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IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.Designed by Eight, Powered by EFA

SINGAPORE REIT SHORT TERM (3 MTH) LONG TERM

Conviction| |

Nailing down interest rate effectWe see few positive drivers for SREITs as tailwinds from interest ratesand S$ have morphed into headwinds, impacting spreads, cap valuesand borrowing costs. WithSREITsyields near the 6.9-7.2% levels wethink it could trade at if bond yields rise to historical average of 3%, wethink that the sector is near a turning point but is not outright cheap.

Figure 1: Rise in SREITs yields in tandem with bond yields

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

%

REITs forward div y ield (LHS) 10-yr bond y ield (RHS)

SOURCES: CIMB, COMPANY REPORTS

We evaluate the impact of risingbond yields in this report. MaintainNeutral. We lower our DDM-basedtarget prices after raising the cost ofequity by 80bp across the board. Weupgrade Suntec to Outperform fromNeutral. Top picks are nowAREIT,Suntec and FCT.

Are we there yet?While predicting where bond yieldscould be difficult at this juncture, wedug into history for periods whenbond yields were near 3% or risingfor a sense of where REITs could endup. Pegging spreads to historicallevels just before bond yields turnedhigher and normalised levels(2010-Mar 2011) post GFC, webelieve that the sector could trade atspreads of 390-422bp. This wouldimply sector yields of 6.9-7.2%

assuming that bond yields hit thehistorical average of 3%. At currentlevels (6.6% yield and near historicalmean yield and P/BV), we think thatthe sector is near a turning point butis not outright cheap.

Higher cap rates andborrowing costRising bond yields would also limitcap rate compression and push upborrowing cost. That said, we believethat SREITs book values are fairlywell-supported given the premiumthat transacted values commanded.

The near-term impact of higherborrowing cost should meanwhile bemanageable, given healthy assetleverage, high percentage of hedgesand staggered debt maturity.

Maintain NeutralNear term, we expect the impact ofrising bond yields on spreads tocontinue dominating. Bond yieldsmay not rise in a straight line, butthe direction is a one-way bet. Wesee little to fuel positivity, with thebackdrop of rising rates and

weakening S$, and the sector still up11% on a 1-year basis. The onlyredeeming factor is growth, but withimpediments from restructuringpressures locally. Maintain Neutral.

Notes from the Field

TAN Siew Ling

T (65) 6210 8698E [email protected]

Donald CHUAT (65) 6210 8606E [email protected]

Our policies will depend

on this scenario coming trueIf it doesn't come true, we'lladjust our policies.

Ben Bernanke, Fed Chairman

Highlighted Companies

Ascendas REITShare price has corrected alongside the sector. At1.1x P/BV against its historical average of 1.4x sincelisting, we see opportunities to accumulate AREIT, aquality holding, in our view, given its prudentmanagement and quality assets.

Suntec REITTrading at 0.7x P/BV, the lowest within the wholesector, we believe that the market has priced inpotential negatives from rising borrowing costs, whileaccording limited value to the AEI at Suntec City Mall.

Frasers Centrepoint TrustDPU growth should remain underpinned by positiverental reversions while an acquisition of Changi CityPoint will provide the next stage of growth for FCT.Capital management is optimal, leaving it fairlyimmune to interest rate hikes.

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KEY CHARTS

Tailwinds turned headwindsAs both yield and leveraged instruments, SREITs

enjoyed a good run in 2012 on a combination ofrecord-low interest rates, rising S$, strong liquidity andrisk aversion. It is, therefore, no surprise that the recentspike in bond yields and the weakening S$ turnedSREITs into major losers, with yields on SREITs up122bp (in tandem with a 125bp increase in bond yields),taking them 19% down from previous peaks.

LT ave: 4.1%

Ex-crisis: 3.7%

1

2

3

4

1

2

3

4

5

6

7

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

%%

Spread over 10y GB LT ave. spread

Ex-crisis spread 10Y Bond yields (RHS)

Are we there yet?While predicting where bond yields could be difficult atthis juncture, we dug into history for periods when bondyields were near 3% or rising for a sense of where REITscould end up. Pegging spreads to historical levels justbefore bond yields turned higher and normalised levels(2010-Mar 2011) post GFC, we believe that the sectorcould trade at spreads of390-422bp. This would implysector yields of6.9-7.2% assuming that bond yields hitthe historical average of 3%. At current levels (6.6%yield), we think that the sector is near a turning point butis not outright cheap.

PeriodBond

yieldsSpreads

REITs'

yields

6/25/2013 2.8 3.8 6.6

When bond yields are near 3% 3.1 3.0 6.1 2H03-2H08; 1H10

When bond near 3%, strip out 2007-8 3.2 3.0 6.2 2H03-2H06; 1H10

When bond yields are increasing 2.4 4.2 6.7 1H03, 2H05, 1H08, 2H10

Normalised levels post-GFC 2.5 3.9 6.3 2010-Mar 2011

Higher cap rates and manageable borrowingcostRising bond yields would also limit cap rate compressionand push up borrowing cost. That said, we believe thatSREITs book values are fairly well-supported given thepremium that transacted values commanded. Thenear-term impact of higher borrowing cost shouldmeanwhile be manageable, given healthy asset leverage,high percentage of hedges and staggered debt maturity.

Bloomberg

Ticker Gearing ratio

Fixed (% of total

debt)

Current cost of

borrowing

Impact of a 50bps increase in

interest cost on (t+1) DPU

PREIT 32% 85% 1.5% -0.6%

ART 41% 66% 3.1% -1.6%

CDREIT 28% 50% 2.5% -1.2%

AREIT 28% 75% 2.3% -0.9%

CACHE 29% 70% 3.3% -0.8%

CREIT 35% 82% 3.5% -0.9%

MLT 34% 70% 4.1% -1.3%

MINT 35% 88% 2.4% -0.5%

FCOT 39% 63% 2.4% -2.3%

CCT 30% 78% 3.2% -1.0%

KREIT 43% 60% 3.0% -2.4%

SUN 39% 60% 2.2% -2.9%

CMT 35% 94% 2.8% -0.3%

FCT 31% 94% 3.3% -0.2%

SGREIT 32% 81% 2.7% -0.7%

MCT 41% 75% 3.1% -1.5%TOTAL 34% 72% 2.8% -1.2%

Recommendations and picksNear term, we expect the impact of rising bond yields onspreads to continue dominating. Bond yields may notrise in a straight line, but the direction is a one-way bet.We see little to fuel positivity, with the backdrop of risingrates and weakening S$, and the sector still up 11% on a1-year basis. The only redeeming factor is growth, butwith impediments from restructuring pressures locally.Maintain Neutral. We lower our DDM-based targetprices after raising the cost of equity by 80bp across the

board. We upgrade Suntec to Outperform from Neutral.Top picks are nowAREIT, Suntec and FCT.

Top picks:

AREIT, Suntec, FCT

Recommendations:

Outperform Neutral Underperform

Industrial

AREIT,

CACHE,

CREIT

MINT,

MLT

Retail FCT

CMT,

SGREIT,

MCT

OfficeSUN,

FCOT

CCT,

KREIT

Hospitality CDLHT,ART

Healthcare PREIT

SOURCE: CIMB, COMPANY REPORTS

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Figure 2: CIMB REIT Overview

Price Target Price

(local curr) ( local curr) CY2013 CY2014 CY2013 CY2014 CY2013 CY2014 CY2015 CY2013 CY2014 CY2013 CY2014

Ascott Residence Trust ART SP Neutral $1.23 $1.30 $1,218 18.8 17.7 0.9 0.9 4.9% 5.2% 5.4% 41% 41% 7.4% 7.3% 0.1%

CDL Hospitality Trust CDREIT SP Neutral $1.66 $1.71 $1,271 14.7 14.5 1.0 1.0 7.1% 7.1% 7.4% 28% 28% 6.9% 7.0% 0.6%

Hospitality average 16.4 15.9 1.0 1.0 6.0% 6.1% 6.4% 36% 36% 7.1% 7.2% 0.4%

Ascendas REIT AREIT SP Outperform $2.13 $2.49 $4,032 15.7 14.4 1.1 1.1 7.0% 7.7% 7.9% 28% 31% 6.6% 7.1% 3.8%

Cache Logistics Trust CACHE SP Outperform $1.19 $1.31 $723 15.2 14.8 1.2 1.2 8.2% 8.2% 8.4% 31% 31% 7.2% 7.5% 1.1%

Cambridge Industrial Trust CREIT SP Outperform $0.69 $0.76 $664 15.3 14.1 1.0 1.0 6.9% 7.3% 7.4% 37% 37% 7.4% 7.9% 3.9%

Mapletree Industrial Trust MINT SP Neutral $1.30 $1.41 $1,694 14.8 14.3 1.2 1.2 8.1% 8.3% 8.7% 35% 37% 7.1% 7.3% 3.2%

Mapletree Logistics Trust MLT SP Neutral $1.04 $1.08 $1,997 14.7 14.2 1.1 1.1 7.8% 8.0% 8.1% 34% 36% 6.8% 7.0% 1.5%

Industrial average 15.2 14.3 1.1 1.1 7.5% 7.9% 8.1% 32% 34% 6.9% 7.2% 2.7%

CapitaCommercial Trust CCT SP Neutral $1.42 $1.51 $3,218 19.1 19.2 0.9 0.9 4.6% 4.5% 5.1% 30% 31% 5.6% 5.6% 2.6%

Frasers Commercial Trust FCOT SP Outperform $1.33 $1.47 $686 23.8 19.9 0.9 0.9 3.7% 4.6% 5.0% 39% 39% 6.2% 6.9% 10.3%

Keppel REIT KREIT SP Neutral $1.27 $1.29 $2,685 22.5 20.9 1.0 1.0 4.4% 4.7% 5.1% 41% 41% 6.2% 6.2% -1.5%

Suntec REIT SUN SP Outperform $1.49 $1.68 $2,642 27.0 23.3 0.7 0.7 2.7% 3.1% 4.0% 38% 39% 6.2% 6.5% 3.2%

Office average 22.3 20.8 0.8 0.9 3.8% 4.1% 4.7% 36% 37% 6.0% 6.1% 3.6%

CapitaMall Trust CT SP Neutral $1.91 $2.06 $5,207 20.6 19.6 1.2 1.2 5.6% 5.9% 6.2% 35% 35% 5.4% 5.6% 5.4%

Frasers Centrepoint Trust FCT SP Outperform $1.84 $2.02 $1,195 16.5 16.2 1.2 1.2 7.3% 7.4% 7.5% 31% 31% 5.8% 6.0% 2.4%

Starhill Global REIT SGREIT SP Neutral $0.81 $0.86 $1,241 15.3 15.3 0.9 0.9 6.2% 6.1% 6.2% 31% 31% 6.3% 6.6% 5.7%

Mapletree Commercial Trust MCT SP Neutral $1.12 $1.22 $1,827 18.4 17.9 1.1 1.1 5.8% 5.9% 6.2% 41% 41% 5.8% 6.0% 3.1%

Retail average 18.7 18.1 1.1 1.1 6.0% 6.1% 6.3% 35% 35% 5.7% 5.9% 4.1%

Parkway Life REIT PREIT SP Neutral $2.27 $2.33 $1,083 20.7 19.6 1.4 1.4 7.1% 7.3% 7.5% 37% 37% 4.8% 5.1% 3.3%

Healthcare average 20.7 19.6 1.4 1.4 7.1% 7.3% 7.5% 37% 37% 4.8% 5.1% 3.3%

CapitaMalls Malaysia Trust CMMT MK Outperform $1.65 $1.99 $918 19.6 18.7 na na 7.3% 8.1% 8.6% 30% 31% 0.0% 0.0% na

IGB REIT IGBREIT MK Outperform $1.31 $1.59 $1,404 na na na na na na na #DIV/0! #DIV/0! 0.0% 0.0% na

Pavilion REIT PREIT MK Neutral $1.45 $1.59 $1,370 na na 1.5 1.5 0.0% 0.0% 0.0% 0% 0% 0.0% 0.0% na

Sunway REIT SREIT MK Neutral $1.54 $1.63 $1,413 na na na na na na na #DIV/0! #DIV/0! 0.0% 0.0% na

Malaysia retail average 106.3 102.1 5.6 5.7 2.9% 3.3% 3.5% 14% 14% 0.0% 0.0% na

Axis REIT AXRB MK Neutral $3.70 $4.03 $534 20.5 19.5 na na 8.3% 8.7% 9.1% 0% 0% 0.0% 0.0% naMalaysia Industrial average 20.5 19.5 na na 8.3% 8.7% 9.1% 0% 0% 0.0% 0.0% na

Average (all) 20.7 19.6 1.2 1.2 5.5% 5.8% 6.1% 34% 34% 5.2% 5.4% 3.0%

CompanyBloomberg

TickerRecom.

Market Cap

(US$ m)

Core P/E (x) 3-year DPS

CAGR (%)

P/BV (x) Recurring ROE (%) Dividend Yield (%)Asset leverage (%)


Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

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Assessing higher interest rates

1. ASSESSING IMPACT OF HIGHER INTEREST RATES1.1 Tailwinds turned headwindsAs both yield and leveraged instruments, SREITs enjoyed a good run in 2012 ona combination of record-low interest rates, rising S$, strong liquidity and riskaversion. It is, therefore, no surprise that the recent spike in bond yields and theweakening S$ turned SREITs into major losers, with yields on SREITs up 122bp(in tandem with a 125bp increase in bond yields), taking them 19% lower thanprevious peaks. We explore in this piece our views on the impact of risinginterest rates on REITs.

Figure 3: Performance across select REITs/ business trusts

Share price

(lcl curr) 1 month 3 months 1 Year YTD

AREIT 2.130 (17.4) (17.1) 1.9 (10.1)

ART 1.225 (14.0) (9.6) 14.0 (9.9)

Cache 1.185 (11.9) (8.5) 13.9 (4.4)

CDLHT 1.660 (13.8) (17.4) (10.3) (11.7)

Cambridge 0.685 (14.9) (13.3) 23.4 1.5

CCT 1.420 (13.4) (12.1) 13.6 (15.7)

CMT 1.910 (12.0) (8.6) 5.5 (10.3)

CRCT 1.330 (16.6) (22.7) 2.3 (19.1)

FEHT 0.940 (9.6) (18.3) na (6.5)

FIRT 1.160 (14.4) (2.9) 28.2 9.4

FRT 7.020 (11.7) 2.6 52.6 10.2

FCOT 1.325 (11.1) (4.0) 37.3 0.4

FCT 1.840 (12.4) (14.4) 9.9 (8.0)

KREIT 1.270 (15.9) (5.9) 23.9 (1.9)

LMRT 0.465 (13.1) (11.4) 19.2 (5.1)

MCT 1.120 (19.4) (16.4) 16.7 (7.8)MGCCT 0.930 (11.0) (11.4) na na

MINT 1.300 (11.6) (6.5) 10.2 (4.4)

MLT 1.040 (19.4) (13.7) 7.2 (9.2)

PREIT 2.270 (15.3) (8.5) 22.7 5.6

PCRT 0.520 (13.3) (10.3) 9.5 (8.0)

SSREIT 1.140 (11.3) (9.2) 16.9 0.0

SGREIT 0.810 (12.0) (9.0) 26.6 3.2

Suntec 1.485 (18.9) (15.6) 11.7 (11.3)

FSTREI 724.08 (14.3) (11.5) 11.0 (7.6)

FSSTI 3,089.93 (8.9) (5.4) 9.8 (2.4)

Performance

SOURCES: CIMB, BLOOMBERG

Figure 4: YTD share price performance Figure 5: 1M share price performance

(20)

(15)

(10)

(5)

0

5

10

15

FRT

FIRT

PREIT

SGREIT

Cambridge

FCOT

SSREIT

KREIT

MINT

Cache

LMRT

FEHT

MCT

PCRT

FCT

MLT

ART

AREIT

CMT

Suntec

CDLHT

CCT

CRCT

%

(20)

(18)

(16)

(14)

(12)

(10)

(8)

(6)

(4)

(2)

0

FEHT

MGCCT

FCOT

SSREIT

MINT

FRT

Cache

SGREIT

CMT

FCT

LMRT

PCRT

CCT

CDLHT

ART

FIRT

Cambridge

PREIT

KREIT

CRCT

AREIT

Suntec

MLT

MCT

%

SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG

Table of Contents

1. ASSESSING IMPACT OF HIGHER INTERESTRATES

p.4

2. HOUSE VIEW ON S$, INTEREST RATES ANDQE

p.5

3. IMPACT ON YIELD SPREADS p.6

4. IMPACT ON CAP RATES p.10

5. IMPACT ON BORROWING COSTS p.13

6. SEEKING GROWTH VISIBILITY ANDSTRONG FINANCES

p.15

7. VALUATION AND RECOMME NDATION p.16

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2. HOUSE VIEW ON S$, INTEREST RATES AND QE

2.1 On S$ and interest ratesOur FX team believes that S$ will weaken against US$ to 1.27 by end-2013. Ourweaker S$ view was an anti-consensus view at the start of the year but recent

risk aversion has brought the FX pair close to our target. We expect acombination of 1) risk aversion, 2) receding inflation in Singapore, 3) weakergrowth in Asian economies, and 4) likely weakening of the yen again to preventS$ from returning to the previous appreciating path.

The question for interest rates is whether rates will go up in a hurry. We viewthe rise in 10YR yields across the world as a reflection of increased risk aversion,not central banks changing their stance on interest rates. In fact, the FederalReserve made a most dovish speech last week after equity markets started tocollapse. One has to recognise that the markets decline was in spite of asustained easy money policy stance in the US, not because the Fed turnedhawkish. Without a change in the Fed fund rates, we do not expect the 3M S$SIBOR to creep up significantly either.

Figure 6: MAS has weakened its firm grip on FX policy Figure 7: Yield curve

99

101

103

105

107

109

111

113

115

Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13

NEER

Stronger S$

Weaker S$

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Dec-12

Mar-13

May-13

%

SOURCES: CIMB, CEIC, BLOOMBERG SOURCE: CEIC

2.2 On tapering of QEEnd of QE must be accompanied by growth. Even though Bernanke notedin the FOMC meeting in June that it will start cutting back on QE later this year,this is contingent on improving economic conditions and sustaining job creation;recent data have been mixed. We expect sufficient signalling, raising oftransparency levels and resetting of targets to avoid a disorderly sell-off in thebond market. In the event that yields rise faster than expected due to moreaggressive sell-offs, the Fed retains the option of extending its policy guidance ofbalance sheet expansion to limit these moves.

Strong US economy will not solve all of Asias ills. Our strategists believethat a strong US economy prompting a pullback in QE will not solve all of Asiasills, given the risks from disappointing Chinese growth, a strong US$ (drivingliquidity withdrawal) and a weak yen impacting North Asian exports. The USrecovery will help drive exports higher but the impact will remain selective,especially as growth is still likely to be sub-3% in 2014 and the world will alsodeal with an unwinding of bond yields which will start to raise valuationconcerns.

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3. IMPACT ON YIELD SPREADS

3.1 Broad-based re-pricing on rising bond yieldsThe broad-based yield-compression across S-REITs over the past year wasdriven mainly by record-low interest rates and a strong S$. The recent spike in

bond yields and the strengthening US$ have thus sparked a selldown andrepricing across SREITs, with SREITsyields up 122bp, in tandem with a 125bpincrease in bond yields. This took spreads to 380bp, back to levels just below thelong-term average of 407bp.

Figure 8: Increase in bond yields sparking a pullback in REITs

LT ave: 4.1%

Ex-crisis ave: 3.7%

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

%

Spread over 10y GB (LHS) LT ave. spread (LHS)

Ex-crisis ave spread (LHS) 10-yr bond yield (RHS) SOURCES: CIMB, BLOOMBERG

Figure 9: Spike in volatility of the sector, skewing risk-rewards

0

5

10

15

20

25

30

35

40

45

50

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Yield/volatility Average Volatility (RHS)


3.2 How did REITs fare historically when bond yields rose?We detail below the performance of REITs relative to respective country indicesduring past episodes of interest rate increases. US REITs have traditionallyunderperformed during periods of rising interest rates while S-REITsperformance was more mixed though the performance could have been skewed

by the limited number of names listed in the early days of 2004-5. That said, wehighlight some differences this time round compared to the past 1) Bond yieldshave never been so low in the listing history of REITs and 2) A structurallyslower Asian growth could affect cyclical stocks share-price performance, andSREITs could outperform cyclical stocks in an environment where liquidity stillabounds.

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Figure 10: SG 10Y bond yields previously near historical low Figure 11: Mixed performance when interest rates increase

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

SG 10Y Bondyields (%)

Time periodBond yield

increase (% pts)FST REI Chg M SCI Sg

Outperforma

nce (%)

May 2003 - Oct 2003 2.0 21% 35% -14%

Mar 2004 - Jun 2004 0.7 11% -3% 14%Dec 2004 - Mar 2005 0.6 17% 4% 13%

May 2005 - Mar 2006 1.1 3% 18% -15%

Mar 2008 - Jun 2008 1.9 3% 5% -1%

Jan 2009 - Jun 2009 1.2 27% 39% -13%

Sep 2010 - Dec 2010 0.7 2% 7% -5%

May - Present 0.5 -10% -5% -5%


Figure 12: US 10Y Bond yields previously near historical low Figure 13: US REITs typically underperform as interest rates rise

0

2

4

6

8

10

12

14

16

1972 1977 1982 1987 1992 1997 2002 2007 2012

US 10Y Bondyields (%)

Time periodBond yield

increase (% pts)

NAREIT TR

Chg (%)MSCI US

Outperform-

ance (%)

Mar 1986 - Oct 1987 2.6 20% 25% -6%

Jun 1989 - Apr 1990 0.9 -2% 2% -4%

Jan 1994 - Sep 1994 2.0 5% -3% 8%

Sep 1998 - Dec 1999 2.3 -10% 51% -61%

May 2003 - May 2004 1.5 14% 17% -4%

Dec 2008 - May 2009 1.4 15% 17% -2%

Aug 2010 - Dec 2010 1.0 9% 18% -9%


3.3 Is it time to bottom-fish?The sector is trading at 1.1x P/BV and forward yields of 6.6%. Predicting where

long bond yields will head could be challenging at this moment. But using a 3%SG long bond yield based on its simple historical average, we note the followinghistorical trends for the trading of S-REITs.

The sector trades at a long-term mean yield of 6.7% (6.3%ex-crisis)

Between 2010 and Mar 2011 (which we deem as normalised levels for sectorpost-GFC and before the recent yield compression), S-REITs yields rangedfrom 5.8% to 7.0%, translating into an average of 6.3% against averagebond yields of 2.5% during the period and spreads of 390bp (roundingdifference).

Spreads can narrow as bond yields rise. Spreads trended around below thelong-term mean at 300bp (to potentially price in stronger growth) during

past periods when bond yields were near 3%. This implied forward yields of6.1-6.2% for the sector.

Higher spreads tend to precede periods of bond yield increases. We note anaverage spread of 422bp before periods of bond yield increases from

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average levels of about 2.4%, translating into an overall sector yield of about6.7%.

Figure 14: Forward dividend yield

Mean: 6.7%

+1s.d: 8.4%

-1s.s.: 4.9%

Ex-crisis mean: 6.3

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

%

Forward yield Mean +1SD -1SD Ex-crisis mean


Figure 15: Average bond yields and spreads through history Spreads cancompress as yields rise

10Y Bond

yields (%)

REITS'

spreads

against 10Y

bond yields

(%)

REITs'

forward

yields (%) GDP Growth (%)1H2003 2.2 7.7 9.9

2H2003 3.6 4.6 8.2

1H2004 3.3 3.7 7.0

2H2004 3.2 2.7 5.9

1H2005 2.9 2.4 5.3

2H2005 2.9 2.2 5.1

1H2006 3.4 2.4 5.8

2H2006 3.3 2.3 5.7

1H2007 2.9 1.8 4.7

2H2007 2.8 2.1 4.9

1H2008 2.5 3.1 5.6

2H2008 3.0 5.4 8.5

1H2009 2.1 8.8 10.9

2H2009 2.5 4.7 7.2

1H2010 2.7 3.9 6.6

2H2010 2.2 4.0 6.1

1H2011 2.5 3.8 6.32H2011 1.8 5.0 6.8

1H2012 1.6 5.8 7.4

2H2012 1.4 5.0 6.4

1H2013 1.4 4.3 5.7 2.9

6/25/2013 2.8 3.8 6.6

When bond yields are near 3% 3.1 3.0 6.1 2H03-2H08; 1H10

When bond near 3%, strip out 2007-8 3.2 3.0 6.2 2H03-2H06; 1H10

When bond yields are increasing 2.4 4.2 6.7 1H03, 2H05, 1H08, 2H10

-1.0

14.8

4.9

2.1

4.6

9.2

7.4

8.8

8.9

1.7


Some more downside; but sector is close to being fairly valued. Basedon the above, assuming a 10-year bond yield of 3% (historical average) and that

yield spreads remain around 390-422bp (in between mean levels and periodsof rising interest rates), we estimate that SREITs could still have another30-60bp of yield expansion to go, implying sector yields of about 6.9-7.2% or6-11% share price downside. We are thus nearing a turning point, albeit still notat levels where the sector is outright cheap.

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This is particularly so, considering the backdrop of rising bond yields over thelonger run from current record-low levels, regardless of when the QE actuallytapers off. More recently, in the Jun FOMC meeting, Bernanke, in fact, notedthat it will start cutting back on QE later this year and may stop it entirely bymid-2014 if the economy continues to improve and the unemployment rate falls

to 7% by mid-2014.

3.4 What are the risks to our views?Worth noting is that the gradual end to QE is not the same as tightening in thepresence of still-weak growth, low inflation risks and ample liquidity. Astrengthening US economy is likewise not the same as economic growth in Asiawhere selected economies such as India, China, S.Korea and Singapore arenavigating structural changes. The recent selldown of bonds/yield stocks maytherefore, not yet kick-start a bullish cyclical rotation trade and it may be tooearly to fully abandon yields. Upside could prevail if 1) bond yields start turninglower, 2) earnings and economic data disappointment fuels a return ofrisk-aversion and yield trades and 3) flush liquidity prompts fund flows backinto bonds and yield stocks.

In particular, we note that the recent round of yield curve steepening hasalready taken local 10-year bond yields to about 2.8%, implying a spread ofabout 240bp against the current 3-month SIBOR and 2-year bond yields. Theseare already near previous peaks, implying potentially some form of cap on10-year bond yields in the near term, with the short-term rates continuing to beanchored by the Fed.

Figure 16: Indication of steepness of yield curve (10yr bondyield- 3M SIBOR)

Figure 17: Indication of steepness of yield curve (10yr bondyield- 2yr bond yield)

3.1% 3.3%

2.5% 2.3% 2.4%

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Aug-1

999

Aug-2

001

Aug-2

003

Aug-2

005

Aug-2

007

Aug-2

009

Aug-2

011

% 10yr bond yield - 3MSIBOR 3MSIBOR

2.7%

2.4%

2.7%

2.4%

2.3%

2.4%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Aug-1

999

Aug-2

001

Aug-2

003

Aug-2

005

Aug-2

007

Aug-2

009

Aug-2

011

% 10yr- 3MSIBOR 2yr bond yield


Conversely, we believe that the sector could see a further leg down on a sharperand faster-than-expected spike in bond yields or underperform cyclical stockson stronger-than-expected economic growth.

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4. IMPACT ON CAP RATES

4.1 Are book values of REITs safe?Cap rates and, in turn, capital values are a function of risk-free rates, real estaterisk premium and expected growth in future cash flows. With bond yields on the

rise, a natural extension of this would be concerns over book values. Thesupposed positive correlation between SG long-bond yields and commercialproperty market yields has been patchy in the last 20 years. A strongrelationship was seen in the 1990s but this broke down in the 1999-2003 and2008-2009 downcycles when falling interest rates coincided with rising caprates. Since QE began in 2009, the positive relationship between bond yieldsand cap rates returned (lower yields and lower cap rates). Directionally, webelieve that cap rates should head up as interest rates begin to rise at somepoint.

Figure 18: SG10Yr bond yields vs. office rental yields Figure 19: SG10Yr bond yields vs. retail mall yields (primefloors)

1%

2%

3%

4%

5%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Current

0%

1%

2%

3%

4%

5%

6%

7%

8%

MASB10Y Index (LHS) Average prime yields (RHS)

1%

2%

3%

4%

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

4.4%

4.6%

4.8%

5.0%

5.2%

5.4%

5.6%

5.8%

MASB10Y Index Retail (Pr ime)

SOURCES: CIMB, JLL, BLOOMBERG SOURCES: CIMB, JLL

A study of office cap values and bond yields. The average office cap ratesfor Grade A buildings have compressed to c.3.75%, below its historical averageof 4.2%. The average spread between commercial yields vs. SG10Yr yields isaround 1.6% on a 20-year horizon. Yield spreads (excluding the GFC period of2H08-1H09) averaged around 1.45% in the last 10 years. With the c.140bp risein SG long bond yields (to c.280bp) over the past two months, the spread hasnarrowed from 245bp to 95bp below the historical mean. The 20-year averageof the SG long bond yield is around 270bp, at current levels. Simplistically, a

mean reversion in yield spreads should imply a c.100bp expansion incommercial cap rates or a c.18-20% downside in capital values.

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Figure 20: Office rental yield spreads against 10-year bondyields

Figure 21: Retail rental spread against SG10Yr bond yields

0%

1%

2%

3%

4%

5%

6%

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

500

1,000

1,500

2,000

2,500

3,000

Grade A cap values

Office market yields vs SG10yr yield spread

Average spreads (ex GFC period)

Average spreads

(ex GFC period),

2.70%

1%

2%

3%

4%

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

Retail rental yields vs SG10yr yield spread Average spreads (ex GFC period)

SOURCES: CIMB, BLOOMBERG, JLL SOURCES: CIMB, BLOOMBERG, JLL

The trend analysis above assumes mean reversion and ignores the cyclicality ofthe office sector. Average yield spreads during downcycles range from 2.5-4%(low interest rates but higher cap rates) and 0.2-1.5% during upcycles (highinterest rates but lower cap rates). During periods of bottoming for the officesector, physical yield spreads typically ranged between 1.3 and 1.6% (1993-1995,2004-2006 and 2009-2010) before narrowing further.

We believe that the key drivers of the magnitude of cap rate expansion areultimately rental growth potential and vacancy, rather than bond yields alone.We note historically a 0.9 positive correlation between office capital values and

rents and a 0.9 negative correlation vs. vacancy rates. The relationship ofinterest rates and capital values has meanwhile not been as strong.

Valuers cap rates more conservative than transacted. We alsohighlight the gap between cap rates used by valuers and transacted cap rates.We note that cap rates used by valuers have generally been more conservative.This probably translated into the NAV premiums that REITs of some subsectorstrade at, other than office where expectations are perhaps more muted and caprates in book values are arguably closest to transacted cap rates due to thehigher level of trading activities. The gap in cap rates could provide some bufferto book values (for retail, industrial and hospitality) even if bond yields rise, inour view.

4.2 Transacted cap rates could expandWe expect transacted cap rates to expand as prospective buyers and sellersmoderate their pricing expectations of assets. With NAV premiums/discountsbridging the gap between book values and transacted capital values, we believethat REITs had pulled back recently to factor in the expected expansion intransacted cap rates.

As a gauge, we compared each REITs implied NPI yields to the cap rates of keyassets. Office and hospitality are the two main subsectors where implied NPIyields are trending near or above cap rates (by 50-80bp) while implied NPIyields of retail and industrial REITs are below physical cap rates (by 30-35bp),justified perhaps by the more conservative cap rates used by valuers here (vs.transacted cap rates) and defensive + steady growth traits valued in the currentclimate. For REITs where implied NPI yields are below physical cap rates, we

continue to argue for selectivity and some premium to be attached to i)subsectors like retail where barriers are higher and professional managementmore critical, ii) leaders in respective sub-sectors like AREIT (business parks)and CMT (retail malls) for professional management and strong tenant basesand iii) those with stronger capital management capabilities.

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Figure 22: Implied NPI yields

Implied NPI yield

CY14 (w/o

income

support)

CY14 (wi th

income

support)

Cap rates (%)

Industrial

Ascendas REIT 6.1% Weighted ave: 6.6%; Biz/ sci parks: 6.1%Cache Logistics Trust 6.8% 6.5-7.25%

Cambridge Industrial Trust 7.8%

Mapletree Logistics Trust 6.5%Local: 5.5-7.5%, Remaining: 5-12% dep. on

country

Mapletree Industrial Trust 6.4% Flatted factories: 7-7.6%

Retail

CapitaMall Trust 5.3% Suburban retail: 5.5-5.65%

Frasers Centrepoint Trust 5.5% 5.5-5.65%

Mapletree Commercial Trust 4.9% Retail: 5.0-5.3%; Office: 4.3-4.5%

Starhill Global REIT 7.0% Local: 4.25-5.25%

Office

Capitacommercial Trust 4.8% Office: 4-4.5%

Keppel REIT 4.5% 5.3% Office: ~4% for local assets

Suntec REIT 4.4% 4.7% Office: 4.0-4.6%; Retail: 5.5-5.6%

Frasers Commercial Trust 6.6% Local/ Aus office: 4%/ 7.5-8%

Hospitality

Ascott Residence Trust 6.6% Europe: ~6%; Sg: 4-4.5%

CDL Hospitality Trust 6.8% Local: >6%

Healthcare

Parkway Life REIT 5.2% Sg: 5.75-6.25%; JP: 6-8% SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG

Figure 23: Implied cap rates have broadly tracked propertyyields

Figure 24: but appear to have moved more in tandem withbond yields over the past year

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Implied cap rate (CCT) Prime office physical yield 10y bond yields (RHS)

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Implied cap rate (CMT) Prime retail physical yield 10y bond yields (RHS)

SOURCES: CIMB, BLOOMBERG, JLL SOURCES: CIMB, BLOOMBERG, JLL

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5. IMPACT ON BORROWING COSTS

5.1 More prepared this time roundAs leveraged instruments, a spike in interest rates could result in a higherborrowing cost for REITs with lumpier refinancing, higher percentage of loans

on floating rates and asset leverage. That said, we believe SREITs are generallymore prepared for any potential spike in borrowing costs and pullback inliquidity after the 2009 global financial crisis. We note a fairly healthy assetleverage of 34% for the sector (with only KREIT and MCT having asset leveragesurpassing 40%) and a fairly well-staggered debt maturity of 30% and beloweach year. Excluding refinancing, we expect the DPU impact from a 50bpincrease in interest costs to be fairly modest at -1.2% on average for the sector.With interest rates potentially on the rise, we expect more REITs to proactivelystagger lumpy debt expiries while increasing interest rate hedges to lock ininterest rates.

Figure 25: Debt maturity fairly well-staggered

Debt maturity (% of debt) 2013 2014 2015 2016 2017 >2018

Parkway Life REIT PREIT SP 0% 33% 41% 17% 9% 0%

Ascott Residence Trust ART SP 7% 27% 33% 21% 12% 0%

CDL Hospitality Trust CDREIT SP 32% 26% 29% 13% 0% 0%

Far East Hospitality Trust FEHT SP 0% 0% 46% 0% 38% 15%

Ascendas Reit AREIT SP 6% 20% 16% 13% 19% 25%

Cache Logistics Trust CACHE SP 0% 0% 60% 40% 0% 0%

Cambridge Industrial Trust CREIT SP 0% 62% 16% 22% 0% 0%

Mapletree Logistics Trust MLT SP 0% 20% 7% 8% 12% 53%

Mapletree Industrial Trust MINT SP 0% 20% 33% 12% 13% 21%

Fraser Commercial Trust FCOT SP 0% 18% 56% 0% 26% 0%

CapitaCommercial Trust CCT SP 2% 14% 30% 38% 8% 7%

Keppel REIT KREIT SP 0% 25% 29% 16% 21% 9%

Suntec REIT SUN SP 15% 29% 25% 14% 7% 10%

CapitaMall Trust CT SP 3% 15% 23% 18% 7% 33%

Frasers Centrepoint Trust FCT SP 0% 10% 16% 45% 17% 12%

Starhill Global REIT SGREIT SP 0% 0% 28% 24% 9% 39%

Mapletree Commercial Trust MCT SP 0% 21% 21% 22% 21% 14%

Simple average: 4% 20% 30% 19% 13% 14% SOURCES: CIMB, COMPANY REPORTS

5.2 Which are more and less vulnerable?Taking into consideration asset leverage, percentage of loans on fixed rates andaverage length of debt maturity, we find that office REITs such as Suntec,KREIT and CDREIT are more exposed. Suntec and KREIT both have higherasset leverage and exposure to floating-rate loans, which could result in higher

borrowing costs when rates rise. Suntec also has a shorter weighted averagelength of debt maturity. Worth noting however is Suntecs and KREITsexposure to a cyclical office sector where sensitivity of rents to economicimprovements could provide buffers for interest rate increases. Both could alsoincrease their loan hedges should signs of interest rate increases become moreconcrete.ART meanwhile has a higher gearing of 40-41% after the recent roundof acquisition in China and Japan, a fairly low portion of fixed-rate loans at 66%of total borrowings (+4% of borrowings on floating with interest rate caps) anda short average time to debt maturity of 2.7 years before the incorporation ofloans from the recent acquisitions. Nonetheless, we understand thatmanagement is proactively looking at increasing its interest rate hedges andterming out debt maturity, which could help to strengthen its balance sheet.

On the other hand, we find AREIT, FCT and CMT least exposed given their

lower asset leverage and high exposure to fixed rate loans. AREIT and CMT alsohave among the longest time to debt maturity within the sector, probably due totheir ability to secure such loans with their size, track record and qualityportfolio.

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Figure 26: SREITs borrowings as at Mar 2013 or latest available update

2013 2014 2015 2016 2017 >2018

Total

(S$m)

Gearing

ratio

Fixed (% of

total debt)

Ave cost of

debt

Ave debt

maturity (yrs)

Interest cov

ratio (x)

PREIT SP 0 151 188 77 42 0 457 31.6% 85.0% 1.5% 2.3 9.9

ART SP 69 272 338 212 125 0 1,015 41.2% 66.0% 3.1% 2.7 3.7CDREIT SP 200 161 181 84 0 0 626 28.3% 50.0% 2.5% 2.0 9.7

FEHT SP 0 0 300 0 250 100 650 29.3% 54.0% 2.3% 3.8 8.4

AREIT SP 125 395 314 260 375 502 1,971 28.3% 74.8% 3.3% 3.9 4.9

CACHE SP 0 0 188 126 0 0 313 29.2% 70.0% 3.5% 2.6 6.0

CREIT SP 0 278 71 100 0 0 449 35.3% 82.4% 4.1% 1.7 4.8

MLT SP 0 287 100 115 172 760 1,434 34.1% 70.0% 2.4% 3.9 6.6

MINT SP 0 206 344 126 139 220 1,035 34.8% 88.0% 2.4% 2.7 6.6

FCOT SP 0 128 405 0 185 0 718 38.6% 63.0% 3.2% 2.7 4.6

CCT SP 50 300 644 796 175 148 2,113 30.4% 78.0% 3.0% 3.0 4.7

KREIT SP 0 723 844 447 599 265 2,878 43.3% 60.0% 2.2% 3.2 4.8

SUN SP 400 770 680 370 200 280 2,700 38.6% 60.0% 2.8% 2.3 3.5

CT SP 107 500 800 624 250 1,143 3,424 35.2% 94.0% 3.3% 4.0 4.3

FCT SP 0 60 95 264 100 70 589 30.5% 94.0% 2.7% 3.4 6.2

SGREIT SP 0 0 256 219 82 350 907 31.7% 81.0% 3.1% 3.5 5.8

MCT SP 0 339 339 354 329 230 1,591 40.9% 74.5% 2.2% 3.3 5.4

TOTAL 952 4,569 6,085 4,173 3,023 4,068 22,869 34.2% 73.2% 2.8% 3.0 5.9

Debt maturity (S$m)

Bloomberg Ticker


Figure 27: Scoring by exposure of REITs to rising interest rates (combined view ofleverage, borrowings hedged and length of debt maturity (to update)

0

5

10

1520

25

30

35

40


We measure sensitivity of REITs to a 50bp increase in interest costs. Excluding

refinancing, REITs which are most exposed to a 50bp increase in interest costsinclude Suntec, KREIT and FCOT. FCT, CMT and MINT are among theleast exposed.

More exposed

Less exposed

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Figure 28: Impact of a 50bps increase in interest cost (taking into considerationexposure to floating debt)

Bloomberg

Ticker Gearing ratio

Fixed (% of total

debt)

Current cost of

borrowing

Impact of a 50bps increase in

interest cost on (t+1) DPU

PREIT 32% 85% 1.5% -0.6%

ART 41% 66% 3.1% -1.6%

CDREIT 28% 50% 2.5% -1.2%

AREIT 28% 75% 2.3% -0.9%

CACHE 29% 70% 3.3% -0.8%

CREIT 35% 82% 3.5% -0.9%

MLT 34% 70% 4.1% -1.3%

MINT 35% 88% 2.4% -0.5%

FCOT 39% 63% 2.4% -2.3%

CCT 30% 78% 3.2% -1.0%

KREIT 43% 60% 3.0% -2.4%

SUN 39% 60% 2.2% -2.9%

CMT 35% 94% 2.8% -0.3%

FCT 31% 94% 3.3% -0.2%

SGREIT 32% 81% 2.7% -0.7%

MCT 41% 75% 3.1% -1.5%TOTAL 34% 72% 2.8% -1.2%


6. SEEKING GROWTH VISIBILITY AND STRONG FINANCES

6.1 DPU growthThe recent selldown is akin to the bursting of the yield bubble and a lesson onthe importance of fundamentals for market participants. We continue to adviseinvestors to keep an eye on growth, particularly organic growth rather thaninorganic growth where accretion could be affected by rising funding costs (bothdebt and equity) and asset values are likely to still be supported by competition

for assets. REITs with higher DPU growth include FCOT, CMT and Plife.

Figure 29: 3-year DPU CAGR (%)

3yr DPU CAGR (%) Sources of growth

Industrial

Ascendas REIT 4.3% AEIs/ developments coming on stream; positive rental reversions

Cache Logistics Trust 2.4% Rental step-ups, factored in further S$65m of acquisitions

Cambridge Industrial Trust 4.3% S$100m of devt works factored in over FY13-4

Mapletree Logistics Trust 3.0% S$150m of debt-funded acquisitions factored in for FY14

Mapletree Industrial Trust 2.8% Positive rental reversions and development projects coming on stream

3.4%

Retail

CapitaMall Trust 5.8% AEI fruition, full-year impact of previous years' AEIs, Westgate coming on stream

Frasers Centrepoint Trust 3.5% Positive rental reversions, particularly Causeway Pt and NorthPt

Mapletr ee Commer cial T rust 3.3% Positive rental reversions at VivoCity and Mapletree Anson

Starhill Global REIT 4.5% Toshin lease rental uplift, rental step-ups at Msian assets & positive rental reversions4.3%

Office

Capitacommercial Trust 3.5% Market street carpark development coming on stream in FY15; flattish in the interim

Keppel REIT -0.6% Marginal growth near-term eroded by expiring income support

Suntec REIT 4.5% Asset enhancements at Suntec City Mall

Frasers Commercial Trust 12.7% CPPU redemption, ongoing leasing at China Sq, expiry of master lease at

5.0%

Hospitality

Ascott Residence Trust 1.3% Acquisition accretion for recent S$300m acquisition; further S$80m priced in for FY13

CDL Hospitality Trust 2.2% Maldives acqn and Orchard Hotel AEI, offseting near-term decline in revPARs

2.9%

Healthcare

Parkway Life REIT 4.8% CPI-pegged rental uplifts; S$130m of Jap/ Msian acquisitions factored in

3.3% SOURCES: CIMB, COMPANY REPORTS

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6.2 Strong balance sheetWhile our conversations with some REITs indicate that bank borrowing rateshave yet to spike, rates are expected to rise over the longer term. We, therefore,prefer REITs with stronger balance sheets and lower asset leverage. On top ofreduced exposure to borrowing rate spikes, the latter should provide more room

for REITs to draw on cheaper debt for inorganic growth, vis--vis equity whichhas turned more expensive after this recent round of selldown.

Figure 30: Asset leverage

28% 28%29% 29%

30% 31%32% 32%

34%35% 35% 35%

39% 39%

41% 41%

43%

25%

27%

29%

31%

33%

35%

37%

39%

41%

43%

45%Asset leverage


7. VALUATION AND RECOMMENDATION

7.1 Maintain NeutralThe sector is trading at 1.1x P/BV and forward yields of 6.6%. These are close tothe levels of 6.9-7.2% (spreads of 390-422bp or spreads in between meanlevels and periods of rising interest rates) where we think the sector could tradeat should bond yields head to the historical average of 3.0%. The sector thusappears to be nearing a turning point, albeit not yet at levels where it is outrightcheap.

We find it hard to be fundamentally positive on REITs. As both yield andleveraged instruments, what were previously tailwinds have morphed intoheadwinds. A rising rate environment will reduce the attractiveness of REITs,limit cap rate compression and push borrowing costs higher, all of which arenegatives for SREITs. Bond yields may not rise in a straight line (as we notedabove, the yield curve has steepened to levels where spreads between long andshort bond yields are near previous peaks), but the direction is a one-way bet.The only redeeming factor in a rising rate environment is DPU growth but wesee significant upside hindered in the near term by restructuring pressureslocally and a weak China outlook (for REITs that are less domestically-inclined).Add to that a weakening S$, we see little reason to be positive.

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7.2 Pricing in higher bond yieldsPricing in a normalisation of valuations and bond yields, we now value REITs byusing the five-year average of our in-house risk-free and market risk-premiums,translating into an 80bp increase in the overall market cost of equity from 7.3%to 8.1% (for beta of 1x). With an eye on both growth and strong balance sheet as

well as more palatable valuations for some after the recent selldown, weupgrade Suntec REIT to Outperform from Neutral; and CCT, CMT and CDLHTfrom Underperform to Neutral. Our top picks are AREIT (attractive valuationsat 1.1x P/BV vs. historical 1.4x for quality portfolio, strong management, safebalance sheet), Suntec (P/BV of 0.7x among the lowest within whole sector;risk-reward attractive for a play on potential turnaround of Suntec City Mall)and FCT (resilient suburban retail exposure and balance sheet; with upsidefrom acquisition of Changi City Point). We detail changes in discount rates andtarget prices below.

Figure 31: Changes in discount rate, target price and recommendation

Hospitality

Ascott Residence Trust ART SP $1.23 3.7% 4.4% 1.10 8.5% 1.30$ 1.40$ 6.9% 1.0 N

CDL Hospitality Trust CDREIT SP $1.66 3.7% 4.4% 1.15 8.8% 1.71$ 1.94$ 6.8% 1.1 Upgrade N

Simple Average

Industrial

Ascendas Reit AREIT SP $2.13 3.7% 4.4% 0.80 7.2% 2.50$ 3.05$ 6.1% 1.3 O

Cache Logistics Trust CACHE SP $1.19 3.7% 4.4% 0.95 7.9% 1.31$ 1.50$ 6.8% 1.3 O

Cambridge Industrial Trust CREIT SP $0.69 3.7% 4.4% 1.05 8.3% 0.76$ 0.87$ 7.1% 1.2 O

Mapletree Logistics Trust MLT SP $1.04 3.7% 4.4% 1.00 8.1% 1.08$ 1.33$ 6.7% 1.2 N

Mapletree Industrial Trust MINT SP $1.30 3.7% 4.4% 1.00 8.1% 1.41$ 1.62$ 6.7% 1.3 N

Simple Average

Office

Frasers Commercial Trust FCOT SP $1.33 3.7% 4.4% 1.05 8.3% 1.47$ 1.65$ 6.2% 1.0 O

CapitaCommercial Trust CCT SP $1.42 3.7% 4.4% 0.95 7.9% 1.51$ 1.69$ 5.3% 0.9 Upgrade N

Keppel REIT KREIT SP $1.27 3.7% 4.4% 1.05 8.3% 1.29$ 1.45$ 6.1% 1.0 N

Suntec REIT SUN SP $1.49 3.7% 4.4% 1.05 8.3% 1.68$ 1.96$ 5.7% 0.8 Upgrade OSimple Average

Retail

CapitaMall Trust CT SP $1.91 3.7% 4.4% 0.80 7.2% 2.06$ 2.23$ 5.2% 1.3 Upgrade N

Frasers Centrepoint Trust FCT SP $1.84 3.7% 4.4% 0.85 7.4% 2.02$ 2.31$ 5.4% 1.3 O

Starhill Global REIT SGREIT SP $0.81 3.7% 4.4% 1.00 8.1% 0.86$ 0.93$ 6.2% 0.9 N

Mapletree Commercial Trust MCT SP $1.12 3.7% 4.4% 0.95 7.9% 1.22$ 1.47$ 5.5% 1.2 N

Simple Average

Healthcare

Parkway Life REIT PREIT SP $2.27 3.7% 4.4% 0.75 7.0% 2.33$ 2.72$ 4.9% 1.5 N

Recommen

dation

Old Target

Price

Implied

CY14 yield

Implied

P/BV

Change in

recommendationSREIT Price

Bloomberg

Ticker Risk-free

Risk

premium Beta

Cost of

equity

New Target

Price

SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG

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REIT | Singapore

June 26, 2013


Opportunities to accumulate aquality stockShare price has corrected alongside the sector. At 1.1x P/BV against itshistorical average of 1.4x since listing, we see opportunities toaccumulate AREIT, a quality holding, in our view, given its prudentmanagement and quality assets.

We lower our FY14-15 DPU by 1% formarginal adjustments in borrowingcosts. We lower our DDM-basedtarget price, now based on a higherdiscount rate of 7.2% (previously6.4%; raised across the boardfollowing higher bond yields).Maintain Outperform with catalystsexpected from accretive AEI and assetdevelopments.

Steady growthWe expect steady DPU growth frompositive rental reversions and pastinvestments coming on stream. Withcurrent market rents at 9-35% higherthan passing rents due for renewal inFY13/14 and room for uplift from theconversion of single-tenantedbuildings, we expect double-digitpositive rental reversions to continue.A series of past developments andasset enhancement should also bearfruit in FY13, potentially boostingDPU growth over FY14.

Strong capital management

Asset leverage of 28% (or 30%factoring in committed investments)is among the lowest in the sector.With management traditionallyprudent in staggering debt maturitiesand diversifying borrowings and itsstrong parentage, we expect AREIT tobe among those more immune to anyspikes in borrowing costs.

Opportunities to accumulatea quality stockAt 1.1x P/BV, we see opportunities toaccumulate AREIT, a quality holdinggiven its prudent management andquality assets (in the business-parkspace, which we deem among thoseassets best-positioned to meetlong-term structural challenges inindustrial space). Its low assetleverage should leave room foracquisitions/ developments on apotential correction in pricingexpectations by prospective buyers.

CIMB Analyst(s)

TAN Siew LingT (65) 6210 8698E [email protected]


Share price info

Share price perf. (%) 1M 3M 12M

Relative -8.6 -11.7 -7.9

Absolute -17.5 -17.1 1.9

Major shareholders % held

Ascendas Funds Mgt 17.0

CBRE 5.0

ING 4.5

Ascendas REITAREIT SP / AEMN.SI

Current S$2.13 SHORT TERM (3 MTH) LONG TERM

Market Cap Avg Daily Turnover Free Float Target S$2.50

US$4,032m US$20.38m 83.0% Prev. Target S$3.05S$5,114m S$25.46m 2,399 m shares Up/Downside 17.5%

Conviction| |

86909397100104107111114118121

2.0

2.2

2.4

2.6

2.8

3.0

Price Close Relat ive to FSSTI (RHS)

Source: Bloomberg

10

20

30

40

Jun-12 Sep-12 Dec-12 Mar-13

Volm

Financial Summary

Mar-12A Mar-13A Mar-14F Mar-15F Mar-16F

Gross Property Revenue (S$m) 503.3 575.8 630.0 685.9 695.6

Net Property Income (S$m) 368.3 408.8 441.0 487.0 493.9

Net Profit (S$m) 494.1 301.0 334.7 360.7 367.5

Distributable Profit (S$m) 281.7 304.6 341.8 368.3 375.1

Core EPS (S$) 0.14 0.12 0.14 0.15 0.15

Core EPS Growth 11.5% (12.8%) 15.0% 7.5% 1.6%

FD Core P/E (x) 15.33 17.58 15.28 14.22 13.99

DPS (S$) 0.14 0.14 0.14 0.15 0.16

Dividend Yield 6.37% 6.45% 6.67% 7.17% 7.29%

Asset Leverage 36.5% 28.4% 31.2% 35.8% 35.8%BVPS (S$) 1.88 1.94 1.94 1.93 1.92

P/BV (x) 1.13 1.10 1.10 1.10 1.11

Recurring ROE 7.62% 6.33% 7.19% 7.76% 7.92%

% Change In DPS Estimates (0.329%) (0.376%) (0.369%)

CIMB/consensus EPS (x) 1.00 1.01 0.96

2.13

2.50

2.09 2.86

Target

52-week share price range

Current


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Ascendas REITJune 26, 2013

19

Profit & Loss

(S$m) Mar-13A Mar-14F Mar-15F Mar-16F

Rental Revenues 575.8 630.0 685.9 695.6

Other Revenues 0.0 0.0 0.0 0.0

Gross Property Revenue 575.8 630.0 685.9 695.6

Total Property Expenses (167.0) (189.0) (198.9) (201.7)

Net Property Income 408.8 441.0 487.0 493.9

General And Admin. Expenses 0.0 0.0 0.0 0.0

Management Fees (33.2) (35.4) (38.0) (38.1)

Trustee's Fees (4.9) (5.2) (5.5) (5.6)

Other Operating Expenses 0.0 0.0 0.0 0.0

EBITDA 370.7 400.5 443.5 450.2

Depreciation And Amortisation 0.0 0.0 0.0 0.0

EBIT 370.7 400.5 443.5 450.2

Net Interest Income (98.7) (65.8) (82.7) (82.7)

Associates' Profit 0.0 0.0 0.0 0.0

Other Income/(Expenses) 0.0 0.0 0.0 0.0

Exceptional Items 29.8 0.0 0.0 0.0

Pre-tax Profit 301.8 334.7 360.7 367.5

Taxation (0.9) 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 301.0 334.7 360.7 367.5

Distributable Profit 304.6 341.8 368.3 375.1

Balance Sheet


Total Investments 6,447 6,857 7,360 7,382

Intangible Assets 0 0 0 0

Other Long-term Assets 407 296 300 278

Total Non-current Assets 6,854 7,153 7,660 7,660

Total Cash And Equivalents 20 2 17 17

Inventories 0 0 0 0

Trade Debtors 47 47 47 47

Other Current Assets 38 38 38 38

Total Current Assets 105 87 102 102

Trade Creditors 135 135 135 135

Short-term Debt 235 235 235 235

Other Current Liabilities 71 71 71 71

Total Current Liabilities 441 441 441 441

Long-term Borrowings 1,744 2,025 2,547 2,547

Other Long-term Liabilities 113 113 113 113

Total Non-current Liabilities 1,857 2,138 2,660 2,660

Shareholders' Equity 4,661 4,654 4,646 4,639

Minority Interests 0 0 0 0

Preferred Shareholders Funds

Total Equity 4,661 4,654 4,646 4,639

Cash Flow


Pre-tax Profit 301.8 334.7 360.7 367.5

Depreciation And Non-cash Adj. 98.7 65.8 82.7 82.7

Change In Working Capital 4.2 0.0 0.0 0.0

Tax Paid (0.5) 0.0 0.0 0.0

Others (29.8) 7.5 7.8 7.8

Cashflow From Operations 374.5 408.0 451.3 458.0

Capex (113.9) (69.4) (17.5) 0.0

Net Investments And Sale Of FA (149.7) (168.4) (490.0) 0.0

Other Investing Cashflow 0.0 0.0 0.0 0.0

Cash Flow From Investing (263.6) (237.8) (507.5) 0.0

Debt Raised/(repaid) (430.1) 280.4 522.5 0.0Equity Raised/(Repaid) 697.6 0.0 0.0 0.0

Dividends Paid (309.4) (341.8) (368.3) (375.1)

Cash Interest And Others (69.8) (126.7) (82.7) (82.7)

Cash Flow From Financing (111.7) (188.1) 71.4 (457.9)

Total Cash Generated (0.9) (17.9) 15.2 0.1

Free Cashflow To Firm 118.5 177.8 (48.5) 465.7

Free Cashflow To Equity (387.3) 384.8 383.6 375.3

Key Ratios

Mar-13A Mar-14F Mar-15F Mar-16F

Gross Property Revenue Growth 14.4% 9.4% 8.9% 1.4%

NPI Growth 11.0% 7.9% 10.4% 1.4%

Net Property Income Margin 71.0% 70.0% 71.0% 71.0%

DPS Growth 1.33% 3.45% 7.49% 1.59%

Gross Interest Cover 3.00 5.45 4.90 4.98

Effective Tax Rate 0.285% 0.000% 0.000% 0.000%

Net Dividend Payout Ratio 101% 102% 102% 102%

Current Ratio 0.24 0.20 0.23 0.23

Quick Ratio 0.24 0.20 0.23 0.23

Cash Ratio 0.044 0.004 0.038 0.039

ROIC (%) 188% 140% 253% 251%Return On Average Assets 4.45% 4.71% 4.81% 4.73%

Key Drivers

Mar-13A Mar-14F Mar-15F Mar-16FRental Rate Psf Pm (S$) 2.2 2.3 2.3 2.3

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) N/A N/A N/A N/A

Occupancy (%) 95.0% 95.0% 95.0% 95.0%

Assets Under Management (m) (S$) 6,599.0 6,897.7 7,405.2 7,405.2

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


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Ascott Residence TrustJune 26, 2013

21

Profit & Loss

(S$m) Dec-12A Dec-13F Dec-14F Dec-15F

Rental Revenues 303.8 350.4 370.8 375.6



Total Property Expenses (144.7) (174.0) (181.1) (183.5)Net Property Income 159.1 176.4 189.7 192.1

General And Admin. Expenses (3.7) (4.2) (4.2) (4.2)

Management Fees (14.1) (16.1) (16.1) (16.2)

Trustee's Fees (0.3) (0.4) (0.4) (0.4)

Other Operating Expenses 1.0 (2.1) (2.3) (2.3)

EBITDA 142.0 153.6 166.7 169.1


EBIT 142.0 153.6 166.7 169.1



Other Income/(Expenses) (10.3) 0.0 0.0 0.0


Pre-tax Profit 200.0 112.7 122.8 124.1

Taxation (27.4) (22.3) (24.0) (24.2)

Minority Interests (10.2) (10.2) (10.2) (10.2)


Net Profit 162.4 80.1 88.6 89.7


Balance Sheet





Total Non-current Assets 2,841 3,238 3,255 3,271Total Cash And Equivalents 125 93 68 52

Inventories 0 0 0 0














Total Equity 1,641 1,817 1,799 1,780

Cash Flow


Pre-tax Profit 200.0 112.7 122.8 124.1


Change In Working Capital (19.4) 0.0 0.0 0.0

Tax Paid (20.6) (22.3) (24.0) (24.2)

Others (85.4) 22.5 23.9 25.0

Cashflow From Operations 125.2 156.1 166.6 169.9Capex (18.9) (27.4) (28.6) (28.7)

Net Investments And Sale Of FA 32.4 (380.0) 0.0 0.0

Other Investing Cashflow (5.7) 1.7 1.3 0.9

Cash Flow From Investing 7.8 (405.7) (27.4) (27.8)

Debt Raised/(repaid) 0.1 189.0 9.5 19.5

Equity Raised/(Repaid) 0.0 199.4 0.0 0.0

Dividends Paid (100.1) (113.4) (117.0) (119.3)


Ca sh Fl ow From Fina nci ng (146.8) 217. 8 (165. 0) (157.9)

Total Cash Generated (13.8) (31.8) (25.8) (15.8)

Free Cashflow To Firm 133.0 (249.6) 139.3 142.1

Free Cashflow To Equity 89.5 (105.6) 103.5 115.7

Key Ratios

Dec-12A Dec-13F Dec-14F Dec-15F


NPI Growth 1.1% 10.8% 7.6% 1.3%


DPS Growth 2.9% 3.2% (0.5%) 1.4%


Effective Tax Rate 13.7% 19.8% 19.5% 19.5%Net Dividend Payout Ratio 61% 141% 132% 133%

Current Ratio 0.55 0.32 0.24 0.20

Quick Ratio 0.55 0.32 0.24 0.20

Cash Ratio 0.43 0.23 0.16 0.12

ROIC (%) (304%) (348%) (504%) (712%)

Return On Average Assets 5.39% 2.52% 2.63% 2.67%

Key Drivers


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


RevPAR (S$) 238.0 226.1 237.4 244.5


Occupancy (%) N/A N/A N/A N/A




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REIT | Singapore

June 26, 2013


Portfolio resilienceWe continue to like Caches resilient portfolio, led by rental step-up forits master leases. Portfolio occupancy is a strong 100%. Low assetleverage of 29% leaves room for acquisition growth, which we considerto be its main catalyst.

We keep our DPUs but lower ourDDM-based target price on a higher

discount rate of 7.9% (previously 7.1%;raised across the board followinghigher bond yields). Our estimatesassume S$120m of acquisitions forFY13. Maintain Outperform withaccretive acquisitions as catalysts.

Organic growthWe expect growth from locked-inannual rental escalations of 1.25-2.5%and acquisitions, which shouldmitigate the impact of any risinginterest rates. Cache faces no

lease-renewal risks in FY13, with themajority of its leases expiring only inFY15-16 and occupancy at 100%. Welook forward to contributions from itsmost recent acquisition, Precise Two,in 2Q13. The property has been leasedto Precise Development for six years(with an option for another six), andwe expect locked-in rental step-up of4.0% every two years to add to itsorganic growth and resilience.

Strong debt profile

Asset leverage at 29% is a tad belowthe sector average of 34%, leavingdebt headroom for acquisition growth.Debt maturities are also fairlywell-staggered, with no re-financingrequirements till 2015. With 70% ofits borrowings hedged as fixed-ratedebt, we estimate that a 50bpincrease in interest rates could affectits DPU by 0.8%.

Maintain OutperformWe continue to like Caches resilient

portfolio, with built-in growth fromrental step-up. On the other hand,locked-in step-up could limit its DPUgrowth when interest rates rise (vs.some other REITs where rentalscould benefit from a pick-up in theeconomy) while acquisitions could beaffected by rising funding costs (bothdebt and equity). For now, maintainOutperform with catalysts expectedfrom accretive acquisitions.

CIMB Analyst(s)



Share price info


Relative -3 -3.1 4.1

Absolute -11.9 -8.5 13.9


CWT Ltd 8.9

JP Morgan 7.7

Bank of New York Mellon 6.6

Cache Logistics TrustCACHE SP / CALT.SI



US$723.4m US$2.21m 88.3% Prev. Target S$1.50S$917.5m S$2.76m 702.4 m shares Up/Downside 10.4%

Conviction| |

939699102105108111114117120123

1.00

1.10

1.20

1.30

1.40

1.50

Price Close Relative to FSSTI (RHS)

Source: Bloomberg

2468

10


Volm

Financial Summary

Dec-11A De c-12A Dec-13F Dec-14F De c-15F



Net Profit (S$m) 69.84 66.41 57.67 62.48 64.03


Core EPS (S$) 0.073 0.060 0.078 0.080 0.082

Core EPS Growth 47.7% (17.3%) 29.9% 2.9% 2.0%

FD Core P/E (x) 16.32 19.74 15.19 14.76 14.48

DPS (S$) 0.082 0.084 0.085 0.088 0.090

Dividend Yield 6.95% 7.06% 7.16% 7.46% 7.59%


P/BV (x) 1.27 1.24 1.21 1.22 1.23

Recurring ROE 7.91% 6.36% 8.06% 8.23% 8.44%

% Change In DPS Estimates 0% 0% 0%


1.19

1.31

1.04 1.44

Target


Current


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Cache Logistics TrustJune 26, 2013

23

Profit & Loss


Rental Revenues 72.64 82.90 88.24 89.82

Other Revenues 0.00 0.00 0.00 0.00





Management Fees (5.74) (6.65) (6.73) (6.75)

Trustee's Fees (0.28) (0.33) (0.33) (0.33)

Other Operating Expenses (1.97) (1.97) (1.97) (1.97)

EBITDA 61.15 70.46 75.72 77.27


EBIT 61.15 70.46 75.72 77.27





Pre-tax Profit 66.56 57.67 62.48 64.03

Taxation (0.15) 0.00 0.00 0.00



Net Profit 66.41 57.67 62.48 64.03


Balance Sheet


Total Investments 972 1,092 1,092 1,092



Total Non-current Assets 972 1,092 1,092 1,092


Inventories 0 0 0 0








Long-term Borrowings 308 342 342 342


Total Non-current Liabilities 309 342 342 342

Shareholders' Equity 672 759 759 759



Total Equity 672 759 759 759

Cash Flow


Pre-tax Profit 66.6 57.7 62.5 64.0


Change In Working Capital (0.5) 0.0 0.0 0.0

Tax Paid (0.2) 0.0 0.0 0.0

Others 4.3 5.0 5.0 5.1


Capex (0.6) (0.0) (0.0) (0.0)

Net Investments And Sale Of FA (102.0) (120.0) 0.0 0.0

Other Investing Cashflow (0.2) 0.0 0.0 0.0

Cash Flow From Investing (102.8) (120.0) 0.0 0.0

Debt Raised/(repaid) 60.0 33.2 0.0 0.0Equity Raised/(Repaid) 59.1 86.8 0.0 0.0

Dividends Paid (55.7) (64.4) (69.0) (70.5)


Cash Flow From Financing 40.5 46.1 (79.0) (80.5)

Total Cash Generated 28.8 1.6 1.8 1.9

Free Cashflow To Firm (22.4) (44.5) 80.8 82.4

Free Cashflow To Equity 25.4 (20.8) 70.8 72.4

Key Ratios



NPI Growth 11.7% 14.8% 6.7% 1.9%


DPS Growth 1.6% 1.4% 4.3% 1.7%




Current Ratio 2.80 2.79 2.79 2.78

Quick Ratio 2.80 2.79 2.79 2.78

Cash Ratio 2.51 2.50 2.50 2.49

ROIC (%) (1076%) (2048%) (2201%) (2246%)Return On Average Assets 7.21% 5.51% 5.64% 5.78%

Key Drivers

Dec-12A Dec-13F Dec-14F Dec-15FRental Rate Psf Pm (S$) 1.5 1.5 1.6 1.6




Occupancy (%) 100.0% 100.0% 100.0% 100.0%

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



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REIT | Singapore

June 26, 2013


Organic and inorganic growthdriversThough its balance sheet may be less immune to rate hikes than thatfor some peers, we see strong organic and inorganic growth driversfor Cambridge. We expect growth from positive rental reversions andpast investments (with upside expected) to come from value-unlocking.

Our FY14-15 DPUs are lower aftertweaking our borrowing cost numbers.Coupled with a higher discount rateof 8.3% (previously 7.5%), we cut ourDDM-based target price. Ourestimates factor in S$100m of newdevelopments for FY13-14. MaintainOutperform, with catalysts expectedfrom value-unlocking, accretiveinvestments and strong reversions.

Organic and inorganic

growth driversWe expect DPU growth from positiverental reversions and AEIs/acquisitions to come onstream. Some42.9% of leases (by rental income) aredue for renewal over FY13-14, with>70% of such renewals involvingsingle-tenanted leases. We expectthese to provide opportunities forpositive rental reversions off someunder-rented single-tenanted leases,while giving management the optionto divest some assets to unlock value

and reposition its portfolio.Meanwhile, its asset leverage of 35%and divestment proceeds (S$150m ofassets held for divestment) should

provide Cambridge with ample fundsfor development, AEIs andacquisitions.

Capital managementIts debt maturity is fairly chunky inFY14 but we believe that managementcould proactively refinance the loansahead of maturity. Management hashedged a fairly high 82% of its totalborrowings and we estimate that a50bp increase in borrowing costscould reduce its DPU by 0.9%.

Maintain OutperformIts forward yields of >7% post therecent selldown are attractive, in lightof the upside from value-unlocking(e.g. strata lots at Lam SoonIndustrial Building that can be sold asresidential or strata-industrial lots)and accretive investments backed bydivestment proceeds. The recentspike in bond yields could affect thepricing expectations of sellers ofassets (including holders of strata-lotsat Lam Soon Industrial Building),enhancing the likelihood of the LamSoon deal going through.

CIMB Analyst(s)



Share price info


Relative -6 -7.9 13.6

Absolute -14.9 -13.3 23.4


Franklin Resources 8.3

Chan Wai Kheong 4.6

Mackenzie Financial Corporation 4.5

Cambridge Industrial TrustCREIT SP / CMIT.SI



US$664.4m US$2.28m 94.8% Prev. Target S$0.87S$842.8m S$2.84m 1,216 m shares Up/Downside 10.9%

Conviction| |

92

98

105

111

117

123

130

136

142

0.50

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

Price Close Relat ive to FSSTI (RHS)

Source: Bloomberg

5

10

15

20


Volm

Financial Summary




Net Profit (S$m) 85.17 89.46 69.33 63.38 64.84


Core EPS (S$) 0.031 0.038 0.045 0.048 0.049

Core EPS Growth (15.1%) 20.7% 19.0% 8.4% 0.7%

FD Core P/E (x) 21.46 18.13 15.32 14.13 14.03

DPS (S$) 0.042 0.048 0.050 0.054 0.054

Dividend Yield 6.19% 6.98% 7.37% 7.89% 7.93%


P/BV (x) 1.10 1.06 1.04 1.04 1.04

Recurring ROE 5.19% 5.96% 6.84% 7.34% 7.40%

% Change In DPS Estimates 0.00% (0.73%) (1.07%)


0.69

0.76

0.56 0.86

Target


Current


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Cambridge Industrial TrustJune 26, 2013

25

Profit & Loss


Rental Revenues 89.0 102.2 114.0 116.2






Management Fees (5.9) (6.2) (6.5) (6.5)

Trustee's Fees (1.7) (1.8) (1.9) (1.9)

Other Operating Expenses (3.6) (4.1) (4.6) (4.6)

EBITDA 65.0 75.8 84.0 85.7


EBIT 65.0 75.8 84.0 85.7





Pre-tax Profit 89.5 69.3 63.4 64.8

Taxation 0.0 0.0 0.0 0.0



Net Profit 89.5 69.3 63.4 64.8


Balance Sheet







Inventories 0 0 0 0








Long-term Borrowings 423 437 454 454


Total Non-current Liabilities 428 442 460 460

Shareholders' Equity 787 850 876 876


Preferred Shareholders Funds 0 0 0 0

Total Equity 787 850 876 876

Cash Flow


Pre-tax Profit 89.5 69.3 63.4 64.8



Tax Paid 0.0 0.0 0.0 0.0

Others (44.0) (13.4) 0.0 (0.0)


Capex (19.8) (56.6) (50.0) 0.0

Net Investments And Sale Of FA (113.4) 9.4 0.0 0.0

Other Investing Cashflow 0.0 9.0 (2.9) 3.8

Cash Flow From Investing (133.2) (38.1) (52.9) 3.8


Dividends Paid 0.0 0.0 0.0 0.0


Cash Flow From Financing 77.9 (7.2) (38.4) (89.7)

Total Cash Generated 11.0 33.4 (4.6) 0.4

Free Cashflow To Firm (66.8) 40.7 33.9 90.1

Free Cashflow To Equity 50.7 34.8 30.6 69.1

Key Ratios



NPI Growth 10.3% 15.3% 10.3% 1.9%


DPS Growth 12.9% 5.6% 7.0% 0.5%


Effective Tax Rate 0% 0% 0% 0%


Current Ratio 3.23 3.48 3.34 3.33

Quick Ratio 3.23 3.48 3.34 3.33

Cash Ratio 0.99 1.32 1.23 1.23

ROIC (%) 624% 42% 47% 48%Return On Average Assets 7.42% 5.15% 4.50% 4.53%

Key Drivers

Dec-12A Dec-13F Dec-14F Dec-15FRental Rate Psf Pm (S$) N/A N/A N/A N/A



Net Lettable Area (NLA) ('000 Sf) 7,701 8,014 8,014 8,014

Occupancy (%) 98.9% 98.9% 98.9% 98.9%




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REIT | Singapore

June 26, 2013


Uncertainties in the priceWith CCT down 16% vs. FSTREIs 8% YTD, CCT is the largest laggardYTD among SREITs. Trading at mean at 0.9x P/BV (its average sincelisting), we believe negatives from near-term backfilling uncertaintieshave been priced in.

We lower our FY13-15 DPUs by 1-2%,factoring in dilution from recent

convertible-bond conversion. OurDDM-based target price dips on ahigher discount rate of 7.9%(previously 7.3%) for a sector-wideadjustment. Nevertheless, upgrade toNeutral from Underperform as webelieve negatives have been largelypriced in.

Poised to capture an officeturnaroundWe expect DPU to be flat overFY13-14 as a fall-off in yield support

and downtime from backfilling mayoffset positive rental reversions andinterest cost-savings; before pickingup in FY15 when contributions from acompleted 60% stake in CapitaGreenkick in. With a more transparent leasestructure (limited income support),more typical 3-year leases and roomfor upside from space vacated bydeparting tenants at CapitaGreen,CCT could be the best-positioned tocapture a turnaround of the officesector, in our view.

Strong balance sheet

Asset leverage of 30.4%is among thelowest in the sector, while debt

maturity is fairly well-staggered(apart from some chunkier maturitiesin FY15-16). Some 78% of itsborrowings has been hedged asfixed-rate debt (after the expiry of anexpensive interest-rate swap), whichis still above the 60+% typical ofother office REITs. With these, webelieve CCT is fairly immune topotential rate hikes and estimate a 1%impact on DPU from a 50bp increasein cost of borrowing.

Negatives priced in; upgradeto NeutralWith CCT down 16% YTD vs.FSTREIs 8%, CCT is the largestlaggard YTD among SREITs underour coverage. Trading at mean at 0.9xP/BV (its average since listing), webelieve near-term backfillinguncertainties have been largely pricedin. We upgrade CCT to Neutral fromUnderperform. A potential overhang,meanwhile, stems from its convertiblebonds due 2015 (outstanding amount

of S$190m), which is in-the-money ata conversion price of S$1.23/unit.

CIMB Analyst(s)



Share price info


Relative -4.5 -6.7 3.8

Absolute -13.4 -12.1 13.6


CapitaLand 32.1

Capital Group 6.3

CBRE 6.1

Capitacommercial TrustCCT SP / CACT.SI



US$3,218m US$11.32m 67.9% Prev. Target S$1.69S$4,082m S$14.14m 2,843 m shares Up/Downside 6.4%

Conviction| |

94

100

106

112

117

123

129

1.20

1.30

1.40

1.50

1.60

1.70

1.80

Price Close Relative to FSSTI (RHS)

Source: Bloomberg

50

100

150


Volm

Financial Summary




Net Profit (S$m) 474.4 385.9 224.3 225.9 252.7


Core EPS (S$) 0.065 0.069 0.074 0.074 0.083

Core EPS Growth (41.0%) 6.0% 7.3% (0.1%) 12.2%

FD Core P/E (x) 21.76 20.52 19.13 19.15 17.07

DPS (S$) 0.075 0.080 0.080 0.080 0.090

Dividend Yield 5.29% 5.66% 5.64% 5.60% 6.35%


P/BV (x) 0.89 0.86 0.86 0.86 0.87

Recurring ROE 4.19% 4.24% 4.49% 4.50% 5.07%

% Change In DPS Estimates (1.10%) (1.09%) (0.68%)


1.42

1.51

1.25 1.73

Target


Current


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Profit & Loss


Rental Revenues 375.8 382.5 387.1 401.5






Management Fees (20.4) (20.6) (20.8) (21.1)

Trustee's Fees (4.6) (4.6) (4.7) (4.7)

Other Operating Expenses 0.0 0.0 0.0 0.0

EBITDA 270.6 276.2 277.9 287.3

Depreciation And Amortisation (4.6) (4.4) (2.0) (6.1)

EBIT 265.9 271.8 275.9 281.1



Other Income/(Expenses) (3.5) 0.6 0.6 0.6


Pre-tax Profit 386.0 224.3 225.9 252.8

Taxation (0.1) (0.0) (0.0) (0.0)



Net Profit 385.9 224.3 225.9 252.7


Balance Sheet







Inventories 0 0 0 0














Total Equity 4,715 4,753 4,753 4,753

Cash Flow


Pre-tax Profit 386.0 224.3 225.9 252.8



Tax Paid 0.0 (0.0) (0.0) (0.0)

Others (172.0) 6.6 6.8 6.9


Capex (53.1) (67.5) (68.2) (68.9)

Net Investments And Sale Of FA (452.8) (0.6) (0.6) (0.6)

Other Investing Cashflow 4.7 (61.4) (88.1) 6.2

Ca sh Fl ow From I nve sti ng (501. 2) (129. 5) (157.0) (63. 4)


Dividends Paid (218.6) (235.8) (235.2) (267.0)


Ca sh Fl ow From Fi na ncing (232. 9) (191. 4) (206.9) (254. 5)

Total Cash Generated (437.4) (24.3) (65.8) (8.0)

Free Cashflow To Firm (203.4) 169.3 143.5 249.1

Free Cashflow To Equity (186.9) 174.5 172.8 262.0

Key Ratios



NPI Growth 6.57% 1.99% 0.65% 3.19%


DPS Growth 7.0% (0.4%) (0.6%) 13.2%




Current Ratio 1.05 0.46 0.16 0.08

Quick Ratio 1.05 0.46 0.16 0.08

Cash Ratio 0.90 0.38 0.11 0.05

ROIC (%) (433%) (401%) (377%) (372%)Return On Average Assets 5.61% 3.18% 3.16% 3.49%

Key Drivers

Dec-12A Dec-13F Dec-14F Dec-15FRental Rate Psf Pm (S$) 8.3 8.1 8.1 8.3




Occupancy (%) 95.2% 94.1% 97.4% 98.3%




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More catalysts neededWhile we still have a negative outlook on the hospitality sector, wethink that CDLHT's current valuation of 1x P/BV has already priced inthe negatives. We thus upgrade it from Underperform to Neutral, witha turnaround in the hospitality sector and accretive acquisitions beingre-rating catalysts.

We adjust FY14-15 DPUs to factor in

disruptions an

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