2010 Dec 17 Singapore REITs Update DBSV

8/8/2019 2010 Dec 17 Singapore REITs Update DBSV

1/18

www.dbsvickers.comRefer to important disclosures at the end of this reported: JS / sa: JC

STI : 3,147.20AnalystDerek TAN CPA +65 6398 [email protected]

MunYee LOCK +65 6398 [email protected]

Source: DBS Vickers

TOP PICKSPrice Mkt Cap Target Price FY11F Yield

S$ US$m S$ (%) RatingFrasers CentrepointTrust

1.45 847 1.74 5.6% BUY

Mapletree LogisticsTrust

0.93 1,717 1.01 7.1% BUY

Cache Logistics 0.94 453 1.11 8.7% BUYCDL Hospitality 2.07 1,509 2.28 5.9% BUYCapitamall Trust 1.92 4,652 2.09 5.4% BUYParkway Life REIT 1.63 750 1.84 6.0% BUYAscott ResidenceTrust

1.22 1,029 1.38 6.7% BUY

S-REIT Yield

DBS Group Research . Equity 17 Dec 2010

Singapore Industry Focus

Singapore REITs

The quest for growth S-REITs offer FY11 yields of 6.1%, an attractive 340

bps spread against long bonds

As inflation inches higher, we prefer SREITs withability to continue delivering strong organic growth

Strong balance sheets to leverage on in the chase fofurther acquisitions

BUY FCT, P-Life, Cache, MLT, CDL HT, ART, CMT

Normalized FY11F yield of 6.1%.The S-REIT sector nowtrades at a normalized FY11F distribution yield of c6.1%,slightly below its historical mean of c6.5%. Spreads havenarrowed but still remain attractive at c340bps above thelong-term government bond yield, currently at c2.7%.

The quest for DPU growth. S-REITs offer a good hedgeagainst inflation given that earnings growth can potentiallyoutpace inflation, which is expected to inch higher to 3.2%in 2011. We prefer S-REITs with the ability to deliver growingdistributions organically while having the opportunity toacquire accretively. We continue to hold the view thathospitality and retail sectors offer a more robust outlook on

the back of expected strong visitor arrivals in 2011. OfficeREITs are expected to see topline pressure from negativereversions in 2011 though the sector is on an uptrend.

Interest rate hikes to have minimal impact ondistributable income. Given the current low interest rateenvironment, S-REITs have taken the opportunity torefinance, lengthen the debt maturity profile as well as widentheir sources of debt, hence enjoying savings in interest. DBSeconomist expects interest rate hikes only towards the end of2011. Even then, our scenario analysis reveals that the impacton S-REITs FY11 distributable income is limited to -0.2 to -3.0% as majority of the S-REITs have hedged/fixed their

interest rate positions.Industrial & Sponsored REITs have potential for furtheraccretive acquisitions. Even after acquiring cS$6bn ofassets YTD, S-REIT sector gearing remains low at 34.4%.Further growth from acquisitions is possible and we looktowards the industrial REITs for their ability to acquireearnings accretive assets given the relative higher yields ofindustrial assets while sponsored REITs continue to offerlong-term portfolio growth visibility to investors frompotential asset injections in the medium term.

Stock picks.CMT, FCT, CDL HT and Ascott REIT areexpected to deliver strong organic growth potential coupled

with sponsor injection possibilities. P-Life offers downsideprotection as revenue is pegged to inflation. MLT and Cacheoffer potential earnings surprise given their visible sponsorpipeline.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Mar- 03 Mar- 04 M ar- 05 Mar- 06 Mar- 07 Mar- 08 Mar- 09 Mar-10

S-REIT Yields

Mean

+1 SD

-1 SD

10 yr Govt Bond

Source: Bloomberg, DBS Vickers


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Industry Focus

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Table of Contents

1. FSTREI Index performance 3

2. The quest for further growth 3

3. In pursuit for growth 6

4. Upbeat on hospitality, Retail outlook 7

5. Measuring the cost of interest rate hikes 9

6. Acquisitions:

6.1 Growth and Fund raisings arm in arm 11

6.2 Sponsored REITs ahead of the acquisition

game 13

7. Appendix A: S-REITs yield spread vs 10yr bonds 14

AnalystsDerek TAN CPA +65 6398 7966

[email protected]

Munyee LOCK +65 6398 7972

[email protected]


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Industry Focus

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1. Sreits (FSTREI index) have outperformed developers(FSTREH index) YTD, offers yields of 6.1%Outperforming the developers YTD. The S-REITs index (FSTREI)has risen 8% YTD, outperforming the real estate developers

index (FSTREH, +4%) but slightly underperforming the Straits

Times Index (FSSTI, +9.1%).

FSTREI vs FSTREH vs STI Index (YTD)


Sreits yields at 6.1% yield, slightly below historical mean. TheS-REIT sector now trades at a normalized FY11F distribution yield

of c6.1%, slightly below its historical mean of c6.5%. Spreads

have narrowed but still remain attractive at c340 bps above the

long-term government bond yield, which is currently at c2.7%.

The sector has re-rated by c100 bps since the start of 2010 as

S-REITs high yields backed by their ability to grow acquire

accretively continue to attract investors.

Sreit Yield vs 10 year Government bond

Historical yield spread (Sreits vs 10 year Govt Bond)


Sreits P/BV between historical mean and 1 S.D. S-REITscurrently trade at a market-cap weighted 1.05x P/Bk NAV,

slightly below the sectors historical mean of (1.1x P/BV) and

1 SD (0.8x P/BV) trading level.

Sreit average historical Price to book value


Quest for further growthGrowing yields remain key re-rating catalysts. We believevaluation for the S-REITs is fair given investors expectations forrobust rental growth & yield compression, coupled with

possible acquisitions going into 2011. We continue to see

catalysts hinging on S-REITs ability to

(i) Continue delivering earnings growth; and

(ii) Acquire assets accretively.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

S-REIT Yields

+1 SD

Mean

-1 SD

0.85

0.90

0.95

1.00

1.05

1.10

1.15

J an-10 Mar-10 May-10 J ul-10 Sep-10 Nov -10

(X )FSTREI index

FSTREH Index

FSSTI

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

M ar- 03 M ar-04 Mar-05 M ar- 06 Mar-07 M ar-08 M ar-09 Mar-10

S-REIT Yields

Mean

+1 SD

-1 SD

10 yr Govt Bond


0.30

0.50

0.70

0.90

1.10

1.30

1.50

1.70


S-REIT P/Bk NAV

Mean

+1 SD

-1 SD


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Industry Focus

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(i) Earnings growth potential. As inflation is likely to inch higherto 3.2%, we prefer S-REITs that can continue to delivergrowing distributions with the ability to acquire earnings

accretive assets for distribution upside surprise to unitholders.

We continue to hold the view that hospitality and retail sectors

offer a more robust outlook on the back of expected strong

visitor arrivals in 2011, translating to strong earnings for

hoteliers and higher retail spending. REITs that offer good

exposure to the buoyant tourism sector include CDL HT (BUY,TP S$2.14) , Ascott REIT (BUY, TP S$1.38) while CapitaMallTrust (BUY, TP S$2.09) will benefit from stronger retail sales asSingapore largest retail landlord.

Parkway Life REIT (BUY, TP S$1.86) with itsinflation- hedgedtrust structure for its Singapore hospitals ensures future

earnings will continue to match the growth in CPI, while the

trust continues to deliver on acquisitions.

(ii) Acquisitions growth potential: Industrial REITs & sponsoredREITs. In terms of acquisition possibilities, we look towards theindustrial REITs for their ability to acquire earnings accretive

assets given relative higher yields of industrial assets while

sponsored REITs continue to offer long-term portfolio growth

visibility to investors from potential asset injections in the

medium term. We see possible acquisitions from:

(a) Cache (BUY, TP S$TP 1.11). Visible pipeline of qualitywarehouses from sponsor CWT, low gearing level 23.4%

empowers the trust with headroom of over S$100m firepower

to acquire. (b) Fraser Centerpoint Trust (BUY, TP S$1.70) offerstwin growth drivers from a healthy organic growth profile from

its portfolio of sub-urban malls coupled with the planned

acquisition of recently completed Bedok Mall asset as a re-

rating catalyst. (c) Mapletree Logistics Trust (BUY, TP S$1.01).Its sponsor has over S$300m of assets that could be injected in

the medium term. The trust has activated its acquisition engine

in 2010 and is likely to continue to grow its portfolio in the

coming year.

Sreit Peer Comparison Table

YE Price Rec'd Target Total DPU Yield P/BkNAV$ Return(%) FY10F(Scts) FY11F(Scts) FY12F(Scts) FY10F(%) FY11F(%) FY12F(%) (x)Office

Frasers Commercial Trust Sep 0.17 HOLD 0.19 22% 1.1 1.2 1.2 6.7% 7.3% 7.5% 0.6CapitaCommercial Trust Dec 1.46 HOLD 1.47 5% 7.9 6.8 6.9 5.4% 4.6% 4.7% 1.1

K-REIT Dec 1.41 HOLD 1.2 -9% 6.8 7.7 6.6 4.9% 5.5% 4.7% 1.0

Retail/MixedCapitaMall Trust Dec 1.92 BUY 2.09 15% 9.2 10.2 10.9 4.9% 5.4% 5.7% 1.2

CapitaRetail China Trust Dec 1.21 HOLD 1.3 14% 8.3 8.4 8.6 6.8% 7.0% 7.1% 1.1

Frasers Centrepoint Trust Sep 1.44 BUY 1.74 26% 8.2 8.1 8.5 5.7% 5.6% 5.9% 1.2

Starhill Global Reit Dec 0.61 BUY 0.76 30% 3.9 4.3 4.4 6.3% 7.0% 7.1% 0.8

Suntec REIT Dec 1.50 BUY 1.66 18% 9.8 9.7 8.7 6.6% 6.5% 5.8% 0.8

IndustrialA-REIT + Mar 2.03 HOLD 2.19 15% 13.5 14.1 14.4 6.7% 7.0% 7.1% 1.3

Ascendas India Trust + Mar 0.92 HOLD 1.16 21% 6.8 7.6 8.0 7.6% 8.7% 9.4% 1.1

Mapletree Industrial Trust + Mar 1.06 BUY 1.08 15% 7.0 8.0 8.7 6.4% 7.1% 7.5% 1.2

Mapletree Logistics Trust Dec 0.93 BUY 1.01 16% 6.1 6.6 6.8 6.5% 7.1% 7.3% 1.1

Cambridge Ind Trust Dec 0.52 BUY 0.58 21% 4.9 5.0 5.1 9.4% 9.6% 9.7% 0.9

Cache Logistics Trust Dec 0.98 BUY 1.11 25% 7.8 8.3 8.6 8.2% 8.7% 9.0% 1.1

Hospitality & HealthcareAscott Residence Trust Dec 1.22 BUY 1.38 21% 7.4 8.1 8.3 6.2% 6.7% 6.8% 0.9

CDL Hospitality Trust Dec 2.07 BUY 2.28 18% 10.8 12.0 13.3 5.3% 5.9% 6.5% 1.4

Parkway Life Dec 1.63 BUY 1.84 18% 8.6 9.8 10.0 5.2% 6.0% 6.1% 1.2

S-REIT Sector 5.8% 6.1% 6.3% 1.1Source: DBS Vickers+ A-REIT, Mapletree Industrial and Ascendas India Trust are based on FY11, FY12 , FY13 given Mar YE


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Sreit Historical trading range

Share CurrentFY11F Mean 1 S.D Highest Lowest Current Mean 1 S.D Highest Lowestprice Yield Yield Yield Yield Yield P/BV P/BV P/BV P/BV P/BV($) (%) (%) (%) (%) (%) (X) (X) (X) (X) (X)

OfficeFrasers Commercial Trust 0.17 7.3% 9.0% 4.0% 26.0% 4.0% 0.6 0.6 0.3 1.1 0.2CapitaCommercial Trust 1.46 4.6% 5.9% 3.4% 17.0% 3.0% 1.1 0.9 0.3 1.5 0.5K-REIT 1.41 5.5% 7.0% 4.0% 20.0% 3.0% 1.0 0.8 0.3 1.6 0.3

Retail/MixedCapitaMall Trust 1.92 5.4% 5.1% 1.6% 11.0% 3.0% 1.2 1.4 0.3 2.1 0.7CapitaRetail China Trust 1.21 7.0% 6.0% 3.0% 16.0% 2.0% 1.1 0.9 0.3 3.0 0.4Frasers Centrepoint Trust 1.44 5.6% 6.5% 2.4% 13.0% 4.0% 1.2 1.1 0.3 1.7 0.5Starhill Global Reit 0.61 7.0% 7.5% 3.0% 17.0% 5.0% 0.8 0.8 0.2 1.1 0.3Suntec REIT 1.50 6.5% 8.0% 3.5% 21.0% 4.0% 0.8 0.8 0.3 1.1 0.3

IndustrialA-REIT 2.03 7.0% 6.8% 1.6% 11.0% 5.0% 1.3 1.4 0.3 1.8 0.8Ascendas India Trust 0.92 7.1% 9.4% 3.2% 17.0% 5.0% 1.2 1.1 0.3 2.5 0.5Mapletree Industrial Trust 1.06 8.3% 7.0% na na na 1.1 1.2 na na naMapletree Logistics Trust 0.93 7.1% 7.0% 3.0% 16.0% 4.0% 1.1 0.9 0.3 1.4 0.4Cambridge Ind Trust 0.52 9.6% 11.0% 6.0% 22.0% 7.0% 0.9 0.9 0.3 1.3 0.3Cache Logistics Trust 0.98 8.7% 8.0% 0.0% 8.0% 8.0% 1.1 1.1 0.1 1.1 1.1

HospitalityAscott Residence Trust 1.22 6.7% 7.7% 4.2% 20.0% 3.0% 0.9 0.9 0.4 1.6 0.3CDL Hospitality Trust 2.07 5.9% 7.4% 4.2% 18.0% 3.0% 1.4 1.1 0.4 1.8 0.4

HealthcareParkway Life 1.63 6.0% 6.0% 1.5% 10.0% 4.0% 1.2 0.9 0.2 1.2 0.6

S-REIT Sector Average 6.1% 16.0% 4.4% 1.05 1.6 0.5


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In pursuit of growth3Q10 results growth supported by acquisitions. S-REITs 3Q10results continued to report sequential growth, as in prior

quarters. Topline, net property income and distributable

income grew of 10%, 13% and 11% respectively, compared

to a year ago. Growth was largely led by the contribution from

acquisitions completed in 1H10 supported by continued

organic growth from the underlying portfolio.

On a sequential basis, we saw a slight uptick with gross

revenues, NPI and distributable income rising 3%, 3% and 1%

respectively.

S-REIT sector breakdown

Source: DBS Vickers, Company

S-REIT sector breakdown: 3Q10 vs 3Q09/2Q10YoY Growth(%) QoQ Growth(%)

IndustrialsTopline *7% 0%

NPI *10% 0%

Distributable inc *9% 2%

OfficeTopline 3% -3%

NPI 7% 1%

Distributable inc 19% 2%

RetailTopline 10% 5%

NPI 12% 6%


Hospitality & OthersTopline 20% 7%

NPI 22% 7%


* Removed contribution from Cache, which listed on Apr 2010


Organic growth stronger in Hospitality REITs results. Amongstthe Sreits in various sub-sectors, the Hospitality S-REITscontinued to enjoy robust occupancy levels for their portfolio,

and pricing power for their rooms in Singapore, thus delivering

one of the strongest growth in distribution income (+21% yoy,

+6% qoq). Compared to a quarter ago, Hospitality REITs

distributable income grew 6%, reflecting the positive travel

sentiment and record tourist arrivals seen in recent months.

Industrial and Retail REITs saw earnings uplift from acquisitionactivities; Retail REITs see sustained positive reversions.Industrial, Retail REITs have been active in their acquisition

activities YTD, and this contributed to the stronger yoy growth

(ranging from 5% to 9%) in distributable income. Mapletree

Logistics Trust (MLT) acquired S$495m of logistics properties

since beginning of 2010, A-REIT completed S$231m worth of

acquisitions in 1Q10 while retail REITs like CapitaMall Trust

(CMT) and Fraser Centerpoint Trust (FCT) acquired retail

properties from the sponsor in 1Q10, Starhill Global REIT

(SGREIT) completed its acquisition of its Malaysian portfolio

in Jul10.

However, we note that the impact of acquisitions is greater for

the industrial REITs, compared to its retail peers, which are

enjoying positive reversions and occupancy levels in their

portfolio and continue to grow strongly on a qoq basis.

Office REITs strong 19% yoy growth was largely acquisition

driven, coming from (i) improved performance of Frasers

Commercial Trust (FCOT) post its recapitalisation exercise in

Aug 2009; and (ii) acquisition of 2 properties in Australia in

1H10 for K-REIT while CCT enjoyed interest savings from debt

repayment and refinancing into lower interest rates. Organic

performance however, was subdued office rentals are

starting to see narrowing reversions or negative in some cases

given that Office REITs are starting to renew rents that were

signed during the peak periods in 2007-2008.

Strengthening S$ eroded profitability for certain REITs withoffshore exposure. REITs with offshore assets i.e. CRCT, a-itrustand ART felt the impact of a strengthening S$ against various

regional currencies esp. Rp and RMB in the current quarter,

with most of them reporting slightly lower growth or even

declines in S$ terms due to translation losses even though

underlying performance in terms of local currency were, in

fact, growing yoy.

-

100

200

300

400

500

600

700

800

900

Topline NPI Distributable inc

Sm

3Q10

3Q09

2Q10


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Upbeat organic growth outlook in hospitality, retailsectors in 2011Delivering growing yields. REITs are typically a good investmentagainst inflation hedge as they offer rental income that can

potentially outpace inflation, dividend payouts that provide

shareholders with a steady income stream, and exposure to

assets that typically hold their value in an inflationary

environment.

Inflation set to rise. Policy makers will continue to keep an eyeon inflation in 2011. Since the rapid turnaround of Singapores

economy in the beginning of 2010, CPI has risen significantly,

averaging 2.5%-3%, picking up slightly towards the end of the

year. Looking ahead, DBS Economist expects Singapores GDP

to expand a further 7% yoy in 2011, with inflation likely to rise

to 3.2%. Against this backdrop, he expects the Monetary

Authority of Singapore (MAS) to maintain a strong S$ policy.

Headline CPI inflation rate and MAS Underlying Inflation

Source: MAS, DBS Vickers

Keeping in mind the impact of inflation on earnings and yields,

on a real basis, we project REITs to offer an average return of

2.9% (ranging between 1.8%-4.1%), above the expected

inflation rate of 3.2%.

DBSV Forecasted Nominal Yield vs Real YieldFY11FNominal Yield InflationRate FY11FRealYield

Industrial REITs 7.3% 3.2% 4.1%

Office REITs 5.0% 3.2% 1.8%

Retail REITs 6.0% 3.2% 2.8%

Hospitality/Healthcare REITs

6.1% 3.2% 2.9%

S-REIT sector 6.1% 3.2% 2.9%Source: DBS Vickers, Company

S-REITs to deliver distributable income growth of 10% in FY11;Brighter prospects in Hospitality and Retail sectors. DBSVprojects the S-REITS sector to deliver distributable income

growth of 10% in FY11. Hospitality/Healthcare REITs are

projected to deliver the strongest growth of 33% supported by

underlying organic growth. Industrial REITs is next at 16% with

a stable earnings profile and potential earnings uplift from

acquisitions. This is followed by Retail REITs (+8%). Office REITs

(-3%) should see topline pressure from negative rental

reversions in 2011.

FY11F distributable income projections by sector

Sub-Sectors

DistributableIncomeFY10FS$m

DistributableIncomeFY11FS$m**

YoY Growth(%)

Industrials REITs 515.5 598.5 +16%Office REITs 339.9 338.0 -3%Retail REITs 675.1 726.7 +8%Hospitality,Healthcare REITs

208.9 276.9 +33%S-REIT sector 1,749.3 1,940.0 +10%* For A-REIT, a-itrust: FY11F and FY12F forecast used given Mar YE

** Inclusive of acquisition assumptions.


Prospects of Hospitality REITs robust : benefiting from strongvisitor arrivals amid limited competition for rooms. Both ResortsWorld at Sentosa (RWS) and Universal Studios Singapore

(USS) are partly changing the landscape for the Singapore

tourism industry with a slew of new attractions and rides,

together with the continuous ramping up towards hosting

larger regional/ global conferences in 2011. These should

underpin strong visitors arrivals into Singapore. DBSV projects

13m visitors in 2011, implying a potential room demand of

11.8m against a backdrop of limited room growth of c3%.

RevPAR is likely to increase by 12% but growth rate is

moderating on a higher base effect.

Industrial REITs: organic performance to remain stable, earningsgrowth to driven by acquisitions. We expect demand forindustrial space to remain relatively stable fueled by continued

expansion and more firms setting up their operations in

Singapore. Occupancy levels should continue to firm in coming

quarters with landlords likely to seek higher average rents during

renewals in their bid to maximize portfolio yields.

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

InaoRe%)

CPI

MAS Underlying Index


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Retail Sector to remain buoyant. Consumer spending shouldcontinue to pick up in 2011, driven by a buoyant economicenvironment boosted by expectations of continuing strong

tourists arrivals. Retail REITs should continue to enjoy robust

organic growth through continued positive rental reversions. In

addition, retail REITs should be able to enjoy higher rental

income pegged to tenant sales from its % of turnover lease

structures, step-up clauses, all of which ensure sustained

growth in distributable income.

Positive data points from Office sector but earnings flow-through will not be felt till 2012. In view of still robust GDPgrowth momentum, we anticipate demand for office space to

remain strong coming from broad range of industries. We

forecast demand to reached 2msf next year. Meanwhile, news

flow on pre-commitments for new buildings is expected to

remain positive, which bodes well for the incoming office

supply, which will peak in 2011 at 3msf. Hence, we expect

vacancy rate to tighten going forward providing a catalyst for

positive rental growth by another 510% in 2011.

However, Office REITs are expected to continue to face topline

pressure in 2011 as they renew rents that were signed during

the peak of the previous office cycle in 2007-2008.

Rental/ RevPAR assumptionsSub-Sectors Rental /RevPAR Rental /RevPARIndustrials

- Business Parks Rental 2-5%

- Warehouse/Factory Rental 2-5%

Office Rental +5%

Retail Rental +2-5%

Hospitality

- Hotels RevPAR +12%

- Serviced Residence RevPAR +3-10%

Healthcare CPI CPISource: DBS Vickers, Company


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Measuring the cost of Interest rate hikesTaking advantage of the low interest rate environment. S-REITshave been pro-active in their capital management strategy

aiming towards extending their debt expiry profile and

refinancing existing debt ahead of expiry. Since the beginning

of the year, in view of the large proportion of debt expiring in

the coming 2 years, S-REITs have taken advantage of the

improving capital markets and low interest rate environment

and re-financed existing debt into loans with longer tenures.

Additionally, they have also expanded their sources of debt

through the issue of multi-term notes & convertible bonds.

The total S-REIT debt currently stands at of S$17.5bn, where

an estimated 19% (S$3.4 bn) and 24% (S$4.2bn) are

scheduled for renewal in 2011 and 2012 respectively, down by

30% and 25% since the middle of the year. The average

length of debt expiry currently stands at 2.8 years.

Breakdown of S-REIT Debt Maturity Profile

Source: Company releases, DBS Vickers

Interest rate environment likely to stay low for now. DBSeconomist believes that the current low interest rateenvironment is likely to stay at least to the end of 2011, which

will be beneficial for S-REITs, as they are likely to continue to

enjoy interest savings on refinancing their debt in 2011.

Increasing financial flexibility with average gearing of 34.4%post acquisition. Post acquisitions (including the plannedpurchase of MBFC by K-REIT and Suntec REIT), the average

S-REIT sectors aggregate leverage still remain relatively low at

c34.4% (below most S-REIT managers comfortable range of

between 40-45%). We note that there has been an increase in

the number of assets that are unencumbered, due to more

unsecured loan issued in the past few months. This empowers

S-REITs with more financial flexibility going forward.

High portion of S-REIT debts are fixed. Based on our estimates,with the recent issues of fixed rate MTNs & through re-

financing activities to date, a majority of S-REIT debt is now

secured in fixed-rate instruments. Therefore, this should limit

the impact of potential interest rate hikes on the S-REITs

distributable income in the future.

Based on our sensitivity analysis in the table below, a 50 bps

increase in interest rates will have minimal impact (estimated at

0.2% to 3.2%) on S-REITs FY11 distributable income.

Sensitivity of S-REIT distributions vs 50 bps hikes ininterest costs

IntCost%%fixed* % Impact onFY11Distributableincome

Frasers Commercial Trust 3.8% 80% -2.0%

CapitaCommercial Trust 3.8% 80% -1.0%

K-REIT 3.1% 55% -3.0%

CapitaMall Trust 3.7% 91% -0.4%

CapitaRetail China Trust 2.9% 74% -1.0%

Frasers Centrepoint Trust 3.8% 90% -0.3%

Starhill Global Reit 3.5% 100% 0.0%

Suntec REIT 3.8% 65% -2.2%

A-REIT3.9% 100% 0.0%

Ascendas India Trust 6.2% 67% -0.5%

Cambridge Industrial Trust 5.9% 100% 0.0%

Mapletree Logistics Trust 2.6% 70% -1.1%

Mapletree Industrial Trust 2.4% 70% -1.1%

Cache Logistics Trust 4.1% 89% -0.2%

Ascott Residence Trust 3.3% 70% -1.0%

CDL Hospitality Trust 3.0% 40% -0.8%

Parkway Life 3.2% - -3.2%

* DBSV estimates


2011

19%

2012

24%

2013

26%

2014

9%

2015

16%

>2015

4%2010

2%


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S-REIT sectors debt expiry profile

Gearing Gearing Targeted LT Avg debt Int cover Debt Maturity Profile (S$bn)(%) limit (%) Gearing (%) cost (%) (x) 2010 2011 2012 2013 2014 2015 >2015

OfficeFrasers Commercial Trust 39.2% 60.0% 40.0% 3.8 2.5 0.00 0.00 0.83 0.00 0.00 0.00 0.00

CapitaCommercial Trust 31.5% 60.0% 45.0% 3.8 3.8 0.00 0.67 0.71 0.23 0.00 0.30 0.00

K-REIT 39.0% 60.0% 45.0% 3.1 7.4 0.00 0.19 0.16 0.10 0.10 0.75 0.00Total 0.00 0.86 1.70 0.33 0.10 1.05 0.00Retail/MixedCapitaMall Trust 39.5% 60.0% 45.0% 3.7 3.7 0.00 0.96 0.78 0.60 0.15 0.80 0.25

CapitaRetail China Trust 34.3% 35.0% 35.0% 2.4 7.5 0.05 0.03 0.09 0.15 0.10 0.00 0.00

Frasers Centrepoint Trust 30.3% 60.0% 45.0% 3.8 4.1 0.05 0.26 0.08 0.06 0.00 0.03 0.00

Lippo-Mapletree REIT* 10.2% 35.0% 35.0% 7.7 7.8 0.00 0.00 0.13 0.0 0.00 0.00 0.00

Starhill Global Reit 31.0% 60.0% 45.0% 3.5 4.0 0.00 0.00 0.05 0.53 0.00 0.27 0.00

Suntec REIT 40.6% 60.0% 45.0% 3.8 4.3 0.00 0.42 0.23 1.67 0.45 0.00 0.00

Total 0.09 1.67 1.35 3.00 0.70 1.09 0.25IndustrialA-REIT 34.0% 60.0% 45.0% 3.9 4.7 0.07 0.35 0.00 0.26 0.40 0.30 0.30

Ascendas India Trust 17.0% 35.0% 35.0% 6.2 8.1 0.01 0.02 0.07 0.04 0.01 0.10 0.00

Mapletree Logistics Trust 34.5% 60.0% 45.0% 2.6 5.8 0.01 0.10 0.44 0.22 0.25 0.04 0.16

Mapletree Industrial Trust 38.1% 60.0% 45.0% 2.4 6.0 0.00 0.00 0.00 0.22 0.27 0.27 0.13

Cache Logistics Trust 22.5% 35.0% 35.0% 4.1 6.8 0.00 0.00 0.00 0.18 0.00 0.00 0.00

Cambridge Industrial Trust 38.1% 60.0% 45.0% 6.0 3.5 0.00 0.00 0.36 0.00 0.00 0.00 0.00

AIMS AMP Industrial Trust* 42.4% 60.0% 45.0% 5.4 4.2 0.00 0.00 0.00 0.18 0.00 0.10 0.00Total 0.09 0.46 0.86 1.10 0.93 0.80 0.59HospitalityAscott Residence Trust 32.2% 60.0% 45.0% 3.3 3.6 0.02 0.31 0.17 0.16 0.00 0.00 0.00

CDL Hospitality Trust 21.1% 60.0% 45.0% 5.5 7.6 0.00 0.00 0.00 0.26 0.00 0.00 0.00

Total 0.02 0.31 0.17 0.42 0.00 0.00 0.00Healthcare and othersFirst REIT* 15.9% 35.0% 35.0% 4.0 12.1 0.00 0.00 0.06 0.00 0.00 0.00 0.00

Parkway Life 34.2% 60.0% 45.0% 3.1 5.5 0.00 0.00 0.00 0.00 0.19 0.22 0.00

Saizen REIT* 36.9% 60.0% 35.0% 5.8 2.6 0.11 0.10 0.00 0.00 0.00 0.00 0.00

Total 0.11 0.10 0.06 0.00 0.19 0.22 0.00Total S-REIT sector 34.4% 0.31 3.40 4.14 4.85 1.92 3.16 0.84* Not covered by DBS Vickers



11/18

Industry Focus

Singapore REITs

Page 11

Acquisitions and fund raisings Arm in armAcquiring up to cS$5.6bn of assets YTD in tandem withincreased fund raisings. Armed with a healthy balance sheet,and fueled by the thawing in the property markets, S-REIT

managers have been aggressive in growing their asset base

since the beginning of 2010 and have completed over

cS$5.6bn worth of acquisitions YTD.

Industrial REITs were more active in their quest for acquisitions

given that industrial property transactions are more bite-sized

in nature (c


12/18

Industry Focus

Singapore REITs

Page 12

Sreit exposure to various countries by revenue (%) By % Revenues

Singapore Malaysia Japan/Korea India Australia/NZ Vietnam HK/China Indonesia Phi lippines EuropeOfficeFrasers Commercial Trust 56% 10% 34%

CapitaCommercial Trust 100%

K-REIT 90% 10%

Retail/MixedCapitaMall Trust 100%

CapitaRetail China Trust 100%

Frasers Centrepoint Trust 100%

Starhill Global Reit 60% 14% 6% 7% 11%

Suntec REIT 100%

IndustrialA-REIT + 100%

Ascendas India Trust + 100%

Mapletree Industrial Trust 100%

Mapletree Logistics Trust 49% 4% 25% 1% 21%

Cambridge REIT 100%

Cache Logistics Trust 100%

HospitalityAscott Residence Trust 19% 11% 2% 8% 7% 3% 5% 45%

CDL Hospitality Trust 85% 15%

HealthcareParkway Life 63% 37%

Source: DBS Vickers, various companies


13/18

Industry Focus

Singapore REITs

Page 13

Sponsored REITs ahead of the acquisition gameCurrent yield gaps between the physical market and implied

REIT valuations show that REITs in the industrial & hospitalitysectors, retail and healthcare have positive yield gaps, with

industrial offering the widest spreads. The office sector

continues to see negative yield spreads, which point to

continued need for income support arrangements so that

assets will have time to stabilize and for earnings to catch up in

the coming years, in order to make acquisitions accretive.

S-REITs implied vs property yield

Sub-Sectors Property Yield*(%) Implied Yield**(%)Industrials 7.0% - 8.5% 6.7%

Office 4.0% - 4.5% 5.0%

Retail 5.0 - 5.5% 5.3%

Hospitality 6.5% - 7.5% 6.3%

Healthcare >7% 6.2%

* Based on yields on recent physical market transactions completed

** Calculated as sectors FY11 NPI forecast / Enterprise value

The positive outlook on asset values in Singapore boosted by

the ample liquidity is likely to increase the competition for

assets from private funds/investors who could have a lower

required rate of return, thus pricing REITs out of some property

deals. As such, we believe that S-REITs could continue to head

overseas in search for growth. While we believe it is a viableoption to diversify its earnings base, more importantly, REITs

have to address potential forex exposure and tax leakages for

overseas acquisitions against the benefits of yield accretion to

its existing portfolio.

We continue to like the sponsored REIT model,

notwithstanding that they continue to explore 3rd

party

opportunities to remain ahead of peers. Their sponsors can

offer a pipeline of assets for the REITs to purchase or it could

act as a warehouse for new assets in cases where it is non-

accretive to purchase the asset at the onset, stabilize its

earnings and then offer it to the REIT for purchase at a later

date. Thus, sponsored REITs have better growth visibility in the

medium term.

In addition, industrial REITs are likely to continue to enjoy

better acquisition growth potential given the relatively higher

yields of industrial assets (vs current implied yields of industrial

REITs) and each transaction tend to be of lower values

compared to other asset classes.

While we have seen several of these S-REITs purchasing from

their respective sponsors in 2010, we see several potential

opportunities that REITs could tap in 2011.

CDL HT: A low gearing position of 21% gives debt-fundedheadroom of up to S$600m (up to c40% gearing).

Management remains keen to acquire Studio M hotel from

sponsor M&C Holdings in addition to other hotel assets thatthey are understood to be looking to acquire in the region.

MLT: Its Sponsor, Mapletree Investments has assets worth upto S$300m that are completed/completing which could be

injected in the near future.

K-REIT could purchase One Financial Centre (understood to be63% pre-committed as of Sept10) in the medium term once it

completes in 2011.

Cache Logistics Trust: sponsor CWT limited has over 3m sqft ofcompleting/completed warehouse space that could be offeredto Cache in the medium term.

Ascott REIT, who has a right of first refusal (ROFR) from itssponsor, Ascott Group, could potentially acquire Ascott Raffles

Place, which is understood to be for sale.

Retail REITs like FCT, which had previously stated that they arelikely to purchase Bedok Mall from their sponsor after

completion. CMT and CRCT can potentially inject propertiesthat are currently under incubation by the sponsors, which

could be offered to the trust. In the longer term Industrial REITs

like A-REIT and a-itrust could also acquire projects currentlyunder development from sponsor Ascendas Group.

SREITs acquisition possibilities from Sponsor

Sponsor Pipeline Assets Completed/ Completingasset

CDL HT M&C

Holdings

Studio M Hotel Completed

CMT CapitaMalls

Asia

ION Orchard Completed

CRCT CapitaMalls

Asia

Properties in China Completed/completing

K-REIT Keppel Land Ocean Financial

Centre

Completing

FCT F&N Bedok Mall (TOP

4Q10)

Changi Point (Est)

Completing (TOP 4Q10)

Estimated 2011

Ascendas

REIT

Ascendas

Group

Assets in China,

Singapore

Completed/Completing

a-itrust Ascendas

India Funds

Ascendas Land Intl Cybervale (IT Park in

Chennai)

Cache Log

Trust

CWT Limited Various warehouses

in Singapore, China


MLT Mapletree

Investments

Warehouses in

Vietnam, China


Source: DBS Vickers, various companies]


14/18

Industry Focus

Singapore REITs

Page 14

Appendix S-REIT Yield spreads vs 10 year bondAscendas REIT Ascendas India Trust

Cambridge REIT Cache Logistics Trust

Maple Logistics Trust

Source: DBS Vickers

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

J un-03 J un- 04 J un- 05 J un-06 J un-07 J un- 08 J un- 09 J un- 10

ascendas reit MAS 10 year bond Yield Spread

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

J ul-07 Jan-08 Jul-08 J an-09 J ul-09 J an-10

a- it rust MAS 10 year bond Y ield Spread

0%

5%

10%

15%

20%

25%

30%

35%

Sep-06 Jun-07 Mar-08 Dec-08 Sep-09 Jun-10

CREIT MAS 10 year bond Yield Spread

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10

Cache MAS 10 year bond Y ie ld Spread

0%

2%

4%

6%

8%

10%

12%14%

16%

18%

Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10

M LT M AS 10 y ear bond Y ield Spread


15/18

Industry Focus

Singapore REITs

Page 15

CapitaCommercial Trust K-REIT Asia

Frasers Commercial Trust CDL Hospitality Trust

Ascott REIT Parkway Life REIT

Source: DBS Vickers

0%

2%

4%

6%

8%

10%

12%

Sep-07 Dec-07 Mar-08 J un-08 Sep-08 Dec-08 Mar-09 J un-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10

Parkway L ife MAS 10 year bond Yield Spread

-5%

0%

5%

10%

15%

20%

25%

Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10

Ascot t REIT MAS 10 year bond Y ield Sp read

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

A ug-06 F eb-07 A ug-07 F eb-08 A ug-08 F eb-09 A ug-09 F eb-10 A ug-10

CDL HT MAS 10 year bond Yield Spread

-5%

0%

5%

10%

15%

20%

J un-04 J un-05 J un-06 J un-07 J un-08 J un-09 J un-10

CCT MAS 10 year bond Yield Spread

0%

5%

10%

15%

20%

25%

30%

35%

Apr-06 Apr-07 Apr-08 Apr-09 Apr-10

FCOT MA S 10 year bond Y ield Spread

-5%

0%

5%

10%

15%

20%

25%

May-06 May-07 May-08 May-09 May-10

K-REIT MAS 10 year Y ield Spread


16/18

Industry Focus

Singapore REITs

Page 16

CapitaMall Trust Frasers Centerpoint Trust

Starhill Global REIT Suntec REIT

CapitaRetail China Trust

Source: DBS Vickers

0%

5%

10%

15%

20%

25%

J an-05 Oct-05 J ul-06 A pr-07 J an-08 Oct-08 J ul-09 A pr-10

Suntec REIT MAS 10 year bond Yield Spread

0%

2%

4%

6%

8%

10%

12%

14%

Oct -06 A pr- 07 Oct -07 A pr- 08 Oc t- 08 A pr- 09 Oc t- 09 A pr- 10 Oct -10

FCT MAS 10 year bond Y ield Sp read

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Jan-07 J ul-07 Jan-08 Jul-08 Jan-09 J ul-09 Jan-10 J ul-10

CRCT M AS 10 yea r bond Y ield Spread

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Oct-05 J ul-06 Apr-07 J an-08 Oct-08 J ul-09 Apr-10

SGREIT MAS 10 year bond Y ield Spread

0%

2%

4%

6%

8%

10%

12%

14%


CMT MAS 10 year bond Y ield Spread


17/18

Industry Focus

Singapore REITs

Page 17

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/DISCLAIMERThis document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS VickersSecurities (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 anyform 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 asto its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared forgeneral circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financialsituation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be takenin substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. DBSVR accepts no liabilitywhatsoever for any direct or consequential loss arising from any use of this document or further communication given in relation to thisdocument. 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 wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time totime have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/oremployees 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 arenot to be construed as recommendations to trade in the physical commodities or in futures contracts relating to the commoditiesmentioned in this report.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transactionas a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarificationon disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

ANALYST CERTIFICATIONThe research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about thecompanies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part ofhis/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of17 Dec 2010, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in thesecurities recommended in this report (interest includes direct or indirect ownership of securities, directorships and trustee positions).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES1. DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the mentioned

company as of 15-Dec-2010

2. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registeredbroker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of the FrasersCentrepoint Trust, Cambridge Industrial Trust, CDL HT as of 17 Dec 2010.

3. Compensation for investment banking services:i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12

months, and within the next 3 months receive or intends to seek compensation for investment banking servicesfrom the K-REIT, Capitamall Trust, Frasers Centrepoint Trust, Starhill Global REIT, Mapletree Logistics Trust, CacheLogistics Trust, Ascott Residence Trust, CDL HT, Parkway Life REIT

ii. DBSVUSA does not have its own investment banking or research department, nor has it participated in anyinvestment 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 inany security discussed in this document should contact DBSVUSA exclusively.


18/18

Industry Focus

Singapore REITs

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Documents

2010 Dec 17 Singapore REITs Update DBSV