Mkt

Cap

Rating Last

price

Target

Price

Upsi

de

Avg

Daily

Vol

(20d)

Yield

SREITs (US$m) (S$) ($) (%) (US$

m)

(%)

AREIT 4,016 N 2.24 2.02 (9.8) 10.4 6.0

CCT 3,025 O 1.33 1.66 24.8 6.3 6.0

CT 5,203 O 1.95 2.26 15.9 9.9 5.0

SUN 2,561 O 1.425 1.65 15.8 10.2 6.4

MLT 1,760 O 0.99 1.17 18.2 10.2 6.8

SGREIT 1,129 N 0.725 0.67 (7.6) 1.5 6.0

KREIT 2,276 O 1.11 1.35 21.6 1.2 6.6

ART 1,100 O 1.21 1.34 10.7 1.5 7.8

CDREIT 1,610 O 2.08 2.24 7.7 2.5 6.0

CRCT 799 N 1.445 1.35 (6.6) 0.6 6.5

CACHE 644 O 1.145 1.23 7.4 1.7 7.4

AAREIT 456 O 1.275 1.42 11.4 0.5 8.4

MINT 1,717 O 1.315 1.45 10.3 2.4 6.4

Source: Company data, Bloomberg, Macquarie Research,

July 2012; pricing as of 27 July 2012

Analyst(s)

Tuck Yin Soong

+65 6601 0838 [email protected]

Brandon Lee

+65 6601 0024 [email protected]

30 July 2012

Macquarie Capital Securities

(Singapore) Pte. Limited

SREITs results review

Another resilient results season

Event

 The latest SREITs results offered few surprises, reflecting the resilience of the

income streams. There was little variance between reported DPU and our

estimates, apart from better results from the office REITs. Higher asset

revaluation was underpinned by the positive rent reversions, which will

support DPU growth into 2013. It also resulted in a marginally lower gearing at

34.5% for the sector, and no major refinancing needs for the rest of this year.

Impact

 Office. Better than expected results reflect lower property taxes, lower

interest income and, in KREIT’s case, impact from GST rebates from earlier

income support. Operationally, portfolio occupancy rates ticked up, in excess

of 96% or better. Negative rent reversions at CCT are also bottoming out.

Despite the strong outperformance, office REITs are at 0.82x P/BV versus the

sector at 1.04x.

 Industrial. DPUs were slightly ahead of expectations. Strong rent reversions

also helped to drive organic growth. We also saw impact from acquisitions,

particularly from MINT and MLT.

 Retail. Solid rent reversions of 6.4% YoY at CT SP and +15.2% YoY for

CRCT SP, whilst occupancy costs remain manageable at circa 16%-20%

depending on country and trade mix. Completion of asset enhancement

initiatives will help fuel DPU growth, with ROI in excess of 10%.

 Hospitality. CDREIT’s results were slightly ahead of expectations on healthy

RevPAR growth of 5.6% in Singapore, on the back of higher tourist arrivals

(+12.3% YoY). ART’s operations were stable, with China, the Philippines and

Japan driving a +6% growth in RevPAU.

 Recommendation changes. We lowered ratings on SGREIT SP and CRCT

SP, both from Outperform to Neutral post results, given less than 10% total

return expectations.

Outlook

 The SREIT sector is +22.6% YTD, and has outperformed the broader FSTI

index by +8.2%.

 We maintain our preference for SREITs over developers. Whilst the total

return expectation is similar at 14-16%, we believe the SREITs offer much

better income stability and predictability, backed by attractive yields.

 Our key SREIT picks are CCT SP, KREIT SP, CT SP, SUN SP and MLT SP.

We have dropped MINT SP from our key picks given recent strength, but it

still remains an Outperform with a 16.7% expected total return.

Macquarie Research SREITs results review

30 July 2012 2

Yield compression

On an YTD basis, the SREIT sector yield compressed circa 130 basis points from 7.4% to 6.1%. This

represents a yield spread of 4.7% over the 10-year Singapore risk free rate, currently 1.4%.

Fig 1 SREITs yield vs. 10-yr govt bond yield Fig 2 SREITs' yield spread over 10-yr govt bond yield

Source: Company data, Bloomberg, Macquarie Research, July 2012 Source: Company data, Bloomberg, Macquarie Research, July 2012

Despite the 8.2% YTD outperformance versus the FSSTI Index, we expect a total return of 16.6%,

with capital upside of 10.4% and a yield of 6.1%. The predictability of income and better-thanexpected

earnings, not only in the latest results but in the past two quarterly results seasons, put the

SREITs in a favourable position for investors. Interest rates are unlikely to increase significantly in

our view, which means that DPU estimates are unlikely to be affected by higher finance charges. In

fact, lower finance charges from some of the SREITs, due to lower all-in interest costs post

refinancing, were a positive surprise. Also, more than 70% of total debt is on fixed rates.

The major risk to the sector remains equity issuance risk, as we believe new capital raising will come

with acquisitions, with NPI from such acquisitions limiting the impact from a higher equity base. The

sector is also trading on more than 1.00x P/BV, further limiting the dilution from issuing new units

below boo

This message was edited by stand up n wake up on 31-Jul-2012 @ 4:20 PM

Fig 3 SREITs (with FY ending Dec) 2Q12 results vs. Macquarie estimates

Ticker Actual Actual Forecast Actual Actual Actual Actual Forecast Actual Actual Remarks

2Q11 2Q12 2Q12 YoY vs. 2Q11 2Q12 2Q12 YoY vs.

Distributable Chg Forecast DPU Chg Forecast

Income

(S$m) (S$m) (S$m) (%) (%) (S cts) (S cts) (S cts) (%) (%)

KREIT SP 26.3 49.8 47.2 89.5% 5.5% 1.93 1.95 1.85 0.6% 5.3% Contribution from Ocean Financial Centre, which was

acquired on 14 Dec 2011.

CT SP 75.5 79.6 79.2 5.5% 0.5% 2.37 2.38 2.38 0.5% 0.0% Contribution from JCube (which opened in Apr 2012), as

well as the impact from higher rents achieved for new

leases and renewals last year.

SUN SP 56.2 53.0 56.4 -5.7% -6.1% 2.53 2.36 2.52 -6.7% -6.4% Consolidation of Suntec Singapore, but offset by

Chijmes' divestment made in Jan 2012, lower income

support from MBFC Phase 1 and lower income from

Suntec City Mall during AEI.

CCT SP 54.4 58.5 51.7 7.5% 13.0% 1.92 2.06 1.82 7.1% 12.9% Higher contribution from Raffles City and HSBC

Building, as well as a full quarter from Twenty Anson,

higher yield protection income at One George Street and

lower property taxes.

SGREIT SP 20.2 21.0 20.8 3.9% 1.0% 1.04 1.08 1.07 3.9% 1.0% Stronger performance from Singapore properties

compared to foreign assets, largely helped by Wisma

Atria, where contributions from both its retail and office

components improved.

CRCT SP 13.5 16.6 16.7 23.5% -0.1% 1.96 2.41 2.42 22.9% -0.2% Higher NPI growth across all its 9 malls, except for

CapitaMall Erqi, due to additional city-level fees and

taxation.

CACHE SP 13.3 13.9 14.2 4.5% -2.3% 2.09 1.98 2.03 -5.1% -2.5% Contribution from S$101.5m of acquisitions completed

from Mar 2011 to Apr 2012 and upward rental

adjustments of 1.25-2.5%.

CDREIT SP 31.7 31.4 29.6 -0.9% 6.0% 2.96 2.92 2.76 -1.5% 5.5% Improved contribution from Singapore hotels (including a

full quarter from Studio M Hotel), but offset by lower

income from Australia properties due to a weaker

currency.

ART SP 26.3 27.1 24.7 3.1% 9.6% 2.33 2.38 2.18 1.9% 9.0% Stronger operating performance in the Philippines,

China, Vietnam and the UK.

Source: Company data, Macquarie Research, July 2012

Fig 4 SREITs (with FY ending Mar) 1Q FY3/13 results vs. Macquarie estimates

Ticker Actual Actual Forecast Actual Actual Actual Actual Forecast Actual Actual Remarks

1QFY12 1QFY13 1QFY13 YoY vs. 1QFY12 1QFY13 1QFY13 YoY vs.

Distributable Chg Forecast DPU Chg Forecast

Income

(S$m) (S$m) (S$m) (%) (%) (S cts) (S cts) (S cts) (%) (%)

AREIT SP 65.9 76.5 74.7 16.1% 2.5% 3.20 3.53 3.55 10.4% -0.6% Completion of development projects and acquisitions.

AAREIT SP 12.1 11.4 12.0 -5.6% -5.0% 2.65 2.50 2.63 -5.7% -5.0% Higher contribution from 8 & 10 Pandan Crescent,

upon expiration of the master lease in Apr 2012.

MLT SP 38.8 41.1 40.6 5.9% 1.4% 1.60 1.70 1.67 6.2% 1.6% Contribution from 7 Japan acquisitions, 2 Malaysia

acquisitions and 2 South Korea acquisitions made in

Feb-Mar 2012.

MINT SP 29.0 36.9 34.5 27.1% 7.0% 1.98 2.26 2.12 14.1% 7.0% Improved occupancies, higher rents and acquisition of

Tranche 2 of JTC Corporation’s portfolio, as well as

lower operating capital expenses.

Source: Company data, Macquarie Research, July 2012

[email protected] FIRST LAST 07/30/12 11:51:26 PM BNP Paribas (Singapore) {Asset Mgmt}

Macquarie Research SREITs results review

30 July 2012 4

Fig 5 SREITs’ latest asset valuations and revaluation

SREITs Investment Properties (S$m) Revaluation (S$m) Gearing (%)

Date (as at) 31-Dec-10 31-Dec-11 30-Jun-12 HoH 31-Dec-10 31-Dec-11 30-Jun-12 As of Jun 2012

Period FY10 FY11 1H12 Chg FY10 FY11 1H12

Ascendas REIT* 4,819.1 5,641.1 6,182.7 9.6% -43.3 -2.1 - 32.7%

CapitaCommercial Trust 5,475.4 5,729.8 6,226.6 8.7% 192.6 276.8 48.4 30.1%

CapitaMall Trust 7,271.5 7,849.2 8,057.2 2.6% 9.8 121.1 96.9 37.5%

Fortune REIT (HK$) 13,300.0 16,388.0 19,268.0 17.6% 1,761.0 3,043.8 932.8 24.2%

Suntec REIT 4,452.0 5,098.1 5,134.9 0.7% 248.7 396.2 - 37.5%

Mapletree Logistics Trust* 3,459.2 3,748.9 4,203.1 12.1% 32.1 -4.1 - 37.0%

Starhill Global REIT 2,654.5 2,709.7 2,700.2 -0.4% 76.4 28.3 - 30.5%

K-REIT Asia 1,025.6 3,472.1 3,465.3 -0.2% 31.6 228.7 - 43.9%

Ascott Residence Trust 2,577.6 2,786.1 2,498.1 -10.3% 26.3 130.2 127.9 39.7%

CDL Hospitality Trusts 1,787.1 2,029.8 2,028.4 -0.1% 51.4 73.2 - 25.2%

CapitaRetail China Trust 1,215.1 1,440.6 1,479.8 2.7% 84.2 95.9 38.2 28.1%

Cache Logistics Trust 744.0 842.8 878.8 4.3% 30.8 23.7 - 32.5%

AIMS AMP Capital Industrial REIT* 779.7 809.7 830.2 2.5% 0.3 14.6 - 29.7%

Mapletree Industrial Trust* 2,092.5 2,601.9 2,698.5 3.7% 0.0 0.0 - 37.7%

Source: Company data, Macquarie Research, July 2012. *Financial year end is March.

[email protected] FIRST LAST 07/30/12 11:51:26 PM BNP Paribas (Singapore) {Asset Mgmt}

Macquarie Research SREITs results review

30 July 2012 5

Key highlights of latest results

1. Office REITs

CCT - CapitaCommercial Trust reported 2Q12 distribution income of S$58.5m (DPU

of 2.06 cents, +7.1% YoY and +8.4% QoQ). The results beat our expectations of S$51.7m, due

mainly to lower property taxes. Revenue +5.2% YoY to S$95.7m, net property income +7.8% to

S$75.2m in 2Q12. Operating expenses were lower by 3.2% YoY due to lower property taxes. Net

revaluation gains +1% HoH at S$48.4m, allaying fears of a contraction in capital values.

Occupancy rate increased slightly by 0.2%pts to 96.2%, which is higher than the industry average

of 91.6%; with 180,500 sq ft of rents renewals and new leases signed. CCT raised car park

charges across its portfolio. The average office passing rent as at June 2012 is S$7.39 psf, versus

March 2012's S$7.45 psf. The average rent of leases expiring is S$8.57 psf for the remaining

4.0% due in 2H12, S$7.64 psf in 2013 and S$9.69 psf in 2014. Given average Grade A office rent

at S$10.10 psf as at 2Q12, we believe CCT's portfolio is poised to benefit from an office market

recovery. FY11 DPU +11.1% on lower property taxes. Target price +0.3% to S$1.66. We like

CCT's proactive management to limit impact on DPU from negative rent reversions by its focus on

cost management. Negative rent reversion is bottoming out this year. We believe the stock is

attractive on 0.84x P/BV and offers a 6.0% yield in FY12.

KREIT - K-REIT Asia reported 2Q12 distribution income of S$49.8m, DPU of 1.94 cents (+89.5%

YoY and +2.1% QoQ). The result was 5.5% higher than our estimate of S$47.2m due mainly to

higher income support and lower interest expenses. Portfolio occupancy is high at 97%, with only

7.7% of NLA left at OFC for new leases in its Singapore portfolio. New demand was from the legal

sector. Less than 18% of NLA is due for lease renewal each year to 2016; and in the same period

less than 11% of NLA due for rent reviews. We expect a higher distribution income in 2H12 on the

back of the tax savings from the MFBC LLP conversion, higher stake in OFC and ongoing leasing

efforts. DPU estimates +5.9% in FY12E and +3.0% in FY13E on the back of the stronger than

expected 1H12 results. Consequently, our target price is 1.8% higher at S$1.35. KREIT is the best

exposure to the Singapore office sector in our view, with more than 93% of its Singapore portfolio

in Grade A locations. The recent conversion of MBFC I into a LLP structure will result in savings of

circa S$5m on our estimates. We expect a stable DPU profile for KREIT, which translates to a

6.6% yield. Given gearing of 43.9%, there would be equity issuance risk if K-REIT Asia were to

make another major investment.

SUN - Suntec REIT reported 2Q12 distribution income of S$53.0m (-5.7% YoY, -3.5% QoQ) and

2.36 S cents DPU, slightly lower than our estimate, due to lower-than-forecasted contribution from

Suntec City Mall. Total income, which includes NPI and 1/3 stakes in One Raffles Quay and

Marina Bay Financial Centre Phase (MBFC) Phase 1, declined 3.0% YoY to S$71.6m, due to

lower income support from MBFC Phase 1. Pre-commitment for Suntec City Mall Phase 1 AEI

improved to 58.5%, from 45% in 1Q12. Targeted completion date of its entire 4-phased AEI is

brought forward to end-2014 from previously-announced 2015. Office occupancy rose 0.5ppt QoQ

to 99.9%, with Suntec City Office achieving 100%. We expect positive rent reversions for majority

of the 22.0% of total office NLA expiring in FY13, as over 60% belong to Suntec City, where rents

secured in FY10 averaged S$7.13-8.16 psf/mth, vs. our forecasted S$8.72 psf in FY13. At existing

gearing of 37.5%, we believe Suntec is likely to raise equity if it were to purchase a one-third stake

in MBFC Phase 2 (circa S$1.2b on our estimates). Nonetheless, as the property is only 70%

occupied, we think any potential injection is unlikely to take place this year.

[email protected] FIRST LAST 07/30/12 11:51:26 PM BNP Paribas (Singapore) {Asset Mgmt}

Macquarie Research SREITs results review

30 July 2012 6

2. Retail REITs

CT - CapitaMall Trust’s 2Q12 distribution income of S$79.6m and DPU of 2.38 S cents, +5.5%

YoY was in line with our expectation for S$79.2m. Revenue in 2Q12 was up 3.7% YoY to

S$165.5m. Net property income rose 5.2% YoY to S$112.0m, due to the contribution from JCube,

which opened in April 2012, as well as the impact from higher rents achieved for new leases and

renewals last year. IH12 operating expenses fell 1.0% YoY on lower marketing costs and property

taxes which offset higher expenses incurred for the opening of JCube. CT’s portfolio occupancy

improved 0.2ppt QoQ to 98.6%. Whilst shopper traffic fell 3.0% YoY, tenant sales rose 1.5% YoY

in 1H12. Rental reversions for 1H12 were +6.4% YoY, compared with 6.1% in 1Q12. DPU growth

in FY12E and FY13E will come from the completion of AEIs in three malls - JCube (April 2012),

Bugis+ (3Q12) and Atrium (4Q12). There are also minor AEI works at Clarke Quay and IMM. DPU

raised by 2.6%, 6.0% and 6.4% over the next three years to account for recent AEIs and higher

rental reversions. TP is subsequently increased by 6.6% to S$2.26. CT also offers the highest

DPU growth of 8.9% amongst the SREITs under our coverage next year.

CRCT - CapitaRetail China Trust reported 2Q12 distribution income of S$16.6m, DPU of 2.41

cents, +23.5% YoY. The results were spot on with our expectation of S$16.7m. Net property

income grew 15.0% to RMB124.4m, on the back of an 18.2% YoY increase in revenue to

RMB190.2m. In S$ terms, NPI grew a stronger 20.9% YoY to S$24.9m due to a stronger RMB.

The higher NPI was due to growth across most of its nine malls, except for CapitaMall Erqi, due

to additional city-level fees and taxation. NPI margins were slightly lower at 65.4% versus 67.2%

in 2Q11. Overall tenant sales rose 13.1% YoY whilst shopping traffic increased 26.4%. The group

saw rent reversion of 15.2% in 2Q12, following +13.0% in 1Q12. Its largest asset by NPI,

CapitaMall Xizhimen, in Beijing saw +28.9% rent reversions in 2Q12. Occupancy rates fell slightly

from 97.4% in 1Q12 to 97.1% in 2Q12. This was expected, due to the planned asset

enhancement (AEI) works at Minzhongleyuan where occupancy rates dropped further, from 85.3%

in 1Q12 to 76.0%. Reported revaluation gains of S$38.2m increased book value by 5 cents to

S$1.33. Gearing consequently was lowered slightly from 30.0% to 28.1%. The portfolio NPI yield

on its latest valuation is 6.9%. The group has no major refinancing in 2012, with only S$33m of

debt (7.4% of total) due this year. Based on a 40% gearing, CRCT’s debt headroom is S$315m.

CRCT offers a stable yield of 7.0% in FY12E. With less than 10% total return, we downgrade from

Outperform to Neutral. We prefer exposure via parent CapitaMalls Asia (CMA SP, S$1.62,

Outperform, TP: S$2.10).

SGREIT - Starhill Global REIT posted 2Q12 distributable income of S$21.0m (+3.9% YoY,

+0.9% QoQ) and 1.08 S cents DPU, in line with our estimates. Revenue rose 4.8% YoY to

S$46.4m, underpinned by a stronger performance from Singapore properties (+6.0%) compared

to foreign assets (+2.8%). This was largely helped by Wisma Atria, where contributions from its

retail and office components improved respectively by 11.5% and 6.1%, coming in as the quarter’s

best performers. SGREIT achieved overall portfolio occupancy of 99.5% (+0.8ppt), led by

Singapore’s. Wisma Atria’s retail and office components both saw positive rental reversions for

their new/renewed leases, with the former achieving +33% based on leases committed from 3Q11

to 2Q12. Occupancies here were also up 4.2ppt and 2.2ppt QoQ to 99.5% and 99.0%,

respectively. With only 2.1% and 5.9% of retail and office leases expiring in 2H12, DPU should

remain stable. ROI of Wisma Atria’s AEI was 12.8%, exceeding the 8% which was projected

initially. All Orchard Road frontage units have started their businesses, with committed occupancy

strong at 99.5%. Since Jan 2012 SGREIT has risen 22% and outperformed the FSSTI by 9%.

With a total return of circa 3%, we prefer CapitaMall Trust within the retail SREIT space.

[email protected] FIRST LAST 07/30/12 11:51:26 PM BNP Paribas (Singapore) {Asset Mgmt}

Macquarie Research SREITs results review

30 July 2012 7

3. Industrial REITs

AREIT - Ascendas REIT posted 1Q FY3/13 distribution income of S$76.5m (+16.1% YoY, +5.0%

QoQ) and 3.53 S cents DPU, in line with our estimates. Revenue increased 18.4% YoY to

S$142.0m, underpinned by the completion of development projects and acquisitions. Due to

higher electricity expenses, land rent and property tax, NPI rose by a lower 13.9% YoY to

S$101.1m. Occupancy of its overall portfolio and multi-tenanted buildings remained healthy at a

respective 96.4% and 92.8%. Circa 81,000 sqm of renewals were signed during the quarter, and

at improved rates of 10–21%. We expect this positive rent reversion trend to continue over the

next 2 years, as spot rents are 15-35% and 29-88% higher than AREIT’s passing rents for the

9.1% and 26.2% of leases (by property income) expiring in FY3/13 and FY3/14, respectively.

AREIT’s gearing has improved to 32.7%, which implies debt headroom of circa S$760m for new

acquisitions before reaching 40%. Historically, the group has made new investments of S$300–

500m per annum. AREIT continues to be the dominant player within Singapore’s industrial

property sector, but our preferred pick within the industrial space remains Mapletree Logistics

Trust given its higher total return of 25%.

MLT - Mapletree Logistics Trust reported 1Q FY3/13 distribution income of S$41.1m (+5.9%

YoY, -0.5% QoQ) and 1.70 S cents DPU, in line with our estimates. Revenue rose 17.1% YoY to

S$77.1m, attributable to 7 Japan acquisitions made in Mar 2012, as well as 2 properties each from

Malaysia and South Korea purchased in Feb 2012 and Mar 2012, respectively. The strong topline

growth flowed through to NPI, which increased 18.4% YoY to S$67.5m, in line with our estimates.

Portfolio occupancy inched upwards by 0.3ppt QoQ to 99.0%, led by Singapore which saw a

quarterly improvement of 0.8ppt to 99.6% due to strong demand for its 3 multi-tenanted properties

post conversion from single-user assets. Hong Kong, Japan, China, Vietnam and South Korea all

achieved near or full occupancy. To date, MLT has renewed/replaced 42% of the 341,000 sqm in

NLA (12.7% of total leases) expiring in FY3/13. Rent reversion moderated slightly by 2ppt QoQ,

but still healthy at +10%. MLT successfully refinanced a JPY7b (or S$113m) loan due in Apr 2012

with the issuance of a new 4-yr term loan, which reduced its expiring debt in FY3/13 to S$138m,

or 8% of total debt (vs. 16% previously). The stock is our top industrial SREIT, offering an

attractive total return of 25%.

MINT - Mapletree Industrial Trust posted 1Q FY3/13 distributable income of S$36.9m (+27.1%

YoY, +3.1% QoQ) and DPU of 2.26 S cents, above our estimates due to lower-than-forecasted

property and interest expenses. Revenue increased 21.6% YoY to S$66.9m, attributable to

improved occupancies, higher rents and acquisition of Tranche 2 of JTC Corporation’s portfolio.

Due to lower operating capital expenses, NPI rose by a higher 26.4% YoY to S$48.3m. Flatted

factories, business park buildings and stack-up/ramp-up buildings, which accounted for 91% of

total NPI, increased 44.3%, 2.9% and 5.6% YoY, respectively. Gross rents rose 0.6% QoQ to

S$1.56 psf/mth, with positive rent reversions across all segments. For renewal leases in flatted

factories, business park buildings and stack-up/ramp-up buildings, rents were signed at higher

rates of +22.0%, +9.3% and +31.7%, respectively. As for new leases signed, these three

segments saw respective increases of +20.8%, +18.9% and +26.7% over passing rents. Retention

rate remained healthy at 71.1%, while occupancy was flat QoQ at 94.9%. Construction has started

for 3 development projects in Toa Payoh North, Woodlands Central and Serangoon. We continue

to like MINT for its resilient and well-diversified portfolio.

[email protected] FIRST LAST 07/30/12 11:51:26 PM BNP Paribas (Singapore) {Asset Mgmt}

Macquarie Research SREITs results review

30 July 2012 8

AAREIT - AIMS AMP Capital Industrial REIT reported 1QFY13 amount available for distribution

of S$11.4m and distribution income of S$11.1m, DPU of 2.50 cts (-5.7% YoY). This is slightly

below our estimate of S$12.0m for amount available for distribution. Net property income

was S$14.9m (+6.5% QoQ) despite loss of income from the Gul Way redevelopment and sale of

31 Admiralty. On a portfolio basis, AAREIT signed new leases and renewals for 18.3% of total

NLA at rental rates that were 9.5% higher. AAREIT's portfolio occupancy rate is high at 99.1%. 27

Penjuru is coming off its master lease in Dec 2012 and more than 55% of NLA is committed.

AAREIT commenced negotiations for four other assets (totalling 8% of NLA) which will come off

master lease in 4QFY13. Gearing is 29.7% is well below the bank covenant maximum leverage of

45%. Gearing is expected to rise to circa 35% on our estimates when phase 1 of its Gul Way

redevelopment completes in Nov 2012. This is within management's 30-40% gearing target.

AAREIT is one of the top performing SREITs in our coverage universe, +39% YTD and

outperforming the FSTI index by 21%. This reflects the good execution over the past 12 months,

reflected in the narrowing of the discount to book value to now 0.93x its latest book value of

S$1.40. On a total return basis, we expect a potential upside of 20%.

CACHE - Cache Logistics Trust reported 2Q12 DPU of 1.98 S cents and distributable income of

S$13.9m (+4.5% YoY, +4.0% QoQ), in line with our estimates. Revenue increased 8.5% YoY to

S$17.6m, underpinned by the S$101.5m of acquisitions completed from Mar 2011 to Apr 2012, as

well as upward rental adjustments of 1.25-2.5%. Top-line growth flowed through to NPI, which

rose 8.1% YoY to S$16.7m. Cache refinanced its entire loan portfolio of S$249.3m with a new

S$375.0m bank facility, which improved its debt maturity and lowered its interest cost. Gearing

rose to 32.5%, which implies debt headroom of circa S$38m before reaching 35%. It still has a

right of first refusal (ROFR) over its parent's 13 properties in Singapore, China and Malaysia, with

about 3.5m sqf in GFA. Cache’s portfolio remains 100% occupied, with a weighted average lease

expiry of 4.4 years. Income base is also well-supported by end-users from diverse trade sectors.

We raise our FY12E-14E DPU by 1-3% to account for lower interest expenses, as well as TP by

+2%. Cache offers a 7.4% yield and low-single-digit DPU growth in FY12E and FY13E. We

believe investors like the predictability and stability of its income stream given that most of its

properties are on master lease structures.

[email protected] FIRST LAST 07/30/12 11:51:26 PM BNP Paribas (Singapore) {Asset Mgmt}

Macquarie Research SREITs results review

30 July 2012 9

4. Hospitality REITs

ART - Ascott Residence Trust reported 2Q12 distribution income of S$27.1m (+3% YoY) and

DPU of 2.38 S cents. Results were 9% better than our estimates. Revenue rose 8% YoY to

S$78.9m, mainly due to stronger operating performance in the Philippines, China, Vietnam and

the UK. Due to higher operating expenses, gross profit rose by a lower +4% YoY to S$42.7m.

Overall group RevPAU growth was +6% YoY to S$156, which was achieved on good performance

in China (+17%), the Philippines (+9%) and Japan (+46%). Management guided that

macroeconomic outlook for 2H12 remains uncertain. The portfolio is resilient as 42% of total

income from its European properties is under master leases and management contracts with

minimum guaranteed income. Earnings are also not significantly affected by changes in the

various FX rates (8 different currencies) vs. the S$, evidenced by net FX moves of -2.5% on a

portfolio basis in 2Q12. We raised DPU by +1.0% and +2.8% in FY12E and FY13E, respectively

to reflect the sale of Somerset Grand Cairnhill, as well as the acquisition of Ascott Raffles Place

and Ascott Guangzhou. TP is subsequently increased by +2%. With total return of 19%, we

believe ART will appeal to investors looking for a stable yield from its well diversified portfolio of

serviced apartments in Asia and Europe.

CDREIT - CDL Hospitality Trusts posted 2Q12 income available for distribution of S$31.4m

(+10.8% YoY, +5.1% QoQ), above our forecast of S$29.4m due to better performance in

Singapore. Revenue rose 6.0% YoY to S$36.6m, underpinned by a +7.7% improved contribution

from its Singapore hotels (including a full quarter’s contribution from Studio M Hotel), but offset by

a 3.6% fall from its properties in Australia due to a weaker currency. Excluding a non-recurring

property tax refund in 2Q11, NPI increased 5.9% YoY to S$34.1m, spot on with our estimates. NPI

from Singapore continued to account for majority of CDREIT’s NPI (80%), with Australia and New

Zealand at 13% and 7%, respectively. RevPAR improved 5.6% YoY (+1.9% QoQ) to S$211 in

2Q12 for its entire Singapore portfolio. Excluding Studio M, RevPAR would have increased by a

higher 5.9% to S$217, on the back of a 4.3% YoY rise in average room rate to S$242 and +1.6ppt

in occupancy to 89.7%. CDREIT is the most direct proxy to the strong tourism sector in Singapore,

which contributes over 80% to its NPI and asset valuation. The stock has risen 35% YTD, but

given total shareholder return of 14%, we maintain our Outperform recommendation.

[email protected] FIRST LAST 07/30/12 11:51:26 PM BNP Paribas (Singapore) {Asset Mgmt}

Our key calls

Singapore REITs have outperformed the FTSE STI and UGAS Index by 7.1% and

7.2% over the last three months as the market chased after high yield instruments.

The S-REIT sector is currently trading at 1.1x book, 1.7% premium to our current

NPV estimates and an implied cap rate averaging about 5.5%. Whilst the sector

valuation doesn't appear attractive on these bases, it still offers 490bps spread to the

Singapore 10-year government bond in an environment where bond yield could

potentially compress even further. The recent results season also affirms the sector’s

stability in terms of earnings stream. This coupled with a reasonably well capitalized

balance sheet and an appreciating SGD have attracted a much broader investor base.

Whilst we continue to highlight the substantial valuation disparity between the

developers and the REITs, and therefore our fundamental preference for developers,

we are fully cognizant of the attractiveness of the yield in the current environment.

Despite the YTD outperformance, it is still trading at 57bps spread over the longterm

average yield spread and 91bps spread wider than the long-term average

excluding the GFC period during which REITs were trading at distressed valuations.

We estimate, based on the current bond yield, a potential 18% upside from hereon

should we compress to the long-term average trading level excluding the GFC

period.

We have reviewed our earnings estimates for all the REITs under our coverage post

results season. We have also raised our valuations for the sector as we lower our

sector beta assumption to 0.8, the first reduction since the GFC, back to a pre-crisis

level. Within the sector, our preference is for the office REITs given a still attractive

valuation even from a P/B and discount/premium to NPV basis, the bottoming

physical market and the moving out of the negative rental reversion cycle.

CapitaCommercial Trust (CCT SP) is our top pick for the sector. We also like

CapitaMall Trust (CT SP) on the back of its well-staged DPU growth profile. We

also highlight that a mean-reversion trading strategy has worked well YTD.

Figure 1: S-REITs: summary of our recommendations

Specified

Source: Bloomberg, J.P. Morgan estimates

OVERWEIGHT

CT

Premium/(discount) to NPV: -6%

CY13E dividend yield: 5.3%

Reported gearing: 38%

MINT

Premium/(discount) to NPV: 2%

CY13E dividend yield: 6.7%

Reported gearing : 38%

MCT

Premium/(discount) to NPV: 3%

CY13E dividend yield: 5.6%

Reported gearing : 38%

CCT

Premium/(discount) to NPV: -8%

CY13E dividend yield: 5.7%

Reported gearing : 30%

NEUTRAL

FCT

Premium/(discount) to NPV: 4%

CY13E dividend yield: 5.8%

Reported gearing : 32%

SUN

Premium/(discount) to NPV: -3%

CY13E dividend yield: 6.2%

Rpted see-through gearing: 39%

CDREIT

Premium/(discount) to NPV: 19%

CY13E dividend yield: 5.6%

Reported gearing 25%

AREIT

Premium/(discount) to NPV: 5%

CY13E dividend yield: 6.4%

Reported gearing : 33%

CRCT

Premium/(discount) to NPV: 12%

CY13E dividend yield: 7.0%

Reported gearing : 28%

MLT

Premium/(discount) to NPV: 4%

CY13E dividend yield: 7.0%

Rpted see-through gearing: 41%

KREIT

Premium/(discount) to N PV: 12%

CY13E dividend yield: 6.7%

Rpted see-through gearing: 44%

A prolonged low interest rate

environment, appreciating

currency and stable rental

outlook and balance sheet have

resulted in the strong

outperformance of the S-REITs

sector.

Valuation doesn't look cheap on

book and NPV…

… BUT we could still see 15 -

20% upside from yield

compression…

Our preference is for the office

REITs which are still trading at

attractive valuations and are

moving out of the office downcycle.

How much can yields compress?

The S-REITs sector is currently trading at 490bps yield spread to Singapore 10-year

government bond yield, a level that is still above the long-term average for the sector.

More importantly, if we were to strip out the crisis period during which the sector

traded at almost distress valuation, it is still trading at 91bps above the average yield

spread. Table 1 sets out the potential valuation at various historical trading levels.

Table 1: S-REITs: Valuations at various trading level for forward yield spread versus 10-year bond yield

Specified

Price Forward yield spread Valuation Potential upside

30-Jul-12 Mean Mean ex.

Crisis

-1 s.d. Mean Mean ex.

Crisis

-1 s.d. Mean Mean ex.

Crisis

-1 s.d.

(S$) (%) (%) (%) (S$) (S$) (S$) (%) (%) (%)

A-REIT 2.23 4.4% 4.2% 2.8% 2.38 2.45 3.28 7% 10% 47%

CapitaCommercial Trust 1.35 4.4% 3.8% 1.5% 1.38 1.55 2.77 3% 15% 106%

CapitaMall Trust 1.95 3.4% 3.0% 1.1% 2.03 2.19 3.88 4% 13% 99%

CapitaRetail China Trust 1.45 2.7% 2.6% 1.4% 2.32 2.38 3.48 60% 64% 140%

CDL Hospitality Trust 2.07 4.5% 3.8% 1.3% 1.93 2.20 4.18 -7% 6% 102%

Frasers Centrepoint Trust 1.81 4.1% 3.6% 1.9% 1.88 2.07 3.18 4% 14% 76%

K-REIT Asia 1.12 4.1% 3.6% 1.4% 1.40 1.54 2.78 25% 38% 150%

Mapletree Commercial Trust* 1.09 4.7% 3.3% 4.2% 0.97 1.25 1.06 -11% 15% -3%

Mapletree Industrial Trust* 1.31 5.8% 4.2% 5.4% 1.20 1.55 1.27 -9% 18% -3%

Mapletree Logistics Trust 1.01 5.3% 4.7% 2.2% 1.02 1.13 1.89 2% 12% 88%

Suntec REIT 1.43 5.1% 4.4% 1.7% 1.48 1.67 3.12 4% 17% 119%

Source: Bloomberg, J.P. Morgan estimates.* Note that given the short listing history, we have adjusted MCT and MINT's Mean ex-crisis trading yield using comparables.

In deriving our NPV estimates, we have used a 3% through-the-cycle long term bond

yield for risk free rate versus current risk free rate of 1.4%. Should we lower our risk

free rate by 100bps, our NPV valuation could potentially be lifted by 19% on

average.

Table 2: S-REITs: NAV sensitivity to decrease in risk-free rate assumption

Specified

Base case 100bps decrease in risk free rate % change

Share price Market Discount Current Forward Discount Current Forward in forward

30-Jul-12 cap rate NPV NPV rate NPV NPV NPV

(S$) (S$ MM) (%) (S$) (S$) (%) (S$) (S$) (%)

A-REIT 2.23 4,990 7.3% 2.13 2.29 6.3% 2.54 2.70 17.9%

CapitaCommercial Trust 1.35 3,818 7.5% 1.46 1.57 6.5% 1.80 1.91 21.5%

CapitaMall Trust 1.95 6,477 6.7% 2.07 2.20 5.7% 2.54 2.69 21.8%

CapitaRetail China Trust 1.45 1,001 10.2% 1.30 1.43 9.2% 1.51 1.64 15.2%

CDL Hospitality Trust 2.07 2,003 8.3% 1.75 1.89 7.3% 2.08 2.23 17.8%

Frasers Centrepoint Trust 1.81 1,486 7.9% 1.74 1.87 6.9% 2.10 2.24 19.7%

K-REIT Asia 1.12 2,920 8.4% 0.99 1.08 7.4% 1.15 1.24 15.2%

Mapletree Commercial Trust 1.09 2,036 7.3% 1.06 1.13 6.3% 1.30 1.38 22.1%

Mapletree Industrial Trust 1.31 2,134 8.1% 1.28 1.39 7.1% 1.51 1.62 16.8%

Mapletree Logistics Trust 1.01 2,438 8.6% 0.96 1.05 7.6% 1.12 1.21 15.6%

Suntec REIT 1.43 3,196 8.0% 1.47 1.59 7.0% 1.75 1.87 17.6%

Total / weighted average 32,499 7.7% 6.7% 18.8%

Source: Bloomberg, J.P. Morgan estimates

Putting this into a regional context, Singapore REITs are trading below the average

spread versus HK REITs and Japan REITs, but are still trading above the average

spread versus A-REITs and US REITs.