Singapore Industry Focus Singapore Retail REITs

ed: TH / sa: AS, PY, CS

STI : 2,832.54

Analyst

Singapore Research Team Derek TAN +65 6682 3716

[email protected] [email protected]

Rachel TAN +65 6682 3713

[email protected]

DBS Group Research . Equity 11 Mar 2020

Singapore Industry Focus

Singapore Retail REITs Refer to important disclosures at the end of this report

Retail Sector – Riding out the storm with tenants

• Tenant support measures offered by landlords during COVID-19

outbreak may soften near-term earnings outlook but will result in

stickier tenant-landlord relationships in the future

• Portfolio occupancies across REITs have improved since 2018 and

projected to stay sticky given active management

• Rental reversionary trends to soften in 1H20; but past acquisition

activities should maintain uptrend in distributions in 2020. Acquisitions

to feature strongly this year.

• Prefer suburban landlords (CMT/ FCT) while expecting rebound in sales

at VivoCity (MCT) may drive operational performance.

• Estimated worst case scenario of c.-3 to -5% impact in distributions

(up to c.-7.5% for China focused REITs) unlikely to materialise if

impact of Covid-19 outbreak is not prolonged.

STOCKS

12-mth Price Mkt Cap Target

Price

Performance

(%)

S$ US$m S$ 3 mth 12

mth Rating

CapitaLand Mall Trust 2.37 6,314 2.95 (5.2) 0.8 BUY

CapitaLand Retail China

Trust 1.40 1,223 1.75 (13.8) (9.1) BUY

Frasers Centrepoint Trust 2.90 2,341 3.35 5.1 28.1 BUY

LendLease Global

Commercial REIT 0.80 675 1.05 (14.0) N.A BUY

Mapletree Commercial Trust 2.26 5,397 2.60 (5.6) 23.3 BUY

Mapletree North Asia

Commercial Trust 1.12 2,584 1.35 (8.6) (18.5) BUY

Sasseur REIT 0.73 627 0.93 (18.0) 0.7 BUY

Starhill Global REIT 0.64 1,002 0.80 (14.5) (11.4) BUY

Source: DBS Bank, Bloomberg Finance L.P.

Closing price as of 10 Mar 2020

Page 1

Industry Focus

Singapore REITs

Page 2

Contents

1. Retail REIT Sector Summary Page 3

2. Retail REIT Key Metrics Page 4

3. Key Charts – Observations from Results Page 13

4. Key Charts – Sector Snapshot Page 16

5. Retail Supply Pipeline Page 22

6. Company Guide Page 24

Page 2

Industry Focus

Singapore REITs

Page 3

Market Feedback

Key observations

Uptick in rents alongside healthy absorption in 4Q19. Rental

growth momentum was registered in 4Q19, as the property

rental index for the central area, central region and fringe grew

3.4%, 2.3% and 1.0% q-o-q respectively. High occupancies at

above c.95% were largely maintained across retail S-REITs as at

end-2019.

Low supply to provide stability in 2020. We still take comfort in

the low retail supply in 2020 which will help to balance out the

lower demand in times of the coronavirus. Future supply pipeline

will taper down drastically to an average of 43k sqm per year

from 2020F-2023F from a peak of 250k sqm in 2019, and

support the recovery of retail rents into the medium term. What are we concerned about?

Coronavirus outbreak a current headwind. Singapore Tourism

Board expects a 25-30% dip in tourist arrivals this year. China

represents one of Singapore’s key visitor source markets,

historically contributing c.20% of total visitors annually and also

the largest spenders, contributing the lion’s share (c.20%) of the

S$10.2bn tourism receipts (1H19). A majority (51%) goes into

shopping, followed by accommodation (17%), F&B (12%) and

others (36%), and the decline will likely take a toll on retail sales

in 1Q20.

Average lease expiries of 2.6 years to provide a buffer. Given the

lock-in period of 2.6 years (4Q19) for retail leases, we do not

foresee an immediate impact on our listed retail REITs. Retail

REITs with a higher exposure to suburban retail malls, grounded

by necessity spending, will stand to benefit in place of prime

retail malls that are more dependent on tourist spending.

F&B tenants potentially impacted more. A broad-based concern

may, however, be F&B tenants getting more impacted, similar to

the SARS period. The food and beverage index dipped close to

40% y-o-y in April 2003. F&B tenants normally make up a big

percentage of retail malls’ contribution by GRI, in the range of

40%, and an extended period of non-operations may hurt

tenants and landlords alike.

Page 3

Industry Focus

Singapore REITs

Page 4

Key Metrics

Source: Various companies, DBS Bank *Operating data for MCT, MNACT and LLGCR pertains solely to Vivocity, Festival Walk and 313@somerset respectively

Occupancy rates trending higher for most S-REITs Rental Reversions and outlook

Rental Reversions FY19 Outlook

CapitaLand Retail China

Trust ▲ 6.4% Mixed

CapitaLand Mall Trust ▲ 0.8% Mixed

Frasers Centrepoint Trust ▲ 4.8% Positive

Lendlease Global Comm ▲ 0.5% Positive

Mapletree Commercial ▲ 6.7% Positive

Mapletree North Asia

Commercial Trust ▲ 12% Bottoming out

SPH REIT ▲ 8.4% Mixed

Starhill Global REIT n.a. Mixed

Sasseur REIT n.a. Mixed

Average Gearing for the sector DPU trends (q-o-q) trends

96.7%

99.3%

97.3%

100% 100%

99.3%99.6%

96.0%

99.2%

94.0%

96.0%

98.0%

100.0%

CRCT CMT FCT MCT MNACT SPHREIT SGREIT SASSR LLGCR

4Q18 4Q19

37.1% 36.7% 36.3%34.9%

33.4% 33.2% 32.9%

27.8%26.8%

20%

22%

24%

26%

28%

30%

32%

34%

36%

38%

MNACT CRCT SGREIT LLGCR MCT FCT CMT SASSR SPHREIT0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

CRCT CMT FCT LLGCR MCT MNACT SPHREIT SGREIT SASSR

Mar-19 Jun-19

Sep-19 Dec-19

Page 4

Industry Focus

Singapore REITs

Page 5

COVID-19 update

Car traffic at malls appear to have returned. Since the Singapore

DORSCORN status was raised to Orange on 7 Feb 2020,

landlords have been proactively working with retailers in

providing assistance through various marketing campaigns

(including offering free parking at selected times in the

weekdays) to boost traffic and sales at the malls and providing

rebates in rentals on a selective basis to retailers.

We understand that traffic has somewhat returned to various

malls, based on car park availability that we have been tracking

for a selected list of malls at Harbourfront, Marina, Orchard and

in the suburban space over the past three weekends. While

visitorship had declined in the first two weeks of Feb 2020

(carpark vacancy rates spiked to 50-70%), we note that the

crowds had returned somewhat over the past weekend (29 Feb)

and if this continues to improve, it may indicate that the worst is

over for retailers and retail REITs.

Average car park vacancy rates for malls in selected regions across Singapore Remarks

Source: DBS Bank

• We tracked the weekend average

car park vacancy rates across

selected malls in Harbourfront,

Marina, Orchard and a selected list

of suburban malls over 6.30pm –

7.00pm.

• We chose this time period on the

assumption that it is the peak

dinner time when most mall car

parks will charge on a “per-entry”

basis.

71%

55%51%

24%

52%

74%

50%

22%

28%

39%

20% 22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Harbourfront Marina Orchard Suburban

15-Feb 21-Feb 29-Feb

Page 5

Industry Focus

Singapore REITs

Page 6

COVID-19 tenant relief measures by Singapore retail landlords

FPL MCT CapitaLand/

CMT

SPH REIT Starhill Jewel Changi

Airport

Date of announcement 26-Feb 24-Feb 13-Feb 27-Feb 28-Feb 13-Feb 20-Feb

Tenant Package - S$11m- S$10m - -

Rental Rebate Targeted and

case by case

Targeted and

case by case,

0.5 mth

Targeted and

case by case,

0.5 mth

N.a. China only,

rest case by

case

50% for 2

mths

50% for 6

mths

Passing property tax rebate Yes Yes Yes Yes Yes Yes Yes

Free Parking Weekdays

(lunch/dinner)

Weekdays

(lunch/dinner)

Daily

(lunch/dinner)

Yes Yes 3 hrs N.a.

Convert security deposit to

rental

N.a. N.a. One mth N.a. N.a. N.a. N.a.

Shorter operating hours Yes Yes Yes Yes Yes N.a. N.a.

Thoughts on impact Exposure is mitigated by portfolio of malls

located near captive population which is

more resilient with regular flow of foot traffic

Big name

brands likely

to be sticky

Mitigated by

master-

leases for

bulk of

income

Impact likely to be more

significant given Jewel and

Changi Airport’s reliance on

tourists

Source:: various companies, DBS Bank

Page 6

Industry Focus

Singapore REITs

Page 7

Sensitivity analysis projected on DPU with COVID-19 tenant relief measures

CMT FCT MCT SGREIT Lendlease MNACT CRCT Sasseur

FY20F Revenue (S$m) 806.5 201.4 562.6 211.6 87.7 443.2 284.9 120.9

FY20F Distributable Income(S$m) 447.2 143.0 331.4 97.5 61.4 253.2 120.3 73.8

% Retail Revenue 91% 100% 40.6% 26.1% 70.6% 53.9% 100% 100%

FY20F DPU (Scts) 12.1 12.8 10.0 4.5 5.2 7.6 9.9 6.1

FY20F DPU Impact Scenario Analysis

Scenario 1: Loss in GTO rental income -0.7% -0.7% -0.3% -0.2% -0.6% -0.5% -1.2% -0.8%

Scenario 2: Half month rental rebate

for all tenants and property tax

incentive (budget 2020)

-4.2% -3.7% -1.8% -1.4% -2.8% -2.5% -6.3% -4.4%

Scenario 1 and 2 -5.1% -4.4% -2.1% -1.7% -3.3% -3.0% -7.5% -5.2%

Source:: various companies, DBS Bank

DPU impact from tenant sales dip likely marginal. Given that

percentage of retai landlord’s rents that are tied to GTO is less

than 5%, impact of lower sales for a period of two months

within our estimates, is not likely to move the needle for our

FY20F DPU forecasts for the retail S-REITs. Dip in DPU is likely to

be contained in the range of 0.2-1.2%.

Worse case scenario unlikely to be met . Rental rebates given to

tenants is in the range of 0.5 months for the sector, a scenario

that could result in a bigger fall in DPU in the range of 1.7-7.5%

according to our estimates. Nonetheless, we note that it is likely

the case that rental rebates will only be given to a small fraction

of tenants.as shoppers return to shopping malls. Moreover,

many Singaporeans may defer traveling for this period, with local

malls having a good chance of capturing a slice of outbound

tourism spending by Singaporeans this year.

Page 7

Industry Focus

Singapore REITs

Page 8

Key Observations

Retail REITs Current

Price

12-mth

Target

Price

Rec. Key Observations & Drivers of DPU

CapitaLand

Retail China

Trust

$1.40 $1.75 BUY

- Revenue grew 10.1% y-o-y to RMB1,203m, while NPI grew 15.5% y-o-y to RMB835m due to

maiden contribution from the recent acquisition of three sponsor malls

- Several portfolio reconstitution catalysts to materialise in the short term, including the hohhot

bundle swap and further divestment of non-core, master-lease retail malls

- S$45m of capital reserve to buffer any income loss due to the current COVID-19 events

CapitaLand Mall

Trust $2.37 $2.95 BUY

- DPU of 11.97 Scts exceeded our full-year forecast of 11.74 Scts

- Proposed merger with CapitaLand Commercial Trust gives way to a more diversified portfolio and

a reduction in exposure to a pure-play retail sector which is seeing evident speed bumps from

online retail

- Deal is estimated to be 1.2% accretive to CMT unitholders

Frasers

Centrepoint

Trust

$2.90 $3.35 BUY

- Strong portfolio rental reversion of 5% for the past quarter

- Portfolio of suburban retail malls are well positioned near residential catchments and bench on

necessity spending, which are both defensive characteristics amid the current COVID-19 outbreak

- Further unwinding of sponsor’s stake in PGIM ARF and robust gearing of c.33% to lengthen

inorganic growth runway

Lendlease Global

Commercial REIT $0.80 S$1.05 BUY

- Anchor asset, 313@somerset’s resilient characteristics of a lifestyle mall along Orchard Road to

shield against coronavirus threat

- Additional 1,008 sqm of GFA to be potentially deployed at 313@somerset as plot ratio increases

- Acquisition in sponsor stakes in JEM or Parkway Parade will help LLGCR gain a stronger and more

diversified retail portfolio in Singapore

Mapletree

Commercial

Trust

$2.26 $2.60 BUY

- Best-in-class portfolio with dominant attributes within the Greater Southern Waterfront region

- Longer runway of growth driven by the acquisition of MBCII; a larger MCT would now have room

to take on development projects (Harbourfront Centre)

Page 8

Industry Focus

Singapore REITs

Page 9

Retail REITs Current

Price

12-mth

Target

Price

Rec. Key Observations & Drivers of DPU

Mapletree North

Asia Commercial

Trust

$1.12 $1.30 BUY

- Bottoming out of rental income as anchor asset, Festival Walk, reopens ahead of expectations

- Insurance coverage and distribution top-up to provide greater clarity on dividends in these few

quarters

- Proposed acquisition of two prime office assets in Japan to diversify earnings away from the retail

sector and geographical exposure towards Hong Kong

SPH REIT $1.01 $1.20 BUY

- Double-digit rental reversion across all Singapore retail malls

- SPH REIT’s second acquisition in Australia will see maiden contributions starting next quarter

- Mixed outlook for Paragon asset in the face of COVID-19; Paragon’s positioning as a luxury retail

mall along Orchard road relies on tourist spending

Starhill Global

REIT $0.635 $0.80 BUY

- Diversified earnings base supported by c.49% of revenues pegged to stable long-term leases with

periodic rent reviews

- 100k sqft of unutilised gross floor area between Wisma Atria and Takashimaya to be potentially

deployed in the medium term

- Future-proofing of Starhill Gallery (MY) to greatly enhance income visibility from Malaysia, with

master lease renewed for another 19.5 years for the asset

Sasseur REIT $0.725 $0.93 BUY

- Exposure to fast-growing retail outlet sector in China, which is projected to grow at a CAGR of

24.2% from 2016-2021

- Temporary closure of all portfolio malls due to the coronavirus outbreak in 1Q20; EMA income

structure that fixes 70% of rental income should provide a buffer

- Lowest gearing within the sector at c.28% gives Sasseur REIT sufficient gun powder for yield-

accretive acquisitions, which we have not priced into our model

Source: Various companies, DBS Bank

Closing prices as of 10 Mar 2020

Page 9

Industry Focus

Singapore REITs

Page 10

Valuations

Current trading yields worth accumulating. The retail REITs are

on average trading at a 1.13x P/NAV and a subsector yield of

5.3%. While the larger caps, CMT and FCT usually trade at a

tighter historical yield range of 4.2-6.5%, while the smaller caps

trade at a range of 5.4-10.4%. The yield disparity between CMT

and FCT drifted wider due to the recent COVID-19 outbreak, as

suburban retail malls stand as the main beneficiaries in the turn

of events given their proximity to residential catchment areas and

primary focus on necessity spending, as opposed to prime retail

malls which partly rely on tourist spending.

Low gearing and acquisition opportunities not priced in. We

believe that inorganic growth is not priced in at current valuation

levels. The subsector’s low average gearing of 33.2% is a good

160bps lower than the sector’s average of 34.8%. We have not

assumed additional acquisitions at our current target price for

the sector. Conversely, current cap rates for retail assets in

Singapore fall in the range of 4.5-5.0%, and may not be yield

accretive at current yield levels.

Market chatter on the following names:

Yield

(FY20)

Growth

(%)

Market Chatter DBS

acquisition

estimates

What can surprise further ?

FCT 4.3% 6.0% FCT could acquire further stakes in PGIM ARF from sponsor - Additional stakes in Waterway

Point; unwinding of PGIM

stake.

CMT 4.9% 4.1% Merger with CapitaLand Commercial Trust to create the third-

largest REIT in APAC

- More acquisitions of third-party

and sponsor assets with

widened mandate

CRCT 7.2% flat Portfolio reconstitution strategy to acquire more sponsor-held

retail malls in China, and further divestment of non-core malls

to recycle capital

- Stake in CapitaLand’s high-

profile Raffles City integrated

developments in China Source: DBS Bank

Page 10

Industry Focus

Singapore REITs

Page 11

Retail REITs are currently trading at attractive yields in relation to their 5-year historical yield range Remarks

Source: DBS Bank

• Gap between CMT and FCT’s

existing trading yield has widened

due to the COVID-19 outbreak.

• Larger caps such as CMT, FCT and

MCT should continue to trade at

the lower end of their historical

yield range in the coming years,

catalysed by a growing market cap,

index inclusion and quality assets.

• Mid-cap retail REITs currently trade

at a premium of 130-330bps

against the large-cap retail REITs

6.0%

4.3%4.2%

5.6%

3.9%

5.4%

4.9%

5.6%

6.4%

8.1%

6.0%

6.5%6.1%

6.9%

9.1%

6.2%

7.4%

10.4%

7.2%

4.9%

4.3%

6.1%

4.2%

7.0%

5.5%

6.7%

7.5%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

CRCT CMT FCT LLGCR MCT MNACT SPHREIT SGREIT SASSR

5Y historical yield range Current Yield (%)

Page 11

Industry Focus

Singapore REITs

Page 12

Key Statistics for Retail sector Higher supply spike in 2020F is expected to taper off thereafter

Source: URA, DBS Bank

Key Indicators % Chg 3Q19 4Q19

Price Index +1.8% 112.0 114.0

Rental Index +2.3% 98.7 101.0

Pipeline of supply (GFA) +15.6% 288k sqm 333k sqm

Vacancy rate 0.0% 7.5% 7.5%

Key Points

• Property rental index grew 3.4%, 2.3% and 1.0% q-o-q for the central area, central region and fringe area respectively.

• COVID-19 uncertainty poses a short-term uncertainty to end-tenant sales for retailers, and would likely hurt tenants alike. Singapore

Tourism Board anticipates a 25-30% dip in overall tourist arrivals this year, impacting prime retail malls. We see a temporary disparity

between prime retail malls and suburban malls, with the latter as a beneficiary in this turn of events.

• Low supply to provide stability in 2020. We still take comfort in the low retail supply in 2020 which will help to balance out the lower

demand in times of the coronavirus outbreak. Future supply pipeline will taper down drastically to an average of 43k sqm per year

from 2020F-2023F from a peak of 250k sqm in 2019, and support of the recovery of retail rents into the medium term.

• New malls within the central and fringe areas that were launched in 2019 likely to have commanded higher rents, while a number of

redevelopment projects (Liang Court, Shaw house) supported rents by shaving off some short-term supply.

Page 12

Industry Focus

Singapore REITs

Page 13

Key Charts – Observations from 4Q19

Retail quarterly rental reversion and portfolio occupancy trend Remarks

Retail REIT Rental Reversion (4Q19) Occupancy (4Q19/ y-o-y)

CapitaLand Retail China Trust ▲ 4.7% ▼ 96.7%

CapitaLand Mall Trust ▲ 0.8% ▲ 99.3%

Frasers Centrepoint Trust ▲ 5.0% ▲ 97.3%

Lendlease Global Comm ▲ 0.5% ▲ 99.2%

Mapletree Commercial ▲ 14.5% ▲ 100%

Mapletree North Asia Commercial Trust ▲ 12.0% ▲ 100%

SPH REIT ▲ 10.9% ▲ 99.3%

Starhill Global REIT n.a. ▲ 99.6%

Sasseur REIT n.a. n.a. 96.0%

Source: Company, DBS Bank

*Operating data for MCT, MNACT and LLGCR pertains solely to Vivocity, Festival Walk and 313@somerset respectively

1. Healthy levels of rental

reversion at an average of

6.9% for the sector last

quarter.

2. Overall occupancy rose

30bps to land at 98.6%

across the retail REITs as

leasing momentum was

strong. Retail REITs with a

largely Singapore exposure

recorded a rise in

occupancy rates in the

range of 40-80bps.

3. Data points well towards

the trend of a tightening

retail supply market for

4Q19.

96%

97%

97%

98%

98%

99%

99%

0%

2%

4%

6%

8%

10%

12%

Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

Rental reversion (%) Portfolio Occupancy (%)

Page 13

Industry Focus

Singapore REITs

Page 14

Retail quarterly WALE and WADE trend Remarks


1. General lengthening of WALE by gross rental income across the sector at 2.5 years compared to 4Q18 (c.2.4 years).

2. This bodes well for retail malls as a buffer against the impact of the COVID-19 outbreak, alongside support measures by landlords in the form of potential rental rebates and pro-shopper initiatives.

3. WADE of 3.45 years

remained largely stable in the past year.

1.1 1.1 1.2

0.9 0.9

0.50.6

0.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

WALE by GRI (yrs) WADE (yrs) WALE - WADE gap (yrs)

Page 14

Industry Focus

Singapore REITs

Page 15

Retail quarterly Gearing and cost of borrowing trend Remarks

Retail REIT Gearing (4Q19/ y-o-y) Cost of borrowing

(4Q19/ y-o-y)

CapitaLand Retail China Trust ▲ 36.7% ▲ 2.98%

CapitaLand Mall Trust ▼ 32.9% ▲ 3.20%

Frasers Centrepoint Trust ▲ 33.2% ▼ 2.57%

Lendlease Global Comm n.a. 34.9% n.a. 0.86%

Mapletree Commercial ▼ 33.4% ▲ 2.96%

Mapletree North Asia Commercial Trust ▼ 37.1% ▼ 2.46%

SPH REIT ▲ 26.8% ▲ 2.91%

Starhill Global REIT ▲ 36.3% Flat 3.29%

Sasseur REIT ▼ 27.8% ▼ 4.41%


1. Retail sector average of 33.2% at 1.48ppts below overall REITs sector average of 34.8% for 4Q19.

2. Average cost of borrowing for the past quarter of 3.10% per annum was at a trough for FY19.

3.04

3.06

3.08

3.10

3.12

3.14

3.16

3.18

3.20

31.6

31.8

32.0

32.2

32.4

32.6

32.8

33.0

33.2

33.4

Mar-18 Jun-18 Sep-18 Dec-18 Mar 19 Jun 19 Sep 19 Dec 19

Gearing (%) Cost of borrowing (%)

Page 15

Industry Focus

Singapore REITs

Page 16

Key Charts – Sector Snapshot

Historical net additions to shop space – Suburban retail stock (Outside Central) which had been growing at a faster pace

from 2012-2018 saw shrinkage last year

Remarks

Source: URA, CEIC, DBS Bank

1. Net additions to retail supply

in the past year have been

mainly in the downtown core

and central fringe areas.

2. New retail spaces in 2019

included Funan Mall

(downtown core), Jewel,

Changi Airport and Paya

Lebar Quarters.

3. Retail spaces outside of the

central region saw a net

reduction of 14k sqm while

net supply within Orchard

stayed largely flattish over

the past year.

(80)

(30)

20

70

120

170

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

000' sqm

Outside Central Fringe Rest of Central Orchard Downtown Core

Page 16

Industry Focus

Singapore REITs

Page 17

Net Absorption of retail supply and Occupancy Rate

Remarks


1. Despite the robust net supply

of retail spaces in the market

in 2019, net absorption was

relatively healthy with good

take-up within the newly

completed projects. Funan

Mall, Jewel and PLQ, which

represented c.three-quarters

of retail supply in 2019, are

currently at occupancy levels

of 98.7%, 100% and 90%

respectively.

2. Landlord-favourable market

to persist as retail supply is

expected to taper off in

2020F-2022F from the peak

in 2019. We expect

occupancy rates to stabilise

at 93%.

90.0%

91.0%

92.0%

93.0%

94.0%

95.0%

96.0%

(40)

10

60

110

160

210

260

310

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0F

202

1F

202

2F

Occ

upancy

Rate

Shop S

pace

sqm

('0

00)

Net Supply: Shop Space Net Absorption: Shop Space Occupancy (RHS)

Page 17

Industry Focus

Singapore REITs

Page 18

Property Rental Index (Shops); 1998 = 100 Remarks

1. Growth momentum

registered in 4Q19, as the

property rental index for the

central area, central region

and fringe grew 3.4%,

2.3% and 1.0% q-o-q

respectively.

2. New malls within the central

and fringe areas that were

launched in 2019 likely to

have commanded higher

rents, while a number of

redevelopment projects

(Liang Court, Shaw house)

supported rents by shaving

off some short-term supply.


80

85

90

95

100

105

110

115

120

125

201

1Q

1

201

1Q

2

201

1Q

3

201

1Q

4

201

2Q

1

201

2Q

2

201

2Q

3

201

2Q

4

201

3Q

1

201

3Q

2

201

3Q

3

201

3Q

4

201

4Q

1

201

4Q

2

201

4Q

3

201

4Q

4

201

5Q

1

201

5Q

2

201

5Q

3

201

5Q

4

201

6Q

1

201

6Q

2

201

6Q

3

201

6Q

4

201

7Q

1

201

7Q

2

201

7Q

3

201

7Q

4

201

8Q

1

201

8Q

2

201

8Q

3

201

8Q

4

201

9Q

1

201

9Q

2

201

9Q

3

201

9Q

4

Central Region Central Area Fringe

Page 18

Industry Focus

Singapore REITs

Page 19

Property Median Rents (Shops) Remarks

1. Slight uptick in rents

registered in Orchard and

Fringe area across 4Q19.

2. Orchard, central fringe and

suburban rents grew 6%,

3% and 4% q-o-q

respectively.

3. The recent reporting

quarter revealed stable to

slightly positive reversions

for larger central and

suburban malls.


10.45

5.78

5.40

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

2011 2012 2013 2014 2015 2016 2017 2018 2019

S$ p

sf p

er

month

Median Rents (Orchard) Median Rents (OCR) Median Rents (Fringe)

Page 19

Industry Focus

Singapore REITs

Page 20

Upcoming Retail Developments by Planning Region (380,160 sqm of GFA) Remarks

1. Bulk of supply will stem from

the central fringe area

(43.2%) and suburban area

(30%).

2. Central fringe supply will

come from several big

projects including The

Woodleigh Mall and Tekka

Place.

3. Pipeline within the

Downtown Core, Orchard

and Rest of Central consists

of smaller projects

complementing new office

launches (Central Boulevard

Towers) and hotel

developments.


Sentosa0.7%Orchard

5.7%

Downtown Core17.3%

Fringe

43.2%

Rest of Central3.1%

East 2.0%

North 4.6%

West13.4%

North East 9.2%

Out of Centra l29.9%

Page 20

Industry Focus

Singapore REITs

Page 21

Cap Rate Compression for CMT and FCT’s Portfolio Assets Remarks

1. Mean cap rates for prime

retail malls remained

largely unchanged at

4.76% in 4Q19.

2. Cap rates for suburban

retail malls expanded

slightly over the past

quarter, from 4.75% to

4.87%, and may continue

to benefit from their

proximity to residential

areas and defensive

necessity spending.


5.55%

5.38% 5.40% 5.31%

4.87%

4.76%

5.68%

5.53% 5.48%5.48%

5.03%

4.85%

4.5%

5.0%

5.5%

6.0%

Mean Cap Rate - Central/Orchard Mean Cap Rate - Suburban

Page 21

Industry Focus

Singapore REITs

Page 22

Retail supply pipeline

Project Name Street Name Developer Planning Region

Total

Retail

Space

(sqm)

Sub-total

(sqm)

2020 58,400

Tekka Place Serangoon Road Corwin Holding Pte Ltd Fringe 10,290

AEI to Grantral Mall @

Macpherson Macpherson Road Wujie Times Square Pte Ltd Fringe 8,350

Northshore Plaza I Northshore Drive Housing & Development Board North East 8,250

IMall Marine Parade Central Marine Parade Central Pte Ltd Fringe 7,030

Woods Square Woodlands Square Woodlands Square Pte Ltd North 5,550

Le Quest Bukit Batok Street 41 Qingjian Realty West 5,120

AEI to Oxley @ Raffles Raffles Place Oxley Holdings Downtown Core 4,740

Centrium Square Serangoon Road Feature Development Pte Ltd Fringe 4,010

AEI to existing Wilkie Edge Wilkie Road Lian Beng Rest of Central 2,620

Cleantech Three Cleantech Loop JTC Corporation Fringe 2,440

2021 15,790

Additions/alterations to

existing Shaw Plaza Balestier Road Shaw Properties (1997) Pte Ltd Fringe 8,440

Hotel development Claymore Road UOL Group Orchard 2,370

Rochester Commons Rochester Park Ascendas Fringe 2,090

Office/retail property Woodlands Avenue JTC Corporation North 1,500

CapitaSpring Chulia Street CL Office Trustee Pte Ltd/Glory SR

Trustee Pte Ltd Downtown Core 1,390

Page 22

Industry Focus

Singapore REITs

Page 23

Project Name Street Name Developer Planning Region

Total

Retail

Space

(sqm)

Sub-total

(sqm)

2022 47,870

The Woodleigh Mall Bidadari Park Drive SPH-Kajima Fringe 12,850

Office/retail development Hoe Chiang Road Mansfield Developments Pte Ltd Downtown Core 9,310

Retail Development Bukit Batok Road Housing & Development Board West 9,000

Boulevard 88 Orchard Boulevard Granmil Holdings Pte Ltd Orchard 3,960

Guoco Midtown Beach Road Guoco Midtown Pte Ltd/Midtown Bay

Pte Ltd Downtown Core 3,000

Hotel/retail development Club Street Midtown Development Pte Ltd Downtown Core 2,710

Hotel/retail development Craig Road Craig Road Property Holdings Pte Ltd Rest of Central 1,830

Central Boulevard Towers Central Boulevard Wealthy Link Pte Ltd Downtown Core 1,690

Others various Mandai Park Development Pte Ltd North 3,520

2023 43,110

Mixed-use development Punggol Way JTC Corporation North East 19,460

One Holland Village Holland Road Far East Organisation, Sekisui House,

Sino Group Fringe 9,580

Sengkang Grand Mall Sengkang Central Capitaland and City Developments North East 7,010

Dairy Farm Residences Dairy Farm Road UE Dairy Farm Pte Ltd West 4,000

Parc Komo/Komo Shoppes Upper Changi Road

North/Jalan Mariam CEL Real Estate Development Pte Ltd East 3,060

Source: DBS Bank

Page 23

Industry Focus

Singapore REITs

Page 24

Company Guide

Page 24Page 24

Page 24

ed: JS/ sa: YM, PY, CS

CapitaLand Mall Trust (CT SP) : BUY

Mkt. Cap: US$7,181m I 3m Avg. Daily Val: US$17.6m

Last Traded Price ( 21 Oct 2019): S$2.65

Price Target 12-mth: S$2.95 (11% upside)

Analyst

Rachel TAN +65 6682 3713; [email protected] Derek TAN +65 6682 3716; [email protected] Double prosperity from Funan and Westgate • 3Q19 DPU grew 4.8% y-o-y to 3.06 Scts; 9M19 DPU

expanded 4.1% to 8.86 Scts, in line

• 3Q19 revenue and NPI were both higher by c.18%

• Strong 3Q19 results led by i) maiden contribution from Funan; ii) an additional 70% stake in Westgate

• 9M19 rental reversion +1.2% but 3Q19 was -0.7%; tenant sales +1.3%; shopper traffic -1.3%

What’s New • CMT delivered 3Q19 DPU of 3.06 Scts (+4.8% y-o-y).

9M19 DPU of 8.86 Scts (+4.1% y-o-y) was in line at 74.5% and 75.7% of consensus and our FY20F DPU estimates.

• Revenues and NPI grew 17.9% y-o-y and 17.6% y-o-y to S$201m and S$144m respectively.

• Distributable income was 9.1% y-o-y higher despite retaining a higher amount of capital distribution and tax-exempt income distribution from CapitaLand Retail China Trust (CRCT) and Westgate of S$12.9m vs S$2.6m in 3Q18.

• The strong 3Q19 results were mainly supported by: i) maiden contribution from Funan which opened in end-June19, 2) purchase of additional 70% stake in Westgate Mall in 4Q18, and 3) operational improvement from higher occupancies (98.9% vs 98% in 3Q18) mainly from Clarke Quay (95.4% vs 90.4% in 3Q18).

• While CMT recorded positive rental reversions (excluding Funan and Sembawang Shopping Centre) of 1.2% in 9M19 vs 1.8% in 1H19 and 0.6% in 9M18, we estimate that 3Q19 delivered negative rental reversion of 0.7% mainly from Clarke Quay (-14.8%), Lot One (-12.1%), Bedok Mall (-3.3%) and Plaza Singapore (-1.8%).

• Shopper traffic remained robust at +1.3% while tenant sales fell 1.3% in 9M19.

• Sales per square foot for top 5 trade categories in 9M19 grew 1.2% y-o-y, similar to 1H19, which implies that performance will likely remain resilient as occupancy costs remain stable.

DBS Group Research . Equity

22 Oct 2019

Singapore

Flash Note Refer to important disclosures at the end of this report

CapitaLand Mall Trust - iBanking Login

CapitaLand Mall Trust - Institution Login

Forecasts and Valuation FY Dec (S$m) 2017A 2018A 2019F 2020F Gross Revenue 682 698 777 816 Net Property Inc 478 494 541 567 Total Return 658 677 447 467 Distribution Inc 413 429 451 470 EPU (S cts) 11.4 13.2 12.1 12.7 EPU Gth (%) 1 16 (8) 4 DPU (S cts) 11.2 11.5 11.7 12.2 DPU Gth (%) 0 3 2 4 NAV per shr (S cts) 195 202 202 202 PE (X) 23.2 20.1 21.8 20.9 Distribution Yield (%) 4.2 4.3 4.4 4.6 P/NAV (x) 1.4 1.3 1.3 1.3 Aggregate Leverage (%) 31.2 32.6 32.1 32.0 ROAE (%) 5.9 6.7 6.0 6.3

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

Page 25Page 25

Page 25

https://www.dbs.com.sg/treasures/aics/templatedata/article/equity/data/en/DBSV/012014/CT_SP.xml

https://www.dbs.com/aics/templatedata/article/equity/data/en/DBSV/012014/CT_SP.xml

Flash Note

Gearing and cost of debt stable; FY19 refinancing completed • Gearing remained relatively flat at 34.4%. • Cost of debt was steady at 3.2%. • Debts expiring in FY19 were repaid in Oct19. Hence,

FY19 refinancing has completed. Key updates • The rejuvenation of Lot One Shoppers’ Mall is underway

and visitors can look forward to a wider movie selection and a bigger public library.

• The cinema is being upgraded by reformatting 4 big halls into 8 smaller halls, thus, expanding its movie offerings at any one time.

• The public library will be expanded by 600sqm in terms of NLA, featuring new initiatives to innovate learning experiences in L4 and L5.

Maintain BUY; TP of S$2.95 • We maintain our BUY rating with TP of S$2.95. • We remain bullish on CMT as we believe Westgate and

Funan will continue to drive growth in FY19F / FY20F (evident in 3Q19), by c.3% CAGR (2-Yr), one of the faster growing large-cap S-REITs.

• The continued efforts to rejuvenate its malls and optimise its tenant mix will continue to drive operational improvements.

Quarterly / Interim Income Statement (S$m)

FY Dec 3Q2018 2Q2019 3Q2019 % chg yoy % chg qoq

Gross revenue 171 190 201 17.9 6.1

Property expenses (47.9) (56.4) (56.9) 18.9 0.9

Net Property Income 123 133 144 17.6 8.3

Other Operating expenses (12.0) (13.3) (14.0) 16.8 5.4

Other Non Opg (Exp)/Inc (0.3) 0.0 (17.6) nm nm

Net Interest (Exp)/Inc (20.3) (28.2) (28.1) (38.5) 0.5

Exceptional Gain/(Loss) 0.0 0.0 0.0 - -

Net Income 148 108 106 (28.0) (1.2)

Tax 0.0 0.0 0.0 - -

Minority Interest 0.0 0.0 0.0 - -

Net Income after Tax 148 108 106 (28.0) (1.2)

Total Return 148 228 106 (28.0) (53.2)

Non-tax deductible Items (6.5) 1.92 (4.0) (39.3) nm

Net Inc available for Dist. 106 108 126 18.6 16.8

Ratio (%)

Net Prop Inc Margin 71.9 70.3 71.7

Dist. Payout Ratio 97.5 100.0 89.8

Source of all data: Company, DBS Bank

Page 26Page 26

Page 26

Flash Note

Target Price & Ratings History

Source: DBS Bank

Analyst: Rachel TAN

Derek TAN

Page 27Page 27

Page 27

Flash Note

DBS Bank recommendations are based on 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 share price catalysts within this time frame)

*Share price appreciation + dividends

Completed Date: 22 Oct 2019 08:34:33 (SGT) Dissemination Date: 22 Oct 2019 08:52:00 (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.

Page 28Page 28

Page 28

Flash Note

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.

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

proprietary positions in CapitaLand Mall Trust, CapitaLand Retail China Trust, recommended in this report as of 30 Sep 2019.

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 CapitaLand Retail China Trust, recommended in this report as of 30 Sep 2019.

Compensation for investment banking services:

4. 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 Mall Trust, CapitaLand Retail China Trust, as of 30 Sep 2019.

5. 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 Mall Trust, CapitaLand Retail China Trust, in the past 12 months, as of 30 Sep 2019.

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 29Page 29

Page 29

ed: TH/ sa: YM, PY, CS

BUY

Last Traded Price ( 7 Feb 2020): S$1.52 (STI : 3,181.48)

Price Target 12-mth: S$1.75 (15% upside) (Prev S$1.80)

Analyst

Singapore Research Team [email protected]..

Derek TAN +65 6682 3716 [email protected]

What’s New • Full-year DPU of 9.9 Scts is in line with our estimates

• Master-lease asset CapitaMall Erqi to be divested at a

c.20% premium to latest market valuation

• Capital reserve to add up to c.S$45m, providing a good

buffer of c.3.7 Scts per unit

• Opportune time to accumulate on dips and catch the

portfolio rejuvenation wave

Price Relative

Forecasts and Valuation

FY Dec (S$m) 2018A 2019A 2020F 2021F

Gross Revenue 223 238 285 296 Net Property Inc 147 165 188 197 Total Return 129 165 108 115 Distribution Inc 99.7 111 120 124 EPU (S cts) 6.22 6.01 8.89 9.43 EPU Gth (%) (45) (3) 48 6 DPU (S cts) 10.2 9.90 9.91 10.1 DPU Gth (%) 1 (3) 0 2 NAV per shr (S cts) 161 155 154 153 PE (X) 24.4 25.3 17.1 16.1 Distribution Yield (%) 6.7 6.5 6.5 6.7 P/NAV (x) 0.9 1.0 1.0 1.0 Aggregate Leverage (%) 34.8 36.3 36.4 36.7 ROAE (%) 3.9 3.8 5.8 6.1 Distn. Inc Chng (%): 2 (1) Consensus DPU (S cts): 10.2 11.0 Other Broker Recs: B: 5 S: 0 H: 1

Source of all data on this page: Company, DBS Bank, Bloomberg

Finance L.P.

Catch the portfolio rejuvenation wave

BUY; TP of S$1.75. While short-term overhanging risks persist,

we remain excited with its long-term milestones which remain

intact as portfolio rejuvenation efforts are expected to unwind

this year. We expect a strong DPU growth coming from the

acquisition of three sponsor malls, while the Hohhot asset swap

will underpin a stronger growth profile in the medium term.

BUY call maintained, TP adjusted for more conservative growth

estimates.

Where we differ: Our TP is at the higher end of consensus

estimate; opportune time to accumulate on dips. Despite the

coronavirus plight in China, the direct impact is likely to be small

with Minzhongleyuan the only mall closed for now. CRCT’s

malls are observing shorter operating hours as required by the

respective local authorities. We do not anticipate a material

financial impact given that c.3-5% of rental revenue is tied to

tenant sales on a portfolio basis, and MZLY contributed just

c.0.5% of NPI in 9M19. Moreover, we believe that the

managers will look at redeploying recent sales proceeds to other

income-producing opportunities, which will be a surprise to

estimates.

Solid buffer from substantial capital reserve. The announced

divestment of CapitaMall Erqi at a c.20% premium to latest

market valuation will add another c.S$13m to CRCT’s capital

reserve. This brings total capital reserve to c.S$45m post

divestment, or a comfortable buffer of c.3.7 Scts per unit which

will be used opportunistically.

Valuation:

Maintain BUY and TP of S$1.75. We have softened our rental

growth expectations within a few selected non-core assets and

priced in CapitaMall Erqi’s divestment in 3Q20.

Key Risks to Our View:

Continued downturn in Chinese retail consumption and a

significant depreciation of the RMB versus SGD At A Glance Issued Capital (m shrs) 1,209

Mkt. Cap (S$m/US$m) 1,838 / 1,323

Major Shareholders (%)

CapitaLand Limited 24.9

CapitaLand Mall Trust 12.5

Matthews Int’l Capital Management 5.6

Free Float (%) 57.0

3m Avg. Daily Val (US$m) 3.3

GIC Industry : Real Estate / Equity Real Estate Investment (REITs)


10 Feb 2020

Singapore Company Guide

CapitaLand Retail China Trust Version 19 | Bloomberg: CRCT SP | Reuters: CRCT.SI Refer to important disclosures at the end of this report

70

90

110

130

150

170

190

210

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

Feb-16 Feb-17 Feb-18 Feb-19 Feb-20

Relative IndexS$

CapitaLand Retail China Trust (LHS) Relative STI (RHS)

Page 30Page 30

Page 30

Company Guide

CapitaLand Retail China Trust

WHAT’S NEW

(+) DPU largely in line with estimates

• Revenue grew 10.1% y-o-y to RMB1,203m, while NPI

grew 15.5% y-o-y to RMB835m.

• This was mainly contributed by the first full-quarter

contributions from CRCT’s newly acquired sponsor

malls, including Capitamall Xuefu, CapitaMall Yuhuating

and CapitaMall Aidemengdun.

• Distributable income of S$105.6m (12.6% increase y-o-

y) made up 99% of our full-year estimate of S$107m.

• DPU for the quarter was a slight dip at 2.34 Scts (4Q18:

2.41 Scts), bringing full-year 2019 dividends of 9.90 Scts

(2.1% rise y-o-y), in line our full-year forecast of 10.0

Scts.

(+) Portfolio maintains its resilience

• Portfolio occupancy was flattish at 96.7% with positive

rental reversions of 6.4% across the portfolio’s multi-

tenanted malls.

• Factoring in the acquisition of sponsor malls, total tenant

sales for the year grew 14.4%, driven by a shopper

traffic growth of 15.2%.

• Total portfolio valuation rose to RMB20.0bn,

representing a 26.0% increase from the last round of

valuations at 30 June 2019.

• All malls registered valuation gains in the range of 0.6-

3.7%, while CapitaMall Qibao and Mingzhongleyuan

(MZLY) registered a drop in valuation of -5.2% and -

4.9% respectively.

(+) Low-hanging fruits on the radar for divestments

• Announced divestment of CapitaMall Erqi at RMB777m,

at a 20.5% premium above the asset’s latest valuation.

Net gain from the divestment would amount to

S$12.7m after completion in 3Q20.

• We estimate the mall’s exit yield to be at 4.5%.

• This is in line with the manager’s strategy of divesting

non-core and master-lease malls within the portfolio to

unlock value and further pursue accretive growth

opportunities.

• The one-off compensation from pre-termination of

master-lease at CapitaMall Erqi will help to absorb the

loss of net property income from the asset after

divestment, which is c.4.1% of total NPI for FY19.

• Post transaction, CRCT’s exposure to department stores

by GRI will decrease from 5.1% to 1.4%, with the

biggest tenant concentration reduced from 8.3% to

4.1%. We think this is a positive development given the

ongoing pressure the department store business is

facing in China.

(-) Outlook in light of the 2019 (2020?)-nCoV situation

• More China malls are taking preventive measures in the

face of the 2019-nCoV epidemic.

• CRCT announced the closure of MZLY, its only asset that

is situated in Wuhan, at the heart of the epidemic.

• The financial impact with MZLY’s closure is not expected

to be material given that the mall contributed only

c.0.5% of NPI in 9M19.

• Other malls within CRCT will operate on shorter hours,

and limit mass participation events as required by the

respective local authorities.

• We note that 1,227 leases will be due for renewal in

2020, representing 34.9% of GRI. Should the

coronavirus situation worsen, there remains a risk of

certain non-renewals that may hit occupancy rates.

• However, we take comfort in CRCT’s ability to provide a

temporary capital buffer to supplement DPU for the

coming years should the need arise.

(+) Unwinding of portfolio rejuvenation efforts; capital reserve

to provide a sufficient buffer

• CRCT’s asset swap in Hohhot (Inner Mongolia) will start

unwinding this year and bump up DPUs starting from

2021.

• Yuquan Mall is currently undergoing fit-out works as

ownership of the asset was handed over to CRCT at

end-2019.

• The manager aims to open the mall by the end of this

year with a target occupancy of above 90% following

the sequential transfer of existing tenants from Saihan

mall to Yuquan mall.

• Dwindling revenue contributions from Saihan mall and

the lack of contributions from Erqi mall would likely

result in a temporary income vacuum towards 3Q20-

4Q20 based on our estimates.

• Nonetheless, we estimate that any income loss can be

buffered by CRCT’s existing capital reserve that works

out to be c.3.7 Scts per unit.

• The c.S$45m capital buffer is amalgamated from

CapitaMall Anzhen’s divestment proceeds, c.S$5.3m of

FY19’s distributable income which was retained for

working capital purposes and CapitaMall Erqi’s

divestment gains after completion in 3Q20.

•

(+/-) Financial metrics within healthy levels; RMB weakness a

short-term headwind

• About 80.0% of CRCT’s total term loans is on fixed

interest rates, which will mitigate interest rate volatility.

• CRCT’s currently hedges approximately 62% of

undistributed income into SGD to absorb the impact of

foreign currency fluctuations.

• Gearing was a healthy 36.7%, with a moderately low average

cost of debt of 2.98%.

Page 31Page 31

Page 31

Company Guide




Gross revenue 55.7 59.5 67.6 21.2 13.6


Net Property Income 35.9 41.1 44.1 22.9 7.3

Other Operating expenses (3.7) (5.0) (4.2) 13.7 (15.6)

Other Non Opg (Exp)/Inc (1.8) 3.58 9.85 nm 174.9

Associates & JV Inc 1.68 2.20 2.69 59.9 22.6

Net Interest (Exp)/Inc (5.4) (7.2) (8.5) (58.2) (19.1)

Exceptional Gain/(Loss) 0.0 (4.8) 1.74 nm nm

Net Income 26.7 30.0 45.6 71.0 52.2

Tax (22.5) (11.8) (25.1) 11.4 112.3

Minority Interest (0.1) 0.0 0.0 nm -

Net Income after Tax 4.08 18.2 20.5 403.7 13.1

Total Return 48.9 18.2 54.0 10.5 197.3

Non-tax deductible Items (25.9) 8.77 (20.3) (21.4) (331.9)

Net Inc available for Dist. 23.7 26.9 33.6 41.7 24.9

Ratio (%)




Page 32Page 32

Page 32

Company Guide


CRITICAL DATA POINTS TO WATCH

Critical Factors

Beijing retail market a key driver to revenues. CRCT acts as a

good proxy for retail sales growth across Tier 1 cities in China.

Approximately 60% of the portfolio’s NPI is derived from

Beijing, with well-located assets (Wangjing, Xizhimen, Rock

Square and Xinnan) that are dominant malls in their respective

submarkets. The managers were able to maintain reversions at

a high of c.7.5% in 9M19 through a proactive tenant remixing

strategy, enhancing CRCT’s organic growth profile.

Pre-emptive measures to counter novel coronavirus outbreak.

Considering the novel coronavirus outbreak situation in China,

retail malls may be subjected to closure or shorter operating

hours, in line with provincial government policies. Existing

weighted average lease expiries of 2.5 years (by gross rental

income) should help to provide a buffer to tide CRCT through

the short-term epidemic risks. With c.35% of total leases by

GRI due for renewal in 2020, there remains a risk of certain

non-renewals that may hit occupancy rates should the

coronavirus situation worsen. Medium-term growth remains

strong with pro-stability policies and measures implemented by

the government will continue to bode well for China's

domestic consumption, which will likely fuel domestic retail

consumption grow at a mid-single-digit level going forward.

Asset recycling and portfolio rejuvenation. CRCT’s portfolio

rejuvenation in the last year included an asset swap in Hohhot,

Inner Mongolia and the acquisition of three underperforming

sponsor malls. Master-leased malls remain on the radar for

potential divestments following the divestment of CapitaMall

Wuhu, which could free up further capital to be recycled.

CapitaMall Erqi is the latest asset to be divested at an

estimated exit yield of c.4.5%, or a 21% premium to the mall’s

latest valuation. Net gain amounting to S$12.7m will be added

to CRCT’s capital reserve, which would stand at c.S$45m when

the divestment is completed in 3Q20.

Visible pipeline and a lowly geared balance sheet infuse the

REIT with ample firepower to acquire. CRCT benefits from a

visible acquisition pipeline from sponsor, CapitaMalls Asia, one

of Asia’s largest mall operators, managers and owners. While

the availability of the pipeline from the sponsor offers

significant inorganic growth potential for the REIT, we think

CRCT would have to trade at a tighter yield to acquire at a

yield accretion. The high take-up rates in the REIT’s dividend

reinvestment programme have also infused the REIT with

much-needed equity to part-fund any future growth

opportunities, which we envision to happen soon.

Net Property Income and Margins (%)


Distribution Paid / Net Operating CF

Interest Cover (x)


61.8%

63.8%

65.8%

67.8%

69.8%

71.8%

73.8%

75.8%

0

20

40

60

80

100

120

140

160

180

200

2017A 2018A 2019A 2020F 2021F

S$ m

Net Property Income Net Property Income Margin %

54.0%

56.0%

58.0%

60.0%

62.0%

64.0%

66.0%

68.0%

70.0%

72.0%

74.0%

76.0%

31.3

33.3

35.3

37.3

39.3

41.3

43.3

45.3

3Q20

17

4Q20

17

1Q20

18

2Q20

18

3Q20

18

4Q20

18

1Q20

19

2Q20

19

3Q20

19

4Q20

19

Net Property Income Net Property Income Margin %

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

2017A 2018A 2019A 2020F 2021F

(x)

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2017A 2018A 2019A 2020F 2021F

(x)

Page 33Page 33

Page 33

Company Guide


Balance Sheet:

Aggregate leverage is at a comfortable level. Aggregate

leverage is estimated to rise to c.37% in the medium term

upon the asset swap involving CapitaMall Saihan and Yuquan

Mall. This is still within a comfortable level below MAS's 45%

gearing limit.

Share Price Drivers:

Extracting value, expanding offerings. CRCT’s active

reconfiguration strategies helped achieve double-digit rental

reversions across selected CRCT malls. Rock Square achieved

rental reversions of +26.8% and +23.0% in 2018 and 2019

respectively subsequent to a series of mall repositioning and

brand upgrading. NPI yield for the asset was enhanced from

c.3.7% to 4.4% following its acquisition in 2018. We believe

that the value extraction model could be replicated across

three of CRCT’s newly acquired sponsor malls in 2019, which

will help drive organic DPU growth into the medium term.

Acquisitions. We think acquisition-led catalyst will help drive

CRCT’s share price when it trades at a tighter yield in order to

acquire at a yield accretion. While its sponsor pipeline is

plentiful, a stake in one of the high-profile integrated

developments in China that is developed and held by sponsor

CapitaLand would come as a bonus to unitholders.

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.

New mall supply in Beijing and Shanghai. This risk is partially

mitigated as 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 alert as it

combats competition from new supply nearby.

Environment, Social, Governance:

CRCT has administered an Enterprise Risk Management

framework to improve its business resilience and agility. Its

sponsor CapitaLand’s approach towards environmental, health,

and safety management ensures that their operations are

sustainable and future-proof by integrating universal designs

into their developments. During the year, CRCT achieved a

reduction in energy usage of 33.8%, and 46.8% for carbon

intensity from its 2008 baseline.

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.

Aggregate Leverage (%)

ROE (%)

Distribution Yield (%)

PB Band (x)


10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2017A 2018A 2019A 2020F 2021F

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2017A 2018A 2019A 2020F 2021F

Avg: 6.7%

+1sd: 7.1%

+2sd: 7.5%

-1sd: 6.3%

-2sd: 5.8%

5.2

5.7

6.2

6.7

7.2

7.7

8.2

8.7

2016 2017 2018 2019

(%)

Avg: 0.94x

+1sd: 1x

+2sd: 1.07x

-1sd: 0.87x

-2sd: 0.8x

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

Feb-16 Feb-17 Feb-18 Feb-19

(x)

Page 34Page 34

Page 34

Company Guide


Income Statement (S$m)

FY Dec 2017A 2018A 2019A 2020F 2021F

Gross revenue 229 223 238 285 296

Property expenses (80.0) (75.3) (72.8) (96.9) (98.9)

Net Property Income 149 147 165 188 197 Other Operating expenses (14.5) (16.2) (5.7) (17.9) (18.3)

Other Non Opg (Exp)/Inc (0.1) (2.4) 0.0 0.0 0.0



Exceptional Gain/(Loss) 52.2 0.0 2.37 0.0 0.0

Net Income 166 116 141 142 151 Tax (64.2) (56.5) (74.6) (33.6) (35.9)

Minority Interest 1.65 1.09 (1.2) (0.6) (0.6)

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net Income After Tax 103 60.1 65.3 108 115 Total Return 145 129 165 108 115

Non-tax deductible Items (57.3) (34.8) (54.6) 8.52 8.88

Net Inc available for Dist. 91.1 99.7 111 120 124 Growth & Ratio

Revenue Gth (%) 7.0 (2.8) 6.9 19.6 3.9

N Property Inc Gth (%) 6.8 (1.2) 12.2 13.6 4.9

Net Inc Gth (%) 57.7 (41.7) 8.7 64.9 6.5

Dist. Payout Ratio (%) 100.0 100.0 96.2 100.0 100.0

Net Prop Inc Margins (%) 65.1 66.2 69.4 66.0 66.6

Net Income Margins (%) 45.0 27.0 27.4 37.8 38.8

Dist to revenue (%) 39.8 44.8 46.5 42.2 41.8

Managers & Trustee’s fees

to sales %)

6.3 7.3 2.4 6.3 6.2

ROAE (%) 6.9 3.9 3.8 5.8 6.1

ROA (%) 3.8 2.1 1.9 2.9 3.1

ROCE (%) 3.7 2.9 2.7 4.2 4.4

Int. Cover (x) 6.4 6.4 5.4 4.8 5.1


Incremental contributions

from recent acquisitions

Page 35Page 35

Page 35

Company Guide



FY Dec 4Q2018 1Q2019 2Q2019 3Q2019 4Q2019

Gross revenue 55.7 56.0 55.2 59.5 67.6


Net Property Income 35.9 39.8 40.4 41.1 44.1 Other Operating expenses (3.7) (3.3) (3.1) (5.0) (4.2)

Other Non Opg (Exp)/Inc (1.8) 1.73 0.01 3.58 9.85 Associates & JV Inc 0 7 9 8 8


Exceptional Gain/(Loss) 0.0 0.0 0.0 (4.8) 1.74

Net Income 26.7 33.4 32.1 30.0 45.6

Tax (22.5) (9.7) (28.0) (11.8) (25.1)

Minority Interest (0.1) (1.7) 0.53 0.0 0.0 Net Income after Tax 4.08 22.0 4.65 18.2 20.5

Total Return 48.9 25.2 68.1 18.2 54.0

Non-tax deductible Items (25.9) (0.3) (42.7) 8.77 (20.3) Net Inc available for Dist. 23.7 25.9 25.4 26.9 33.6 Growth & Ratio

Revenue Gth (%) 1 0 (1) 8 14

N Property Inc Gth (%) (2) 11 1 2 7

Net Inc Gth (%) (79) 439 (79) 290 13

Net Prop Inc Margin (%) 64.4 71.1 73.1 69.1 65.3


Balance Sheet (S$m)

FY Dec 2017A 2018A 2019A 2020F 2021F Investment Properties 2,441 2,441 3,168 3,126 3,135

Other LT Assets 2.99 260 264 271 279

Cash & ST Invts 187 174 140 153 157

Inventory 0.0 0.0 0.0 0.0 0.0

Debtors 37.1 107 124 46.1 48.0

Other Current Assets 0.44 0.12 109 109 109

Total Assets 2,668 2,983 3,806 3,705 3,728

ST Debt

0.0 161 207 207 207

Creditor 59.6 60.7 151 86.3 89.7

Other Current Liab 242 29.2 59.5 59.5 59.5

LT Debt 748 877 1,173 1,141 1,160

Other LT Liabilities 50.8 283 342 342 342

Unit holders’ funds 1,549 1,553 1,874 1,870 1,870

Minority Interests 19.3 18.3 0.0 0.58 1.22

Total Funds & Liabilities 2,668 2,983 3,806 3,705 3,728

Non-Cash Wkg. Capital (264) 17.3 23.2 9.60 8.03

Net Cash/(Debt) (561) (864) (1,240) (1,195) (1,209) Ratio

Current Ratio (x) 0.7 1.1 0.9 0.9 0.9

Quick Ratio (x) 0.7 1.1 0.9 0.9 0.9

Aggregate Leverage (%) 28.0 34.8 36.3 36.4 36.7

Z-Score (X) 0.9 1.1 0.9 0.9 0.9


Gearing at optimal level

Page 36Page 36

Page 36

Company Guide


Cash Flow Statement (S$m)

FY Dec 2017A 2018A 2019A 2020F 2021F

Pre-Tax Income 166 116 167 142 151

Dep. & Amort. 1.73 1.73 1.73 1.73 1.73

Tax Paid (64.2) (56.5) (74.6) (33.6) (35.9)

Associates &JV Inc/(Loss) 0.0 (7.2) (8.6) (7.6) (7.8)

Chg in Wkg.Cap. (17.5) (57.5) (18.4) 13.6 1.57

Other Operating CF 30.5 122 60.6 6.79 7.16

Net Operating CF 116 118 127 123 118 Net Invt in Properties 199 (11.4) (155) 42.5 (8.9)

Other Invts (net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV (25.5) (327) (393) 0.0 0.0

Div from Assoc. & JVs 0.0 0.0 0.0 0.0 0.0

Other Investing CF 1.42 2.43 2.55 0.0 0.0

Net Investing CF 175 (336) (546) 42.5 (8.9) Distribution Paid (82.6) (44.3) (68.3) (120) (124)

Chg in Gross Debt (228) 291 205 (32.5) 18.9

New units issued 102 (0.1) 276 0.0 0.0

Other Financing CF (30.4) (35.2) (5.6) 0.0 0.0

Net Financing CF (239) 212 407 (153) (105) Currency Adjustments (2.1) (5.6) (22.1) 0.0 0.0

Chg in Cash 50.4 (12.6) (34.0) 12.6 4.39

Operating CFPS (S cts) 14.6 18.1 13.4 9.02 9.57

Free CFPS (S cts) 34.4 11.0 (2.6) 13.6 8.97



Source: DBS Bank

Analyst: Singapore Research Team

Derek TAN

S.No.Date of

Report

Closing

Price

12-mth

Target

Price

Rat ing

1: 11 Feb 19 1.47 1.65 BUY

2: 18 Feb 19 1.44 1.65 BUY

3: 03 Apr 19 1.56 1.65 BUY

4: 11 Jun 19 1.53 1.65 BUY

5: 27 Jun 19 1.56 1.65 BUY

6: 04 Jul 19 1.58 1.80 BUY

7: 01 Aug 19 1.55 1.80 BUY

8: 06 Sep 19 1.57 1.80 BUY

9: 29 Oct 19 1.52 1.80 BUY

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

1

2

3

4

5

6

7

8

9

1.31

1.36

1.41

1.46

1.51

1.56

1.61

1.66

1.71

1.76

Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19

S$

Net inflow mainly from

divestment of

CapitaMall Erqi

Page 37Page 37

Page 37

Page 9

Company Guide









Completed Date: 10 Feb 2020 07:43:43 (SGT)

Dissemination Date: 10 Feb 2020 09:07:43 (SGT)




































Page 38Page 38

Page 38

Company Guide







in market-making.




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






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.


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 CapitaLand Retail China Trust recommended in this report as of 31 Dec 2019.

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 CapitaLand Retail China Trust recommended in this report as of 31 Dec 2019.


4. 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 31 Dec 2019.

5. 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 Retail China Trust in the past 12 months, as of 31 Dec 2019.

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.


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 39Page 39

Page 39


BUY

Last Traded Price ( 6 Mar 2020): S$2.97 (STI : 2,960.98)


Analyst

Singapore Research Team [email protected]


What’s New • Unwinding of PGIM ARF fund to take hold in 2020;

projected DPU accretion of up to 7.1% eventually if

FCT gains 100% control

• Apart from potentially doubling of AUM; FCT will be

the eighth-largest S-REIT

• COVID-19 disruption is manageable; portfolio should

deliver resilient numbers

• Raise our TP to S$3.35, assuming PGIM in our valuation

Price Relative


FY Sep (S$m) 2018A 2019A 2020F 2021F

Gross Revenue 193 196 201 206 Net Property Inc 137 139 145 149 Total Return 167 206 135 140 Distribution Inc 111 119 143 145 EPU (S cts) 11.2 10.1 12.1 12.4 EPU Gth (%) 4 (10) 20 3 DPU (S cts) 12.0 12.1 12.8 13.0 DPU Gth (%) 1 0 6 1 NAV per shr (S cts) 208 221 220 219 PE (X) 26.4 29.5 24.5 23.9 Distribution Yield (%) 4.0 4.1 4.3 4.4 P/NAV (x) 1.4 1.3 1.3 1.4 Aggregate Leverage (%) 28.6 28.8 29.1 29.3 ROAE (%) 5.5 5.1 5.5 5.7 Distn. Inc Chng (%): - - Consensus DPU (S cts): 13.1 13.5 Other Broker Recs: B: 12 S: 1 H: 6


Finance L.P.

A perfect match Maintain BUY with TP raised to S$3.35, as we price in the valuation of PGIM. We believe the time is ripe for FCT to make bold, decisive moves to take the leap to join the big caps in the S-REIT space come 2020. We anticipate the unwinding of PGIM ARF to accelerate this year given the significant control that the group holds in the management of the fund. With an exciting doubling of its AUM and revenues from this exercise and an accretion ranging from 2.9-7.1%, we expect FCT to join the larger-cap S-REITs in terms of valuation multiples (ranging from 1.5-2.0x P/NAV) given stronger liquidity and growth prospects. In addition, we believe that FCT will continue to trade north of 1.4x p/bk as its status will be alleviated as the only pure-play Singapore-focused retail S-REIT. BUY! A potential doubling of FCT’s AUM and revenues, accretion ranging from 2.9-7.1%. An acquisition of the remaining c.75% stake in PGIM could almost double FCT’s AUM and increase total distributable income by 48%, according to our estimates. We believe FCT could deliver yield accretion to unitholders in the range of 2.9-7.1%, while maintaining an optimal gearing ratio of c.37.5%. We see the ability to raise gearing as being supportable by a more diversified portfolio of suburban malls, which will not have an impact on its credit rating. The increased capacity will also enable FCT to debt-fund more acquisitions. Potential asset recycling to crystallise value. At the same time, we believe that it is an opportune time to consider reconstituting and sharpening its portfolio. Given the ample liquidity environment, we believe that smaller malls (<100k sqft) may see interest and Yew Tee Point, Anchorpoint or Bedok point may be divested for up to S$370m (15% of existing portfolio value), which can be swapped for a PGIM stake from its sponsor. Valuation:

Maintain BUY; TP raised to S$3.35. Our current target price

has assumed the accretion from PGIM (but not in our earnings

estimates).


Slower-than-anticipated unwinding of PGIM ARF. A slower–

than-anticipated acquisition of PGIM ARF or the protraction of

short-term headwinds associated with the COVID-19 outbreak.

At A Glance Issued Capital (m shrs) 1,118

Mkt. Cap (S$m/US$m) 3,319 / 2,408


TCC Assets Ltd 42.1

Schroders Plc 5.0

Free Float (%) 53.1




9 Mar 2020


Frasers Centrepoint Trust Version 20 | Bloomberg: FCT SP | Reuters: FCRT.SI Refer to important disclosures at the end of this report

Page 40Page 40

Page 40

Page 2

Company Guide

Frasers Centrepoint Trust

Unscathed from COVID-19 outbreak

Coronavirus outbreak an ongoing headwind to retail but

suburban malls should be resilient. The Singapore government

tightened alert on the COVID-19 outbreak, raising the dorscon

(disease outbreak level) from Yellow to Orange on 7 February

after seeing signs of community spreading. With business

continuity plans implemented across firms, and logical

precautions taken by Singaporeans to minimise social contact

and gathering over the past few weeks, we have seen shopper

traffic thinning island-wide, at a greater degree in malls within

the Central regions of Singapore.

This is alongside stricter travel restrictions imposed on China

travellers and countries with accelerating number of confirmed

COVID-19 cases. The Singapore Tourism Board expects a 25-

30% dip in tourist arrivals this year, a number that could be

alleviated given a potential knock-on effect.

China represents one of Singapore’s key visitor source markets,

historically contributing c.20% of total visitors annually and

the largest spenders, contributing the lion’s share (c.20%) of

the S$10.2bn tourism receipts (1H19). The bulk of this (51%)

went into shopping, followed by accommodation (17%), F&B

(12%) and others (36%), which could potentially shave a

significant percentage of tourist shopping expenditure this

year.

Dominance maintained at FCT’s suburban malls. FCT’s portfolio

of suburban malls maintains a position of dominance due to its

proximity to residential catchment areas, in contrast to prime

central malls. Malls within the Central regions of Singapore that

place high reliance on tourist flows saw a sharp decline in

traffic, in the range of 50-60% given our estimates, for the

month of February. Suburban malls saw a similar dip in traffic

but limited to a 10-20% drop. Since the drop, we understand

that traffic has been returning to the malls, which bodes well

for forward performance.

Furthermore, a high percentage of FCT’s tenants target

necessity shopping in segments such as food & beverage

(c.32% by NLA) and supermarket (c.7% by NLA), which we

think should not be as impacted as much as tenants within the

discretionary expenditure space.

The turn of COVID-19 events may result in temporary changes

to shopper spending behaviour, but we think that the peak had

been reached in mid-February, second week into the Orange

dorscon alert, and fears regarding the COVID-19 virus are

showing signs of tapering as health data suggests that the

outbreak situation is under control. As such, shopper traffic

would likely recover to norm when the doscon level is reverted

to Yellow, which we envision to happen by late March.

Uptick in e-commerce sales -“Netflix and order-in”? As of

December 2019, 6.8% of total sales were generated online. We

envision a sharp uptick in online sales going into 1Q20, with a

sharp turn in consumer behaviour and spending. More would

opt to stay in and shop online to minimise out-of-home

exposure for safety reasons. Suburban malls that are located

closer to end-user homes, within residential catchment areas,

would likely benefit from a greater number of online orders.

Footprint of online sales generated through food delivery

services and e-commerce may be traced back to brick-and-

mortar stores but is not traditionally captured within the POS

system of retail malls. As such, dip in tenant sales figures for

FCT in the coming quarters may be an over-statement.

Tenant support package across 14 malls. FCT announced tenant

support packages across Frasers Property Group’s combined

retail portfolio of 14 malls, including malls held under PGIM

ARF. The two-pronged tenant support package aims to target

immediate cash flow challenges experienced by tenants

stemming from a sudden drop in revenue and pro-shopper

initiatives to drive up shopper traffic.

Additional rental relief will be provided to tenants that are most

affected. FCT will also be passing on the 15% property tax

rebate announced in the Budget 2020 to qualifying businesses.

Selected tenants can also convert security deposits paid in cash

to banker’s guarantees to ease cash flow challenges. Tenants

can also opt for shorter operating hours from 11am to 9pm.

Pro-shopper initiatives include complimentary parking between

12-2pm and 6-10pm daily and enhanced marketing efforts.

Page 41Page 41

Page 41

Page 3

Company Guide


A marriage made in heaven

Potential doubling of AUM with remaining stake in PGIM

ARF.

• Looking beyond short-term headwinds to the retail

sector, we do not think current events will deviate FCT

from its long-term growth trajectory, which entails a

takeover of the remaining stake in PGIM ARF, which we

see the group unveiling this strategy in the near term.

• FCT currently holds a 24.8% stake in PGIM ARF, the

largest privately held suburban retail mall owner in

Singapore. With another 64.9% held by the sponsor and

the recent acquisition of the asset manager of PGIM ARF

by the sponsor, we see the chance of an integration

sooner rather than later. With only a remaining c.10%

held by third parties, we believe that FCT, given its

strong share price, may look to act earlier than later.

• Assuming that FCT acquires the remaining stake in PGIM

ARF, we estimate that FCT could double the number of

retail malls within its portfolio and its total assets under

management could close to double from c.S$3.6bn to

c.S$6.6bn.

Upgrading to “Fortress-like” assets with PGIM ARF

• FCT’s strategy remains to be in retail assets that are well

located with great connectivity to transportation nodes

and large residential catchments, and PGIM ARF malls

meet those attributes, in our view.

• One of the defining characteristics of ‘fortress malls’

would be the size of the retail malls (>150k sqft) which

are located within key transportation nodes and/or

servicing a primary population catchment living nearby.

• We see an array of complimentary attributes between

PGIM and FCT’s portfolio.

• FCT and PGIM’s geographical footprints are focused

within the North/Northeast and Northeast/East regions of

Singapore, situated at strong residential catchment areas

such as Yishun and Tampines.

• These same regions also represent areas that have lower

mall floor space per capita within the range of 2-5 sqft

/capita, below the island-wide average of 6 sqft/capita.

• Core assets within both portfolios are all sizeable in nature

(>100k sqft) with a similar mix in tenants (food &

beverage, necessity spending).

• The similar tenant mix could lay the path for synergies in

the future such as FCT’s shopper loyalty programme

(Frasers Experience) and tenant expansion.

• PGIM and FCT’s malls have similar lease expiries in 2091

and 2093 respectively.

An opportunity to unlock value from its existing portfolio or an

asset swap with sponsor?

• As such, with a focus on larger-scale malls which offer

operational efficiency, we believe that FCT will likely

undertake a portfolio review and potentially look to divest

some of the smaller-sized malls within the portfolio. These

may come in the form of a divestment to third parties or

potential asset swap with its sponsor (with its stake in

PGIM ARF) to sharpen FCT’s focus in the longer term.

• Some of the assets that may be divested include

Anchorpoint, Bedok Point and Yewtee Point which are

sized between 71k and 83k sqft and significantly smaller

compared to FCT’s anchor assets which average at c.300k

sqft. The latter two malls may be more likely given their

small scale while Anchorpoint’s freehold land lease tenure

may be hard to replace if sold.

• That said, these three malls contributed c.15% to total

rental revenue in FY19 and had been undergoing periods

of stabilisation due to various external factors such as low

shopper traffic or competing retail supply. As such, we

think that FCT may be keen to divest these assets as they

drift away from their ‘dominant’ attributes.

• The divestment of Anchorpoint, Bedok Point and Yewtee

Point could bring proceeds of c.S$370m based on the

latest valuation review (30 Sep 2019).

• FCT’s 31.15% stake in Hektar was carried in it’s books at

c.S$64m as of 31st December 2019.

Page 42Page 42

Page 42

Page 4

Company Guide


FCT and PGIM ARF’s portfolio financial and operating metrices

Properties

Book value

as at 30 Sep

2019

Net Lettable

Area (sqft)

Valuation

(S$ psf NLA)

Cap rate

(2018)

Cap rate

(2019) Occupancy

Lease

Expiry

FY18 (%) FY19 (%)


Anchorpoint 114 70,988 1,599 4.50% 4.50% 79.0 88.8 Freehold

Bedok Point 94 82,713 1,136 5.00% 5.00% 95.7 79.2 2077

Causeway Point 1,298 420,082 3,090 4.70% 4.75% 97.0 98.4 2094

Changi City Point 342 205,028 1,668 5.00% 5.00% 95.9 93.8 2069

Northpoint City North

Wing 810 219,365 3,517 4.75% 4.75% 99.0 96.5 2089

YewTee Point 189 73,669 2,566 5.00% 5.00% 97.1 94.3 2105

Waterway Point 520 371,200 1,400 4.70% 4.70% 98.0 99.7 2110

3,366 1,443,045 2,653 4.76% 4.78% 96.9% 96.6% 2093

PGIM ARF

Central Plaza 196 172,590 1,136 5.00% 2091

Tiong Bahru Plaza 626 214,710 2,916 4.75% 2090

Century Square 550 211,200 2,604 4.75% 2091

Hougang Mall 410 166,358 2,465 4.75% 2092

White Sands 407 150,319 2,708 4.75% 2092

Tampines 1 720 268,153 2,684 4.75% 2089

2,909 1,183,330 2,587 4.77%* 2091

* Cap rates (2019), DBS estimates


Geographical footprint of retail malls held by FCT and PGIM ARF

Source: Company, DBS Bank * Excluding The Centrepoint

Page 43Page 43

Page 43

Page 5

Company Guide


FCT and PGIM ARF’s tenant mix breakdown (% NLA)

Source: FCT, DBS Bank

Second largest retail landlord in Singapore

FCT’s retail market share will increase to 8.5%

• FCT currently stands as the fourth biggest retail landlord

in Singapore by market share, behind CapitaLand Mall

Trust, NTUC and Lendlease.

• Following the full acquisition of PGIM ARF, which

commands 4.2% of market share, FCT’s stake will

increase from 4.3% to 8.5%, and will rise up the ranks

to become the second largest retail landlord in

Singapore.

• This bodes well for FCT, which proved to be highly

successful in managing and unlocking value in large

suburban retail malls.

Another S$1.2bn added to market cap

• Based on our estimates, FCT could add another S$1.2bn

to its current market cap of S$3.3bn on the assumption

that funding structure for additional stakes in PGIM is on

par with its current capital structure.

• A combined market cap of S$4.5bn would place it as the

eighth largest S-REIT by market cap from a previous

ranking of 12.

FCT will become the second largest retail landlord in Singapore after a full acquisition of PGIM ARF

Reinstated for PGIM ARF acquisition

Owner Rank 30-Sep-19 Owner Rank 30-Sep-19

CapitaLand Mall Trust 14.1% CapitaLand Mall Trust 14.1%

NTUC 5.8% Frasers Centrepoint Trust 8.5%

Lend Lease 4.9% NTUC 5.8%

Frasers Centrepoint Trust 4.3% Lend Lease 4.9%

PGIM Real Estate 4.2% Far East Organisation 3.6%

Far East Organisation 3.6% Mapletree Commercial Trust 3.6%

Mapletree Commercial Trust 3.6% CapitaLand 3.3%

CapitaLand 3.3% Changi Airport Group 3.1%

Changi Airport Group 3.1% United Industrial Corporation Limited 3.0%

United Industrial Corporation Limited 3.0% Others 50.2%

Others 50.2%

Source: FCT, DBS Bank

Food & Beverage,

31%

Others, 2%

Retail, 52%

Activity-based/

Services, 14%

PGIM ARF Tenant Breakdown (% NLA)

31.5%

13.5%

7.7%4.8%9.2%

7.1%

3.7%

6.4%

0.9%

3.7%4.2%

3.7%3.6%

FCT Tenant Breakdown (% NLA)

Food & Beverage

Fashion

Beauty & Health

Services

Household

Supermarket &HypermarketSports Apparel &EquipmentLeisure/Entertainment

Page 44Page 44

Page 44

Page 6

Company Guide


FCT will become the eighth largest S-REIT by market cap (S$b)

Source: DBS Bank

Double of total AUM with PGIM ARF acquisition

What could be the endgame (for now)

• Further acquisition of the remaining 75.2% stake in

PGIM ARF would add another c.S$2.2bn to FCT’s AUM,

bringing the total to c.S$6.6bn.

• This is notwithstanding the remaining stakes in

Waterway Point currently held by Far East Organisation

and Sekisui House worth S$780m.

• FCT will stand as the last REIT in the sector with a pure-

play status in both Singapore retail after the proposed

merger of CapitaLand Mall Trust and CapitaLand

Commercial Trust. This, accompanied by the ability to

almost double AUM in the coming years, should be an

exciting prospect for FCT and bode well with unitholders

alike.

Potential yield accretion as capacity for debt remains strong

• We estimate a potential yield accretion in the range of

2.9-7.1% for future stakes in PGIM ARF on the basis of

(i) a low existing gearing of 33.2%; (ii) new equity raised

at S$2.80 per share; and (iii) purchase price from FPL in

line with precedent transactions.

• Historically, FCT had maintained a conservative level of

gearing below 30%. We think that appetite to leverage

up is there especially when it is supportable given a more

diversified asset base and steady cashflows supported by

suburban malls, assuming the unwinding of the PGIM

ARF portfolio.

• Moreover, we anticipate a potentially lower cost of debt

(2.57% at 31 Dec 2019) as c.43% of debt expiring in

FY20/FY21 could be refinanced at a lower rate and

presents upside to our estimates.

• Assuming that the remaining stakes in PGIM ARF are

acquired with 45% debt and 55% equity, this would

translate into a yield accretion of c.7.1% for unitholders

according to our estimates.

• Post transaction, gearing would still land at a healthy

level of c.37.5% as FCT leverages up to acquire stakes in

PGIM ARF.

Target price raised to S$3.35, assuming PGIM

• We have revised our cost of equity assumptions, bringing

our risk-free assumptions to 2.0%, in line with our end-

2020 10-year yield forecast, our target price for FCT’s

current portfolio would be S$3.10. Including the

contribution from the acquisition of the full stake in PGIM

ARF, our target price is raised further to S$3.35.

• Our target price assumes an implied dividend yield of

4.1% and P/NAV of 1.45x, which we believe is attainable.

This also implies a target implied cap of 4.1%, which is a

level we believe supportable by transactions within the

retail space and reflects potential compression in yields

given the current low interest rate environment.

12.4

9.2

7.8 7.6 7.5 6.6

5.0 4.5 4.1 4.1

3.6 3.3

AscendasREIT

CapitaLandMall

CapitaLandComm

MapletreeComm

MapletreeLog

MapletreeInd

Suntec REIT FCT (PGIMARF)

Keppel REIT Keppel DCREIT

MNACT FCT

Page 45Page 45

Page 45

Page 7

Company Guide


Yield and target price scenario analysis Remarks

Source: DBS Bank

Original (FY20F) 50% 75% 100%

Revenue (S$m) 201 259 316 374

Net property income (S$m) 145 182 219 255

Distributable income (S$m) 143 166 189 212

shares outstanding (m) 1,120 1,265 1,409 1,553

DPU Change (Scts) 12.77 13.14 13.44 13.68

Potential DPU accretion (%) 2.9% 5.3% 7.1%

Projected Gearing 33.0% 34.9% 36.4% 37.5%

Equity Raised (S$m) 406 810 1,213

Debt Raised (S$m) 332 662 992

Incremental Asset Value (S$m) 739 1,472 2,205

Implied Enterprise Value (S$m) 739 1,472 2,205

Implied target PGIM yield 5.0% 5.0% 5.0%

Target price (S$) 3.10 3.19 3.26 3.35

Increase (S$) 0.09 0.16 0.25

Target yield 4.1% 4.1% 4.1% 4.1%

Incremental NPI 37 74 110

Incremental DI 23 46 69

Assumptions: Asset Management Fees (PGIM) 0.50% 0.50% 0.50%

Interest Cost (PGIM) 3.0% 3.0% 3.0%

• Our target price will

increase from

S$3.10 to S$3.35

with the assumed

full stake in PGIM

ARF.

• Every additional

25% stake owned

by FCT will increase

our target price by 7

Scts, on a target

yield of 4.1%.

• We think that FCT’s

strong capacity will

allow it to leverage

up and acquire with

45% debt.

Projected gearing

will rise to 37.5%

from an existing

level of 33.0%.

Incremental revenue and DPU with additional stakes in PGIM (S$m, Scts) Remarks

Source: DBS Bank

• FCT’s revenue will

almost double from

S$201m to S$374m

following the

acquisition of

remaining stakes in

PGIM ARF.

• Correspondingly, we

estimate a revised DPU

of 13.68 Scts for

FY20F, translating into

an attractive yield

accretion of c.7.1%.

201

374

58 57

57

FY20F Revenue 50% 75% 100% FY20F Revenue(with PGIM ARF)

+29%+22%

+18%

12.8

13.7

0.4

0.3

0.2

FY20F DPU 50% 75% 100% FY20F DPU (withPGIM ARF)

+2.9%

+2.2%

+1.8%

Page 46Page 46

Page 46

Page 8

Company Guide



Dominant malls in the north. FCT derives close to 70% of its

revenues from two key suburban malls - Causeway Point (CWP)

and Northpoint City North Wing (NP), which are located in the

densely populated regions in the northern part of Singapore.

We believe both CWP and NP are dominant malls and focal

points in their respective districts of Woodlands and Yishun.

Supported by public transportation network (MRT), foot traffic

through these malls are consistently high through the week,

resulting in the properties delivering resilient cashflows through

various market cycles. As such, rental portfolio reversions have

generally stayed positive through market cycles supported by

resilient tenant sales. Looking ahead, with tenant sales

bottoming out supported by a stable macro environment, we

believe that FCT can continue to deliver an organic DPU growth

profile of 1-3%. The completion of the asset enhancement at

Causeway Point, poised for end-FY19, will also be a key driver

for positive reversions.

COVID-19 a short-term headwind. With dorscon level raised to

‘Orange’, shopping patterns had changed drastically amongst

locals and tourists. Retail malls island-wide saw a sharp dip in

traffic as people limit their exposure to public places. Prime

shopping malls in the central saw a dip between 50-70% while

suburban retail malls saw a similar decline of between 10-20%.

FCT’s suburban malls, while resilient, will likely see a dip in

tenant sales in the coming quarter, and faces the risk of

potential non-renewals of existing leases as tenants feel the

heat. This could flow through as lower tenant sales, softer

rental reversions and a dip in portfolio occupancy in the coming

quarters, despite the manager’s prompt damage control

measures.

Acquisitions to drive distributions higher; well anticipated by

investors. FCT benefits from having a visible pipeline of

acquisition prospects from its Sponsor – including its substantial

stake in PGIM’s AsiaRetail portfolio of five dominant suburban

malls in Singapore. Given the tightly held retail mall landscape

in Singapore, we see this as a valuable trait. FCT’s share price

would typically react positively during periods when the REIT

announces an acquisition. Following the group’s recently

proposed acquisition of the Sponsor’s 33% stake in Waterway

Point, we look forward to the potential injection of Northpoint

City South Wing further down the road.

Weak correlation with interest rates. Contrary to common

perception, interest rate movements have a weak correlation

with FCT’s share price or yield. We conclude that interest rate is

not a critical factor for FCT’s share price performance. However,

given its low interest rate hedge at present, unexpected rate

hikes could put pressure on its DPU and price.




Interest Cover (x)


Page 47Page 47

Page 47

Page 9

Company Guide


Balance Sheet:

Healthy balance sheet. FCT's gearing is currently estimated at

33.2%, which is well below the Manager’s comfortable level of

35%.

Higher floating rate exposure vs peers. Percentage of

borrowings on fixed rates had been lowered to c.53% as at

end-FY19, which remains at the lower end vs peers. We

anticipate a potentially lower cost of debt (2.57% at 31 Dec

2019) as c.43% of debt expiring in FY20/FY21 could be

refinanced at a lower rate.


Rental reversions at key assets and acquisition pipelines. Higher-

than-expected rental reversions from Causeway Point and

Northpoint, FCT’s largest assets will likely re-rate the stock.

Portfolio reconstitution. With the 40% stake in Waterway Point

firmly under its belt, we believe that FCT could upsize its

remaining 75.2% stake in PGIM ARF in the coming years. In

addition, we believe pockets of opportunities remains in FCT’s

enlarged portfolio that could be added to the divestment

pipeline. The capital recycling could be put forward to acquire

additional stakes in PGIM ARF and WWP as FCT ‘upcycles’ into

higher quality suburban retail malls in Singapore.

Key Risks:

Interest rate risks. If expectations of rate hikes increase, the

relatively high exposure to floating interest rates will amplify

the increase in the REIT’s cost of debt, putting pressure on

valuation.


FCT released its fourth Sustainability Report in FY2018, with a

moderate Bloomberg ESG Disclosure Score. The Trust seek to

encourage good corporate governance through fair and ethical

business practices. FCT periodically conducts energy audits for

its portfolio, and three of its properties have been certified by

BCA Green Mark as at 30 September 2018. In FY2018, the

Trust achieved a 32.5% increase in waste sent for recycling,

and e-waste bins are also available in its malls.

Company Background

Frasers Centrepoint Trust (FCT) is a retail real estate investment

trust (REIT) with a portfolio of shopping malls located in

suburban areas in Singapore. Its two largest assets are

Causeway Point and Northpoint.


ROE (%)


PB Band (x)

Environment, Social, Governance


Page 48Page 48

Page 48

Page 10

Company Guide



FY Sep 2017A 2018A 2019A 2020F 2021F

Gross revenue 182 193 196 201 206



Other Non Opg (Exp)/Inc 0.0 0.0 0.13 0.0 0.0




Net Income 99.5 104 113 135 140 Tax 0.0 0.0 0.0 0.0 0.0

Minority Interest 0.0 0.0 0.0 0.0 0.0


Net Income After Tax 99.5 104 113 135 140 Total Return 194 167 206 135 140

Non-tax deductible Items (6.7) (3.5) 9.77 7.54 5.81

Net Inc available for Dist. 111 111 119 143 145 Growth & Ratio

Revenue Gth (%) (1.2) 6.5 1.6 2.6 2.1

N Property Inc Gth (%) (0.2) 5.9 1.5 4.4 2.7

Net Inc Gth (%) 4.7 4.6 8.2 20.2 3.0




Dist to revenue (%) 60.9 57.6 60.5 71.0 70.7


to sales %)

9.4 8.9 9.5 8.8 8.8

ROAE (%) 5.5 5.5 5.1 5.5 5.7

ROA (%) 3.7 3.7 3.5 3.8 3.9

ROCE (%) 4.3 4.4 3.8 3.6 3.7

Int. Cover (x) 6.4 6.0 5.0 4.4 4.5


Driven by stable organic

growth

Page 49Page 49

Page 49

Page 11

Company Guide



FY Sep 1Q2019 2Q2019 3Q2019 4Q2019 1Q2020

Gross revenue 49.3 49.7 49.1 48.3 49.8



Other Non Opg (Exp)/Inc 0.0 (0.2) (0.4) (0.3) 0.87 Associates & JV Inc 4 4 16 37 38


Exceptional Gain/(Loss) 0.0 0.0 3.58 (1.5) (0.4)

Net Income 26.8 26.4 33.1 26.5 40.5

Tax 0.0 0.0 0.0 0.0 0.0

Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Income after Tax 26.8 26.4 33.1 26.4 40.5

Total Return 26.0 25.8 26.6 24.4 26.8

Non-tax deductible Items 0.89 2.30 (1.9) 2.12 10.1 Net Inc available for Dist. 27.7 28.8 29.9 32.6 35.0 Growth & Ratio

Revenue Gth (%) 2 1 (1) (2) 3

N Property Inc Gth (%) 8 3 (5) (5) 11

Net Inc Gth (%) 10 (2) 25 (20) 53



Balance Sheet (S$m)

FY Sep 2017A 2018A 2019A 2020F 2021F Investment Properties 2,668 2,749 2,846 2,851 2,856

Other LT Assets 65.0 66.5 749 749 749

Cash & ST Invts 13.6 21.9 13.1 8.80 10.4

Inventory 0.0 0.0 0.0 0.0 0.0

Debtors 4.26 3.00 3.14 3.14 3.14

Other Current Assets 0.0 0.06 0.0 0.0 0.0

Total Assets 2,751 2,840 3,611 3,611 3,618

ST Debt

152 217 295 295 295

Creditor 32.7 46.2 47.3 44.1 45.0

Other Current Liab 17.3 16.3 22.6 22.6 22.6

LT Debt 646 596 745 755 765

Other LT Liabilities 31.1 31.5 30.1 30.1 30.1




Non-Cash Wkg. Capital (45.8) (59.5) (66.8) (63.6) (64.5)

Net Cash/(Debt) (784) (791) (1,027) (1,041) (1,049) Ratio

Current Ratio (x) 0.1 0.1 0.0 0.0 0.0

Quick Ratio (x) 0.1 0.1 0.0 0.0 0.0


Z-Score (X) 1.7 1.8 1.7 1.7 1.7


Page 50Page 50

Page 50

Page 12

Company Guide



FY Sep 2017A 2018A 2019A 2020F 2021F

Pre-Tax Income 99.5 104 113 135 140

Dep. & Amort. 0.05 0.03 0.0 0.0 0.0

Tax Paid 0.0 0.0 0.0 0.0 0.0

Associates &JV Inc/(Loss) (4.4) (3.8) (15.8) (36.8) (37.5)

Chg in Wkg.Cap. 2.01 11.8 4.36 (3.2) 0.92

Other Operating CF 25.0 24.8 29.6 1.48 1.50

Net Operating CF 122 137 131 96.9 104 Net Invt in Properties (66.1) (15.6) (5.0) (4.9) (5.0)

Other Invts (net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV (6.8) 0.0 (668) 0.0 0.0



Net Investing CF (68.2) (11.6) (661) 31.9 32.5 Distribution Paid (108) (112) (114) (143) (145)

Chg in Gross Debt 64.0 15.0 206 9.91 9.99

New units issued 0.0 0.0 431 0.0 0.0

Other Financing CF (14.9) (19.8) (2.5) 0.0 0.0

Net Financing CF (59.2) (117) 521 (133) (135) Currency Adjustments 0.0 0.0 0.0 0.0 0.0

Chg in Cash (5.2) 8.32 (8.8) (4.3) 1.61


Free CFPS (S cts) 6.08 13.1 11.3 8.22 8.87



Source: DBS Bank


Derek TAN

Page 51Page 51

Page 51

Page 13

Company Guide









Completed Date: 9 Mar 2020 08:00:25 (SGT)

Dissemination Date: 10 Mar 2020 15:33:00 (SGT)




































Page 52Page 52

Page 52

Page 14

Company Guide







in market-making.














DBS Group.


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 Frasers Centrepoint Trust, Ascendas REIT, CapitaLand, CapitaLand Mall Trust, CapitaLand Commercial Trust,

Mapletree Commercial Trust, Mapletree Logistics Trust, Mapletree Industrial Trust, Suntec REIT, Keppel REIT, Keppel DC REIT,

Mapletree North Asia Commercial Trust, recommended in this report as of 31 Jan 2020.


Report.


share capital in Ascendas REIT, CapitaLand Mall Trust, Mapletree Commercial Trust, Mapletree Logistics Trust, Mapletree Industrial

Trust, Suntec REIT, Keppel REIT, Mapletree North Asia Commercial Trust, recommended in this report as of 31 Jan 2020.

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 Mapletree Logistics Trust, Suntec REIT, Mapletree North Asia Commercial Trust, as of 31 Jan 2020.


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 Frasers Centrepoint Trust, Ascendas REIT, CapitaLand, CapitaLand Mall Trust,

Mapletree Commercial Trust, Mapletree Logistics Trust, Mapletree Industrial Trust, Suntec REIT, Keppel DC REIT, LendLease Global

Commercial REIT as of 31 Jan 2020.








Page 53Page 53

Page 53


BUY Last Traded Price ( 10 Feb 2020): S$0.905 (STI : 3,163.15)


Analyst



What’s New

• DPU of 1.29 Scts for the quarter beats IPO forecast; in

line with our estimates.

• 313@somerset could see an additional 1,008 sqm of

GFA following an increase in plot ratio from 4.9+ to 5.6

• Low risk of non-renewal given a high tenant retention

rate of 92.5%

• An acquisition, which we believe to be stakes in JEM or

Parkway Parade, could happen earlier than expected

Price Relative


FY Jun (S$m) 2021F 2022F 2023F

Gross Revenue 87.7 89.2 91.6 92.8 Net Property Inc 66.6 68.5 69.4 Total Return 45.5 46.6 48.3 49.1 Distribution Inc 61.4 63.8 63.7 64.6 EPU (S cts) 3.84 3.92 4.01 4.06 EPU Gth (%) nm 2 2 1 DPU (S cts) 5.23 5.39 5.33 5.38 DPU Gth (%) nm 3 (1) 1 NAV per shr (S cts) 81.0 80.4 79.6 78.9 PE (X) 23.5 23.1 22.6 22.3 Distribution Yield (%) 5.8 6.0 5.9 5.9 P/NAV (x) 1.1 1.1 1.1 1.1 Aggregate Leverage (%) 34.5 34.5 34.6 34.6 ROAE (%) 4.7 4.9 5.0 5.1 Other Broker Recs: B: 2 S: 0 H: 0


Finance L.P.

313@somerset in a landlords’ market

BUY, TP of S$1.05. Lendlease Global Commercial REIT (LLCGR)’s

first set of results exceeded IPO forecasts. We remain positive on

the dominant characteristics of both 313@somerset and Sky

Complex. While Orchard retail malls had been in troubled waters

recently given the coronavirus outbreak, 313@somerset remains

resilient as it diversified away from the reliance on tourist receipts.

With just 25 leases remaining across the portfolio, representing

3% of portfolio NLA and a high retention ratio, we remain

confident of its ability to churn resilient cashflows in the medium

term.

Potential for another 1,008 sqm of GFA at 313@somerset. After

the latest Master Plan review, the permissible plot ratio for

313@somerset had been increased from 4.9+ to 5.6, translating

into another 1,008 sqm of gross floor area to be potentially

deployed. With existing tenants vying for expansion within

313@somerset, and high tenant retention ratio of 92.5%, we

believe this provides an option for tenants to expand and grow at

the mall. While no concrete plans had been shared, this extra GFA

could come in the form of conversion of the sixth floor car park

into commercial space, and act as a medium-term catalyst for

LLGCR.

An acquisition could be on the horizon. The manager remains on

the lookout for acquisition possibilities with metrics including the

following: (i) stabilised assets with >80% occupancy, (ii) minimal

AEI needed in the future, and (iii) value accretive to the REIT. We

believe that the real surprise will come from the Sponsor’s stake in

JEM or Parkway Parade which are both dominant suburban malls

that will anchor the REIT’s longer-term earnings resilience and

diversify away its earnings reliance on 313@somerset in the longer

term.

Valuation:

Our TP remains at S$1.05 as our growth forecasts remain largely

unchanged, and pricing in an acquisition will provide upside to

our current TP.


Key risks to our view include country risks in Singapore and Italy,

tenant concentration risk, changes in withholding tax laws in Italy,

foreign exchange risks and interest rate risks. At A Glance Issued Capital (m shrs) 1,168

Mkt. Cap (S$m/US$m) 1,057 / 761


Lendlease SReit 24.3

OCBC 10.9

Temasek Holdings 5.0

Free Float (%) 54.8




11 Feb 2020


LendLease Global Commercial REIT Version 1 | Bloomberg: LREIT SP | Reuters: LEND.SI Refer to important disclosures at the end of this report

Page 54Page 54

Page 54

Company Guide

LendLease Global Commercial REIT

WHAT’S NEW

(+) DPU of 1.29 Scts for the quarter beats IPO forecast; in line

with our estimates.

• LLGCR reported gross revenue and net property income

for the quarter of S$21.4m and S$16.2m, outperforming

IPO forecast by 1.0% and 3.2% respectively. DPU of 1.29

Scts exceeded forecast by 3.1% but is in line with our

estimates.

• Better-than-expected top-line performance was mainly

contributed by higher rents from 313@somerset, while

lower property operating expenses flowed through to the

bottom line.

• The portfolio maintained high committed occupancy of

99.8% and WALE at 10.1 years by NLA, supported by

healthy leasing momentum at 313@somerset and the

stability of Sky Complex asset which is under an extended

lease term until 2032.

• Growth momentum will continue to be underpinned by

rental escalations from 313@somerset and Sky Complex.

Approximately 60% of leases at 313@somerset have built-

in escalations of 3% per annum while rental escalation at

Sky Complex is tied to 75% of the ISTAT consumer price

index variation.

(+) Potential for another 1,008 sqm of GFA at 313@somerset

• The permissible plot ratio for 313@somerset had been

increased from 4.9+ to 5.6 in the latest Master Plan

review. This will translate into another 1,008 sqm of gross

floor area to be potentially deployed.

• While no concrete plans had been laid out, we understand

that key considerations would include the expansion plans

of current tenants, potential operational disruptions and

cost factors.

• One option would be the conversion of the sixth floor car

park into commercial space.

(+) 313@somerset’s operations holding strong; ongoing tenant

remix

• Several new concepts introduced to 313@somerset

included a home grown fashion brand and several F&B

tenants to draw shopper footfall. Leases renewed in the

past quarter were at a positive 0.5% rental reversion.

• There is an additional 11% of its GRI to be renewed in the

2HFY20, which we anticipate the manager to continue to

actively manage the portfolio tenant mix in order to

continue to the evolving retail landscape and changing

consumer preferences.

• Given the historical tenant retention rate of c.93% at

313@somerset, we do not see potential non-renewals as a

risk to the mall’s current high occupancy.

(+) Financial metrics remain healthy; interest rate and exchange

rate risk substantially lowered

• LLGCR’s gearing ratio stood at 34.9% for the quarter on a

debt maturity of 3.6 years.

• Weighted average running cost of debt is at a low 0.86%

per annum, with almost 100% of debt on a fixed rate.

• Euro-denominated income from Sky Complex is also

hedged until end FY2021.

• This substantially lowers most of LLGCR’s interest rate and

exchange rate risks for at least FY20 and FY21.

(+) Acquisitions; targeting to grow the portfolio

• The manager remains on the lookout for acquisition

possibilities with metrics including the following:(i)

stabilised with >80% occupancy, (ii) minimal AEI needed

in the future, and (iii) value accretive to the REIT.

• In our view, while investors remain on the lookout for the

potential injection of Paya Labar Quarters (PLQ) in

Singapore in phases (office towers; followed by retail) into

LLCGR, we believe that the real surprise will come from

the Sponsor’s stake in JEM or Parkway Parade (or if

possible the entire property subject to fund investors’

agreement). If successful, we believe that these dominant

suburban malls will anchor the REIT’s longer-term earnings

resilience and diversify away its earnings reliance on

313@somerset.

• We have not priced in any acquisitions in our estimates.

Page 55Page 55

Page 55

Company Guide



FY Jun 2Q20 IPO Forecast Variance % chg

Gross revenue 21.4 21.2 1.0

Property expenses (5.2) (5.5) (5.3)

Net Property Income 16.2 15.7 3.2

Other Operating expenses (0.5) (0.4) n.m

Other Non Opg (Exp)/Inc 0.1 - n.m

Management Fees (2.0) (1.9) (3.4)

Net Interest (Exp)/Inc (2.5) (2.7) (9.2)

Exceptional Gain/(Loss) (44.0) (48.2) 9.2

Net Income (32.7) (37.6) (13.1)

Tax - (0.0) -

Minority Interest - - -

Net Income after Tax (32.7) (37.6) (13.2)

Total Return (32.7) (37.6) (13.2)

Non-tax deductible Items 47.7 52.3 (8.8)

Net Inc available for Dist. 15.0 14.7 2.4

Ratio (%)

Net Prop Inc Margin 75.6% 74.0%

Dist. Payout Ratio 100.0% 100.0%


Page 56Page 56

Page 56

Company Guide



Critical Factors

An initial portfolio that is predominantly in Singapore. LLGCR

offers an opportunity to invest in a diversified portfolio of

stabilised income-producing real estate assets that cater

primarily to retail and/or office purposes. While the REIT holds

a global investment mandate, its initial portfolio comprises

100% ownership of a 99-year leasehold interest in

313@somerset, a retail property located in prime Orchard

Road, Singapore and full ownership of a freehold interest in

Sky Complex, which comprises three commercial office

buildings located in Milan, Italy. The total appraised valuation

of the initial portfolio is c.S$1.4bn as of June 2019, anchored

by Singapore (c.71.5% of value) and Italy (c.28.5% of value).

Lease structure is a balance between stability and growth.

LLCGR offers investors a visible earnings stream backed by a

long weighted average lease expiry (WALE) of 4.9 years by

gross rental income (GRI) and 10.4 years by net lettable area

(NLA). This is anchored by a long lease at Sky Complex where

the sole tenant (blue chip tenant) at SKY Italia has another

c.12.9 years to go on its lease. In Singapore, 313@somerset is

projected to deliver steady growth given ongoing tenant

retention and remixing strategies. As at June 2019, 92.8% of

the portfolio’s leases by GRI had step-up structures in the base

rent over the term of the lease, of which The Sky Complex,

which contributes 28.9% of total GRI, has rental escalation

that is pegged to 75% of ISTAT’s index variation

Backed by established Sponsor with a proven global reach.

LLGCR’s sponsor, Lendlease Corporation Limited, is part of the

Lendlease Group, and has a long track record of successfully

managing and operating commercial assets globally. The

Lendlease group has A$32.5bn worth of assets under

management globally. In Singapore, the Lendlease Group is

managing some of the highly successful and iconic shopping

malls including 313@somerset, Parkway Parade, Jem and Paya

Lebar Quarter (PLQ) which was officially launched in October

last year.

Additional GFA at 313@somerset. The reversion of plot ratio

from 4.9+ to 5.6 according to URA’s draft Master Plan 2019

could translate into an additional 1,008 GFA to be deployed at

313@somerset, and act as a medium-term catalyst for LLGCR.

The Manager is currently reviewing potential plans to deploy

the additional plot ratio, taking into account expansion plans

of current tenants, potential operational disruptions and cost

considerations. One option would be the conversion of the

sixth floor car park into commercial space.



Interest Cover (x)


Page 57Page 57

Page 57

Company Guide


Balance Sheet:

LLGCR’s gearing ratio stood at c.35% as at end-2019, well

within MAS’s 45% gearing limit. Debt headroom stands at

c.S$280m based on our estimates and a 45% target gearing,

and could be deployed for future acquisitions.


Rejuvenation of Orchard Road. The Singapore government has

plans to rejuvenate the Orchard Road precinct to further

enhance the vibrancy of the area. This could potentially result

in increased foot traffic and retail spending in Orchard,

benefitting LLGCR’s 313@somerset property coupled with

potential upside in plot ratio.

Additional GFA at 313@somerset. The reversion of plot ratio

from 4.9+ to 5.6 according to URA’s draft Master Plan 2019

could translate into an additional 1,008 GFA to be deployed at

313@somerset, and act as a medium-term catalyst for LLGCR.

Visible acquisition pipeline. Sponsor, Lendlease Group, has a

A$100bn global development pipeline and properties, which

includes A$35.2bn held under funds. In Singapore, the

Lendlease Group manages highly successful and iconic

shopping malls including 313@somerset, Parkway Parade, and

Jem and more recently Paya Lebar Quarter (PLQ) which was

launched in 3Q19.

(i) Parkway Parade – Sponsor owns 6.1% stake via Parkway

Parade Partnership Limited.

(ii) JEM - Sponsor owns 20.1% stake via Lendlease Asian Retail

Investment Fund 3.

(iii) Paya Lebar Quarter - Sponsor directly owns a 30.0%

interest in the development

Key Risks:

Concentration risk. Despite LLGCR’s initial portfolio being

diversified across two countries and various sectors, there is a

tight concentration on Sky Italia (single tenant), which

contributed c.28.9% to revenues in June 2019. Therefore, a

downturn in either key markets of Singapore and Italy could

have a disproportionately large impact on the REIT’s earnings.

Company Background

Lendlease Global Commercial REIT (“LLGCR”) was listed on 2

October as a real estate investment trust with a principal

objective to own in-producing real estate across the globe. The

initial portfolio will comprise of full ownership stakes in two

assets, retail mall 313@somerset (Singapore) and office asset,

Sky Complex (Italy)..


ROE (%)


Page 58Page 58

Page 58

Company Guide


Environment, Social, Governance: Balance Sheet (S$m)

FY Jun 2021F 2022F 2023F

Investment Properties 1,405 1,406 1,407

Other LT Assets 22.4 22.4 22.4

Cash & ST Invts 37.1 37.3 37.3

Inventory 0.0 0.0 0.0

Debtors 9.05 9.05 9.05

Other Current Assets 0.70 0.70 0.70

Total Assets 1,474 1,475 1,477

ST Debt

0.0 0.0 0.0

Creditor 5.95 6.10 6.19

Other Current Liab 0.0 0.0 0.0

LT Debt 509 510 511

Other LT Liabilities 0.0 0.0 0.0

Unit holders’ funds 959 959 959

Minority Interests 0.0 0.0 0.0

Total Funds & Liabilities 1,474 1,475 1,477

Non-Cash Wkg. Capital 3.81 3.65 3.57

Net Cash/(Debt) (472) (473) (474)

Ratio

Current Ratio (x) 7.9 7.7 7.6

Quick Ratio (x) 7.9 7.7 7.6

Aggregate Leverage (%) 34.5 34.6 34.6


Page 59Page 59

Page 59

Company Guide



FY Jun 2021F 2022F 2023F

Pre-Tax Income 46.6 48.3 49.1

Dep. & Amort. 0.0 0.0 0.0

Tax Paid 0.0 0.0 0.0

Associates &JV Inc/(Loss) 0.0 0.0 0.0

Chg in Wkg.Cap. 0.10 0.16 0.08

Other Operating CF 17.2 15.4 15.4

Net Operating CF 63.9 63.8 64.6

Net Invt in Properties (1.3) (1.3) (1.3)

Other Invts (net) 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 0.0 0.0

Div from Assoc. & JVs 0.0 0.0 0.0

Other Investing CF 0.0 0.0 0.0

Net Investing CF (1.3) (1.3) (1.3)

Distribution Paid (63.8) (63.7) (64.6)

Chg in Gross Debt 1.26 1.30 1.32

New units issued 0.0 0.0 0.0

Other Financing CF 0.0 0.0 0.0

Net Financing CF (62.6) (62.4) (63.2)

Currency Adjustments 0.0 0.0 0.0

Chg in Cash 0.10 0.16 0.08

Operating CFPS (S cts) 5.37 5.29 5.33

Free CFPS (S cts) 5.27 5.19 5.23



Source: DBS Bank


Derek TAN

Page 60Page 60

Page 60

Company Guide














































Page 61Page 61

Page 61

Company Guide







in market-making.














DBS Group.


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

proprietary position in the securities recommended in this report as of 31 Jan 2020.



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 LendLease Global Commercial REIT, as of 31 Jan 2020..

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 LendLease Global Commercial REIT, in the past 12 months, as of 31 Jan 2020.






6. 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.








Page 62Page 62

Page 62

ed: TH/ sa: PY, CS

BUY Last Traded Price ( 7 Nov 2019): S$2.39 (STI : 3,285.72) Price Target 12-mth: S$2.60 (9% upside) (Prev S$2.39) Analyst Rachel TAN +65 6682 3713 [email protected] Derek TAN +65 6682 3716 [email protected]

What’s New • Acquisition of MBCII a yield-accretive deal

• Inclusion in MSCI post the acquisition of MBCII which changes the landscape for MCT

• We believe it is time for a larger MCT to take on development projects in the future

• Maintain BUY; raised TP to S$2.60

Price Relative

Forecasts and Valuation FY Mar (S$m) 2018A 2019A 2020F 2021F Gross Revenue 434 444 458 563 Net Property Inc 339 348 359 445 Total Return 568 582 255 310 Distribution Inc 260 264 273 331 EPU (S cts) 8.45 8.50 8.78 9.37 EPU Gth (%) 15 1 3 7 DPU (S cts) 9.04 9.14 9.43 10.0 DPU Gth (%) 5 1 3 6 NAV per shr (S cts) 149 160 159 166 PE (X) 28.3 28.1 27.2 25.5 Distribution Yield (%) 3.8 3.8 3.9 4.2 P/NAV (x) 1.6 1.5 1.5 1.4 Aggregate Leverage (%) 34.6 33.1 33.2 35.1 ROAE (%) 5.9 5.5 5.5 6.1 Distn. Inc Chng (%): 0 0 Consensus DPU (S cts): 9.30 9.50 Other Broker Recs: B: 1 S: 1 H: 11

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

Scores a home run Maintain BUY; raised TP to S$2.60. We retain our BUY call on Mapletree Commercial Trust (MCT) and raised our street-high TP up one more notch to S$2.60. With the inclusion in MSCI post the acquisition of MBCII, we believe MCT has hit the ‘home run’ to sit at the ‘high table’. Given improved earnings visibility and being one of the “go-to” stocks in Singapore, we believe investors will remain vested. Where we differ: Above and beyond. We are the last remaining BUY rating in the street and raising our already street-high TP one notch higher to S$2.60 is a contrarion call. Despite the meteoric rise in the share price recently, we are still bullish on MCT with its best-in-class portfolio with dominant attributes within the Greater Southern Waterfront region. The stock also enjoys a scarcity premium of being one of only two 100%-Singapore-focused large-cap REITs which is highly valued by investors. It is time to undertake development to drive further NAV and earnings growth. We believe MCT will enjoy from a longer runway of growth driven by the acquisition of MBCII. Moreover, the larger MCT would now have room to take on development projects (especially Harbourfront Centre). Valuation: We raised our DCF-based TP to S$2.60 from S$2.39 and raised our DPU estimates for FY20F-FY21F by 2% to factor in the acquisition of MBCII. Key Risks to Our View: A key risk to our positive view is a slowdown in retail sales affecting VivoCity’s ability to increase rents, and a slower-than-expected pick-up in office/business park rents. At A Glance Issued Capital (m shrs) 3,097 Mkt. Cap (S$m/US$m) 7,401 / 5,452 Major Shareholders (%) Temasek Holdings Pte td 34.6 Schroders Plc 8.0 AIA Group Ltd 4.9

Free Float (%) 57.4 3m Avg. Daily Val (US$m) 21.3 GIC Industry : Real Estate / Equity Real Estate Investment (REITs)

Bloomberg ESG disclosure score (2018)^ 25.2 - Environmental / Social / Governance 14.0 / 28.1 / 48.2

^ refer to back page for more information


8 Nov 2019


Mapletree Commercial Trust Version 17 | Bloomberg: MCT SP | Reuters: MACT.SI Refer to important disclosures at the end of this report

Page 63Page 63

Page 63

Company Guide

Mapletree Commercial Trust

WHAT’S NEW

Scores a home run Conquering the Greater Southern Waterfront with the acquisition of MBCII: • Mapletree Commercial Trust (MCT) announced the long-

awaited proposed acquisition of Mapletree Business City Phase 2 (MBCII) for S$1,550m (S$1,300 psf NLA).

• Total acquisition cost (including fees) is S$1,576m. • Committed occupancy stands at 99.4% with WALE of

2.9 years • High quality key tenant, Google takes up c. 680,000 sqft

(c.57% of MBCII total NLA). • Average passing rents at S$6.15 psf per month is above

city fringe business park rental rates of S$5.80 psf per month.

• 97% of leases are embedded with 2.3% average annual rental step-ups

• MCT’s total asset value will increase from S$7.4bn as at 31 August 2019 to S$8.9bn post acquisition

• The business park segment’s total asset value will increase from 20.6% to 34.4% while retail will reduce from 46.3% to 38.2%

• Post the acquisition, 81% of NPI is estimated to be contributed by MCT’s jewel assets comprising VivoCity, MBCI and MBCII, which are best-in-class assets dominating the Greater Southern Waterfront.

• Property value is at 5% cap rate and 5% NPI yield vs existing NPI yield of 4.7%.

• Based on pro forma, the acquisition is 4% DPU accretive to 9.51 Scts and 2.2% NAV accretive to S$1.74 per unit

• Acquisition will be funded by 45:55 debt and equity. Expected to raise S$800-900m via private placement and non-renounceable preferential offering. Debt assumed interest cost of 2.9%

• MCT raised S$918.5m via equity fund-raising; comprising S$458m by private placement at S$2.28 per new unit and S$460.5m by preferential offering at S$2.24 per new unit.

Steady operational results despite some transitional vacancies in office: • MCT reported 2QFY20 DPU of 2.32 Scts (+2.2% y-o-y).

1HFY20 DPU of 4.63 Scts (+2.9% y-o-y) represents c.49% of our FY20 DPU estimates.

• 2QFY20 results were underpinned by 1.9% and 1.7% y-o-y increase in revenue and net property income (NPI) to S$112.0m and S$87.7m respectively.

• Core asset VivoCity (c.50% of revenues) continues to deliver steady returns (5.1% and 4.9% y-o-y increase in

revenues and NPI respectively) but offset by some transitional vacancies in Mapletree Anson which saw the latter’s revenue and NPI fall by 18% and 22% respectively.

• 2QFY20 distributable income increased 1.9% to S$66.8m. 1HFY20 distributable income increased 3.0% to S$134.1m.

VivoCity continues to deliver strong rental reversions of +6.8%; expects the new Fair Price to boost traffic and sales: • VivoCity maintained its robust financial performance with

strong growth in revenue and NPI but operational matrix remained a tad weak led by transitional changes in the mall.

• VivoCity maintained its robust financial performance with 2QFY20 revenue and NPI up by 5.1% and 4.9% y-o-y to S$55.5m and S$42.5m respectively.

• The uplift in earnings was largely attributed to slightly better actual occupancy (99.8% versus 94.7% in 2QFY19) and impact of prior quarter’s positive rental reversions.

• The mall maintained its strong positive rental reversion of +6.8% in 1HFY20, its highest since FY17, partially led by a strong 1QFY20 reversion of 7.3%.

• VivoCity’s 2QFY20 shopper traffic and tenant sales continued to fall by 2.8% and 2.0% respectively which were due to some continued impact from the changeover of Giant Supermarket to NTUC Fairprice, which only opened in July 2019, and the mid-autumn festival event which was less popular compared to last year’s Disney Tsum Tsum. However, management noted strong operational performance seen in NTUC Fairprice since its opening. While fashion remains weak, it was mitigated by strong sales from F&B (+c.10%).

Office/business park portfolio marginally impacted by transitional vacancies in Mapletree Anson; new leases to contribute from December 2019 onwards • Office/business park revenue and NPI fell 1% y-o-y and

1.2% y-o-y respectively, impacted by transitional vacancies in Mapletree Anson

• Mapletree Business City I (MBC I) reported a 0.6% and 1.1% y-o-y increase in 2QFY20 revenue and NPI respectively, largely led by marginally higher occupancy (98.9% vs 97.8% in 2QFY19) and in-built rental escalations.

Page 64Page 64

Page 64

Company Guide


• While MCT’s other office properties remain resilient, Mapletree Anson saw 1QFY20 revenue and NPI fall 18% y-o-y and 22% respectively mainly due to transitional vacancies.

• Mapletree Anson’s occupancy fell to 75.1% in 2QFY20

vs 90.4% in 2QFY19 due to tenant vacating the property and new tenants fitting out. The new leases are expected to begin contributing progressively from December 2019 onwards.

• Although occupancy at PSA Building continued to fall (91.3% in 2QFY20 vs 93.5% in 2QFY19), revenue and NPI both grew by 5% y-o-y due to the renewal of PSA lease at a high base. While occupancies are marginally low, we understand part of the vacancy has been filled (93.1% committed occupancy).

• While we understand that WeWork is committed to take up space at various properties (Mapletree Anson and PSA building), total exposure is estimated to be c.2.7%, which we believe is manageable. Moreover, we understand that the majority of the leases are mainly for enterprise business which we believe will be more sticky.

Stable capital structure • Average cost of debt flat q-o-q at 3.00%. • The proportion of fixed rate debt increased to 82.6% vs

80.5% in 1QFY20 (vs 85% in 4QFY19). • Refinancing risks are also mitigated by having not more

than 20% of debt due in any financial year. Maintain BUY; raised TP to S$2.60 We maintain our BUY rating but raised our TP to S$2.60 from S$2.39. We increased our FY20F-FY21F DPU estimates by 2% to factor into the acquisition of MBCII. With the inclusion in MSCI post the acquisition of MBCII, we believe MCT has hit the ‘home run’ to sit at the ‘high table’, its next near-term re-rating catalyst. Given improved earnings visibility and being one of the “go-to” stocks in Singapore, we believe investors will remain vested. Moreover, the larger MCT would now have room to take on development projects (especially Harbourfront Centre).


FY Mar 2Q2019 1Q2020 2Q2020 % chg yoy % chg qoq

Gross revenue 110 112 112 1.9 (0.1)


Net Property Income 86.3 88.4 87.7 1.7 (0.7)





Net Income 60.8 62.5 61.9 1.8 (1.1)

Tax 0.0 0.0 0.0 - -


Net Income after Tax 60.8 62.5 61.9 1.8 (1.1)

Total Return 60.8 62.5 367 504.5 487.3

Non-tax deductible Items 4.81 4.72 (300) nm nm

Net Inc available for Dist. 65.6 67.3 66.8 1.9 (0.6)

Ratio (%)


Dist. Payout Ratio 100.0 100.0 100.0 Source of all data: Company, DBS Bank

Page 65Page 65

Page 65

Company Guide


CRITICAL DATA POINTS TO WATCH Critical Factors VivoCity is one of the top-performing malls in Singapore. VivoCity, which contributes 45-50% of MCT’s NPI, is one of the top-performing malls in Singapore owing to its unique attribute of being the only major mall in the southern half of Singapore, a gateway to Sentosa Island, and having excellent connectivity via highways and the subway. With around 55m visitors each year and consistent delivery of tenants’ sales growth, VivoCity is one of the go-to malls for prospective retailers. Having just passed its 10-year anniversary, the mall has matured and is therefore no longer delivering double-digit earnings growth. However, we believe MCT’s plans to “future and e-commerce proof” the mall via the addition of services and lifestyle options, and ongoing tenant remixing, should enable VivoCity to deliver low single-digit rental reversions. Over the coming 12-24 months, the mall should also benefit from the opening of a library to drive foot traffic, and an addition of over 24,000 sqft of GFA and higher rents post the completion of various AEIs. MBC I another crown jewel with inbuilt step-ups. Another key asset for MCT is MBC I, a best-in-class office/business park property which is only 10-15 minutes' drive from Singapore’s CBD. MBC I contributes c.30% of MCT’s NPI. An attractive feature of the property is that a majority of the leases have annual rental escalations of around 3%. This provides the REIT with an inbuilt organic earnings growth profile. Due to its choice location, nearby amenities and discounted rents with Grade A office specifications, we believe MBC I will remain a top choice for tenants seeking a decentralised location. This provides earnings resiliency to the REIT. Recovery in spot office rents. Spot office rents have increased from the lows in 1H17 of S$8.95 psf per month, reaching S$11.45 psf per month at the end of 3Q19, according to CBRE estimates. Going forward, we expect office rents to approach S$12-13 psf per month by 2020/21. Given over 50% of MCT’s earnings are derived from its office/business park properties, we believe MCT is well placed to benefit from the upturn in office rents as new supply is expected to be muted over the coming 3-4 years. Transformative MBCII acquisition; room to take on development projects. With the long-awaited acquisition of MBCII now announced, it is both DPU and NAV accretive, based on the proforma numbers. We believe MCT will enjoy from a longer runway of growth driven by the acquisition of MBCII. Moreover, the larger MCT would now have room to take on development projects (especially Harbourfront Centre) to drive the next phase of growth.




Interest Cover (x)


Page 66Page 66

Page 66

Company Guide


Appendix 1:

MCT’s share price vs DPU Remarks

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

MCT’s share price typically

tracks its DPU. With MCT

expected to maintain an

upward trajectory in DPU

and upside from potential

acquisitions, we expect

MCT’s share price to rally

from current levels.

6.00

6.50

7.00

7.50

8.00

8.50

9.00

9.50

10.00

0.700.800.901.001.101.201.301.401.501.601.701.801.902.002.102.20

MCT share price (S$) (LHS) DPU (Scts) (RHS)

Page 67Page 67

Page 67

Company Guide


Balance Sheet: Gearing to rise to c.35% post acquisition of MBCII. MCT’s gearing stood at c.32% as of September 2019. After assuming the acquisition of MBCII, we expect gearing to stabilise at c.35%. Share Price Drivers: Continued delivery of steady DPU growth. The market has been concerned about MCT’s ability to deliver consistent and steady DPU ahead, given the maturing of VivoCity and headwinds in the retail sector such as e-commerce and large retail supply growth. We believe MCT’s recent AEI and addition of a library and resultant bonus 24,000 sqft of GFA should not only build a moat around its current earnings but also drive foot traffic/tenant sales, resulting in higher rents ahead. Pure-play Singapore REIT. With other S-REITs expanding outside Singapore, MCT is expected to remain focused solely in Singapore. This may attract investors who prefer S-REITs with 100% exposure to Singapore. Key Risks: Weaker operational performance from VivoCity. The mall is gradually phasing into a mature stage, with potential slowdown in growth ahead. The timely acquisition of MBC I, still a segment in high demand, plus management’s continuous efforts to revamp VivoCity’s offerings, should mitigate the slowdown at the portfolio level. 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 MCT’s debts are on fixed rates. Environment, Social, Governance: Sustainability is an integral part of MCT’s business approach. All MCT’s properties maintain at least the BCA Green Mark Gold Award. The trust successfully reduced landlord’s energy consumption by 1.9% vs FY17/18 baseline and targets to maintain this within c.1% in FY18/19. Company Background Mapletree Commercial Trust (MCT) is a real estate investment trust that invests in income-producing office, business park and retail properties in Singapore. The majority of its earnings are derived from VivoCity, one of the largest retail malls in Singapore. In addition, the REIT has four other office and business park properties including Mapletree Business City, a premier decentralised office/business park.



PB Band (x)

Environment, Social, Governance


5

10

15

20

25

30

35

Y2015 Y2016 Y2017 Y2018

MCT SP EQUITY Peers

Page 68Page 68

Page 68

Company Guide



FY Mar 2017A 2018A 2019A 2020F 2021F Gross revenue 378 434 444 458 563 Property expenses (85.4) (94.7) (96.3) (98.7) (118) Net Property Income 292 339 348 359 445 Other Operating expenses (27.7) (31.6) (32.8) (35.3) (41.4) Other Non Opg (Exp)/Inc (4.5) 1.62 0.57 0.0 0.0 Net Interest (Exp)/Inc (53.7) (63.9) (69.4) (69.6) (93.3) Exceptional Gain/(Loss) 4.21 (1.6) (0.4) 0.0 0.0 Net Income 211 243 246 255 310 Tax 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Income After Tax 211 243 246 255 310 Total Return 211 568 582 255 310 Non-tax deductible Items (119) (307) 18.3 18.6 21.3 Net Inc available for Dist. 227 260 264 273 331 Growth & Ratio Revenue Gth (%) 31.3 14.8 2.4 3.2 22.8 N Property Inc Gth (%) 32.4 15.9 2.6 3.4 23.7 Net Inc Gth (%) 32.6 15.6 1.0 3.6 21.8 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 77.4 78.2 78.3 78.5 79.0 Net Income Margins (%) 55.7 56.1 55.3 55.6 55.1 Dist to revenue (%) 60.2 60.1 59.5 59.6 58.9 Managers & Trustee’s fees

7.3 7.3 7.4 7.7 7.4

ROAE (%) 6.3 5.9 5.5 5.5 6.1 ROA (%) 3.9 3.7 3.5 3.6 3.9 ROCE (%) 4.9 4.7 4.6 4.6 5.2 Int. Cover (x) 4.9 4.8 4.5 4.7 4.3


Increase in earnings due to improved occupancies, additional GFA at VivoCity, recovery of the Singapore office market. We have also assumed the acquisition of MBCII in FY21

Page 69Page 69

Page 69

Company Guide



FY Mar 2Q2019 3Q2019 4Q2019 1Q2020 2Q2020 Gross revenue 110 113 113 112 112 Property expenses (23.7) (24.7) (25.3) (23.8) (24.3) Net Property Income 86.3 87.9 87.6 88.4 87.7 Other Operating expenses (8.2) (8.3) (8.2) (8.5) (8.6) Other Non Opg (Exp)/Inc 0.11 0.0 0.08 0.22 0.44 Net Interest (Exp)/Inc (17.4) (17.6) (17.5) (17.6) (17.7) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Net Income 60.8 62.0 62.0 62.5 61.9 Tax 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Income after Tax 60.8 62.0 62.0 62.5 61.9 Total Return 60.8 62.0 399 62.5 367 Non-tax deductible Items 4.81 5.00 (332) 4.72 (300) Net Inc available for Dist. 65.6 67.0 66.9 67.3 66.8 Growth & Ratio Revenue Gth (%) 1 2 0 (1) 0 N Property Inc Gth (%) 0 2 0 1 (1) Net Inc Gth (%) 0 2 0 1 (1) Net Prop Inc Margin (%) 78.5 78.1 77.6 78.8 78.3 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0

Balance Sheet (S$m)

FY Mar 2017A 2018A 2019A 2020F 2021F Investment Properties 6,337 6,682 7,039 7,053 8,643 Other LT Assets 11.2 10.2 7.44 7.44 7.44 Cash & ST Invts 53.9 45.1 49.1 51.0 48.2 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 2.97 2.95 4.00 4.13 5.07 Other Current Assets 0.42 0.42 1.08 1.08 1.08 Total Assets 6,406 6,741 7,101 7,117 8,705 ST Debt

0.0 144 50.0 50.0 50.0 Creditor 71.5 83.2 81.0 83.0 99.2 Other Current Liab 0.39 0.15 0.01 0.01 0.01 LT Debt 2,330 2,186 2,300 2,314 3,002 Other LT Liabilities 46.6 44.7 53.7 53.7 53.7 Unit holders’ funds 3,957 4,283 4,616 4,616 5,500 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Funds & Liabilities 6,406 6,741 7,101 7,117 8,705 Non-Cash Wkg. Capital (68.5) (80.0) (75.9) (77.8) (93.0) Net Cash/(Debt) (2,276) (2,284) (2,301) (2,313) (3,004) Ratio Current Ratio (x) 0.8 0.2 0.4 0.4 0.4 Quick Ratio (x) 0.8 0.2 0.4 0.4 0.4 Aggregate Leverage (%) 36.4 34.6 33.1 33.2 35.1 Z-Score (X) 1.8 1.8 1.8 1.8 1.8


Increase in gearing due to acquisition of MBCII

Page 70Page 70

Page 70

Company Guide



FY Mar 2017A 2018A 2019A 2020F 2021F Pre-Tax Income 211 243 246 255 310 Dep. & Amort. 0.0 0.0 0.0 0.0 0.0 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. 15.3 10.0 6.65 1.90 15.2 Other Operating CF 61.8 78.9 84.7 88.3 115 Net Operating CF 288 332 337 345 440 Net Invt in Properties (1,853) (18.5) (22.1) (13.7) (1,590) 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 Div from Assoc. & JVs 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.34 0.35 0.0 0.0 0.0 Net Investing CF (1,853) (18.2) (22.1) (13.7) (1,590) Distribution Paid (202) (260) (263) (273) (331) Chg in Gross Debt 777 0.0 21.4 13.7 688 New units issued 1,034 0.0 0.0 0.0 884 Other Financing CF (53.7) (63.2) (70.4) (69.6) (93.3) Net Financing CF 1,556 (323) (312) (329) 1,147 Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (9.7) (8.8) 3.39 1.90 (2.8) Operating CFPS (S cts) 9.48 11.2 11.4 11.8 12.8 Free CFPS (S cts) (54.5) 10.9 10.9 11.4 (34.8)



Source: DBS Bank

Analyst: Rachel TAN

Derek TAN

Acquisition of MBCII

Net proceeds from c.S$900m equity-raising

Page 71Page 71

Page 71

Company Guide


^ Bloomberg ESG Disclosure Scores rate companies annually based on their disclosure of quantitative and policy-related ESG data. It is based on a scoring scale of 0-100, and calculated using a subset of more than 100 raw data points it collects on ESG. It is designed to measure the robustness of companies' disclosure of ESG information in their reporting/the public domain. Based on Bloomberg disclosures, as of 25 Jan 2019, the global ESG disclosure average score is 24.92 and 22.14, 28.26, 49.97 for Environmental, Social and Governance, respectively.







*Share price appreciation + dividends Completed Date: 8 Nov 2019 08:48:38 (SGT) Dissemination Date: 8 Nov 2019 08:56:04 (SGT)

































Page 72Page 72

Page 72

Company Guide










in market-making.














DBS Group.



proprietary position in Mapletree Commercial Trust recommended in this report as of 30 Sep 2019


Report.












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 73Page 73

Page 73


BUY Last Traded Price ( 20 Jan 2020): S$1.25 (STI : 3,280.09)


Analyst



Rachel TAN +65 6682 3713 [email protected]

What’s New • Earlier than projected re-opening of Festival Walk a

confidence booster

• Acquisition of 2 Japan properties to diversify its

earnings base

• Potential indexation in the medium term a catalyst

• Earnings revised higher; TP revised to S$1.35

Price Relative


FY Mar (S$m) 2019A 2020F 2021F 2022F

Gross Revenue 409 362 443 456 Net Property Inc 329 288 344 352 Total Return 634 154 203 205 Distribution Inc 241 232 253 257 EPU (S cts) 5.63 4.84 6.22 6.13 EPU Gth (%) 1 (14) 29 (1) DPU (S cts) 7.69 7.25 7.59 7.64 DPU Gth (%) 3 (6) 5 1 NAV per shr (S cts) 144 142 140 139 PE (X) 22.2 25.9 20.1 20.4 Distribution Yield (%) 6.2 5.8 6.1 6.1 P/NAV (x) 0.9 0.9 0.9 0.9 Aggregate Leverage (%) 36.7 37.1 39.2 38.8 ROAE (%) 4.0 3.4 4.4 4.4 Distn. Inc Chng (%): 20 9 - Consensus DPU (S cts): 7.00 7.30 7.50 Other Broker Recs: B: 4 S: 2 H: 1

Source of all data on this page: Company, DBS Bank,

Bloomberg Finance L.P.

Victory against all odds

BUY, TP revised to S$1.35. We maintain our BUY call on

Mapletree North Asia Commercial Trust (MNACT) with a revised

TP of S$1.35 given better-than-expected performance for

Festival Walk. With the mall re-opened earlier than expected,

we believe that the worst is over for the stock. At 0.9x P/NAV

with forward prospective yields of 6.1% (FY21) vs sector

average of 5.5%, we believe returns are attractive at current

levels. TP is revised higher given the stronger cashflows for its

key asset.

Where we differ: Decisive plans to mitigate the downtrend.

With its fortunes tied closely to the outlook for its key asset –

Festival Walk (62% of net property income), the closure of the

mall for extensive repairs and loss of income during the period

will have an impact on its distributions. The manager has

outperformed expectations on this front with the mall only

closed for 64 days (vs 139 days estimated) and at the same

time, maintaining 100% committed occupancy rates. We

anticipate that the worst could be over as sequential

performance will likely show an improvement going forward.

Acquisitions to diversify earnings base. The acquisition of two

properties in Japan will put MNACT on a firmer footing going

forward. Apart from a more diversified earnings base, we

believe that prospects of potential indexation into the EPRA

NAREIT Developed World Index will drive upside higher in the

medium term.

Valuation:

Our DCF-based TP is revised to S$1.35 on the back of better

cashflows for Festival Walk.


The key risk to our view is a significant downturn in Hong

Kong and China’s economies, leading to a decline in rents.


Mkt. Cap (S$m/US$m) 3,993 / 2,965


Temasek Holdings Pte Ltd 33.7

Schroders Plc 5.3

Free Float (%) 61.0




21 Jan 2020


Mapletree North Asia Commercial Trust Version 18 | Bloomberg: MAGIC SP | Reuters: MAPE.SI Refer to important disclosures at the end of this report

Page 74Page 74

Page 74

Company Guide

Mapletree North Asia Commercial Trust

WHAT’S NEW

Worst could be over

Results: Weak 3QFY20 results; but worst could be over.

• 3QFY20 results were impacted by the closure and rent

relief given for tenants for its key asset, Festival Walk

since 12 November 2019. This is according to

expectations.

• Gross revenues and net property income dipped by

36.3% and 40.0% to S$105.6m and S$84.6m

respectively due to the above reason, a conversion of a

property in Japan from a single tenancy to multi-tenancy

due to a non-expiry and lower occupancy rates at

Gateway Plaza.

• Weaker currencies (HKD, RMB) vs the SGD also impacted

performance, offset by the higher JPY:SGD exchange

rate.

• Distributable income however only dipped by 12.5% (y-

o-y) to S$53.3m due to a distribution top-up of S$25.8m

during the quarter for the non-rental collection and

closure of Festival Walk. This translates into a DPU of

1.671 Scts (-13.3% y-o-y).

• On a YTD basis, DPU dipped slightly to 5.558 Scts (vs

5.734 Scts). YTD performance is ahead of our estimates.

Festival Walk: Opening ahead of expectations with 100%

committed occupancy.

• Festival Walk has since started operating from 16

January 2020 (closed for 64 days and in time for the

Chinese Lunar New Year [CNY] festivities, earlier than

previously envisaged (vs 139 days previously guided, till

end of March 2019).

• The mall’s committed occupancy rate remains at a

robust 100% as of end-December 2019 and rental

reversions for the mall remain high at 12% (retail) and

6% (office).

• With management and its property team tirelessly

working to minimise disruptions to tenants and shoppers

at the mall, we remain confident that these actions will

prove to be invaluable to tenants which should be even

stickier going forward given a pro-active landlord that

has their interest at heart.

• Rental collection is noted to have started since the mall

re-opened, while we believe that it will likely take a

couple of months more before operations stabilise (and

hopefully no more further disruptions), the worst might

be over for MNACT as operational performance takes a

sequential step up.

• In view that rent collection for Festival Walk has started,

the manager believes that the previously announced

disruption top-ups (up to 40% of Festival Walk’s rental

income), are no longer needed from the next quarter

onwards.

• Awaiting receipt of insurance proceeds, the manager is

expected to pay back (loan taken to pay out the interim

distribution top-ups) with the remainder paid to

unitholders in the form of a dividend.

Other properties in the portfolio:

China: Leasing activities to turn more modest.

• Both properties in China – Gateway Plaza (in Beijing) and

Sandhill Plaza (Shanghai) saw weaker occupancy rates of

91.6% and 98.3% respectively while rental reversions

were at -3% (Gateway Plaza) and +9% (Sandhill Plaza).

• The divergence in performance seen was due to

Gateway Plaza being impacted by greater competition

(supply) in Beijing while Sandhill continued to attract

tenants within its niche technology space given its

position as a business park. The slower economic growth

is expected to remain a drag for leasing activities for its

properties in China.

Japan: Conversion of single-tenancy to multi-tenancy building

dragged occupancy levels down.

• Rental reversions dipped -2% due to expiry of six leases

YTD FY20, the dip in occupancy rate to 97.1% was due

to a non-expiry of a single tenanted property in Japan

and the manager is actively marketing the vacated

space.

• Looking ahead, MNACT is expected to see incremental

income from Japan, post the contribution from the

proposed acquisition of two Japan properties (EGM on

20 January 2020). This is expected to pull income even

higher in the medium term and add further stability to

the REIT going forward.

DPU estimates: Revised estimates up by 20% and 9%

• As we had previously conservatively assumed that

Festival Walk remain closed till the end of March 2020

and given the earlier-than-expected opening of Festival

Walk, our estimates are conservative vs actual

performance.

• Our estimates are tweaked higher in anticipation of the

latest operational update for Festival Walk.

• TP is adjusted higher to S$1.35.

Page 75Page 75

Page 75

Company Guide



FY Mar 3Q2019 2Q2020 3Q2020 % chg yoy % chg qoq

Gross revenue 106 106 67.3 (36.3) (36.2)


Net Property Income 84.6 84.7 50.8 (40.0) (40.1)

Other Operating expenses (7.2) (7.1) (5.8) (18.4) (17.1)

Other Non Opg (Exp)/Inc 0.44 0.21 3.63 723.6 1,646.2

Net Interest (Exp)/Inc (18.6) (18.5) (18.1) 2.7 1.9


Net Income 59.3 59.4 30.5 (48.6) (48.8)

Tax (10.2) (10.4) (5.0) (51.2) (52.3)

Minority Interest (0.1) (0.1) (0.1) 9.2 (14.3)

Net Income after Tax 48.9 48.9 25.4 (48.2) (48.1)

Total Return 48.9 48.9 25.4 (48.2) (48.1)

Non-tax deductible Items 12.1 12.9 2.18 (81.9) (83.0)

Net Inc available for Dist. 61.0 61.7 53.4 (12.5) (13.5)

Ratio (%)




Page 76Page 76

Page 76

Company Guide



Critical Factors

Festival Walk closed for renovations. Festival Walk was closed

for extensive repairs and opened in Jan’20, subject to approvals

being obtained from authorities. The office tower was closed

from the 13 -25 November 2019 and has since been reopened

to tenants. During the period of closure, rents were not

collected from retail tenants. Since the tower has reopened,

rental collection has resumed.

During the period of closure when no rent is received from

tenants and before insurance proceeds are received, the

manager will top up distributions (based on 40% of Festival

Walk’s rental income). Given this latest operational update that

rent collection has resumed, the manager believes that no

further top-up is needed, ahead of initial expectations.

Sandhill Plaza remains under-rented. Sandhill Plaza in Shanghai

is expected to continue driving MNACT’s earnings. However,

we believe the benefits from this acquisition have not been

fully realised as passing rents at the property remain at c.10-

15% below market. In the near term, the property should

benefit from the 15% positive rental reversions generated.

Expansion to Japan offer resilience. Due to the tight yields for

properties in China and HK, combined with MNACT’s relatively

high trading yield, it may be difficult for MNACT to acquire

properties and still achieve DPU accretion. The planned

acquisition from Japan at 4.5% yield will provide some form of

resilience to MNACT as it works on bringing back Festival Walk

to its former glory.

Stable contribution from Gateway Plaza. With Gateway Plaza’s

passing rent approaching the top end of the asking rent range

of RMB320-350 per sqm per month, we believe rental

reversions will now be more modest. In addition, with slowing

demand in Beijing, we expect Gateway Plaza to deliver more

stable contribution going forward. This compares to the high-

growth period several years back when the property was

significantly under-rented.

Upside from acquisitions. The manager remains keen to

acquire and grow which we have yet to factor in. This

inorganic strategy could offer potential upside to our DPU

estimates.




Interest Cover (x)


Page 77Page 77

Page 77

Company Guide


Balance Sheet:

Optimal gearing levels. We expect gearing to head up to 39%

post acquisitions and remain there, excluding any revaluation

gains or acquisitions.

Moderate exposure to rising interest rates. The manager

intends to fix a substantial part of the interest costs into fixed

rates (c.70-90% range) which will partially insulate the REIT

against rising interest rates in the near term.


Festival Walk to drive growth ahead. Investors may be

concerned about the outlook for retail rents in Hong Kong in

the medium term. While Festival Walk reopened earlier than

expected and downside risk mitigated, we believe that the

stronger operational earnings sequentially to drive the stock

higher in the medium term.

Yields to compress to HK peers' level. Over the last five years

since listing, MNACT has posted a strong performance in terms

of DPU growth, tenant sales and rental reversions. Thus, we

believe MNACT’s yield premium to its HK-listed peers is

unwarranted.

Key Risks:

Foreign exchange risks. While FX over the past two years has

been a tailwind, the depreciation of the HKD and CNY would

negatively impact MNACT’s DPU and NAV per share on a

lagged basis. MNACT hedges its income to smoothen out the

volatility from movements in FX rates.

Economic risks. A significant economic downturn in HK and

China would cause a decline in rents for retail and office

properties. This would, in turn, negatively impact MNACT’s

earnings and DPU.


The manager’s risk measurement framework is based on the

Value-at-Risk methodology that tracks fluctuations in market

and property risk factors. In terms of sustainability, the

manager has enhanced water efficiency by 4.0% from

FY17/18 to FY18/19. MNACT was also granted five awards by

the Hong Kong Green Shop Alliance for its eco-friendly

initiatives at Festival Walk mall.

Company Background

MNACT is a Singapore real estate investment trust (S-REIT)

established with the investment strategy of investing, directly

or indirectly, in a diversified portfolio of income-producing

commercial real estate in the Greater China region and Japan.


ROE (%)


PB Band (x)


Page 78Page 78

Page 78

Company Guide



FY Mar 2018A 2019A 2020F 2021F 2022F

Gross revenue 355 409 362 443 456

Property expenses (67.9) (79.7) (74.1) (99.3) (103)

Net Property Income 287 329 288 344 352

Other Operating expenses (24.2) (28.2) (22.2) (26.8) (28.2)




Net Income 201 231 195 246 249 Tax (43.9) (61.4) (40.3) (42.3) (43.5)

Minority Interest 0.0 (0.5) (0.5) (0.5) (0.5)


Net Income After Tax 157 169 154 203 205 Total Return 574 634 154 203 205

Non-tax deductible Items 53.7 71.9 46.8 50.0 51.7

Net Inc available for Dist. 211 241 232 253 257 Growth & Ratio

Revenue Gth (%) 1.3 15.1 (11.5) 22.5 2.8

N Property Inc Gth (%) 0.5 14.6 (12.6) 19.6 2.5

Net Inc Gth (%) 2.3 7.4 (8.7) 31.9 1.1




Dist to revenue (%) 59.4 58.9 64.1 57.1 56.4


to sales %)

6.8 6.9 6.1 6.0 6.2

ROAE (%) 4.2 4.0 3.4 4.4 4.4

ROA (%) 2.4 2.4 2.0 2.5 2.5

ROCE (%) 3.4 3.3 2.9 3.5 3.4

Int. Cover (x) 3.9 4.2 3.8 4.5 4.3


Driven from Japan

acquisitions

Page 79Page 79

Page 79

Company Guide



FY Mar 3Q2019 4Q2019 1Q2020 2Q2020 3Q2020

Gross revenue 106 104 105 106 67.3



Other Non Opg (Exp)/Inc 0.44 1.12 (0.2) 0.21 3.63 Net Interest (Exp)/Inc (18.6) (17.9) (17.9) (18.5) (18.1)


Net Income 59.3 59.6 59.8 59.4 30.5

Tax (10.2) (31.8) (10.8) (10.4) (5.0)

Minority Interest (0.1) (0.2) (0.1) (0.1) (0.1) Net Income after Tax 48.9 27.7 48.9 48.9 25.4

Total Return 48.9 493 48.9 48.9 25.4

Non-tax deductible Items 12.1 34.4 13.2 12.9 2.18 Net Inc available for Dist. 61.0 62.1 62.0 61.7 53.4 Growth & Ratio

Revenue Gth (%) 1 (2) 1 1 (36)

N Property Inc Gth (%) 1 (1) 1 0 (40)

Net Inc Gth (%) 7 (44) 77 0 (48)



Balance Sheet (S$m)

FY Mar 2018A 2019A 2020F 2021F 2022F Investment Properties 6,292 7,610 7,618 8,111 8,122

Other LT Assets 40.6 16.5 16.5 16.5 16.5

Cash & ST Invts 179 180 159 163 97.7

Inventory 0.74 0.67 0.67 0.67 0.67

Debtors 9.42 9.32 8.25 10.1 10.4


Total Assets 6,523 7,820 7,807 8,306 8,252

ST Debt

83.8 288 288 288 288

Creditor 87.3 93.2 79.5 95.7 96.7


LT Debt 2,277 2,580 2,611 2,967 2,911

Other LT Liabilities 155 237 237 237 237




Non-Cash Wkg. Capital (105) (110) (97.5) (112) (113)

Net Cash/(Debt) (2,182) (2,688) (2,740) (3,092) (3,101) Ratio

Current Ratio (x) 0.9 0.5 0.4 0.4 0.3

Quick Ratio (x) 0.9 0.5 0.4 0.4 0.3


Z-Score (X) 0.8 0.7 0.7 0.6 0.7


Gearing remains at an

optimal 37-38%

Page 80Page 80

Page 80

Company Guide



FY Mar 2018A 2019A 2020F 2021F 2022F

Pre-Tax Income 201 231 195 246 249

Dep. & Amort. 3.49 3.49 3.49 3.49 3.49

Tax Paid (37.9) (28.4) (40.3) (42.3) (43.5)

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

Chg in Wkg.Cap. 43.0 (0.2) (12.6) 14.4 0.73

Other Operating CF 96.6 103 43.8 47.0 48.7

Net Operating CF 306 309 189 269 259 Net Invt in Properties (5.0) (736) (9.0) (494) (11.4)

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 0.27 (0.1) 0.0 0.0 0.0

Net Investing CF (4.7) (737) (9.0) (494) (11.4) Distribution Paid (209) (285) (232) (253) (257)

Chg in Gross Debt (30.2) 463 31.0 356 (56.0)

New units issued 0.0 325 0.0 127 0.0

Other Financing CF (65.2) (76.1) 0.0 0.0 0.0

Net Financing CF (304) 426 (201) 229 (313) Currency Adjustments 0.0 (1.6) 0.0 0.0 0.0

Chg in Cash (2.4) (2.8) (20.7) 4.28 (65.7)


Free CFPS (S cts) 10.7 (14.2) 5.65 (6.9) 7.39



Source: DBS Bank

Analyst: Derek TAN

Singapore Research Team

Rachel TAN

Page 81Page 81

Page 81

Company Guide









Completed Date: 21 Jan 2020 09:39:28 (SGT)

Dissemination Date: 21 Jan 2020 12:11:15 (SGT)



































Page 82Page 82

Page 82

Company Guide








in market-making.














DBS Group.


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 Mapletree North Asia Commercial Trust recommended in this report as of 31 Dec 2019.


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 Mapletree North Asia Commercial Trust recommended in this report as of 31 Dec 2019.

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 Mapletree North Asia Commercial Trust as of 31 Dec 2019.






Directorship/trustee interests:

6. Su Shan TAN, a member of DBS Group Management Committee, is a Director of Mapletree North Asia Commercial Trust as of 02 Jan 2020.








Page 83Page 83

Page 83

ed: JS/ sa: YM, PY, CS

BUY Last Traded Price ( 20 Feb 2020): S$0.82 (STI : 3,198.68)


Analyst



What’s New • Full year DPU of 6.533 Scts exceeds IPO forecast by

4.7%

• Robust growth in customer loyalty as FY19 tenant sales

grew 12.1% y-o-y

• Watch out for leasing momentum as 51.6% of leases

by NLA will expire this year

• Minimum rent guarantee will no longer take effect in

FY20

Price Relative


FY Dec (S$m) 2018A 2019A 2020F 2021F

Gross Revenue 93.5 118 121 129 Net Property Inc 93.5 118 121 129 Total Return 169 126 64.0 68.2 Distribution Inc 60.5 77.9 73.8 79.6 EPU (S cts) 14.3 10.5 5.30 5.58 EPU Gth (%) nm (26) (50) 5 DPU (S cts) 5.13 6.51 6.11 6.52 DPU Gth (%) nm 27 (6) 7 NAV per shr (S cts) 91.0 89.4 88.5 87.5 PE (X) 5.7 7.8 15.5 14.7 Distribution Yield (%) 6.3 7.9 7.5 7.9 P/NAV (x) 0.9 0.9 0.9 0.9 Aggregate Leverage (%) 29.0 28.5 28.7 28.8 ROAE (%) 31.5 11.8 6.0 6.4 Distn. Inc Chng (%): (11) (7) Consensus DPU (S cts): 6.90 7.20 Other Broker Recs: B: 4 S: 0 H: 0


Finance L.P.

Down but not out

Attractive yields to gun for. We maintain our BUY call but lower

TP slightly to S$0.93. We believe that Sasseur REIT can post a

rebound in operations post the temporary closure of its malls

due to the Covid-19 virus as a precautionary measure. We

believe in its long-term growth prospects of the outlet mall

industry and the group can ride through the temporary

disruptions stronger. Our lower TP reflects the adjustment in our

numbers to account for an assumed closure of their malls up to

end March'20. Yields remain attractive at 7.5%.

Where we differ – More conservative tenant sales estimates.

While near term earnings decline expected, we take comfort

that the EMA (Entrusted Manager Agreement) income is fairly

resilient as 70% of the rent is fixed and grows at an annual

3.0% offering a stable organic growth profile and provides

some form of earnings stability in the near term.

Our sales assumptions are cut by 10% in FY20 (in anticipation

of a recovery in 2H20) and a stronger rebound in 2021, educing

our estimates for both topline and DPU by 7.6% and 11.1%.

Upside will come from the earlier than anticipated re-opening of

the malls vs our estimates. Once cleared for re-opening, we

understand that the manager is planning with the operator a

wide marketing event to drive traffic and sales to the mall.

Valuation:

Our BUY call and DCF-based TP lowered to S$0.93 after

modeling in a 10% y-o-y dip in portfolio tenant sales for FY20,

shaving off c.S$10m from our previous revenue estimate.


The key risk to our view is the longer-than-expected closure of

portfolio malls beyond 1Q20.


Mkt. Cap (S$m/US$m) 981 / 704


Sasseur Cayman Holding II Ltd 57.1

Cornerstone Investors 19.2

Meritz Securities Co Ltd 6.6

Free Float (%) 17.1




21 Feb 2020


Sasseur REIT Version 4 | Bloomberg: SASSR SP | Reuters: SASS.SI Refer to important disclosures at the end of this report

Page 84Page 84

Page 84

Company Guide

Sasseur REIT

WHAT’S NEW

(+) Full year DPU of 6.533 Scts exceeds IPO forecast by 4.7%

• EMA rental income of S$28.1m for 4Q19 was a 9.0%

dip y-o-y, with full year EMA income at S$118.0m,

exceeding IPO projections by 1.0% in RMB terms.

• DPU for 4Q19 of 1.629 Scts (-18.5% y-o-y) brought

full year DPU to 6.533 Scts, exceeding IPO projections

at 6.241 Scts.

• Revenue and DPU made up 94% and 98% of our full

year forecasts on a set of weaker 4Q19 results.

• Hefei and Bishan brought in weaker tenant sales for

the past quarter at RMB 338m (flat y-o-y) and RMB

127m (-4% y-o-y) due to unusually warm weather.

• As set out in the IPO prospectus, Sasseur’s minimum

rent guarantee under the EMA (Entrusted

Management Agreement) income structure will no

longer apply going into FY20 having beat IPO forecasts

for two consecutive years.

• Aggregate leverage as at end 4Q19 stood at 27.8%,

translating to a debt headroom of S$305m (45%

gearing limit).

• Well spread average debt maturity of 2.73 years and

stable interest rate at 4.41%.

• Portfolio valuation rose 6.6% y-o-y to RMB 7.7b, lifted

by a 10.9% valuation gain at Hefei outlet mall.

(+/-) Robust growth in customer loyalty; Keeping a close watch

on leasing momentum

• Portfolio occupancy inched up 60 bps to 96% in the

past quarter, remaining at healthy levels.

• Full year tenant sales grew 12.1% y-o-y to RMB 4.8b

with a robust growth in captive shopper traffic.

• Total VIP members for the portfolio malls rose 93% y-

o-y to 1.58 million at year end December.

• With 51.6% of leases by NLA expiring this year, there

remains to be a risk of non-renewals amongst tenants

that may be reflected by a drop-in occupancy in the

coming quarters.

• Sasseur continues to bench on it’s ecommerce

platform, including the use of Wechat, social media

• and mobile payment, to allow existing customers to

shop from home during this period of mall closure.

(+/-) Outlook: Portfolio malls continue to be under temporary

closure

• A bold and courageous move made by the managers

to ensure the health of employees and shoppers

• Management shared that pre-CNY sales was stronger

this year, while CNY is usually a quiet period for

shopping malls; the Chinese government had also

extended CNY holidays to 2nd

Feb.

• Given that the minimum rent guarantee under the

EMA structure will no longer take effect into 1Q20,

there will be downside risk to DPU in relation to lower

tenant sales.

• Nonetheless, approximately 70% of rental income is

fixed under the EMA income structure, which should

provide stability against a dip in tenant sales for

FY20.

• On that note, we are hopeful that the outlet malls will

reopen by March in time for Sasseur’s Annual Spring

Sales.

• Sasseur will also be exploring AEI opportunities for

Chongqing outlet mall during this trough period.

• We have revised our tenant sales forecast to fall 10%

y-o-y in FY20 in view of the near-term disruptions to

operations, resulting in a S$10m dip in EMA rental

income for the year.

Page 85Page 85

Page 85

Company Guide

Sasseur REIT



Gross revenue 31.0 29.2 28.2 (9.0) (3.6)

Property expenses 0.0 0.0 0.0 - -

Net Property Income 31.0 29.2 28.2 (9.0) (3.6)

Other Operating expenses (1.8) (2.7) (2.5) 41.5 (7.0)

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

Associates & JV Inc 0.0 0.0 0.0 - -

Net Interest (Exp)/Inc (7.0) (6.9) (6.8) 2.4 1.4

Exceptional Gain/(Loss) (0.2) 0.01 0.06 - -

Net Income 22.1 19.7 18.9 (14.2) (3.7)

Tax (58.3) (5.2) (33.8) (42.1) 548.9


Net Income after Tax (36.2) 14.5 (14.8) 59.1 (202.6)

Total Return 23.6 19.6 19.5 (17.4) (0.4)

Non-tax deductible Items (127) 3.77 (60.0) (52.7) (1,693.7)

Net Inc available for Dist. 23.6 19.6 19.5 (17.4) (0.4)

Ratio (%)




Page 86Page 86

Page 86

Company Guide

Sasseur REIT


Critical Factors

Exposure to fast-growing retail outlet sector. Sasseur REIT offers

investors the opportunity to gain exposure to the fast-growing

retail outlet mall sector in China. According to China Insights

Consultancy, the retail outlet mall sector is expected to grow

from RMB49.1bn (US$7.1bn) in 2016 to RMB144.9bn

(US$21bn) by 2021 or at a CAGR of 24.2%. In the medium

term, the retail outlet industry in China is set to be the largest

globally to surpass the US by 2030, reaching annual sales

revenue of c.RMB640.2bn (US$92.9bn). This strong growth

outlook is underpinned by growing consumption levels in China

as well as the emerging middle-class.

Rental formula empowers the REIT to enjoy a balance of growth

and stability. Sasseur REIT derives rental income from a lease

arrangement (called the Entrusted Management Agreement)

with the Entrusted Manager. The Entrusted Manager oversees

the day-to-day operations, marketing and cash collection.

Rentals paid to the REIT under the Entrusted Management

Agreement (EMA) is based on a mix of fixed component rent,

growing at 3% per annum (c.70% of gross revenues) and a

variable rent that is tied to the performance of underlying

tenant sales. This rental income structure enables Sasseur REIT

to deliver a balance of stability and growth through variable

income tied to underlying tenant sales. We project FY20 tenant

sales to fall 20% y-o-y due to the temporary closure of malls in

1Q20, and a rebound in FY21 back to FY19 levels.

Temporary closure of outlet malls in Jan 2020. Sasseur REIT

announced the closure of all four portfolio malls in the face of

the coronavirus outbreak in China. This is ensure the health of

staff and customers alike and mitigate the spread of the

disease. We are optimistic that the portfolio malls will reopen by

their March Spring annual sales, and period of closure overlaps

with the Chinese New Year holidays, which is usually a period

of lower sales for retail malls in China. Nonetheless, we note

that the mall closure falls on the 1Q20, which is seasonally a

stronger sales quarter for Sasseur REIT, alongside the third

quarter. Our DPU forecast assumes a rebound of DPU for FY21

back to FY19 levels, resuming usual operations. We remain

confident that the temporary closure will not the REIT’s long

term positioning in fast growing outlet sector in China.

Potential to more than quadruple the GFA of the initial

portfolio. The Sponsor has given Sasseur REIT a voluntary right

of first refusal (ROFR) over two properties and seven pipeline

properties, most of which are in Tier 2 cities. Assuming the REIT

acquires all of the Sponsor’s ROFR and pipeline properties,

Sasseur REIT would grow its GFA fivefold with the addition of

1.2m sqm.




Interest Cover (x)


Page 87Page 87

Page 87

Company Guide

Sasseur REIT

Balance Sheet:

Low gearing. As at 31 December 2019, gearing stood at

c.27.8% (total debt/investment properties) which places the

REIT in a strong financial position to pursue yield-accretive

acquisitions.

Half of offshore borrowings hedged. Approximately 50% of

Sasseur REIT’s offshore borrowings that are in SGD are hedged

which help mitigate the impact of rising interest rates. We

understand management may push the hedge ratio to 80%.

The SGD borrowings represent c.24% of total debt with the

remainder comprising onshore RMB borrowings. Due to the

high hedging costs, the REIT has not hedged its RMB debt.


Yield accretive acquisitions. Sasseur REIT’s gearing ratio of

27.8% stands as one of the lowest within the sector, translating

to an ample debt headroom of S$305m that can be used for

yield accretive acquisitions of sponsor’s ROFR assets. This will

also help to diversify earnings within the portfolio across a

greater number of outlet malls.

Key Risks:

Variable rental income dependent on tenant sales.

Approximately 75% of FY19 rental income generated under

the EMA rental structure is fixed in nature, with the remaining

25% variable and pegged to 4-5% of underlying tenant sales.

As set out in Sasseur REIT’s IPO prospectus, the minimum rent

guarantee will no longer apply from FY20 as Sasseur REIT

exceeds IPO forecasts for two consecutive years since listing.

The lack of minimum rent guarantee by the sponsor will mean

that future EMA rental income will face greater dependency on

tenant sales and act as a double edged sword.

Foreign currency risks. All of the REIT’s assets are located in

China with RMB as its operating currency and it generates

revenues in RMB. Investors who receive distributions in SGD

are exposed to volatility in the RMB/SGD FX rate.

Short WALE. Sasseur REIT has a short WALE with c.51.0% of

its leases by NLA expiring in FY20. The inability to renew

tenancies may negatively impact DPU.

Company Background

Sasseur REIT is a Singapore REIT established with an initial

portfolio of four retail outlet malls located in China, offering

investors the opportunity to invest in the country's fast-

growing retail outlet mall sector.


ROE (%)


PB Band (x)


Page 88Page 88

Page 88

Company Guide

Sasseur REIT


FY Dec 2018A 2019F 2020F 2021F

Gross revenue 93.5 118 121 129

Property expenses 0.0 0.0 0.0 0.0

Net Property Income 93.5 118 121 129 Other Operating expenses (17.3) (10.1) (9.4) (11.4)

Other Non Opg (Exp)/Inc (0.2) 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc (21.5) (27.7) (26.2) (27.1)

Exceptional Gain/(Loss) 183 95.2 0.0 0.0

Net Income 237 175 85.4 90.9 Tax (68.1) (49.3) (21.4) (22.7)

Minority Interest 0.0 0.0 0.0 0.0

Preference Dividend 0.0 0.0 0.0 0.0

Net Income After Tax 169 126 64.0 68.2 Total Return 169 126 64.0 68.2

Non-tax deductible Items (109) (48.2) 9.76 11.4

Net Inc available for Dist. 60.5 77.9 73.8 79.6 Growth & Ratio

Revenue Gth (%) N/A 26.2 2.5 6.9

N Property Inc Gth (%) nm 26.2 2.5 6.9

Net Inc Gth (%) nm (25.5) (49.2) 6.4

Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0

Net Prop Inc Margins (%) 100.0 100.0 100.0 100.0

Net Income Margins (%) 180.9 106.9 53.0 52.7

Dist to revenue (%) 64.7 66.0 61.0 61.6


to sales %)

18.5 8.6 7.7 8.8

ROAE (%) 31.5 11.8 6.0 6.4

ROA (%) 19.1 7.1 3.6 3.8

ROCE (%) 8.1 5.7 6.0 6.3

Int. Cover (x) 3.6 3.9 4.3 4.4


Downward revision in

gross revenue as we

lower our tenant sales

forecast

Page 89Page 89

Page 89

Company Guide

Sasseur REIT


FY Dec 4Q2018 1Q2019 2Q2019 3Q2019 4Q2019

Gross revenue 31.0 30.7 29.9 29.2 28.2

Property expenses 0.0 0.0 0.0 0.0 0.0


Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc N/A 0 0 0 0


Exceptional Gain/(Loss) (0.2) 0.09 (0.1) 0.01 0.06

Net Income 22.1 21.5 20.3 19.7 18.9

Tax (58.3) (5.1) (5.2) (5.2) (33.8)

Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Income after Tax (36.2) 16.4 15.0 14.5 (14.8)

Total Return 23.6 19.7 19.2 19.6 19.5

Non-tax deductible Items (127) 3.12 4.90 3.77 (60.0) Net Inc available for Dist. 23.6 19.7 19.2 19.6 19.5 Growth & Ratio

Revenue Gth (%) 2 (1) (3) (2) (4)

N Property Inc Gth (%) 2 (1) (3) (2) (4)

Net Inc Gth (%) (321) (145) (8) (4) (203)



Balance Sheet (S$m)

FY Dec 2018A 2019F 2020F 2021F Investment Properties 1,539 1,587 1,591 1,595

Other LT Assets 0.0 0.0 0.0 0.0

Cash & ST Invts 229 146 146 146

Inventory 0.0 0.0 0.0 0.0

Debtors 0.0 28.5 28.5 28.5

Other Current Assets 0.0 8.55 8.55 8.55

Total Assets 1,769 1,770 1,774 1,778

ST Debt

7.71 4.08 4.08 4.08

Creditor 0.0 124 124 124

Other Current Liab 150 20.1 20.1 20.1

LT Debt 486 475 478 482

Other LT Liabilities 51.1 78.1 78.1 78.1

Unit holders’ funds 1,074 1,069 1,069 1,069

Minority Interests 0.0 0.0 0.0 0.0

Total Funds & Liabilities 1,769 1,770 1,774 1,778

Non-Cash Wkg. Capital (150) (108) (108) (108)

Net Cash/(Debt) (264) (332) (336) (340) Ratio

Current Ratio (x) 1.5 1.2 1.2 1.2

Quick Ratio (x) 1.5 1.2 1.2 1.2

Aggregate Leverage (%) 29.0 28.5 28.7 28.8

Z-Score (X) 1.1 1.2 1.3 1.3


Page 90Page 90

Page 90

Company Guide

Sasseur REIT


FY Dec 2018A 2019F 2020F 2021F

Pre-Tax Income 54.6 175 85.4 90.9

Dep. & Amort. 1.00 1.00 1.00 1.00

Tax Paid 1.82 (6.3) (21.4) (22.7)

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

Chg in Wkg.Cap. (12.7) 5.99 0.0 0.0

Other Operating CF 59.1 (55.4) 9.76 11.4

Net Operating CF 104 121 74.8 80.6 Net Invt in Properties (0.9) (22.3) (3.6) (3.9)

Other Invts (net) 0.0 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 0.0 0.0 0.0

Div from Assoc. & JVs 0.0 0.0 0.0 0.0

Other Investing CF 0.0 (10.7) 0.0 0.0

Net Investing CF (0.9) (33.0) (3.6) (3.9) Distribution Paid (18.7) (100) (73.8) (79.6)

Chg in Gross Debt 121 (7.7) 3.63 3.88

New units issued 396 0.0 0.0 0.0

Other Financing CF (492) (22.6) 0.0 0.0

Net Financing CF 6.78 (131) (70.2) (75.7) Currency Adjustments (1.3) (5.2) 0.0 0.0

Chg in Cash 108 (48.0) 1.00 1.00

Operating CFPS (S cts) 9.87 9.59 6.19 6.60

Free CFPS (S cts) 8.72 8.22 5.89 6.28



Source: DBS Bank


Derek TAN

Page 91Page 91

Page 91

Company Guide

Sasseur REIT













































Page 92Page 92

Page 92

Company Guide

Sasseur REIT






in market-making.














DBS Group.



proprietary position in Sasseur REIT recommended in this report as of 31 Jan 2020.


Report.


share capital in Sasseur REIT recommended in this report as of 31 Jan 2020.


common equity securities of Sasseur REIT as of 31 Jan 2020.



















Page 93Page 93

Page 93


BUYLast Traded Price ( 3 Feb 2020): S$0.715 (STI : 3,116.31)


Analyst



What’s New • DPU of 1.13 Scts was flat y-o-y, and 1HFY19/20 DPU

makes up c.97% of our full-year forecast

• Starhill Gallery continues to take a toll on top and

bottom lines as the asset is being future-proofed

• Overall portfolio performance remains healthy, with a

20-bp rise in occupancy rate to 96.5%

• Wisma Atria was the star of this quarter, with tenant

sales growing 13.0% y-o-y

Price Relative


FY Jun (S$m) 2018A 2019A 2020F 2021F

Gross Revenue 209 206 212 213 Net Property Inc 162 159 157 157 Total Return 84.2 65.6 94.6 91.5 Distribution Inc 103 101 102 99.8 EPU (S cts) 4.90 3.94 4.33 4.18 EPU Gth (%) (8) (20) 10 (4) DPU (S cts) 4.55 4.48 4.46 4.46 DPU Gth (%) (8) (2) 0 0 NAV per shr (S cts) 91.2 88.5 88.1 87.6 PE (X) 14.6 18.2 16.5 17.1 Distribution Yield (%) 6.4 6.3 6.2 6.2 P/NAV (x) 0.8 0.8 0.8 0.8 Aggregate Leverage (%) 36.4 37.1 37.7 38.3 ROAE (%) 5.3 4.4 4.9 4.8

Distn. Inc Chng (%): (4) (5) Consensus DPU (S cts): 4.60 4.60 Other Broker Recs: B: 2 S: 1 H: 4


Finance L.P.

Turning headwinds into tailwinds

Transitional phase with Malaysia redevelopment; maintain BUY.

We like Starhill Global REIT (SGREIT) for its diversified earnings

base supported by c.49% of revenues pegged to stable long-

term leases with periodic rent reviews. This should help weather

against a potential dip in tourist arrival receipts within the

Singapore malls following the coronavirus outbreak. Yields are

attractive at north of 6.1% within minimal downside risk.

Exposure to actively managed retail leases limited to just 25%

of gross rents. Of the 51% actively managed leases under

SGREIT, half pertains to office leases within Wisma Atria and

Ngee Ann City, limiting exposure to actively managed retail

leases to just 25%. Moreover, c.6% of leases by gross rents will

be due for renewal in the next two quarters, including c.4%

originating from Wisma Atria, for which we see upside given

improving operating metrics.

Future-proofing of Starhill Gallery. Competition within the mid-

to high-end retail in Kuala Lumpur is likely to intensify, with

retail supply within a 10-km radius from Starhill Gallery and Lot

10 increasing by approximately 31% over a five-year period.

Income visibility will be greatly enhanced with a new master

lease agreement of 19.5 years and 9.0 years for Starhill Gallery

and Lot 10 respectively, and in-built periodic rental escalations

of 4.75-6.0% in every three-yearly review.

Valuation:

BUY; DCF-based TP maintained at S$0.80. We included the

debt-funded redevelopment of Starhill Gallery and the

associated rental upside in our forecasts, while adjusting retail

rents from Wisma Atria considering a low base in FY19.


Fall in tourist expenditure. A fall in tourist arrivals and receipts

in the face of a WHO global emergency declaration could be

detrimental to SGREIT’s distribution prospects.


Mkt. Cap (S$m/US$m) 1,562 / 1,141


YTL Corp Bhd 35.7

AIA Group Ltd 7.6

Free Float (%) 56.7



DBS Group Research . Equity 4 Feb 2020


Starhill Global REIT Version 11 | Bloomberg: SGREIT SP | Reuters: STHL.SI Refer to important disclosures at the end of this report

Page 94Page 94

Page 94

Company Guide

Starhill Global REIT

WHAT’S NEW

(+/-) DPU marginally below as Starhill Gallery undergoes major

refurbishment

• Starhill Global REIT’s (SGREIT) 2QFY20 revenue and

NPI of S$48.7m and S$37.2m was a 4.5% and 5.9%

dip y-o-y respectively.

• This was mainly due to rental rebates extended to the

master tenant in Starhill Gallery as the asset

undergoes redevelopment.

• Excluding Starhill Gallery, revenue and NPI for SGREIT

portfolio in 2QFY20 would have been stable,

declining marginally by 0.4% and 0.6% over 2Q

FY18/19 respectively. This mainly came from the

weakening AUD coupled with a dip in revenues from

its Singapore office properties due to lower

occupancy rates at Ngee Ann City.

• Reported DPU of 1.13 Scts for the quarter was

flattish y-o-y, bringing 1HFY20 DPU to 2.26 Scts,

which makes up 45% of our forecasts.

(-) Rental rebates at Starhill Gallery (Malaysia) due to ongoing

refurbishment works

• For Malaysia, revenue and NPI in 2Q FY19/20 were

lower by 27.5% and 28.4% y-o-y respectively, as

Starhill Gallery undergoes AEI works and

redevelopment into an integrated development.

• The decline is mainly due to the loss in rental income

as part of the mall is phased out for AEI, which is

scheduled for completion by the end of next year

(2021 or 1HFY22) and will be renamed “The Starhill”

upon completion.

• Rental rebate is extended to SGREIT by sponsor (50%

of annual rental of RM52m) and will be given for the

first two years of its construction (up to June 2021).

(+) Other key markets remain healthy

• Higher revenue and NPI contributions from the

Singapore retail (Revenue and NPI for 2Q FY19/20

rose by 1.5% and 1.4% y-o-y respectively)

component neutralised the lower contributions from

the Singapore office (revenue and NPI were lower by

6.4% and 8.7% y-o-y respectively) component.

• Wisma Atria demonstrated an uplift in popularity as

tenant sales grew 13.0% y-o-y for the quarter,

despite a 3.7% y-o-y fall in footfall traffic.

• As at 31 December 2019, Wisma Atria and Ngee Ann

City stood at an occupancy of 100% and 99.4%

respectively.

• Office occupancy at Ngee Ann City dipped from

93.6% to 89.2% q-o-q due to the pre-termination of

a single tenant, while that for Wisma Atria rose from

87.7% to 91.3% for the same period.

• Australia assets posted stronger operational

performance but reported a y-o-y decline from a

weaker AUD with revenue and NPI declining 3.4%

and 4.8% y-o-y respectively. From an operational

standpoint, occupancies rose for both Perth

properties (97.6% to 98% q-o-q) and Myer Centre

Adelaide (90.0% to 92.6% q-o-q).

• Revenue and NPI from SGREIT’s China and Japan

properties inched up 1.1% and 2.3% y-o-y with full

occupancies for the two Japanese assets.

(+) Future-proofing of Starhill Gallery

• Competition within the mid- to high-end retail in

Kuala Lumpur is likely to intensify, with retail supply

within a 10-km radius from Starhill Gallery and Lot 10

increasing by approximately 31% over a 5-year

period to 27m sqft in 2023.

• The ongoing two-year asset enhancement initiative

will aim to refresh the interior retail space with a

modern and contemporary design and convert the

upper three floors into hotel rooms, a necessary step

forward to maintain Starhill Gallery’s position as a

prime mall within Kuala Lumpur.

• The master lease arrangement within Starhill Gallery

and Lot 10 will be extended by another 19.5 years

and 9.0 years respectively from June 2019.

• Income visibility is greatly enhanced with rents

estimated to be 1.5% higher, with in-built periodic

rental escalations of 4.75-6.0% in every three-yearly

reviews, extending the long-term trajectory of the

asset.

Page 95Page 95

Page 95

Company Guide


(+) Portfolio and financial metrics remain robust

• Overall portfolio occupancy inched up 20 bps to

96.5% for the quarter, while portfolio WALE remains

very well-staggered at 9.1 and 5.9 years (by NLA and

gross rent respectively), extended by the Toshin

master lease, master tenancy agreements for

Malaysia Properties and the anchor leases in Australia

and China.

• There remains a good mix between master anchor

leases and actively managed leases at a proportion of

49:51.

• Only 3.3% and 6.0% of leases by NLA and gross rent

respectively will be expiring in the remaining two

quarters of FY19/20.

• Gearing and cost of debt stood at 36.3% and 3.29%

respectively, with 89% of borrowings hedged on a

fixed rate.


FY Jun 2Q2019 1Q2020 2Q2020 % chg yoy % chg qoq

Gross revenue 51.0 48.0 48.7 (4.5) 1.6


Net Property Income 39.5 36.9 37.2 (5.9) 0.7


Other Non Opg (Exp)/Inc (5.2) (0.5) 0.0 nm nm

Associates & JV Inc 0.0 0.0 0.0 - -



Net Income 19.7 22.0 22.1 12.2 0.6

Tax (0.9) (0.7) (0.7) (20.6) 3.8


Net Income after Tax 18.9 21.3 21.4 13.7 0.5

Total Return 0.0 0.0 0.0 - -

Non-tax deductible Items 6.30 4.00 3.72 (40.9) (6.9)

Net Inc available for Dist. 24.6 24.7 24.7 0.3 0.1

Ratio (%)




Page 96Page 96

Page 96

Company Guide



Critical Factors

A proxy for Singapore tourist spending. The most distinctive

feature for SGREIT is its exposure to Orchard Road, Singapore’s

prime shopping district. Historical operational performance

shows that performance for malls along Orchard road has more

volatility and is more sensitive to non-discretionary spending

which can be boosted by higher tourist arrivals and spending.

We found that tourist arrivals have a high correlation coefficient

of 0.74 with SGREIT’s price. This could be explained by high

tourist spending translating into retail sales and in turn SGREIT’s

earnings and distribution, given that its Singapore assets (Wisma

Atria and Ngee Ann City) contributed c.63% of SGREIT’s NPI in

FY18/19. Downside risk to our forecast would be the risk of

falling tourist spending at Orchard Road prolonging in the

coming quarters as tourist arrivals dip in the face of a WHO

global emergency declaration.

Strong earnings visibility with close to 50% of income pegged

to master leases or long leases. Income from master leases and

long-term leases with key anchors (Myer Pty Ltd and David

Jones Limited) accounts for 49% of revenues, implying good

income visibility and steady revenues. The new master lease

agreement post Starhill Gallary’s redevelopment at end-2021

will provide full occupancy for SGREIT’s Malaysia properties

upon redevelopment. Due to expire in June 2019, the new

proposed master leases will further extend the WALE for its

properties in Malaysia by 19.5 years and 9.0 years for Starhill

Gallery and Lot 10 Mall respectively. The other major anchor

tenant leases at Myer Centre Adelaide and David Jones in Perth

have either annual or periodic rent reviews which could form a

medium-term boost to earnings.

Future-proofing of Starhill Gallary. SGREIT will undertake a two-

year asset enhancement initiative to refresh and reposition the

ageing mall, which will cost an estimated RM175m. During AEI,

the Sponsor will also provide a rent rebate of approximately six

months’ rent p.a. (or RM26m a year), which will help to

mitigate disruption in earnings as the asset undergoes

transformation. Competition within the mid- to high-end retail

in Kuala Lumpur is likely to intensify, with retail supply within a

10-km radius from Starhill Gallery and Lot 10 increasing by

approximately 31% over a five-year period to 27m sqft in 2023.

Not only will the redevelopment allow Starhill Gallery to

reposition and maintain competitive within its precinct, the new

rents from the renewed master lease is estimated to be 1.5%

higher, coupled with in-built periodic rental escalations

(every three years).




Interest Cover (x)


Page 97Page 97

Page 97

Company Guide


Balance Sheet:

Future acquisitions to be partly funded via equity. Gearing is

expected to remain stable at around 36% post its asset

enhancement initiative for Starhill Gallery, within the manager’s

comfortable gearing level. This presents the REIT with

acquisition capacity to acquire opportunistically when the right

opportunity comes along.

Low debt renewal in FY19. Weighted debt tenure is c.2.9 years

(as at 31 December 2019) at an average all-in interest cost of

3.3%. With c.90% of debt hedged into fixed rates and minimal

debt expiring in FY20, we see limited impact of interest rates on

the REIT.


Turnaround signs from Wisma Atria. Operational metrics have

been soft at Wisma Atria, with potential upside in passing rents

following a recent outperformance in tenant sales figures

(double-digit y-o-y growth).

Extracting value from development in Singapore and Australia.

The manager has several AEI opportunities to reposition its

assets in Singapore and Australia. SGREIT has undertaken AEI

works in Central Plaza, Perth, renovating the shop façade to

incorporate anchor tenants, as well as converting some of the

upper floors from office and storage into retail use. Other

potential development/AEI opportunities include activating

116,000 sqft of vacant retail space on the fourth and fifth floors

of Myer Centre, Adelaide, as well as developing the area

between Wisma Atria and Ngee Ann City, where the REIT has

unutilised gross floor area of c.100,000 sqft. Capital gains,

should divestment of Japanese and China assets be executed,

could be used to buffer dividend payouts in the future.

Key Risks:

Fall in tourist expenditure. A fall in tourist arrivals and receipts

in the face of a WHO global emergency declaration could be

detrimental to SGREIT’s Singapore retail assets.

Company Background

Starhill Global REIT (SGREIT) is a real estate investment trust

that invests in income-producing upscale retail and/or office

assets in the Asia Pacific region. In Singapore, it owns portions

of Ngee Ann City and Wisma Atria. It also owns assets in

China, Japan, Malaysia and Australia.


ROE (%)


PB Band (x)


Page 98Page 98

Page 98

Company Guide



FY Jun 2017A 2018A 2019A 2020F 2021F

Gross revenue 216 209 206 212 213



Other Non Opg (Exp)/Inc 6.01 5.75 (11.8) 0.0 0.0




Net Income 115 110 89.4 94.2 91.2 Tax 1.27 (3.4) (3.5) 0.32 0.31

Minority Interest 0.0 0.0 0.0 0.0 0.0


Net Income After Tax 117 107 85.9 94.6 91.5 Total Return 100 84.2 65.6 94.6 91.5

Non-tax deductible Items 10.2 18.9 35.7 6.99 8.26

Net Inc available for Dist. 110 103 101 102 99.8 Growth & Ratio

Revenue Gth (%) (1.5) (3.5) (1.3) 2.6 0.5

N Property Inc Gth (%) (2.0) (2.8) (1.7) (1.3) (0.4)

Net Inc Gth (%) 35.7 (8.3) (19.7) 10.1 (3.2)




Dist to revenue (%) 51.0 49.4 49.1 48.0 46.9


to sales %)

9.1 9.7 10.0 10.2 10.2

ROAE (%) 5.8 5.3 4.4 4.9 4.8

ROA (%) 3.6 3.3 2.7 3.0 2.8

ROCE (%) 4.6 4.3 4.3 4.4 4.3

Int. Cover (x) 3.9 3.8 3.7 3.3 3.1


S$11m downward

adjustment to 20F forecast

due to lower occupancies

in Singapore offices, and

lower contributions from

Starhill Gallery

Page 99Page 99

Page 99

Company Guide



FY Jun 2Q2019 3Q2019 4Q2019 1Q2020 2Q2020

Gross revenue 51.0 51.3 51.9 48.0 48.7



Other Non Opg (Exp)/Inc (5.2) (1.7) (4.2) (0.5) 0.0 Associates & JV Inc 0 0 0 0 0



Net Income 19.7 23.5 20.6 22.0 22.1

Tax (0.9) (0.9) (0.8) (0.7) (0.7)

Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Income after Tax 18.9 22.5 19.8 21.3 21.4

Total Return 0.0 0.0 0.0 0.0 0.0

Non-tax deductible Items 6.30 2.50 25.4 4.00 3.72 Net Inc available for Dist. 24.6 24.0 24.0 24.7 24.7 Growth & Ratio

Revenue Gth (%) (2) 0 1 (7) 2

N Property Inc Gth (%) (2) 0 1 (8) 1

Net Inc Gth (%) (24) 20 (12) 8 0



Balance Sheet (S$m)

FY Jun 2017A 2018A 2019A 2020F 2021F Investment Properties 3,136 3,118 3,065 3,097 3,129

Other LT Assets 0.10 2.01 0.03 0.03 0.03

Cash & ST Invts 76.6 66.7 72.9 136 128

Inventory 0.0 0.0 0.0 0.0 0.0

Debtors 6.34 4.19 3.85 8.98 9.02


Total Assets 3,219 3,192 3,142 3,242 3,267

ST Debt

406 63.4 128 158 188

Creditor 38.8 38.6 32.5 106 106


LT Debt 728 1,067 1,004 1,004 1,004

Other LT Liabilities 32.9 30.0 44.1 44.1 44.1




Non-Cash Wkg. Capital (36.5) (36.4) (31.5) (99.7) (100)

Net Cash/(Debt) (1,058) (1,064) (1,059) (1,026) (1,064) Ratio

Current Ratio (x) 0.2 0.7 0.5 0.5 0.5

Quick Ratio (x) 0.2 0.7 0.5 0.5 0.5


Z-Score (X) 0.9 0.9 0.9 0.9 0.9


Development costs of

c.S$30m per year over 20F

and 21F for Starhill Gallery’s

redevelopment

Page 100Page 100

Page 100

Company Guide



FY Jun 2017A 2018A 2019A 2020F 2021F

Pre-Tax Income 115 110 89.4 94.2 91.2

Dep. & Amort. 0.36 0.0 0.0 0.0 0.0

Tax Paid (2.4) (3.4) (3.5) 0.32 0.31

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

Chg in Wkg.Cap. 27.9 29.0 48.1 68.2 0.44

Other Operating CF 0.0 0.0 0.0 0.0 0.0

Net Operating CF 141 136 134 163 92.0 Net Invt in Properties (4.1) (6.6) (6.7) (32.1) (32.1)

Other Invts (net) (0.1) 0.0 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0



Net Investing CF (3.1) (6.6) (6.7) (32.1) (32.1) Distribution Paid (107) (101) (97.5) (97.5) (97.8)

Chg in Gross Debt 7.89 1.21 (22.0) 30.0 30.0

New units issued 0.0 0.0 0.0 0.0 0.0

Other Financing CF (38.5) (39.1) 0.0 0.0 0.0

Net Financing CF (138) (139) (120) (67.5) (67.8) Currency Adjustments (0.5) (0.1) (1.5) 0.0 0.0

Chg in Cash (0.4) (9.9) 6.22 63.1 (7.9)


Free CFPS (S cts) 6.28 5.93 5.83 5.98 2.73



Source: DBS Bank


Derek TAN

Page 101Page 101

Page 101

Company Guide














































Page 102Page 102

Page 102

Company Guide







in market-making.














DBS Group.



proprietary position in Starhill Global REIT recommended in this report as of 31 Dec 2019.


Report.


share capital in Starhill Global REIT recommended in this report as of 31 Dec 2019.


common equity securities of Starhill Global REIT as of 31 Dec 2019.



















Page 103Page 103

Page 103

Industry Focus

Singapore REITs

Page 25








Completed Date: 11 Mar 2020 07:40:38 (SGT)

Dissemination Date: 11 Mar 2020 07:55:48 (SGT)



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.

Page 104Page 104

Page 104

Industry Focus

Singapore REITs

Page 26

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:


(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.


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.

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.


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

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 105Page 105

Page 105

Industry Focus

Singapore REITs

Page 27

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.


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

CapitaLand Retail China Trust, Frasers Centrepoint Trust, Mapletree Commercial Trust, Mapletree North Asia Commercial Trust, Starhill Global REIT, Sasseur REIT, SPH REIT,

CapitaLand, CapitaLand Commercial Trust, recommended in this report as of 28 Feb 2020.


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 Mall Trust,

CapitaLand Retail China Trust, Mapletree Commercial Trust, Mapletree North Asia Commercial Trust, Starhill Global REIT, Sasseur REIT, SPH REIT, CapitaLand Commercial

Trust, recommended in this report as of 28 Feb 2020.

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 Mapletree

North Asia Commercial Trust, Starhill Global REIT, Sasseur REIT as of 28 Feb 2020


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 Mall Trust, CapitaLand Retail China Trust, Frasers Centrepoint Trust, LendLease Global Commercial REIT, Mapletree Commercial Trust, CapitaLand, as of 28

Feb 2020.

6. 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 Mall Trust,

CapitaLand Retail China Trust, Frasers Centrepoint Trust, LendLease Global Commercial REIT, Mapletree Commercial Trust, CapitaLand, CapitaLand Commercial Trust, in the

past 12 months, as of 28 Feb 2020.

7. 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.

Directorship/trustee interests:

8. Su Shan TAN, a member of DBS Group Management Committee, is a Director of Mapletree North Asia Commercial Trust as of 02 Mar 2020.

9. Olivier Lim Tse Ghow, a member of DBS Group Holdings Board of Directors, is a Advisor of Frasers Property Ltd as of 31 Dec 2019.

Page 106Page 106

Page 106

Industry Focus

Singapore REITs

Page 28


10. 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.

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or

other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.

DBSVS and DBSV HK are 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. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and

DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on

securities in Hong Kong 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). DBS Bank Ltd., Hong Kong Branch is a

limited liability company incorporated in Singapore.

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.

Page 107Page 107

Page 107

Industry Focus

Singapore REITs

Page 29

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

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 units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, 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.

Page 108Page 108

Page 108

Industry Focus

Singapore REITs

Page 30

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.

Page 109Page 109

Page 109

Industry Focus

Singapore REITs

Page 31

DBS Regional Research Offices

HONG KONG

DBS (Hong Kong) Ltd

Contact: Carol Wu

13th Floor One Island East,

18 Westlands Road,

Quarry Bay, Hong Kong

Tel: 852 3668 4181

Fax: 852 2521 1812

e-mail: [email protected]

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


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


Company 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


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


Company Regn. No 0105539127012

Securities and Exchange Commission, Thailand

Page 110Page 110

Page 110

Documents

Singapore Industry Focus Singapore Retail REITs