Singapore Industry Focus CapitaLand Limited & REITs • Management of CapitaLand and its managed REITs spent a fruitful day in Bangkok meeting investors • Business conditions remain

ed: TH / sa:YM CW, CS

Time to fly • Management of CapitaLand and its managed REITs

spent a fruitful day in Bangkok meeting investors

• Business conditions remain conducive; the groupstands ready to capitalise on any opportunities thatmay arise

• The REITs are reviving their growth engines and hungryfor growth

CapitaLand and REITs Bangkok Day. We hosted the management of CapitaLand (CAPL) and its managed REITs to a bespoke investor outreach conference in Bangkok. Building on a successful conference last year, the 2018 version was even bigger with more investor meetings. The meetings were engaging and focused generally on the outlook and CAPL and its REITs ability to ride through the current market uncertainties owing to heightened global trade tensions, which might weigh on business sentiment and operations.

Business condition remains conducive; group stands ready to capitalise on any acquisition opportunities that may arise. A common theme that we gather from the meetings with management of CAPL and its REITs is that operational outlook for most business segments are turning up, supporting higher earnings growth in 2H18 and 2019. For CAPL, the group looks to keep an even balance between developed and emerging market exposures, so as to achieve resilience against business cycles across different geographies. With close to c.80% of its assets in commercial and lodging properties churning out consistent cashflows, we believe that CAPL remains on a strong footing to weather through any market dislocations and seize opportunities when they arise. In addition, a boost to returns will come from regularly reconstituting its portfolio, which we believe will plot CAPL’s path towards delivering its target sustainable return of equity (ROE) of 8.0-8.5%.

The REITs are reviving their growth engines. The group (CAPL and its REITs) takes an active role in reviewing and optimising portfolio returns on an annual basis. Capital recycling aside, asset enhancements (AEI) and M&A are also key pillars of value creation for the group. Over the past year, ART, CRCT, CCT and CMT have divested non-core assets at good prices, recapitalising their balance sheets in the process. Looking forward, these REITs remain on the hunt for more acquisitions to further diversify their exposures and with an aim to deliver accelerating DPU growth profiles. CMMT has also undertaken a major AEI at Sungei Wang to reposition the asset and underpin its dominant position in the submarket.

STI : 3,243.92

Analyst Derek TAN +65 6682 3716 [email protected]

Carmen Tay +65 6682 3719 [email protected]

Siti Ruzanna Mohd Faruk +603 2604 3965 [email protected]

DBS Group Research . Equity 30 Aug 2018

Singapore Industry Focus

CapitaLand Limited & REITsRefer to important disclosures at the end of this report

STOCKS

12-mth

Price Mkt Cap Target Price Performance (%)

LCY US$m LCY 3 mth 12 mth Rating

Ascott Residence Trust 1.08 1,710 1.25 (2.7) (8.5) BUY

CapitaLand 3.43 10,481 3.62 (1.4) (8.0) BUY

CapitaLand Commercial Trust 1.77 4,853 2.12 4.1 6.6 BUY

CapitaLand Malaysia Mall Trust 1.16 574 1.40 (4.9) (21.6) BUY

CapitaLand Mall Trust 2.17 5,641 2.30 3.3 1.9 BUY

CapitaLand Retail China Trust 1.45 1,030 1.70 (8.8) (8.8) BUY

Source: DBS Bank, AllianceDBS, Bloomberg Finance L.P. Closing price as of 29 Aug 2018

Legend: CapitaLand Limited (CAPL) Ascott Residence Trust (ART) CapitaLand Mall Trust (CMT) CapitaLand Retail China Trust (CRCT) CapitaLand Commercial Trust (CCT) CapitaLand Malaysia Mall Trust (CMMT)

Page 1

Industry Focus

CapitaLand Limited & REITs

Page 2

CapitaLand Limited (CAPL)

Rebalancing the portfolio to enhance resilience against market

cycles. Business cycles across its different geographies may not

move in sync, and management targets to achieve resilience in

operational performance with a 50%-50% balance through

exposures in developed markets (DM) and emerging markets

(EM), which will plot CAPL’s path towards delivering its target

ROE of 8.0-8.5%. In addition, CAPL, having 70-80% of its

income anchored from its commercial portfolio, should boost

income visibility and resilience across market fluctuations. We

believe that the group’s strategy of optimising portfolio

returns through active management and deployment of

capital will help to boost ROE towards the management’s

longer-term target of c.8%.

China remains a key market; adding selectively to land bank to

boost income visibility and returns. China is still showing signs

of stabilisation in recent times. CAPL's fortunes are closely tied

to the operational outlook for the residential and retail markets

there. The group has RMB16.2bn of unrecognised pre-sales; of

which >50% will be recognised in 2H18. Most recently, CAPL

secured development sites in Guangzhou and Chongqing,

adding another c.2,400 homes to its pipeline.

In the retail space, tenant sales growth has remained strong,

achieving a high of 20.2% in 1H18, while same-store mall net

property income (NPI) grew by 7.2% in 1H18, building on the

strength in 2017. With a number of newly opened malls which

have yet to achieve stabilisation, we believe that tenant sales

will continue to grow.

Asset recycling to optimise returns. CAPL continues to look to

recycle its capital to optimise portfolio returns and crystallise

value from past investments or developments to drive returns.

In 1H18, CAPL and its REITs had divested S$3.1bn of assets

and will be redeploying the proceeds into close to S$1.8bn

worth of income-producing and development projects in

China (sites in Guangzhou and Chongqing) and Singapore

(Peal Bank en bloc) and more investments are expected in

2H18 as CAPL looks to replenishing its land bank of trading

properties and grow its commercial portfolio opportunistically.

Scaling up Vietnam. Building on the positive sales momentum

at its residential projects in Vietnam, management remains

positive and see significant opportunities to scale up its

business and targets the country to reach a high of c.10% of

exposure (2% currently) in the longer term. Key supporting

factors fuelling demand for homes include (i) positive

macroeconomic environment (combination of stable GDP

growth, inflation and currency) supported by foreign

investment, and (ii) a fast urbanisation rate coupled with a

young and dynamic workforce contributing to housing

demand.

Top-line growth Asset breakdown (S$62.5bn)

Source: DBS Bank Source: DBS Bank

P/NAV Discount to RNAV

Source: DBS Bank

Source: DBS Bank

+1 SD: 1.05

Mean: 0.89

-1 SD: 0.72

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.40

0.90

1.40

1.90

2.40

1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18

(X) Discount

Diff between P/NAV and P/RNAV P/NAV P/NAV (mean) P/NAV (+1 SD) P/NAV (-1 SD)

-80%

-60%

-40%

-20%

0%

20%

40%

CAPL Disc to RNAV Mean -1 SD +1 SD

Residential & Strata Sales,

13%

Retail , 42%Commercial , 27%

Serviced Residences ,

14%

Others, 4%

-

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

15A 16A 17A 18F 19F 20F

S$'m

Page 2

Industry Focus


Page 3

Ascott Residence Trust (ART)

Undervalued gem offering downside protection with upside

participation. Part of The Ascott Limited, ART is a dominant

player with an industry-leading S$5.3bn asset portfolio

comprising serviced residences, rental housing properties and

other income-producing hospital assets.

ART’s resilience is anchored by its diversified network of

c.11,430 units (and growing) over 73 properties across 37

gateway cities currently. Balanced stable (c.46% of gross

profit) vs growth-oriented contract profiles further underpin

income stability while enabling upside participation. Growth

via acquisitions would further cement the group’s position as a

leading global serviced residence operator.

Crystallising value through active asset recycling. Over the past

year, ART has successfully divested two assets in China at low

cap rates of c.2%, implying conservative portfolio valuations.

Despite this, ART continues to trade at a discount to book, at

c.0.9x NAV, which we mainly attribute to investors’ more

cautious stance towards hospitality REITs and ART’s weaker-

than-expected 2Q18 results. To crystallise value, capital

recycling is set to remain a core focus for the group as

proceeds from the divestment of assets with limited growth

are redeployed towards higher-yielding properties, which could

restore investors' confidence in ART ahead of a pick-up in its

core markets.

Acquisitions and AEI to drive DPU recovery over medium term.

Capital recycling aside, AEI and M&A are also key pillars of

value creation for ART. AEIs are typically undertaken every

seven years and have unlocked double-digit ADR (average daily

rate) growth for the REIT post-refurbishment historically.

Opportunities are also abound on the acquisition front from

both the Sponsor and third parties. This includes “lyf”, a new

co-living concept slated for launch by the Sponsor in 2020,

which if acquired, could provide ART with inroads into an

exciting new segment. Currently low gearing of 35.7% also

provides the REIT with the financial flexibility to pursue these

accretive opportunities as they arise, and drive DPUs higher

over the medium term.

The manager is also casting an eye on Europe, Australia and

even the US for opportunities from both Sponsor and third

parties, which when acquired, will drive DPUs higher in the

medium term.

DPU Growth profile Income contribution by contract type (2Q18)


P/NAV range Yield Trading range


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2006 2008 2010 2012 2014 2016 2018

P/NAV Multiple (x)

Ascott P/BV Mean +1 SD -1 SD

0.0%

5.0%

10.0%

15.0%

2006 2008 2010 2012 2014 2016 2018

Ascott Yield Mean Yield -1 SD +1 SD

6.50

6.60

6.70

6.80

6.90

7.00

7.10

7.20

17 18F 19F 20F

DPU (scts)

Management Contracts, 54%

Management Contracts with

minimum guarantee, 14%

Master Leases, 32%

Page 3

Industry Focus


Page 4

CapitaLand Commercial Trust (CCT)

Riding on the upturn. CCT remains on track to benefit from

the office upturn over 2018-2020 with the planned new

office completions falling to c.0.8m sqft per annum, which is

below the average demand of 0.7m sqft per annum (5-year

average). In addition, in the near term, with new office supply

completing in 2018, Frasers Towers and 18 Robinson Road

reported c.80% and c.55% take-ups respectively. We project

Grade A office rents to rise by up to S$13-14psf by 2020,

implying up to a 40% rise over the next three years, from the

S$10.10psf as of 2Q18. In the longer term, as the government

focuses on decentralising the central business district (CBD),

there will likely be more supply in the fringe and suburban

areas compared to CBD, which should keep further supply risk

in check.

Overseas exposure – adding a lever of growth. The key

consideration in heading overseas is to diversify the REIT’s

earnings and exposure in order to reduce its reliance cyclicality

to the Singapore office cycle. With the acquisition of Gallileo

in Frankfurt, we believe that the long asset WALE of 10.6

years will infuse CCT with greater income visibility and

stability. Management’s choice to expand into Germany is

supported by robust property market fundamentals with

expectations that market rents will continue to rise in the

future on the back of low vacancy levels and limited new

builds in the future.

Asset recycling strategy to crystallise value and CapitaSpring

redevelopment to underpin longer-term upside. Management

has taken advantage of the demand for commercial assets by

selling non-core assets in Singapore at good premiums above

book values. The redevelopment of golden shoe car park into

a Grade A office building CapitaSpring saw its first tenant in

JP Morgan which has committed to take up 25% of the office

tower. The S$1.82bn integrated development, when

completed in 2021 will be an earnings driver to CCT. With a

target yield on cost of 5.0% and with an option to acquire the

property post completion, we believe that there are ample

opportunities to cement CCT’s position as one of Singapore’s

premier office landlords in the CBD.

DPU Growth profile Weighted Average Lease Expiry (WALE)

Source: DBS Bank

Source: DBS Bank


Source: Bloomberg Finance L.P.，DBS Bank


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2004 2006 2008 2010 2012 2014 2016 2018

P/NAV Multiple (x)

CCT P/BV Mean +1 SD -1 SD0%

5%

10%

2004 2006 2008 2010 2012 2014 2016 2018

CCT Yield Mean Yield -1 SD +1 SD

8.00

8.25

8.50

8.75

9.00

9.25

9.50

17A 18F 19F 20F

DPU (Scts)

2%

20%17%

21%

8%11%

1%

6%

4%

3%

7%

11%

4%

0%

5%

10%

15%

20%

25%

30%

35%

2018 2019 2020 2021 2022 >2023

Office Retail Hotel Completed

Page 4

Industry Focus


Page 5

CapitaLand Mall Trust (CMT)

Resilient in the face of competition. With a balanced portfolio

of suburban and downtown-centric assets catering to the

mass-market segment, CMT serves as a strong proxy to the

Singapore retail scene and has emerged as a leader with a

c.14% market share. While supply remains a key risk for the

sector, we see two potential “disruptors” in Paya Lebar

Quarter and Jewel Changi Airport which will complete in

2019. Given their sheer size, the manager acknowledges that

visitor traffic could see temporal disruptions in favour of these

new assets in their first year of launch but reckons that the

positive rental reversionary outlook will likely remain intact

given high pre-commitments for upcoming supply and CMT’s

well-located assets. Coupled with strategies to cluster retailers

with complimentary offerings and introduce new, experiential

concepts, these should further augment the REIT’s resilience

and premium positioning ahead.

Funan mall when completed in 2H19 will be a re-rating

catalyst. With Funan still undergoing redevelopment, only 14

of CMT’s 15 assets are in operation currently. Regarding the

progress on Funan, the manager shared that it could be ready

for launch in the earlier part of 2H19, ahead of initial

expectations. Pre-commitment for the retail podium has risen

beyond 50%, in line with the manager’s goal of 80% by year-

end. While take-up for office space has been more modest at

c.20%, the manager has been seeing an uptick in enquiries in

recent months and remains cautiously optimistic that its goal

of 70% by end-2018 is achievable. Post launch, we estimate

that Funan alone could contribute c.9-10% of NPI (vs FY17

levels) - a substantial earnings catalyst which could spur a re-

rating in the stock over the near term.

Positioning ahead for the future - Westgate acquisition to

drive growth. Given substantial debt headroom of >S$1bn

(based on 2Q18 gearing of 31.5%), CMT could be on the

lookout for value-accretive assets and announced the

proposed acquisition of a 70% stake in Westgate mall for

S$805m (all in cost), implying a S$2,745 psf. At a 4.3% yield

compared to funding cost of 3.2%, the deal is expected to be

accretive to earnings.

Management shared that full ownership of the mall could be

interesting for CMT given longer-term benefits and

operationally, reversions and occupancy rates appear to be

bottoming out.

Rental Reversion profile DPU (scts)

Source: DBS Bank

Source: DBS Bank




0.0

0.5

1.0

1.5

2.0

2.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

P/NAV Multiple (x)

CMT P/BV Mean +1 SD -1 SD

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Yield

CMT Yield Mean Yield -1 SD +1 SD

10.50

10.70

10.90

11.10

11.30

11.50

11.70

11.90

15A 16A 17A 18F 19F 20F

DPU (scts)

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2011 2012 2013 2014 2015 2016 2017 1H18

(%)

Page 5

Industry Focus


Page 6

CapitaLand Retail China Trust (CRCT)

Proxy to the Chinese consumption story. The first S-REIT to

invest in Chinese malls in 2006, CRCT has come a long way

since. Through a combination of organic and inorganic

growth initiatives, distributable income has nearly tripled on

the back of a fourfold increase in assets. Except for partially-

closed CapitaMall Wuhu, the 11 malls in CRCT’s portfolio are

generally well located within China’s key cities – each serving

a unique catchment area and well connected via major

transportation access. Given its premium offering and

positioning, we see CRCT as a beneficiary of China’s

burgeoning middle-class population – a trend which is set to

continue ahead.

Capturing higher wallet share amid e-commerce threats.

Discussions on the operating environment were mainly

centred around e-commerce, which has been gaining market

share quickly in China. Addressing this, the manager noted

that opportunities for landlords remain as ground

observations reveal that physical channels continue to

dominate and are still on growth mode.

To capture greater wallet share, CRCT has been revamping its

existing mall offerings through selective AEI and active tenant

remixing to cater to evolving consumption patterns. This

includes deliberate shifts away from department stores –

traditional strongholds towards more experiential offerings

and standalone brands with strong brand equity. Tenant

exposures have also risen in favour of the beauty, wellness

and services segments, which are harder to replicate online.

Portfolio reconstitution underway; potential acceleration of

growth via acquisitions. CapitaMall Wuhu has been

operationally challenged post the resettlement of its

immediate catchment population and lacks growth catalysts.

To be objective, the manager has taken steps to partially close

the asset and is on the lookout for opportunities to monetise

and exit from this market. The management has also

expressed intent to acquire assets with growth potential in

tier-1/2 cities such as Guangzhou and Chengdu. Provincial

cities with positive demographic trends, particularly cities

where the Sponsor already has a presence, will also be of

interest to the group.

DPU Growth profile Gearing profile

Source: DBS Bank

Source: DBS Bank




0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

P/NAV Multiple (x)

CRCT P/BV Mean +1 SD -1 SD

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

CRCT Yield Mean Yield -1 SD +1 SD

9.6

9.8

10.0

10.2

10.4

10.6

10.8

11.0

11.2

2017A 2018F 2019F 2020F

DPU (Scts)

0%

5%

10%

15%

20%

25%

30%

35%

40%

2017A 2018F 2019F 2020F

(%)

Page 6

Industry Focus


Page 7

CapitaLand Malaysia Mall Trust (CMMT)

Cautious on Klang Valley malls. CMMT has noted that the

operating environment will continue to remain challenging

especially in the Klang Valley area due to oversupply in the

vicinity. Both The Mines and 3 Damansara (contributing to

33% of top line) had negative rental reversions in 1HFY18

ranging from -4% to -5% mainly due to management’s

strategy to retain tenants. Looking ahead, we note that the

REIT has 27% of its total portfolio’s NLA up for renewal in

2H18, which we believe will see continued rental reversion

pressures. A majority of the leases expiring will come from The

Mines and Gurney Plaza.

Healthy occupancy rate. The occupancy rate at CMMT’s retail

portfolio remained healthy at 91.5% as at end-June 2018,

slightly lower than 93.7% as at end-March 2018. This is

predominantly supported by its shopping malls outside Klang

Valley, namely Gurney Plaza (96.2%) in Penang and East

Coast Mall (98.7%) in Kuantan, both of which are the leading

retail malls in their respective regions. In order to drive

shopper traffic and sales, management’s strategy is to tweak

its trade mix towards F&B and aims to grow it to c.30% of

gross rental income from c.20.1% currently.

This is to address the growing e-commerce business which has

shifted consumer shopping trend towards lifestyle and

entertainment. They also believe the F&B segment has been

more resilient as compared to the Fashion segment. This could

see reduction in contribution of Fashion currently at 31.9% of

gross rental income, which we believe to be most impacted by

the e-commerce trend.

Improving fortunes at Sungei Wang post planned AEI. Sungei

Wang Plaza remains a drag on CMMT’s portfolio with

negative rental reversions of 12% for 1HFY18 and the

management has embarked on a major asset enhancement

initiative costing RM55m with the aim of repositioning the

mall with new offerings. This is expected to complete in

1Q19. There will be a new annex area which will offer

diversified retail, curated F&B, athleisure and family

entertainment to capture young active shoppers and tourists.

This could see improvement in Sungei Wang’s footfall and

eventually translate into better rental reversions.

DPU Growth profile Gearing profile

Source: AllianceDBS, Company Source: AllianceDBS, Company

P/NAV range Yield (%)

Source: AllianceDBS, Company, Bloomberg Finance L.P. Source: Bloomberg Finance L.P.，DBS Bank

8.91

8.60

8.43

8.22 8.19 8.27

8.47

7.80

8.00

8.20

8.40

8.60

8.80

9.00

FY14A FY15A FY16A FY17A FY18F FY19F FY20F

DPU (sen)

Avg: 5.9%

+1sd: 6.5%

+2sd: 7.1%

-1sd: 5.3%

-2sd: 4.7%

4.0

5.0

6.0

7.0

8.0

9.0

2014 2015 2016 2017

(%)

Avg: 1.09x

+1sd: 1.19x

+2sd: 1.29x

-1sd: 0.99x

-2sd: 0.89x

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Aug-14 Aug-15 Aug-16 Aug-17

(x)

Page 7

ed: TH / sa:YM, CW, CS

BUYLast Traded Price ( 24 Jul 2018): S$1.13 (STI : 3,292.65)

Price Target 12-mth: S$1.25 (11% upside and 5.9% yield)

(Prev S$1.30)

Analyst Mervin SONG, CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]

What’s New • 2Q18 DPU of 1.84 Scts (flat y-o-y) below expectations

• Results impacted by weaker-than-expected margins and FX headwinds

• Working assets harder to drive future share price performance

Price Relative

Forecasts and Valuation FY Dec (S$m) 2017A 2018F 2019F 2020F

Gross Revenue 496 513 537 559 Net Property Inc 227 243 255 268 Total Return 195 108 115 122 Distribution Inc 152 145 149 154 EPU (S cts) 5.12 5.00 5.30 5.61 EPU Gth (%) (12) (2) 6 6 DPU (S cts) 7.09 6.74 6.89 7.06 DPU Gth (%) (11) (5) 2 2 NAV per shr (S cts) 125 123 122 121 PE (X) 22.1 22.6 21.3 20.2 Distribution Yield (%) 6.3 6.0 6.1 6.3 P/NAV (x) 0.9 0.9 0.9 0.9 Aggregate Leverage (%) 35.4 35.1 35.3 35.4 ROAE (%) 4.5 4.0 4.3 4.6

Distn. Inc Chng (%): (5) (5) (5) Consensus DPU (S cts): 7.00 7.30 7.40 Other Broker Recs: B: 3 S: 2 H: 5

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

Waiting to be rediscovered

Oversold. We maintain our BUY call on Ascott Residence Trust

(ART) with a revised TP of S$1.25. We believe the recent share

price correction has been overdone as investors have ignored

the conservative valuation of ART’s portfolio, now pricing it at a

discount to book. Beyond this, we also believe the expected

multi-year recovery of Singapore's hospitality market from

2018, should boost sentiment in the sector, and based on

historical correlations, should lift all boats including ART.

Where we differ – Ability to crystallise book value. Consensus

has a HOLD call with the majority of TPs below ART’s book

value, given its disappointing DPU performance over the past

few years. While acknowledging this concern, we believe DPU

should be on a recovery path soon. More importantly, we

believe the critical factor that would drive ART’s share price is

the trust’s more aggressive execution over the past year of

selling properties that have limited growth and recycling the

proceeds into better-yielding assets. This ability to sell its

properties above book value, and at the same time reduce its

reliance on equity raising to drive growth, warrants ART to trade

above its book value as implied in our TP of S$1.25 in our view.

Recovery in DPU. Beyond crystallising its book value, we believe

the resumption of DPU growth from FY19 onwards, delayed

from our original assumption in FY18, as ART works its assets

harder should prompt a further re-rating. We forecast a two-

year DPU CAGR of 2% over 2018-2020.

Valuation:

On account of weaker-than-expected 2Q18 results, we lowered

our DCF-based TP to S$1.25 from S$1.30.

Key Risks to Our View:

The key risk to our call is potential oversupply in ART’s key

markets and impact from forex volatility. These risks are

mitigated by ART’s diversified portfolio, with no single country

contributing more than 20% of its net property income.

At A Glance Issued Capital (m shrs) 2,160

Mkt. Cap (S$m/US$m) 2,440 / 1,787

Major Shareholders (%)

CapitaLand 44.6

Free Float (%) 55.4

3m Avg. Daily Val (US$m) 2.3

ICB Industry : Financials / Real Estate Investment Trust

DBS Group Research . Equity 24 Jul 2018

Singapore Company Guide

Ascott Residence Trust Version 12 | Bloomberg: ART SP | Reuters: ASRT.SI Refer to important disclosures at the end of this report

77

97

117

137

157

177

197

217

0.9

1.0

1.0

1.1

1.1

1.2

1.2

1.3

1.3

1.4

1.4

Jul-14 Jul-15 Jul-16 Jul-17 Jul-18

Relative IndexS$

Ascott Residence Trust (LHS) Relative STI (RHS)

Page 8

Company Guide

Ascott Residence Trust

WHAT’S NEW

2Q18 softer than expected

(-) 2Q18 DPU flat y-o-y

• 2Q18 DPU was flat y-o-y coming in at 1.84 Scts but

after adjusting for the rights issue and one-off FX gain

last year, 2Q18 DPU would have been up 13% y-o-y.

• However, with 1H18 DPU at 3.19 Scts (-5% y-o-y) and

representing c.45% of our FY18F DPU, the results

were below expectations. While the first half is

typically the seasonally weaker quarter, its usual

contribution is c.47%.

• The weaker-than-expected performance was due to

softer contribution from Australia (depreciation of

AUD) as well as slower recovery in margins at the US,

UK and Singapore operations.

(+/-) Key markets generally flat or up

• ART’s key markets were generally flat or up with the

exception of China and Vietnam.

• UK gross profit in GBP and SGD terms (10% of 2Q18

gross profit) rose 6% and 5% y-o-y respectively,

mainly due to the impact of the refurbished

apartments at Citadines Barbican London and uplift in

leisure demand. This also resulted in a 6% y-o-y

growth in revenue per available unit (RevPAU) in GBP

terms.

• The Singapore operations (11% of 2Q18 gross profit)

saw a 78% y-o-y increase in gross profit but this was

mainly due to the acquisition of Ascott

Orchard. However, NPI and RevPAU for the properties

under management contract (Somerset Liang Court

and Citadines Mount Sophia) were stable.

• Earnings from the Chinese portfolio (9% of 2Q18

gross profit) fell 11% but this was mainly due to the

divestment of Citadines Biyun Shanghai and Citadines

Gaoxin Xian in January 2018. Excluding these two

properties, revenue and RevPAU on a same-store basis

would have increased by 2% and 4% y-o-y

respectively. However, NPI on a same-store basis fell

6% y-o-y in RMB terms due to one-off tax refund and

lower depreciation in 2Q17.

• Gross profit for the Japan portfolio fell 4% y-o-y in

SGD terms (13% of 2Q18 gross profit), mainly due to

a weaker JPY and impact from the divestment of 18

rental housing properties in April 2017. On a same-

store basis, RevPAU was down 1% due to increased

competition and new supply in Kyoto. However, gross

profit increased marginally (+1%) owing to lower

operating and maintenance costs.

• Contribution in SGD terms from US properties (14%

of 2Q18 gross profit) jumped 32% y-o-y due to the

acquisition of DoubleTree by Hilton Hotel New York in

August 2017. The results were also boosted by a 3%

y-o-y improvement in RevPAU to US$243, due to

stronger market demand. However, on a same-store

basis, gross profit remained stable owing to higher

staff costs and marketing expenses.

• Earnings in SGD terms for the Vietnam operations (8%

of 2Q18 gross profit) disappointed, down 19% y-o-y.

This was mainly attributed to fewer project groups in

Hanoi which resulted in RevPAU falling 11% y-o-y to

VND1,528.

(+) Lower gearing

• On the back of higher valuation of properties in

Vietnam, UK, France and Philippines due to higher

earnings following various renovations, gearing fell to

35.7% from 36.1% in 1Q18.

• Borrowing cost was stable at 2.3% with the

proportion of fixed rate debt at 84%.

• NAV per unit now stands at S$1.23 or excluding

distributions at S$1.23.

(+/-) Disappointing results but renewed focus on working assets

harder should drive future earnings growth

• On the back of weaker-than-expected 2Q18 results,

we cut our FY18-20F DPU by 5% after tweaking our

margin assumptions lower and reducing our FX

assumptions on the back of AUD depreciation. As a

consequence of the lower earnings estimates, we also

reduced our DCF-based TP to S$1.25 from S$1.30.

• While we are disappointed with lowering our earnings

estimates again after doing so in 1Q18, we believe

management’s increased focused on working its

existing assets harder should eventually translate into a

return of DPU next year, which should act as a catalyst

for a share price re-rating.

• We also sense a de-emphasis by ART on acquisitions

but rather on asset recycling to crystallise value. A

successful execution on this strategy, should also

restore investor confidence in the stock.

Maintain BUY, revised TP of S$1.25

• With 10% capital upside and decent 5.9% yield, we

maintain our BUY call with a revised TP of S$1.25.

Page 9

Company Guide


Quarterly / Interim Income Statement (S$m)

FY Dec 2Q2017 1Q2018 2Q2018 % chg yoy % chg qoq

Gross revenue 124 113 130 5.6 15.7

Property expenses (64.6) (64.1) (67.4) 4.3 5.1

Net Property Income 59.0 48.7 63.1 7.0 29.7

Other Operating expenses (7.8) (7.3) (18.5) 138.6 153.4

Other Non Opg (Exp)/Inc 18.2 2.60 (6.1) nm (334.6)

Net Interest (Exp)/Inc (10.9) (11.2) (11.4) (4.7) (1.7)

Exceptional Gain/(Loss) 0.0 0.0 0.0 - -

Net Income 58.5 32.7 27.1 (53.7) (17.2)

Tax (8.3) (3.2) (14.1) 69.7 346.8

Minority Interest (3.3) (1.4) (3.5) (6.7) 148.2

Net Income after Tax 46.9 28.1 9.48 (79.8) (66.3)

Total Return 70.8 28.1 46.5 (34.3) 65.4

Non-tax deductible Items (28.7) 5.77 (11.5) (59.9) (300.0)

Net Inc available for Dist. 46.9 29.2 39.8 (15.1) 36.4

Ratio (%)

Net Prop Inc Margin 47.7 43.2 48.4

Dist. Payout Ratio 100.0 100.0 100.0

Source of all data: Company, DBS Bank

Page 10

Company Guide


CRITICAL DATA POINTS TO WATCH

Critical Factors

Asset reconstitution. ART has engaged in a more active asset

reconstitution strategy whereby it sells properties which are low

yielding or have limited growth potential and recycle the

proceeds into assets which are better yielding and/or provide a

longer sustainable growth profile. Beyond increasing its overall

portfolio earnings power and a resultant higher DPU, the

strategy has allowed the trust to crystallise the value of its book.

In addition, the ability to recycle capital reduces the reliance on

equity raising to fund ART’s expansion plans. These two factors

should help reduce doubts that investors may have on the true

value of ART’s NAV per share and eliminate the discount to

book that the market has placed on ART over the past few

years.

Boost from recent acquisitions. ART recently announced several

acquisitions including Ascott Orchard Singapore, Citadines

Michel Hamburg, Citadines City Centre Frankfurt, and

DoubleTree by Hilton New York, Times Square South. These

acquisitions should help to underscore DPU growth over the

next 1-2 years.

Steady income base. Around 39% of ART’s NPI come from

properties under master leases in France, Germany, Singapore,

and Japan (rental properties). With the prudent use of forex

hedges and having properties under management contracts

with minimum guaranteed income (11% of group NPI) in

Belgium, Spain and UK, ART provides investors with a solid

income base.

Key markets stable if not up. We expect the recovery in the

Singapore hospitality market to help drive ART’s earnings higher

going forward. Furthermore, the changes in regulations for

share accommodation in Japan should also moderate the level

competition which had been a headwind over the last few

quarters, resulting in a more stable earnings profile going

forward. In the medium term, we remain bullish on the

prospects for the Japanese operations given the growing

amount of inbound international tourists into the country. For

the US operations, while supply is expected to grow by 5% p.a.

over FY18 and FY19 in Manhattan presenting potential

downside risks to RevPAR, the market seems to have stabilised

with strong demand resulting in 2Q18 RevPAU rising 3% y-o-y.

Meanwhile, Brexit remains a risk for ART’s UK properties,

however in our view the impact of recent renovations and

continued growth in leisure demand, should provide a steady if

not increasing contribution over the next two years.

Furthermore, with the sale of some of the lower-yielding

properties in China, the stronger performance of ART’s assets in

Tier 1/1.5 cities should shine through. Combined with the boost

from acquisitions, we project ART to deliver a steady two-year

DPU CAGR of 2% over 2018-2020.

Net Property Income and Margins (%)


Distribution Paid / Net Operating CF

Interest Cover (x)

Source: Company, DBS Bank

43.4%

44.4%

45.4%

46.4%

47.4%

48.4%

49.4%

50.4%

51.4%

52.4%

0

50

100

150

200

250

300

2016A 2017A 2018F 2019F 2020F

S$ m

Net Property Income Net Property Income Margin %

39%

40%

41%

42%

43%

44%

45%

46%

47%

48%

49%

45

50

55

60

65

1Q20

16

2Q20

16

3Q20

16

4Q20

16

1Q20

17

2Q20

17

3Q20

17

4Q20

17

1Q20

18

2Q20

18

Net Property Income Net Property Income Margin %

0.3

0.4

0.5

0.6

0.7

0.8

2016A 2017A 2018F 2019F 2020F

(x)

3.80

3.90

4.00

4.10

4.20

4.30

4.40

2016A 2017A 2018F 2019F 2020F

(x)

Page 11

Company Guide


Balance Sheet:

Gearing to stabilise at around 36-37%. Post ART’s recent rights

issue as well as announced acquisitions and asset sales in 2017

ART’s gearing settled between 36-37%, which is comfortably

below the regulatory limit of 45%.

Modest refinancing risk near term. As at 30 June 2018, around

9% of loans are to be refinanced in FY18. As a consequence of

ART’s active management of its debt maturity profile, no more

than 25% of borrowings mature in any given year.

Share Price Drivers:

Crystallisation of book value. ART’S share price corrected c.10%

from the middle of January after the strong rally in 2017. We

believe this is an opportunity to increase exposure given there is

hidden value in ART as its properties are conservatively valued.

This can be demonstrated by the several properties being sold at

16-69% premium to book in the past year. Going forward, we

believe as ART continues to demonstrate its ability to sell its

assets at or above the latest valuations as it executes its

portfolio reconstitution strategy, we believe ART will trade up at

a premium to book.

Key Risks:

Interest-rate risks. Any increase in interest rates will result in

higher interest payments and reduce the income available for

distribution, which will result in lower distribution per unit

(DPU) for unitholders. As at 30 June 2018, 84% of ART’s debts

are on fixed rates.

Currency risk. As ART earns rental income in various

currencies, a depreciation of any foreign currency against the

SGD could negatively impact DPU. Nevertheless, through the

use of currency hedges for EUR- and JPY-sourced income, as

well as the benefits from having a diversified portfolio, FX

volatility has had a minimal impact on ART’s earnings

historically. In FY13-FY17, changes in ART’s basket of

currencies had only a net 0.8-1.5% negative impact on

earnings.

Company Background

Ascott REIT's (ART's) investment portfolio primarily comprises

real estate used mainly as serviced residences or rental housing

properties (including investments in real estate-related assets

and/or other related value-enhancing assets or instruments). It

currently has 73 properties located in 37 cities in 14 countries

worth c.S$5.2bn.

Aggregate Leverage (%)

ROE (%)

Distribution Yield (%)

PB Band (x)


10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

2016A 2017A 2018F 2019F 2020F

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2016A 2017A 2018F 2019F 2020F

Avg: 6.6%

+1sd: 7.1%

+2sd: 7.6%

-1sd: 6.2%

-2sd: 5.7%

5.0

5.5

6.0

6.5

7.0

7.5

8.0

2014 2015 2016 2017 2018

(%)

Avg: 0.86x

+1sd: 0.92x

+2sd: 0.98x

-1sd: 0.8x

-2sd: 0.74x

0.6

0.7

0.8

0.9

1.0

1.1

1.2


(x)

Page 12

Company Guide


ART share price versus Singapore RevPAR Remarks

Source: Bloomberg Finance L.P., STB, DBS Bank

While only 8% of ART’s

FY17 NPI is sourced from

Singapore, ART’s share

price is highly correlated to

changes in the Singapore

hospitality market,

specifically overall industry

RevPAR performance.

The weak Singapore market

over the past three years

has been a headwind for

ART’s share price

performance.

With the Singapore market

expected to recover from

2018 onwards due to

easing supply pressures

which should result an

upturn in RevPAR, we

expect a rising tide to also

drive ART’s share price

higher.

90

110

130

150

170

190

210

230

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

ART share price (S$) - LHS

12 month rolling industry RevPar (S$) - RHS

Page 13

Company Guide


Income Statement (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F

Gross revenue 476 496 513 537 559

Property expenses (253) (269) (270) (282) (291)

Net Property Income 222 227 243 255 268

Other Operating expenses (28.4) (30.6) (29.6) (30.1) (30.7)

Other Non Opg (Exp)/Inc 4.39 17.3 0.0 0.0 0.0


Exceptional Gain/(Loss) 0.0 20.8 0.0 0.0 0.0

Net Income 150 189 163 172 181

Tax (31.8) (51.9) (28.6) (30.2) (31.8)

Minority Interest (4.5) (8.3) (7.7) (8.2) (8.6)

Preference Dividend (19.3) (19.2) (19.2) (19.2) (19.2)

Net Income After Tax 94.6 110 108 115 122

Total Return 124 195 108 115 122

Non-tax deductible Items 10.9 (49.4) 31.1 31.4 31.6

Net Inc available for Dist. 135 152 145 149 154

Growth & Ratio

Revenue Gth (%) 12.9 4.4 3.4 4.6 4.1

N Property Inc Gth (%) 8.7 2.0 7.0 5.2 5.1

Net Inc Gth (%) 33.0 16.3 (2.1) 6.6 6.2

Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0

Net Prop Inc Margins (%) 46.8 45.7 47.3 47.5 48.0

Net Income Margins (%) 19.9 22.2 21.0 21.4 21.8

Dist to revenue (%) 28.4 30.7 28.3 27.8 27.5

Managers & Trustee’s fees to sales %)

6.0 6.2 5.8 5.6 5.5

ROAE (%) 4.3 4.5 4.0 4.3 4.6

ROA (%) 2.0 2.1 2.0 2.1 2.2

ROCE (%) 3.3 2.9 3.4 3.6 3.8

Int. Cover (x) 4.0 4.4 4.2 4.2 4.2


Boost from recent acquisitions

Page 14

Company Guide



FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018

Gross revenue 124 127 134 113 130

Property expenses (64.6) (68.2) (72.7) (64.1) (67.4)



Other Non Opg (Exp)/Inc 18.2 10.4 (3.5) 2.60 (6.1)



Net Income 58.5 51.4 37.4 32.7 27.1

Tax (8.3) (29.7) (8.9) (3.2) (14.1)

Minority Interest (3.3) (1.5) (2.0) (1.4) (3.5)

Net Income after Tax 46.9 20.3 26.6 28.1 9.48

Total Return 70.8 96.0 29.8 28.1 46.5

Non-tax deductible Items (28.7) (54.8) 18.9 5.77 (11.5)

Net Inc available for Dist. 46.9 36.3 43.9 29.2 39.8

Growth & Ratio

Revenue Gth (%) 11 3 6 (16) 16

N Property Inc Gth (%) 25 0 5 (21) 30

Net Inc Gth (%) 168 (57) 31 6 (66)

Net Prop Inc Margin (%) 47.7 46.3 45.9 43.2 48.4


Balance Sheet (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F

Investment Properties 4,504 4,908 4,818 4,818 4,818

Other LT Assets 68.3 65.7 68.0 71.1 74.8

Cash & ST Invts 143 257 309 322 338

Inventory 0.20 0.21 0.21 0.21 0.21

Debtors 68.7 66.6 68.8 72.0 75.0

Other Current Assets 6.55 195 195 195 195

Total Assets 4,791 5,493 5,459 5,478 5,501

ST Debt 147 264 264 264 264

Creditor 133 237 245 256 267

Other Current Liab 1.57 3.76 3.76 3.76 3.76

LT Debt 1,716 1,681 1,651 1,667 1,684

Other LT Liabilities 112 135 135 135 135

Unit holders’ funds 2,598 3,082 3,063 3,046 3,033

Minority Interests 84.5 89.4 97.2 105 114

Total Funds & Liabilities 4,791 5,493 5,459 5,478 5,501

Non-Cash Wkg. Capital (59.1) 20.8 15.0 6.82 (0.7)

Net Cash/(Debt) (1,720) (1,688) (1,606) (1,609) (1,610)

Ratio

Current Ratio (x) 0.8 1.0 1.1 1.1 1.1

Quick Ratio (x) 0.8 0.6 0.7 0.8 0.8

Aggregate Leverage (%) 38.9 35.4 35.1 35.3 35.4

Z-Score (X) 0.8 0.8 0.9 0.9 0.9


Page 15

Company Guide


Cash Flow Statement (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Income 150 189 163 172 181

Dep. & Amort. 12.9 13.3 13.3 13.3 13.3

Tax Paid (22.5) (20.2) (28.6) (30.2) (31.8)

Associates &JV Inc/(Loss) 0.01 0.04 (0.2) (0.2) (0.2)

Chg in Wkg.Cap. (12.4) (42.2) 5.78 8.18 7.55

Other Operating CF 72.1 41.0 17.9 18.1 18.4

Net Operating CF 200 181 171 182 189

Net Invt in Properties (57.4) (26.2) (15.4) (16.1) (16.8)

Other Invts (net) (140) (621) 90.2 0.0 0.0

Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0

Div from Assoc. & JVs 0.0 0.0 0.0 0.0 0.0

Other Investing CF 2.09 257 0.0 0.0 0.0

Net Investing CF (195) (390) 74.8 (16.1) (16.8)

Distribution Paid (126) (145) (145) (149) (154)

Chg in Gross Debt 19.0 106 (30.0) 16.1 16.8

New units issued 99.1 438 0.0 0.0 0.0

Other Financing CF (75.8) (71.9) (19.2) (19.2) (19.2)

Net Financing CF (84.2) 328 (195) (152) (156)

Currency Adjustments 1.53 (2.2) 0.0 0.0 0.0

Chg in Cash (77.4) 117 51.6 13.2 16.0

Operating CFPS (S cts) 13.0 10.4 7.68 8.01 8.33

Free CFPS (S cts) 8.76 7.21 7.24 7.64 7.91


Target Price & Ratings History

Source: DBS Bank

Analyst: Mervin SONG, CFA

Derek TAN

S.No.Date of

Report

Closing

Price

12-mth

Target

Price

Rat ing

1: 16 Aug 17 1.18 1.28 BUY

2: 25 Oct 17 1.21 1.28 BUY

3: 29 Jan 18 1.26 1.34 BUY

4: 19 Apr 18 1.14 1.30 BUY

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

1

2 3

4

0.99

1.04

1.09

1.14

1.19

1.24

1.29

1.34

Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18

S$

Includes the acquisition of Ascott Orchard Singapore, Citadines City Centre Frankfurt and Citadines Michel Hamburg

Page 16

Company Guide


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

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

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

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

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

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

Share price appreciation + dividends

Completed Date: 24 Jul 2018 18:10:23 (SGT) Dissemination Date: 24 Jul 2018 18:11:33 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated

corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)

redistributed without the prior written consent of DBS Bank Ltd.

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

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

the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other

factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or

warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without

notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific

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

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

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

arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not

to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons

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

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

other banking services for these companies.

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

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

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

not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to

update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

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

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

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

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

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

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

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

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

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

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

commodity referred to in this report.

Page 17

Company Guide


DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public

offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage

in market-making.

ANALYST CERTIFICATION

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

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

compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the

issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real

estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the

management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or

his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the

DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

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

position in Ascott Residence Trust recommended in this report as of 29 Jun 2018.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share

capital in Ascott Residence Trust recommended in this report as of 29 Jun 2018.

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

equity securities of Ascott Residence Trust as of 29 Jun 2018.

Compensation for investment banking services:

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

for investment banking services from Ascott Residence Trust as of 29 Jun 2018.

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

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

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

should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

7. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 18

ed: TH / sa: MA, CW, CS

BUYLast Traded Price ( 8 Aug 2018): S$3.30 (STI : 3,326.74) Price Target 12-mth: S$3.62 (10% upside)

Analyst Derek TAN +65 6682 3716 [email protected] Rachel TAN +65 6682 3713 [email protected]

What’s New • 2Q18 PATMI ahead on strong revaluation gains

• Targeting a balance of 50%-50% exposure indeveloped and emerging markets to ride throughmarket cycles better

• Strong pipeline of pre-sold residential projects in Chinato underpin near-term returns

• Retail malls showing resilient operational performance

Price Relative

Forecasts and Valuation FY Dec (S$m) 2017A 2018F 2019F 2020F Revenue 4,610 5,264 5,654 5,555 EBITDA 3,118 2,939 2,351 2,430 Pre-tax Profit 2,624 2,191 1,593 1,640 Net Profit 1,551 1,258 875 901 Net Pft (Pre Ex.) 1,551 1,258 875 901 Net Pft Gth (Pre-ex) (%) 30.3 (18.9) (30.4) 3.0 EPS (S cts) 36.5 29.6 20.6 21.2 EPS Pre Ex. (S cts) 36.5 29.6 20.6 21.2 EPS Gth Pre Ex (%) 31 (19) (30) 3 Diluted EPS (S cts) 36.4 29.5 20.6 21.2 Net DPS (S cts) 12.0 13.0 14.0 12.0 BV Per Share (S cts) 433 450 458 465 PE (X) 9.0 11.2 16.0 15.6 PE Pre Ex. (X) 9.0 11.2 16.0 15.6 P/Cash Flow (X) 6.5 7.1 nm 22.9 EV/EBITDA (X) 13.7 14.7 19.2 19.0 Net Div Yield (%) 3.6 3.9 4.2 3.6 P/Book Value (X) 0.8 0.7 0.7 0.7 Net Debt/Equity (X) 0.5 0.5 0.5 0.5 ROAE (%) 8.6 6.7 4.5 4.6 Earnings Rev (%): 27 (9) 5 Consensus EPS (S cts): 21.8 22.6 25.7 Other Broker Recs: B: 19 S: 0 H: 3


Rebalancing strategy bearing fruit

Maintain BUY, TP S$3.62. With only one project to be launched in 2019, we see limited impact on CapitaLand Limited (CAPL) from the recent tightening policy measures given its Singapore residential exposure forms only 5% of RNAV. With its core retail business and development business in Singapore and China on an uptrend in 1H18, we believe that CAPL will deliver strong earnings momentum in 2018. A strong balance sheet with low gearing offers financial capacity to undertake opportunities. Our TP is based on a 25% discount to RNAV.

Where we differ: Further potential for higher dividends which will surprise investors. The 20% increase in dividend payment in FY17, which is sustainable, has provided investors with confidence that all business units are on an uptrend. We believe that CAPL's consistent recycling activities to boost ROEs and returns have set the stage for a further uplift in dividends come 2018. The group has also obtained a share buyback mandate (2% of shares) from its shareholders which should support prices.

Rebalancing its portfolio. Management has articulated a strategy to maintain a 50%-50% exposure to developed markets (DM) and emerging markets (EM) which they believe will offer the group the right balance to ride through market uncertainties and cycles better. Supported by a c.56% exposure to DM markets in 2Q18 offering steady returns (capital upside and income visibility), we believe that CAPL can look for projects in EM exposures to generate alpha and returns over time.

Valuation: Our target price of S$3.62 is based on a 25% discount to our adjusted RNAV of S$4.83/share.

Key Risks to Our View: Slowdown in Asian economies. The risk to our view is if there is a slowdown in Asian economies, especially China, which could dampen demand for housing and private consumption.

At A Glance Issued Capital (m shrs) 4,172 Mkt. Cap (S$m/US$m) 13,767 / 10,066 Major Shareholders (%) Temasek Holdings Private Ltd 40.2 Blackrock 7.0

Free Float (%) 53.0 3m Avg. Daily Val (US$m) 27.4 ICB Industry : Financials / Real Estate

DBS Group Research . Equity

10 Aug 2018


CapitaLand Version 16 | Bloomberg: CAPL SP | Reuters: CATL.SI Refer to important disclosures at the end of this report

82

102

122

142

162

182

202

222

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

4.2

Aug-14 Aug-15 Aug-16 Aug-17 Aug-18

Relative IndexS$

CapitaLand (LHS) Relative STI (RHS)

Page 19

Company Guide

CapitaLand

WHAT’S NEW

A fruitful strategy

2Q18 PATMI ahead on revaluation gains: CapitaLand Limited (CAPL) reported a profit after tax and minority interest (PATMI) of S$605.5m, a 4.4% growth y-o-y. Operating PATMI was down 6.0% y-o-y to S$196.0m. On a 1H18 basis, CAPL's PATMI and operating PATMI were down by 5% and 23% to S$924.6m and S$424.7m respectively.

In 2Q18, the stronger performance was largely driven by its core markets China and Singapore which collectively contributed c.74.8% of revenue (2Q17: 74.5%). This was on the back of higher recognition in China and higher handovers (Century Park in Chengdu, New Horizon in Shanghai) in the quarter followed by stronger recurring revenue streams from newly acquired properties in Singapore, China and new office properties in Germany.

Uplift in fair values from properties in China, Singapore and Europe. 2Q18 EBIT rose 36.6% largely on the back of higher contribution from an expanded portfolio and the consolidations of three REITs from August 2017 and boosted by the revaluations of its investment properties. The group reported a revaluation gain of S$620.1m (S$383.7m from its subsidiaries and S$236.4m from its share of associates and JVs) which mainly arose from CAPL’s assets in Singapore, China and Europe.

Capital recycling strategy ahead of initial expectations. The group sold S$3.1bn of projects in 1H18, across its REITs (CapitaLand Commercial Trust [CCT] and CapitaLand Mall Trust) and selected projects on the balance sheet and funds, which freed up capital to be invested into other opportunities with higher potential returns. As of 1H18, the group had reinvested c.S$1.8bn largely into development projects, namely Pearl Bank Apartments (S$728m), mixed-use site in Chongqing (S$459m) and into Vietnam (S$40.4m) and also added new recurring income streams in Germany (S$569.6m into Galileo through CCT).

Targeting a balance between EM and DM exposures. Management has articulated a strategy to maintain a 50%-50% exposure to developed markets (DM) and emerging markets (EM) which it believes will offer the group the right balance to ride through market uncertainties and cycles better. The group had 56.9% of its exposure to DM as of 2Q18, which implies that the group should be looking to add more EM exposures (higher risk and potential returns) in its capital allocation in the coming months.

Handovers of close to 8,000 units to drive revenues higher: CAPL handed over 1,486 units to home buyers (2Q18: 1,108) mainly from Century Park in Chengdu, New Horizon in Shanghai and Citta Di Mare in Guangzhou. These units have a sales value of Rmb2.2bn. The group has another 8,000 units sold worth Rmb16.2bn which will be handed over

progressively of which more than 50% of the units will be recognised in the coming six months.

Selected China residential launches delayed and continues to grow with new acquisitions. The group launched 746 units in 2Q18 with a sales value of Rmb3,231m. About 97% of the launched units had been sold as of 30 June 2018. The group has a further launch pipeline of 4,000 units which will be timed according to market conditions. The group has also replenished its land bank recently with the acquisition of a 32-hectare site in Chongqing for S$459m. The site, when completed by 2022, is expected to yield 2,100 units with office and retail space.

Strong pipeline in Vietnam. In Vietnam, the group secured S$209m in sales in 1H18 (sold 619 units). About 93% of the projects in Vietnam have another S$811m (2,680 units) to be handed over of which 30% of the units will be handed over in 2018.

Pearl Bank Apartment (Singapore) en-bloc purchase on track. We understand that the group is close to completing the en-bloc purchase of Pearl Bank Apartments by 4Q18 of which the project should be ready to hit the market by 2Q19. While the recent cooling measures are likely to put a dent on potential investors' demand, the unique attributes of the project coupled with its location close to the central business district (CBD) might attract buyers if priced well. We estimate a breakeven of S$2,200-2,300 psf.

Steady net property income (NPI) growth for its retail mall business. Retail Mall business continued to gain traction with 1H18 tenant sales growing by 2.0% in Singapore and 20.2% in China. The group reported steady same-mall NPI growth of 1.7% and 7.2% in Singapore and China respectively, while Malaysia and Japan fell by 5.0% and 5.3% respectively. CAPL continues to add to the growth from this business through the addition of new third-party contracts in China (Chengdu and Guangzhou) and Cambodia (Phnom Penh).

Ascott to grow steadily. Overall RevPAU rose by 4.0% y-o-y mainly from its properties in Singapore (+12%), China (+8%) and Europe (+13%) which more than offset the declines in countries in Southeast Asia (-6%) and Gulf region & India (-9%). The healthy pipeline of over 29,400 units under development is expected to more than double the recurring management fees from S$86.4m to c.S$150m when completed.

Page 20

Company Guide

CapitaLand



Revenue 992 1,376 1,342 35.3 (2.4)

Cost of Goods Sold (616) (773) (771) 25.2 (0.2)

Gross Profit 377 603 572 51.7 (5.2)

Other Oper. (Exp)/Inc (97.9) (101) (93.0) (5.0) (7.7)

Operating Profit 279 502 479 71.6 (4.7)

Other Non Opg (Exp)/Inc 356 21.2 519 45.9 2,349.9

Associates & JV Inc 340 179 330 (2.7) 84.4

Net Interest (Exp)/Inc (91.1) (131) (133) (46.3) (1.4)


Pre-tax Profit 883 571 1,195 35.3 109.2

Tax (72.6) (76.2) (116) 59.2 51.5

Minority Interest (232) (176) (474) (104.8) 169.5

Net Profit 579 319 606 4.5 89.8

Net profit bef Except. 579 319 606 4.5 89.8

EBITDA 992 720 1,346 35.6 86.9

Margins (%)

Gross Margins 38.0 43.8 42.6

Opg Profit Margins 28.1 36.5 35.6

Net Profit Margins 58.4 23.2 45.1


Page 21

Company Guide

CapitaLand


Critical Factors Growing recurring revenues from retail mall portfolio and Ascott. While trading properties (residential development and strata offices) account for 24% of assets, we see continued strength from CMA (CAPL’s retail mall division) and commercial integrated developments, including Ascott Group (its successful serviced residence brand) which form a significant 76% of total assets and are expected to contribute to growing recurring income for the group.

Retail malls seeing good tenant sales growth, operational outlook remains stable. The group’s retail malls in China and Singapore are seeing improving operating metrics - tenant sales in Singapore and China increased by 2.0% and 20.2% respectively in 1H18, while portfolio tenant sales and traffic growth were generally positive across the portfolio. Looking ahead, we expect CMA to drive earnings mainly on the back of the stabilisation of more than 1m sqm of retail space that was completed back in 2017.

Capital recycling strategy ahead of initial expectations. The group sold S$3.1bn of projects in 1H18, across its REITs (CapitaLand Commercial Trust [CCT] and CapitaLand Mall Trust) and selected projects on the balance sheet and funds, which freed up capital to be invested into other opportunities with higher potential returns. As of 1H18, the group had reinvested c.S$1.8bn largely into development projects, namely Pearl Bank Apartments (S$728m), mixed-use site in Chongqing (S$459m) and into Vietnam (S$40.4m) and also added new recurring income streams in Germany (S$569.6m into Galileo through CCT).

Targeting a balance between EM and DM exposures. Management has articulated a strategy to maintain a 50%-50% exposure to developed markets (DM) and emerging markets (EM) which it believes will offer the group the right balance to ride through market uncertainties and cycles better. The group currently has 56.9% of its exposure in DM as of 2Q18, which implies that the group should be looking to add more EM exposures (higher risk and potential returns) in its capital allocation in the coming months.

Residential sales see strong uplift as property market sentiment improves. CAPL continues to see strong momentum in its residential division in China. In Singapore, the group has successfully added to its land bank through the en-bloc purchase of Pearl Bank Apartments which will be launched in 2019 despite the property curbs. In China, the group has locked in more than c.S$3.0bn in sales, offering strong earnings visibility. In 2018, CAPL will be launching a further 4,000 units for sale.

Revenue(S$’m)

Breakdown of Revenue

Retail properties Current 2018 2019 and

beyond

total

Singapore 17 0 2 19

China 41 2 8 51

Malaysia 7 0 9 16

Japan 5 0 9 14

Cambodia 0 0 1 1

Total 70 2 29 101

RNAV of CapitaLand S$'bn

Value of CapitaLand Singapore 8,489.6

Value of CapitaLand China 9,774.7

CapitaMalls Asia 17,409.6

Ascott 4,166.3

Others 735.0

GDV of CAPL Group 40,575.2

Less: Net Debt (11,552.3)

Less: devt capex (8,444.8)

RNAV of CAPL 20,578.1

Total Shares 4,258.6

RNAV per share 4.83

Discount to RNAV 25%

Target price 3.62 Source: Company, DBS Bank

4,000.0

4,200.0

4,400.0

4,600.0

4,800.0

5,000.0

5,200.0

5,400.0

5,600.0

15A 16A 17A 18F 19F 20F

S$'m

CL Singapore35%

CL China42%

CL Vietnam 2%

CL International

19%

Others-2%

2Q18 revenue breakdown by geography

Page 22

Company Guide

CapitaLand

Appendix 1: A look at Company's listed history – what drives its share price?

CAPL's P/NAV vs volumes


CAPL's P/MAV and RANV


-

0.50

1.00

1.50

2.00

2.50

3.00

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Units Sold (x)

Volumes transacted (Primary and Secondary) (LHS) CAPL P/NAV (x)

Property upcycle, CAPL's P/NAV rises

on the back of strong pipeline

Global financial crisis A strong pipeline

of unsold inventory weighs on performance

Strong sales of projects at the

start of property upturn

+1 SD: 1.05

Mean: 0.89

-1 SD: 0.72

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.40

0.90

1.40

1.90

2.40

1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18

(X) Discount

Diff between P/NAV and P/RNAV P/NAV P/NAV (mean) P/NAV (+1 SD) P/NAV (-1 SD)

Stock trades in a range due to its dwindling residential inventories.

Page 23

Company Guide

CapitaLand

Balance Sheet: Balance sheet remains strong. We forecast debt/equity ratio to remain stable, at below c.0.6x in the coming years. Debt maturity profile remains long at 3.0 years with an average cost of 3.4%. The group aims to maintain a higher level of interest cost hedged.

Share Price Drivers: Strong residential sales to translate into higher prices. CAPL has taken advantage of the improved property sentiment in Singapore to sell most of its existing inventory. The key will be potential land-banking opportunities to replenish its balance sheet. In addition, strong sales in China, we believe, will result in higher prices.

M&A and acquisitions. CAPL is looking at opportunities across the region and with the strong residential sales recorded in recent years across Singapore, China and Vietnam, it makes sense to be replenishing land banks in these countries. Acknowledging strong competition for land, management is looking at opportunities to acquire land through JVs or mergers & acquisitions (M&A) which will offer the group an alternative and lower entry price. The group remains keen to build on its recurring income base and we could see acquisitions in that space.

Asset recycling into listed S-REITs/funds. CAPL will continue to demonstrate its ability to crystallise value through strategic divestments of mature assets to its listed REITs, which are market leaders in their respective subsectors of retail, office and hospitality. The ability to recycle capital efficiently will enable the group to free up capital, improve its balance sheet position and deploy capital to projects with higher returns.

Key Risks: Slowdown in Asian economies. The risk to our view is a further slowdown in Asian economies which could dampen demand for housing and private consumption expenditure and retail sales. This could, in turn, result in slower-than-expected projections.

Company Background CapitaLand (CAPL) is one of Asia’s largest real estate companies headquartered and listed in Singapore. Its two core markets are Singapore and China; while Indonesia, Malaysia and Vietnam have been identified as new growth markets.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


0.0

0.0

0.0

0.1

0.1

0.1

0.1

0.1

0.2

0.2

0.2

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

2016A 2017A 2018F 2019F 2020F

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

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

2016A 2017A 2018F 2019F 2020F

Capital Expenditure (-)

S$m

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2016A 2017A 2018F 2019F 2020F

Avg: 11.5x

+1sd: 13.1x

+2sd: 14.8x

-1sd: 9.9x

-2sd: 8.2x7.3

8.3

9.3

10.3

11.3

12.3

13.3

14.3

15.3

16.3


(x)

Avg: 0.8x

+1sd: 0.87x

+2sd: 0.93x

-1sd: 0.74x

-2sd: 0.67x

0.5

0.6

0.7

0.8

0.9

1.0

1.1


(x)

Page 24

Company Guide

CapitaLand

Segmental Breakdown FY Dec 2016A 2017A 2018F 2019F 2020F

Revenues (S$m) CapitaLand Singapore 1,192 1,190 1,787 1,699 1,695 CapitaLand China 2,376 1,356 1,633 2,073 1,938 CMA 588 1,034 874 889 905 Ascott 1,032 1,000 811 830 851 Others 65.3 29.2 160 163 165 Total 5,252 4,610 5,264 5,654 5,555


FY Dec 2016A 2017A 2018F 2019F 2020F

Revenue 5,252 4,610 5,264 5,654 5,555 Cost of Goods Sold (3,654) (2,772) (2,671) (3,252) (3,055) Gross Profit 1,598 1,838 2,593 2,402 2,499 Other Opng (Exp)/Inc (435) (455) (478) (501) (527) Operating Profit 1,163 1,383 2,115 1,900 1,973 Other Non Opg (Exp)/Inc 437 789 580 200 200 Associates & JV Inc 708 877 174 181 188 Net Interest (Exp)/Inc (401) (425) (678) (688) (720) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 1,907 2,624 2,191 1,593 1,640 Tax (403) (298) (394) (287) (295) Minority Interest (314) (775) (539) (431) (444) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 1,190 1,551 1,258 875 901 Net Profit before Except. 1,190 1,551 1,258 875 901 EBITDA 2,374 3,118 2,939 2,351 2,430 Growth Revenue Gth (%) 10.3 (12.2) 14.2 7.4 (1.8) EBITDA Gth (%) 2.1 31.4 (5.8) (20.0) 3.4 Opg Profit Gth (%) 11.3 19.0 52.9 (10.2) 3.8 Net Profit Gth (Pre-ex) (%) 11.7 30.3 (18.9) (30.4) 3.0 Margins & Ratio Gross Margins (%) 30.4 39.9 49.3 42.5 45.0 Opg Profit Margin (%) 22.1 30.0 40.2 33.6 35.5 Net Profit Margin (%) 22.7 33.6 23.9 15.5 16.2 ROAE (%) 6.7 8.6 6.7 4.5 4.6 ROA (%) 2.6 2.9 2.0 1.4 1.4 ROCE (%) 2.2 2.6 3.1 2.7 2.8 Div Payout Ratio (%) 35.7 32.9 43.9 68.0 56.6 Net Interest Cover (x) 2.9 3.3 3.1 2.8 2.7


Income visibility from pre-sold residential units in China and recurring income from its investment properties.

Page 25

Company Guide

CapitaLand


FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018

Revenue 992 1,507 1,213 1,376 1,342 Cost of Goods Sold (616) (1,000) (592) (773) (771) Gross Profit 377 507 621 603 572 Other Oper. (Exp)/Inc (97.9) (114) (202) (101) (93.0) Operating Profit 279 393 418 502 479 Other Non Opg (Exp)/Inc 356 265 37.2 21.2 519 Associates & JV Inc 340 136 232 179 330 Net Interest (Exp)/Inc (91.1) (129) (126) (131) (133) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 883 664 561 571 1,195 Tax (72.6) (87.2) (82.4) (76.2) (116) Minority Interest (232) (260) (211) (176) (474) Net Profit 579 317 268 319 606 Net profit bef Except. 579 317 268 319 606 EBITDA 992 810 705 720 1,346

Growth Revenue Gth (%) 10.6 51.9 (19.5) 13.4 (2.4) EBITDA Gth (%) 56.6 (18.3) (13.0) 2.1 86.9 Opg Profit Gth (%) 14.3 40.8 6.5 20.0 (4.7) Net Profit Gth (Pre-ex) (%) 47.5 (45.3) (15.5) 19.2 89.8 Margins Gross Margins (%) 38.0 33.6 51.2 43.8 42.6 Opg Profit Margins (%) 28.1 26.1 34.5 36.5 35.6 Net Profit Margins (%) 58.4 21.0 22.1 23.2 45.1

Balance Sheet (S$m) FY Dec 2016A 2017A 2018F 2019F 2020F

Net Fixed Assets 781 840 935 1,029 1,124 Invts in Associates & JVs 12,617 10,197 10,510 10,828 11,150 Other LT Assets 20,577 38,182 38,539 39,039 39,539 Cash & ST Invts 5,067 6,648 7,017 5,660 5,162 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 1,859 1,471 1,755 1,885 1,852 Other Current Assets 4,839 4,108 3,986 4,093 4,491 Total Assets 45,741 61,446 62,742 62,534 63,318

ST Debt 2,373 2,739 2,739 2,739 2,739 Creditor 4,685 5,442 5,245 4,065 3,819 Other Current Liab 670 622 716 703 698 LT Debt 12,479 18,956 19,456 19,956 20,456 Other LT Liabilities 1,233 1,604 1,604 1,604 1,604 Shareholder’s Equity 17,605 18,382 19,130 19,453 19,759 Minority Interests 6,696 13,701 13,852 14,014 14,242 Total Cap. & Liab. 45,741 61,446 62,742 62,534 63,318

Non-Cash Wkg. Capital 1,343 (485) (220) 1,210 1,825 Net Cash/(Debt) (9,785) (15,047) (15,177) (17,035) (18,033) Debtors Turn (avg days) 114.1 131.8 111.8 117.5 122.8 Creditors Turn (avg days) 444.9 684.0 749.7 533.9 481.9 Inventory Turn (avg days) N/A N/A N/A N/A N/A Asset Turnover (x) 0.1 0.1 0.1 0.1 0.1 Current Ratio (x) 1.5 1.4 1.5 1.6 1.6 Quick Ratio (x) 0.9 0.9 1.0 1.0 1.0 Net Debt/Equity (X) 0.4 0.5 0.5 0.5 0.5 Net Debt/Equity ex MI (X) 0.6 0.8 0.8 0.9 0.9 Capex to Debt (%) 0.5 0.7 0.7 0.7 0.7 Z-Score (X) 1.1 0.8 0.8 0.8 0.8


Gearing remains steady.

Page 26

Company Guide

CapitaLand


FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Profit 1,907 2,624 2,191 1,593 1,640 Dep. & Amort. 66.0 69.7 69.7 69.7 69.7 Tax Paid (350) (300) (300) (300) (300) Assoc. & JV Inc/(loss) (708) (877) (174) (181) (188) Chg in Wkg.Cap. 2,292 961 184 (1,416) (611) Other Operating CF 97.5 (311) 0.0 0.0 0.0 Net Operating CF 3,305 2,166 1,971 (234) 611 Capital Exp.(net) (75.2) (149) (164) (164) (164) Other Invts.(net) (575) (2,893) (357) (500) (500) Invts in Assoc. & JV 65.3 1,402 (200) (200) (200) Div from Assoc & JV 393 262 60.9 63.2 65.9 Other Investing CF 121 (392) 0.0 0.0 0.0 Net Investing CF (71.4) (1,770) (661) (801) (799) Div Paid (752) (1,022) (898) (822) (811) Chg in Gross Debt (809) 1,705 500 500 500 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (901) 297 0.0 0.0 0.0 Net Financing CF (2,462) 979 (398) (322) (311) Currency Adjustments (153) (62.9) 0.0 0.0 0.0 Chg in Cash 619 1,313 912 (1,358) (498) Opg CFPS (S cts) 23.8 28.4 42.0 27.8 28.8 Free CFPS (S cts) 75.8 47.5 42.5 (9.4) 10.5



Source: DBS Bank Analyst: Derek TAN

Rachel TAN

S.No.Date of Report

Closing Price

12-mthTargetPrice

Rat ing

1: 16 Aug 17 3.82 4.35 BUY

2: 25 Aug 17 3.71 4.35 BUY

3: 12 Sep 17 3.74 4.35 BUY

4: 08 Nov 17 3.64 4.35 BUY

5: 20 Dec 17 3.53 4.35 BUY

6: 08 Jan 18 3.72 4.35 BUY

7: 14 Feb 18 3.53 4.35 BUY

8: 19 Feb 18 3.63 4.35 BUY

9: 02 May 18 3.76 4.35 BUY

10: 16 May 18 3.57 4.35 BUY

11: 27 Jun 18 3.13 4.35 BUY12: 06 Jul 18 2.99 4.35 BUY


12

34

5

6

7

89 10

1112

2.84

3.04

3.24

3.44

3.64

3.84

4.04

Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18

S$

Page 27

Company Guide

CapitaLand








Completed Date: 10 Aug 2018 09:01:39 (SGT) Dissemination Date: 10 Aug 2018 09:36:57 (SGT)







































Page 28

Company Guide

CapitaLand



in market-making.














DBS Group.



position in CapitaLand recommended in this report as of 29 Jun 2018.




for investment banking services from CapitaLand as of 29 Jun 2018.

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

securities for CapitaLand in the past 12 months, as of 29 Jun 2018.





Directorship/trustee interests:

6. Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Non-Exec Director of CapitaLand as of 30 Jun 2018








Page 29

ed: TH / sa: AS, CW, CS

BUY Last Traded Price ( 19 Jul 2018): S$1.75 (STI : 3,277.58)

Price Target 12-mth: S$2.12 (21% upside)

Analyst Mervin SONG, CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]

What’s New • 2Q18 DPU of 2.16 Scts (-1.6% y-o-y adjusted for rights

issue impact) in line with expectations

• Benefit from Asia Square Tower 2 and Gallileo

acquisitions not fully realised yet

• Negative rental reversions but narrowing gap between

expiring and spot rents bodes well for positive rental

reversions in the future

• Upside risk to DPU estimates from deployment of

proceeds from sale of Twenty Anson

Price Relative


Gross Revenue 337 394 409 430 Net Property Inc 265 313 327 345 Total Return 579 302 267 326 Distribution Inc 289 322 331 347 EPU (S cts) 7.57 8.13 8.30 8.70 EPU Gth (%) (4) 7 2 5 DPU (S cts) 8.66 8.69 8.85 9.26 DPU Gth (%) (2) 0 2 5 NAV per shr (S cts) 178 177 177 177 PE (X) 23.1 21.5 21.1 20.1 Distribution Yield (%) 4.9 5.0 5.1 5.3 P/NAV (x) 1.0 1.0 1.0 1.0 Aggregate Leverage (%) 37.3 38.7 38.9 39.2 ROAE (%) 4.5 4.6 4.7 4.9 Distn. Inc Chng (%): - - - Consensus DPU (S cts): 9.0 9.0 9.0 Other Broker Recs: B: 13 S: 1 H: 10


Leader of the pack

Undervalued. We keep our BUY call on CapitaLand Commercial

Trust (CCT) with a TP of S$2.12. With the correction over the

past few months, we believe CCT remains undervalued ahead

of a multi-year upturn in office rents in Singapore. In addition,

with its property valuations below physical market transactions,

CCT is trading at attractive valuations at the current share price.

Also, the recent expansion into Europe provides another growth

avenue which we believe the market has not fully appreciated.

Where we differ – Deserves a bigger premium. Consensus’ TPs

have moved from a discount to a premium to CCT’s book value

since we advocated that CCT should trade at a premium, as it

demonstrated the conservative valuation of its properties via the

sale of three office buildings at 14-39% premiums to book. But

the 1.08x P/Bk accorded by the market is still too low and CCT

should trade at a P/Bk of 1.2x which is a typical level during

upcycles. Its book also remains understated with buildings such

as Capital Tower and 999-year leasehold HSBC Building priced

at S$1,847 and S$2,275 psf respectively, a discount to recent

transactions of S$2,400-2,700 for comparable buildings.

Multi-year upturn in rents. With Singapore office rents rising

faster than expected and increasing for the fourth consecutive

quarter, hitting S$10.10 psf/mth at end-2Q18, up 13% from

the lows in 1H17, we believe this should generate increased

investor interest in CCT. Focus should turn to the expected

multi-year recovery in office rents as new supply over the

coming three years is limited. This, and the continued rise in

office rents, should act as re-rating catalyst for CCT’s share

price.

Valuation:

We maintain our DCF-based TP of S$2.12. With 20% capital

upside and 4.9% yield, we retain our BUY call and CCT as our

top pick in the office sector.


Key risks to our positive view are weaker-than-expected rents.

At A Glance Issued Capital (m shrs) 3,743

Mkt. Cap (S$m/US$m) 6,550 / 4,798


CapitaLand Limited 30.0

BlackRock 7.4

Free Float (%) 62.6




19 Jul 2018


CapitaLand Commercial Trust Version 15 | Bloomberg: CCT SP | Reuters: CACT.SI Refer to important disclosures at the end of this report

Page 30

Company Guide

CapitaLand Commercial Trust

WHAT’S NEW

2Q18 results in line

(+/-) 2Q18 DPU of 2.16 Scts

• CCT delivered 2Q18 DPU of 2.16 Scts which was

down 4% y-o-y or adjusting for the rights issue in the

prior year, down 1.6% y-o-y. This took 1H18 DPU to

4.28 Scts (-6.1% y-o-y or -3.7% after adjustment for

rights issue) which represents c.48% of our FY18F

forecasts and is in line with our expectations.

• The decline in 2Q18 DPU was mainly due to the drag

from the higher shares on issue from the recent equity

placement and rights issue in the prior year as well as

loss of income from the sale of Wilkie Edge and

redevelopment of Golden Shoe.

• However, underlying 2Q18 revenue and NPI rose

12.0% and 12.5% y-o-y respectively, largely due to

the acquisition of Asia Square Tower 2 (AST2) and

Gallileo. Excluding the acquisitions and asset sales,

CCT’s core Singapore portfolio revenue and NPI would

have fallen 1.4% and 1.0% y-o-y respectively. This

was largely due to the impact from the negative rental

reversions over the past year.

• Overall portfolio occupancy remains healthy at 97.8%,

marginally up from 97.3% and 97.6% at end-1Q18

and 2Q17 respectively. The uptick in occupancy was

largely due to improvements at 6 Battery Road (99.9%

versus 98.5% in 2Q17) and Twenty Anson (95.8%

versus 84.2% in 2Q17). Further progress has been

made at AST2 with occupancy now at 91.9%

compared to 90.8% at the end of 1Q18.

(+/-) Negative rental reversions but gap between expiring rent

and spot rents narrowing

• Based on the disclosed expiring rents and committed

rents achieved over the quarter, it appears CCT may

have faced negative rental reversions in 2Q18,

following small positive rental reversions in 1Q18.

• However, the gap between spot Grade A office rents

and average expiring rents has narrowed. For 2Q18,

spot rents of S$10.10 psf/mth are now marginally

below average expiring rents of S$10.73 psf/mth. This

compares to spot rents of S$9.40 psf/mth and average

expiring rents of S$11.09 psf/mth in 4Q17. The

narrowing gap and if spot rents continue to climb as

expected, should bode well for CCT starting to deliver

positive rental reversions ahead.

• In addition, signing rents for CCT’s various buildings

remain above the various sub market rents. Over the

quarter, AST2 achieved committed rents of S$11.00-

12.00 psf/mth versus average expiring rents of

S$13.26 psf/mth and submarket rents of S$9.50-

10.95. For CapitaGreen, signing rents were S$10.50-

14.00 psf/mth versus average expiring rents of

S$12.30 psf/mth and submarket rents of S$9.50-10.00

psf/mth. Meanwhile, at Six Battery Road, signing rents

achieved was between S$10.00-13.80 psf/mth versus

average expiring rents of S$12.37 psf/mth and

submarket rents of S$8.40-9.86 psf/mth. Finally, One

George Street, reported committed rents of S$9.10-

9.50 psf/mth versus average expiring rents of S$9.22

and submarket rents of S$8.40-9.86 psf/mth.

• Post the leases signed in 2Q18, only 2% and 24% of

office leases by gross rental income are up for renewal

for the remainder of FY18 and FY19, down from 5%

and 31% respectively.

(+) Revaluation gains from further compression of cap rates

• On the back of a 10-bp compression in cap rates for

CCT’s Singapore office buildings, CCT reported a

1.3% increase in property values for its Singapore

portfolio, resulting in NAV per unit (excluding

distribution income) rising to S$1.80 from S$1.74.

CCT’s Singapore office buildings are now valued using

a cap rate of between 3.5-4.0% versus 3.6-4.10%

previously.

• The higher property values resulted in aggregate

leverage being stable at 37.9% offsetting the impact

from higher borrowings to fund the acquisition of

Gallileo.

• On the back of higher benchmark interest rates,

average borrowing costs ticked up marginally to 2.8%

from 2.7% at end-2Q18.

• The proportion of fixed rate borrowings fell to 85%

from 90% in the preceding quarter.

(+) Upside risk to earnings estimates

• Following the divestment of Twenty Anson on an exit

yield of 2.7%, CCT’s gearing is projected to drop to

c.35%, should it use the proceeds from the sale to

pare down debt. Completion of the sale is expected to

be in 3Q18.

• This provides debt headroom should it deploy its

strong balance sheet for acquisitions in Europe which

we assume would be around the 3-4% yield, leading

to upside risk to our earnings/DPU estimates.

• We believe the likelihood of CCT expanding into

Europe is high given the need to build scale in Europe

following its maiden acquisition there, the lack of

investment opportunities for prime Grade A offices in

Singapore and the better yield spreads on offer in

Europe.

Page 31

Company Guide


• Europe currently represents c.5% of CCT’s portfolio by

asset value versus its long-term target of having 10-

20% of assets outside Singapore.

• Given our view that CCT is likely to buy in Europe

sometime in 2H18, we maintain our earnings and DPU

estimates for now.

Maintain BUY

• With 2Q18 results in line with expectations, we

maintain our BUY call with TP of S$2.12.

• CCT remains out top pick in the office space, as it is

the largest and most liquid office REIT. Furthermore,

we continue to like CCT for its exposure to the

expected multi-year recovery in office rents due to

minimal new office supply over the next three years.



Gross revenue 87.5 91.8 98.0 12.0 6.8

Property expenses (18.4) (19.2) (20.3) 10.3 5.6



Other Non Opg (Exp)/Inc (4.2) 1.65 0.0 nm nm



Net Income 68.1 73.5 98.7 45.0 34.3

Tax (0.2) (1.1) (2.2) 1,172.0 96.5

Minority Interest 0.0 0.0 (0.4) nm nm


Total Return 0.0 0.0 0.0 - -

Non-tax deductible Items 0.0 0.0 0.0 - -


Ratio (%)




Page 32

Company Guide



Critical Factors

Recovery in spot office rents. Thus far, we have had four

consecutive quarterly increases in rents. Spot office rents have

increased 12% from the lows in 1H17, reaching S$10.10

psf/mth at the end of 2Q18, according to CBRE estimates.

Given CCT’s share price has historically led a recovery in spot

rents by 6-12 months, with a potential multi-year upturn in

rents due to limited new supply over the next 3-4 years, this

should result in a rally in CCT’s share price.

Staggered weighted lease expiry profile. In 1Q18, CCT surprised

on the upside by reporting positive rental reversions. However,

there are still high expiring rents over the next few quarters

which present some risk of negative rental reversions.

Nevertheless, with a staggered lease expiry profile, only 5% and

31% of office leases are up for renewal (by GRI) for the

remainder of FY18 and FY19 respectively, Thus, the impact of

these negative reversions is contained. Beyond this, a weighted

average lease expiry (WALE) of 5.7 years by net lettable area

(NLA) provides the REIT some measure of earnings stability.

Medium-term upside from redevelopment of Golden Shoe Car

Park. CCT has announced that it has entered into a JV with its

sponsor, CapitaLand Limited (CAPL) and Mitsubishi Estate Co.,

Ltd (MEC), to redevelop its Golden Shoe Car Park property into

a 635,000-sqft office tower with a 299-room serviced

apartment block. CCT and CAPL will hold 45% interest each,

with MEC owning 10%. Costing S$1.82bn with a targeted yield

on cost of 5% and to be completed in 1H21, the property will

provide a medium-term uplift to CCT’s earnings and its current

NAV per unit (excluding distributions) of S$1.74. To date, CCT

has secured an anchor tenant in the form of JP Morgan which

will take 24% of the office space in the building.

Acquisition of Asia Square Tower 2 to provide additional

leverage to office upturn. While we expect dilution to

underlying FY18 DPU due to the recent rights issue to fund the

acquisition of AST2, we believe the acquisition is a medium-

term boost to CCT. Specifically, it improves the quality and

resilience of CCT’s portfolio, given it provides CCT the option to

offer a property in the Marina Bay area should tenants decide to

move from Shenton Way or Raffles Place. The expansion of

CCT’s portfolio also provides additional leverage to the

recovering Singapore office market over the coming 3-4 years.

Overseas expansion. CCT recently expanded overseas with its

maiden acquisition of an office building, Gallileo in Frankfurt

Germany on a 4% NPI yield. We expect this to provide another

leg of growth for the trust but more importantly limit downside

risk to CCT’s book value given Gallileo's freehold status. With

the recent sale of Twenty Anson, we believe further expansion

into Europe would provide additional upside to our earnings

estimates.




Interest Cover (x)


Page 33

Company Guide


Balance Sheet:

Gearing to settle around 38-39%. Post the recent divestment of

Twenty Anson, gearing is expected to fall to c.35%. However,

we expect CCT’s gearing to stabilise at around 38-39% should

it use these sale proceeds for an acquisition in Europe.

High proportion of fixed rate debt. As at 30 June 2018, around

85% of CCT’s borrowings were on fixed rates.


Recovery in the office market. With CCT’s share price historically

tracking the office market by 6-12 months, we believe a

recovery in office rents next year will lead to a further re-rating

in CCT’s share price. In our view, further market transactions,

which are above the implied price per sqft of CCT’s Singapore

office portfolio, should also drive CCT’s share price higher.

Acquisitions. Should CCT identify more DPU-accretive

acquisitions in Europe, we believe this will act as a re-rating

catalysts as it would accelerate CCT’s medium-term growth

profile.

Key Risks:

Competition from other landlords. While pre-commitment

levels of the recently completed office buildings in Singapore

are high, CCT could face higher competition from buildings

which had lost tenants to the new office buildings.

Pressure on rents from shadow space. We see some

downsizing activity from banks and financial institutions, and

shadow space (particularly in the Marina Bay area) could put

some pressure on rents for CCT’s portfolio, which is located

primarily in the Raffles Place/Tanjong Pagar areas.

Interest rate risk. Any increase in interest rates will result in

higher interest payments that the REIT has to make annually to

service its loans. Nevertheless, the risk is partially mitigated by

the fact that c.85% of CCT’s debts are on fixed rates.

Company Background

CapitaLand Commercial Trust (CCT) is the first and largest

commercial REIT listed in Singapore. It owns nine properties

located in Singapore’s CBD worth c.S$10bn and recently

expanded into Europe with the purchase of an office building

in Frankfurt.


ROE (%)


PB Band (x)


Page 34

Company Guide


CCT’s share price versus Singapore office rents Remarks

Source: Bloomberg Finance L.P., CBRE, DBS Bank

CCT’s share price has

historically led the upturn

and downturn in spot office

rents by 6-12 months.

Over the past year, CCT’s

share price has rebounded

in anticipation of a recovery

in the office market, which

we believe has been

validated by the four

consecutive quarterly

increases in spot rents since

2Q17.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

0.00

0.50

1.00

1.50

2.00

2.50

CCT share price (S$) - LHS Grade A office rents (S$ psf/mth) - RHS

Page 35

Company Guide



FY Dec 2016A 2017A 2018F 2019F 2020F

Gross revenue 299 337 394 409 430




Other Non Opg (Exp)/Inc 3.59 (0.5) 3.06 3.06 3.06


Exceptional Gain/(Loss) (22.1) 0.0 0.0 0.0 0.0

Net Income 235 265 309 318 334

Tax (1.2) (3.7) (6.8) (6.9) (7.3)

Minority Interest 0.0 0.0 (0.7) (0.7) (0.8)

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net Income After Tax 234 261 302 311 326

Total Return 261 579 302 267 326

Non-tax deductible Items 8.41 (294) 20.5 64.7 20.9


Growth & Ratio

Revenue Gth (%) 9.3 13.0 16.9 3.6 5.3

N Property Inc Gth (%) 8.7 14.8 17.9 4.5 5.4

Net Inc Gth (%) (3.0) 11.8 15.5 3.0 4.9




Dist to revenue (%) 90.1 85.6 81.6 81.1 80.6


5.9 5.6 6.3 6.3 6.2

ROAE (%) 4.4 4.5 4.6 4.7 4.9

ROA (%) 3.2 3.0 3.1 3.1 3.3

ROCE (%) 2.9 2.8 2.9 3.0 3.1

Int. Cover (x) 4.6 3.7 4.1 3.9 3.9


Increase in earnings due to the acquisition of AST2 and Gallileo partially offset by sale of Wilkie Edge, Golden Shoe Car Park and 50% interest in OGS

Page 36

Company Guide



FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018

Gross revenue 87.5 74.1 86.3 91.8 98.0




Other Non Opg (Exp)/Inc (4.2) 1.32 (0.1) 1.65 0.0



Net Income 68.1 139 61.4 73.5 98.7

Tax (0.2) (0.2) (3.2) (1.1) (2.2)

Minority Interest 0.0 0.0 0.0 0.0 (0.4)

Net Income after Tax 67.9 139 58.2 72.4 96.1

Total Return 0.0 0.0 0.0 0.0 0.0

Non-tax deductible Items 0.0 0.0 0.0 0.0 0.0


Growth & Ratio

Revenue Gth (%) (2) (15) 16 6 7

N Property Inc Gth (%) (1) (15) 16 7 7

Net Inc Gth (%) 3 104 (58) 24 33



Balance Sheet (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F


Other LT Assets 1,259 1,781 1,812 1,844 1,875

Cash & ST Invts 160 123 134 191 197

Inventory 0.0 0.0 0.0 0.0 0.0

Debtors 41.9 42.7 45.4 47.0 49.5

Other Current Assets 0.0 0.0 0.0 0.0 0.0

Total Assets 8,051 9,354 9,952 10,003 10,053

ST Debt 173 0.0 0.0 0.0 0.0

Creditor 52.8 90.3 94.0 97.4 103


LT Debt 2,457 2,720 3,099 3,139 3,183

Other LT Liabilities 79.3 119 119 119 119


Minority Interests 0.0 0.0 0.75 1.49 2.25


Non-Cash Wkg. Capital (20.8) (54.8) (55.9) (57.7) (60.3)

Net Cash/(Debt) (2,471) (2,598) (2,965) (2,948) (2,986)

Ratio

Current Ratio (x) 0.9 1.7 1.8 2.3 2.2

Quick Ratio (x) 0.9 1.7 1.8 2.3 2.2


Z-Score (X) 1.2 1.3 1.3 1.3 1.3


Increase in gearing due to debt funding of contribution to the Golden Shoe redevelopment project and Gallileo excluding potential repayment of debt from the divestment of Twenty Anson

Page 37

Company Guide



FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Income 235 265 309 318 334

Dep. & Amort. 3.51 3.51 3.51 3.51 3.51

Tax Paid (1.2) (3.7) (6.8) (6.9) (7.3)

Associates &JV Inc/(Loss) (85.7) (84.9) (88.7) (90.8) (93.6)

Chg in Wkg.Cap. 18.7 32.3 1.09 1.77 2.66


Net Operating CF 203 251 239 291 260

Net Invt in Properties (374) (837) (556) (8.2) (12.9)

Other Invts (net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 (159) (31.6) (31.6) (31.6)

Div from Assoc. & JVs 115 98.9 88.7 90.8 93.6

Other Investing CF 0.0 (5.3) 0.0 7.00 0.0

Net Investing CF (259) (902) (499) 58.0 49.1


Chg in Gross Debt 464 271 379 39.7 44.5

New units issued 0.0 689 215 0.0 0.0

Other Financing CF (71.5) (66.9) 0.0 0.0 0.0

Net Financing CF 135 614 271 (292) (302)

Currency Adjustments 0.0 0.0 0.0 0.0 0.0

Chg in Cash 78.8 (37.4) 10.9 57.0 6.93


Free CFPS (S cts) (5.8) (17.0) (8.6) 7.55 6.60



Source: DBS Bank

Analyst: Mervin SONG, CFA

Derek TAN

Includes acquisition of Gallileo

Page 38

Company Guide
















































Page 39

Company Guide




in market-making.














DBS Group.



position in CapitaLand Commercial Trust recommended in this report as of 29 Jun 2018.


3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share

capital in CapitaLand Commercial Trust recommended in this report as of 29 Jun 2018.

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

equity securities of CapitaLand Commercial Trust as of 29 Jun 2018.



for investment banking services from CapitaLand Commercial Trust as of 29 Jun 2018.


securities for CapitaLand Commercial Trust in the past 12 months, as of 29 Jun 2018.












Page 40

ed: CK / sa:BC, PY, CS

BUY (Upgrade from Hold)

Last Traded Price ( 24 Apr 2018): RM1.14 (KLCI : 1,865.34)

Price Target 12-mth: RM1.40 (22% upside) (Prev RM1.50)

Analyst Siti Ruzanna Mohd Faruk +603 2604 3965 [email protected]

What’s New 1Q18 profit below expectations; cut FY18-20F earnings

by 4-9%

Expect stronger 2H earnings on asset enhancements

and better occupancies

Stock oversold and provides attractive 7% yield

Upgrade to BUY with lower TP of RM1.40

Price Relative

Forecasts and Valuation FY Dec (RMm) 2017A 2018F 2019F 2020F

Gross Revenue 369 375 382 393 Net Property Inc 237 239 243 249 Total Return 158 157 159 163 Distribution Inc 163 167 170 174 EPU (sen) 7.95 7.66 7.73 7.93 EPU Gth (%) (4) (4) 1 2 DPU (sen) 8.21 8.19 8.27 8.47 DPU Gth (%) (2) 0 1 2 NAV per shr (sen) 132 131 131 131 PE (X) 14.3 14.9 14.7 14.4 Distribution Yield (%) 7.2 7.2 7.3 7.4 P/NAV (x) 0.9 0.9 0.9 0.9 Aggregate Leverage (%) 33.3 33.5 33.7 33.8 ROAE (%) 6.0 5.8 5.9 6.1

Distn. Inc Chng (%): (4) (5) (9) Consensus DPU (sen): 8.20 8.30 8.50 Other Broker Recs: B: 2 S: 2 H: 7

Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P

Keep an eye on yields

Selldown overdone. We believe the recent correction in

CMMT’s share price is overdone as most negativity from the

Klang Valley malls has already been priced in. We cut FY18F-20F

earnings by 4%-9% to factor in the lower contribution from

Sungei Wang Plaza, Tropicana City Mall and The Mines. Despite

these adjustments, the stock offers attractive yields of c.7% for

FY18F. This is highest in our Malaysian REIT universe. We

upgrade our call to BUY (from Hold) with TP of RM1.40. The

projected upside of 22% and 7% yield translates into total

returns of 29%.

Where we differ. Consensus is neutral on the stock. We believe

the stock’s reaction (-37% YTD) to the weakness in the Klang

Valley malls has been excessive. We expect upcoming asset

enhancements and better occupancies would lead to stronger

2H earnings.

Potential Catalyst: Stronger-than-expected rental reversion and

better occupancies would lift earnings. Tropicana City Property

(TCP) presents CMMT with a good growth avenue. The

property’s current occupancy of 90.2% has room to rise, while

rental rates have upside potential in view of impending asset-

enhancement initiatives. As for Tropicana Tower, occupancy

should hit 100% by 2QFY18 from 95.2% in 1QFY18.

Valuation:

Our DDM-derived TP (7.3% cost of equity, 1.5% terminal

growth) drops to RM1.40 as we trimmed FY18-20F earnings.

The share price is supported by attractive FY18 DPU yield of

7.2%.


Weak consumer sentiment. The soft retail spending outlook

may impact CMMT, as it is largely retail-focused. Tenants’

capacity to absorb rental increases may be affected by their

lower sales, and this would negatively impact CMMT as it also

derives 3-4% of its top-line from turnover rent.

At A Glance Issued Capital (m shrs) 2,038 Mkt. Cap (RMm/US$m) 2,323 / 594 Major Shareholders (%) CapitaMalls Asia Ltd (%) 35.4 Employee Provident Fund (%) 9.7 Skim Amanah Saham Bumiputera 6.6

Free Float (%) 42.7 3m Avg. Daily Val (US$m) 0.71 ICB Industry : Financials / Real Estate Investment Trust

DBS Group Research . Equity 25 Apr 2018

Malaysia Company Guide

CapitaLand Malaysia Mall Trust Version 8 | Bloomberg: CMMT MK | Reuters: CAMA.KL Refer to important disclosures at the end of this report

Page 41

Company Guide

CapitaLand Malaysia Mall Trust

WHAT’S NEW

1QFY18 earnings below expectations

1QFY18 distributable income came in at RM41.4m (-

2.4% y-o-y), which is below our and consensus

expectations.

The decline in NPI was mainly due to the negative rental

reversion and lower occupancy rates from Sungei Wang

Plaza (SWP) and Tropicana City Property.

Lower contribution from assets in portfolio

1Q18 portfolio NPI declined 4.5% y-o-y to RM57m,

mainly due to the lower contribution from Tropicana City

Property and SWP.

Gurney Plaza (GP) also recorded a lower NPI (-1.8% y-o-y)

despite positive rental reversions due to one-off property

assessment fees of RM1.3m for prior years at GP.

Occupancy rates for GP however remained stable at

98.9% (99.4% in 4Q17).

SWP continued to struggle in 1Q18, with NPI dropping

8.1% y-o-y from lower rental rates (-5.5%) and lower

occupancy rates at 80% (90.1% in 4Q17). This was partly

mitigated by a one-off compensation and forfeiture of

rental deposit for premature termination of a mini anchor

tenant in SWP.

Excluding SWP, rental reversions for the portfolio were

positive at +2.6%. There are 39.9% of overall leases by

NLA expiring in FY18. However, lease expiries from SWP

are mitigated at 8.3% of overall leases by NLA.

We expect upcoming reversions to be flat with minimal

portion of expiries coming from GP/East Coast Mall

(ECM), with 5.5%/3.6% of overall leases by NLA

respectively. We understand that GP and ECM registered

positive reversions of 4% and 2%, respectively, in

1QFY18.

Outlook

Still room to grow from Tropicana assets

Over the medium term, Tropicana City Property (TCP) still

presents CMMT with a good growth avenue. The

property’s current occupancy of 90.2% has room to rise,

while rental rates of c.RM7/psf/mth have upside potential in

view of impending asset-enhancement initiatives.

Assets-enhancement works in the pipeline

Management has included a new initiative for the

Tropicana City Mall (TCM) called nulnu which is a beauty

service provider with more than 300 services housed under

one roof. This could increase shopper traffic to TCM. It has

also managed to attract new brands to GP (Furla, Awa Mee

Bar, Moonshot and Squid Boy), The Mines (The Rollz) and

East Coast Mall (Yoshinoya Japanese Kitchen).

Furthermore, management plans to carry out major asset-

enhancement works on SWP with an estimated cost of

RM55m. The new area will be called Jumpa with NLA of

170k sq ft. It will house new retail, F&B, atheleisure as well

as family entertainment space. It targets to complete this

enhancement by 1H19. We believe this will contribute

positively to overall rental reversion in FY18/19F.

Cut earnings to reflect lower contribution

We have cut our earnings by 4%/5%/9% for

FY18F/19F/20F as we factor in lower contribution from

SWP, The Mines as well as Tropicana City Mall.

Valuation:

Our DDM-derived TP falls to RM1.40 following our earnings cut,

with 7.3% cost of equity and 1.5% terminal growth. As we

have factored in the weaker contribution from the Klang Valley

malls, yields of 7.2% for FY18F remain attractive – in the wake

of the recent selldown of the stock. We believe the selldown

was overdone. With this, we upgrade our HOLD call to BUY.

Page 42

Company Guide


Breakdown by Property

Quarterly / Interim Income Statement (RMm)


Gross revenue 92.4 92.0 89.7 (2.9) (2.5)


Net Property Income 59.7 57.6 57.1 (4.5) (0.9)

Other Operating expenses (6.2) (6.1) (6.1) (1.7) 0.0

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 N/A N/A

Net Interest (Exp)/Inc (13.3) (13.8) (13.7) N/A N/A

Exceptional Gain/(Loss) 0.0 16.0 0.0 N/A N/A

Net Income 40.2 53.7 37.3 (7.4) (30.6)

Tax 0.0 0.0 0.0 N/A N/A

Minority Interest 0.0 0.0 0.0 N/A N/A


Total Return 40.2 53.7 37.3 (7.4) (30.6)

Non-tax deductible Items 0.0 0.0 0.0 nm nm

Net Inc available for Dist. 42.4 40.6 41.4 (2.4) 1.9

Ratio (%)



Source of all data: Company, AllianceDBS

1Q18 4Q17 1Q17 Q/Q chg Y/Y chg Comme nts

Re ve nue (RM m)

Gurney Plaza 37.2 37.0 36.5 0.5% 2.1%

Sungei Wang Plaza 8.7 8.4 10.2 4.2% -14.2% Lower occupancy rates as well as negative rental reversions

The Mines 18.0 18.5 19.2 -2.8% -6.1%

East Coast Mall 14.2 15.5 14.0 -8.9% 1.1%

Tropicana assets 11.6 12.6 12.6 -7.3% -7.9% Lower occupancy rates

Total 89.7 92.0 92.4 -2.5% -2.9%

NPI (RM m)

Gurney Plaza 26.0 26.2 26.5 -0.5% -1.8% Incurred one-off additional property assessment fees

Sungei Wang Plaza 4.4 2.9 4.8 53.4% -8.1%

The Mines 11.2 11.2 11.9 -0.2% -6.4%

East Coast Mall 9.2 10.1 9.1 -9.0% 1.5%

Tropicana assets 6.2 7.2 7.4 -13.9% -15.9%

Total 57.0 57.6 59.7 -0.9% -4.5%

NPI ma rg in

Gurney Plaza 69.9% 70.6% 72.7%

Sungei Wang Plaza 50.6% 34.4% 47.3%

The Mines 62.1% 60.5% 62.3%

East Coast Mall 65.2% 65.3% 64.9%

Tropicana assets 53.2% 57.3% 58.3%

Total 63.6% 62.6% 64.6%

Page 43

Company Guide



Positive rental reversion. In FY17, CMMT managed to secure

positive rental reversion for three of its five malls, with reversions of

c.0.6% (excluding SWP). SWP was the drag with a negative

reversion of 16.9%. But this is a strategic decision by management

to retain key tenants, as the ongoing MRT construction works

nearby have reduced shopper footfall. In addition, The Mines also

registered negative reversions at 7.2% y-o-y. The negative

reversions were due to management’s efforts to realign the mall

and include mini anchor tenants in the mix. Looking at

FY18F/FY19F, we expect reversion rates to be relatively flattish

(excluding SWP) due to near-term rental pressure from the weak

market.

Maintaining occupancy levels. Occupancy rates directly affect the

income received by mall owners. It is also an indicator of the quality

of the mall, which is determined by shopper footfall, pace of

vacancy-replenishment, and general attractiveness of the asset as a

retail hub. CMMT has a decent track record of securing c.96% to

full occupancy of net lettable area (NLA). Occupancy at SWP has

fallen over the last few quarters to c.90% because of the MRT

construction works which were only completed in mid-FY17.

Asset-enhancement initiatives. Besides regular rent increases, the

REIT’s earnings would also be boosted by enhancement works for

its assets. This encompasses a wide range of actions, including

increasing NLA, improving facilities and amenities, refreshing

external appearances, and restructuring rentable space and tenant

mix. CMMT has a good track record in this space, with successful

enhancement works done on Gurney Plaza and East Coast Mall,

leading to NPI growth of 8% and 7%, respectively for FY17.

Sensible financing rates, the bulk of which are already locked in.

About 80% of CMMT’s debts have fixed interest rates that range

from 4.1% to 4.6%, and the rest are at floating rates. Its average

financing cost was c.4.4% in FY17, and we expect this to increase

to 4.6% over the next few years due to rate fluctuations from

floating-rate debt.




Interest Cover (x)

Source: Company, AllianceDBS

Page 44

Company Guide


Appendix 1: Factors driving historical share price performance


CMMT’s share price versus distribution per share Remarks

The correlation between distribution per

share and CMMT share price is 0.47. This

shows share price does not move in

tandem with the distribution.

CMMT’s share price versus 10-year bond yield Remarks

Interestingly, CMMT share price and the

10Y MGS yields have minimal correlation

over a long period. However, we note that

the negative correlation is particularly

strong during periods of rising or declining

bond yields which may explain investors’

preference for REITs as a defensive play.


60

70

80

90

100

110

120

130

Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17

CMMT MK 10Y MGS FBMKLCI AcquisitionIndexed at June 12

Announced SPAs for 2 assets from TropicanaCity namely Tropicana assets

Share price performed as 10Y MGS yield dropped

0.08

0.08

0.08

0.09

0.09

0.09

0.09

0.09

0.10

0.10

0.10

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90

CMMT MK (LHS) CMMT Forward DPU (RHS)

RM RMRM RM

3.20

3.40

3.60

3.80

4.00

4.20

4.40

4.60

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90

CMMT MK (LHS) 10Y MGS (RHS)

RM %

Page 45

Company Guide


Balance Sheet:

Staying conservative. CMMT has kept gearing at about 33% in

recent years, and financed the purchase of the Tropicana assets

with a 30:70 debt-equity mix to keep gearing within that limit.

We expect its balance sheet to remain strong going forward.

Decent maturity profile. Interest rates are fixed for 80% of its

debt, with the remaining debts on floating rate. More than

70% of borrowings mature in 2022 and beyond.


DPU growth. The steady occupancy levels and positive rental

reversions will help lift DPU, which would in turn translate into a

higher unit price.

Key Risks:

Weak consumer sentiment. The soft retail spending outlook

may impact CMMT, as it is largely retail-focused. Tenants’

capacity to absorb rental increases may be affected by their

lower sales, and this would negatively impact CMMT as it also

derives 3-4% of its top-line from turnover rent.

Deteriorating performance at SWP. SWP has been affected by

construction works for a new MRT station nearby as well as

the closure of BB Plaza which forms one of the access points to

SWP. Footfall at SWP will improve once asset enhancement

work completes.

Company Background

CMMT is a retail-focused real estate investment trust with

malls in Kuala Lumpur, Selangor, Penang, and Pahang. Its malls

employ a mass-market profile, but it is moving up to the

middle- to upper-income segments.


ROE (%)


PB Band (x)


Page 46

Company Guide


Key Assumptions

FY Dec 2016A 2017A 2018F 2019F 2020F

Lease expiry (% NLA) 32.6 45.6 37.9 24.1 30.7

Avg rental growth (%) 0.11 (3.3) 0.54 1.74 319

Occupancy rate (%) 96.6 95.1 95.9 95.9 95.9

Segmental Breakdown

FY Dec 2016A 2017A 2018F 2019F 2020F

Revenues (RMm)

Gurney Plaza 138 146 147 152 155

Mines 80.2 75.6 77.6 78.2 80.2

Sungai Wang Plaza 45.3 37.9 36.5 36.7 37.4

East Coast Mall 57.1 59.5 61.8 64.0 67.5

Others 52.3 50.3 51.7 51.7 52.3

Total 373 369 375 382 393

NPI (RMm) Gurney Plaza 96.9 105 105 108 110

Mines 51.7 47.7 48.8 48.5 49.7


East Coast Mall 36.7 39.4 41.3 43.1 46.1

Others 30.0 29.1 29.5 29.0 29.0

Total 242 237 239 243 249

NPI Margins (%) Gurney Plaza 70.4 71.8 71.2 71.3 71.1

Mines 64.4 63.0 62.9 62.1 61.9


East Coast Mall 64.2 66.2 66.8 67.3 68.4

Others 57.3 57.8 57.1 56.0 55.4

Total 65.1 64.3 63.7 63.5 63.5

Income Statement (RMm)

FY Dec 2016A 2017A 2018F 2019F 2020F

Gross revenue 373 369 375 382 393







Net Income 168 162 157 159 163

Tax 0.0 0.0 0.0 0.0 0.0

Minority Interest 0.0 0.0 0.0 0.0 0.0



Total Return 164 158 157 159 163



Growth & Ratio

Revenue Gth (%) 8.1 (1.0) 1.5 2.0 2.7

N Property Inc Gth (%) 7.1 (2.2) 0.7 1.6 2.7

Net Inc Gth (%) (25.8) (3.4) (3.3) 1.2 2.8




Dist to revenue (%) 44.9 44.2 44.7 44.3 44.4


6.7 6.8 6.9 6.9 6.8

ROAE (%) 6.3 6.0 5.8 5.9 6.1

ROA (%) 4.1 3.9 3.7 3.8 3.9

ROCE (%) 5.4 5.2 5.2 5.3 5.4

Int. Cover (x) 4.0 3.9 3.8 3.7 3.7


Page 47

Company Guide


Quarterly / Interim Income Statement (RMm)

FY Dec 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018

Gross revenue 92.4 91.8 92.7 92.0 89.7






Exceptional Gain/(Loss) 0.0 (11.8) 0.0 16.0 0.0

Net Income 40.2 28.1 40.1 53.7 37.3

Tax 0.0 0.0 0.0 0.0 0.0



Total Return 40.2 28.1 40.1 53.7 37.3



Growth & Ratio

Revenue Gth (%) (1) (1) 1 (1) (2)

N Property Inc Gth (%) (1) 0 0 (4) (1)

Net Inc Gth (%) (5) (30) 42 34 (31)



Balance Sheet (RMm)

FY Dec 2016A 2017A 2018F 2019F 2020F


Other LT Assets 2.76 2.04 2.29 2.55 2.80

Cash & ST Invts 192 186 144 104 65.8

Inventory 0.0 0.0 0.0 0.0 0.0

Debtors 16.0 23.5 23.9 24.4 25.0


Total Assets 4,149 4,178 4,188 4,200 4,215

ST Debt 43.7 58.2 68.2 78.2 88.2

Creditor 57.2 60.1 61.0 62.2 63.9


LT Debt 1,268 1,279 1,279 1,279 1,279

Other LT Liabilities 40.9 38.4 38.4 38.4 38.4




Non-Cash Wkg. Capital (94.6) (91.5) (92.9) (94.8) (97.4)

Net Cash/(Debt) (1,120) (1,151) (1,203) (1,253) (1,302)

Ratio

Current Ratio (x) 1.3 1.2 0.9 0.7 0.4

Quick Ratio (x) 1.3 1.2 0.9 0.7 0.4


Z-Score (X) 1.3 1.3 1.3 1.3 1.3


Page 48

Company Guide


Cash Flow Statement (RMm)

FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Income 168 162 157 159 163

Dep. & Amort. 1.33 1.34 1.35 1.35 1.35

Tax Paid 0.0 0.0 0.0 0.0 0.0

Associates &JV Inc/(Loss) 0.0 0.0 0.0 0.0 0.0

Chg in Wkg.Cap. (1.5) (7.6) 1.39 1.89 2.59


Net Operating CF 227 215 225 229 236

Net Invt in Properties (54.9) (22.3) (53.3) (53.3) (53.3)

Other Invts (net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0


Other Investing CF 5.74 5.42 5.16 3.96 2.80

Net Investing CF (49.1) (16.9) (48.1) (49.3) (50.5)


Chg in Gross Debt (2.4) (37.2) (51.3) (51.7) (52.2)

New units issued (1.0) 0.0 0.0 0.0 0.0

Other Financing CF 0.0 0.0 0.0 0.0 0.0

Net Financing CF (169) (207) (219) (220) (224)


Chg in Cash 8.62 (9.0) (41.8) (40.4) (38.4)

Operating CFPS (sen) 11.3 10.9 10.9 11.1 11.4

Free CFPS (sen) 8.48 9.47 8.40 8.58 8.89



Source: AllianceDBS

Analyst: Siti Ruzanna Mohd Faruk

Page 49

Company Guide


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







Completed Date: 24 Apr 2018 22:35:11 (MYT) Dissemination Date: 25 Apr 2018 08:29:41 (MYT)

Sources for all charts and tables are AllianceDBS unless otherwise specified.


This report is prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS''). This report is solely intended for the clients of DBS Bank Ltd, its

respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in

any form or by any means or (ii) redistributed without the prior written consent of AllianceDBS Research Sdn Bhd (''AllianceDBS'').


































Page 50

Company Guide




in market-making.














DBS Group.


1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not

have a proprietary position in the securities recommended in this report as of 30 Mar 2018.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.













Page 51

ed: TH / sa:YM, CW, CS

BUY Last Traded Price ( 20 Jul 2018): S$2.16 (STI : 3,297.83)

Price Target 12-mth: S$2.30 (6% upside,6% yield) (Prev S$2.19)

Analyst Derek TAN +65 6682 3716 [email protected] Carmen Tay +65 6682 3719 [email protected] Mervin SONG, CFA +65 6682 3715 [email protected]

What’s New • Steady 2Q18 results imply that operations are

bottoming out

• Rental reversions stable at +0.8%; ahead of

expectations, which is a positive

• Gearing inches down to 31.5%; ample capacity to

acquire properties opportunistically

• TP raised to S$2.30

Price Relative


Gross Revenue 682 682 691 741 Net Property Inc 478 473 478 514 Total Return 658 420 425 436 Distribution Inc 413 424 429 440 EPU (S cts) 11.4 11.8 12.0 12.3 EPU Gth (%) 1 4 1 3 DPU (S cts) 11.2 11.4 11.7 11.8 DPU Gth (%) 0 2 3 0 NAV per shr (S cts) 195 196 196 196 PE (X) 18.9 18.2 18.1 17.6 Distribution Yield (%) 5.2 5.3 5.4 5.4 P/NAV (x) 1.1 1.1 1.1 1.1 Aggregate Leverage (%) 31.2 30.2 31.1 31.0 ROAE (%) 5.9 6.1 6.1 6.3 Distn. Inc Chng (%): - 1 1 Consensus DPU (S cts): 11.0 11.3 12.1 Other Broker Recs: B: 15 S: 1 H: 7


A safe harbour

BUY with TP of S$2.30. CapitaLand Mall Trust (CMT) remains a

safe harbour for investors, supported by a resilient and

attractive yield of c.5.5%. With signs that the retail sector is

bottoming out, we believe that investors’ concerns on the

potential earnings downside risk will dissipate. BUY call

maintained, TP is raised to S$2.30 as we roll forward valuations.

Where we differ: We remain positive despite a divided street.

While the street remains divided on the stock given the

uncertainties over the impact of the surge in new retail supply

over 2018-2019, we believe the new supply may not be as

threatening to CMT. According to our analysis, only less than

50% of the incoming new supply is relevant competition to

CMT’s properties. With new malls seeing strong pre-

commitments ahead of completion, we believe that risks to

CMT’s earnings has also minimised.

Potential catalyst: Better-than-expected reversions or

acquisitions. Expectations for CMT are low, with most investors

not anticipating any rental reversion growth, in our view. The

recent uptick in retail sales, if sustained, could mean that

downside to rental reversions is likely to be minimal and result

in a share price re-rating. The utilisation of its balance sheet to

fund acquisitions (e.g. sponsor's 70% stake in West Gate) might

present an upside surprise to our estimates. Valuation:

Maintain TP at S$2.30 as we roll forward valuations. The stock

offers an FY18F DPU yield of 5.5% and total potential return in

excess of 10%.


More aggressive rate hikes than consensus expectations may

cause ripples in the market. Being a proxy for interest-rate

investment, CMT may then suffer from selling pressures. At A Glance Issued Capital (m shrs) 3,549

Mkt. Cap (S$m/US$m) 7,665 / 5,624


CapitaLand Ltd 28.2

BlackRock Inc 7.1

National trades Union Congress 5.0

Free Float (%) 59.7




23 Jul 2018


CapitaLand Mall Trust Version 10 | Bloomberg: CT SP | Reuters: CMLT.SI Refer to important disclosures at the end of this report

84

104

124

144

164

184

204

1.7

1.8

1.9

2.0

2.1

2.2

2.3

2.4

2.5


Relative IndexS$

CapitaLand Mall Trust (LHS) Relative STI (RHS)

Page 52

Company Guide

CapitaLand Mall Trust

WHAT’S NEW

A Safe Habour

CapitaLand Mall Trust's 2Q18 results in line

• CMT reported an improved set of operating results, which

we believe will be well received by investors. 2Q18 DPU

came in at 2.81 Scts (a 2.2% improvement y-o-y and 1.0%

q-o-q). On 1H18 basis, DPU came in at 2.0% y-o-y to 5.59

Scts, forming 50% of our forecasts.

• The better 1H18 distributions were driven by an organic

improvement with a c.1.7% and c.3.7% rise in gross

revenues and net property income to S$346.5m and

S$246.4m respectively.

(+) Gearing inches down

• Portfolio valuations firmed up slightly on the back of a 10-

15bps compression in cap rates (ranging from 4.7-5.2% as

of 1H18), largely driven by valuers’ assessment of market

values achieved in the retail space.

• Therefore, NAV increased slightly to S$1.99/unit, while

gearing dipped to 31.5%.

(+) Operations are bottoming out; tweaking estimates higher.

• Strong rental income from its major malls (Plaza Singapura,

Bedok Mall, Bugis Junction and Tampines Mall) which more

than offset lower revenues at Jcube and Bukit Panjang

Plaza and the income vacuum from the sale of Sembawang

Shopping Centre in June 2018.

• 1H18 portfolio rental reversions came in at +0.8% (1Q18

+0.8%); which we see as an emerging sign of dissipating

risk of further pressures in the retail scene.

• While rental reversions at selected assets remained

negative, we understand that it was largely due to the

ongoing tenant remixing strategies. We however note a q-

o-q improvement at Westgate (-2.1% in 1H18, -3.3% in

1Q18).

• Portfolio retention rate remained steady at 83.8% (82.9%

in 1Q18) while occupancy rates remain at a sustained high

level at close to 100%.

• Selected assets saw a slight dip in occupancy rates (Clarke

Quay saw an 8-ppt q-o-q drop in occupancy rates to

90.4% but is likely to be transitionary in nature.

• Proceeds from the sale of Sembawang Shopping Centre in

June 2018 will be used to pay down debt, thus resulting in

net savings for the REIT. Our estimates are thus raised

slightly to account for (i) interest savings, and (ii) slightly

improved operational numbers for a number of retail assets

across the portfolio.

(+) AEI at Westgate to improve traffic flow; a potential low-

hanging opportunity for acquisition.

• The manager plans to start AEI at Westgate and hopes to

improve shopper accessibility to the mall; it is more

defensive in nature and aims to redirect traffic flow across

the mall. Capex spent is expected to be minimal at

<S$10m.

• The manager is continuing to re-look at its current tenant

mix to improve the trading performance.

• With property seeing increasing stability in operations, we

believe that the manager might look to acquire the

remaining 70% from the sponsor (valued at c.S$675m) in

the medium term.

• With gearing reaching at a low of 31.5% post the sale of

Sembawang Shopping Centre and portfolio revaluations,

the REIT has ample headroom to acquire the property.

Page 53

Company Guide




Gross revenue 169 175 171 1.6 (2.2)

Property expenses (51.1) (49.5) (50.6) (1.0) 2.1

Net Property Income 118 126 121 2.8 (3.9)


Other Non Opg (Exp)/Inc 0.0 0.0 0.0 - -

Net Interest (Exp)/Inc (23.8) (22.3) (21.8) 8.4 2.4

Exceptional Gain/(Loss) 0.07 0.36 120 N/A N/A

Net Income 95.0 110 240 153.1 117.6

Tax 0.0 0.0 0.0 - -

Minority Interest 0.0 0.0 0.0 - -

Net Income after Tax 95.0 110 240 153.1 117.6

Total Return 303 110 296 (2.2) 167.9


Net Inc available for Dist. 99.8 109 105 4.8 (4.1)

Ratio (%)




Page 54

Company Guide



Critical Factors

A bellwether for REITs. CMT, being the first and longest-

running REIT in Singapore which has gone through different

growth phases at a market cap of close to S$7.0bn and an asset

base of over S$10bn, remains a bellwether for the REIT industry.

While CMT had seen better growth days back in 2003-2009

and saw increased challenges disrupting the retail sector over

the past few years, we believe that the worst could be over,

given the REIT’s improving rental reversionary prospects in

recent times. Most importantly, we believe that given the REIT’s

track record and having positioned its exposure towards more

non-discretionary spending, we remain confident on the REIT’s

ability to continue paying steady distributions across market

cycles.

Supply risk dissipating, rental reversions a key driver for further

outperformance. While supply in retail remains high in 2018-

2019, we note that pre-commitment rates are for upcomings

have been strong (Paya Lebar Quarters Mall pre-leasing c.40%

of its retail mall) with strong anchors. Apart from Paya Lebar

Quarters Mall, we believe most of the other major retail assets

coming on stream do not pose a direct competition to the

catchment areas of CMT’s malls. We expect consensus to

gradually converge to our view over time.

As such, with supply risk dissipating and ongoing tenant

remixing, we believe that CMTs’ mall will continue to achieve

stable rental reversions with the possibility of seeing a sustained

improvement from 2019 onwards.

Re-introducing inorganic growth; Westgate stake from sponsor

could be an opportunity. In the medium term, we believe CMT

will look to re-introduce growth engines to stimulate its

portfolio earnings growth in order to drive share price

performance. The redevelopment of Funan is such an initiative

and is projected to start contributing from FY20 onwards.

Supported by a low gearing of <35%, the manager continues

to look for inorganic opportunities across the region.

We believe that a low-hanging opportunity for the REIT is the

70% stake in Westgate mall from the Sponsor, which appears

to show signs of stabilisation after the second renewal cycle.

The 70% stake in the mall is estimated to cost c.S$700m and

the REIT has ample capacity to acquire.




Interest Cover (x)


Page 55

Company Guide



Share price and rental reversions


Share price and Yield spread


0

0.5

1

1.5

2

2.5

3

3.5

4

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

(%) S$/shareRental Reversion vs Share Price

Share Price (S$) (RHS) Yield Spread (%) (LHS)

Share price weakness due to the fall in reversions due to 2008-2009 crisis.

Strong organic growth driving re-rating in share

Share price traded in a tight range largely due to expectations of weakening rents and oversupply

Should pick up afterexpected recovery in the retail market

Page 56

Company Guide


Balance Sheet:

Gearing to remain stable. Post the sale of Sembawang

Shopping Centre, CMT’s gearing ratio is forecast to remain

fairly stable at <35% over FY18-19F. This is after assuming

100% debt financing for the redevelopment of Funan. Gearing

level is within management's comfortable level of between

35% and 40%.

Cost of debt to remain stable. The average debt cost is 3.2%,

which should remain stable in the immediate term. With

interest rates on the rise, we have priced in a 20-bp increase in

average interest cost once hedges are rolled over in the coming

two years.


Acquisitions to drive earnings. CMT has the right of first refusal

to acquire its Sponsor’s retail assets in Singapore. CapitaLand

has several retail assets in its portfolio which could be injected

into the REIT, including Star Vista and the remaining 70% stake

in Westgate. With operational performance stabilising,

Westgate might be an attractive acquisition target for CMT.

Better-than-expected operational results. We believe that CMT’s

portfolio will remain resilient despite headwinds. The trust's

ability to maintain a steady growth in top line while holding

occupancies will be a strong testament to the manager's

capability to stand out among its peers.

Key Risks:

Downside risk to rental reversions. A worse-than-expected

slowdown in consumer sentiment and consumption outlook

may result in lower reversionary potential (vs our 1.5%

estimate) for leases expiring in FY18/19. Funan’s

redevelopment could be a catalyst in the medium term as the

mall comes to completion towards the end of FY19.

Upside from interest savings. Further upside risk is from

interest savings. The trust has been proactive in extending its

debt profile, locking in long-tenure MTNs at lower rates than

previously achieved. Further interest savings from refinancing

associate debt would offer upside to our estimates.

Company Background

CapitaLand Mall Trust (CMT) is a real estate investment trust

which owns and invests in retail properties in the suburban

areas and downtown core of Singapore.


ROE (%)


PB Band (x)


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2016A 2017A 2018F 2019F 2020F

Avg: 1.08x

+1sd: 1.13x

+2sd: 1.19x

-1sd: 1.02x

-2sd: 0.97x

0.8

0.9

1.0

1.1

1.2

1.3

1.4

Jul-14 Jul-15 Jul-16 Jul-17

(x)

Page 57

Company Guide



FY Dec 2016A 2017A 2018F 2019F 2020F

Gross revenue 690 682 682 691 741






Exceptional Gain/(Loss) (0.6) (0.6) 0.0 0.0 0.0

Net Income 402 405 420 425 436

Tax (1.0) (0.2) 0.0 0.0 0.0




Total Return 469 658 420 425 436



Growth & Ratio

Revenue Gth (%) 3.1 (1.1) (0.1) 1.3 7.3

N Property Inc Gth (%) 2.9 (0.3) (1.1) 1.0 7.5

Net Inc Gth (%) (15.2) 1.0 3.8 1.0 2.6




Dist to revenue (%) 61.5 60.5 62.2 62.1 59.3


7.1 7.2 7.5 7.5 7.2

ROAE (%) 6.0 5.9 6.1 6.1 6.3

ROA (%) 3.9 3.9 4.0 4.0 4.1

ROCE (%) 4.2 4.2 4.1 4.1 4.4

Int. Cover (x) 4.5 4.6 5.7 5.7 4.6


Driven by the full-year contribution of Funan

Page 58

Company Guide



FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018

Gross revenue 169 169 172 175 171






Exceptional Gain/(Loss) 0.07 0.03 (0.5) 0.36 120

Net Income 95.0 104 102 110 240

Tax 0.0 0.0 (0.2) 0.0 0.0


Net Income after Tax 95.0 104 102 110 240

Total Return 303 104 127 110 296

Non-tax deductible Items 2.41 (2.8) (5.7) 1.96 3.00

Net Inc available for Dist. 99.8 105 100 109 105

Growth & Ratio

Revenue Gth (%) (2) 0 2 2 (2)

N Property Inc Gth (%) (2) 3 (2) 5 (4)

Net Inc Gth (%) (8) 10 (3) 9 118



Balance Sheet (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F


Other LT Assets 1,301 1,149 1,149 1,149 1,149

Cash & ST Invts 483 523 662 676 714

Inventory 0.0 0.0 0.0 0.0 0.0

Debtors 33.7 32.4 32.2 32.6 35.0


Total Assets 10,327 10,504 10,551 10,704 10,754

ST Debt 250 535 287 287 287

Creditor 160 156 276 279 300


LT Debt 3,038 2,648 2,804 2,942 2,952

Other LT Liabilities 130 180 180 180 180




Non-Cash Wkg. Capital (183) (152) (272) (275) (293)

Net Cash/(Debt) (2,805) (2,660) (2,429) (2,553) (2,525)

Ratio

Current Ratio (x) 1.1 0.8 1.2 1.2 1.2

Quick Ratio (x) 1.1 0.7 1.1 1.1 1.2


Z-Score (X) 5.6 5.6 5.4 5.3 5.3


Gearing remains low

Page 59

Company Guide



FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Income 402 405 420 425 436

Dep. & Amort. 1.11 0.70 0.0 0.0 0.0

Tax Paid (3.6) 0.0 0.0 0.0 0.0

Associates &JV Inc/(Loss) (66.9) (70.4) (72.9) (73.9) (75.4)

Chg in Wkg.Cap. 1.01 (2.3) 120 3.18 18.1


Net Operating CF 334 333 467 354 378

Net Invt in Properties (76.0) (99.0) 91.9 (138) (10.0)

Other Invts (net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 98.5 0.0 0.0 0.0



Net Investing CF 27.3 89.2 165 (63.9) 65.4


Chg in Gross Debt (85.6) 21.6 (91.9) 138 10.0

New units issued 3.88 6.50 1.86 1.87 1.88

Other Financing CF (105) (111) 0.0 0.0 0.0

Net Financing CF (581) (478) (493) (276) (406)


Chg in Cash (220) (55.3) 139 14.0 38.0


Free CFPS (S cts) 7.27 6.61 15.8 6.09 10.4



Source: DBS Bank

Analyst: Derek TAN

Carmen Tay

Mervin SONG, CFA

S.No.Date of

Report

Closing

Price

12-mth

Target

Price

Rat ing

1: 24 Jul 17 2.05 2.17 BUY

2: 04 Aug 17 2.02 2.19 BUY

3: 16 Aug 17 2.11 2.19 BUY

4: 23 Oct 17 2.06 2.19 BUY

5: 25 Jan 18 2.10 2.19 BUY

6: 19 Apr 18 2.12 2.19 BUY

7: 23 Apr 18 2.10 2.19 BUY

8: 05 Jul 18 2.05 2.19 BUY


1

2

3 45

6

7 8

1.85

1.90

1.95

2.00

2.05

2.10

2.15

2.20

2.25

Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18

S$

Page 60

Company Guide
















































Page 61

Company Guide




in market-making.














DBS Group.



position in CapitaLand Mall Trust recommended in this report as of 29 Jun 2018.




for investment banking services from CapitaLand Mall Trust as of 29 Jun 2018.


securities for CapitaLand Mall Trust in the past 12 months, as of 29 Jun 2018.












Page 62

ed: JS / sa:YM, CW, CS

BUYLast Traded Price ( 30 Jul 2018): S$1.57 (STI : 3,307.15)

Price Target 12-mth: S$1.70 (8% upside) (Prev S$1.80)

Analyst Derek TAN +65 6682 3716 [email protected] Mervin SONG, CFA +65 6682 3715 [email protected] Carmen Tay +65 6682 3719 [email protected]

What’s New • 2Q18 DPU of 2.64 Scts in line with expectations

• Positive organic growth momentum; tenant remix

strategy to bear fruits

• Headroom to acquire offers upside

Price Relative


Gross Revenue 229 228 243 256 Net Property Inc 149 146 159 169 Total Return 145 92.4 99.8 106 Distribution Inc 91.1 105 107 113 EPU (S cts) 11.2 9.47 10.0 10.4 EPU Gth (%) 47 (16) 6 4 DPU (S cts) 10.1 10.7 10.8 11.1 DPU Gth (%) 1 6 1 3 NAV per shr (S cts) 160 157 156 155 PE (X) 14.0 16.6 15.7 15.1 Distribution Yield (%) 6.4 6.8 6.9 7.1 P/NAV (x) 1.0 1.0 1.0 1.0 Aggregate Leverage (%) 28.0 33.7 34.9 35.0 ROAE (%) 6.9 6.0 6.4 6.7

Distn. Inc Chng (%): (1) (1) 0 Consensus DPU (S cts): 10.3 10.7 11.0 Other Broker Recs: B: 6 S: 1 H: 0


Time to shine

Time to shine. After the divestment of CapitaMall Anzhen,

CapitaLand Retail China Trust (CRCT) has acquired a much

younger asset, Rock Square, in the first-tier city of Guangzhou.

Although the initial yield is lower in comparison, we believe the

asset has greater growth potential and is also an indication of

CRCT embarking on a growth path. In addition, with a

recapitalised balance sheet, we believe that the time is ripe for

CRCT to take on a more aggressive acquisition-led growth

strategy.

Where we differ: Our TP is among the higher end of consensus

estimates as we believe new acquisitions have higher growth

potential. With a visible pipeline from the Sponsor, we believe

that it is an opportune time for CRCT to look at acquisitions.

We have priced in an acquisition of S$100m (vs S$250m

previously) to kick 2019 with 4.5% initial yield. We have also

tweaked our estimates to account for the closure of CapitaMall

Wuhu. As such, we revised our TP to S$1.70.

Potential catalysts: more acquisitions in the near term. CRCT’s

gearing is around 32% after the Rock Square acquisition. This

translates into a debt headroom of over S$550m, which

provides flexibility for further acquisitions. We have booked in

an additional S$100m acquisition in FY18. We believe

management’s move to divest Anzhen and acquire Rock Square

signals its shift in focus from stability from master leases to

growth generated from more actively managed assets. More of

such acquisitions would confirm such a move.

Valuation:

We cut DCF-based TP from S$1.80 to S$1.70. DPUs in the next

few years should grow steadily given the flexibility of

distribution of disposal gains from Anzhen. Maintain BUY.


A significant depreciation of the RMB versus SGD, and a

downturn in Chinese consumption.

At A Glance Issued Capital (m shrs) 970

Mkt. Cap (S$m/US$m) 1,523 / 1,119


CapitaLand Limited 24.1

CapitaMall Trust 12.7

Matthews Int’l Capital Management 5.6

Free Float (%) 57.6



DBS Group Research . Equity 31 Jul 2018


CapitaLand Retail China Trust Version 14 | Bloomberg: CRCT SP | Reuters: CRCT.SI Refer to important disclosures at the end of this report

Page 63

Company Guide

CapitaLand Retail China Trust

WHAT’S NEW

Time to shine

(+) 2Q18 DPU of 2.64 Scts (+0.8% y-o-y). While gross revenue and NPI fell on a y-o-y basis following the divestment of Anzhen in July 2017, it remained supported at the distribution level as contributions from Rock Square (acquired on 31 Jan 2018) kicked in. Distributable income grew 10% y-o-y to S$25.7m in 2Q18 from S$23.3m in 2Q17.

Post the private placement in Dec 2017, CRCT’s 2Q18 DPU on the enlarged share base was 0.8% y-o-y higher at 2.64 Scts. Barring one-off effects such as the receipt of government subsidies for Grand Canyon in 2Q17, CRCT’s 2Q18 DPU growth would have been more pronounced. Overall, 1H18 DPU of 5.39 Scts formed 50.4% of our FY18F estimates and was in line.

(+) Strong portfolio occupancy; broad-based positive reversions. Excluding CapitaMall Wuhu, which is set to close following the exit of its anchor tenant, portfolio occupancy remained firm at 97.4%. The Manager shared that plans to exit this market is currently in the final stages. A further update to investors is expected in 3Q

– we think a divestment of the asset is plausible over the longerterm.

After a strong showing in 1Q18, reversion trends continued to track expectations in 2Q18. Led by Rock Square (+24.3%) and Wangjing (+14.1%), portfolio rental reversion of +10.5% was broad based, with the exception of Minzhongleyuan (-1.8%) due to ongoing initiatives to differentiate the mall’s offerings. Anchored by Rock Square, Xizhimen and Wangjing, we expect reversions in 2H18 to be sustained near current levels.

(+) Substantial debt headroom on gearing of 32.1% provides CRCT with the financial flexibility to take on further AEIs and acquisition opportunities as they arise.

As sponsor CapitaLand ramps up on its capital recycling strategy, this presents CRCT with a firm pipeline of mature assets which are ripe for acquisition over the near term.



Gross revenue 59.0 55.4 56.3 (4.6) 1.6

Property expenses (19.0) (18.2) (18.6) (2.0) 2.6

Net Property Income 40.0 37.2 37.6 (5.9) 1.2


Other Non Opg (Exp)/Inc 0.0 0.82 (0.1) nm nm

Net Interest (Exp)/Inc (5.4) (4.7) (4.9) 9.6 (3.7)


Net Income 31.3 29.7 32.0 2.2 7.9

Tax (14.0) (10.2) (15.5) 10.5 52.2

Minority Interest 0.98 0.00 0.44 (55.6) nm


Total Return 31.3 19.5 40.6 29.6 108.1

Non-tax deductible Items (8.0) 4.18 (16.5) 105.6 nm

Net Inc available for Dist. 23.3 26.7 25.7 10.0 (3.9)

Ratio (%)




Page 64

Company Guide



Critical Factors

Beijing retail market a key driver to revenues. Given its

operations in China, CRCT’s share price is sensitive to changes

in property-related policies in China. These policies differ from

city to city – close attention should be paid to Beijing as c.75%

of the portfolio’s NPI is derived from properties in Beijing. For

example, during 2H2016, the sell-off in CRCT was caused by

the change in property tax in Beijing but the stock recovered

thereafter as operating metrics continue to improve post the tax

changes.

Well located assets (Wangjing, Xizhimen, Rock Square and

Xinnan) that are dominant malls in their respective submarkets

enabled CRCT to achieve positive rental reversions of more than

10% over time. With steady tenant sales and a regular tenant

remixing strategy to constantly refresh its tenant mix, the

manager has been able to maintain reversions at a high of at

c.11 % in1H18, implying that CRCT organic growth profile will

likely continue to remain steady overtime.

China retail sales could point to potential upside risk to rental

reversions. We note that the REIT has shown a close correlation

coefficient of 0.69 (Chart 2) with China retail sales, in view that

rental growth prospects are supported somewhat by retailers

achieving healthy retail sales momentum. While near term forex

fluctuations (CRCT pays distributions in SGD while reports in

RMB) overshadow the consistently steady China’s retail data in

recent times, we believe that once the currency stabilises,

investors will focus back on China retail sales as a proxy to the

potential forward performance for CRCT.

Visible pipeline and a lowly geared balance sheet infuses the

REIT with ample firepower to acquire. CRCT benefits from a

visible acquisition pipeline from Sponsor, CapitaMalls Asia, one

of Asia’s largest mall operator, manager and owner of shopping

malls. While the availability of the pipeline from the Sponsor

offers significant inorganic growth potential for the REIT, the

ability to acquire from the Sponsor has been limited, given the

tight cap rates that the market is transacting compared to the

high implied yields that CRCT trades at.

That said, CRCT has been able to source deals from external

parties, expanding the group’s real estate exposure in China,

driving inorganic growth to distributions while keeping its

gearing low at < 32% to maintain its flexibility to acquire

opportunistically. The high take-up rates in the REIT’s dividend

reinvestment program also infuses the REIT with much needed

equity to part-fund any future growth opportunities. We have

priced in a S$100m (c. RMB 500m) acquisition in our forecasts

@ 4.5% yield, partly funded by debt and cash on the balance

sheet from the recent sale of Anzhen.




Interest Cover (x)


Page 65

Company Guide


;


Share price history


30

50

70

90

110

130

150

170

190

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

Index

(Rebase

d t

o e

nd

-2016)

x

CRCT P/NAV (LHS) S-REIT Index (Rebased, RHS) Shanghai Composite (Rebased, RHS)

1. Eurozone crisis: - CRCT P/NAV fell from 1.06x to 0.87x and bounced back to 1.26x

- Both S-REIT Index and Shanghai Composite sold off and the latter corrected more- Retreat of CRCT was closer to

China, but recovery closer to S-REITs

2. Taper tantrum- CRCT P/NAV fell from 1.06x to 0.81x and

bounced back to 1.05x- Taper tantrum did not have much impact on the Chinese market

3. China slowdown- CRCT P/NAV fell from 0.98x to 0.77x

- Sharp plunge in Shanghai Composite and moderate correction in S-REITs Index due to indirect impact- Degree of sell-off for CRCT was in

between the two indices

4. Weaker RMB, unfavourable change in Beijing tax regime

- CRCT P/NAV fell from 0.99x to 0.83x- The tax event was specific to CRCT hence it

did not impact the two indices

Sell-off

(Shanghai Composite)

Recovery

(S-REIT Index)

Both indices

sold off, recovered at

different pace

Page 66

Company Guide


Balance Sheet:

Aggregate leverage is at a comfortable level. Aggregate

leverage after drawing on debt funding for Rock Square will be

around 32% - a very comfortable level below MAS' 45%

gearing limit. This provides CRCT with debt headroom of over

S$550m for acquisitions.


Acquisitions. With adequate debt headroom and signal of a

shift in focus to more actively managed assets – from the

divestment of CapitaLand Anzhen to the acquisition of Rock

Square – we believe more acquisitions are on the Manager’s

radar in the near term.

Positive rental revisions. Despite the concerns over China’s

economic outlook weighing on CRCT, we believe delivery of

positive rental reversions and DPU growth should allay such

concerns. Furthermore, high positive rental reversions from Rock

Square should reassure the market of CRCT’s strategy in

investing in growth-oriented assets.

Key Risks:

Currency risk. As 100% of CRCT's income is derived in RMB

and it does not hedge its income, depreciation of the RMB

against the SGD would result in a lower DPU to unitholders.

Threat from e-commerce. This threat is partially mitigated by

the fact that c.48% of CRCT’s Gross Rental Income (GRI) is

sourced from tenants who are more resilient to competition

from e-commerce, i.e. F&B (28% of GRI), supermarkets (5%),

leisure & entertainment (3%), education (4%), and beauty &

healthcare (8%).

New mall supply in Beijing and Shanghai. This risk is partially

mitigated by the fact that c.80% of the new supply in Beijing is

located outside core retail areas where CRCT’s malls are

situated. CapitaMall Qibao in Shanghai remains on the watch-

out as it combats competition from nearby new supplies.

Company Background

CapitaLand Retail China Trust (CRCT) is a real estate

investment trust which invests in income-producing retail

properties located mainly in China, Hong Kong, and Macau.


ROE (%)


PB Band (x)


Page 67

Company Guide



FY Dec 2016A 2017A 2018F 2019F 2020F

Gross revenue 214 229 228 243 256




Other Non Opg (Exp)/Inc (2.0) (0.1) 0.0 0.0 0.0



Net Income 104 166 118 127 135

Tax (41.6) (64.2) (24.7) (26.3) (28.6)

Minority Interest 2.61 1.65 (0.5) (0.6) (0.6)


Net Income After Tax 65.5 103 92.4 99.8 106

Total Return 107 145 92.4 99.8 106

Non-tax deductible Items (19.9) (57.3) 6.85 7.34 7.75

Net Inc available for Dist. 86.7 91.1 105 107 113

Growth & Ratio

Revenue Gth (%) (2.8) 7.0 (0.4) 6.7 5.1

N Property Inc Gth (%) (1.0) 6.8 (2.1) 8.5 6.4

Net Inc Gth (%) (5.4) 57.7 (10.5) 8.0 5.8




Dist to revenue (%) 40.5 39.8 46.1 44.0 44.3


6.5 6.3 6.2 6.2 6.0

ROAE (%) 4.5 6.9 6.0 6.4 6.7

ROA (%) 2.4 3.8 3.3 3.4 3.5

ROCE (%) 3.5 3.7 4.5 4.5 4.7

Int. Cover (x) 6.5 6.4 6.8 6.0 5.9 Source: Company, DBS Bank

Driven by acquisitions

Page 68

Company Guide



FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018

Gross revenue 59.0 56.0 54.1 55.4 56.3




Other Non Opg (Exp)/Inc 0.0 1.24 (1.4) 0.82 (0.1)



Net Income 31.3 81.1 23.1 29.7 32.0

Tax (14.0) (24.9) (15.9) (10.2) (15.5)



Total Return 31.3 56.2 36.1 19.5 40.6

Non-tax deductible Items (8.0) (34.8) (17.8) 4.18 (16.5)


Growth & Ratio

Revenue Gth (%) (2) (5) (3) 2 2

N Property Inc Gth (%) (1) (10) (8) 13 1

Net Inc Gth (%) (13) 207 (86) 153 (13)



Balance Sheet (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F


Other LT Assets 4.03 2.99 365 372 379

Cash & ST Invts 136 187 85.8 66.2 95.7

Inventory 0.0 0.0 0.0 0.0 0.0

Debtors 12.8 37.1 12.7 13.6 14.3


Total Assets 2,783 2,668 2,886 2,982 3,027

ST Debt 0.0 0.0 0.0 0.0 0.0

Creditor 64.5 59.6 57.4 61.2 64.4

Other Current Liab 241 242 242 242 242

LT Debt 978 748 973 1,040 1,058

Other LT Liabilities 48.8 50.8 50.8 50.8 50.8




Non-Cash Wkg. Capital (290) (264) (286) (289) (292)

Net Cash/(Debt) (842) (561) (887) (974) (962)

Ratio

Current Ratio (x) 0.5 0.7 0.3 0.3 0.4

Quick Ratio (x) 0.5 0.7 0.3 0.3 0.4


Z-Score (X) 0.9 1.2 0.9 0.9 0.9


Gearing remains comfortable

Page 69

Company Guide



FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Income 104 166 118 127 135

Dep. & Amort. 2.40 1.73 1.73 1.73 1.73

Tax Paid (41.6) (64.2) (24.7) (26.3) (28.6)

Associates &JV Inc/(Loss) 0.0 0.0 (5.1) (7.1) (7.6)

Chg in Wkg.Cap. 12.7 (17.5) 22.2 2.97 2.43


Net Operating CF 120 116 117 104 109

Net Invt in Properties (313) 199 (6.8) (107) (7.7)

Other Invts (net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 (25.5) (331) 0.0 0.0



Net Investing CF (313) 175 (338) (107) (7.7)

Distribution Paid (52.5) (82.6) (105) (107) (113)

Chg in Gross Debt 277 (228) 226 67.3 17.7

New units issued 0.0 102 0.0 24.0 24.0

Other Financing CF (13.5) (30.4) 0.0 0.0 0.0

Net Financing CF 211 (239) 120 (15.8) (71.7)

Currency Adjustments (8.1) (2.1) 0.0 0.0 0.0

Chg in Cash 9.78 50.4 (101) (19.6) 29.5


Free CFPS (S cts) (22.5) 34.4 11.3 (0.4) 9.98



Source: DBS Bank

Analyst: Derek TAN

Mervin SONG, CFA

Carmen Tay

Page 70

Company Guide
















































Page 71

Company Guide




in market-making.














DBS Group.



position in CapitaLand Retail China Trust recommended in this report as of 29 Jun 2018.



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

for investment banking services from CapitaLand Retail China Trust as of 29 Jun 2018.

4. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek

compensation for investment banking services from CapitaLand Retail China Trust as of 29 Jun 2018.


securities for CapitaLand Retail China Trust in the past 12 months, as of 29 Jun 2018.












Page 72

Industry Focus


Page 9








Completed Date: 30 Aug 2018 08:39:57 (SGT) Dissemination Date: 30 Aug 2018 08:42:08 (SGT)




































Page 73

Industry Focus


Page 10






in market-making.














DBS Group.



position in Ascott Residence Trust, CapitaLand, CapitaLand Mall Trust, CapitaLand Retail China Trust, CapitaLand Commercial Trust

recommended in this report as of 31 Jul 2018.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. 3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share

capital in Ascott Residence Trust, CapitaLand Retail China Trust, CapitaLand Commercial Trust recommended in this report as of 31 Jul 2018. 4. DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA or their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common

equity securities of Ascott Residence Trust, CapitaLand Commercial Trust as of 31 Jul 2018.


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

investment banking services from CapitaLand, CapitaLand Mall Trust, CapitaLand Retail China Trust, CapitaLand Commercial Trust as of of 31

Jul 2018.


securities for CapitaLand, CapitaLand Mall Trust, CapitaLand Retail China Trust, CapitaLand Commercial Trust in the past 12 months, as of of

31 Jul 2018.





1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of

which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.


Page 74

Industry Focus


Page 11

Directorship/trustee interests:

8. Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Non-Exec Director of CapitaLand as of 30 Jun 2018.






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Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946.

DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. DBSVS is regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

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This report has been prepared by an entity(ies) which is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

For any query regarding the materials herein, please contact Carol Wu (Reg No. AH8283) at [email protected]

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

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

Wong Ming Tek, Executive Director, ADBSR

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

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United Kingdom

This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai International Financial Centre

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

United Arab Emirates

This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

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

Other jurisdictions

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

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DBS Regional Research Offices

HONG KONG DBS Bank (Hong Kong) Ltd Contact: Carol Wu 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] of the Stock Exchange of Hong Kong

MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: 603 2604 3333 Fax: 603 2604 3921 e-mail: [email protected]

SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] Regn. No. 196800306E

INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected]

THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 857 7831 Fax: 66 2 658 1269 e-mail: [email protected] Regn. No 0105539127012Securities and Exchange Commission, Thailand

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Documents

Singapore Industry Focus CapitaLand Limited & REITs • Management of CapitaLand and its managed REITs spent a fruitful day in Bangkok meeting investors • Business conditions remain