Thailand Industry Focus
Property Fund/REIT Sector
Refer to important disclosures at the end of this report
DBS Group Research . Equity 18 Sep 2015
SET : 1,389.70 Take shelter in volatile market
Analyst The sector now comprises 51 PFPOs and five REITS Chanpen SIRITHANARATTANAKUL +662 657 7824 with a combined market capitalisation of Bt333bn [email protected] (US$9.3bn), representing 2.6% of the SET Thailand Research Team +662 658 1222
The sector is offering generous 2015F distribution STOCKS yield of 6.6%, a hefty premium to Thai 10-year Type of Yields (%) Price Mkt Cap Target Price government bond yield of 3.0% Assets Bt US$m Bt 2015F 2016F
We prefer office and retail PFPO/REITs; there is CPTGF Office 10.00 269 10.70 8.0 8.6 excess supply in the industrial space sector CPNRF Retail 16.70 1,025 18.00 6.0 7.6 FUTUREPF Retail 18.20 267 22.30 7.0 7.3 Our preferred picks are CPNRF, CPTCG, FUTUREPF, IMPACT* Exhibition Center 11.20 461 12.00 6.4 6.6 SPF and TLGF. These PFPOs/REITs possess good LHSC Retail 10.40 138 11.40 7.0 7.0 assets and offer relatively generous distribution yield POPF Office 13.30 178 14.00 8.1 8.3 of 6-8%, while liquidity is quite decent. SPF Airport 19.60 517 21.40 6.6 6.6 TLGF Retail 13.20 188 15.10 6.1 6.1 TGROWTH Industrial 12.20 856 12.90 7.6 7.6 *Yields are for FYE Mar 2016-17 A safe haven in the volatile market. The Thai PFPO/REIT sector has gained 2.4% YTD, out-performing Source: DBS Vickers the SET Index’s 7.7% loss. Most Thai PFPOs/REITs are CP Tower Growth Leasehold (CPTG): CPTGF has leasehold rights to generating strong recurring income streams which operate three CP Office Towers namely CP Tower Silom, CP Tower should be less exposed to internal and external risks. Fortune Town, and CP Tower Phayathai. Key anchor tenants are They are also paying generous dividend yields of about quality names like CP Group and its subsdiaries, Tesco Lotus, etc. 6-8%, mostly quarterly. CPN Retail Growth Leasehold Property Fund (CPNRF): Thailand’s Potential upside to yields of property funds which largest and most liquid property fund. It has leasehold rights to convert to REITs. The SEC and the Revenue operate four successful Central Plaza shopping malls, namely Rama 2, Department have yet to reveal the transactions costs Rama 3, Pinklao, and Chiangmai Airport. involved in converting to a REIT. Since 2014, all new setups have to be under the REIT structure and existing Future Park Leasehold Property Fund (FUTUREPF): FUTUREPF has PFPOs can no longer increase their capital. On this note, leasehold rights to operate Future Park Rangsit, one of Thailand’s most PFPOs which have access to a pipeline of injection assets successful sub-urban malls, thanks to its location being a gateway to the Central, North, and Northeastern parts of Thailand. would have to convert in order to grow their fund/trust sizes. REITs are allowed to take on higher net gearing of up to 35% of NAV (up to 60% if they have investment Samui Airport Property Fund Leasehold (SPF): SPF has leasehold rights grade rating) vs 10% maximum under the property fund to operate Samui Airport. Revenue is derived from the number of scheme, suggesting distribution per unit and yields departing passengers and incoming flights at Samui Airport. should rise after conversion. We prefer retail and office Tesco Lotus Retail Growth Freehold and Leasehold Property Fund Our preferred Funds/REITs. (TLGF) : TLGF owns freehold and leasehold rights to operate 23 Tesco to industrial PFPO/REITs, given more balanced demand- Lotus shopping malls throughout Thailand. Freehold assets account supply outlook for the former two asset segments. We for 60% of total leasable area. Tesco Lotus is the key anchor tenant, like CPNRF, FUTUREPF, and TLGF in the Retail asset accounting for 58% of total leasable area and 28% of total rental segment, POPF and CPNCG for Office assets, and income. TGROWTH for Industrial assets. We also like SPF (airport assets) and IMPACT (exhibition centres).
www.dbsvickers.com ed-SGC / sa- CT
Industry Focus
Property Fund/REIT Sector
Analyst Table of Contents
Chanpen Sirithanarattanakul +662 657 7824 Yield, Valuation and Recommendation 3 [email protected]
Regional Comparison 8 Thailand Research Team [email protected] Evolution of Thai Property Funds/REITs 10
Key differences between PFPO/REIT 11
Major sponsors of the assets 12
Current Status 13
Price Performance 15
Industry Outlook
Office 15
Retail 17
Ready-Built Factories 19
Warehouses 19
Company Guides
- CP Tower Growth Leasehold (CPTGF TB) 26
- CPN Retail Growth Property Fund (CPNRF TB) 32
- Future Park Prop Fund (FUTUREPF TB) 38
- Impact Growth REIT (IMPACT TB) 44
- LH Shopping Centers REIT (LHSC) 50
- Prime Office Property Fund (POPF TB) 56
- Samui Airport Property Fund (SPF TB) 62
- Tesco Lotus Retail Growth Freehold and Leasehold Property Fund (TLGF TB) 68
- TICON Industrial Growth Property Fund (TGROWTH TB) 74
Disclaimers 80
Page 2
Industry Focus Property Fund/REIT Sector
Yield, Valuation and Recommendation
Sector is offering generous 2015F distribution yield of Offering better yields than other investments. The following 6.6%. This is a hefty 340bps premium to the Thai 10-year chart shows Thai PFPO/REITs also pay higher yields than government bond yield of 3.0% currently. Most funds pay bank deposits, government and corporate bonds, and quarterly dividends, while some pay semi-annually. dividend yields of listed corporates.
Distribution Yield of Thai PFPOs/REITs PFPO offers better yields vs other investment alternatives
% 7% 9.0 8.0 6%
7.0 5% 6.0 4% 5.0 4.0 3%
3.0 2% 2.0 1% 1.0 0.0 0% PFPO/REIT Listed 10-year govt 2-year fixed 1-year fixed Savings rate companies bond deposit deposit 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F yield Source: SET, DBS Vickers Source: SET, DBS Vickers Note: 1. Distribution includes dividends and capital reduction PFPO/REIT – yield comparison. The following chart shows 2. Price is based on market price at end of year, except our estimated 2015 yields for several types of PFPO/REITs. 2015 which is current price
2015 yield comparison for various types of PFPO/REIT Yield-Spread. The following chart shows the yield-spread between Thai PFPO/REIT and Thai 10-year government bond % 8.0 averaged 3.2% over the past decade. 7.0
6.0 Yield of Thai PFPOs/REITs vs Thai 10-yr Government Bond 5.0
% 4.0 9.0 3.0 8.0 2.0 7.0 1.0 - 6.0
5.0 Hotel Retail Office Airport Cineplex 4.0 Industrial Apartment Residential 3.0 Source: SET, DBS Vickers 2.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Dividend Yield Bond 10Y 2015F
Source: SET, DBS Vickers
Page 3
Industry Focus
Property Fund/REIT Sector
Valuation and Recommendation Top Picks
Sector is now trading at average 1.07x P/NAV. This CPN Retail Growth Leasehold Property Fund (CPNRF) represents +1SD of its historical average multiple of 0.9x. Thailand’s largest and most liquid property fund
PFPO/REIT: Price/NAV CPNRF holds leasehold rights to operate four successful P/NAV (x) CentralPlaza shopping malls in several locations. They are 1.30 Central Rama 2, Central Rama 3, Central Pinklao, and 1.20 Central Chiangmai Airport. Portfolio occupancy rate has +2 sd 1.10 always been high at 90% and the fund has been paying +1 sd consistently higher dividends since its inception. 1.00 Nonetheless, we expect dividend yield to come down to 0.90 Mean 6.1% in 2015 as Central Pinklao undergoes renovation, 0.80 before surging to 7.7% and 8.4% in 2016 and 2017, -1 sd 0.70 respectively. CPNRF plans to convert into a REIT after more -2 sd details on transaction costs are available. Successful 0.60 conversion would allow higher gearing, which means upside 0.50 to yields. 2009 2010 2011 2012 2013 2014 2015 Source: SET, DBS Vickers CPNRF: Yields We prefer Office and Retail over Industrial PFPO/REITs. The % CPNRF's Yield Office sector is now in an up-cycle. With limited new supply 16 10-Year Govt Bond Yield entering the market, the occupancy and rents should 14 continue to rise. On the Retail front, occupancy remains 12 high at over 90% for prime retail malls. Nonetheless, the 10 weak domestic consumption could derail rental hikes in the 8 near term. But quality malls in good locations should continue to do well. And for the Industrial sector, high 6 vacancies amid weakening demand and abundant supply 4 remain our key concerns. In addition, rents can hardly rise 2 because of the current high vacancy rate. -
Our top picks are CPNRF, FUTUREPF, SPF, CPTGF, and TLGF. 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 The key factors we take into consideration include: Source: SET, DBS Vickers Industry subsector – Prefer office, retail over industrial Location of the assets Samui Airport Leasehold Property Fund (SPF) Quality of the assets and the anchor tenants Riding on Samui’s tourism recovery Quality of the property manager Occupancy trend SPF holds leasehold right to operate Samui Airport until Potential for rental reversion 2036. Tourist arrivals have continued to improve in 2Q15 Potential growth prospects following the lifting of martial law. We estimate the fund’s Remaining leasehold life DPU will grow 4% this year and 7% each in 2016-17 on Distribution yield rising number of passengers and flights. The fund is P/NAV currently offering generous dividend yield of 6.9% for 2015, IRR and 7.4% in 2016. Key risk is a sharp drop in Samui Upside to our TP tourism. Nonetheless, downside risk is protected by annual Trading liquidity revenue guarantee of Bt570m from Bangkok Airways, the Property Manager, which suggests a dividend yield of 3.2% at current price.
Page 4
Industry Focus Property Fund/REIT Sector
SPF: Yields CP Tower Growth Leasehold Property Fund (CPTGF) Offering very generous yields % CPTGF invests in leasehold rights to operate three successful SPF's Yield 20 CP Towers in prime locations. The Fund’s assets include i) 18 10-Year Govt Bond Yield 16 C.P. Tower I (Silom), ii) C.P. Tower II (Fortune Town), iii) C.P. 14 Tower III (Phayathai). Portfolio occupancy rate has been 12 high, averaging 98%. Anchor tenants are high quality 10 tenants like CP Group and its subsidiaries, and Tesco Lotus. 8 6 The Fund now offers generous 2015F dividend yield of 4 8.0%. 2 CPTGF: Yields Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 % CPTGF's Yield 10 10-Year Govt Bond Yield Source: SET, DBS Vickers 8 Tesco Lotus Retail Growth Property Fund (TLGF) Decent yields 6 TLGF invests in 23 Tesco Lotus shopping malls throughout Thailand. The majority of the assets (60% of total leasable 4 area) are freehold assets. Tesco is the anchor tenant, 2 accounting for 58% of total leasable area and 28% of total rental income. Occupancy rates have been high at 98-99% Jul-14 Jul-15 since its inception. The fund now offers generous dividend Jan-14 Jan-15 yield of 6.2%. Tesco Lotus has granted right of first refusal to TLGF to acquire its existing and future malls. The Source: SET, DBS Vickers successful conversion to a REIT structure would allow the Future Park Leasehold Property Fund (FUTUREPF) fund/REIT to borrow more for future acquisitions and rely One of the most successful suburban malls in Thailand less on equity financing. This should lift distribution per unit FUTUREPF invests in leasehold rights to operate a part of and yields. Future Park Rangsit, one of Thailand’s most successful suburban shopping malls. The mall is located at the gateway TLGF: Yields to Central, North and Northeastern Thailand, covering 56 provinces. Daily customer traffic count has been over 150k % 8 TLGF's Yield during the last three years, one of the highest among retail malls in Thailand. The fund now offers generous 2015 and 7 10-Year Govt Bond Yield 2016 dividend yield of 7.0 and 7.3%, respectively. 6 5 FUTUREPF: Yields 4 % 3 14 FUTUREPF's Yield 2 12 10-Year Govt Bond Yield
10 Jun-13 Jun-14 Jun-15 Sep-13 Sep-14 Sep-15 Dec-13 Dec-14 Mar-14 Mar-15 Mar-13 8
6 Source: SET, DBS Vickers 4
2
Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Source: SET, DBS Vickers
Page 5
Industry Focus
Property Fund/REIT Sector
Thailand’s listed PFPO/REITs
Yield Name Ticker Freehold/Leasehold Mkt Cap (%) P/NAV Daily Turnover (US$) FY15 (x) (US$m) Samui Airport Leasehold Property Fund SPF Leasehold 518 6.4 1.8 0.29 Airport 518 6.4 1.8 0.29 Land And Houses Freehold And Leasehold Property Fund LHPF Freehold and Leasehold 77 8.4 0.8 0.02 Gold Property Fund Leasehold GOLDPF Leasehold 31 6.1 0.5 0.00 UOB Freehold Eight Thonglor Property Fund UOB8TF Freehold 58 5.0 0.8 0.01 Urbana Property Fund URBNPF Leasehold 8 9.7 0.7 0.00 Apartment 174 7.3 0.7 0.01 IMPACT Growth REIT IMPACT Freehold 462 6.4 1.0 0.36 Others 462 6.4 1.0 0.36 Major Cineplex Lifestyle Fund MJLF Leasehold 120 7.7 1.1 0.08 Cineplex 120 7.7 1.1 0.08 Centara Hotelsl & Resorts Leasehold Property Fund CTARAF Leasehold 35 9.4 0.4 0.01 Dusit Thani Freehold & Leasehold Property Fund DTCPF Leasehold & Freehold 97 5.1 0.8 0.08 Erawan Hotel Growth Property Fund ERWPF Freehold 47 6.7 0.9 0.04 MFC Patong Heritage Property Fund M-PAT Freehold 29 7.1 1.0 0.00 Siri Prime Office Property Fund SIRIP Freehold 51 5.9 1.0 0.00 Luxury Real Estate Investment LUXF Freehold 30 5.5 0.5 0.01 Samui Buri Property Fund SBPF Freehold 18 - 0.7 0.00 Quality Hospitality Leasehold QHOP Leasehold 23 14.2 0.4 0.01 Qualty Houses Hotel and Residence Freehold and Leasehold Proprety Fund QHHR Leasehold & Freehold 77 9.0 0.8 0.03 SRI Panwa Hotel Property Fund SPWPF Freehold 55 8.3 0.9 0.01 Thai Hotel Investment Freehold And Leasehold Property Fund THIF Leasehold & Freehold 860 3.6 1.1 0.01 Hotel 1,321 6.8 0.8 0.02 Amata Summit Growth Freehold And Leasehold Real Estate Investment Trust AMATAR Freehold and Leasehold 111 7.6 3.3 0.21 MFC Industrial Investment Property and Leashold Fund M-II Leasehold 45 7.5 0.9 0.00 MFC-Strategic Storage Fund M-STOR Freehold 18 6.6 0.9 0.00 TICON Property Fund TFUND Freehold 339 6.0 1.0 0.07 Thai Industrial Fund 1 TIF1 Freehold 18 7.3 0.7 0.01 TICON Industrial Growth Leasehold Property Fund TGROWTH Leasehold 188 7.6 1.2 0.09 Hemaraj Industrial Property And Leasehold Fund HPF Freehold and Leasehold 111 7.8 0.8 0.01 101 Montri Storage MONTRI Freehold 15 8.0 0.9 0.00 Pinthong Industrial Park Property Fund PPF Freehold 68 7.3 1.0 0.01 Sub Sri Thai Property Fund SSTPF Freehold 18 7.4 0.9 0.00 Subsrithai Smart Storage Property Fund SSTSS Freehold 22 7.2 0.9 0.00 TPARK Logistics Property Fund TLOGIS Freehold and Leasehold 142 6.1 1.0 0.03 Wha Premium Factory And Warehouse Property Fund WHAPF Freehold 298 6.4 1.1 0.09 Wha Premium Growth Freehold And Leasehold Real Estate Investment Trust WHART Freehold and Leasehold 91 7.3 n.a. 0.08 Ticon Freehold And Leasehold Real Estate Investment Trust TREIT Freehold and Leasehold 98 5.8 1.0 0.04 Industrial 1,582 7.1 1.1 0.04
Source: SET, DBS Vickers
Page 6
Industry Focus Property Fund/REIT Sector
Thailand’s listed PFPO/REITs (continued)
Name Ticker Freehold/Leasehold Mkt Cap Yield (%) P/NAV Daily Turnover (US$) FY15 (x) (US$m) Bangkok Commercial Property Fund BKKCP Freehold 27 6.7 0.8 0.00 CPN Commercial Growth Leashold Property Fund CPNCG Leasehold 140 7.1 1.0 0.15 JC Property JCP Leasehold 17 4.0 1.1 - KPN Property Fund KPNPF Freehold 50 6.4 0.9 0.02 Millionaire Property Fund MIPF Freehold 106 5.8 1.5 0.00 Prime Office Leasehold Property Fund POPF Leasehold 178 8.1 1.1 0.10 Sala & Sathorn Property Fund SSPF Freehold 44 2.7 1.0 0.07 C.P. Tower Growth Leasehold Property Fund CPTGF Leasehold 269 8.0 1.0 0.17 Quality Houses Property Fund QHPF Leasehold 221 7.5 0.9 0.08 Thai Commercial Investment Fund TCIF Leasehold 825 5.0 1.1 0.00 Office 1,878 6.1 1.0 0.06 Uniloft Property Fund UNIPF Freehold 14 7.4 0.9 0.00 MFC-Nichada Thani PF MNIT Leasehold 11 5.4 0.5 0.00 Nichada-Thani Property Fund 2 MNIT2 Leasehold 22 8.7 0.7 0.01 Multi-National Residence Fund MNRF Leasehold 20 8.3 0.5 0.01 TU Dome Residential Complex TU-PF Leasehold 5 - 0.3 0.00 Residential 71 6.0 0.6 0.00 CPN Retail Growth Leasehold Property Fund CPNRF Leasehold 1,028 6.0 1.3 0.56 Crystal Retail Growth Leasehold Property Fund CRYSTAL Leasehold 109 7.7 0.9 0.02 Future Park Property Fund FUTUREPF Leasehold 268 7.0 1.5 0.07 Tesco Lotus Retail Growth Freehold And Leasehold Property Fund TLGF Freehold and Leasehold 859 6.1 1.2 0.47 Trinity Freehold and Leasehold Property Fund TNPF Freehold and Leasehold 20 - 0.5 0.01 Thai Retail Investment Fund TRIF Freehold 632 4.3 1.1 0.00 Talaad Thai Leasehold Property Fund TTLPF Leasehold 96 8.3 1.7 0.00 LH Shopping Centers Leasehold Real Estate Investment Trust LHSC Leasehold 141 7.3 1.0 0.08 Retail 3,153 5.8 1.1 0.15
Source: SET, DBS Vickers
Page 7
Industry Focus
Property Fund/REIT Sector
Regional Comparison
Last Price % DPU cents Yield FYE 11-Sep-15 Price Target Upside 2015 2016 2015 2016 Recom'd
Singapore (S$) Office CapitaLand Commercial Trust Dec 1.315 1.48 13% 8.6 9.2 6.5% 7.0% Buy Fraser Commercial Trust Sep 1.310 1.51 15% 9.7 9.8 7.4% 7.5% Buy Keppel Reit Dec 0.950 1.12 18% 6.9 7.1 7.3% 7.5% Buy Retail CapitaLand Mall Trust Dec 1.890 2.07 10% 11.4 11.8 6.0% 6.2% Buy CapitaLand Retail China Trust Dec 1.345 1.69 26% 10.6 11.0 7.9% 8.1% Buy Croesus Retail Trust * Mar 0.840 0.92 10% 7.6 7.8 9.0% 9.3% Hold Frasers Centrepoint Trust Sep 1.895 2.05 8% 11.8 12.0 6.2% 6.3% Buy SPH REIT Aug 0.960 0.99 3% 5.5 5.5 5.7% 5.7% Hold Mixed (Retail & Office) Starhill Global REIT Jun 0.760 0.91 20% 7.6 5.4 10.0% 7.1% Buy Suntec REIT Dec 1.515 1.58 4% 9.5 10.1 6.3% 6.6% Hold Mapletree Commercial Trust * Mar 1.320 1.35 2% 8.3 8.6 6.3% 6.5% Hold Mapletree Greater China Commercial Trust * Mar 0.935 1.12 20% 7.3 7.9 7.8% 8.4% Buy Industrial A-Reit * Mar 2.200 2.30 5% 14.9 15.0 6.8% 6.8% Hold Ascendas India Trust * Mar 0.840 0.90 7% 5.6 5.8 6.7% 6.9% Hold Mapletree Industrial Trust * Mar 1.530 1.50 -2% 10.6 10.4 6.9% 6.8% Hold Mapletree Logistics Trust * Mar 1.010 1.11 10% 7.5 7.8 7.4% 7.7% Buy Cambridge Industrial Trust Dec 0.610 0.61 0% 5.0 5.1 8.2% 8.3% Hold Cache Logistics Trust Dec 0.990 1.09 10% 8.5 8.7 8.6% 8.8% Hold Soilbuild Business Space Reit Dec 0.790 0.86 9% 6.3 6.4 8.0% 8.1% Buy Hospitality & Healthcare Ascendas Hospitality Trust * Mar 0.605 0.74 22% 5.6 5.7 9.3% 9.4% Buy Ascott Residence Trust Dec 1.210 1.38 14% 8.8 9.2 7.3% 7.6% Buy CDL Hospitality Trust Dec 1.365 1.65 21% 11.1 11.3 8.1% 8.3% Buy Far East Hospitality Trust Dec 0.615 0.71 16% 4.7 4.7 7.7% 7.6% Hold Frasers Hospitality Trust Sep 0.725 0.83 14% 6.0 6.1 8.3% 8.3% Hold OUE Hospitality Trust Dec 0.800 0.98 22% 6.5 6.6 8.2% 8.2% Buy Parkway Life Dec 2.260 2.56 13% 13.1 12.2 5.8% 5.4% Buy Religare Health Trust * Mar 0.950 0.97 2% 8.0 8.7 8.4% 9.2% Hold Others IREIT Global Dec 0.645 0.90 40% 6.5 6.4 10.0% 10.0% Buy Keppel DC REIT Dec 1.005 1.14 13% 6.4 7.0 6.4% 7.0% Buy
Hong Kong (HK$) Champion REIT Dec 3.95 4.78 21% 20.0 19.0 5.2% 4.9% Buy Fortune REIT Dec 7.50 9.18 22% 42.0 46.0 5.6% 6.2% Buy Prosperity REIT Dec 2.78 3.06 10% 16.0 17.0 5.9% 6.2% Buy Sunlight REIT Jun 3.90 4.23 8% 20.0 22.0 5.1% 5.6% Buy Link REIT Mar 41.25 48.10 17% 166.0 183.0 4.0% 4.4% Hold
Malaysia (RM) Axis REIT Dec 1.66 1.75 5% 9.9 9.0 5.9% 5.4% Hold CapitaMalls Msia Trust Dec 1.39 1.50 8% 8.9 8.8 6.4% 6.3% Buy IGB REIT Dec 1.30 1.40 8% 7.8 8.0 6.0% 6.2% Buy Pavilion REIT Dec 1.52 1.60 5% 8.0 8.1 5.2% 5.3% Hold MRCB-Quill REIT Dec 1.11 1.25 13% 8.4 8.4 7.5% 7.5% Hold Sunway REIT Jun 1.52 1.75 15% 8.7 9.1 5.7% 6.0% Buy
Thailand (Bt) CP Tower Growth Leasehold Dec 10.00 10.70 7% 80.0 86.0 8.0% 8.6% Buy CPN Retail Growth Leasehold Property Fund Dec 16.70 18.00 8% 99.7 126.0 6.0% 7.6% Buy Future Park LH Prop Fund Dec 18.20 22.30 23% 127.0 133.0 7.0% 7.3% Buy Impact Growth Real Estate Investment Trust Mar 11.20 12.00 7% 42.0 75.0 3.8% 6.4% Buy LH Shopping Centers Leasehold Dec 10.40 11.40 10% 73.0 73.0 7.0% 7.0% Buy Prime Office LH Prop Fund Dec 13.30 14.00 5% 108.0 111.0 8.1% 8.3% Buy Samui Airport Property Fund (Leasehold) Dec 19.60 21.40 9% 129.6 129.6 6.6% 6.6% Buy Tesco Lotus Retail Growth Feb 13.20 15.10 14% 81.0 80.9 6.1% 6.1% Buy TICON Industrial Growth Leasehold Property Fu Dec 12.20 12.90 6% 93.2 93.2 7.6% 7.6% Buy
Page 8
Industry Focus Property Fund/REIT Sector
Regional Comparison
Last Price Gearing Ratio BV Per Sh P/B ratio Share Price Performance Y/E 11-Sep-15 FY15F FY15F 1M 3M 6M 12M
Singapore (S$) Office CapitaLand Commercial Trust Dec 1.315 19% 1.74 0.75 -4.7% -16.8% -22.7% -21.3% Fraser Commercial Trust Sep 1.310 36% 1.67 0.79 -7.4% -11.5% -10.3% -5.4% Keppel Reit Dec 0.950 37% 1.41 0.67 -9.1% -17.4% -22.1% -23.7% Retail CapitaLand Mall Trust Dec 1.890 36% 1.82 1.04 -6.0% -10.9% -8.7% -5.3% CapitaLand Retail China Trust Dec 1.345 28% 1.69 0.80 -11.2% -20.7% -17.5% -15.4% Croesus Retail Trust * Mar 0.840 47% 0.94 0.89 -9.7% -9.7% -10.6% -11.1% Frasers Centrepoint Trust Sep 1.895 30% 1.85 1.02 -5.7% -6.2% -5.7% -2.8% SPH REIT Aug 0.960 26% 0.93 1.04 -5.4% -8.1% -7.3% -10.3% Mixed (Retail & Office) Starhill Global REIT Jun 0.760 36% 0.92 0.83 -8.4% -11.6% -7.9% -7.3% Suntec REIT Dec 1.515 35% 2.07 0.73 -8.5% -13.4% -18.6% -16.8% Mapletree Commercial Trust * Mar 1.320 36% 1.24 1.07 -2.6% -10.2% -13.7% -9.3% Mapletree Greater China Commercial Trust * Mar 0.935 41% 1.18 0.79 -7.0% -10.1% -9.7% -1.6% Industrial A-Reit * Mar 2.200 34% 2.08 1.06 -4.4% -10.2% -10.9% -6.8% Ascendas India Trust* Mar 0.840 35% 0.68 1.24 -9.2% -6.7% -5.6% 1.2% Mapletree Industrial Trust* Mar 1.530 35% 1.32 1.16 2.3% 0.7% 0.3% 5.9% Mapletree Logistics Trust* Mar 1.010 39% 1.02 0.99 -6.1% -10.2% -17.2% -14.4% Cambridge Industrial Trust Dec 0.610 36% 0.68 0.90 -4.7% -11.6% -12.2% -14.7% Cache Logistics Trust Dec 0.990 40% 0.97 1.02 -5.7% -13.9% -14.3% -16.1% Soilbuild Business Space Reit Dec 0.790 36% 0.80 0.99 -6.0% -6.0% -1.3% 0.0% Hospitality & Healthcare Ascendas Hospitality Trust * Mar 0.605 37% 0.72 0.84 -10.4% -14.2% -12.3% -16.0% Ascott Residence Trust Dec 1.210 39% 1.35 0.90 -4.0% -4.0% -4.7% -2.4% CDL Hospitality Trust Dec 1.365 35% 1.63 0.84 -6.5% -17.0% -20.4% -19.5% Far East Hospitality Trust Dec 0.615 32% 0.97 0.64 -10.9% -20.7% -24.5% -27.2% Frasers Hospitality Trust Sep 0.725 40% 0.94 0.77 -10.5% -15.7% -19.0% -18.5% OUE Hospitality Dec 0.800 42% 0.90 0.89 -10.1% -14.0% -14.0% -10.6% Parkway Life Dec 2.260 36% 1.70 1.33 -7.4% -0.9% -3.4% -3.8% Religare Health Trust * Mar 0.950 15% 0.94 1.01 -9.5% -5.5% -10.0% 0.0% Others IREIT Global Dec 0.645 32% 0.75 0.86 -4.4% -6.3% -6.9% -16.8% Keppel DC REIT Dec 1.005 34% 0.88 1.15 -8.2% -4.7% -2.9% 0.0%
Hong Kong (HK$) Champion REIT Dec 3.95 22% 8.36 0.47 -6.6% -12.2% 5.9% 11.6% Fortune REIT Dec 7.50 30% 12.76 0.59 -7.3% -4.0% -8.5% 2.3% Prosperity REIT Dec 2.78 27% 4.90 0.57 -4.8% 0.4% -6.7% 6.9% Sunlight REIT Jun 3.90 22% 7.99 0.49 -0.3% -0.5% 4.3% 17.5% Link REIT Mar 41.25 12% 51.53 0.80 -6.7% -10.1% -13.7% -10.7%
Malaysia (RM) Axis REIT Dec 1.66 33% 1.21 1.37 -0.9% -5.4% -6.7% -5.7% CapitaMalls Msia Trust Dec 1.39 29% 1.29 1.08 8.6% -2.1% -4.8% -1.4% IGB REIT Dec 1.30 24% 1.06 1.22 0.8% -2.3% -2.3% 0.8% Pavilion REIT Dec 1.52 15% 1.26 1.20 5.6% 0.0% 2.0% 10.1% MRCB-Quill REIT Dec 1.11 36% 1.39 0.80 1.8% -4.3% -11.2% -5.9% Sunway REIT Jun 1.52 31% 1.26 1.21 1.3% -8.4% -5.0% 1.3%
Thailand (Bt) CP Tower Growth Leasehold Dec 10.00 Net Cash 10.34 0.97 0.0% 0.0% 0.5% 1.5% CPN Retail Growth Leasehold Property Fund Dec 16.70 6% 13.02 1.28 0.0% 1.2% 1.2% -1.2% Future Park LH Prop Fund Dec 18.20 6% 12.52 1.50 -1.6% 1.1% 5.3% 4.7% Impact Growth Real Estate Investment Trust Mar 11.20 24% 10.80 1.04 -1.8% 4.7% 8.7% nm LH Shopping Centers Leasehold Dec 10.40 18% 10.26 1.01 -3.7% -1.0% 1.0% nm Prime Office LH Prop Fund Dec 19.60 7% 11.55 1.15 1.5% 6.4% 10.8% 5.6% Samui Airport Property Fund (Leasehold) Dec 19.60 Net Cash 11.04 1.78 1.6% 9.6% 12.1% 10.8% Tesco Lotus Retail Growth Feb 13.20 9% 11.24 1.17 -2.2% 0.0% -0.6% -4.6% TICON Industrial Growth Leasehold Property Fu Dec 12.20 7% 10.28 1.09 0.0% 0.0% 2.6% 13.2%
* A-Reit, Ascendas Hospitality Trust, Ascendas India Trust, Croesus Retail Trust, Mapletree Industrials Trust, Mapletree Logistics Trust, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, Religare Health Trust Religare Health Trust (FY16 - 17) Source: DBS Bank, DBS Vickers, AllianceDBS Research, Bloomberg Finance L.P, Thomson Reuters
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Industry Focus
Property Fund/REIT Sector
Evolution of Thai Property Funds (PFPOs)/REITs Number of listed PFPO/REIT
60 The first Thai PFPO, UOB Apartment Property Fund REITs 3 5 (UOBAPF, or BOA Apartment Property Fund at that time) 50 entered the market in late 2003. The sector enjoyed strong Property Funds growth in 2005 and 2006, when the listing of several new 40 PFPOs boosted the sector’s market capitalisation 30 significantly. But growth slowed when the Bank of Thailand 51 51 46 (BOT) introduced the 30% unremunerated reserve 20 41 requirement (URR) – in late 2006 -for foreign investors who 35 26 29 invested in Thai PFPOs, to prevent speculation on the Thai 10 baht. But subsequently on 3 Mar 2008, the BOT lifted the 0 URR for short-term capital inflows, citing an improving
economy. The sector’s market capitalisation surged again in 2009 2010 2011 2012 2013 2014 2015 2012-2014 when a number of large funds entered the Source: SET, DBS Vickers market before the expiry of the deadline to set up new property funds. Market Capitalisation of PFPO/REIT Sector
Btm REIT regulations took effect on 1 Jan 2013. The Securities 350,000 and Exchange Commission (SEC) has barred existing PFPOs REITs 300,000 from increasing capital, and new IPOs of PFPOs from 2014 Property Funds (except those who had submitted their applications in 2013 250,000 and which listing process had not been completed). All new 200,000 setups have to be under the REIT structure. Existing PFPOs 150,000 can convert to the REIT structure, but there have so far been no details on the conversion costs. As a result, there 100,000 have not been any applications for conversion. Nonetheless, 50,000 some larger funds such as CPNRF and TLGF are waiting for details from the SEC and are likely to convert into the REIT - structure. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: SET, DBS Vickers First REIT listed in 2014. The first Thai REIT, Impact Growth Real Estate Investment Trust (IMPACT), was listed on the Growth driven by new listings rather than secondary SET on 1 October 2014. Since then, there have been four offerings. Sector growth in the last decade was driven other REIT listings on the SET. mainly by the listing of new PFPOs/REITS, rather than the growth of existing funds. Of the total, only a few including 51 PFPOs and 5 REITs listed on the SET currently. Todate, CPNRF, TFUND, TLOGIS, and TLGF, have turned to the there are 51 PFPOs and 5 REITs listed on the SET with a market for secondary offerings to acquire new assets. Note combined market capitalisation of Bt333.4bn (US$9.3bn). that the maximum gearing allowed for property funds is The sector accounts for 2.6% of the SET’s total market only 10% of NAV, meaning that they need to increase capitalisation currently. Initially, these PFPOs were listed capital for major asset acquisitions as the level of debt alone under the Property Sector. But as the number of PFPOs would not be sufficient. grew, the SET created a separate “Property Fund & REIT” sector in 2009.
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Industry Focus Property Fund/REIT Sector
Key differences between PFPO and REIT
Both PFPO and REIT have the same objective, which is to Nonetheless, the legal structure, type of assets they can invest invest in income-generating assets. Both must pay out at in, leverage limit, holding restrictions, and taxation of least 90% of their net income as dividends, making them dividends differ. The key differences are listed below. high-yield investment alternatives.
Key differences between PFPO and REIT Topic Property Fund REIT General Legal Structure Mutual fund Trust Minimum Size Not less than 500 million Baht Same
Number of unit holders Upon establishment: ≥250 Same After establishment: ≥35 Listing of Unit Investment units must be listed REIT unit must be listed Management Asset management company REIT Manager, namely an asset management company or a company with expertise in managing real estate and is quailed according to the criteria set by the SEC Registrar Not required to be TSD Requires consent of the SET
Investment Type of property in which investment can Only ones listed on the SEC’s positive list Not specified, however the real estate shall not be made be used by the lessee to operate immoral or illegal business Investment in real estate abroad Not permitted Permitted Development of real estate (Green-field Not permitted Not exceeding 10% of the total assets project)
Leverage limit Not exceeding 10% of the net asset value Not exceeding 35% of total assets and not (NAV) exceeding 60% in the case REIT has received an investment grade.
Distribution and allocation of units Distribution At least 25% must be offered to the public, Not specified; allocated to free float REIT unit and units must be allocated to all free float holders in accordance with the criteria for listing subscribers equally, one board lot at a time, (no less than 20% of the total trust units and of unit all subscribed units are allocated (Small each tranche (If any)) Lot First) Holding Restriction for Any Person of No more than 1/3 of the total number of No more the 50% of the total number of REIT Group of Persons investment units unit and of each tranche (if any)
Disclosure Similar to mutual funds Similar to listed companies Annual meeting of unit holders Not specified Annually, within four months from the end of the fiscal year Codes concerning the acquisition and Resolution of unit holders not required Resolution of unit holders holding an aggregate disposal of assets / related parties of not less than 15% of the total REIT unit and transactions of each tranche (if any)
Tax Fund is exempt from corporate tax Trust is exempt from corporate tax In some cases, unit holders are not subject to REIT unit holders of all types are subject to tax. tax levied on dividends such as a company holding units for three months prior and three months after the date of dividend payment Source: SET, DBS Vickers
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Industry Focus
Property Fund/REIT Sector
Major sponsors develop new properties. They can still own the assets by taking a stake in the PFPOs/REITs and receive dividend Major sponsors. The following table lists the major income from the funds/REITs. Most also retain the property sponsors of the assets for Thai PFPOs/REITs, together with management role and receive property management fees their current holdings. The top sponsors include TCC Land, from the funds/REITs. Central Pattana (CPN), Bangkok Land (BLAND), Ek-Chai Distribution System (TESCO), TICON Industrial Connection More assets to be injected. Many of these companies still (TICON), and WHA Corporation (WHA). have a pipeline of assets that can be injected into the REIT. Among these are TICON and WHA which are now planning Benefits to sponsors. Injecting their assets into PFPOs/REITs secondary offerings for their REITs. WHA is also planning to is an alternative fund-raising exercise for these companies, inject their office assets into a new office REIT to be set up. as it helps to unlock the value of their assets and most of CPN has a number of assets that can be injected into a REIT them normally recognise huge disposal gains. The proceeds but is waiting for details from the SEC regarding the were normally used to finance their expansion plans or conversion into a REIT.
Major sponsors of assets for Thai PFPOs/REITs and their current holdings
Sponsor Investment in Company Fund Mkt Cap Holding Mkt Value (Btm) (%) (Btm) CPN CPNRF 36,948 27% 9,862 CPNCG 5,034 25% 1,259
TICON TFUND 12,185 24% 2,878 TLOGIS 5,090 19% 980 TGROWTH 6,771 25% 1,713 under TICON Logistic Park TREIT 3,528 12% 440
WHA WHAPF 10,705 15% 1,606 WHART 3,263 15% 489 HEMRAJ HPF 3,995 23% 924
BLAND under: Impact Exhibition IMPACT 16,604 50% 8,302
Ekchai Distribution (Tesco Lotus) TLGF 30,852 25% 7,713
Rangsit Plaza FUTUREPF 9,638 33% 3,212
BA SPF 18,620 25% 4,674
TCC Group under: Asset World Estate TCIF 29,654 33% 9,786 TVC Investments Ltd. TCIF 29,654 32% 9,513 Than Tavorn (2012) Ltd. TCIF 29,654 19% 5,631 Asset World Estate TRIF 22,723 31% 6,930 Yodying Intertrade TRIF 22,723 20% 4,440 Asset World Leisure THIF 30,916 33% 10,208 Panachai Panich THIF 30,916 18% 5,432
CP Land CPTGF 9,670 33% 3,223 Source: SET, DBS Vickers
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Industry Focus Property Fund/REIT Sector
Current status
Sector breakdown by asset ownership. The sector now Who invests in PFPO/REITs? Investors in Thai PFPOs/REITs comprises 51 PFPOs and 5 REITs. Of the total, 40% hold are mainly locals. Foreign investors in Thai PFPOs/REITs have freehold assets, 42% hold leasehold assets, and 18% hold increased but are still considered small compared to the both. For leasehold assets, the remaining leasehold life for sector’s market capitalisation over the last few years. most funds is 20-30 years. Foreign ownership (%) of Thai PFPOs/REIT Asset ownership of Thai PFPOs/REIT
Leasehold & Freehold 18%
Leasehold 42%
Freehold 40%
Source: SET, DBS Vickers
Source: SET, DBS Vickers Local investors comprise both institutional and retail investors. Major institutional investors are Social Security Sector breakdown by business. Retail now make up 34% of Fund, Government Pension Fund, insurance companies, the sector’s market capitalisation, followed by Office (20%), banks, universities, sponsors, and mutual funds. Industrial (17%), and Hotel (14%). The rest are distributed Mutual funds that invest in PFPO/REITs between Airport (6%), Exhibition Center (5%), Apartment (2%), and Cineplex (1%). Fund By NAV
(Btm) Sector breakdown by business TMB Property Income Plus TMB A.M. 8,023 One Property Plus Fund One AM Fund 2,408 One Property Plus Dividend Fund One AM Fund 972 MFC Property Dividend Fund MFC Fund 734 MFC Property Wealth Fund MFC Fund 2,220 Thanachart Property Sector Fund Thanachart Fund 1,447 Phatra Property Sector Fund Phatra Asset 1,236 Phatra Property Sector Fund - Diviidend Phatra Asset 61 CIMB-Principal CIMB-Principal Property Income - A A.M. 542 CIMB-Principal CIMB-Principal Property Income - R A.M. 742 CIMB-Principal CIMB-Principal Property Income - D A.M. 199
CIMB-Principal Source: Company, DBS Vickers CIMB-Principal Property Income - C A.M. 341 Source: Company, DBS Vickers
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Industry Focus
Property Fund/REIT Sector
Price Performance Most funds/REITs outperformed the market. Of the 56 listed Sector has yielded 13% average annual returns to investors funds/REITs, 48 have outperformed the market YTD.
in last six years. This comprised about 6% price An out-performer YTD appreciation and 7% distribution yield p.a. The total returns are lower than the SET average return of 14% during the Stock End-2014 11-Sep-15 Change (Bt) (Bt) (%) same period, but the level of risk in investing in PFPO/REIT is SSPF 5.20 9.55 84% much lower. This is mainly because PFPO/REITs normally WHAPF 9.90 11.40 15% invest in recurring income assets which generate steady cash CPNCG 10.30 11.80 15% SPF 17.30 19.60 13% flows. In addition, it is strictly governed by the SEC to pay POPF 11.80 13.30 13% out not less than 90% of net income. The borrowing limit TGROWTH 10.90 12.20 12% is also capped at 10% for PFPOs and 35% for REIT; there is QHOP 3.82 4.24 11% IMPACT 10.20 11.20 10% no limit for other stocks. MIPF 18.50 20.00 8% QHPF 9.25 9.95 8% Total return of investing in Thai PFPO/REIT sector MJLF 12.20 13.10 7% UOB8TF 8.20 8.80 7% FUTUREPF 17.00 18.20 7% 40% SIRIP 10.00 10.70 7% Distribution Yield SPWPF 9.30 9.95 7% 30% LUXF 5.10 5.45 7% Price Change PPF 10.20 10.90 7% TLGF 12.40 13.20 6% 20% CPTGF 9.40 10.00 6% TIF1 7.00 7.35 5% 10% WHART 10.00 10.50 5% TLOGIS 11.80 12.30 4% CPNRF 16.10 16.70 4% 0% CRYSTAL 9.70 10.00 3% KPNPF 9.80 10.00 2% -10% LHSC 10.20 10.40 2% TFUND 10.40 10.60 2% 2010 2011 2012 2013 2014 2015 M-STOR 10.60 10.70 1% -20% TTLPF 19.00 19.10 1% Source: SET, DBS Vickers ERWPF 9.60 9.60 0% GOLDPF 5.35 5.35 0% Sector has outperformed the market YTD. The sector index JCP 10.00 10.00 0% has inched up 2.4% YTD vs the SET’s 7.7% loss as investors SSTPF 9.40 9.40 0% turned to less risky assets amid current high market CTARAF 3.96 3.94 -1% M-PAT 9.85 9.80 -1% volatility. DTCPF 8.55 8.50 -1% TCIF 13.50 13.40 -1% Thai PFPO/REIT sector index vs SET Index BKKCP 9.75 9.55 -2% LHPF 8.60 8.40 -2% SSTSS 9.70 9.45 -3% 1.10 QHHR 8.45 8.20 -3% 1.05 UNIPF 9.80 9.45 -4% MNIT2 8.25 7.90 -4% 1.00 MNIT 3.00 2.86 -5% 0.95 M-II 10.00 9.50 -5% THIF 12.70 11.80 -7% 0.90 MONTRI 9.80 8.80 -10% 0.85 HPF 9.50 8.50 -11% TRIF 16.20 14.30 -12% 0.80 SET SBPF 9.00 7.65 -15% 0.75 URBNPF 5.15 4.24 -18% SET PF&REIT TU-PF 2.20 1.74 -21% 0.70 MNRF 8.55 6.60 -23% TNPF 8.70 4.90 -44% AMATAR 11.10 nm Jun-15 Jun-14 Jun-13 Sep-14 Sep-13 Dec-14 Dec-13 Mar-15 Mar-14 Mar-13 TREIT 10.30 nm Source: SET, DBS Vickers Source: SET, DBS Vickers
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Industry Focus Property Fund/REIT Sector
Industry Outlook Future supply not a concern. It is estimated that 103,035 sqm of new supply will be completed in 2H15, 75% of Office – Bright outlook which are located in non-CBD areas. In 2016, about Favourable demand-supply situation. According to CBRE 119,210 sqm of new supply will enter the market, all of (Thailand), the total supply of office space in Bangkok which will be outside the CBD. increased by 86,000 sqm in 1H15 to 8.4m sqm. Among the major Grade A Buildings completed was Bhiraj Tower at Office: Future supply will be mostly non-CBD Emquartier located on Sukhumvit Road, with a total lettable area of 47,500 sqm. Occupancy rate remained flat at 90.7% Sqm. at end-1H15. Net take-up surged to 97,000 sqm in 1H15, 250,000 slightly exceeding the total new supply during the period. It Non CBD is estimated net take-up of office space for the whole of 200,000 CBD 2015 will exceed 200,000 sqm. 150,000 Office: Demand, Supply and Vacancy
9,000,000 18% 100,000 8,000,000 16% 7,000,000 14% 50,000 6,000,000 12% 5,000,000 10% 0 4,000,000 8%
3,000,000 6% 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F 2,000,000 4% Sqm (Net LettableSqm (Net Area) Source: CBRE Thailand, DBS Vickers 1,000,000 2% Grades All Rate, Vacancy - 0% Office: Future Supply Lettable 1H10 2H10 1H11 2H11 1H12 2H12 1H13 Stock Demand3Q13 4Q13 1Q14 2Q14 3Q14 Vacancy4Q14 1Q15 2Q15 Rate Building Area Completion (Sqm) Source: CBRE, DBS Vickers - 2H15
Major Tower, Thonglor 10 10,405 3Q15 Net take-up surging in 2015. Despite the slowing economy, G-Land Tower, Rama 9 65,630 4Q15 net take-up has been strong YTD, with demand coming Bhiraj Tower, Sathorn 27,000 2015 from expanding companies in the finance, logistics, - 2016 insurance and e-commerce sectors. The Metropolis, Sukhumvit 39 13,540 1Q16 Bhiraj Tower, BITEC 31,880 2Q16 Office: Net take-up is on the rise FYI Center, Rama IV 48,095 4Q16 M Tower, Sukhumvit 62 9,990 4Q16 Sqm. Rungrojthanakul 4, Ratchadapisek 15,705 4Q16 400,000 - 2017 350,000 Shinawatra 4, Phaholyothin 13,060 1Q17 300,000 Pearl Bangkok, Phaholyothin n.a. 2017 Singha Complex, Asoke 36,000 1Q17 250,000 Gaysorn Office Tower, Rajdamri 19,500 2Q17 200,000 -2018 150,000 Whizdom 101, Sukhumvit 101 30,000 2018 100,000 -2020 and beyond 50,000 Super Tower, Rama 9 94,000 2020 0 SJ Infinite II, Bangna KM 7 30,000 n.a. The Bangkok Mall, Bangna 100,000 n.a.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Suan Lum Night Bazaar, Rama IV 137,500 n.a. 2015F Source: Knight Frank Thailand, DBS Vickers Source: CBRE Thailand, DBS Vickers
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Industry Focus
Property Fund/REIT Sector
Vacancy rate to fall further. With take-up expected to Bangkok office rents are still cheap vs regional peers. The outpace new supply, we estimate vacancy rate would following chart shows prime office rents in major cities in continue to fall and there could be a deficit in office space Asia Pacific. According to Knight Frank, Bangkok office supply by the year 2020. rents are still one of the cheapest in Asia, averaging US$29.1/sqm/month in 2Q15 vs US$96.6 in Singapore and Office: Vacancy should continue to fall US$173.1 in Hong Kong.
10,000,000 18% Office: Bangkok office rents vs regional peers’ 9,000,000 16% 8,000,000 14% 7,000,000 12% Hong Kong 6,000,000 10% 5,000,000 Singapore 8% 4,000,000 Beijing 3,000,000 6% 2,000,000 4% Shanghai Sqm (Net LettableSqm (Net Area)
1,000,000 2% Grades All Rate, Vacancy Seoul - 0% Jakarta 2010 2011 2012 2013 2014 Stock Demand 2015F Vacancy2016F 2017F Rate Guangzhou Source: CBRE Thailand, DBS Vickers Bangkok Phnom Penh Rising rents. According to Knight Frank Thailand, average Kuala Lumpur office rental rate in Bangkok increased 7% y-o-y to 0 50 100 150 200 Bt674/sqm/month in 2Q15. Rents rose in all segments, US$/sqm/month thanks to the strong increase in demand coupled with moderate new supply. The rising rents and limited new Source: Knight Frank, DBS Vickers supply in CBD have led many occupiers to relocate to Ten office property funds offering average yield of 6.1%. emerging business locations, e.g. on Rama 9 and We expect CP Tower Growth Leasehold Property Fund Ratchadapisek streets where rents are cheaper. Looking (CPTGF) and Prime Office Property Fund (POPF) to offer forward, rents should continue to trend up as demand 2015 yields of 8.1% and 8.0%, respectively, the highest growth outpaces supply growth. among peers. Of the total, three hold freehold assets; they are BKKCP, MIPF, and SSPF. The rest hold leasehold assets. Office: Rising rents
1,000 2015 estimated yield of listed office property funds
900 % 9.0 800 8.0 700 7.0
Bt per sqm per month 600 6.0 500 5.0 400 4.0 300 3.0 2.0 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 CBD Grade A CBD Grade B 1.0 Non-CBD Grade A Non-CBD Grade B - Source: Knight Frank Thailand, DBS Vickers JCP TCIF SSPF MIPF POPF QHPF CPTGF BKKCP KPNPF CPNCG Source: SET, DBS Vickers
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Industry Focus Property Fund/REIT Sector
Retail – Competition grows as supply rises CentralPlaza WestGate : the biggest mall to open this year. Demand vs supply. Total retail space in Bangkok increased The project is located on a 100-rai (1 rai =0.4 acre) plot of by 169,040 sqm to 6.9m sqm in 1H15, according to CB land along the West Ring Road at the Bangyai intersection, Richard Ellis. The major developments that opened in 1H15 where Kanchanapisek Road meets Rattanathibet Road. This were The EmQuartier with total lettable area of 50,000 sqm, is the largest regional gateway in western Bangkok, with the The Hub which is an expansion of Zeer Rangsit, with a total most comprehensive transportation system including the area of 70,000 sqm, and The Rest Area community mall MRT Purple Line, public transportation, piers, a ring road, with 3,040 sqm of lettable area at Prachachuen Toll Plaza expressway and motorway. It is surrounded by a lot of on Si Rat Expressway. Take-up rate was about 50,000 sqm residential projects. in 1H15, raising occupied space to 6.3m sqm at end-1H15. The mall is developed by Central Pattana (CPN) and was Occupancy easing but remains strong. Despite the rising opened on 28 August 2015 with 83% occupancy rate on supply, occupancy rate has eased from 94% at end-2014 to opening date. Occupancy is now over 90%. 93.1% at end-1H15, as supply grew faster than demand. The project comprises: Retail: Demand, Supply and Occupancy - Central Department Store (31,000 sqm) 6 Specialty Anchor stores (14,000 sqm) including Tops sqm - 8,000,000 100% Market, Tops Super Store, Super Sports, PowerBuy, B2S, Office Mate 7,000,000 98% 96% 4-storey CentralPlaza shopping mall (150,000 sqm), 6,000,000 - 94% housing approximately 400 leading retailers 5,000,000 92% - 12-screen WestGate Cineplex (10,200 sqm) 4,000,000 90% - Virgin Active Club (3,000 sqm) 3,000,000 88% - Doraemon Comic World (2,600 sqm) 86% 2,000,000 84% CentralPlaza WestGate 1,000,000 82% - 80% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H15 Supply (Sqm) Demand (Sqm) Occupancy (RHS) Source: CBRE (Thailand), DBS Vickers
Strong demand from international brands. Take-up continued to grow with demand coming from international retailers. According to Jones Lang Lasalle Thailand, a total of 41 internationally recognised brand-name retailers recently opened their stores at EmQuartier, and six at The Emporium.
A lot of new supply entering the market. Colliers International estimates that 724,920 sqm of new supply will be completed in 2H15, 88% of which is located in Bangkok Source: CBRE (Thailand), DBS Vickers suburban area. These include CentralPlaza WestGate with a gross area of 500,000 sqm, which aims to be the most complete Super Regional Mall in Southeast Asia.
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Industry Focus
Property Fund/REIT Sector
Falling consumer confidence. According to data from the Bangkok retail rents still among the cheapest in Asia. The University of Thai Chamber of Commerce, Thailand’s following chart shows prime retail rents in Asia Pacific. consumer confidence index has been dropping steadily for According to Jones Lang Lasalle, rents in shopping centers in eight consecutive months to 72.3 in August, a 15-month CBD in Bangkok averaged US$667/sqm/year, still much low. This was the result of a combination of factors lower than US$4,366 in Singapore and US$15,642 in Hong including the recent bombing at the Rajchaprasong Kong. intersection, the sharp drop in exports, the low agricultural produce prices which have led to low farm incomes, a Retail: Asia Pacific shopping centers rents slowing Chinese economy, global economic uncertainties,
and the sharp correction in the Thai stock market. HK, Central Sydney Consumer Confidence dropped for 8 consecutive months Guangzhou Shanghai 120 Melbourne Brisbane 110 Singapore 100 Beijing 90 Perth 80 Adelaide 70 Auckland CCI Index 60 Mumbai CCI Index - Current Delhi 50 CCI Index - Future Bangalore 40 Chennai Bangkok Jakarta 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Manila Source: Bank of Thailand, DBS Vickers 0 5,000 10,000 15,000 20,000 Net Rents (US$ /sqm/year) Retail sales index fell 3.5% y-o-y in 1H15. With consumer confidence falling amid global economic uncertainties and a Source: Jones Lang Lasalle, DBS Vickers slowing domestic economy, Thailand’s retail sales index also Seven retail property funds offering average yield of 6.7%. fell by 3.5% in 1H15, after falling 5.9% in 2014. Excluding Trinity Freehold and Leasehold Property Fund (TNPF) which has not finalised a dividend payment for 2015, Retail sales and growth we estimate the seven listed retail property funds are offeringq an average distribution yield of 6.7% in 2015. 250 25% Retail sales index Growth (y-o-y) 20% 2015 estimated yield of listed retail property funds 200 15% % 9.0 150 10% 8.0 100 5% 7.0 6.0 0% 5.0 50 -5% 4.0 3.0 0 -10% 2.0 1.0 1H15 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 - Source: Bank of Thailand, DBS Vickers TRIF TLGF LHSC TNPF TTLPF CPNRF CRYSTAL
FUTUREPF
Source: SET, DBS Vickers
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Industry Focus Property Fund/REIT Sector
Industrial – High vacancies - Logistics Property (Warehouses) Rising vacancies. According to Knight Frank Thailand, total Ready-Built Factories (RBF) - supply of warehouse rental space increased by 101,327 sqm Excess supply. Total new RBF supply increased by 92,000 in 1H15 to 3.5m sqm at end-1H15. This has dropped from sqm in 1H15 to 2.5m sqm, according to CB Richard Ellis. an increase of 310,000-440,000 sqm semi-annually in the But net take-up rate had slowed to only 10,000 sqm in previous years, as rental warehouse developers slowed 1H15 amid the slowing economy. According to Knight down expansion plans amid weakening demand, which is in Frank Thailand, as much as 70% of RBF supply is located in turn the result of deteriorating exports and a slowing Chonburi, Rayong and Samut Prakan, because these are the economy. Vacancies rose to 22% in 1H15. major locations of various industrial hubs and home to
Thailand’s automotive industry. Warehouse: Demand, Supply and Vacancy
RBF: Supply by provinces Sqm 4,000,000 Supply 25% Prachinburi, 3,500,000 Occupied Space 2% Saraburi, 4% Chachoengsao, Vacancy (RHS) 20% 1% Nonthaburi, 3,000,000 Pathum 1% Thani, 6% 2,500,000 15% 2,000,000 Chonburi, 10% 30% 1,500,000 Ayudhya, 1,000,000 16% 5% Rayong, Samut 500,000 19% Prakan, 21% 0 0% 2011 2012 2013 2014 1H15 Source: Knight Frank Thailand, DBS Vickers Source: Knight Frank Thailand, DBS Vickers Rents are stagnant. Average rental rate of warehouses Vacancy rate rising steadily since heavy flooding in 2011. eased to Bt160/sqm/month in 1H15, given weak demand With the increase in supply far outpacing demand, vacancy and rising vacancies. The largest drop was in the Eastern rate continued to rise from 33% at end-2014 to 35% at Seaboard, because of high competition in the area. end-1H15. Warehouse: Rents were stagnant RBF: Demand, Supply and Vacancy Btm/Sqm/Month
Sqm 175 300,000 40% Supply 170 Demand 35% 250,000 Eastern Bangkok Vacancy 165 30% 200,000 160 Suvarnabhumi- 25% Bangpakong 155 150,000 20% Eastern Seaboard 15% 150 100,000 10% 145 Pathum-Ayudhya 50,000 5% 140
0 0% 135 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015F 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 Source: CBRE (Thailand), DBS Vickers Source: CBRE (Thailand), DBS Vickers
Rents remain flat. The average factory rental rate inched up a meager 1.4% to Bt217/sqm/month in 2Q15, according to Knight Frank Thailand. With demand likely to remain slow, we expect rental rate of RBF to remain quite stagnant during the rest of this year.
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Industry Focus
Property Fund/REIT Sector
Industrial REIT offering average 7.1% yield in 2015. There The industrial property funds/REITs that offer the highest are now 15 listed property funds/REITs that invest in 2015 dividend yields include 101 Montri Storage Property industrial assets including ready-built factories, logistic Fund, Hemaraj Industrial Property & Leasehold Fund (HPF) warehouses and storage. These funds are now offering and Ticon Industrial Growth Leasehold Property Fund generous dividend yield of 7.1% at current price. This is (TGROWTH), which are offering 8.0%, 7.8%, and 7.6%, relatively high, but we are concerned about the respectively. sustainability of the yields of some industrial funds over the medium- to long-term, given weak demand and still high
vacancy rates. Some funds are now being saved by the temporary revenue guarantees by the sponsors, which mean their yields could drop in the future.
2015 estimated yields of listed industrial property funds
% 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - PPF HPF M-II TIF1 TREIT SSTPF SSTSS TFUND TLOGIS WHAPF WHART M-STOR MONTRI AMATAR TGROWTH
Source: SET, DBS Vickers
Page 20
Industry Focus Property Fund/REIT Sector
Major office property funds/REITs Office CPNCG CPTGF POPF QHPF Units (m) 427 967 482 797 Price (Bt) 11.80 10.00 13.30 9.95 Mkt Cap (Btm) 5,034 9,670 6,406 7,930 Mkt Cap (US$m) 140 269 178 220 Listing 21-Sep-12 16-Dec-13 12-Apr-11 12-Dec-06 TP (Bt) 12.50 10.80 14.00 n.a. Upside 6% 8% 5% n.a.
NAVps (Bt) 11.78 10.37 11.40 11.06 P/NAV (x) 1.0 1.0 1.2 0.9
DPU (Bt) - 2015 0.84 0.80 1.08 0.74 Div. Yield 7.1% 8.0% 8.1% 7.5% DPU (Bt) - 2016 0.88 0.86 1.11 n.a. Div. Yield 7.5% 8.6% 8.3% n.a. IRR 8.5% 9.7% 8.6% n.a.
Asset type Office Office Office Office Asset CentralWorld CP Tower Silom UBC II Tower Q House Ploenchit CP Tower Fortune Ploenchit Center Q House Lumpini Town CP Tower Phyathai Nation Tower Wave Place
Ownership (by leasable area) Freehold 0% 0% 0% 0% Leasehold 100% 100% 100% 100% Remaining leasehold life (yrs) 17.3 28.2 22.8 19.5 Leasable area (Sqm) 80,604 70,293 125,184 115,678 Cost (Bt) 4,765 9,660 5,491 7,194 Acquisition price (Bt/sqm) 59,119 137,421 43,860 62,193 Latest appraised value (Btm) 5,197 9,626 5,754 7,837
Source: SET, DBS Vickers
Page 21
Industry Focus
Property Fund/REIT Sector
Major retail property funds/REITs Retail CPNRF TLGF FUTUREPF CRYSTAL LHSC Units (m) 2,212 2,337 530 390 488 Price (Bt) 16.70 13.20 18.20 10.00 10.4 Mkt Cap (Btm) 36,948 30,852 9,638 3,900 5,076 Mkt Cap (US$m) 1,026 857 268 108 141 Listing 23-Aug-05 19-Mar-12 07-Dec-06 27-Jun-13 26-Dec-14 TP (Bt) 18.00 15.1 22.27 11.44 11.40 Upside 8% 14% 22% 14% 10%
NAVps (Bt) 13.06 11.18 12.55 10.95 10.63 P/NAV (x) 1.3 1.2 1.5 0.9 1.0
DPU (Bt) - 2015 1.00 0.81 1.27 0.77 0.76 Div. Yield 6.0% 6.1% 7.0% 7.7% 7.3% DPU (Bt) - 2016 1.26 0.84 1.33 0.79 0.77 Div. Yield 7.6% 6.3% 7.3% 7.9% 7.4% IRR 8.8% 7.4% 9.2% 9.3% 8.5%
Asset type Retail Retail Retail Retail Retail Asset Central Rama 2 23 Tesco Lotus Future Park Rangsit The Crystal Terminal 21 Mall malls Central Rama 3 Crystal Design Center Central Pinklao Central Chiangmai Airport Ownership (by leasable area) Freehold 0% 60% 0% 0% 0% Leasehold 100% 40% 100% 100% 100% Remaining leasehold life (yrs) 34.9 21.7 27.5 28.0 25.0 Leasable area (Sqm) 218,269 331,563 65,500 118,018 34,058 Cost (Bt) 27,973 27,761 6,403 4,132 5,942 Acquisition price (Bt/sqm) 128,159 83,729 97,761 35,015 174,456
Source: SET, DBS Vickers
Page 22
Industry Focus Property Fund/REIT Sector
Major industrial property funds/REITs
Industrial AMATAR HPF TREIT WHAPF WHART TFUNDT GROWTH TLOGIS Units (m) 358 470 343 939 311 1,150 555 414 Price (Bt) 11.10 8.50 10.30 11.30 10.60 10.60 12.20 12.30 Mkt Cap (Btm) 3,973 3,995 3,528 10,611 3,294 12,185 6,771 5,090 Mkt Cap (US$m) 110 111 98 295 92 338 188 141 Listing 30-J un-15 23-J an-14 16-Dec-14 24-Dec-10 18-Dec-14 12-May-15 18-Dec-13 16-Dec-09 TP (Bt) 11.0 n.a. 10.4 11.6 11.0 11.0 12.9 11 Upside -1%n.a.1%3%4%4%6%-8%
NAVps (Bt) 10.0 10.1 9.9 10.2 9.8 11.1 10.4 11.8 P/NAV (x) 1.1 0.8 1.0 1.1 1.1 1.0 1.2 1.0
DPU (Bt) - 2015 0.4 0.7 0.6 0.7 0.8 0.6 0.9 0.7 Div. Yield 7.6% 7.8% 6.1% 6.3% 7.6% 6.0% 7.6% 5.9% DPU (Bt) - 2016 0.8 n.a. 0.7 0.7 0.8 0.6 1.0 0.8 Div. Yield 7.5% n.a. 7.2% 6.5% 7.2% 6.0% 7.9% 6.2% IRR 9.3% n.a. 10.3% 9.2% 9.4% 0.0% 8.1% 6.5%
Asset type Factories Factories Industrial Industrial Warehouses Industrial Industrial Industrial Asset 88 factories104 factories Warehouses Warehouses Warehouses Factories Warehouses Warehouses F actories F actories F actories Ownership (by leasable area) Freehold 30% 64% 65% 70% 61% 100% 0 100% Leasehold 70% 36% 35% 30% 39% 0% 100% 0 Remaining leasehold life (yrs) 30 n.a. 28-30 22.4 26 n.m. 28.5 n.a. Leasable area (Sqm) 160,579 150,117 214,523 397,782 342,021 584,550 303,270 243,625 Cost (Bt) 4,750 4,700 4,228 9,780 9,056 11,716 6,003 4,469 Acquisition price (Bt/sqm) 29,580 31,309 19,709 24,585 26,479 20,043 19,794 18,344 Source: SET, DBS Vickers
Page 23
Industry Focus
Property Fund/REIT Sector
Major property funds/REITs in other sectors
Others IMPACT MJLF SPF Units (m) 1482.5 330 950 Price (Bt) 11.20 13.10 19.60 Mkt Cap (Btm) 16,604 4,323 18,620 Mkt Cap (US$m) 461 120 517 Listing 01-Oct-14 18-J ul-07 24-Nov-06 TP (Bt) 12 13.8 21.4 Upside 7% 5% 9%
NAVps (Bt) 10.79 12.16 11.08 P/NAV (x) 1.0 1.1 1.8
DPU (Bt) - 2015 0.71 1.01 1.30 Div. Yield 6.4% 7.7% 6.6% DPU (Bt) - 2016 0.74 1.03 1.39 Div. Yield 6.6% 7.9% 7.1% IRR 8.9% 7.8% 8.4%
Asset type Exhibition Center Lifestyle Entertainment Complex Airport Asset Impact Arena Major Ratchay othin Samui Airport Impact Forum Major Rangsit Impact Exhibition 1-8 Suzuki Avenue Ratchayothin Challenger Hall Ownership (by leasable area) Freehold 100% 100% 0% Leasehold 0% 0% 100% Remaining leasehold life (y rs) n.a. 30.8 21.0 Leasable area (Sqm) 122,165 45,194 n.a. Cost (Bt) 19,601 3,194 9,301 Acquisition price (Bt/sqm) 160,448 70,675 n.m. Source: SET, DBS Vickers
Page 24
Industry Focus Property Fund/REIT Sector
THAILAND STOCK PROFILES
Page 25
Thailand Company Guide CP Tower Growth Leasehold
Edition 1 Version 1 | Bloomberg: CPTGF TB | Reuters: CPTGFu.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 18 Sep 2015
BUY LOW RISK BUT ATTRACTIVE YIELD Last Traded Price: Bt10.00 (SET : 1,381.80) Price Target : Bt10.80 (9% upside) BUY, with Bt10.80 TP based on DCF valuation. CPTGF is offering attractive distribution yield of 8.0% (FY15F), payable Potential Catalyst: Strong rental reversion quarterly. The fund invests in leasehold rights to three office Where we differ: n.a. buildings that are strategically located in the prime business areas of Bangkok, including Silom, Fortune Town and Analyst Phayathai area. Note that these buildings also offer retail rental Thailand Research Team +662 658 1222 Nantika WIANGPHOEM +662 657 7836 space. The office buildings currently enjoy high average [email protected] occupancy rate of 98%, except for office space of C.P. Tower
II (Fortune Town) which is at 93% given the location and age of the building. Price Relative
Bt Relative Index Low risks, high quality tenants. The main contracts with anchor 10.7 209 189 tenant C.P. group and its subsidiaries, Tesco Lotus, and public 10.2 169 sector clients, which cover 34%, 6% and 5% of total lettable 9.7 149
129 9.2 area, respectively, are subject to 10% rental reversion next 109 8.7 year. And, 52 other contracts which account for 9.4% of total 89 8.2 69 revenue are expiring in FY16 and subject to renewals at 5% Dec-13 May-14 Oct-14 Mar-15 Aug-15 higher rents, at least. CP Tower Growth Leasehold (LHS) Relative SET INDEX (RHS)
Forecasts and Valuation FY Dec (Bt m) 2014A 2015F 2016F 2017F Valuation: Gross Revenue 1,307 1,348 1,452 1,469 We value CPTGF at Bt10.80 based on DCF valuation (WACC: Net Property Inc 1,169 1,208 1,301 1,316 6.8%). Total Return 727 757 824 869 Distribution Inc 733 771 833 843 EPU (Bt) 0.75 0.78 0.85 0.90 Key Risks to Our View: EPU Gth (%) nm 4 9 6 Key risks are (i) lower-than-expected rental reversion, and (ii) DPU (Bt) 0.76 0.80 0.86 0.87 weaker-than-expected occupancy rate. DPU Gth (%) nm 5 8 1
NAV per shr (Bt) 10.31 10.35 10.36 10.39 At A Glance PE (X) 13.2 12.7 11.7 11.1 Distribution Yield (%) 7.6 8.0 8.7 8.8 Issued Capital (m shrs) 967 P/NAV (x) 1.0 1.0 1.0 1.0 Mkt. Cap (Btm/US$m) 9,670 / 269 Aggregate Leverage (%) 0.0 0.0 0.0 0.0 Major Shareholders ROAE (%) N/A 7.6 8.2 8.7 CPL Group Pcl. (%) 33.3 KTB (%) 15.0 Dist. Inc. Revision (%): - - - Social Security Office (%) 15.0 Consensus DPU (Bt): N/A N/A N/A Other Broker Recs: B: 0 S: 0 H: 0 Free Float (%) 50.6 3m Avg. Daily Val (US$m) 0.20 ICB Industry : Financials / Real Estate Investment Trusts Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
ASIAN INSIGHTS VICKERS SECURITIES www.dbsvickers.com ed: SGC / sa: CS
Company Guide CP Tower Growth Leasehold
Net Property Income and Margins (%) Leverage & Asset Turnover (x) CRITICAL DATA POINTS TO WATCH Bt m 1,400 96.9% Earnings Drivers: 1,200 94.9% Invests in leasehold rights to three office buildings in 1,000 92.9% Bangkok’s prime areas. These are successful office buildings 800 600 90.9% in good locations with 98% average occupancy rate. The 400 88.9% Fund’s assets include i) C.P. Tower I (Silom), ii) C.P. Tower II 200 86.9% (Fortune Town), iii) C.P. Tower III (Phayathai). With all of the 0 84.9% assets being in prime locations, the Fund stands to benefit 2014A 2015F 2016F 2017F Net Property Income Net Property Income Margin % from future rental rate hikes. The remaining tenure of the lease is about 29 years. Net Property Income and Margins (%) Capital Expenditure 50 73%
45 72% 40 Positive rental reversion to drive growth. With the prime 71% 35 area of each building, we expect growth to come from 30 70% rental reversion (estimated at 3.0 - 5.0% p.a. for retail rental 25 69% 20 68% space and +10% every three years for office rental space). 15 67% Also, the geographical diversification helps to reduce 10 5 66% concentration risk. 0 65%
Low risk with high profile tenants. The main contracts with 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 Net Property Income Net Property Income Margin % anchor tenant C.P. group and its subsidiaries, Tesco Lotus, Distribution Paid / Net Operating CF ROE (%) and public sector clients, which cover 34%, 6% and 5% of (x) total lettable area, respectively, are subject to 10% rental reversion next year. And, 52 other contracts which account 0.5 for 9.4% of total revenue are expiring in FY16 and subject 0.0 to renewals at 5% higher rents, at least. 2014A 2015F 2016F 2017F -0.5
Strong occupancy record. Data from 2010-2015 for office -1.0 rental shows that the historical average occupancy rate for C.P. Tower I, II & III were 100%, 99% and 100%, with -1.5 occupancy increasing by 3.3%, 5.5% and 16.3% CAGR, respectively. Net Asset Value / Unit
For retail space, the average occupancy rate for C.P. Tower I and II were 99% and 97%, growing by 3.0% and 7.8% CAGR, respectively. Occupancy at C.P. Tower III had risen from 46.4% in 2010 to 100% in 2015, or at 8.4% CAGR.
Payout assumptions. We currently assumed 97%payout ratio throughout our forecast period. CPTGF has paid Bt0.20 quarterly DPU in 1Q15 and 2Q15, respectively. In addition, the fund has announced par reduction of Bt0.004 in both Occupancy rate in 1H15 1Q15 and 2Q15. C.P. Tower 1 C.P. Tower 2 C.P. Tower 3 (Fortune (Silom) Town) (Phayathai)
Office rental space Total Office Rental Space (sqm) 35,717 25,414 9,163 Occupancy rates 100% 92% 97% Retail rental space Total leasable space (sqm) 9,075 46,528 7,850 Occupancy rates 98% 98%* 97% * excluding OR of Tesco Lotus = 100* Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 27 Company Guide
CP Tower Growth Leasehold
ROE (%) Balance Sheet: 8.0% Currently, the fund is debt-free. 7.0%
6.0%
Share Price Drivers: 5.0%
Strong rental reversion. Strong rental reversion could lift 4.0%
rental income and distribution per unit. 3.0%
2.0%
Attractive yield. CPTGF is offering attractive annual yield of 1.0% about 8%, compared to 3.0% for 10-year Thai government 0.0% 2015F 2016F 2017F bonds and 3.6-3.9% dividend yields for stocks under DBS coverage (75% of the SET market cap) in FY15-16F. Distribution Yield (%)
10.0% Key Risks: 9.0% Economic slowdown 8.0% Economic slowdown should result in weaker-than-expected 7.0% occupancy rate and slower-than-expected rental reversion, 6.0% which would limit the Fund’s growth, and hence, DPU. 5.0% 4.0% 3.0% COMPANY BACKGROUND 2014A 2015F 2016F 2017F CPTGF is a property fund that invests in leasehold rights to
three office buildings in Bangkok’s prime business areas with a total leasable area of 132,191 sqm. The assets are C.P. PB Band (x) Tower I (Silom), C.P. Tower II (Fortune Town), and C.P. Tower III (Phayathai). The key anchor tenants are C.P. group and its subsidiaries, Tesco Lotus, and also public sector clients, which cover 34%, 6% and 5% of total lettable area, respectively.
For the office rental space, CPTGF will renew the rental contract and revise up the rental rate by 10% with the tenants every 3 years
The fund was listed on the Stock Exchange of Thailand on 16 December 2013. The IPO price was Bt10.15/sh. C.P. Land Details of assets in CPTGF’s portfolio Public Company Limited is the fund’s sponsor, a major shareholder with 33.33% stake, and the Property Manager. Appraised Remaining Leasehold Assets Value (Btm) (Years)
C.P. Tower I (Silom) 3,979.86 28
C.P. Tower II (Fortune Town) 4,752.29 28 C.P. Tower III 853.90 28
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 28 Company Guide CP Tower Growth Leasehold
Key Assumptions FY Dec 2014A 2015F 2016F 2017F
C.P. Tower I (Silom) Office rental space Leasable area (sqm) 35,716 35,716 35,716 35,716 Occupancy 99% 100% 100% 100% Rents (bt/sqm/month) 840 840 924 924 Retail rental space Leasable area (sqm) 7,792 7,792 7,792 7,792 Occupancy 98% 98% 98% 98% Rents (bt/sqm/month) 949 996 1046 1088 C.P. Tower II (Fortune) OfficeTown) rental space Leasable area (sqm) 25,413 25,413 25,413 25,413 Occupancy 93% 93% 93% 93% Rents (bt/sqm/month) 600 600 660 660 Retail rental space Leasable area (sqm) 46,528 46,528 46,528 46,528 Occupancy 99% 99% 99% 97% Rents (bt/sqm/month) 855 895 943 978 C.P. Tower III (Phayathai) Office rental space Leasable area (sqm) 9,162 9,162 9,162 9,162 Occupancy 99% 100% 100% 100% Rents (bt/sqm/month) 576 576 634 634 Retail rental space Leasable area (sqm) 7,850 7,850 7,850 7,850 Occupancy 98% 98% 98% 98% Rents (bt/sqm/month) 788 828 869 904 Dividend payout ratio 96% 97% 97% 97%
Income Statement (Bt m) FY Dec 2014A 2015F 2016F 2017F
Gross revenue 1,307 1,348 1,452 1,469 Property expenses (139) (140) (151) (152) Net Property Income 1,169 1,208 1,301 1,316 Other Operating expenses (451) (456) (484) (454) Other Non Opg (Exp)/Inc 3 3 3 3 Net Interest (Exp)/Inc 7 2 3 4 Exceptional Gain/(Loss) 3 0 0 0 Net Income 730 757 824 869 Tax 0 0 0 0 Minority Interest 0 0 0 0 Preference Dividend 0 0 0 0 Net Income After Tax 730 757 824 869 Total Return 727 757 824 869 Non-tax deductible Items 14 0 0 0 Net Inc available for Dist. 733 771 833 843 Growth & Ratio Revenue Gth (%) N/A 3.1 7.7 1.2 N Property Inc Gth (%) nm 3.4 7.7 1.2 Net Inc Gth (%) nm 3.8 8.7 5.5 Dist. Payout Ratio (%) 95.8 97.0 97.0 97.0 Net Prop Inc Margins (%) 89.4 89.6 89.6 89.6 Net Income Margins (%) 55.8 56.2 56.7 59.2 Dist to revenue (%) 56.1 57.2 57.4 57.4 Managers & Trustee’s fees 34.5 33.8 33.3 30.9 to sales %) ROAE (%) N/A 7.6 8.2 8.7 ROA (%) N/A 7.3 7.9 8.3 ROCE (%) N/A 7.5 8.2 8.6 Int. Cover (x) NM NM NM NM Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 29 Company Guide
CP Tower Growth Leasehold
Quarterly / Interim Income Statement (Bt m) FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015
Gross revenue 329 326 332 333 341 Property expenses (105) (91) (107) (94) (102) Net Property Income 224 236 225 238 239 Other Operating expenses (44) (47) (49) (46) (43) Other Non Opg (Exp)/Inc 1 0 1 1 1 Net Interest (Exp)/Inc 0 3 3 2 1 Exceptional Gain/(Loss) 0 2 3 (25) 31 Net Income 182 194 182 171 230 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Net Income after Tax 182 194 182 171 230 Total Return 182 194 182 171 230 Non-tax deductible Items 10 7 7 34 (22) Net Inc available for Dist. 192 201 189 205 208 Growth & Ratio Revenue Gth (%) 3 (1) 2 0 3 N Property Inc Gth (%) (1) 5 (5) 6 0 Net Inc Gth (%) 5 7 (6) (6) 34 Net Prop Inc Margin (%) 68.2 72.2 67.7 71.6 70.1 Dist. Payout Ratio (%) 94.8 95.2 95.3 97.3 96.7
Balance Sheet (Bt m) FY Dec 2014A 2015F 2016F 2017F
Investment Properties 9,651 9,651 9,651 9,651 Other LT Assets 0 0 0 0 Cash & ST Invts 561 649 715 747 Inventory 0 0 0 0 Debtors 64 66 71 71 Other Current Assets 80 43 8 8 Total Assets 10,355 10,408 10,444 10,477
ST Debt 0 0 0 0 Creditor 64 66 71 72 Other Current Liab 322 332 356 360 LT Debt 0 0 0 0 Other LT Liabilities 0 0 0 0 Unit holders’ funds 9,969 10,010 10,016 10,045 Minority Interests 0 0 0 0 Total Funds & Liabilities 10,355 10,408 10,444 10,477
Non-Cash Wkg. Capital (243) (290) (348) (352) Net Cash/(Debt) 561 649 715 747 Ratio Current Ratio (x) 1.8 1.9 1.9 1.9 Quick Ratio (x) 1.6 1.8 1.8 1.9 Aggregate Leverage (%) 0.0 0.0 0.0 0.0 Z-Score (X) NA NA NA NA Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 30 Company Guide CP Tower Growth Leasehold
Cash Flow Statement (Bt m) FY Dec 2014A 2015F 2016F 2017F
Pre-Tax Income 730 757 824 869 Dep. & Amort. 0 0 0 0 Tax Paid 0 0 0 0 Associates &JV Inc/(Loss) 0 0 0 0 Chg in Wkg.Cap. (871) 93 59 4 Other Operating CF (3) 0 0 0 Net Operating CF (144) 850 883 873 Net Invt in Properties 0 0 0 0 Other Invts (net) (402) 0 0 0 Invts in Assoc. & JV 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 Other Investing CF 0 0 0 0 Net Investing CF (402) 0 0 0 Distribution Paid (553) (761) (817) (841) Chg in Gross Debt 0 0 0 0 New units issued (29) 0 0 0 Other Financing CF 0 0 0 0 Net Financing CF (582) (761) (817) (841) Currency Adjustments 0 0 0 0 Chg in Cash (1,129) 89 65 33
Operating CFPS (Bt) 0.8 0.8 0.9 0.9 Free CFPS (Bt) (0.1) 0.9 0.9 0.9 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 31
Thailand Company Guide CPN Retail Growth Property Fund
Edition 1 Version 1 | Bloomberg: CPNRF TB | Reuters: CPNRu.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 18 Sep 2015
BUY DIVIDEND HICCUP Last Traded Price: Bt16.70 (SET : 1,381.72) Price Target : Bt18.00 (8% upside) (Prev Bt18.00) Reiterate BUY, Bt18.00 TP (DCF valuation). CPNRF is Thailand’s largest property fund and is one of the most liquid property Potential Catalyst: Strong rental reversion, converts to a REIT funds in Thailand. It has strong recurring income base from Where we differ: We have assumed more conservative occupancy and four successful CentralPlaza shopping malls in diversified rental growth assumptions locations. The fund now offers generous dividend yield of 6.0% for 2015 (payable quarterly), a hefty premium over Thai Analyst 10-year government bond yield of 2.8%. And yields should Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected] rise to 7.7% in 2016 and 8.5% in 2017 following the completion of major renovation at CentralPlaza Pinklao.
DPU to surge in 2016 and 2017. Major renovation is now Price Relative under way at CentralPlaza PInklao mall, which contributes Bt Relative Index 22% of the fund’s total revenue. We estimate DPU will drop
212 by 25% in 2015 because of revenue lost during the 20.4 192 renovation. But, DPU will surge in 2016 and 2017 after the 18.4 172
16.4 152 renovation is completed; the management estimates rents at 132 14.4 CentralPlaza Pinklao should increase by about 9-10%. 112 12.4 92
10.4 72 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Conversion to REIT structure could lift future yields. CPNRF is CPN Retail Growth Property Fund (LHS) awaiting details on the total costs to convert from the existing Relative SET INDEX (RHS) property fund structure to a REIT. The fund would like to Forecasts and Valuation convert to a REIT and grow by acquiring more assets from FY Dec (Bt m) 2014A 2015F 2016F 2017F sponsor Central Pattana (CPN). With the larger trust size and Gross Revenue 3,185 2,948 3,616 3,970 Net Property Inc 3,024 2,776 3,414 3,715 higher gearing allowed under the REIT structure, we estimate Total Return 3,211 3,483 3,004 3,297 distribution yield under a REIT structure would be higher. Distribution Inc 2,684 2,373 3,004 3,297 EPU (Bt) 1.62 1.57 1.36 1.49 EPU Gth (%) (2) (3) (14) 10 Valuation: DPU (Bt) 1.33 1.00 1.26 1.39 Our target price for CPNRF is Bt18, based on discounted cash DPU Gth (%) 8 (25) 27 10 flow (DCF) valuation methodology. NAV per shr (Bt) 12.52 13.02 13.18 13.32 PE (X) 10.3 10.6 12.3 11.2 Key Risks to Our View: Distribution Yield (%) 7.9 6.0 7.6 8.3 P/NAV (x) 1.3 1.3 1.3 1.3 Key risks are (i) the lower-than-expected occupancy rate, and Aggregate Leverage (%) 6.4 6.0 6.0 5.3 (ii) weaker-than-expected rental rate reversion. ROAE (%) 14.1 12.3 10.4 11.2 At A Glance Dist. Inc. Revision (%): 0 0 0 Issued Capital (m shrs) 2,212 Consensus DPU (Bt): 1.17 1.37 1.43 Mkt. Cap (Btm/US$m) 36,948 / 1,025 Other Broker Recs: B: 2 S: 1 H: 1 Major Shareholders Central Pattana (%) 26.7 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P Mrs.Arunee Chan (%) 3.4 Government Savings Bank (%) 3.1 Free Float (%) 66.9 3m Avg. Daily Val (US$m) 0.52 ICB Industry : Financials / Real Estate Investment Trusts
ASIAN INSIGHTS VICKERS SECURITIES www.dbsvickers.com ed: SGC / sa: CS
Company Guide CPN Retail Growth Property Fund
Assets in the Portfolio CRITICAL DATA POINTS TO WATCH Assets Leasable Occupancy (%) Area Dec-14 Mar-15 Jun-15 Earnings Drivers: (Sqm) A portfolio of four successful malls in diversified locations. Central Plaza Rama 2 88,038 96.5 95.6 96.0 CPNRF currently operates four successful shopping malls in Central Plaza Rama 3 37,324 93.8 90.8 90.7 Thailand, three of which are located in Bangkok and one in Central Pinklao (Mall) 21,829 98.3 76.5 50.2 Chiangmai. The four malls are CentralPlaza Rama 2, Central Pinklao (Office) CentralPlaza Rama 3, CentralPlaza Pinklao, and CentralPlaza 33,760 96.2 97.0 97.5 Chiangmai Airport. Average occupancy rate at the four malls Central Chiangmai 37,307 98.9 97.5 96.7 had dropped to 90.9% at end-2Q15 from 96.6% at end- Total 218,258 96.6 93.4 90.9 2014, as CentralPlaza PInklao is under renovation.
Rental Structure Major renovation at CentralPlaza Pinklao. This project Assets Fixed % of currently contributes 27% of the fund’s total revenue. The Rate Sales renovation includes improvements to the building and facade, Central Plaza Rama 2 52% 48% decoration of common areas, expansion of leasable area at the mall by 5,820 sqm (27%), and revising merchandise mix Central Plaza Rama 3 71% 29% to meet customer needs. The renovation will be done in two Central Pinklao (Mall) 95% 5% phases, covering 85% of the mall area in 2Q15-4Q15, and Central Pinklao (Office) 100% 0% the remaining 15% in 1Q16-2Q16. The mall will remain open Central Chiangmai 72% 28% during the renovation period. Total investment cost for the Net Property Income and Margins (%) project is Bt350m, and estimated IRR is 11%. Leverage & Asset Turnover (x) Bt m 3,500 Potential DPU hiccup in 2015. We estimate the fund’s DPU 102.5% 3,000 will drop by 25% in 2015, given revenue lost during the 100.5% 2,500 98.5% renovation. But, it will surge in 2016 and 2017 after the 2,000 96.5% renovation is completed. Management estimates rents would 1,500 94.5% increase by about 9-10% after the renovation. 1,000 92.5% 500 90.5% Rental rate reversion. CPNRF managed to renew and sign 81 0 88.5% 2013A 2014A 2015F 2016F 2017F new leases covering 10,268 sqm, or 5% of total leasable area Net Property Income Net Property Income Margin % in 1H15 at average rental reversion rate of 5.8% p.a. This is Net Property Income and Margins (%) impressive considering the weak domestic consumption YTD. Capital Expenditure Going forward, we have assumed CPNRF will grow rental rate by about 5% p.a. Note that leases for 19% of leasable area will expire in 2H15, 22% in 2016, and 23% in 2017.
Converting to REIT could lift future yields. CPNRF is awaiting further details on the transaction costs involved. The fund would like to convert to a REIT and grow by acquiring more assets from sponsor CPN. A REIT can gear up to 35% of total assets and to 60% of its assets if it has an investment grade credit rating, compared with 10% maximum gearing for a property fund. We estimate the larger trust size and higher gearing allowed under the REIT structure would lift distribution yields. Distribtuion Paid / Net Operating CF ROE (%)
(x) 1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3 2013A 2014A 2015F 2016F 2017F
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 33 Company Guide
CPN Retail Growth Property Fund
Aggregate Leverage (%) Balance Sheet: Net debt amounted to Bt1.95bn, and net gearing reached 6.8% at end-2Q15. This is within the 10% maximum 6.0% gearing allowed for property funds. 5.0% 4.0% Share Price Drivers: 3.0% 2.0% Strong rental reversion. Strong rental reversion could lift 1.0% rental income and distribution per unit. 0.0% 2013A 2014A 2015F 2016F 2017F Conversion to a REIT structure. The successful conversion to a REIT structure would mean the current Fund can gear up further and rely less on equity financing. This should lift DPU ROE (%) and yields. 14.0%
12.0% Key Risks: Political unrest & slowing economy. Political unrest and a 10.0% slowing economy could hurt consumer confidence and delay 8.0% spending, and in turn affect the potential for rental rate 6.0% hikes. 4.0% 2.0% Acquisition-led growth is stalled unless the Fund converts to 0.0% 2013A 2014A 2015F 2016F 2017F a REIT. CPNRF and all property funds can no longer increase capital to acquire additional assets. To be able to grow the fund size, the fund needs to convert to a REIT. Further Distribution Yield (%)
details, e.g. the related transaction costs, have yet to be 10.0% announced. 9.0% 8.0% COMPANY BACKGROUND 7.0% 6.0% CPNRF is Thailand's largest property fund by market CPNRF 5.0% is Thailand's largest property fund by market capitalisation. 4.0% The fund invests in leasehold rights to four retail assets with 3.0% 2.0% a total gross area of 685,442 sqm and total leasable area of 2013A 2014A 2015F 2016F 2017F 218,258 sqm. The assets are CentralPlaza Rama 2,
CentralPlaza Rama 3, CentralPlaza Pinklao, and CentralPlaza Chiangmai Airport. The remaining leasehold life of the PB Band (x) assets is currently 34.9 years. The fund was listed on the Stock Exchange of Thailand on 23 August 2005. CPN is the fund’s sponsor, a major shareholder with 26.7% stake, and the Property Manager.
The followings show details of assets in CPNRF’s portfolio together with the appraised value and remaining leasehold life of each asset.
Assets Appraised Remaining Value Leasehold (Btm) (Years) Source: Company, DBS Vickers Central Plaza Rama 2 6,532 10.0 Central Plaza Rama 3 8,216 80.0 Central Plaza Pinklao 5,439 9.3 Central Plaza Chiangmai Airport 10,856 28.7 Total 31,043 34.9
ASIAN INSIGHTS VICKERS SECURITIES Page 34 Company Guide CPN Retail Growth Property Fund
Key Assumptions FY Dec 2013A 2014A 2015F 2016F 2017F
Leasable Area (Sqm) 182,204 218,539 218,258 224,078 224,078 Occupancy 97.2% 92.5% 85.2% 94.0% 96.2% Occupied Area (Sqm) 177,054 202,194 186,000 210,724 215,553 Average rents 1218.86 1312.74 1320.85 1423.83 1526.95 Rental(Bt/sqm/month) growth 9% 8% 1% 8% 7% Total revenue (Btm) 2,590 3,185 2,948 3,600 3,950 Dividend payout 93% 98% 93% 93% 93%
Segmental Breakdown FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (Bt m) Central Rama 2 1,062 1,146 1,180 1,239 1,300 Central Rama 3 622 640 680 752 786 Central Pinklao 906 933 292 1,040 1,248 Central Chiangmai Airport 522 792 831 873 Total 2,590 3,185 2,944 3,862 4,207 Revenue Breakdown Central Rama 2 41% 36% 40% 32% 31% Central Rama 3 24% 20% 23% 19% 19% Central Pinklao 35% 29% 10% 27% 30% Central Chiangmai Airport 16% 27% 22% 21% Total 100% 100% 100% 100% 100%
Income Statement (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Gross revenue 2,590 3,185 2,948 3,616 3,970 Property expenses (176) (161) (172) (203) (254) Net Property Income 2,413 3,024 2,776 3,414 3,715 Other Operating expenses (357) (409) (476) (486) (505) Other Non Opg (Exp)/Inc 97 112 118 119 120 Net Interest (Exp)/Inc (1) (43) (44) (43) (34) Exceptional Gain/(Loss) 538 527 1,111 0 0 Net Income 2,691 3,211 3,483 3,004 3,297 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Income After Tax 2,691 3,211 3,483 3,004 3,297 Total Return 2,691 3,211 3,483 3,004 3,297 Non-tax deductible Items (538) (527) (1,111) 0 0 Net Inc available for Dist. 2,152 2,684 2,373 3,004 3,297 Growth & Ratio Revenue Gth (%) 3.1 23.0 (7.4) 22.7 9.8 N Property Inc Gth (%) 3.5 25.3 (8.2) 23.0 8.8 Major renovation at CentralPlaza Pinklao Net Inc Gth (%) 12.9 19.3 8.5 (13.8) 9.7 Dist. Payout Ratio (%) 93.0 100.5 93.0 93.0 93.0 Net Prop Inc Margins (%) 93.2 94.9 94.2 94.4 93.6 Net Income Margins (%) 103.9 100.8 118.2 83.1 83.0 Dist to revenue (%) 83.1 84.3 80.5 83.1 83.0 Managers & Trustee’s fees 13.8 12.8 16.2 13.4 12.7 to sales %) ROAE (%) 15.2 14.1 12.3 10.4 11.2 ROA (%) 13.8 12.6 11.1 9.3 10.1 ROCE (%) 11.4 10.9 7.6 9.5 10.3 Int. Cover (x) 2,155.7 60.3 51.7 67.9 94.9 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 35 Company Guide
CPN Retail Growth Property Fund
Quarterly / Interim Income Statement (Bt m) FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015
Gross revenue 800 855 861 845 742 Property expenses (28) (28) (30) (27) (28) Net Property Income 771 828 831 818 715 Other Operating expenses (107) (111) (134) (136) (132) Other Non Opg (Exp)/Inc 25 27 31 23 24 Net Interest (Exp)/Inc (9) (16) (15) (15) (17) Exceptional Gain/(Loss) 170 108 (38) 944 116 Net Income 851 835 674 1,633 705 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Net Income after Tax 851 835 674 1,633 732 Total Return 851 835 674 1,633 732 Non-tax deductible Items N/A N/A N/A N/A N/A Net Inc available for Dist. N/A N/A N/A N/A N/A Growth & Ratio Revenue Gth (%) 19 7 1 (2) (12) Unrealized gain from asset N Property Inc Gth (%) 20 7 0 (2) (13) revaluation Net Inc Gth (%) 0 (2) (19) 142 (55) Net Prop Inc Margin (%) 96.5 96.8 96.5 96.8 96.2 Dist. Payout Ratio (%) 104.9 98.3 99.5 97.3 89.8
Balance Sheet (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Investment Properties 18,535 29,920 31,291 31,401 31,411 Other LT Assets 893 768 499 499 499 Cash & ST Invts 351 304 210 663 832 Inventory 0 0 0 0 0 Debtors 0 0 0 0 0 Other Current Assets 0 0 0 0 0 Total Assets 19,780 30,991 32,000 32,563 32,742
ST Debt 0 0 0 0 0 Creditor 802 994 920 1,129 1,239 Other Current Liab 811 352 352 352 352 LT Debt 340 1,955 1,917 1,915 1,685 Other LT Liabilities 0 0 0 0 0 Unit holders’ funds 17,827 27,690 28,811 29,168 29,467 Minority Interests 0 0 0 0 0 Total Funds & Liabilities 19,780 30,991 32,000 32,563 32,743
Non-Cash Wkg. Capital (1,613) (1,346) (1,272) (1,481) (1,591) Net Cash/(Debt) 11 (1,651) (1,707) (1,252) (853) Ratio Stable gearing Current Ratio (x) 0.2 0.2 0.2 0.4 0.5 Quick Ratio (x) 0.2 0.2 0.2 0.4 0.5 Aggregate Leverage (%) 1.8 6.4 6.0 6.0 5.3 Z-Score (X) 8.9 6.4 6.8 6.3 6.3 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 36 Company Guide CPN Retail Growth Property Fund
Cash Flow Statement (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Income 2,691 3,211 3,483 3,004 3,297 Dep. & Amort. 0 0 0 0 0 Tax Paid 0 0 0 0 0 Associates &JV Inc/(Loss) 0 0 0 0 0 Chg in Wkg.Cap. (32) 118 (74) 209 110 Other Operating CF (538) (527) (1,111) 0 0 Net Operating CF 2,120 2,801 2,299 3,213 3,407 Net Invt in Properties (97) (10,742) (260) (110) (10) Other Invts (net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 0 Other Investing CF 0 0 0 0 0 Net Investing CF (97) (10,742) (260) (110) (10) Distribution Paid (1,990) (2,480) (2,363) (2,647) (2,998) Chg in Gross Debt (95) 1,615 (38) (2) (230) New units issued 0 8,642 0 0 0 Other Financing CF 0 0 0 0 1 Acquisition of CentralPlaza Net Financing CF (2,085) 7,777 (2,401) (2,649) (3,227) Chiangmai Airport Currency Adjustments 0 0 0 0 0 Chg in Cash (62) (163) (363) 453 170
Operating CFPS (Bt) 1.3 1.4 1.1 1.4 1.5 Free CFPS (Bt) 1.2 (4.0) 0.9 1.4 1.5 Source: Company, DBS Vickers
Target Price & Ratings History
17.70 Bt Closing Ta rge t S.No. Da te Ra ting Pric e Pric e 17.20 1: 02 Mar 15 16.40 18.00 Buy 2: 02 Apr 15 16.20 18.00 Buy 3: 18 May 15 16.40 18.00 Buy 16.70 4: 31 Aug 15 16.30 18.00 Buy 4 2 16.20 1 3
15.70
15.20 Sep-14 Jan-15 May-15
Note : Share price and Target price are adjusted for corporate actions.
Source: DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 37
Thailand Company Guide Future Park Leasehold Property Fund
Edition 1 Version 1 | Bloomberg: FUTUREPF TB | Reuters: FUTUREPFu.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 18 Sep 2015
BUY STABLE INCOME AND YIELD Last Traded Price: Bt18.20 (SET : 1,381.72) Price Target : Bt22.30 (23% upside) BUY with DCF-based TP of Bt22.30. Amid the current low- interest-rate environment, the Fund offers attractive 7.1% yield Potential Catalyst: Strong economic recovery could lift occupancy and in FY15, higher than 10-year government bond yield of 2.65% rents more than we assumed in our earnings model and dividend yield of 3.6% for DBS Thailand universe. Where we differ: n.a. Supported by growing mall traffic, revenue growth should be sustainable at c.3% p.a. Analyst Wasu MATTANAPOTCHANART +662 657 7833 [email protected] Rising mall traffic will support future rate hikes. Mall
traffic has been rising since 2006, except during the major flooding in 2011 and 2013. Daily customer count has risen from 122k in 2006 to 164k in 2014. We conservatively Price Relative
Bt Relative Index forecast 2.2% increase in rental rate for this year because of
20.8 209 the slower economy, but assumed it will improve to 3.5% and 18.8 189 3.2% in FY16 and FY17, respectively, and stabilize at 3% from 169 16.8 FY18 onwards. 149 14.8 129 109 12.8 89
10.8 69 Valuation: Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 We value FUTUREPF at Bt22.30, based on DCF valuation Future Park LH Prop Fund (LHS) Relative SET INDEX (RHS) (WACC: 6.9%, Terminal value of Bt0 at the end of 2041). Even
Forecasts and Valuation with conservative assumptions of 3% annual increase in rental FY Dec (Bt m) 2014A 2015F 2016F 2017F income and stable occupancy rate for most of the 27 years, Gross Revenue 924 954 987 1,021 the Fund still offers 25% upside to our target price. Net Property Inc 751 767 794 821
Total Return 797 781 780 810 Distribution Inc 733 750 780 810 Key Risks to Our View: EPU (Bt) 1.51 1.47 1.47 1.53 Leases for 40% of the Fund’s leasable area will expire in FY16. EPU Gth (%) (2) (2) 0 4 While we expect occupancy rate to be stable and rents to DPU (Bt) 1.25 1.27 1.33 1.38 increase by 3.5% next year, the extended economic slowdown DPU Gth (%) 5 2 4 4 NAV per shr (Bt) 12.31 12.52 12.68 12.84 could result in lower-than-expected lease renewals and rental PE (X) 12.1 12.3 12.4 11.9 hikes. Distribution Yield (%) 6.9 7.0 7.3 7.6 P/NAV (x) 1.5 1.5 1.4 1.4 Aggregate Leverage (%) 6.5 5.7 4.8 4.0 At A Glance ROAE (%) 12.4 11.9 11.7 12.0 Issued Capital (m shrs) 530 Dist. Inc. Revision (%): - - - Mkt. Cap (Btm/US$m) 9,638 / 267 Consensus DPU (Bt): N/A N/A N/A Major Shareholders Other Broker Recs: B: 0 S: 0 H: 0 Rangsit Plaza Co Ltd (%) 33.3 Thai Tapioca Dev Institute (%) 5.7 Bangkok Bank Pcl (%) 5.3 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P Free Float (%) 55.7 3m Avg. Daily Val (US$m) 0.08 ICB Industry : Financials / Real Estate Investment Trusts
ASIAN INSIGHTS VICKERS SECURITIES www.dbsvickers.com ed: SGC / sa: CS
Company Guide Future Park Leasehold Property Fund
Net Property Income and Margins (%) Leverage & Asset Turnover (x) CRITICAL DATA POINTS TO WATCH Bt m 900 800 88.0% Earnings Drivers: 700 86.0% Traffic to remain healthy 600 84.0% Customer traffic has been increasing since 2006, except 500 400 82.0% during the heavy flooding in 2011 and 2013. Daily customer 300 80.0% count has risen from 122k in 2006 to 164k in 2014, and 200 78.0% peaked at 165k in 1Q15. However, traffic fell 10% q-o-q to 100 0 76.0% 148k in 2Q15 because of renovation work at Central’s mall 2013A 2014A 2015F 2016F 2017F Net Property Income Net Property Income Margin % and part of Robinson’s (total leasable area of 1,936 sqm) from 20 April to 30 September 2015. Customer count is Net Property Income and Margins (%) Capital Expenditure 50 84% expected to normalize to above 160k in 4Q15 and 2016. 45 83% 40 82% 35 81% Bridge construction will not affect earnings 30 80% Rangsit Plaza, the other owner of Future Park Rangsit mall, is 25 79% 20 78% closing FUTUREPF’s share of leasable area (1,336 sqm) in 15 77% order to construct a bridge to link the old building and the 10 76% 5 75% upcoming new phase. That is why occupancy rate at the main 0 74% area fell from 97% in 2014 to 92% in 2Q15. However, 2Q15 rental income (+1% y-o-y) was stable because of 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 Net Property Income Net Property Income Margin % compensation from Rangsit Plaza. Customer traffic (‘000 people) ROE (%)
Rental hikes to drive growth Following the economic slowdown and lackluster rate increases in 1Q15 (+4%) and 2Q15 (+1%), we conservatively forecast 2.2% rental hike for this year, 3.5% and 3.2% in FY16 and FY17, respectively, and 3% p.a. from FY18 onwards. Assuming occupancy rate is stable, total rental income would grow at the the same rate as rents.
Opportunity for rental reversion Of the total leasable area (59,986 sqm) of shopping space, 20% will see its leases expire in 2H15 and 40% in 2016. If Revenue Breakdown 2014 the economy grows strongly next year, the upcoming contract renewals might lead to higher-than-expected rental hike.
Upside to occupancy rate at common space FUTUREPF divides its leasable space into main area (56,986 sqm) and common area (8,514 sqm). The main area’s occupancy rate has been around 98% since 2011, and we expect it to be the same going forward. The occupancy rate for the common space was 85% in 2014, and we expect it to gradually improve to 90% in 2019. Currently vacant space in the common area leaves room for upside to our forecasts. Lease expiry (excluding common space)
Source: Company, DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 39 Company Guide
Future Park Leasehold Property Fund
Aggregate Leverage (%) Balance Sheet: As of end-2Q15, FUTUREPF had Bt450m debt, representing only 6.8% of NAV and 60% of FY15F net investment income. The fund is scheduled to repay Bt60m every year, so the debt will be fully repaid by 2022.
Share Price Drivers: High yield in the low-rate environment FUTUREPF is offering attractive 7.1-7.4% yields in FY15F- FY16F, compared to 2.65% yield for 10-year government
bonds and 3.6-3.9% dividend yield for stocks under DBS ROE (%) Thailand coverage (75% of the SET’s market cap). 12.0% Key Risks: 10.0%
Non-renewal of leases 8.0% Leases for 40% of the Fund’s leasable area will expire in 6.0% FY16. While we expect occupancy rate to be stable and rents to increase by 3.5% next year, the extended economic 4.0% slowdown could result in lower-than-expected lease 2.0%
renewals and rental hikes. 0.0% 2013A 2014A 2015F 2016F 2017F
COMPANY BACKGROUND Distribution Yield (%) FUTUREPF is a property fund and part owner of the lease to Future Park Rangsit, a shopping mall in Rangsit, Bangkok, Thailand. It collects rent from common (8,514 sqm) and shopping (59,986 sqm) areas with a remaining leasehold life of 27.5 years. The Fund has a solid track record of income growth; revenue grew at a 3-year average of 11.6% despite the political instability in FY14 (3.6% growth). Historically, FUTUREPF raises rents by 2.5%-3.7% per year.
Ninety-three percent of the leases (shopping space only) are
under fixed-rate rental contracts while the rest 7% is under Lease term (excluding common space) revenue-sharing scheme.
PB Band (x)
Source: Company, DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 40 Company Guide Future Park Leasehold Property Fund
Key Assumptions FY Dec 2013A 2014A 2015F 2016F 2017F
Leasable Area - main (Sqm) 56,906 56,986 56,986 56,986 56,986 Occupancy 98% 97% 98% 98% 98%
Leasable Area - common Occupancy(Sqm) 8,514 86% 8,514 85% 8,514 87% 8,514 87% 8,514 88%
Average rental rate 1,332 1,393 1,423 1,473 1,524 Growth(Bt/sqm/month) of rental rate 10.7% 4.5% 2.2% 3.5% 3.4% Rental revenue (Btm) 892 924 954 987 1,021
Income Statement (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Gross revenue 892 924 954 987 1,021 Property expenses (178) (173) (187) (193) (200) Net Property Income 713 751 767 794 821 Other Operating expenses (14) (14) (14) (15) (15) Other Non Opg (Exp)/Inc 11 11 11 11 11 Net Interest (Exp)/Inc (17) (15) (14) (11) (8) Exceptional Gain/(Loss) 117 64 31 0 0 Net Income 811 797 781 780 810 Tax 0 0 0 0 0 Asset revaluation gain Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Income After Tax 811 797 781 780 810 Total Return 811 797 781 780 810 Less: Non-cash gain (117) (64) (31) - - Net Inc available for Dist. 683 733 750 780 810 Growth & Ratio Revenue Gth (%) 10.7 3.6 3.3 3.5 3.4 N Property Inc Gth (%) 10.7 5.3 2.2 3.5 3.4 Net Inc Gth (%) 10.2 (1.7) (2.0) (0.2) 3.9 Dist. Payout Ratio (%) 91.8 90.2 90.0 90.0 90.0 Net Prop Inc Margins (%) 80.0 81.3 80.4 80.4 80.4 Net Income Margins (%) 91.0 86.3 81.9 79.0 79.3 Dist to revenue (%) 70.3 71.5 70.8 71.1 71.4 Managers & Trustee’s fees 1.5 1.5 1.5 1.5 1.5 to sales %) ROAE (%) 13.0 12.4 11.9 11.7 12.0 ROA (%) 11.3 10.9 10.6 10.5 10.9 ROCE (%) 10.3 10.6 10.8 11.1 11.4 Int. Cover (x) 41.7 48.9 54.1 72.7 107.2 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 41 Company Guide
Future Park Leasehold Property Fund
Quarterly / Interim Income Statement (Bt m) FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015
Gross revenue 226 233 236 236 228 Property expenses (41) (39) (49) (45) (43) Net Property Income 186 194 187 191 186 Other Operating expenses (4) (3) (4) (3) (4) Other Non Opg (Exp)/Inc 1 4 2 1 2 Net Interest (Exp)/Inc (4) (4) (3) (3) (3) Exceptional Gain/(Loss) 1 30 2 31 4 Net Income 181 221 184 216 185 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Net Income after Tax 181 221 184 216 185 Total Return 181 221 184 216 185 Non-tax deductible Items N/A N/A N/A N/A N/A Net Inc available for Dist. 180 191 182 186 181 Growth & Ratio Revenue Gth (%) (1) 3 1 0 (3) N Property Inc Gth (%) 1 4 (4) 2 (3) Net Inc Gth (%) (14) 22 (17) 17 (14) Net Prop Inc Margin (%) 82.1 83.2 79.2 81.1 81.3 Dist. Payout Ratio (%) 90.1 90.2 90.2 90.1 90.9
Balance Sheet (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Investment Properties 6,754 6,820 6,851 6,851 6,851 Other LT Assets N/A N/A N/A N/A N/A Cash & ST Invts 487 490 488 516 544 Inventory 0 0 0 0 0 Debtors 41 44 44 41 41 Other Current Assets 12 12 12 12 12 Total Assets 7,294 7,366 7,394 7,419 7,447
ST Debt 0 0 0 0 0 Creditor 62 25 25 25 25 Other Current Liab 350 372 351 351 351 LT Debt 510 450 390 330 270 Other LT Liabilities 0 0 0 0 0 Unit holders’ funds 6,372 6,519 6,629 6,713 6,801 Minority Interests 0 0 0 0 0 Total Funds & Liabilities 7,294 7,366 7,394 7,419 7,447
Non-Cash Wkg. Capital (359) (341) (320) (324) (324) Net Cash/(Debt) (23) 40 98 186 274 Ratio Current Ratio (x) 1.3 1.4 1.4 1.5 1.6 Quick Ratio (x) 1.3 1.3 1.4 1.5 1.6 Aggregate Leverage (%) 7.4 6.5 5.7 4.8 4.0 Z-Score (X) 0.0 0.0 0.0 0.0 0.0 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 42 Company Guide Future Park Leasehold Property Fund
Cash Flow Statement (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Income 811 797 781 780 810 Dep. & Amort. 0 0 0 0 0 Tax Paid 0 0 0 0 0 Associates &JV Inc/(Loss) 0 0 0 0 0 Chg in Wkg.Cap. (33) (18) (21) 4 0 Other Operating CF (117) (64) (31) 0 0 Net Operating CF 661 715 729 783 810 Net Invt in Properties (9) (2) 0 0 0 Other Invts (net) (161) (11) (30) (20) (20) Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 0 Other Investing CF 0 0 0 0 0 Net Investing CF (169) (13) (30) (20) (20) Distribution Paid (526) (650) (671) (695) (722) Chg in Gross Debt (60) (60) (60) (60) (60) New units issued 0 0 0 0 0 Other Financing CF 0 0 0 0 0 Net Financing CF (587) (710) (731) (755) (782) Currency Adjustments 0 0 0 0 0 Chg in Cash (95) (8) (33) 8 8
Operating CFPS (Bt) 1.3 1.4 1.4 1.5 1.5 Free CFPS (Bt) 1.2 1.3 1.4 1.5 1.5 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 43
Thailand Company Guide Impact Growth Real Estate Investment Trust
Edition 1 Version 1 | Bloomberg: IMPACT TB | Reuters: IMPACT.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 18 Sep 2015
BUY TAPPING ON A GROWING MICE MARKET Last Traded Price: Bt11.20 (SET : 1,381.72) Price Target : Bt12.00 (7% upside) Recommend BUY, Bt12 TP (DCF Valuation). The interim dividend declared for the first quarter of FY16 is Bt0.175/unit. Potential Catalyst: Increase in occupancy rate and strong potential This implies 6.3% annualised yield, which is much higher than growth current Thai 10-year government bond yields. And yield are Where we differ: n.a. forecast to rise along with net earnings, to 6.4% in FY16 and Analyst 6.6% in FY17. Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected] Nantika WIANGPHOEM +662 657 7836 Owns completed and freehold assets [email protected] The REIT owns the largest exhibition and convention assets in ASEAN region covering 66% market share in Thailand (at end Price Relative March). The REIT has right of first refusal to future assets Bt Relative Index developed by IMPACT and with its freehold rights over the assets, the REIT will enjoy benefit from assets appreciation in 12.6 206 12.1 186 the future. 11.6 166 11.1 146 10.6 Strong growth outlook 126 10.1 9.6 106 We expect growth to be driven by (i) revenues from a 9.1 86 diversified group of customers, (ii) the growing MICE (Meeting Sep-14 Dec-14 Mar-15 Jun-15 Impact Growth Real Estate Investment Trust (LHS) Incentive Convention and Exhibition) market, supported by Relative SET INDEX (RHS) higher domestic demand and the AEC initiative, and (iii) Forecasts and Valuation acquisition of new assets. FY Mar (Bt m) 2015A 2016F 2017F
Revenue 1,110 1,790 1,861 EBITDA 725 1,303 1,347 Accessibility by MRT pink line Pre-tax Profit 632 1,111 1,154 The MRT pink line (Khae Rai – Min Buri) will run past Mueng Net Profit 632 1,110 1,154 Thong Thani, where the REIT’s assets are located. This would Net Pft (Pre Ex.) 628 1,110 1,154 EPS (Bt) 0.43 0.75 0.78 drive access traffic, and in turn, boost asset value. EPS Pre Ex. (Bt) 0.42 0.75 0.78 EPS Gth (%) nm 76 4 Valuation: EPS Gth Pre Ex (%) nm 77 4 We value IMPACT at Bt12, based on DCF valuation. Diluted EPS (Bt) 0.42 0.75 0.78 Net DPS (Bt) 0.42 0.71 0.74 Key Risks to Our View: BV Per Share (Bt) 10.80 10.82 10.87 PE (X) 26.3 15.0 14.4 Key risk is a drop in occupancy rate at the REIT’s assets as a PE Pre Ex. (X) 26.5 15.0 14.4 result of a slower economy and political and safety issues. P/Cash Flow (X) nm 15.7 14.3 EV/EBITDA (X) 27.5 15.3 14.7 At A Glance Net Div Yield (%) 3.8 6.4 6.6 Issued Capital (m shrs) 1,483 P/Book Value (X) 1.0 1.0 1.0 Mkt. Cap (Btm/US$m) 16,604 / 461 Net Debt/Equity (X) 0.2 0.2 0.2 ROAE (%) N/A 6.9 7.2 Major Shareholders Impact Exhibition Management Co Ltd (%) 50.00 Earnings Rev (%): - - - Consensus EPS (Bt): N/A N/A N/A Social Security Office (%) 2.93 Other Broker Recs: B: 0 S: 0 H: 0 Ayudhya Allianz Cp Life Assur (%) 2.23 Free Float (%) 48.3 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P 3m Avg. Daily Val (US$m) 0.35 ICB Industry : Financials / Real Estate Investment Trusts
ASIAN INSIGHTS VICKERS SECURITIES www.dbsvickers.com ed: SGC / sa: CS
Company Guide Impact Growth Real Estate Investment Trust
CRITICAL DATA POINTS TO WATCH
Earnings Drivers: Higher occupancy rates. The REIT expects overall occupancy rate to improve to 58%-63% over the longer-term, driven by the growing MICE market, supported by higher domestic demand and the AEC initiative. Furthermore, the REIT is able to attract and retain customers because of its strategically- located assets with full facilities. IMPACT currently has 66% of the total MICE market share in Thailand (at end March). This indicates strong earnings growth ahead.
Higher ARR (Average Rental Rate). The management plans to raise rents for new leases and renewals by 4%-10% ARR depending on current rent, rental period, and other factors. The REIT’s diversified asset offering gives it flexibility to meet demand for a large range of meetings and exhibitions. Specifically, the REIT has a major competitive advantage in being able to offer the space for meetings and exhibitions that require a large area. The REIT is also targeting to grow the international customer segment because they can normally charge higher rental rates. Hence, we expect ARR to increase by 5%-7% y-o-y.
Cost-saving projects. The REIT is trying to keep cost of services at less than 15% of total service income (14.2% in 1Q15). This has led to several cost-saving initiatives that were implemented since last year, including switching to LED light bulbs, improving efficiency of the cooling tower. The REIT is Customer Segment breakdown for FY14/15 also considering solar panel installations in parking lots and TES (Thermal Energy System) to reduce electricity costs.
Acquisitions in 2016. The REIT will acquire three key assets in 2016 with a total value of Bt2.5-3bn: i) Novotel Bangkok IMPACT (380 rooms, occupancy rate 75-90%, average room rate Bt2,500/night); ii) The Geneva office building (50,000 sqm, occupancy rate c.85%, rent Bt280-340/sqm/month); and iii) indoor car park near the Geneva building. Furthermore, BLAND is constructing an IBIS hotel (587 rooms with average room rate of Bt1,000/night) which may be sold to the REIT when completed. These suggest strong earnings NAV growth from 2016 onwards.
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 45 Company Guide
Impact Growth Real Estate Investment Trust
Leverage & Asset Turnover (x) Balance Sheet: Investment properties accounted for 96% of total assets at the end of June. The properties will be revalued annually. The REIT has a strong balance sheet with a low leverage ratio of 0.24x at end June, represented by Bt3.9bn long-term loans. However, leverage could surge if the REIT decides to finance 2016 acquisitions with debt. Since incorporation, the fund has paid out an average of 96% of distributable earnings with total amount of Bt0.595 per unit, and the management plans to retain this.
Share Price Drivers: Improvement in overall occupancy rate. The REIT’s average ROE (%) occupancy rate is still not stable (55% in FY14, 49% in 1Q15) 7.0% and could miss its latest target of 58-63%. Hence, occupancy 6.0% rate will be a key revenue and earnings driver in the future. 5.0%
Key Risks: 4.0% Slowing economy, political turmoil and safety issues. These 3.0% could lead to lower occupancy rates at the REIT’s assets, 2.0% which would reduce investment income. 1.0%
0.0% 2016F 2017F COMPANY BACKGROUND IMPACT is one of Thailand’s leading property funds. The Forward PE Band (x) Fund has invested in IMPACT Muang Thong Thani, the largest exhibition and convention center in South East Asia, covering a total exhibition area of over 122,165 sqm. The REIT’s assets are i) IMPACT Arena, ii) IMPACT Forum, iii) IMPACT Exhibition Hall 1-8, and iv) IMPACT Challenger. Customers of the REIT can be split into three main segments: Public Sector, Domestic Private Sector and International Private Sector.
The REIT’s revenue is driven by occupancy rate which can be PB Band (x) affected by economic, political and safety issues, and rental rates. The REIT absorbs the operating expenses and the fund management fees and capital expenditures, but the REIT’s profit is exempted from tax. The REIT is able to acquire new assets in the future in accordance with regulations.
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 46 Company Guide Impact Growth Real Estate Investment Trust
Key Assumptions FY Mar 2013NA 2014NA 2015A 2016F 2017F
Occupancy rate (%) 54.6% 54.8% 54.8% 54.8% 54.8% Cost of services (%) 13.6% 13.6% 13.6% 13.6% 13.6% Fund management fee 15.2% 13.7% 14.2% 21.3% 22.9% (%)Dividend payout ratio 99% 95% 95% 95% 95% (%)
Income Statement (Bt m) FY Mar 2015A 2016F 2017F
Revenue 1,110 1,790 1,861 Cost of Goods Sold (151) (243) (253) Gross Profit 959 1,547 1,609 Other Opng (Exp)/Inc (237) (246) (265) Operating Profit 722 1,300 1,343 Other Non Opg (Exp)/Inc 3 3 3 Associates & JV Inc 0 0 0 Net Interest (Exp)/Inc (97) (193) (193) Exceptional Gain/(Loss) 4 0 0 Pre-tax Profit 632 1,111 1,154 Tax 0 0 0 Minority Interest 0 0 0 Preference Dividend 0 0 0 Net Profit 632 1,110 1,154 Net Profit before Except. 628 1,110 1,154 EBITDA 725 1,303 1,347 Growth Revenue Gth (%) N/A 61.3 4.0 EBITDA Gth (%) nm 79.9 3.3 Opg Profit Gth (%) nm 80.2 3.3 Net Profit Gth (Pre-ex) (%) nm 76.9 3.9 Margins & Ratio Gross Margins (%) 86.4 86.4 86.4 Opg Profit Margin (%) 65.0 72.7 72.2 Net Profit Margin (%) 56.9 62.0 62.0 ROAE (%) N/A 6.9 7.2 ROA (%) N/A 5.4 5.6 ROCE (%) N/A 6.5 6.7 Div Payout Ratio (%) 96.4 95.0 95.0 Net Interest Cover (x) 7.5 6.7 7.0 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 47 Company Guide
Impact Growth Real Estate Investment Trust
Quarterly / Interim Income Statement (Bt m) FY Mar 2Q2015 3Q2015 4Q2015 1Q2016
Revenue 4 561 545 497 Cost of Goods Sold (1) (78) (72) (71) Gross Profit 3 483 472 427 Other Oper. (Exp)/Inc (4) (91) (143) (116) Operating Profit 0 393 329 310 Other Non Opg (Exp)/Inc 1 1 1 1 Associates & JV Inc 0 0 0 0 Net Interest (Exp)/Inc 0 (48) (49) (47) Exceptional Gain/(Loss) 0 2 2 2 Pre-tax Profit 1 347 284 266 Tax 0 0 0 0 Minority Interest 0 0 0 0 Net Profit 1 347 284 266 Net profit bef Except. 1 345 282 264 EBITDA 1 394 330 311
Growth Revenue Gth (%) N/A 13,858.5 (2.9) (8.7) EBITDA Gth (%) nm 56,560.7 (16.2) (5.9) Opg Profit Gth (%) nm nm (16.2) (5.7) Net Profit Gth (Pre-ex) (%) nm 44,943.4 (18.5) (6.2) Margins Gross Margins (%) 86.7 86.1 86.7 85.8 Opg Profit Margins (%) (1.7) 70.0 60.4 62.4 Net Profit Margins (%) 19.1 61.9 52.1 53.5
Balance Sheet (Bt m) FY Mar 2015A 2016F 2017F
Net Fixed Assets 19,603 19,603 19,603 Invts in Associates & JVs 0 0 0 Other LT Assets 0 0 0 Cash & ST Invts 607 590 663 Inventory 0 0 0 Debtors 180 291 302 Other Current Assets 14 0 0 Total Assets 20,404 20,484 20,568
ST Debt 0 0 0 Creditor 79 0 0 Other Current Liab 335 541 562 LT Debt 3,900 3,900 3,895 Other LT Liabilities 84 0 0 Shareholder’s Equity 16,005 16,043 16,111 Minority Interests 0 0 0 Total Cap. & Liab. 20,404 20,483 20,568
Non-Cash Wkg. Capital (221) (250) (260) Net Cash/(Debt) (3,293) (3,310) (3,232) Debtors Turn (avg days) N/A 48.0 58.1 Creditors Turn (avg days) N/A 59.7 N/A Inventory Turn (avg days) N/A N/A N/A Asset Turnover (x) NM 0.1 0.1 Current Ratio (x) 1.9 1.6 1.7 Quick Ratio (x) 1.9 1.6 1.7 Net Debt/Equity (X) 0.2 0.2 0.2 Net Debt/Equity ex MI (X) 0.2 0.2 0.2 Capex to Debt (%) 0.0 0.0 0.0 Z-Score (X) NA NA NA
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 48 Company Guide Impact Growth Real Estate Investment Trust
Cash Flow Statement (Bt m) FY Mar 2015A 2016F 2017F
Pre-Tax Profit 632 1,111 1,154 Dep. & Amort. 0 0 0 Tax Paid 0 0 0 Assoc. & JV Inc/(loss) 0 0 0 Chg in Wkg.Cap. (18,355) (55) 10 Other Operating CF (4) 0 0 Net Operating CF (17,727) 1,056 1,164 Capital Exp.(net) 0 0 0 Other Invts.(net) (402) 0 0 Invts in Assoc. & JV 0 0 0 Div from Assoc & JV 0 0 0 Other Investing CF 0 0 0 Net Investing CF (402) 0 0 Div Paid (341) (1,073) (1,086) Chg in Gross Debt 3,900 0 (5) Capital Issues 15,715 0 0 Other Financing CF 0 0 0 Net Financing CF 19,274 (1,073) (1,090) Currency Adjustments 0 0 0 Chg in Cash 1,144 (17) 73 Opg CFPS (Bt) 0.4 0.7 0.8 Free CFPS (Bt) (12.0) 0.7 0.8 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 49
Thailand Company Guide LH Shopping Centers Leasehold
Edition 1 Version 1 | Bloomberg: LHSC TB | Reuters: LHSCu.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 18 Sep 2015
BUY MODERATE GROWTH POTENTIAL Last Traded Price: Bt10.40 (SET : 1,381.72) Price Target : Bt11.40 (10% upside) Recommend BUY, Bt10.4 TP (DCF valuation). LHREIT has declared Bt0.022/unit interim dividend for the first half of Potential Catalyst: Moderate earnings growth FY15. This implies 7.9% annualised yield, higher than the Where we differ: n.a. current Thai 10-year government bond yield of 3.0%. Yields are forecast to rise along with net earnings, to 7.0% in FY16 Analyst and 7.0% in FY17. Thailand Research Team +662 658 1222 Nantika WIANGPHOEM +662 657 7836 Prime location, easy accessibility [email protected] The REIT owns Terminal 21, a retail mall with 34,058 sqm of
leasable space, including the food court. The asset is located in the middle of a major business district (Asoke District) where Price Relative there are large office buildings and hotels. Terminal 21 is easily Bt Relative Index accessible by both MRT and BTS, which will continue to drive 11.6 204 traffic to the store. 184 11.1 164 10.6 144 Unique theme and proactive marketing 10.1 124 Terminal 21 differentiates itself from other malls with its 9.6 104
9.1 84 unique concept of offering shoppers the experience of Dec-14 Mar-15 Jun-15 LH Shopping Centers Leasehold (LHS) shopping in major cities around the world, all under one roof. Relative SET INDEX (RHS) They also have an attractive mix of retail and F&B offering to
Forecasts and Valuation attract both local customers and tourists. FY Dec (Bt m) 2014A 2015F 2016F 2017F Gross Revenue 26 1,036 1,048 1,056 Mild growth outlook Net Property Inc 13 442 447 450 Total Return 12 400 402 405 Occupancy is currently close to 98% of total leasable area. Distribution Inc 0 372 373 377 Hence, we expect growth to be mostly driven by positive rental EPU (Bt) 0.02 0.82 0.82 0.83 reversions and an increase in the share of variable rent EPU Gth (%) nm 3,242 0 1 DPU (Bt) 0.00 0.76 0.77 0.77 contracts (i.e. as a % of store turnover). DPU Gth (%) nm nm 0 1 NAV per shr (Bt) 10.22 10.28 10.34 10.40 Valuation: PE (X) 424.2 12.7 12.6 12.5 We value LHSC at Bt11.4, based on DCF valuation. Distribution Yield (%) 0.0 7.3 7.4 7.4 P/NAV (x) 1.0 1.0 1.0 1.0 Aggregate Leverage (%) 18.2 18.2 18.2 18.2 Key Risks to Our View: ROAE (%) N/A 8.0 8.0 8.0 Key risk is a drop in occupancy rate as a result of a slower economy and political and safety issues, and lower-than- Dist. Inc. Revision (%): - - - expected average rental rate. Consensus DPU (Bt): N/A N/A N/A Other Broker Recs: B: 0 S: 0 H: 0 At A Glance Issued Capital (m shrs) 488.06 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P Mkt. Cap (Btm/US$m) 4,978 / 138 Major Shareholders Land and Houses Pcl. (%) 9.0 GIC PRIVATE LIMITED (%) 6.0 Social Security Office (%) 6.0 Free Float (%) 72.9 3m Avg. Daily Val (US$m) 0.07 ICB Industry : Financials / Real Estate Investment Trusts
ASIAN INSIGHTS VICKERS SECURITIES www.dbsvickers.com ed: SGC / sa: CS
Company Guide LH Shopping Centers Leasehold
Net Property Income and Margins (%) Leverage & Asset Turnover (x) CRITICAL DATA POINTS TO WATCH ARR and Occupancy rate
Earnings Drivers: Higher ARR (Average Rental Rate). The leases are divided into two types: (i) fixed rate contracts which accounts for 85% of total rental income, and (ii) variable rate contracts which are mostly signed with the F&B and cinema operators. The fixed- rate contracts are normally for one to three years, with a rent review upon renewal. The variable-rate contracts are linked to the revenues generated by the lessees. We expect overall ARR to increase by 10% every three years.
High occupancy rates. The REIT’s portfolio occupancy rate is currently at 98% of total leasable space with 588 lessees. We expect occupancy rate to be stable or reach 100% in some Net Property Income and Margins (%) 0.35 0.2 months, because the convenient access and stylish interior 0.2 0.30 design of the property will attract both local customers and 0.2 0.25 0.2 0.2 tourists. Hence, earnings growth should remain relatively 0.20 0.2 0.15 stable in the near future. 0.1 0.10 0.1 0.1 0.05 Development in the surrounding area. The REIT’s asset is 0.1 0.00 0.1 located in one of Bangkok’s major business districts. It stands 2015F 2016F 2017F between office buildings, hotels, and condominiums. Given Gross Debt to Equity (LHS) Asset Turnover (RHS) easy access to the Asoke District, there are many property development projects, including condominiums and malls. These will drive traffic to the district, as well as Terminal 21, which suggests growth ahead. Net Property Income and Margins (%) Capital Expenditure Rent opportunity in common area. The REIT also has a NAV Btm common (1,600 sqm) available for rental for special events, 7,000.0 such as promotional product fairs that could run from a few 6,000.0 5,000.0 days to a month. If the REIT expands the common area, there 4,000.0 is a room for upside to our forecasts. 3,000.0 2,000.0 1,000.0 0.0 2014A 2015F 2016F 2017F Capital Expenditure (-)
Distribution Paid / Net Operating CF ROE (%) Area breakdown
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 51 Company Guide
LH Shopping Centers Leasehold
Aggregate Leverage (%) Balance Sheet:
Investment properties accounted for 90% of the REIT’s total 19.0% assets end June. The REIT’s leverage ratio is only 0.11x, 18.0% 17.0% represented by Bt1.1bn long-term loans. The low leverage, 16.0% indicates a strong balance sheet. The REIT has no plans to 15.0% acquire new assets in the near-term, which means net 14.0% 13.0% gearing will drop as the REIT starts to repay the loan. Since 12.0% incorporation in December 2014, the REIT payout has been 11.0% 10.0% c.90% of distributable earnings, or Bt0.022 per unit, implying 2014A 2015F 2016F 2017F 0.2% dividend yield (based on IPO price). The REIT will raise dividend payout ratio to 95% in the future. ROE (%) Share Price Drivers: 7.0% Higher ARR. The REIT’s occupancy is expected to be stable, or 6.0% reach 100% in some months. Hence, the key revenue and 5.0% earnings drivers would be the ability to increase ARR. 4.0%
Key Risks: 3.0% Political turmoil, safety issues and slowing economy. The 2.0% political and safety issues could lead to lower traffic at 1.0% Terminal 21, which could drive down occupancy rates. And 0.0% 2015F 2016F 2017F a slowing economy would make it challenging for the REIT to increase rents. These would reduce investment income. Distribution Yield (%)
COMPANY BACKGROUND 8.0% LH Shopping Centers Leasehold Real Estate Investment Trust 7.0% (LHSC) was founded in December 2014 with total registered 6.0% capital of Bt4.978bn. 5.0% 4.0% 3.0% LHSC has signed a 26-year lease agreement for Terminal 21, 2.0% the unique and stylish shopping mall covering an area of 1.0% 0.0% 97,905 sqm, comprising 34,058 sqm of leasable space, 2014A 2015F 2016F 2017F 34,584 sqm of common area, and 29,263 sqm of parking
space. The lease ends on 31 Aug 2040. PB Band (x) The REIT’s revenue is driven by occupancy and rental rates, which can be affected by economic, political and safety issues. The REIT absorbs all cost of services, operating expenses and fund management fees. The REIT’s profit is exempted from tax. The REIT can acquire new assets in the future in accordance with regulations.
Land and House PCL, GIC Private Limited and Social Security Office are the major unit shareholders with 9%, 6% and 6% stake, respectively.
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 52 Company Guide LH Shopping Centers Leasehold
Key Assumptions FY Dec 2014A 2015F 2016F 2017F
Net leasable area (sqm) 31,622 31,622 31,622 31,622 ARR (Bt/sqm/month) 1,760 2,112 2,112 2,112 Occupancy rate (%) 98% 98% 98% 98% Margin (%) 45% 37% 37% 37% Dividend payout ratio (%) 0% 93% 93% 93%
Income Statement (Bt m) FY Dec 2014A 2015F 2016F 2017F
Gross revenue 26 1,036 1,048 1,056 Property expenses (13) (594) (601) (606) Net Property Income 13 442 447 450 Other Operating expenses 0 (3) (3) (3) Other Non Opg (Exp)/Inc 0 2 2 2 Net Interest (Exp)/Inc (1) (40) (44) (44) Exceptional Gain/(Loss) 0 0 0 0 Net Income 12 400 402 405 Tax 0 0 0 0 Minority Interest 0 0 0 0 Preference Dividend 0 0 0 0 Net Income After Tax 12 400 402 405 Total Return 14 400 402 405 Non-tax deductible Items 0 0 0 0 Net Inc available for Dist. 14 400 402 405 Growth & Ratio Revenue Gth (%) N/A 3,811.5 1.2 0.7 N Property Inc Gth (%) nm 3,245.2 1.2 0.7 Net Inc Gth (%) nm 3,242.4 0.4 0.9 Dist. Payout Ratio (%) 0.0 93.0 93.0 93.0 Net Prop Inc Margins (%) 49.9 42.6 42.6 42.6 Net Income Margins (%) 45.2 38.6 38.3 38.4 Dist to revenue (%) 0.0 35.9 35.6 35.7 Managers & Trustee’s fees 1.6 0.3 0.3 0.3 to sales %) ROAE (%) N/A 8.0 8.0 8.0 ROA (%) N/A 6.0 6.0 6.0 ROCE (%) N/A 6.9 6.9 6.9 Int. Cover (x) 15.7 10.9 10.1 10.2 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 53 Company Guide
LH Shopping Centers Leasehold
Quarterly / Interim Income Statement (Bt m) FY Dec 4Q2014 1Q2015 2Q2015
Gross revenue 26 270 274 Property expenses (13) (153) (159) Net Property Income 13 117 115 Other Operating expenses 0 (3) (3) Other Non Opg (Exp)/Inc 0 0 0 Net Interest (Exp)/Inc (1) (10) (10) Exceptional Gain/(Loss) 0 0 0 Net Income 12 104 103 Tax 0 0 0 Minority Interest 0 0 0 Net Income after Tax 12 104 103 Total Return 12 104 103 Non-tax deductible Items 0 0 0 Net Inc available for Dist. 12 104 103 Growth & Ratio Revenue Gth (%) N/A 919 2 N Property Inc Gth (%) nm 784 (1) Net Inc Gth (%) nm 667 (1) Net Prop Inc Margin (%) 49.9 N/A 44.1 Dist. Payout Ratio (%) 0.0 0.0 181.0
Balance Sheet (Bt m) FY Dec 2014A 2015F 2016F 2017F
Investment Properties 5,942 5,942 5,942 5,942 Other LT Assets 0 0 0 0 Cash & ST Invts 509 533 561 590 Inventory 0 0 0 0 Debtors 8 27 27 27 Other Current Assets 225 225 225 225 Total Assets 6,684 6,726 6,755 6,783
ST Debt 0 0 0 0 Creditor 14 29 29 29 Other Current Liab 291 291 291 291 LT Debt 1,080 1,080 1,080 1,080 Other LT Liabilities 309 309 309 309 Unit holders’ funds 4,990 5,018 5,046 5,075 Minority Interests 0 0 0 0 Total Funds & Liabilities 6,684 6,726 6,755 6,783
Non-Cash Wkg. Capital (72) (68) (68) (68) Net Cash/(Debt) (571) (547) (519) (490) Ratio Current Ratio (x) 2.4 2.5 2.5 2.6 Quick Ratio (x) 1.7 1.8 1.8 1.9 Aggregate Leverage (%) 18.2 18.2 18.2 18.2 Z-Score (X) NA NA NA NA Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 54 Company Guide LH Shopping Centers Leasehold
Cash Flow Statement (Bt m) FY Dec 2014A 2015F 2016F 2017F
Pre-Tax Income 12 400 402 405 Dep. & Amort. 0 0 0 0 Tax Paid 0 0 0 0 Associates &JV Inc/(Loss) 0 0 0 0 Chg in Wkg.Cap. 381 (4) 0 0 Other Operating CF 0 0 0 0 Net Operating CF 393 396 401 405 Net Invt in Properties (5,942) 0 0 0 Other Invts (net) (389) 0 0 0 Invts in Assoc. & JV 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 Other Investing CF 0 0 0 0 Net Investing CF (6,331) 0 0 0 Distribution Paid 0 (372) (373) (377) Chg in Gross Debt 1,080 0 0 0 New units issued 4,978 0 0 0 Other Financing CF 0 0 0 0 Net Financing CF 6,058 (372) (373) (377) Currency Adjustments 0 0 0 0 Chg in Cash 120 24 28 28
Operating CFPS (Bt) 0.0 0.8 0.8 0.8 Free CFPS (Bt) (11.4) 0.8 0.8 0.8 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 55
Thailand Company Guide Prime Office Leasehold Property Fund
Edition 1 Version 1 | Bloomberg: POPF TB | Reuters: POPFu.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 18 Sep 2015
BUY ATTRACTIVE DIVIDEND YIELD Last Traded Price: Bt13.30 (SET : 1,381.72) Price Target : Bt14.00 (6% upside) BUY, Bt14.0 TP (DCF valuation). The Fund has declared Bt0.262/unit interim dividend for 2Q15; we are expecting Potential Catalyst: Rental rate hike and healthy occupancy rate 8.1% dividend yield for FY15F. This is higher than the current Where we differ: n.a. Thai 10-year government bond yield of 3.0% and dividend yield of 3.6% for DBS Thailand universe. And, yields will rise Analyst along with net earnings, to 8.3% in FY16 and 8.8% in FY17. Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected] Nantika WIANGPHOEM +662 657 7836 Diversified, prime location of assets [email protected] The Fund has leased three assets in different locations: (i) UBC
II Building in Prompong, (ii) Ploenchit Center Building in Ploenchit, and (iii) Bangna Tower. The diverse locations allow Price Relative the Fund to capture rising traffic in several areas and minimise Bt Relative Index asset concentration risk (to avoid income being disrupted at all 16.4 210 assets by a single event). This helps to generate stable income. 15.4 190 14.4 170 13.4 150 12.4 Convenient access 130 11.4 Both the UBC II Building and Ploenchit Center are located in 10.4 110 9.4 90 prime locations and accessible by BTS. And, Bangna Tower is 8.4 70 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 on Bangna – Trad Road, one of the main transportation routes for goods, and is only 20-km from Suvarnabhumi Airport. Prime Office LH Prop Fund (LHS) Relative SET INDEX (RHS) Consequently, traffic at these assets is supported by easy Forecasts and Valuation FY Dec (Bt m) 2014A 2015F 2016F 2017F access. Gross Revenue 689 922 964 1,019 Net Property Inc 481 665 679 715 Potential growth outlook Total Return 422 546 561 595 Portfolio occupancy has been sustainable at 96-99%, and Distribution Inc 395 546 561 595 EPU (Bt) 0.82 1.13 1.17 1.24 considering strong demand for the assets, the Fund expects EPU Gth (%) (21) 38 3 6 average rental rate to increase by 10-15% every three years. DPU (Bt) 1.04 1.08 1.11 1.17 DPU Gth (%) 2 3 3 6 Valuation: NAV per shr (Bt) 11.48 11.55 11.61 11.69 We value POPF at Bt14.0, based on DCF valuation. PE (X) 16.2 11.7 11.4 10.8 Distribution Yield (%) 7.8 8.1 8.3 8.8 P/NAV (x) 1.2 1.2 1.1 1.1 Key Risks to Our View: Aggregate Leverage (%) 7.4 7.3 6.9 6.5 Key risks are (i) a drop in occupancy rate, (ii) lower-than- ROAE (%) 8.4 9.8 10.1 10.6 expected average rental rate, and (iii) non-renewal of leases.
Dist. Inc. Revision (%): - - - At A Glance Consensus DPU (Bt): 1.06 1.10 N/A Other Broker Recs: B: 0 S: 0 H: 0 Issued Capital (m shrs) 482 Mkt. Cap (Btm/US$m) 6,406 / 178 Major Shareholders Source of all data: Company, DBS Vickers, Bloomberg Finance L.P Social Security Office (%) 19.3 SCB Life Assurance PCL (%) 8.8 MTLS (%) 4.3 Free Float (%) 67.6 3m Avg. Daily Val (US$m) 0.10 ICB Industry : Financials / Real Estate Investment Trusts
ASIAN INSIGHTS VICKERS SECURITIES www.dbsvickers.com ed: SGC / sa: CS
Company Guide Prime Office Leasehold Property Fund
Leverage & Asset Turnover (x) CRITICAL DATA POINTS TO WATCH Occupancy rate (%) Occupancy rate (%) 100 100 Earnings Drivers: 100 UBC II Ploenchit Center Bangna Tower Leasehold rights to three buildings in prime locations. They 99 98 98 98 98 98 98 are (i) UBC II Building in Prompong, (ii) Ploenchit Center 98 97 97 Building at Ploenchit, and (iii) Bangna Tower. The buildings 97 96 are located in prime areas and along the main roads leading 96 95 into and out of Bangkok, and register high average 95 occupancy rates of 96-99%. The remaining tenures of the 94 lease are 10 - 29 years, which means they will continue to 93 generate revenues for that period. And, the diversified 92 location of the assets reduces concentration risk. 1Q14 2Q14 3Q14 4Q14 1Q15
Healthy occupancy rate. The Fund’s portfolio occupancy rate ARR by property has been hovering at 96-99% of total leasable space in the past few years. The Fund expects occupancy rate to be stable Bt/sq.m. 800 717 because the convenient access and availability of full facilities 697 711 will continue to drive demand for the assets. 700 611 589 590 600 Average rental rate (ARR) hikes. ARR dropped in 4Q14 500 because the Fund had added Bangna Tower which commands lower ARR than the other two assets because of 400 location. However, the Fund will be able to raise rents 300 regularly because the assets are in prime locations. We expect 200 growth to come from positive rental reversion which would increase overall ARR by 10-15% every three years. 100 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
Strong facilities offering. The properties operated by the Fund Net Property Income and Margins (%) have full facilities, i.e. meeting rooms, catering rooms, fitness 0.4 800 Bt m 0.14 facilities, parking lots, etc. One of the largest advantages is 0.4 700 95.4% 0.12 sufficient parking lots for tenants and visitors; most of the 600 93.4% 0.10 0.3 0.08 other office buildings in the Central Business District are 500 91.4% 0.3 89.4% 0.06 facing a shortage of parking space. In addition, the Fund has 400 0.2 0.04 kept parking fees stable so far; this suggests room to raise 300 87.4% 0.2 0.02 fees (and income) when there is stronger demand for the 200 85.4% 0.00 0.1 parking lots. 100 83.4% 2013A 2014A 2015F 2016F 2017F 0 81.4% Gross Debt to Equity (LHS) Asset Turnover (RHS) 2013A 2014A 2015F 2016F 2017F Dividend payout assumptions. We assumed 92% - 100% Net Property Income Net Property Income Margin % dividend payout ratio throughout our forecast period to Capital Expenditure reflect its par value reduction plan, vs 79% - 113% historical NAV payout. Btm 1.0 Btm 0.9 NAV 0.8 6,000 5,594 5,529 5,563 0.7 0.6 5,000 0.5 0.4 3,818 3,875 0.3 4,000 0.2 0.1 0.0 3,000 2013A 2014A 2015F 2016F 2017F Capital Expenditure (-) 2,000
1,000
0 2015F 2016F 2017F
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 57 Company Guide
Prime Office Leasehold Property Fund
Aggregate Leverage (%) Balance Sheet: Investment properties accounted for 97% of the Fund’s total assets at end June. Total borrowings amount to Bt455m 7.0% 6.0% (long-term loan), implying low leverage at 0.08x. This 5.0% indicates a strong balance sheet and also complies with the 4.0% SEC’s property fund regulations. The Fund has no plans to 3.0% drawdown more loans. Hence, net gearing will improve as 2.0% the Fund repays the loan. 1.0% 0.0% 2013A 2014A 2015F 2016F 2017F Share Price Drivers: Strong growth in ARR. The Fund’s occupancy is expected to remain stable. Hence, the key revenue and earnings drivers ROE (%) would be the ability to increase ARR, resulting in higher 18.0% distribution and yields. 16.0% 14.0% 12.0% Key Risks: 10.0% Political unrest and slowing economy. Political unrest and a 8.0%
slowing economy would make it challenging for the Fund to 6.0%
increase rents, and could even drive down occupancy rates, 4.0% and in turn, rental income. 2.0% 0.0% 2013A 2014A 2015F 2016F 2017F
COMPANY BACKGROUND Prime Office Leasehold Property fund (POPF) was founded in EPU and DPU March 2011 and increased its capital in October 2014, EPU DPU Payout ratio 0.70 120% taking total registered capital to Bt5.03bn. 0.60 108% 110% 100% In March 2011, POPF had signed two agreements for 0.50 99% 96% 80% leasehold rights to (i) UBC II Building in Prompong covering a 0.40 79% leasable area of 33,798 sqm and (ii) Ploenchit Center 0.30 0.30 0.29 60% 0.30 0.28 0.28 0.26 0.26 0.26 0.22 0.24 Building in Ploenchit covering 42,845 sqm. And in October 40% 2014, the Fund signed another agreement for leasehold 0.20 rights to Bangna Tower in Bangna covering 43,466 sqm. 0.10 20% 0.00 0% The Fund’s revenues are determined by occupancy and 1Q14 2Q14 3Q14 4Q14 1Q15 rental rates, which can be affected by economic, political Source: Company, DBS Vickers and safety issues. The Fund absorbs operating expenses and fund management fees. The Fund’s profit is exempted from tax. The Fund cannot acquire anymore assets in accordance with the SEC’s regulations.
The major unit holders are Social Security Office, SCB Life Assurance PCL and Muangthai Leasing PCL with 19%, 9% and 3% stake, respectively.
ASIAN INSIGHTS VICKERS SECURITIES Page 58 Company Guide Prime Office Leasehold Property Fund
Key Assumptions FY Dec 2013A 2014A 2015F 2016F 2017F
Net leasable area (sqm) 76,695 125,184 125,184 125,184 125,184 ARR (Bt/sqm) 684 614 642 679 702 Occupancy rate (%) 99% 99% 98% 98% 98% Margin (%) 56% 58% 57% 57% 57% Dividend payout ratio 127% 95% 95% 95% 92% ARR(%) (Bt/sqm) 684 614 642 679 702
Income Statement (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Gross revenue 634 689 922 964 1,019 Property expenses (206) (209) (257) (285) (304) Net Property Income 428 481 665 679 715 Other Operating expenses (91) (97) (115) (117) (121) Other Non Opg (Exp)/Inc 8 10 11 12 12 Net Interest (Exp)/Inc 7 1 (15) (12) (11) Net Investment Income 353 395 546 561 595 Revaluation Gain 49 27 0 0 0 Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Income After Tax 401 422 546 561 595 Total Return 401 422 546 561 595 Non-tax deductible Items (49) (27) 0 0 0 Net Inc available for Dist. 353 395 546 561 595 Growth & Ratio Revenue Gth (%) N/A 8.7 33.7 4.6 5.7 N Property Inc Gth (%) nm 12.2 38.4 2.2 5.3 Net Inc Gth (%) nm 11.9 38.3 2.8 6.0 Dist. Payout Ratio (%) 99.5 127.3 95.0 95.0 95.0 Net Prop Inc Margins (%) 85.7 86.0 87.5 87.9 88.1 Net Income Margins (%) 55.6 57.3 59.2 58.2 58.4 Dist to revenue (%) 55.6 57.3 59.2 58.2 58.4 Managers & Trustee’s fees 14.3 14.0 12.5 12.1 11.9 to sales %) ROAE (%) 18.2 8.4 9.8 10.1 10.6 ROA (%) 17.1 7.5 8.6 8.8 9.3 ROCE (%) 17.4 7.8 9.1 9.3 9.8 Int. Cover (x) NM NM 37.6 45.2 53.1 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 59 Company Guide
Prime Office Leasehold Property Fund
Quarterly / Interim Income Statement (Bt m) FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015
Gross revenue 165 163 201 223 224 Property expenses (51) (54) (56) (48) (54) Net Property Income 113 109 146 175 170 Other Operating expenses (22) (22) (32) (31) (32) Other Non Opg (Exp)/Inc 2 2 4 3 4 Net Interest (Exp)/Inc 1 1 (3) (4) (5) Exceptional Gain/(Loss) 0 0 0 0 0 Net Income 95 91 114 143 138 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Net Income after Tax 95 91 114 143 138 Total Return 95 91 114 143 138 Non-tax deductible Items 0 0 0 0 0 Net Inc available for Dist. 95 91 114 143 138 Growth & Ratio Revenue Gth (%) 3 (1) 23 11 0 N Property Inc Gth (%) 1 (4) 34 20 (3) Net Inc Gth (%) 1 (5) 26 25 (4) Net Prop Inc Margin (%) 68.8 66.7 72.4 78.6 76.1 Dist. Payout Ratio (%) 94.1 113.3 92.4 88.8 91.7
Balance Sheet (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Investment Properties 0 0 0 0 0 Other LT Assets 3,863 6,182 6,182 6,182 6,182 Cash & ST Invts 241 81 95 100 110 Inventory 0 0 0 0 0 Debtors 22 48 64 67 71 Other Current Assets 1 39 39 39 39 Total Assets 4,127 6,351 6,380 6,388 6,402
ST Debt 0 0 0 0 0 Creditor 240 341 341 341 341 Other Current Liab 0 0 0 0 0 LT Debt 0 455 450 427 404 Other LT Liabilities 12 26 26 26 26 Unit holders’ funds 3,875 5,529 5,563 5,594 5,631 Minority Interests 0 0 0 0 0 Total Funds & Liabilities 4,127 6,351 6,380 6,388 6,402
Non-Cash Wkg. Capital (217) (254) (238) (235) (231) Net Cash/(Debt) 241 (374) (356) (327) (295) Ratio Current Ratio (x) N/A N/A N/A N/A N/A Quick Ratio (x) 1.1 0.4 0.5 0.5 0.5 Aggregate Leverage (%) 0.0 7.4 7.3 6.9 6.5 Z-Score (X) 0.0 0.0 0.0 0.0 0.0 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 60 Company Guide Prime Office Leasehold Property Fund
Cash Flow Statement (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Income 353 395 546 561 595 Dep. & Amort. 0 0 0 0 0 Tax Paid 0 0 0 0 0 Associates &JV Inc/(Loss) 0 0 0 0 0 Chg in Wkg.Cap. 0 0 0 0 0 Other Operating CF 200 (2,242) (16) (3) (4) Net Operating CF 552 (1,847) 530 558 591 Net Invt in Properties 0 0 0 0 0 Other Invts (net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 0 Other Investing CF 0 0 0 0 0 Net Investing CF 0 0 0 0 0 Distribution Paid (344) (373) (512) (530) (558) Chg in Gross Debt 0 455 (5) (23) (23) New units issued 0 1,606 0 0 0 Other Financing CF 0 0 0 0 0 Net Financing CF (344) 1,687 (517) (553) (581) Currency Adjustments 0 0 0 0 0 Chg in Cash 208 (159) 13 5 10
Operating CFPS (Bt) 1.6 (3.8) 1.1 1.2 1.2 Free CFPS (Bt) 1.6 (3.8) 1.1 1.2 1.2 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 61
Thailand Company Guide Samui Airport Property Fund
Edition 1 Version 1 | Bloomberg: SPF TB | Reuters: SPFu.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 18 Sep 2015
BUY OFFERING GENEROUS YIELDS Last Traded Price: Bt19.60 (SET : 1,381.72) Price Target : Bt21.40 (9% upside) (Prev Bt21.40) Reiterate BUY, Bt21.40 TP (DCF valuation). The fund offers generous dividend yield of 6.9% for 2015 (payable quarterly), Potential Catalyst: Strong recovery of Samui tourism a hefty premium over the Thai 10-year government bond yield Where we differ: n.a. of 2.65%. And the yields should rise to 7.4% in 2016 and 8.0% in 2017, in line with a recovering tourism industry on Analyst Samui. Unlike many other PFPOs and REITs which are now Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected] running at nearly full capacity, SPF is operating at below its full capacity, suggesting hefty upside potential.
A prime beneficiary of recovering tourism. SPF derives revenues Price Relative from departing passengers and incoming flights at Samui Bt Relative Index Airport. With politics getting calmer and martial law lifted in 22.0 April, we conservatively expect tourist arrivals to grow 5% in 20.0 204
18.0 184 2015, 7% each in 2016-2018, and 5% thereafter until 2036. 16.0 164 Note that despite the political uncertainty, SPF’s passenger 14.0 144 numbers still expanded at 7% CAGR over the last decade. 12.0 124
10.0 104 8.0 84 Clears key hurdle. Bangkok Airways (BA), the property Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 manager, had received approval from the Department of Civil Samui Airport Property Fund (LHS) Relative SET INDEX (RHS) Aviation to increase the maximum number of flights to Samui Forecasts and Valuation Airport from 36 to 50 effective November 2014. This should FY Dec (Bt m) 2014A 2015F 2016F 2017F remove earlier concerns about capacity. Gross Revenue 1,216 1,263 1,355 1,448 Net Property Inc 1,216 1,263 1,355 1,448 Total Return 1,178 1,231 1,323 1,415 Valuation: Distribution Inc 1,185 1,231 1,323 1,415 We value SPF at Bt21.40, based on the DCF model. EPU (Bt) 1.24 1.30 1.39 1.49 EPU Gth (%) (13) 5 7 7 Key Risks to Our View: DPU (Bt) 1.25 1.30 1.39 1.49 DPU Gth (%) 0 4 7 7 Key risk is a sharp drop in tourists to Samui. Nonetheless, NAV per shr (Bt) 11.03 11.04 11.07 11.09 downside risk is protected by annual revenue guarantee of PE (X) 15.8 15.1 14.1 13.2 Bt570m from Bangkok Airways, the Property Manager, which Distribution Yield (%) 6.4 6.6 7.1 7.6 suggests a dividend yield of 3.2% at current price. P/NAV (x) 1.8 1.8 1.8 1.8 Aggregate Leverage (%) 0.0 0.0 0.0 0.0 ROAE (%) 11.2 11.7 12.6 13.4 At A Glance Issued Capital (m shrs) 950 Dist. Inc. Revision (%): - - - Mkt. Cap (Btm/US$m) 18,620 / 517 Consensus DPU (Bt): 1.30 1.39 1.49 Major Shareholders Other Broker Recs: B: 2 S: 0 H: 0 Bangkok Airways (%) 25.0
GPF Startegic Investment Fund (%) 8.1 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P Ayudhya Allianz C.P. (%) 7.1 Free Float (%) 46.9 3m Avg. Daily Val (US$m) 0.31 ICB Industry : Real Estate / Real Estate Investment Trusts
ASIAN INSIGHTS VICKERS SECURITIES www.dbsvickers.com ed: SGC / sa: CT
Company Guide Samui Airport Property Fund
Monthly Passenger Volume and YoY Growth Leverage & Asset Turnover (x) CRITICAL DATA POINTS TO WATCH
Earnings Drivers: Compelling growth story. Unlike many other PFPOs and REITs which are now running at nearly full capacity, SPF is operating at below its full capacity. The fund has ample room to grow - current traffic is only 1.1m passengers per year compared to its maximum capacity of over 2m passengers at Samui Airport. In addition, Bangkok Airways (BA), the property manager, had received approval from the Department of Civil Aviation to increase the maximum number of flights to Samui Airport from 36 to 50 effective November 2014. This should remove earlier concerns over capacity. Monthly Flight Volume and YoY Growth Capital Expenditure
Recovering tourism industry. Despite the low season, passenger and flight volumes improved substantially in 2Q15 following the lifting of martial law in April. June traffic was most impressive, with passenger volume surging 11% y-o-y and flight volume 9%. The positive momentum should continue into the high tourist season on Samui in 3Q15. We conservatively expect passenger volume to grow 5% in 2015, and 7% each in 2016-2017. Note that despite the political uncertainty, SPF’s passenger numbers expanded at 7% CAGR over the last decade.
Increasing international passenger service charge. BA, the property manager, has secured the Department of Civil Revenue Is On The Rise ROE (%) Aviation (DCA) approval to raise passenger service charge (PSC) for international passengers at Samui Airport from Bt600 to Bt700. This was effective June 2015. Under the agreement with BA, SPF will get 20% of the increment and the rest will go to BA. SPF share of PSC is now Bt340 per passenger on international flight (from Bt320 earlier). Although the impact of the PSC hike is small, it will still lift revenues.
Rising number of flights in line with passenger growth. The average daily number of flights to Samui Airport is about 36 vs 50 flights maximum permitted currently. We expect the number of flights to continue to increase along with passenger numbers. Note that BA accounts for a large portion of flight volume at Samui Airport. Other airlines Passenger Breakdown include Thai Airways, Silk Air, and Firefly. BA currently flies directly to three international destinations from Samui, and back. These are Hong Kong, Singapore, and Kuala Lumpur. The company plans to increase flight frequency to these international destinations soon, while offering direct flights to new destinations in the medium to long term. These additional flights and services should help to support growth in the future.
Source: Company, DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 63 Company Guide
Samui Airport Property Fund
Distribution per Unit (Bt) Balance Sheet: Balance sheet is strong with net a cash position and virtually no debt. SPF has no operating expenses or capex, as these are borne by Bangkok Airways, the Property Manager. The fund has only annual fund expenses of about Bt40m. Hence, any increases in revenue would flow directly to the bottom line. The fund normally pays out 100% of cash profits every quarter. Such distribution has been risen steadily since its inception, in line with rising passenger and flight numbers. Despite the political unrest in 2014 which has led to military coup in May 2014, SPF managed to pay flat dividends as compared to 2013.
Share Price Drivers: ROE (%) Recovering tourism industry. Since the fund’s revenues and profits are tied directly to Samui tourism, the strong tourist 12.0% recovery will be a key driver of both earnings and share price. 10.0%
1Q and 3Q are normally high seasons for Samui tourism. 8.0%
6.0% Key Risks: Political unrest. Political unrest, like what happened in 2014 4.0% which led to the implementation of martial laws, will affect 2.0% tourist arrivals to Thailand including Samui Airport, and 0.0% 2013A 2014A 2015F 2016F 2017F hence, revenues of the fund.
Reliance on a single asset. SPF relies on a single asset to Distribution Yield (%) generate its revenues, which is Samui Airport, and tourism 8.0% on Samui. 7.5% 7.0% 6.5% COMPANY BACKGROUND 6.0% 5.5% SPF is one of Thailand's leading property funds. The Fund 5.0% invests in leasehold rights to operate Samui Airport for 30 4.5% 4.0% years (2006-2036). Bangkok Airways, the sponsor, has 3.5% 3.0% voluntarily agreed to retain at least 25% stake in the fund 2013A 2014A 2015F 2016F 2017F for 20 years in order to align its interests with the fund. BA
has 25.1% stake in the fund.
PB Band (x) SPF’s revenues correlate with the number of passengers and flights flying from and to Samui Airport, based on the following formula. All operating expenses and capital expenditure are borne by the operator, Bangkok Airways. This eliminates operating cost risks at the fund.
Revenue Sharing Passenger revenue (per departing passenger) - Domestic Bt300 - International Bt340
Flight revenue (per incoming flight) Source: Company, DBS Vickers - Cressna Bt5,000
- Dash 7 Bt10,000
- ATR72 Bt50,000
- Airbus/Boeing Bt80,000
ASIAN INSIGHTS VICKERS SECURITIES Page 64 Company Guide Samui Airport Property Fund
Key Assumptions
FY Dec 2013A 2014A 2015F 2016F 2017F
No. of passengers (m) 1.1 1.1 1.1 1.2 1.3 Growth 9.0% -1.6% 5.0% 7.0% 7.0% Sharing (Bt/pax) Domestic passengers 300.0 300.0 300.0 300.0 300.0 International passengers 320.0 320.0 330.0 340.0 340.0 Passenger rev (Btm) 332.2 326.7 348.0 377.5 403.9 Cabin factor 80% 80% 80% 80% 80% Operating hours/day 16.0 16.0 16.0 16.0 16.0 No. of flights p.a.: ATR 4,968 4,731 4,745 4,745 4,745 Political unrest, martial law Boeing/Airbus 7,991 8,146 8,475 9,254 10,088 in place Sharing: ATR (Bt/flight) 50,000 50,000 50,000 50,000 50,000 Boeing (Bt/flight) 80,000 80,000 80,000 80,000 80,000 Div. Payout 100% 100% 100% 100% 100% Margins Trend
Segmental Breakdown 116.0% FY Dec 2013A 2014A 2015F 2016F 2017F 111.0% Revenues (Bt m) Passenger revenue 332 327 348 378 404 106.0% Flight revenue ATR 248 237 237 237 237 101.0% Boeing 639 652 678 740 807 96.0% Total flight revenue 888 888 915 978 1,044 Total revenue 1,220 1,215 1,263 1,355 1,448 91.0% 2013A 2014A 2015F 2016F 2017F Revenue breakdown Operating Margin % Net Income Margin % Passenger revenue 27% 27% 28% 28% 28% Flight revenue ATR 20% 19% 19% 18% 16% Boeing 52% 54% 54% 55% 56% Total flight revenue 73% 73% 72% 72% 72% Total revenue 100% 100% 100% 100% 100%
Income Statement (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Gross revenue 1,221 1,216 1,263 1,355 1,448 Martial law lifted in Apr Property expenses 0 0 0 0 0 2015 Net Property Income 1,221 1,216 1,263 1,355 1,448 Other Operating expenses (38) (40) (41) (42) (43) Other Non Opg (Exp)/Inc 0 0 0 0 0 Net Interest (Exp)/Inc 9 9 9 10 10 Exceptional Gain/(Loss) 168 (7) 0 0 0 Net Income 1,359 1,178 1,231 1,323 1,415 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Income After Tax 1,359 1,178 1,231 1,323 1,415 Total Return 1,359 1,178 1,231 1,323 1,415 Non-tax deductible Items (168) 7 0 0 0 Net Inc available for Dist. 1,191 1,185 1,231 1,323 1,415 Growth & Ratio Revenue Gth (%) 8.3 (0.4) 3.9 7.3 6.9 N Property Inc Gth (%) 8.3 (0.4) 3.9 7.3 6.9 Net Inc Gth (%) 37.6 (13.3) 4.5 7.4 7.0 Dist. Payout Ratio (%) 99.7 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 96.9 96.7 96.8 96.9 97.0 Net Income Margins (%) 111.3 96.9 97.5 97.6 97.7 Dist to revenue (%) 97.6 97.5 97.5 97.6 97.7 Managers & Trustee’s fees 3.1 3.3 3.2 3.1 3.0 to sales %) ROAE (%) 13.1 11.2 11.7 12.6 13.4 ROA (%) 13.0 11.2 11.7 12.5 13.4 ROCE (%) 11.3 11.2 11.6 12.4 13.3 Int. Cover (x) NM NM NM NM NM Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 65 Company Guide
Samui Airport Property Fund
Quarterly / Interim Income Statement (Bt m) FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015
Gross revenue 286 319 277 326 306 Property expenses 0 0 0 0 0 Net Property Income 286 319 277 326 306 Other Operating expenses (10) (10) (10) (10) (10) Other Non Opg (Exp)/Inc 0 0 0 0 0 Net Interest (Exp)/Inc 2 2 2 2 2 Exceptional Gain/(Loss) 26 18 10 (58) (28) Net Income 304 329 279 260 269 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Net Income after Tax 304 329 279 260 269 Total Return N/A N/A N/A N/A N/A Non-tax deductible Items N/A N/A N/A N/A N/A Net Inc available for Dist. N/A N/A N/A N/A N/A Growth & Ratio Revenue Gth (%) (15) 12 (13) 18 (6) N Property Inc Gth (%) (15) 12 (13) 18 (6) Net Inc Gth (%) 14 8 (15) (7) 3 Net Prop Inc Margin (%) 100.0 100.0 100.0 100.0 100.0 Dist. Payout Ratio (%) N/A N/A N/A N/A N/A
Balance Sheet (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Investment Properties 10,182 10,175 10,175 10,175 10,175 Other LT Assets 366 364 364 364 364 Cash & ST Invts 3 3 14 37 60 Inventory 0 0 0 0 0 Debtors 0 0 0 0 0 Other Current Assets 0 0 0 0 0 Total Assets 10,552 10,542 10,553 10,576 10,599
ST Debt 0 0 0 0 0 Creditor 0 0 0 0 0 Other Current Liab 0 0 0 0 0 LT Debt 0 0 0 0 0 Other LT Liabilities 62 61 61 61 61 Unit holders’ funds 10,490 10,481 10,492 10,515 10,538 Minority Interests 0 0 0 0 0 Total Funds & Liabilities 10,552 10,542 10,554 10,576 10,599
Non-Cash Wkg. Capital 0 0 0 0 0 Net Cash/(Debt) 3 3 14 37 60 Ratio No borrowings Current Ratio (x) N/A N/A N/A N/A N/A Quick Ratio (x) N/A N/A N/A N/A N/A Aggregate Leverage (%) 0.0 0.0 0.0 0.0 0.0 Z-Score (X) 273.9 273.6 273.5 0.0 NA Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 66 Company Guide Samui Airport Property Fund
Cash Flow Statement (Bt m) FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Income 1,359 1,178 1,231 1,323 1,415 Dep. & Amort. 0 0 0 0 0 Tax Paid 0 0 0 0 0 Associates &JV Inc/(Loss) 0 0 0 0 0 Chg in Wkg.Cap. (4) 3 (1) 0 0 Other Operating CF (168) 7 0 0 0 Net Operating CF 1,188 1,188 1,230 1,323 1,415 Net Invt in Properties 0 0 0 0 0 Other Invts (net) (24) (1) 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 0 Other Investing CF 0 0 0 0 0 Net Investing CF (24) (1) 0 0 0 Distribution Paid (1,173) (1,188) (1,220) (1,300) (1,392) Chg in Gross Debt 0 0 0 0 0 New units issued 0 0 0 0 0 Other Financing CF 0 0 0 0 0 No capex Net Financing CF (1,173) (1,188) (1,220) (1,300) (1,392) Currency Adjustments 0 0 0 0 0 Chg in Cash (10) 0 11 23 23
Operating CFPS (Bt) 1.3 1.2 1.3 1.4 1.5 Free CFPS (Bt) 1.3 1.3 1.3 1.4 1.5 Source: Company, DBS Vickers
Target Price & Ratings History
20.55 Bt Closing Ta rge t 20.05 S.No. Da te Ra ting Pric e Pric e 19.55 1: 10 Mar 15 17.40 19.50 Buy 2: 20 Apr 15 17.40 18.80 Buy 19.05 6 3: 15 May 15 17.70 18.80 Buy 4: 21 May 15 17.70 18.90 Buy 18.55 5 5: 22 Jul 15 18.70 21.40 Buy 18.05 4 6: 25 Aug 15 18.60 21.40 Buy 2 17.55 3 17.05 1
16.55
16.05 Sep-14 Jan-15 May-15
Note : Share price and Target price are adjusted for corporate actions.
Source: DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 67 Thailand Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund Edition 1 Version 1 | Bloomberg: TLGF TB | Reuters: TLGFu.BK Refer to important disclosures at the end of this report DBS Group Research . Equity 18 Sep 2015
BUY DECENT YIELDS Last Traded Price: Bt13.20 (SET : 1,381.72) Price Target : Bt15.10 (14% upside) Maintain BUY rating, with Bt15.10 TP based on DCF valuation. TLGF is offering decent distribution yield of 6.0% (FY16F), Potential Catalyst: Strong rental reversion, Convets to a REIT payable quarterly. We have conservatively assumed 95% Where we differ: n.a. payout ratio in our projections vs 100% historical payout. The fund invests in freehold and leasehold rights to 23 successful Analyst malls that are strategically located throughout Thailand, thus Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected] reducing concentration risks. These malls currently enjoy high occupancy rate of 99%.
Net investment income to surge this year. The main contracts Price Relative with anchor tenant Tesco Lotus, which cover 58% of total Bt Relative Index lettable area and account for 28% of revenues, are subject to 221 16.4 10% rental reversion this year. And, 648 other contracts (non- 201 15.4 181 Tesco Lotus) covering 30,312 sqm or 9% of total lettable area 14.4 161 13.4 are expiring in FY16 and subject to renewals at 5% higher 12.4 141 rents, at least. 11.4 121
10.4 101 9.4 81 Mulling conversion to a REIT. TLGF is still awaiting the SEC’s Mar-12 Mar-13 Mar-14 Mar-15 Tesco Lotus Retail Growth Freehold and Leasehold Property Fund (LHS) regulations on transaction costs to transfer assets from a Relative SET INDEX (RHS) property fund to a REIT. The fund’s current borrowing is Forecasts and Valuation Bt2.6bn, representing 9.8% of total assets, slightly below its FY Feb (Bt m) 2014A 2015A 2016F 2017F 10% ceiling. Tesco Lotus has granted right of first refusal to Gross Revenue 2,414 2,736 2,907 3,009 Net Property Inc 2,057 2,302 2,453 2,532 TLGF to acquire its existing and future malls. The successful Total Return 1,762 1,877 1,976 2,136 conversion to a REIT structure would allow the fund/REIT to Distribution Inc 1,783 1,888 1,890 1,953 borrow more for future acquisitions and rely less on equity EPU (Bt) 0.75 0.80 0.85 0.91 EPU Gth (%) 17 7 5 8 financing. This should lift distribution per unit and yields. DPU (Bt) 0.76 0.81 0.81 0.84 Tesco Lotus has a lot of potential assets that can be injected DPU Gth (%) 10 6 0 3 into the REIT in the future. NAV per shr (Bt) 11.25 11.24 11.28 11.36 PE (X) 17.5 16.4 15.6 14.4 Valuation: Distribution Yield (%) 5.8 6.1 6.1 6.3 P/NAV (x) 1.2 1.2 1.2 1.2 We value TLGF at Bt15.10 based on DCF valuation. Aggregate Leverage (%) 8.1 9.1 9.1 9.1 ROAE (%) 6.7 7.1 7.5 8.1 Key Risks to Our View: Key risks are (i) lower-than-expected rental reversion, and (ii) Dist. Inc. Revision (%): - - - Consensus DPU (Bt): N/A N/A N/A weaker-than-expected occupancy rate. Other Broker Recs: B: 4 S: 0 H: 1 At A Glance Issued Capital (m shrs) 2,337 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P Mkt. Cap (Btm/US$m) 30,852 / 856 Major Shareholders Ek-Chai Distribution System (%) 25.0 The Government Pension Fund (PI-NON- 8.2 PHYSICAL)The Bank (%) Of New York (Nominees) Limited (%) 7.2 Free Float (%) 59.7 3m Avg. Daily Val (US$m) 0.46 ICB Industry : Real Estate / Real Estate Investment Trusts
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Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund
Revenue Breakdown (1Q15/16) (%) Leverage & Asset Turnover (x)
CRITICAL DATA POINTS TO WATCH
Earnings Drivers: Portfolio of 23 shopping malls in good locations throughout Thailand, most of which are freehold assets. Freehold assets represent 60% of TLGF’s total leasable area of 336,291 sqm, and 77% of the appraised value of the assets. These are successful malls in good locations with 99% average occupancy rate. 12 of the malls are located in Bangkok and 11 in the provinces. The geographical diversification helps to reduce concentration risks. With a lot of the assets being freehold and in good locations, the fund stands to benefit Rental Reversion (%) from future capital appreciation.
Proven track record, average 99% occupancy. Tesco Lotus is the largest anchor tenant, occupying 58% of the fund’s leasable area and generating 28% of revenue.
Growth drivers. We expect growth to come from rental reversion (+estimated at 5.0% p.a. for non-Tesco Lotus space) and acquisitions. History suggests the fund had been increasing rents by 8.0-20.0% upon lease renewal for non- Tesco Lotus space. The contracts with Tesco Lotus are for a period of 10 years and renewable automatically for two terms of 10 years each (total 30 years). Rents are raised by 10% every three years. The main contracts with Tesco Lotus Net Property Income and Margins (%) are subject to 10% rental reversion this year. Bt m 2,500 91.9% 2,000 Mulling conversion to REIT. TLGF is still awaiting the SEC’s 89.9% regulations on the transaction costs involved to transfer the 1,500 87.9% assets to a REIT. The fund’s current borrowing is Bt2.6bn, 85.9% 1,000 representing 9.8% of its net asset value, slightly below its 83.9% 500 10% ceiling. Tesco Lotus has granted right of first refusal to 81.9% TLGF to acquire its existing and future malls. The successful 0 79.9% 2013A 2014A 2015A 2016F 2017F conversion to a REIT structure would allow the fund/REIT to Net Property Income Net Property Income Margin % borrow more for future acquisitions and rely less on equity Net Property Income and Margins (%) Capital Expenditure financing. This should lift distribution per unit and yields. 50 88% 45 Tesco Lotus has a lot of potential assets that can be injected 87% 40 35 into the REIT in the future; it operates 133 malls in Thailand 86% (including the 23 malls under TLGF), and is building more. 30 25 85% 20 84% Dividend payout assumptions. We currently assume 95% 15 10 83% dividend payout ratio in our projections vs 100% payout 5 historically. This reflects the current net gearing which has 0 82% hit the ceiling, suggesting the fund needs to reserve cash for 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 any capital expenditure that may arise. Net Property Income Net Property Income Margin % Distribution Paid / Net Operating CF ROE (%) (x) 0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2 2013A 2014A 2015A 2016F 2017F
Source: Company, DBS Vickers ASIAN INSIGHTS VICKERS SECURITIES Page 69 Company Guide
Tesco Lotus Retail Growth Freehold and Leasehold Property Fund
Aggregate Leverage (%) Balance Sheet: Total borrowings amounted to Bt2.6bn, representing 9.8% of 9.0% its net asset value at end-1Q16. 8.0% 7.0% 6.0% Share Price Drivers: 5.0% Strong rental reversion. Strong rental reversion could lift 4.0% 3.0% rental income and distribution per unit. 2.0% 1.0% 0.0% Converting to a REIT. The successful conversion would mean 2013A 2014A 2015A 2016F 2017F the REIT can gear up more. It will then rely less on equity financing. This should lift DPU and yields. ROE (%) 8.0% Key Risks: 7.0% Political unrest & slowing economy 6.0% Political unrest and a slowing economy could hurt consumer 5.0% confidence and delay spending, and in turn affect the 4.0% potential for rental rate hikes. 3.0% 2.0% Acquisition growth stalled unless the fund converts to a REIT 1.0% All property funds, including TLGF, can no longer increase 0.0% 2014A 2015A 2016F 2017F capital to acquire additional assets. To be able to grow the fund size, the fund needs to be converted to a REIT. But that cannot be done until the SEC finalises further details, such Distribution Yield (%)
as transaction costs. 8.0%
7.0% Losing key anchor tenant 6.0% Anchor tenant Tesco Lotus does not renew its contracts. 5.0%
4.0%
3.0% COMPANY BACKGROUND 2.0% TLGF is a property fund that invests in freehold and 2013A 2014A 2015A 2016F 2017F leasehold rights to 23 retail shopping malls in Thailand, with
Tesco Lotus as a key anchor tenant. PB Band (x) Ek-Chai Distribution System Co., Ltd. (Tesco Lotus) is the sponsor, major unit holder with 25% stake, and the Property Manager of the Fund.
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 70 Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund
Key Assumptions FY Feb 2013A 2014A 2015A 2016F 2017F
Leasable area (sqm) 312,438 314,097 334,453 336,453 336,453 Occupancy 99% 99% 99% 99% 99% Occupied area (sqm) 309,648 312,019 332,108 334,074 334,074 Rents (bt/sqm/month) 479 645 680 725 751 Total rents (Btm) 1,778 2,414 2,708 2,907 3,009 Dividend payout 100% 100% 100% 95% 95%
Segmental Breakdown FY Feb 2013A 2014A 2015A 2016F 2017F
Revenues (Bt m) Hypermarkets & food court 587 771 790 869 869 Assuming 95% payout Long-term lease 925 1,300 1,555 1,657 1,740 ratio vs historical 100% Short-term lease 249 323 342 360 377 payout Others 18 20 21 22 23 Total 1,778 2,414 2,708 2,907 3,009 Revenue Breakdown Hypermarkets & food court 33% 32% 29% 30% 29% Long-term lease 52% 54% 57% 57% 58% Short-term lease 14% 13% 13% 12% 13% Others 1% 1% 1% 1% 1% Total 100% 100% 100% 100% 100% Growth Hypermarkets & food court 31% 2% 10% 0% Long-term lease 41% 20% 7% 5% Short-term lease 30% 6% 5% 5% Others 10% 5% 5% 5% Total 36% 12% 7% 4%
Income Statement (Bt m) FY Feb 2013A 2014A 2015A 2016F 2017F
Gross revenue 1,779 2,414 2,736 2,907 3,009 Property expenses (275) (357) (435) (454) (477) Net Property Income 1,503 2,057 2,302 2,453 2,532 Other Operating expenses (301) (459) (497) (404) (326) Other Non Opg (Exp)/Inc 12 17 1 1 1 Net Interest (Exp)/Inc 17 13 (68) (74) (72) Exceptional Gain/(Loss) 12 134 139 0 0 Net Income 1,243 1,762 1,877 1,976 2,136 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Income After Tax 1,243 1,762 1,877 1,976 2,136 Total Return 1,243 1,762 1,877 1,976 2,136 Non-tax deductible Items (538) 0 0 0 0 Net Inc available for Dist. 1,346 1,783 1,888 1,990 2,056 Growth continues to come Growth & Ratio from rental reversion Revenue Gth (%) N/A 35.7 13.3 6.2 3.5 N Property Inc Gth (%) nm 36.8 11.9 6.6 3.2 Net Inc Gth (%) nm 41.8 6.6 5.3 8.1 Dist. Payout Ratio (%) 99.8 100.0 100.0 95.0 95.0 Net Prop Inc Margins (%) 84.5 85.2 84.1 84.4 84.2 Net Income Margins (%) 69.9 73.0 68.6 68.0 71.0 Dist to revenue (%) 75.7 73.8 69.0 65.0 64.9 Managers & Trustee’s fees 7.3 9.5 9.8 10.7 10.8 to sales %) ROAE (%) N/A 6.7 7.1 7.5 8.1 ROA (%) N/A 6.3 6.4 6.7 7.2 ROCE (%) N/A 5.8 6.3 7.1 7.6 Int. Cover (x) NM NM 26.5 27.8 30.8 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 71 Company Guide
Tesco Lotus Retail Growth Freehold and Leasehold Property Fund
Quarterly / Interim Income Statement (Bt m) FY Feb 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016
Gross revenue 677 688 679 693 708 Property expenses (90) (93) (90) (101) (101) Net Property Income 587 595 589 592 607 Other Operating expenses (119) (120) (121) (138) (92) Other Non Opg (Exp)/Inc 0 1 0 0 0 Net Interest (Exp)/Inc (21) (21) (21) (22) (22) Exceptional Gain/(Loss) (0) 0 76 64 (1) Net Income 429 440 508 483 478 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Net Income after Tax 429 440 508 483 478 Total Return 429 440 508 483 478 Non-tax deductible Items 38 38 (38) (28) 18 Net Inc available for Dist. 467 478 471 455 496 Growth & Ratio Revenue Gth (%) 8 2 (1) 2 2 N Property Inc Gth (%) 10 1 (1) 1 3 Net Inc Gth (%) nm nm nm nm nm Net Prop Inc Margin (%) 86.7 86.5 86.8 85.5 85.7 Gain (loss) from asset revaluation Dist. Payout Ratio (%) N/A N/A N/A N/A N/A
Balance Sheet (Bt m) FY Feb 2013A 2014A 2015A 2016F 2017F
Investment Properties 24,964 27,469 28,043 28,153 28,263 Other LT Assets 716 593 473 380 380 Cash & ST Invts 1,072 1,029 1,070 1,010 1,113 Inventory 0 0 0 0 0 Debtors 0 0 0 0 0 Other Current Assets 0 0 0 0 0 Total Assets 26,752 29,091 29,586 29,543 29,755
ST Debt 0 0 0 0 0 Creditor 0 0 0 0 0 Other Current Liab 433 510 719 581 595 Net gearing close to LT Debt 0 2,284 2,591 2,600 2,600 10% limit Other LT Liabilities 0 0 0 0 0 Unit holders’ funds 26,319 26,298 26,276 26,362 26,560 Minority Interests 0 0 0 0 0 Total Funds & Liabilities 26,752 29,091 29,586 29,542 29,755
Non-Cash Wkg. Capital (433) (510) (719) (581) (595) Net Cash/(Debt) 1,072 (1,255) (1,521) (1,590) (1,487) Ratio Current Ratio (x) 2.5 2.0 1.5 1.7 1.9 Quick Ratio (x) 2.5 2.0 1.5 1.7 1.9 Aggregate Leverage (%) 0.0 8.1 9.1 9.1 9.1 Z-Score (X) 58.6 27.4 26.1 26.4 26.2 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 72 Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund
Cash Flow Statement (Bt m) FY Feb 2013A 2014A 2015A 2016F 2017F
Pre-Tax Income 1,243 1,762 1,877 1,976 2,136 Dep. & Amort. 170 230 230 94 0 Tax Paid 0 0 0 0 0 Associates &JV Inc/(Loss) 0 0 0 0 0 Chg in Wkg.Cap. (12) (134) (139) 0 0 Other Operating CF 108 34 167 (61) 90 Net Operating CF 1,509 1,892 2,134 2,009 2,226 Net Invt in Properties (25,416) (2,372) (435) (110) (110) Other Invts (net) 0 12 8 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 0 Other Investing CF (55) (76) (76) (76) (76) Net Investing CF (25,471) (2,435) (504) (186) (186) Distribution Paid (877) (1,783) (1,900) (1,890) (1,937) Chg in Gross Debt 0 2,284 308 9 0 New units issued 25,442 0 0 0 0 Other Financing CF 0 0 0 0 0 Net Financing CF 24,565 501 (1,592) (1,881) (1,937) Currency Adjustments 0 0 0 0 0 Chg in Cash 603 (43) 39 (58) 102
Operating CFPS (Bt) 0.8 0.9 1.0 0.9 1.0 Free CFPS (Bt) (12.4) (0.2) 0.7 0.8 0.9 Source: Company, DBS Vickers
Target Price & Ratings History
14.59 Bt Closing Ta rge t S.No. Da te Ra ting 14.09 Pric e Pric e 4 1: 19 Jan 15 13.00 15.10 Buy 2 2: 01 Apr 15 13.50 15.10 Buy 13.59 3: 06 May 15 13.50 15.10 Buy 3 4: 15 Jul 15 13.70 15.10 Buy 13.09
1 12.59
12.09
11.59 Sep-14 Jan-15 May-15
Note : Share price and Target price are adjusted for corporate actions.
Source: DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 73
Thailand Company Guide TICON Industrial Growth Leasehold Property Fund
Edition 1 Version 1 | Bloomberg: TGROWTH TB | Reuters: TGROWTHu.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 18 Sep 2015
BUY RESILIENT INDUSTRIAL SPACE LESSOR Last Traded Price: Bt12.20 (SET : 1,381.72) Price Target : Bt12.90 (6% upside) BUY with DCF-based TP of Bt12.90. Amid the low-interest- rate environment, the fund offers attractive annual yield of Potential Catalyst: Strong economic recovery and rental hike c.8% over the next three years, higher than the current 2.65% Where we differ: N/A yield for Thai government bonds and 3.6% yield for stocks under DBS coverage. It has a solid track record of healthy Analyst occupancy rates and offers 16% total return (price upside + Wasu Mattanapotchanart +662 658 7826 [email protected] dividend yield) at the current market price.
Withstanding the economic slowdown. While the occupancy rates at other property funds under Price Relative TICON are in the range of 71-76% and declining because of Bt Relative Index
13.7 218 the slower economy, TGROWTH has been resilient. Its 198 12.7 occupancy rate had bottomed out at 93% in 2H14 and has 178 11.7 158 rebounded to 96% in 1H15, close to its peak of 98-100% in 10.7 138 2013 and early 2014. We estimate occupancy rate at 9.7 118 96%/97%/95% for FY15/16/17. 8.7 98
7.7 78 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Valuation: TICON Industrial Growth Leasehold Property Fund (LHS) Relative SET INDEX (RHS) We value TGROWTH at Bt12.90, based on DCF valuation
Forecasts and Valuation (WACC: 7.1%, Terminal Value of Bt0 at the end of 2043). FY Dec (Bt m) 2014A 2015F 2016F 2017F Gross Revenue 593 601 624 625 Key Risks to Our View: Net Property Inc 534 543 562 563 Economic slowdown and high-household-debt-to-GDP ratio Total Return 531 523 541 544 (c.85%) could result in extended weak automotive sales in Distribution Inc 516 523 541 544 EPU (Bt) 0.96 0.94 0.98 0.98 Thailand. This could, in turn, cause autopart makers (33% of EPU Gth (%) nm (2) 4 1 total leasable areas) to downsize production capacities. Also, DPU (Bt) 0.97 0.93 0.97 0.97 lackluster global growth could hurt exports of electronics parts. DPU Gth (%) nm (4) 4 1 NAV per shr (Bt) 10.26 10.28 10.30 10.31 Electronics firms account for 20% of TGROWTH’s leasable PE (X) 12.7 13.0 12.5 12.4 area. Distribution Yield (%) 7.9 7.6 7.9 8.0 P/NAV (x) 1.2 1.2 1.2 1.2 At A Glance Aggregate Leverage (%) 8.1 7.4 6.7 6.0 Issued Capital (m shrs) 555 ROAE (%) N/A 9.2 9.5 9.5 Mkt. Cap (Btm/US$m) 6,771 / 188
Major Shareholders Dist. Inc. Revision (%): - - - Consensus DPU (Bt): 0.80 0.90 0.90 TICON (%) 25.3 Other Broker Recs: B: 0 S: 0 H: 1 HSBC (SINGAPORE) NOMINEES PTE LTD (%) 11.4 MTLS (%) 11.4 Free Float (%) 25.1 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P 3m Avg. Daily Val (US$m) 0.09 ICB Industry : Financials / Real Estate Investment Trusts
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Company Guide TICON Industrial Growth Leasehold Property Fund
Net Property Income and Margins (%) Leverage & Asset Turnover (x) CRITICAL DATA POINTS TO WATCH Bt m 600 97.5% Earnings Drivers: 500 95.5% Occupancy rates remain healthy 400 93.5% TGROWTH’s operations have been resilient. Despite the 300 91.5% ongoing economic slowdown, its occupancy rate had 200 89.5% bottomed out in 2H14 at 93% (factory: 100%, warehouse: 100 87.5% 88%) and rebounded in 1H15 to 96% (factory: 100%, 0 85.5% warehouse: 93%). 2014A 2015F 2016F 2017F Net Property Income Net Property Income Margin %
This is in stark contrast with the other TICON-owned property Net Property Income and Margins (%) Capital Expenditure 50 92% funds, of which occupancy rates continue dropping. TFUND’s 45 91% occupancy rate has fallen from 95.6% in 4Q11 to 70.6% 40 91% 35 90% now, and TLOGIS’s has fallen from its 95% peak in 2Q13 to 30 90% 76% in 2Q15. Hence, we believe that TGROWTH would be 25 89% 20 89% able to weather the recession better than other TICON funds. 15 88% 10 88% 5 87% 5-10% rental reversion every three years 0 87% The majority of TGROWTH’s rental contracts are for three years, and the Fund usually raise rents by 5-10% when the 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 Net Property Income Net Property Income Margin % contracts expire, implying 1.7%-3.3% hike p.a. The actual Distribution Paid / Net Operating CF ROE (%) hikes would depend on the prevailing demand-supply (x) 1.0 situation and the size and location of the rental assets. We forecast average rent would increase by 2.5% p.a. over the 0.9 next four years, before slowing to 2% p.a. over FY21-24, and 0.8
1% thereafter. 0.7
0.6 Economic recovery could push up occupancy rates 0.5 We project the Fund’s occupancy rate will be in the range of 0.4 95-97% over the next five years, before dropping to 90% 2014A 2015F 2016F 2017F from 2020 onward. The majority its clients are involved in autoparts (33% of leasable area), logistics (21%), and Source: Company, DBS Vickers consumer products (6%), so TGROWTH’s occupancy rate could beat our estimates during economic upturns. This would present a mild upside to our forecast earnings and TP. Its occupancy rate had peaked at 98-100% in 2013 and early 2014.
ASIAN INSIGHTS VICKERS SECURITIES Page 75 Company Guide
TICON Industrial Growth Leasehold Property Fund
Aggregate Leverage (%) Balance Sheet: At the end of 2014, TGROWTH had Bt460m debt, equivalent 8.0% to 8.1% of NAV. We expect debt to drop to Bt422m (7.4% 7.0% of NAV) by the end of this year, and the Fund to be debt-free 6.0% by 2026, assuming no acquisition of new rental assets. 5.0% 4.0% 3.0% Share Price Drivers: 2.0% Attractive yield 1.0% 0.0% TGROWTH is offering attractive annual yield of c.8% for the 2014A 2015F 2016F 2017F next three years, compared to 2.65% for 10-year Thai government bonds and 3.6-3.9% dividend yields for stocks under DBS coverage (75% of the SET market cap) in FY15- ROE (%)
16F. 9.0%
8.0% Key Risks: 7.0% Domestic and global economic slowdown 6.0% The slower economy and high household debt could result 5.0% 4.0% in extended weak automotive sales in Thailand; falling auto 3.0%
production could make its autopart makers (33% of 2.0% TGROWTH’s total leasable area) to downsize production 1.0% lines and warehouse space. Also, lackluster global growth 0.0% 2015F 2016F 2017F could hurt exports of electronics parts (20% of total leasable area). Distribution Yield (%)
COMPANY BACKGROUND 10.0% Ticon Industrial Growth Leasehold Property (TGROWTH) 9.0% owns rental warehouse and factories with total leasable 8.0% areas of 182k sqm and 121k sqm, respectively. The 7.0% remaining leasehold life of its assets is 28.5 years. All its 6.0% assets were developed by the SET-listed Ticon Industrial 5.0% Connection (TICON); TICON usually develops and holds 4.0% 3.0% rental assets for a few years before selling them to its 2014A 2015F 2016F 2017F network of property funds and REITs, including TLOGIS,
TFUND, TGROWTH and REIT. PB Band (x) The bulk of TGROWTH’s leasable area is occupied by Japanese corporations (61%), followed by Thais (8%), Germans (7%) and French (6%). TGROWTH’s warehouses and factories are in industrial parks/estates in Ayutthaya, Patumtani, Chonburi, Chachoengsao and Rayong.
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 76 Company Guide TICON Industrial Growth Leasehold Property Fund
Key Assumptions FY Dec 2013A 2014A 2015F 2016F 2017F
Leasable area (sqm) Warehouse 182,095 182,095 182,095 182,095 182,095 Factory 104,225 121,175 121,175 121,175 121,175 Total 286,320 303,270 303,270 303,270 303,270
Occupancy (%) Warehouse 100% 88% 93% 95% 95% Factory 100% 100% 100% 100% 95% Total 100% 93% 96% 97% 95%
Income Statement (Bt m) FY Dec 2014A 2015F 2016F 2017F
Gross revenue 593 601 624 625 Property expenses (59) (59) (62) (62) Net Property Income 534 543 562 563 Other Operating expenses (14) (13) (13) (13) Other Non Opg (Exp)/Inc 10 10 10 10 Net Interest (Exp)/Inc (14) (17) (17) (15) Exceptional Gain/(Loss) 16 0 0 0 Net Income 531 523 541 544 Tax 0 0 0 0 Minority Interest 0 0 0 0 Preference Dividend 0 0 0 0 Net Income After Tax 531 523 541 544 Total Return 531 523 541 544 Non-tax deductible Items 0 0 0 0 Net Inc available for Dist. 516 523 541 544 Growth & Ratio Revenue Gth (%) N/A 1.5 3.7 0.2 N Property Inc Gth (%) nm 1.7 3.5 0.2 Net Inc Gth (%) nm (1.6) 3.6 0.5 Dist. Payout Ratio (%) 104.1 99.0 99.0 99.0 Net Prop Inc Margins (%) 90.0 90.2 90.0 90.0 Net Income Margins (%) 89.6 86.9 86.8 87.1 Dist to revenue (%) 90.6 86.0 85.9 86.2 Managers & Trustee’s fees 2.4 2.2 2.1 2.1 to sales %) ROAE (%) N/A 9.2 9.5 9.5 ROA (%) N/A 8.2 8.5 8.6 ROCE (%) N/A 8.3 8.7 8.7 Int. Cover (x) 37.5 31.7 32.0 35.5 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 77 Company Guide
TICON Industrial Growth Leasehold Property Fund
Quarterly / Interim Income Statement (Bt m) FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015
Gross revenue 151 147 147 147 147 Property expenses (16) (15) (13) (18) (16) Net Property Income 135 132 134 130 131 Other Operating expenses 0 1 0 0 0 Other Non Opg (Exp)/Inc 7 0 0 1 0 Net Interest (Exp)/Inc (4) (4) (4) (4) (5) Exceptional Gain/(Loss) 0 15 0 0 0 Net Income 138 144 130 127 127 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Net Income after Tax 138 144 130 127 127 Total Return 135 139 126 123 123 Non-tax deductible Items N/A N/A N/A N/A N/A Net Inc available for Dist. 135 124 126 123 122 Growth & Ratio Revenue Gth (%) 3 (3) 0 0 0 N Property Inc Gth (%) 2 (2) 1 (3) 1 Net Inc Gth (%) 6 4 (10) (2) 0 Net Prop Inc Margin (%) 89.4 89.8 90.9 88.0 88.9 Dist. Payout Ratio (%) 97.0 105.7 98.9 101.4 100.0
Balance Sheet (Bt m) FY Dec 2014A 2015F 2016F 2017F
Investment Properties 6,018 6,018 6,018 6,018 Other LT Assets N/A N/A N/A N/A Cash & ST Invts 336 310 289 257 Inventory 0 0 0 0 Debtors 14 14 15 15 Other Current Assets 2 2 2 2 Total Assets 6,370 6,345 6,324 6,293
ST Debt 0 0 0 0 Creditor 0 0 0 0 Other Current Liab 0 0 0 0 LT Debt 460 422 383 345 Other LT Liabilities 215 218 226 226 Unit holders’ funds 5,696 5,706 5,716 5,722 Minority Interests 0 0 0 0 Total Funds & Liabilities 6,371 6,345 6,325 6,293
Non-Cash Wkg. Capital 16 17 17 17 Net Cash/(Debt) (124) (112) (94) (88) Ratio Current Ratio (x) N/A N/A N/A N/A Quick Ratio (x) N/A N/A N/A N/A Aggregate Leverage (%) 8.1 7.4 6.7 6.0 Z-Score (X) NA NA NA NA Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 78 Company Guide TICON Industrial Growth Leasehold Property Fund
Cash Flow Statement (Bt m) FY Dec 2014A 2015F 2016F 2017F
Pre-Tax Income 531 523 541 544 Dep. & Amort. 0 0 0 0 Tax Paid 0 0 0 0 Associates &JV Inc/(Loss) 0 0 0 0 Chg in Wkg.Cap. (55) 3 8 0 Other Operating CF (16) 0 0 0 Net Operating CF 461 526 549 544 Net Invt in Properties (460) 0 0 0 Other Invts (net) (296) 96 0 0 Invts in Assoc. & JV 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 Other Investing CF 0 0 0 0 Net Investing CF (756) 96 0 0 Distribution Paid (412) (513) (531) (538) Chg in Gross Debt 460 (38) (38) (38) New units issued 0 0 0 0 Other Financing CF 0 0 0 0 Net Financing CF 48 (551) (570) (576) Currency Adjustments 0 0 0 0 Chg in Cash (248) 71 (21) (32)
Operating CFPS (Bt) 0.9 0.9 1.0 1.0 Free CFPS (Bt) 0.0 0.9 1.0 1.0 Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES Page 79 Industry Focus
Property Fund/REIT Sector
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10 to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers Securities (Thailand) Co., Ltd. (“DBSVT”), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is intended for clients of DBSV Group 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 DBSVR.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVT and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document 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. DBSVT 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. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd 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. DBSVT, DBS Bank Ltd and their associates, their directors, and/or employees 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 and it may not contain all material information concerning the company (or companies) referred to in this report.
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 DBSVT and/or DBSVH (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.
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.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.
ANALYST CERTIFICATION The research analyst 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 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 this report. As of the date the report is published, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Vickers Securities (Thailand) Co., Ltd. and its subsidiaries do not have a proprietary position in the mentioned company as of 17 Sep 2015. 2. DBSVT, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA, may beneficially own a total of 1% or more of any class of common equity securities of the mentioned company as of 18 Sep 2015.
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Industry Focus Property Fund/REIT Sector
3. Compensation for investment banking services: i. DBSVT, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA may have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the mentioned company
ii. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager 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.
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. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which 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 and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
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. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.
Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. . It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. 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 In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Vickers Securities (Thailand) Co., Ltd. – 989 Siam Tower, 9th, 14th-15th Floor, Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 657 7831, Fax: 66 2 658 1269
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