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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
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
Source: Company, DBS Bank
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%
Source: Company, DBS Bank
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
Source: URA, CEIC, DBS Bank
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.
Source: URA, CEIC, DBS Bank
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
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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.
Source: URA, CEIC, DBS Bank
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.
Source: URA, CEIC, DBS Bank
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.
Source: URA, CEIC, DBS Bank
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
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)
DBS Group Research . Equity
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$5.3m of
FY19’s distributable income which was retained for
working capital purposes and CapitaMall Erqi’s
divestment gains after completion in 3Q20.
•
(+/-) Financial metrics within healthy levels; RMB weakness a
short-term headwind
• About 80.0% of CRCT’s total term loans is on fixed
interest rates, which will mitigate interest rate volatility.
• CRCT’s currently hedges approximately 62% of
undistributed income into SGD to absorb the impact of
foreign currency fluctuations.
• Gearing was a healthy 36.7%, with a moderately low average
cost of debt of 2.98%.
Page 31Page 31
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Company Guide
CapitaLand Retail China Trust
Quarterly / Interim Income Statement (S$m)
FY Dec 4Q2018 3Q2019 4Q2019 % chg yoy % chg qoq
Gross revenue 55.7 59.5 67.6 21.2 13.6
Property expenses (19.9) (18.4) (23.5) 18.1 27.7
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 (%)
Net Prop Inc Margin 64.4 69.1 65.3
Dist. Payout Ratio 100.0 100.0 100.0
Source of all data: Company, DBS Bank
Page 32Page 32
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Company Guide
CapitaLand Retail China Trust
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$45m when
the divestment is completed in 3Q20.
Visible pipeline and a lowly geared balance sheet infuse the
REIT with ample firepower to acquire. CRCT benefits from a
visible acquisition pipeline from sponsor, CapitaMalls Asia, one
of Asia’s largest mall operators, managers and owners. While
the availability of the pipeline from the sponsor offers
significant inorganic growth potential for the REIT, we think
CRCT would have to trade at a tighter yield to acquire at a
yield accretion. The high take-up rates in the REIT’s dividend
reinvestment programme have also infused the REIT with
much-needed equity to part-fund any future growth
opportunities, which we envision to happen soon.
Net Property Income and Margins (%)
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
61.8%
63.8%
65.8%
67.8%
69.8%
71.8%
73.8%
75.8%
0
20
40
60
80
100
120
140
160
180
200
2017A 2018A 2019A 2020F 2021F
S$ 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
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Company Guide
CapitaLand Retail China Trust
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)
Source: Company, DBS Bank
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
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Company Guide
CapitaLand Retail China Trust
Income Statement (S$m)
FY Dec 2017A 2018A 2019A 2020F 2021F
Gross revenue 229 223 238 285 296
Property expenses (80.0) (75.3) (72.8) (96.9) (98.9)
Net Property Income 149 147 165 188 197 Other Operating expenses (14.5) (16.2) (5.7) (17.9) (18.3)
Other Non Opg (Exp)/Inc (0.1) (2.4) 0.0 0.0 0.0
Associates & JV Inc 0.0 7.25 8.57 7.56 7.82
Net Interest (Exp)/Inc (21.0) (20.4) (29.4) (35.7) (35.3)
Exceptional Gain/(Loss) 52.2 0.0 2.37 0.0 0.0
Net Income 166 116 141 142 151 Tax (64.2) (56.5) (74.6) (33.6) (35.9)
Minority Interest 1.65 1.09 (1.2) (0.6) (0.6)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Income After Tax 103 60.1 65.3 108 115 Total Return 145 129 165 108 115
Non-tax deductible Items (57.3) (34.8) (54.6) 8.52 8.88
Net Inc available for Dist. 91.1 99.7 111 120 124 Growth & Ratio
Revenue Gth (%) 7.0 (2.8) 6.9 19.6 3.9
N Property Inc Gth (%) 6.8 (1.2) 12.2 13.6 4.9
Net Inc Gth (%) 57.7 (41.7) 8.7 64.9 6.5
Dist. Payout Ratio (%) 100.0 100.0 96.2 100.0 100.0
Net Prop Inc Margins (%) 65.1 66.2 69.4 66.0 66.6
Net Income Margins (%) 45.0 27.0 27.4 37.8 38.8
Dist to revenue (%) 39.8 44.8 46.5 42.2 41.8
Managers & Trustee’s fees
to sales %)
6.3 7.3 2.4 6.3 6.2
ROAE (%) 6.9 3.9 3.8 5.8 6.1
ROA (%) 3.8 2.1 1.9 2.9 3.1
ROCE (%) 3.7 2.9 2.7 4.2 4.4
Int. Cover (x) 6.4 6.4 5.4 4.8 5.1
Source: Company, DBS Bank
Incremental contributions
from recent acquisitions
Page 35Page 35
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Company Guide
CapitaLand Retail China Trust
Quarterly / Interim Income Statement (S$m)
FY Dec 4Q2018 1Q2019 2Q2019 3Q2019 4Q2019
Gross revenue 55.7 56.0 55.2 59.5 67.6
Property expenses (19.9) (16.2) (14.8) (18.4) (23.5)
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
Net Interest (Exp)/Inc (5.4) (6.7) (7.0) (7.2) (8.5)
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
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0
Balance Sheet (S$m)
FY Dec 2017A 2018A 2019A 2020F 2021F Investment Properties 2,441 2,441 3,168 3,126 3,135
Other LT Assets 2.99 260 264 271 279
Cash & ST Invts 187 174 140 153 157
Inventory 0.0 0.0 0.0 0.0 0.0
Debtors 37.1 107 124 46.1 48.0
Other Current Assets 0.44 0.12 109 109 109
Total Assets 2,668 2,983 3,806 3,705 3,728
ST Debt
0.0 161 207 207 207
Creditor 59.6 60.7 151 86.3 89.7
Other Current Liab 242 29.2 59.5 59.5 59.5
LT Debt 748 877 1,173 1,141 1,160
Other LT Liabilities 50.8 283 342 342 342
Unit holders’ funds 1,549 1,553 1,874 1,870 1,870
Minority Interests 19.3 18.3 0.0 0.58 1.22
Total Funds & Liabilities 2,668 2,983 3,806 3,705 3,728
Non-Cash Wkg. Capital (264) 17.3 23.2 9.60 8.03
Net Cash/(Debt) (561) (864) (1,240) (1,195) (1,209) Ratio
Current Ratio (x) 0.7 1.1 0.9 0.9 0.9
Quick Ratio (x) 0.7 1.1 0.9 0.9 0.9
Aggregate Leverage (%) 28.0 34.8 36.3 36.4 36.7
Z-Score (X) 0.9 1.1 0.9 0.9 0.9
Source: Company, DBS Bank
Gearing at optimal level
Page 36Page 36
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Company Guide
CapitaLand Retail China Trust
Cash Flow Statement (S$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: Company, DBS Bank
Target Price & Ratings History
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
CapitaLand Retail China Trust
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: 10 Feb 2020 07:43:43 (SGT)
Dissemination Date: 10 Feb 2020 09:07:43 (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 38Page 38
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Company Guide
CapitaLand Retail China Trust
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 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.
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 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.
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 39Page 39
Page 39
ed: TH/ sa: YM, PY, CS
BUY
Last Traded Price ( 6 Mar 2020): S$2.97 (STI : 2,960.98)
Price Target 12-mth: S$3.35 (13% upside) (Prev S$2.95)
Analyst
Singapore Research Team [email protected]
Derek TAN +65 6682 3716 [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$3.35, assuming PGIM in our valuation
Price Relative
Forecasts and Valuation
FY Sep (S$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
Source of all data on this page: Company, DBS Bank, Bloomberg
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$3.35. Our current target price
has assumed the accretion from PGIM (but not in our earnings
estimates).
Key Risks to Our View:
Slower-than-anticipated unwinding of PGIM ARF. A slower–
than-anticipated acquisition of PGIM ARF or the protraction of
short-term headwinds associated with the COVID-19 outbreak.
At A Glance Issued Capital (m shrs) 1,118
Mkt. Cap (S$m/US$m) 3,319 / 2,408
Major Shareholders (%)
TCC Assets Ltd 42.1
Schroders Plc 5.0
Free Float (%) 53.1
3m Avg. Daily Val (US$m) 4.9
GIC Industry : Real Estate / Equity Real Estate Investment (REITs)
DBS Group Research . Equity
9 Mar 2020
Singapore Company Guide
Frasers Centrepoint Trust Version 20 | Bloomberg: FCT SP | Reuters: FCRT.SI Refer to important disclosures at the end of this report
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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.
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Frasers Centrepoint Trust
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$64m as of 31st December 2019.
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Frasers Centrepoint Trust
FCT and PGIM ARF’s portfolio financial and operating metrices
Properties
Book value
as at 30 Sep
2019
Net Lettable
Area (sqft)
Valuation
(S$ psf NLA)
Cap rate
(2018)
Cap rate
(2019) Occupancy
Lease
Expiry
FY18 (%) FY19 (%)
Frasers Centrepoint Trust
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
Source: Company, DBS Bank
Geographical footprint of retail malls held by FCT and PGIM ARF
Source: Company, DBS Bank * Excluding The Centrepoint
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Frasers Centrepoint Trust
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$4.5bn would place it as the
eighth largest S-REIT by market cap from a previous
ranking of 12.
FCT will become the second largest retail landlord in Singapore after a full acquisition of PGIM ARF
Reinstated for PGIM ARF acquisition
Owner Rank 30-Sep-19 Owner Rank 30-Sep-19
CapitaLand Mall Trust 14.1% CapitaLand Mall Trust 14.1%
NTUC 5.8% Frasers Centrepoint Trust 8.5%
Lend Lease 4.9% NTUC 5.8%
Frasers Centrepoint Trust 4.3% Lend Lease 4.9%
PGIM Real Estate 4.2% Far East Organisation 3.6%
Far East Organisation 3.6% Mapletree Commercial Trust 3.6%
Mapletree Commercial Trust 3.6% CapitaLand 3.3%
CapitaLand 3.3% Changi Airport Group 3.1%
Changi Airport Group 3.1% United Industrial Corporation Limited 3.0%
United Industrial Corporation Limited 3.0% Others 50.2%
Others 50.2%
Source: FCT, DBS Bank
Food & Beverage,
31%
Others, 2%
Retail, 52%
Activity-based/
Services, 14%
PGIM ARF Tenant Breakdown (% NLA)
31.5%
13.5%
7.7%4.8%9.2%
7.1%
3.7%
6.4%
0.9%
3.7%4.2%
3.7%3.6%
FCT Tenant Breakdown (% NLA)
Food & Beverage
Fashion
Beauty & Health
Services
Household
Supermarket &HypermarketSports Apparel &EquipmentLeisure/Entertainment
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Frasers Centrepoint Trust
FCT will become the eighth largest S-REIT by market cap (S$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$3.35.
• Our target price assumes an implied dividend yield of
4.1% and P/NAV of 1.45x, which we believe is attainable.
This also implies a target implied cap of 4.1%, which is a
level we believe supportable by transactions within the
retail space and reflects potential compression in yields
given the current low interest rate environment.
12.4
9.2
7.8 7.6 7.5 6.6
5.0 4.5 4.1 4.1
3.6 3.3
AscendasREIT
CapitaLandMall
CapitaLandComm
MapletreeComm
MapletreeLog
MapletreeInd
Suntec REIT FCT (PGIMARF)
Keppel REIT Keppel DCREIT
MNACT FCT
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Frasers Centrepoint Trust
Yield and target price scenario analysis Remarks
Source: DBS Bank
Original (FY20F) 50% 75% 100%
Revenue (S$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%
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Frasers Centrepoint Trust
CRITICAL DATA POINTS TO WATCH
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.
Net Property Income and Margins (%)
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
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Frasers Centrepoint Trust
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.
Share Price Drivers:
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.
Environment, Social, Governance:
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.
Aggregate Leverage (%)
ROE (%)
Distribution Yield (%)
PB Band (x)
Environment, Social, Governance
Source: Company, DBS Bank
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Frasers Centrepoint Trust
Income Statement (S$m)
FY Sep 2017A 2018A 2019A 2020F 2021F
Gross revenue 182 193 196 201 206
Property expenses (52.0) (56.2) (57.1) (56.0) (56.3)
Net Property Income 130 137 139 145 149 Other Operating expenses (17.1) (17.2) (18.7) (17.8) (18.0)
Other Non Opg (Exp)/Inc 0.0 0.0 0.13 0.0 0.0
Associates & JV Inc 4.39 3.77 15.8 36.8 37.5
Net Interest (Exp)/Inc (17.6) (20.0) (24.1) (29.0) (29.3)
Exceptional Gain/(Loss) 0.28 0.37 0.17 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
Preference Dividend 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. Payout Ratio (%) 99.3 100.0 100.0 100.0 100.0
Net Prop Inc Margins (%) 71.3 71.0 70.9 72.2 72.6
Net Income Margins (%) 54.8 53.8 57.4 67.2 67.9
Dist to revenue (%) 60.9 57.6 60.5 71.0 70.7
Managers & Trustee’s fees
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
Source: Company, DBS Bank
Driven by stable organic
growth
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Company Guide
Frasers Centrepoint Trust
Quarterly / Interim Income Statement (S$m)
FY Sep 1Q2019 2Q2019 3Q2019 4Q2019 1Q2020
Gross revenue 49.3 49.7 49.1 48.3 49.8
Property expenses (13.9) (13.3) (14.5) (15.4) (13.4)
Net Property Income 35.4 36.4 34.6 32.9 36.3 Other Operating expenses (4.2) (4.4) (4.7) (5.4) (5.5)
Other Non Opg (Exp)/Inc 0.0 (0.2) (0.4) (0.3) 0.87 Associates & JV Inc 4 4 16 37 38
Net Interest (Exp)/Inc (5.4) (5.5) (7.2) (5.9) (6.8)
Exceptional Gain/(Loss) 0.0 0.0 3.58 (1.5) (0.4)
Net Income 26.8 26.4 33.1 26.5 40.5
Tax 0.0 0.0 0.0 0.0 0.0
Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Income after Tax 26.8 26.4 33.1 26.4 40.5
Total Return 26.0 25.8 26.6 24.4 26.8
Non-tax deductible Items 0.89 2.30 (1.9) 2.12 10.1 Net Inc available for Dist. 27.7 28.8 29.9 32.6 35.0 Growth & Ratio
Revenue Gth (%) 2 1 (1) (2) 3
N Property Inc Gth (%) 8 3 (5) (5) 11
Net Inc Gth (%) 10 (2) 25 (20) 53
Net Prop Inc Margin (%) 71.8 73.3 70.5 68.1 73.0
Dist. Payout Ratio (%) 101.2 101.2 100.0 100.0 100.0
Balance Sheet (S$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
Unit holders’ funds 1,872 1,934 2,471 2,465 2,461
Minority Interests 0.0 0.0 0.0 0.0 0.0
Total Funds & Liabilities 2,751 2,840 3,611 3,611 3,618
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
Aggregate Leverage (%) 29.0 28.6 28.8 29.1 29.3
Z-Score (X) 1.7 1.8 1.7 1.7 1.7
Source: Company, DBS Bank
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Company Guide
Frasers Centrepoint Trust
Cash Flow Statement (S$m)
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
Div from Assoc. & JVs 4.74 3.99 12.8 36.8 37.5
Other Investing CF 0.0 0.0 0.0 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
Operating CFPS (S cts) 13.0 13.5 11.3 8.95 9.24
Free CFPS (S cts) 6.08 13.1 11.3 8.22 8.87
Source: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank
Analyst: Singapore Research Team
Derek TAN
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Company Guide
Frasers Centrepoint Trust
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: 9 Mar 2020 08:00:25 (SGT)
Dissemination Date: 10 Mar 2020 15:33:00 (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
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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
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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 52Page 52
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Company Guide
Frasers Centrepoint Trust
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 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.
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 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.
Compensation for investment banking services:
5. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12
months for investment banking services from 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.
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 53Page 53
Page 53
ed: TH/ sa: YM, PY, CS
BUY Last Traded Price ( 10 Feb 2020): S$0.905 (STI : 3,163.15)
Price Target 12-mth: S$1.05 (16% upside)
Analyst
Singapore Research Team [email protected]
Derek TAN +65 6682 3716 [email protected]
What’s New
• DPU of 1.29 Scts for the quarter beats IPO forecast; in
line with our estimates.
• 313@somerset could see an additional 1,008 sqm of
GFA following an increase in plot ratio from 4.9+ to 5.6
• Low risk of non-renewal given a high tenant retention
rate of 92.5%
• An acquisition, which we believe to be stakes in JEM or
Parkway Parade, could happen earlier than expected
Price Relative
Forecasts and Valuation
FY Jun (S$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
Source of all data on this page: Company, DBS Bank, Bloomberg
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$1.05 as our growth forecasts remain largely
unchanged, and pricing in an acquisition will provide upside to
our current TP.
Key Risks to Our View:
Key risks to our view include country risks in Singapore and Italy,
tenant concentration risk, changes in withholding tax laws in Italy,
foreign exchange risks and interest rate risks. At A Glance Issued Capital (m shrs) 1,168
Mkt. Cap (S$m/US$m) 1,057 / 761
Major Shareholders (%)
Lendlease SReit 24.3
OCBC 10.9
Temasek Holdings 5.0
Free Float (%) 54.8
3m Avg. Daily Val (US$m) 1.8
GIC Industry : Real Estate / Equity Real Estate Investment (REITs)
DBS Group Research . Equity
11 Feb 2020
Singapore Company Guide
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
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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.
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Company Guide
LendLease Global Commercial REIT
Quarterly / Interim Income Statement (S$m)
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%
Source of all data: Company, DBS Bank
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Company Guide
LendLease Global Commercial REIT
CRITICAL DATA POINTS TO WATCH
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.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
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Company Guide
LendLease Global Commercial REIT
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.
Share Price Drivers:
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$35.2bn held under funds. In Singapore, the
Lendlease Group manages highly successful and iconic
shopping malls including 313@somerset, Parkway Parade, and
Jem and more recently Paya Lebar Quarter (PLQ) which was
launched in 3Q19.
(i) Parkway Parade – Sponsor owns 6.1% stake via Parkway
Parade Partnership Limited.
(ii) JEM - Sponsor owns 20.1% stake via Lendlease Asian Retail
Investment Fund 3.
(iii) Paya Lebar Quarter - Sponsor directly owns a 30.0%
interest in the development
Key Risks:
Concentration risk. Despite LLGCR’s initial portfolio being
diversified across two countries and various sectors, there is a
tight concentration on Sky Italia (single tenant), which
contributed c.28.9% to revenues in June 2019. Therefore, a
downturn in either key markets of Singapore and Italy could
have a disproportionately large impact on the REIT’s earnings.
Company Background
Lendlease Global Commercial REIT (“LLGCR”) was listed on 2
October as a real estate investment trust with a principal
objective to own in-producing real estate across the globe. The
initial portfolio will comprise of full ownership stakes in two
assets, retail mall 313@somerset (Singapore) and office asset,
Sky Complex (Italy)..
Aggregate Leverage (%)
ROE (%)
Source: Company, DBS Bank
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Company Guide
LendLease Global Commercial REIT
Environment, Social, Governance: Balance Sheet (S$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
Source: Company, DBS Bank
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Company Guide
LendLease Global Commercial REIT
Cash Flow Statement (S$m)
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: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank
Analyst: Singapore Research Team
Derek TAN
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Company Guide
LendLease Global Commercial REIT
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: 11 Feb 2020 08:45:54 (SGT)
Dissemination Date: 11 Feb 2020 08:53:52 (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
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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
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warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
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The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
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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
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assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
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Company Guide
LendLease Global Commercial REIT
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
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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 do not have a
proprietary position in the securities recommended in this report as of 31 Jan 2020.
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.
Compensation for investment banking services:
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.
5. 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:
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.
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
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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
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Page 62Page 62
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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
DBS Group Research . Equity
8 Nov 2019
Singapore Company Guide
Mapletree Commercial Trust Version 17 | Bloomberg: MCT SP | Reuters: MACT.SI Refer to important disclosures at the end of this report
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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.
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Company Guide
Mapletree Commercial Trust
• 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$2.39. We increased our FY20F-FY21F DPU estimates by 2% to factor into the acquisition of MBCII. With the inclusion in MSCI post the acquisition of MBCII, we believe MCT has hit the ‘home run’ to sit at the ‘high table’, its next near-term re-rating catalyst. Given improved earnings visibility and being one of the “go-to” stocks in Singapore, we believe investors will remain vested. Moreover, the larger MCT would now have room to take on development projects (especially Harbourfront Centre).
Quarterly / Interim Income Statement (S$m)
FY Mar 2Q2019 1Q2020 2Q2020 % chg yoy % chg qoq
Gross revenue 110 112 112 1.9 (0.1)
Property expenses (23.7) (23.8) (24.3) 2.8 2.3
Net Property Income 86.3 88.4 87.7 1.7 (0.7)
Other Operating expenses (8.2) (8.5) (8.6) 4.5 1.1
Other Non Opg (Exp)/Inc 0.11 0.22 0.44 315.1 102.8
Net Interest (Exp)/Inc (17.4) (17.6) (17.7) (1.9) (1.1)
Exceptional Gain/(Loss) 0.0 0.0 0.0 - -
Net Income 60.8 62.5 61.9 1.8 (1.1)
Tax 0.0 0.0 0.0 - -
Minority Interest 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 (%)
Net Prop Inc Margin 78.5 78.8 78.3
Dist. Payout Ratio 100.0 100.0 100.0 Source of all data: Company, DBS Bank
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Company Guide
Mapletree Commercial Trust
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$12-13 psf per month by 2020/21. Given over 50% of MCT’s earnings are derived from its office/business park properties, we believe MCT is well placed to benefit from the upturn in office rents as new supply is expected to be muted over the coming 3-4 years. Transformative MBCII acquisition; room to take on development projects. With the long-awaited acquisition of MBCII now announced, it is both DPU and NAV accretive, based on the proforma numbers. We believe MCT will enjoy from a longer runway of growth driven by the acquisition of MBCII. Moreover, the larger MCT would now have room to take on development projects (especially Harbourfront Centre) to drive the next phase of growth.
Net Property Income and Margins (%)
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
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Company Guide
Mapletree Commercial Trust
Appendix 1:
MCT’s share price vs DPU Remarks
Source: Bloomberg Finance L.P., CBRE, DBS Bank
MCT’s share price typically
tracks its DPU. With MCT
expected to maintain an
upward trajectory in DPU
and upside from potential
acquisitions, we expect
MCT’s share price to rally
from current levels.
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
0.700.800.901.001.101.201.301.401.501.601.701.801.902.002.102.20
MCT share price (S$) (LHS) DPU (Scts) (RHS)
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Company Guide
Mapletree Commercial Trust
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.
Aggregate Leverage (%)
Distribution Yield (%)
PB Band (x)
Environment, Social, Governance
Source: Company, DBS Bank
5
10
15
20
25
30
35
Y2015 Y2016 Y2017 Y2018
MCT SP EQUITY Peers
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Company Guide
Mapletree Commercial Trust
Income Statement (S$m)
FY Mar 2017A 2018A 2019A 2020F 2021F Gross revenue 378 434 444 458 563 Property expenses (85.4) (94.7) (96.3) (98.7) (118) Net Property Income 292 339 348 359 445 Other Operating expenses (27.7) (31.6) (32.8) (35.3) (41.4) Other Non Opg (Exp)/Inc (4.5) 1.62 0.57 0.0 0.0 Net Interest (Exp)/Inc (53.7) (63.9) (69.4) (69.6) (93.3) Exceptional Gain/(Loss) 4.21 (1.6) (0.4) 0.0 0.0 Net Income 211 243 246 255 310 Tax 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Income After Tax 211 243 246 255 310 Total Return 211 568 582 255 310 Non-tax deductible Items (119) (307) 18.3 18.6 21.3 Net Inc available for Dist. 227 260 264 273 331 Growth & Ratio Revenue Gth (%) 31.3 14.8 2.4 3.2 22.8 N Property Inc Gth (%) 32.4 15.9 2.6 3.4 23.7 Net Inc Gth (%) 32.6 15.6 1.0 3.6 21.8 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 77.4 78.2 78.3 78.5 79.0 Net Income Margins (%) 55.7 56.1 55.3 55.6 55.1 Dist to revenue (%) 60.2 60.1 59.5 59.6 58.9 Managers & Trustee’s fees
7.3 7.3 7.4 7.7 7.4
ROAE (%) 6.3 5.9 5.5 5.5 6.1 ROA (%) 3.9 3.7 3.5 3.6 3.9 ROCE (%) 4.9 4.7 4.6 4.6 5.2 Int. Cover (x) 4.9 4.8 4.5 4.7 4.3
Source: Company, DBS Bank
Increase in earnings due to improved occupancies, additional GFA at VivoCity, recovery of the Singapore office market. We have also assumed the acquisition of MBCII in FY21
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Quarterly / Interim Income Statement (S$m)
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$m)
FY Mar 2017A 2018A 2019A 2020F 2021F Investment Properties 6,337 6,682 7,039 7,053 8,643 Other LT Assets 11.2 10.2 7.44 7.44 7.44 Cash & ST Invts 53.9 45.1 49.1 51.0 48.2 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 2.97 2.95 4.00 4.13 5.07 Other Current Assets 0.42 0.42 1.08 1.08 1.08 Total Assets 6,406 6,741 7,101 7,117 8,705 ST Debt
0.0 144 50.0 50.0 50.0 Creditor 71.5 83.2 81.0 83.0 99.2 Other Current Liab 0.39 0.15 0.01 0.01 0.01 LT Debt 2,330 2,186 2,300 2,314 3,002 Other LT Liabilities 46.6 44.7 53.7 53.7 53.7 Unit holders’ funds 3,957 4,283 4,616 4,616 5,500 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Funds & Liabilities 6,406 6,741 7,101 7,117 8,705 Non-Cash Wkg. Capital (68.5) (80.0) (75.9) (77.8) (93.0) Net Cash/(Debt) (2,276) (2,284) (2,301) (2,313) (3,004) Ratio Current Ratio (x) 0.8 0.2 0.4 0.4 0.4 Quick Ratio (x) 0.8 0.2 0.4 0.4 0.4 Aggregate Leverage (%) 36.4 34.6 33.1 33.2 35.1 Z-Score (X) 1.8 1.8 1.8 1.8 1.8
Source: Company, DBS Bank
Increase in gearing due to acquisition of MBCII
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Cash Flow Statement (S$m)
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: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank
Analyst: Rachel TAN
Derek TAN
Acquisition of MBCII
Net proceeds from c.S$900m equity-raising
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^ 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.
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: 8 Nov 2019 08:48:38 (SGT) Dissemination Date: 8 Nov 2019 08:56:04 (SGT)
Sources for all charts and tables are DBS Bank unless otherwise specified.
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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
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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
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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
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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
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which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
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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
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Company Guide
Mapletree Commercial Trust
(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.
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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
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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
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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
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COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have a
proprietary position in Mapletree Commercial 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.
Compensation for investment banking services:
3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of
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wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any
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Disclosure of previous investment recommendation produced:
4. 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.
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ed: TH/ sa: YM, PY, CS
BUY Last Traded Price ( 20 Jan 2020): S$1.25 (STI : 3,280.09)
Price Target 12-mth: S$1.35 (8% upside) (Prev S$1.30)
Analyst
Derek TAN +65 6682 3716 [email protected]
Singapore Research Team [email protected]
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$1.35
Price Relative
Forecasts and Valuation
FY Mar (S$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$1.35 on the back of better
cashflows for Festival Walk.
Key Risks to Our View:
The key risk to our view is a significant downturn in Hong
Kong and China’s economies, leading to a decline in rents.
At A Glance Issued Capital (m shrs) 3,194
Mkt. Cap (S$m/US$m) 3,993 / 2,965
Major Shareholders (%)
Temasek Holdings Pte Ltd 33.7
Schroders Plc 5.3
Free Float (%) 61.0
3m Avg. Daily Val (US$m) 11.1
GIC Industry : Real Estate / Equity Real Estate Investment (REITs)
DBS Group Research . Equity
21 Jan 2020
Singapore Company Guide
Mapletree North Asia Commercial Trust Version 18 | Bloomberg: MAGIC SP | Reuters: MAPE.SI Refer to important disclosures at the end of this report
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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$1.35.
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Quarterly / Interim Income Statement (S$m)
FY Mar 3Q2019 2Q2020 3Q2020 % chg yoy % chg qoq
Gross revenue 106 106 67.3 (36.3) (36.2)
Property expenses (21.0) (20.8) (16.5) (21.6) (20.5)
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
Exceptional Gain/(Loss) 0.0 0.0 0.0 - -
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 (%)
Net Prop Inc Margin 80.1 80.3 75.5
Dist. Payout Ratio 100.0 100.0 100.0
Source of all data: Company, DBS Bank
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CRITICAL DATA POINTS TO WATCH
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.
Net Property Income and Margins (%)
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
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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.
Share Price Drivers:
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.
Environment, Social, Governance:
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.
Aggregate Leverage (%)
ROE (%)
Distribution Yield (%)
PB Band (x)
Source: Company, DBS Bank
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Mapletree North Asia Commercial Trust
Income Statement (S$m)
FY Mar 2018A 2019A 2020F 2021F 2022F
Gross revenue 355 409 362 443 456
Property expenses (67.9) (79.7) (74.1) (99.3) (103)
Net Property Income 287 329 288 344 352
Other Operating expenses (24.2) (28.2) (22.2) (26.8) (28.2)
Other Non Opg (Exp)/Inc 5.84 2.19 0.0 0.0 0.0
Net Interest (Exp)/Inc (67.7) (72.4) (70.6) (71.2) (74.7)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Net Income 201 231 195 246 249 Tax (43.9) (61.4) (40.3) (42.3) (43.5)
Minority Interest 0.0 (0.5) (0.5) (0.5) (0.5)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Income After Tax 157 169 154 203 205 Total Return 574 634 154 203 205
Non-tax deductible Items 53.7 71.9 46.8 50.0 51.7
Net Inc available for Dist. 211 241 232 253 257 Growth & Ratio
Revenue Gth (%) 1.3 15.1 (11.5) 22.5 2.8
N Property Inc Gth (%) 0.5 14.6 (12.6) 19.6 2.5
Net Inc Gth (%) 2.3 7.4 (8.7) 31.9 1.1
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0
Net Prop Inc Margins (%) 80.9 80.5 79.5 77.6 77.3
Net Income Margins (%) 44.3 41.3 42.6 45.9 45.1
Dist to revenue (%) 59.4 58.9 64.1 57.1 56.4
Managers & Trustee’s fees
to sales %)
6.8 6.9 6.1 6.0 6.2
ROAE (%) 4.2 4.0 3.4 4.4 4.4
ROA (%) 2.4 2.4 2.0 2.5 2.5
ROCE (%) 3.4 3.3 2.9 3.5 3.4
Int. Cover (x) 3.9 4.2 3.8 4.5 4.3
Source: Company, DBS Bank
Driven from Japan
acquisitions
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Mapletree North Asia Commercial Trust
Quarterly / Interim Income Statement (S$m)
FY Mar 3Q2019 4Q2019 1Q2020 2Q2020 3Q2020
Gross revenue 106 104 105 106 67.3
Property expenses (21.0) (20.0) (19.8) (20.8) (16.5)
Net Property Income 84.6 84.0 85.0 84.7 50.8 Other Operating expenses (7.2) (7.6) (7.2) (7.1) (5.8)
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)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
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)
Net Prop Inc Margin (%) 80.1 80.7 81.1 80.3 75.5
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0
Balance Sheet (S$m)
FY Mar 2018A 2019A 2020F 2021F 2022F Investment Properties 6,292 7,610 7,618 8,111 8,122
Other LT Assets 40.6 16.5 16.5 16.5 16.5
Cash & ST Invts 179 180 159 163 97.7
Inventory 0.74 0.67 0.67 0.67 0.67
Debtors 9.42 9.32 8.25 10.1 10.4
Other Current Assets 2.04 5.50 5.50 5.50 5.50
Total Assets 6,523 7,820 7,807 8,306 8,252
ST Debt
83.8 288 288 288 288
Creditor 87.3 93.2 79.5 95.7 96.7
Other Current Liab 30.2 32.4 32.4 32.4 32.4
LT Debt 2,277 2,580 2,611 2,967 2,911
Other LT Liabilities 155 237 237 237 237
Unit holders’ funds 3,889 4,585 4,554 4,681 4,681
Minority Interests 0.0 4.68 5.17 5.66 6.15
Total Funds & Liabilities 6,523 7,820 7,807 8,306 8,252
Non-Cash Wkg. Capital (105) (110) (97.5) (112) (113)
Net Cash/(Debt) (2,182) (2,688) (2,740) (3,092) (3,101) Ratio
Current Ratio (x) 0.9 0.5 0.4 0.4 0.3
Quick Ratio (x) 0.9 0.5 0.4 0.4 0.3
Aggregate Leverage (%) 36.2 36.7 37.1 39.2 38.8
Z-Score (X) 0.8 0.7 0.7 0.6 0.7
Source: Company, DBS Bank
Gearing remains at an
optimal 37-38%
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Mapletree North Asia Commercial Trust
Cash Flow Statement (S$m)
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
Div from Assoc. & JVs 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)
Operating CFPS (S cts) 9.37 10.3 6.33 7.78 7.71
Free CFPS (S cts) 10.7 (14.2) 5.65 (6.9) 7.39
Source: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank
Analyst: Derek TAN
Singapore Research Team
Rachel TAN
Page 81Page 81
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Mapletree North Asia Commercial Trust
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: 21 Jan 2020 09:39:28 (SGT)
Dissemination Date: 21 Jan 2020 12:11:15 (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.
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Company Guide
Mapletree North Asia Commercial Trust
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have a proprietary
position in Mapletree North Asia Commercial 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 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.
Compensation for investment banking services:
5. 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:
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.
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 83Page 83
Page 83
ed: JS/ sa: YM, PY, CS
BUY Last Traded Price ( 20 Feb 2020): S$0.82 (STI : 3,198.68)
Price Target 12-mth: S$0.93 (13% upside) (Prev S$0.97)
Analyst
Singapore Research Team [email protected]
Derek TAN +65 6682 3716 [email protected]
What’s New • Full year DPU of 6.533 Scts exceeds IPO forecast by
4.7%
• Robust growth in customer loyalty as FY19 tenant sales
grew 12.1% y-o-y
• Watch out for leasing momentum as 51.6% of leases
by NLA will expire this year
• Minimum rent guarantee will no longer take effect in
FY20
Price Relative
Forecasts and Valuation
FY Dec (S$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
Source of all data on this page: Company, DBS Bank, Bloomberg
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$10m from our previous revenue estimate.
Key Risks to Our View:
The key risk to our view is the longer-than-expected closure of
portfolio malls beyond 1Q20.
At A Glance Issued Capital (m shrs) 1,196
Mkt. Cap (S$m/US$m) 981 / 704
Major Shareholders (%)
Sasseur Cayman Holding II Ltd 57.1
Cornerstone Investors 19.2
Meritz Securities Co Ltd 6.6
Free Float (%) 17.1
3m Avg. Daily Val (US$m) 1.7
GIC Industry : Real Estate / Equity Real Estate Investment (REITs)
DBS Group Research . Equity
21 Feb 2020
Singapore Company Guide
Sasseur REIT Version 4 | Bloomberg: SASSR SP | Reuters: SASS.SI Refer to important disclosures at the end of this report
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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$10m dip in EMA rental
income for the year.
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Company Guide
Sasseur REIT
Quarterly / Interim Income Statement (S$m)
FY Dec 4Q2018 3Q2019 4Q2019 % chg yoy % chg qoq
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
Minority Interest 0.0 0.0 0.0 - -
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 (%)
Net Prop Inc Margin 100.0 100.0 100.0
Dist. Payout Ratio 100.0 100.0 100.0
Source of all data: Company, DBS Bank
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Company Guide
Sasseur REIT
CRITICAL DATA POINTS TO WATCH
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.
Net Property Income and Margins (%)
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
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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.
Share Price Drivers:
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$305m that can be used for
yield accretive acquisitions of sponsor’s ROFR assets. This will
also help to diversify earnings within the portfolio across a
greater number of outlet malls.
Key Risks:
Variable rental income dependent on tenant sales.
Approximately 75% of FY19 rental income generated under
the EMA rental structure is fixed in nature, with the remaining
25% variable and pegged to 4-5% of underlying tenant sales.
As set out in Sasseur REIT’s IPO prospectus, the minimum rent
guarantee will no longer apply from FY20 as Sasseur REIT
exceeds IPO forecasts for two consecutive years since listing.
The lack of minimum rent guarantee by the sponsor will mean
that future EMA rental income will face greater dependency on
tenant sales and act as a double edged sword.
Foreign currency risks. All of the REIT’s assets are located in
China with RMB as its operating currency and it generates
revenues in RMB. Investors who receive distributions in SGD
are exposed to volatility in the RMB/SGD FX rate.
Short WALE. Sasseur REIT has a short WALE with c.51.0% of
its leases by NLA expiring in FY20. The inability to renew
tenancies may negatively impact DPU.
Company Background
Sasseur REIT is a Singapore REIT established with an initial
portfolio of four retail outlet malls located in China, offering
investors the opportunity to invest in the country's fast-
growing retail outlet mall sector.
Aggregate Leverage (%)
ROE (%)
Distribution Yield (%)
PB Band (x)
Source: Company, DBS Bank
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Sasseur REIT
Income Statement (S$m)
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
Managers & Trustee’s fees
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
Source: Company, DBS Bank
Downward revision in
gross revenue as we
lower our tenant sales
forecast
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Sasseur REIT
Quarterly / Interim Income Statement (S$m)
FY Dec 4Q2018 1Q2019 2Q2019 3Q2019 4Q2019
Gross revenue 31.0 30.7 29.9 29.2 28.2
Property expenses 0.0 0.0 0.0 0.0 0.0
Net Property Income 31.0 30.7 29.9 29.2 28.2 Other Operating expenses (1.8) (2.4) (2.6) (2.7) (2.5)
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc N/A 0 0 0 0
Net Interest (Exp)/Inc (7.0) (6.9) (7.0) (6.9) (6.8)
Exceptional Gain/(Loss) (0.2) 0.09 (0.1) 0.01 0.06
Net Income 22.1 21.5 20.3 19.7 18.9
Tax (58.3) (5.1) (5.2) (5.2) (33.8)
Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Income after Tax (36.2) 16.4 15.0 14.5 (14.8)
Total Return 23.6 19.7 19.2 19.6 19.5
Non-tax deductible Items (127) 3.12 4.90 3.77 (60.0) Net Inc available for Dist. 23.6 19.7 19.2 19.6 19.5 Growth & Ratio
Revenue Gth (%) 2 (1) (3) (2) (4)
N Property Inc Gth (%) 2 (1) (3) (2) (4)
Net Inc Gth (%) (321) (145) (8) (4) (203)
Net Prop Inc Margin (%) 100.0 100.0 100.0 100.0 100.0
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0
Balance Sheet (S$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
Source: Company, DBS Bank
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Sasseur REIT
Cash Flow Statement (S$m)
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: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank
Analyst: Singapore Research Team
Derek TAN
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Sasseur REIT
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: 21 Feb 2020 12:10:55 (SGT)
Dissemination Date: 21 Feb 2020 12:17:56 (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
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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
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warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
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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
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This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
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The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
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which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
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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
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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 92Page 92
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Company Guide
Sasseur REIT
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.
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The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
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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
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COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have a
proprietary position in Sasseur REIT recommended in this report as of 31 Jan 2020.
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 Sasseur REIT 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 Sasseur REIT as of 31 Jan 2020.
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Disclosure of previous investment recommendation produced:
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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
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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
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ed: TH/ sa: YM, PY, CS
BUYLast Traded Price ( 3 Feb 2020): S$0.715 (STI : 3,116.31)
Price Target 12-mth: S$0.80 (12% upside)
Analyst
Singapore Research Team [email protected]
Derek TAN +65 6682 3716 [email protected]
What’s New • DPU of 1.13 Scts was flat y-o-y, and 1HFY19/20 DPU
makes up c.97% of our full-year forecast
• Starhill Gallery continues to take a toll on top and
bottom lines as the asset is being future-proofed
• Overall portfolio performance remains healthy, with a
20-bp rise in occupancy rate to 96.5%
• Wisma Atria was the star of this quarter, with tenant
sales growing 13.0% y-o-y
Price Relative
Forecasts and Valuation
FY Jun (S$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
Source of all data on this page: Company, DBS Bank, Bloomberg
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$0.80. We included the
debt-funded redevelopment of Starhill Gallery and the
associated rental upside in our forecasts, while adjusting retail
rents from Wisma Atria considering a low base in FY19.
Key Risks to Our View:
Fall in tourist expenditure. A fall in tourist arrivals and receipts
in the face of a WHO global emergency declaration could be
detrimental to SGREIT’s distribution prospects.
At A Glance Issued Capital (m shrs) 2,184
Mkt. Cap (S$m/US$m) 1,562 / 1,141
Major Shareholders (%)
YTL Corp Bhd 35.7
AIA Group Ltd 7.6
Free Float (%) 56.7
3m Avg. Daily Val (US$m) 1.00
GIC Industry : Real Estate / Equity Real Estate Investment (REITs)
DBS Group Research . Equity 4 Feb 2020
Singapore Company Guide
Starhill Global REIT Version 11 | Bloomberg: SGREIT SP | Reuters: STHL.SI Refer to important disclosures at the end of this report
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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.
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Company Guide
Starhill Global REIT
(+) 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.
Quarterly / Interim Income Statement (S$m)
FY Jun 2Q2019 1Q2020 2Q2020 % chg yoy % chg qoq
Gross revenue 51.0 48.0 48.7 (4.5) 1.6
Property expenses (11.5) (11.1) (11.6) 0.3 4.5
Net Property Income 39.5 36.9 37.2 (5.9) 0.7
Other Operating expenses (5.0) (4.8) (5.3) 6.5 11.4
Other Non Opg (Exp)/Inc (5.2) (0.5) 0.0 nm nm
Associates & JV Inc 0.0 0.0 0.0 - -
Net Interest (Exp)/Inc (9.6) (9.7) (9.7) (1.7) (0.5)
Exceptional Gain/(Loss) 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
Minority Interest 0.0 0.0 0.0 - -
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 (%)
Net Prop Inc Margin 77.4 76.9 76.3
Dist. Payout Ratio 98.0 97.4 98.2
Source of all data: Company, DBS Bank
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Company Guide
Starhill Global REIT
CRITICAL DATA POINTS TO WATCH
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).
Net Property Income and Margins (%)
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
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Company Guide
Starhill Global REIT
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.
Share Price Drivers:
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.
Aggregate Leverage (%)
ROE (%)
Distribution Yield (%)
PB Band (x)
Source: Company, DBS Bank
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Company Guide
Starhill Global REIT
Income Statement (S$m)
FY Jun 2017A 2018A 2019A 2020F 2021F
Gross revenue 216 209 206 212 213
Property expenses (49.5) (46.6) (46.8) (54.3) (55.9)
Net Property Income 167 162 159 157 157 Other Operating expenses (19.8) (20.2) (20.5) (21.5) (21.7)
Other Non Opg (Exp)/Inc 6.01 5.75 (11.8) 0.0 0.0
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (37.8) (37.4) (37.7) (41.5) (43.8)
Exceptional Gain/(Loss) 0.0 0.0 0.0 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
Preference Dividend 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. Payout Ratio (%) 97.2 96.2 96.4 96.0 98.0
Net Prop Inc Margins (%) 77.1 77.7 77.3 74.3 73.7
Net Income Margins (%) 53.9 51.2 41.7 44.7 43.0
Dist to revenue (%) 51.0 49.4 49.1 48.0 46.9
Managers & Trustee’s fees
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
Source: Company, DBS Bank
S$11m downward
adjustment to 20F forecast
due to lower occupancies
in Singapore offices, and
lower contributions from
Starhill Gallery
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Company Guide
Starhill Global REIT
Quarterly / Interim Income Statement (S$m)
FY Jun 2Q2019 3Q2019 4Q2019 1Q2020 2Q2020
Gross revenue 51.0 51.3 51.9 48.0 48.7
Property expenses (11.5) (11.7) (12.0) (11.1) (11.6)
Net Property Income 39.5 39.6 39.9 36.9 37.2 Other Operating expenses (5.0) (5.0) (5.5) (4.8) (5.3)
Other Non Opg (Exp)/Inc (5.2) (1.7) (4.2) (0.5) 0.0 Associates & JV Inc 0 0 0 0 0
Net Interest (Exp)/Inc (9.6) (9.4) (9.5) (9.7) (9.7)
Exceptional Gain/(Loss) 0.0 0.0 0.0 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
Net Prop Inc Margin (%) 77.4 77.2 77.0 76.9 76.3
Dist. Payout Ratio (%) 98.0 95.8 96.3 97.4 98.2
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
Other Current Assets 0.09 0.24 0.30 0.30 0.30
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
Other Current Liab 4.12 2.21 3.18 3.18 3.18
LT Debt 728 1,067 1,004 1,004 1,004
Other LT Liabilities 32.9 30.0 44.1 44.1 44.1
Unit holders’ funds 2,009 1,990 1,930 1,927 1,921
Minority Interests 0.0 0.0 0.0 0.0 0.0
Total Funds & Liabilities 3,219 3,192 3,142 3,242 3,267
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
Aggregate Leverage (%) 36.4 36.4 37.1 37.7 38.3
Z-Score (X) 0.9 0.9 0.9 0.9 0.9
Source: Company, DBS Bank
Development costs of
c.S$30m per year over 20F
and 21F for Starhill Gallery’s
redevelopment
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Company Guide
Starhill Global REIT
Cash Flow Statement (S$m)
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
Div from Assoc. & JVs 0.0 0.0 0.0 0.0 0.0
Other Investing CF 1.09 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)
Operating CFPS (S cts) 5.19 4.90 3.94 4.33 4.18
Free CFPS (S cts) 6.28 5.93 5.83 5.98 2.73
Source: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank
Analyst: Singapore Research Team
Derek TAN
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Company Guide
Starhill Global REIT
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: 4 Feb 2020 08:30:29 (SGT)
Dissemination Date: 4 Feb 2020 08:34:18 (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 102Page 102
Page 102
Company Guide
Starhill Global REIT
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 a
proprietary position in Starhill Global REIT 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 Starhill Global REIT 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 Starhill Global REIT as of 31 Dec 2019.
Compensation for investment banking services:
5. 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:
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.
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 103Page 103
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Industry Focus
Singapore REITs
Page 25
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: 11 Mar 2020 07:40:38 (SGT)
Dissemination Date: 11 Mar 2020 07:55:48 (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.
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:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be
construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
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
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.
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, 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.
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 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
Compensation for investment banking services:
5. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services
from 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.
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Disclosure of previous investment recommendation produced:
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.
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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.
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United Arab
Emirates
This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated
by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a
solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment
objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of
buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be
accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.
United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research
analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation,
communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by
DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to
such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any
securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other
jurisdictions
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated
investors as defined in the laws and regulations of such jurisdictions.
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DBS Regional Research Offices
HONG KONG
DBS (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
e-mail: [email protected]
SINGAPORE
DBS Bank Ltd
Contact: Janice Chua
12 Marina Boulevard,
Marina Bay Financial Centre Tower 3
Singapore 018982
Tel: 65 6878 8888
Fax: 65 65353 418
e-mail: [email protected]
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
e-mail: [email protected]
THAILAND
DBS Vickers Securities (Thailand) Co Ltd
Contact: Chanpen Sirithanarattanakul
989 Siam Piwat Tower Building,
9th, 14th-15th Floor
Rama 1 Road, Pathumwan,
Bangkok Thailand 10330
Tel. 66 2 857 7831
Fax: 66 2 658 1269
e-mail: [email protected]
Company Regn. No 0105539127012
Securities and Exchange Commission, Thailand
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