cache, MINT FY10 as a comparison on provides added stability and visibility to distributions.
FY09 FY10 FY11F

S-REIT sector net property income (NPI) growth (%)

a yoy basis Source: company results, DBS Vickers

Distribution per unit (DPU), however, fell between 20-60% due to dilutive equity issues (CMT, CCT, K-REIT and MLT) to recapitalize & repair their balance sheet back in 2008/2009. Hospitality players (CDREIT, ART) saw declines of close to 15-

In our appended scenario analysis, taking into account the respective rental expiries and if we were to assume up to a 10% haircut in topline in FY12 sector wide, we estimate a maximum 6.0% decline in distributions - with the hospitality REITs potentially seeing the most downside if visitors arrivals slow due to its shorter stay profile.

Page 4

Industry Focus Singapore REITs

Retail/Hospitality sectors offer higher growth prospects

REIT Industrial a-itrust YE Market FY12F Cap Dist Inc (S$m) (S$m) 690 54.0 Rental Expiry (% Topline) Scenario analysis 5% fall in 10% fall in Our view on the risk of potential negative rental reversion reversions reversions

Mar

18%

-0.9%

-1.8%

Moderate risk to topline as a-itrust rentals already above its market peers. However, income decline should be mitigated by the fact that a-itrust is filling up its recent development completions, which should start contribute from 2H11 Moderate risk in our view given limited reversions. Moreover, tenant expiries are well diversified in various industrial segments, including from their single-tenanted buildings, which is expected to continue to want to operate at their respective buildings. Minimal risk in our view, given that tenants are mainly 3PLs which tend to be pretty sticky Overseas income are somewhat supported by long leases, with step-ups rents supporting gradual increase in topline Unlikely, given that current passing rents are over 30% below comparable peers in the market. As MINTs premises are already one of the cheapest in the market, we believe that any potential slowdown will likely lead to slower topline growth rather than downside risk. Minimal impact to earnings given a majority of its income are backed by long leases No earnings risk due to master lease structure

A-REIT

Mar

4,393

274.3

14%

-0.7%

-1.4%

MLT

Mar

2,183

120.6

11%

-0.6%

-1.1%

MINT

Mar

1,743

98.3

26%

-1.3%

-2.6%

CREIT Cache Hospitality ART

Dec Dec

583 616

59.8 54.7

4% 0%

-0.2% 0.0%

-0.4% 0.0%

Dec

1,152

99.4

60%

-3.0%

-6.0%

Unlikely to have immediate impact as (i) 40% of income are backed by master leases, with the remaining portfolio having an average length of stay of 7 mths. Heightened risks in our view will happen in a scenario of a prolonged economic downturn, we might see weaker earnings further down the quarters. Given the short term stay nature, CDL HTs income is more volatile, however, downside risk is mitigated from fixed income structure contributing c40% of its topline. Income not expected to see immediate downside Earnings are largely tied on long-term contracts (Japan) and CPI+ structure for hospitals in Singapore. No reversions in the near term.

CDREIT

Dec

1,787

134.7

60%

-3.0%

-6.0%

P-REIT

Dec

1,154

72.1

0%

0.0%

0.0%

Retail CMT

Dec

3,185

346.3

33%

-1.7%

-3.3%

Unlikely given suburban nature of the portfolio and tenant stickiness that the mall enjoys Scheduled completion of AEI activities at Jcube, which is expected to complete by end 2012 should profit earnings uplift for CMT in the medium term

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Industry Focus Singapore REITs

Retail/Hospitality sectors offer higher growth prospects (continued)

REIT YE Market FY12F Cap Dist Inc (S$m) (S$m) 676 58.9 Rental Expiry (% Topline) Scenario analysis 5% fall in 10% fall in Our view on the risk of potential negative rental reversion reversions reversions

CRCT

Dec

18%

-0.9%

-1.8%

Performance of its malls and pedestrian in recent quarter appear to have shown a turn around in reversions (>10%), indicating that CRCTs malls have achieved a certain level of mindshare amongst consumers Exposure in the mid-tier consumer market a growing segment in China likely to mitigate any potential downside to earnings Minimal risk as a majority of lease expiries is from Vivocity; which is in their first renewal cycle. Judging from its strong pedestrian footfall and strategic location near Resorts World with no competing malls nearby, we believe tenants will want to continue staying. Minimal impact to earnings as close to 40% of topline are tied on long/master leases. SGREIT is looking to do a major asset enhancement at Wisma Atria, which will boost the malls footprint, frontage and NLA in the medium term. While we anticipate near term earnings to be more flattish, upside will derive from the completion of this AEI in 2013.

MCT

Mar

1,517

260.8

39%

-1.9%

-3.9%

SGREIT

Dec

1,205

86.9

12%

-0.6%

-1.2%

Office / Mixed CCT Dec

3,408

192.0

19%

-1.0%

-1.9%

Minimal impact given low level of rental expiries in portfolio Expected to see reversal of negative rental reversions that have plagued earnings growth over the past quarters. Moderate risk. Majority of expiries are located at China Square Central, where it is under a master-lease structure current and FCOT intends to take back and run the property themselves. Minimal reversions as such unlikely to see impact on numbers. Moreover, earnings downside is mitigated from rental reviews that contribute up to 6% of rental income, which should mitigate downside to earnings somewhat. Moderate risk retail performance continue to remain weak. As we understand that the manager is planning an asset enhancement exercise at the retail mall in Suntec City, depending on the scale, we could see earnings to remain pretty flattish in the coming quarters.

FCOT

Sept

527

42.6

29%

-1.5%

-2.9%

K-REIT

Dec

1,359

98.3

8%

-0.4%

-0.8%

Suntec

Dec

3,016

198.1

24%

-1.2%

-2.4%

Source: company results, DBS Vickers

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Industry Focus Singapore REITs

Robust capital Structure

Since the global financial crisis in 2009, S-REITs managers have been conservative in their capital management approach, which is a positive step towards achieving greater financial stability and a more resilient balance sheet. Trends we note include S-REITs managers taking advantage of current low interest rate environment to term out their debt maturity profile and fix a larger portion of their debt into fixed rated loans. Average leverage ratio (or Gearing) of 34.8%. S-REIT sectors aggregate leverage still remains relatively conservative at c34.8%, which is within most S-REIT managers comfortable range of between 40-45%. Apart from purely looking at gearing where it is one of the more emphasized financial metric that investors use to assess a REITs financial stability and flexibility, we believe it is also important to look at other financial aspects i.e. debt profile, interest cover and short term liquidity positions to have a holistic view in assessing a REITs financial structure. S-REIT financial metrics, latest reported
REIT Gearing (%) ART A-REIT a-Itrust CMT CRCT CCT Cache CREIT CDREIT FCOT K-REIT MLT MINT MCT P-life SGREIT SUNTEC 41% 32% 24% 38% 32% 27% 24% 36% 26% 36% 46% 43% 41% 41% 35% 30% 39% Avg debt Cost (%) 3.3 3.8 5.7 3.7 2.4 3.6 4.3 3.3 3.0 4.3 2.7 2.2 2.0 2.0 1.9 3.5 2.8 % Debt Debt Duration* Fixed (Est) (Yrs) 59% 87% 14% 98% 76% 87% 84% 89% 100% 80% 95% 74% 75% 80% 0% 70% 70% 2.2 3.6 2.2 3.1 3.0 1.8 2.0 3.6 2.0 1.0 4.0 2.7 3.4 3.4 3.4 2.6 2.8 ICR (x) 3.6x 5.3x 3.7x 3.6x 4.1x 7.0x 9.2x 5.0x 10.4x 2.9x 4.6x 6.5x 6.8x 5.1x 5.8x 4.4x 4.5x

(i)

An extended Debt expiry profile

As of 2Q11, we note that a substantial amount of S-REIT debt has already been refinanced, a result of early refinancing activities undertaken by various S-REIT managers over the prior quarters. The average length of debt expiry now stands at 3.8 years (extended from 2.8 years back a year ago) as S-REIT managers look towards terming out its debt maturing profile. Out of a total debt of S$20.1bn, only 4% is left for refinancing in 2011, with the 2012-2015 seeing a well spread out maturity profile of c20% yearly, a profile that believe is sustainable as it limits exposure to any unexpected shocks to interest rate hikes that might occur in the years down the road. Taking a closer look at S-REIT debt expiries in 2012, we note that major refinancing activities are skewed towards the larger market cap S-REITs like Ascott REIT (ART), CapitaCommercial Trust (CCT), CapitaMall Trust (CMT) and Mapletree Logistics Trust (MLT) and it forms only 24% - 34% of their respective total debt, which we believe should be manageable. While the likes of Frasers Commercial Trust (FCOT) will be looking to renew its bullet loan of S$750m, 100% of its total debt by year end 2012, we understand that they are already in early discussions with bankers to refinance its loan, with an aim to break it down into smaller sizes and differing maturity tenures. Debt maturity profile for S-REIT sector (as of 2Q11)
>2015 14% 2011 4% 2012 20%

2015 21%

2013 21% 2014 20%

Source: Various REITs, DBS Vickers

* Estimated as of 2Q11 Source: Various REITs, DBS Vickers

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Industry Focus Singapore REITs

S-REIT debt expiry profile (in S$bn)

Total (S$bn) Ascendas India Trust A-REIT Ascott Residence Trust CapitaMall Trust CapitaCommercial Trust CapitaRetail China Trust Cache Logistics Trust Cambridge Industrial Trust CDL Hospitality Trust Frasers Commercial Trust K-REIT Mapletree Logistics Trust Mapletree Industrial Trust Mapletree Commercial Trust Parkway Life Starhill Global Reit Suntec REIT 0.26 1.56 1.10 3.30 1.67 0.40 0.18 0.36 0.54 0.75 1.42 1.56 0.89 1.20 0.47 0.84 2.76 2011 (S$bn) 0.02 0.01 0.12 0.06 0.11 0.00 0.09 2012 (S$bn) 0.12 0.07 0.40 0.78 0.57 0.09 0.15 0.75 0.48 0.05 0.23 2013 (S$bn) 0.03 0.03 0.11 0.58 0.23 0.15 0.18 0.39 0.10 0.23 0.22 0.30 0.05 0.53 0.77 2014 (S$bn) 0.07 0.07 0.16 0.50 0.10 0.26 0.49 0.31 0.27 0.36 0.19 0.00 0.89 2015 (S$bn) 0.03 0.03 0.31 0.80 0.30 0.83 0.05 0.27 0.36 0.23 0.26 0.68 2016 (S$bn) 0.39 0.58 0.10 0.16 0.13 0.18 0.10 2017 (S$bn) 0.25 0.23 -

Source: Various REITs, DBS Vickers

S-REITs debt expiry profile in %

2011 (%) Ascendas India Trust A-REIT Ascott Residence Trust CapitaMall Trust CapitaCommercial Trust CapitaRetail China Trust Cache Logistics Trust Cambridge Industrial Trust CDL Hospitality Trust Frasers Commercial Trust K-REIT Mapletree Logistics Trust Mapletree Industrial Trust Mapletree Commercial Trust Parkway Life Starhill Global Reit Suntec REIT 3% 10% 11% 0% 0% 16% 0% 0% 0% 0% 0% 7% 0% 0% 0% 0% 3% 2012 (%) 34% 0% 36% 24% 34% 22% 0% 0% 0% 100% 0% 31% 0% 0% 0% 6% 8% 2013 (%) 16% 16% 10% 18% 14% 37% 100% 0% 100% 0% 7% 15% 25% 25% 11% 63% 28% 2014 (%) 35% 25% 14% 15% 0% 25% 0% 72% 0% 0% 35% 20% 30% 30% 41% 0% 32% 2015 (%) 13% 19% 28% 24% 18% 0% 0% 0% 0% 0% 58% 3% 30% 30% 48% 31% 25% 2016 (%) 0% 0% 0% 12% 35% 0% 0% 28% 0% 0% 0% 10% 15% 15% 0% 0% 4% 2017 (%) 0% 29% 0% 8% 0% 0% 0% 0% 0% 0% 0% 15% 0% 0% 0% 0% 0%

Source: Various REITs, DBS Vickers

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Industry Focus Singapore REITs

(ii)

Improved liquidity

The trend of S-REITs terming out their debt maturity profile is a positive development that S-REIT managers have undertaken, in our view. While it aims to reduces the concentration and refinancing risk of having a large amount of debt expiring in any one year, it also enables the REIT to an extent where it is financially efficient, to peg its underlying cash flows to debt expiring commitments.

In the unlikely event that banks demand repayment upon debt expiry in 2012, based on our latest estimates of S-REITs FY12 distributions, and taking into account their short term obligations and assets as per 2Q11 results, we find that most S-REITs cashflows have adequately covered FY12 debt repayment obligations, S-REITs that have negative cover, either have current plans to refinance the loans, or the negative covers are insignificant as a % to their market capitalization.

S-REITs have adequate short term liquidity position

REIT Market Cap (S$m) FY12F Dist Inc (A) 54.0 274.3 ST Assets (B) 92.7 47.4 ST Liabilities (C) 62.0 327.9 Loans CoverRemarks (Expiring) FY12 (D) A+B C-D 66.0 18.7 (6.2) Amount insignificant compared against A-REIT market cap of over S$4bn. We note that A-REIT is also in the process of rolling over ST loans of S$161m (expiring by 2011) to 2016. (252.9) Loans are mainly secured loans with banks, ART has also recently set up a S$1bn MTN program which they can strategically tap as an alternative source of funds. A majority of its assets are encumbered, and with expected continued strong cashflows, we do not see this as a red flag. 16.9 4.5 (27.8) Insignificant amount against CTCT market cap 57.4 144.3 41.3 (651.3) Bullet loan repayment by 4Q11; we understand that management is already in discussions to refinance the bank loan. 126.8 (340.1) 121.7 188.4 103.1 92.9 (42.1) Amount insignificant compared against Suntec REITs market cap of over S$2.8bn

a-itrust A-REIT

690 4,393

ART

1,290

99.4

147.7

100.3

CMT CCT CRCT Cache CREIT CDREIT FCOT

5,940 3,408 825 616 583 1,787 527

346.3 192.0 58.9 54.7 59.8 134.7 42.6

838.6 470.7 67.8 6.9 94.7 83.0 82.5

385.0 88.2 66.5 4.2 10.2 23.5 31.4

783.0 570.0 88.0 153.0 745.0

K-REIT MINT MCT MLT P-REIT SGREIT Suntec

1,570 2,183 1,154 1,205 1,742 1,517 3,016

98.3 120.6 98.3 179.4 72.1 86.9 198.1

83.4 189.9 101.5 54.0 45.0 115.0 39.2

54.9 167.0 78.1 45.0 14.0 59.0 54.4

483.6 50.0 225.0

Source: S-REIT presentations, DBS Vickers

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Industry Focus Singapore REITs

Interest coverage ratio remain high; distributions limited impact from interest rate hikes S-REITs Interest coverage ratios have remained relatively comfortable in our view with an average of >3.0x, supported by its relatively stable cashflows, prudent gearing levels and low interest costs. Even in an assumed scenario of a 10% haircut in renewal rents in 2012, we estimate that average interest coverage ratios are unlikely to dip by >5 % and still stay at above 3.0x, which is healthy. S-REIT interest coverage ratios to remain high even assuming up to a 10% haircut in rental income
-10% a-itrust A-REIT ART CMT CCT CRCT Cache CREIT CDREIT FCOT K-REIT MINT MCT MLT P-REIT SGREIT Suntec 3.4 5.2 3.3 3.4 4.0 6.9 8.9 5.0 10.3 2.9 4.6 6.4 6.5 4.9 5.8 4.3 4.4 -5% 3.5 5.2 3.5 3.5 4.0 6.9 9.1 5.0 10.4 2.9 4.6 6.4 6.7 5.0 5.8 4.4 4.4 Base (as of 2Q11) 3.6 5.3 3.7 3.6 4.1 7.0 9.2 5.0 10.4 2.9 4.6 6.5 6.8 5.1 5.8 4.4 4.5 +5% 3.7 5.4 3.9 3.7 4.2 7.1 9.3 5.0 10.4 2.9 4.6 6.6 6.9 5.2 5.8 4.4 4.6 +10% 3.8 5.4 4.1 3.8 4.2 7.1 9.5 5.0 10.5 3.0 4.6 6.6 7.1 5.3 5.8 4.5 4.6

holistic consideration is the improved income visibility to SREITs distributions going forward, mitigating the impact of any potential hikes in interest rates to distributions to unitholders. Based on our sensitivity analysis in the table below, a 50 bps increase in interest rates will have minimal impact (estimated at 0.0% to 2.3%) on S-REITs FY12 distributable income. Scenario of up to 50bps hike to see limited impact at on FY12F S-REIT distributions (<2.2%)
50pbs a-itrust A-REIT ART CMT CCT CRCT Cache CREIT CDREIT FCOT K-REIT MINT MCT MLT P-REIT SGREIT Suntec -1.7% -0.5% -2.3% 0.0% -0.7% -2.0% -0.5% -0.3% 0.0% -1.8% -0.3% -1.2% -1.2% -0.8% -0.7% 25bps -0.8% -0.2% -1.1% 0.0% -0.3% -1.0% -0.2% -0.2% 0.0% -0.9% -0.1% -0.6% -0.6% -0.4% -0.3% FY12F Distribution Income 54.0 274.3 99.4 346.3 192.0 58.9 54.7 59.8 134.7 42.6 98.3 120.6 98.3 179.4 72.1 -25bps 0.8% 0.2% 1.1% 0.0% 0.3% 1.0% 0.2% 0.2% 0.0% 0.9% 0.1% 0.6% 0.6% 0.4% 0.3% -50bps 1.7% 0.5% 2.3% 0.0% 0.7% 2.0% 0.5% 0.3% 0.0% 1.8% 0.3% 1.2% 1.2% 0.8% 0.7%

-1.7%
-2.2%

-0.9%
-1.1%

86.9
198.1

0.9%
1.1%

1.7%
2.2%

Source: S-REIT presentations, DBS Vickers

Source: S-REIT presentations, DBS Vickers

Fixed-rated debt limits risks of higher interest costs a boon or bane? The current low interest rate environment current has prompted S-REIT managers to refinance their expiring loans and also to swap/fix their loans into fixed-rated debt. At this juncture, an estimated 84% of its total debt taken by S-REITs is fixed-rated loans. One may argue that S-REITs could potentially enjoy lower interests cost from having a larger proportion of floating rate-debt given expectations of a pro-longed low interest rate environment. However, we believe that the more

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Industry Focus Singapore REITs

Price and valuations Recent stock market decline has brought yields back to 6.5%, which we believe is attractive. Our stock preference takes into account individual S-REITs ability to deliver sustained earnings growth in our view over the coming quarters, with limited downside to earnings and also taking into account its current price to book value (P/BV) valuation vis-a-vis its long-term earnings growth potential (FY10-13F DPU CAGR). Our top picks are : CapitaMall Trust (BUY, TP S$2.05). After recent price weakness, we see value emerging in CMT again. Currently offering FY11-12 yields of 5.2-5.8%, as one of Singapores largest retail landlord, With over 60% of earnings derived from its suburban malls over Singapore, we believe that CMT can continue to deliver sustain earnings growth in the coming quarters. We expect an uptick in earnings upon the completion of AEI at J-Cube in 2012. Mapletree Commercial Trust (BUY, TP S$1.09) . MCT see relative value coming from its strong acquisition pipeline including Mapletree Business City with a total NLA of over 5.1m sf that its Sponsor has lined up for the Reit. However, with a gearing ratio of 39.5%, we believe the trust would have to tap a combination of debt and equity funding for any new purchases. Meanwhile growth from rental revenue is also likely to be strong with the completion of ARC, step up rental in MLHF and positive rental reversion from Vivo City. Mapletree Logistics (BUY, TP S$1.07). MLT to start reporting stronger quarterly numbers on the back of expected contribution from recent acquisition completions. We continue to see potential earnings surprises that could come in the form of further acquisitions that the manager is reviewing currently. Acquisitions could continue to feature but expected to be selective given its current relatively high gearing of c40%. We note that sponsor, Mapletree Investments has over S$300m worth go logistics space that are completing/ completed that could be injected in the medium. Amongst the smaller cap S-REITs, we see relative value in Frasers Commercial Trust (BUY TP S$1.05). FCOT is currently offering FY11/12F yields of 7.4-7.9% and is trading at a at a discount at NAV 0.6x, the cheapest S-REIT in our coverage universe. We see opportunities for the group to enhance their DPU through asset enhancements and more capita management. With a gearing of 38%, possible acquisitions is also viable Cache Logistics Trust (BUY, TP S$1.11). Trading at a FY11-12F yield of 8.2-8.8%, which is over 200 bps over the sector average and 150 bps above industrial REIT peers. We believe that the market is not recognizing Cache for its (i) transparent earnings structure from master-leases with annual step ups and (ii) growth opportunities given from a visible pipeline from its sponsor CWT that could potentially grow its portfolio in excess of 80%.

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Industry Focus Singapore REITs

Sreit Peer Comparison Table

YE Office/Mixed Frasers Commercial Trust CapitaCommercial Trust K-REIT Suntec REIT Retail/Mixed CapitaMall Trust CapitaRetail China Trust Mapletree Commercial Trust Starhill Global Reit Industrial A-REIT Ascendas India Trust Mapletree Industrial Trust Mapletree Logistics Trust Cambridge Ind Trust Cache Logistics Trust Hospitality & Healthcare Ascott Residence Trust CDL Hospitality Trust Parkway Life S-REIT Sector Dec Dec Dec 1.12 1.86 1.91 1,290 1,787 BUY BUY 1.38 2.30 2.05 31% 31% 13% 7.5 10.3 8.8 8.7 12.0 9.9 8.8 13.3 10.9 6.7% 5.5% 4.6% 6.0% 7.8% 6.5% 5.2% 6.5% 7.9% 7.2% 5.7% 6.7% 0.81 1.22 1.35 1.0 Mar Mar Mar Mar Dec Dec 2.11 0.90 1.18 0.90 0.49 0.97 4,393 HOLD 690 1,742 2,183 583 616 BUY BUY BUY BUY BUY 2.14 1.08 1.25 1.07 0.56 1.11 7% 35% 12% 35% 23% 23% 13.2 6.6 6.8 6.1 4.9 7.5 13.1 7.0 7.7 6.6 4.4 8.0 13.8 8.1 8.2 6.9 5.0 8.5 6.2% 7.7% 5.8% 7.2% 10.0% 7.7% 6.2% 8.3% 6.5% 7.9% 9.1% 8.2% 6.5% 9.6% 6.9% 8.2% 10.3% 8.8% 1.19 1.00 1.28 0.99 0.83 1.07 Dec Dec Mar Dec 1.87 1.22 0.82 0.62 5,940 1,517 1,205 BUY BUY BUY 2.05 1.30 1.09 0.73 15% 15% 26% 35% 9.3 8.4 8.2 4.8 9.8 8.6 8.4 5.0 10.9 8.7 8.8 5.6 5.0% 6.9% 5.7% 5.9% 5.2% 7.1% 5.8% 6.1% 5.8% 7.2% 6.1% 6.9% 1.21 1.07 0.93 0.74 825 HOLD Sep Dec Dec Dec Price $ 0.84 1.21 1.16 1.36 Mkt Cap (S$m) 527 3,408 3,016 Rec'd Target Total Return (%) 32% 37% 21% 37% FY10A (Scts) 5.5 7.8 6.3 9.9 FY11F (Scts) 6.1 6.7 7.3 8.9 DPU FY12F (Scts) 6.4 6.7 7.1 8.8 FY10A (%) 6.5% 6.5% 5.5% 7.6% FY11F (%) 7.3% 5.6% 6.3% 6.8% Yield FY12F (%) 7.7% 5.6% 6.1% 6.8% P/Bk NAV (x) 0.62 0.80 0.76 0.72

BUY BUY BUY

1.05 1.59 1.32 1.69

1,570 HOLD

1,154 HOLD

Source: DBS Vickers

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Industry Focus Singapore REITs

S-REIT valuation vs CAGR growth matrix

1.5 1.4 1.3 1.2 1.1 1.0 0.9

CCT Suntec

P/B V (x)

Weighted Average FY1013F CAGR = 4.0% P-REIT

MINT A-REIT CMT CDL HT Weighted Average P/BV = 1.0x Cache MLT MCT ART CREIT SGREIT FCOT

CRCT

a-itrust

0.8 0.7 0.6 0.5

K-REIT

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

FY10-13F DPU CAGR

Legend
REIT Ascendas India Trust Ascendas REIT Ascott Residence Trust CDL Hospitality Trusts CapitaMall Trust CapitaCommercial Trust CapitaRetail China Trust Cambridge Industrial Trust Cache Logistics Trust Code a-itrust A-REIT ART CDL HT CMT CCT CRCT CREIT Cache REIT Frasers Commercial Trust K-Reit Asia Mapletree Logistics Trust Mapletree Industrial Trust Mapletree Commercial Trust Parkway Life REIT Starhill Global REIT Suntec REIT Code FCOT K-RIET MLT MINT MCT P-REIT SGREIT Suntec

* The size of the bubbles indicate market cap of individual REITs

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Industry Focus Singapore REITs

Appendix S-REIT yield

Ascendas REIT
10.0%
A-REIT Average +1SD -1SD

Ascendas India Trust

a-itrust 14% +1sd mean -1sd

9.0%

12%
8.0%

7.0%

10%

6.0%

8% 6%

5.0%

4.0% J un-03

J un-04

J un-05

J un-06

J un-07

J un-08

J un-09

J un-10

J un-11

4% J ul-07

J an-08

J ul-08

J an-09

J ul-09

J an-10

J ul-10

J an-11

J ul-11

Cambridge REIT
25% Cambridge REIT 20% mean +1sd -1sd

Cache Logistics Trust

8.8% 8.7% 8.6% 8.5% 8.4% 8.3%

15%

10%

8.2% 8.1% 8.0% Cache +1sd mean -1sd

5%

0% Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11

7.9% May-10

J ul-10

Sep-10

Nov-10

J an-11

Mar-11

May-11

Maple Logistics Trust

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Aug-05 MLT +1sd mean -1sd

Mapletree Industrial Trust

9.0% MINT mean +1sd 8.0% -1sd

7.0%

6.0%
Aug-06 Aug-07 Aug-08 Aug-09 Aug-10

Oct-10 Nov-10

Dec-10

J an-11

Feb-11 Mar-11

Apr-11 May-11 J un-11

Source: DBS Vickers

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Industry Focus Singapore REITs

CapitaCommercial Trust
16% 14% 12% 10% 8% 6% 4% 2% 0% J un-04 +1 SD Mean - 1 SD CCT

K-REIT Asia
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% + 1 SD - 1 SD mean K-REIT

J un-05

J un-06

J un-07

J un-08

J un-09

J un-10

J un-11

0% May06

Nov06

May07

Nov07

May08

Nov08

May09

Nov09

May10

Nov10

May11

Frasers Commercial Trust

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 F COT +1sd mean -1sd

CDL Hospitality Trust

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 + 1 SD -1 SD Mean CDL HT

Ascott REIT
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% J un-06 J un-07 J un-08 J un-09 J un-10 J un-11 +1sd -1sd Ascott REIT mean

Parkway Life REIT

12% 10% 8% 6% 4% P-REIT 2% 0% Sep-07 mean +1sd -1sd

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Source: DBS Vickers

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Industry Focus Singapore REITs

CapitaMall Trust
12% CMT 10% 8% 6% 4% 2% 0% Mar-03 +1sd mean -1sd

CapitaRetail China Trust

15% CRCT 13% 11% 9% 7% 5% 3% 1% +1sd mean -1sd

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

-1% J an-07

J ul-07

J an-08

J ul-08

J an-09

J ul-09

J an-10

J ul-10

J an-11

J ul-11

Starhill Global REIT

15% 13% 11% 9% 7% 5% 3% 1% -1% Oct05 Apr06 Oct06 Apr07 Oct07 Apr08 Oct08 Apr09 Oct09 Apr10 Oct10 Apr11 SGREIT +1sd mean -1sd

Suntec REIT
15% 13% 11% 9% 7% 5% 3% 1% -1%an-05 J J an-06 J an-07 J an-08 J an-09 J an-10 J an-11 Suntec +1sd mean -1sd

Source: DBS Vickers

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Industry Focus Singapore REITs

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10 to +15% total return over the next 12 months for small caps, -10 to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson (www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg (DBSR GO). For access, please contact your DBSV salesperson. GENERAL DISCLOSURE/DISCLAIMER This document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). [This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of DBSVR.] The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. DBSVR accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a whollyowned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. The assumptions for commodities in this report are for the purpose of forecasting earnings of the companies mentioned herein. They are not to be construed as recommendations to trade in the physical commodities or in futures contracts relating to the commodities mentioned in this report. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 2 Sep 2011, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (interest includes direct or indirect ownership of securities, directorships and trustee positions). COMPANY-SPECIFIC / REGULATORY DISCLOSURES DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the mentioned 1. company as of 31-Aug-2011 2. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of the Ascendas India Trust, Cambridge Industrial Trust, Cache Logistics Trust, Ascott Residence Trust, CDL HT as of 2 Sep 2011. Compensation for investment banking services: i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA may have received compensation, within the past 12 months, and within the next 3 months receive or intends to seek compensation for investment banking services from the Suntec REIT, CapitaMall Trust, CapitaRetail China Trust, Mapletree Commercial Trust, Mapletree Industrial Trust, Mapletree Logistics Trust, Cambridge Industrial Trust, Cache Logistics Trust, Ascott Residence Trust, CDL HT. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

3.

ii.

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Industry Focus Singapore REITs

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