COMPANY UPDATE
CPN Retail Growth Leasehold Tuesday, July 23, 2013
BUY Upgrade on better rent raises than expected CPNRF has proven to be one of the best growth stories among Thai property
Stock Data funds. Its rental rate escalation accelerated to 9.3% YoY in 2012 versus a 7.0% Last close (Jul 19) (Bt) 18.00 CAGR during 2006-2012, thanks to a combination of strong Thai consumer 12-m target price (Bt) 21.00 trends, reputable brand name, strategic locations and excellent management. Upside (Downside) to TP (%) 16.67= Incorporating higher growth trends, we have raised our DPU forecasts for Mkt cap (Btbn) 36.74 CPNRF by 5.2-6.3% during 2013-2015, which translate into attractive yields of Mkt cap (US$mn) 1,190 6.6-7.3% at the current price. We have also upped our end-2013 target price to
Bloomberg code CPNRF TB Bt21/unit from Bt17/unit, which implies estimated total return (ETR) of 23% Reuters code CPNR.BK and IRR of 8.3%. This is before considering further upside from the proposed Mkt cap (%) SET 10.00 asset acquisition of CentralPlaza Chiangmai Airport, which we estimate to be Sector % SET 8.09 value accretive and will decisively make CPNRF the largest property fund in Shares issued (mn) 1,636 Thailand by a considerable margin. Maintain BUY. Par value (Bt) 10 12-m high / low (Bt) 20.2 / 14.7 Better-than-expected rent escalation. The malls in CPNRF’s portfolio are all in Avg. daily 6m (US$mn) 0.62= excellent locations and routinely improved keep them fresh and interesting. All Dividend policy (%) 90 properties are very successful with high occupancy rates of close to 100% - and it raised
rents by 9.3% in 2012, well over our forecast of 8.4%. Based on the three assets now in
Price Performance the fund, we raise the fund’s DPU by 5.2% to Bt1.19 in 2013, 5.2% to Bt1.25 in 2014 and Stock Price (Bt) 6.3% to Bt1.31 in 2015, incorporating the higher rent hike than anticipated. We lift 25 effective rental rate growth assumption to 5% and leave dividend payout ratio 20 unchanged at 92% (after maintenance reserve and payment of loan principle). The 15 upgrade also raises price target to Bt21/unit from Bt17/unit based on an unchanged 10 DCF methodology and discount rate of 7.65%. CPNRF — Stock Price 5 CPNRF — Rel. to SET (rebased) Proposed asset acquisition. CPNRF will seek unit holder approval for recapitalization 0 and purchase of a new asset on 24 July 2013. The proceeds of the cash call plus a bank Jul-11 Jul-12 Jul-13 Oct-11 Jan-12 Apr-12 Oct-12 Jan-13 Apr-13 loan of Bt1.35bn will be used to acquire 30-year leasehold rights for a portion (35.3K Source: SET, SCBS Investment Research Sqm) of CentralPlaza Chiangmai Airport, one of the largest shopping malls in northern Thailand. Occupied by a complete assortment of leading domestic and international Share performances brands, the mall is popular with residents of Chiang Mai and neighboring provinces. In 1M 3M 12M this location, shopping mall space averages 0.05 sqm per person, lower than the Absolute -5.8 -5.8 21.6 average of 0.40 sqm for Bangkok, implying moderate competition. CPNRF has declared Relative to SET -10.8 -0.8 -0.8 Source: SET, SCBS Investment Research its intention for the acquisition to be non-DPU dilutive for the 12 months after the acquisition. Based on our calculation, this implies a maximum of 458mn new units or Sirikarn Krisnipat 22% of its enlarged capital. (66-2) 949-1020 Valuation and liquidity upside with revenue diversification. At its last closing [email protected] price of Bt18/unit, CPNRF would be able to raise approximately Bt9.5bn (including debt) for the acquisition of CentralPlaza Chiangmai Airport, which is 8% below the average appraised value of Bt10.3bn (by Thai Property Appraisal Lynn Phillips and Grand Asset Advisory) and 18% below our DCF estimate of Bt11.6bn for the project. This implies a substantial buffer for this acquisition to ensure it will be value accretive. We also note that the proposed acquisition would allow for better revenue diversification geographically and push CPNRF’s market capitalization to close to Bt40bn (approximately US$1.3bn), making it Thailand’s biggest property fund by a considerable margin—this is likely to bode well for its market liquidity. Forecasts and valuation FY Dec 2011 2012 2013F 2014F 2015F Net investment income (Btmn) 1,790 2,004 2,122 2,227 2,338 Net increase in net assets (Btmn) 1,892 2,383 2,122 2,227 2,338 Distribution income (Btmn) 1,791 2,006 2,122 2,227 2,338 Dividend per unit (Bt) 1.02 1.13 1.19 1.25 1.31 Yield (%) 5.7 6.3 6.6 7.0 7.3 NAV (Bt/unit) 10.8 11.2 11.3 11.4 11.5 Price/NAV (%) 166.7 161.1 159.6 158.0 156.4 Source: SCBS Investment Research
Tel. (662) 949-1000 The information in this report has been obtained from sources believed to be reliable. However, its accuracy or completeness is not guaranteed. Any opinions expressed herein reflect our Fax: (662) 949-1030 judgment at this date and are subject to change without notice. This report is for information only. It is not to be construed as an offer, or solicitation of an offer to sell or buy any www.scbs.com securities. We accept no liability for any loss arising from the use of this document. We or our associates may have an interest in the companies mentioned therein.
CPN Retail Growth Leasehold Tuesday, July 23, 2013
Financial statement Profit and Loss Statement (Btmn) Profit and Loss Statement (Btmn) FY December 31 2011 2012 2013F 2014F 2015F FY December 31 1Q12 2Q12 3Q12 4Q12 1Q13 Rental and services income 2,220 2,422 2,543 2,670 2,805 Rental and services income 594 601 611 617 627 Other income 90 115 123 123 123 Other income 25 25 24 41 29 Total income 2,310 2,537 2,665 2,793 2,928 Total income 619 626 635 658 657 Cost of rental and services 117 133 130 136 143 Cost of rental and services 30 33 32 38 32 Operating income 2,132 2,359 2,488 2,607 2,733 Operating income 589 592 603 620 625 Fund expense 342 355 367 381 394 Fund expense 100 97 95 108 101 Net investment income 1,790 2,004 2,122 2,227 2,338 Net investment income 489 495 508 512 525 Unrealized gain (loss) from investment 102 379 0 0 0 Unrealized gain (loss) from investment 35 -12 191 165 -369 Net increase in net assets 1,892 2,383 2,122 2,227 2,338 Net increase in net assets 525 483 698 676 156 Distributable income 1,791 2,006 2,122 2,227 2,338 Distributable income 490 496 508 512 525 DPU (Bt) 1.02 1.13 1.19 1.25 1.31 DPU (Bt) 0.27 0.28 0.29 0.29 0.29
Balance Sheet (Btmn) Balance Sheet (Btmn) FY December 31 2011 2012 2013F 2014F 2015F FY December 31 1Q12 2Q12 3Q12 4Q12 1Q13 Cash and cash at banks 287 141 228 326 43 Cash and cash at banks 133 136 134 141 151 Investments in securities 00000Investments in securities 00 000 Investments in properties 18,101 18,820 18,820 18,820 19,160 Investments in properties 18,320 18,352 18,590 18,820 18,422 Total assets 18,602 19,173 19,260 19,358 19,415 Total assets 18,703 18,688 18,931 19,173 18,821 Interest bearing debt 470 435 355 275 145 Interest bearing debt 465 460 455 435 415 Total liabilities 1,583 1,556 1,476 1,396 1,266 Total liabilities 1,568 1,516 1,522 1,556 1,520 Fund registered 15,764 15,764 15,764 15,764 15,764 Fund registered 15,764 15,764 15,764 15,764 15,764 Net Assets 17,019 17,617 17,783 17,961 18,148 Net Assets 17,135 17,172 17,409 17,617 17,302 NAVPU (Bt) 10.4 10.8 10.9 11.0 11.1 NAVPU (Bt) 10.5 10.5 10.6 10.8 10.6
Cash Flow Statement (Btmn) Main Assumptions FY December 31 2011 2012 2013F 2014F 2015F FY December 31 2011 2012 2013F 2014F 2015F Chg. in investment value 1,892 2,383 2,122 2,227 2,338 Occupancy rate (%) Increase in operation -273 -708 0 0 -340 - Rama II 99.2 99.2 99.4 99.2 98.6 Net operating cash flow 1,620 1,674 2,122 2,227 1,998 - Rama III 95.7 95.9 95.8 96.2 98.3 Distribution to unitholders -1,682 -1,785 -1,955 -2,049 -2,151 - Pinklao 94.9 96.9 96.9 96.9 96.9 Net financing cash flow -1,702 -1,820 -2,035 -2,129 -2,281 - Pinklao Office 95.9 97.5 97.8 97.8 97.8 Capital raising 0 0 0 0 0 Net leasable area ('000 Sqm) Net cash flow -82 -146 86 98 -283 - Rama II 93.8 93.5 93.5 93.5 93.5 - Rama III 40.1 39.5 39.5 39.5 39.5 - Pinklao 24.1 24.6 24.6 24.6 24.6 - Pinklao Office 33.8 33.8 33.7 33.7 33.7
Key Financial Ratios 2011 2012 2013F 2014F 2015F Operating margin (%) 96.1 97.4 97.9 97.6 97.4 Net income margin (%) 80.6 82.8 83.4 83.4 83.4 ROE (%) 10.5 11.4 11.9 12.4 12.9 ROA (%) 9.6 10.5 11.0 11.5 12.0 Payout ratio (%) 93.5 92.2 92.2 92.0 92.0
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CPN Retail Growth Leasehold Tuesday, July 23, 2013
Solid rent escalation Higher-than-expected rent increase. The performance of CPNRF’s current portfolio has been more than satisfactory, with a strong effective rental rate rise (total revenue/total net leasable area) of 9.3% to Bt1,055/sqm/mth in 2012, substantially above our forecast of 8.4%. This rent hike is made possible by the high occupancy rate of 98% that virtually guarantees renewals. Underwriting the success of the fund’s assets is the combination of good locations and good management by CPN, the property manager and sponsor of the fund, which consistently works to ensure a positive visitor experience. It has been revamping the malls in the fund’s portfolio, reducing promotional areas and renovating common areas to make them appear more luxurious, and drawing more international brand names as tenants. The portfolio at this time is comprised of three retail shopping malls - CentralPlaza Rama II, CentralPlaza Rama III, and CentralPlaza Pinklao (including shopping mall and office buildings) with total net leasable area of anchors and shops of 171.8K sqm. Figure 1: Growing effective rental rate Figure 2: Sustainable high occupancy Bt/Sqm/Mth 100% 1,200 CAGR 7% 1,000 95% 800
600 90% 400
200 85% Rama II Rama III Pinklao Pinklao CPNRF 0 Plaza Tower Portfolio 2006 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 Source: CPNRF, SCBS Investment Research Source: CPNRF
Forecast and price target upgrade Income upgrade. Based on the three assets already in the fund, we raise DPU by 5.2% to Bt1.19 in 2013, 5.2% to Bt1.25 in 2014 and 6.3% to Bt1.31 in 2015, after incorporating a better rent increase than expected. We raise effective rental rate growth to 5% for 2013 onward, from 3.3-4.6%. In our view, the 5% growth rate is achievable compared to the 5% p.a. rent increase for non-expired contracts for the malls plus upside of a rent increase of more than 5% for renewals and new leases. Note that rent on renewals and new leases in the shopping malls rose at an escalating rate of 7-9% in 2012 versus 5.7- 6% in 2010. We maintain dividend payout ratio assumption at 92% (after maintenance reserve and principle loan repayment). Figure 3: Rent hike for renewals and new leases 10%
8%
6%
4%
2%
0% Rama II Rama III Pinklao Pinklao CPNRF Plaza Tower Portfolio 2009 2010 2011 2012
Source: CPNRF
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CPN Retail Growth Leasehold Tuesday, July 23, 2013
PT raised to Bt21/unit. We lift our PT to Bt21/unit from Bt17/unit based on an unchanged discount cash flow methodology to reflect the raise in income forecast. We reduce discount rate (WACC) to 7.65% from 7.75% in response to MLR rate cuts. Our discount rate uses cost of debt at MLR-1.5% and cost of equity (COE) assumption is based on: 1) risk-free rate (RFR) of 4.5%, 2) beta of 0.5x, 3) and equity risk premium (ERP) of 6.5%. We benchmarked our RFR assumption to the historic long-term bond yield, beta assumption is based on historic beta for the SET property fund index, and ERP assumption based on the historical SET return minus RFR. IRR of 8.3%. Based on current unit price of Bt18, we derive an IRR of 8.3% for the fund.
Asset appreciation Assets have appreciated by 7.7%. As appraised by 15 Business Advisory Ltd., the fair value of the fund’s three underlying assets is Bt17.5bn as of March 31, 2013, a 7.7% increase from the original investment cost of Bt16.3bn. This implies the assets have good economic value. Note that we expect a sharp rise in the fair value of CentralPlaza Rama II after its renovations are completed in 3Q13. Figure 4: Investment cost versus market value of assets Btmn 7,000 6,030 6,029 5,939 6,000 5,680 5,573 5,000 4,583 4,000 3,000 2,000 1,000 0 Rama II Rama III Pinklao Inv estment cost Fair v alue
Source: CPNRF
Unit price performace Growing DPU = Rising unit price. Since listing in August 2005, DPU paid to unit holders has steadily risen at a favorable CAGR of 6.3%, in line with rent hikes. CPNRF’s unit price has risen 20% over the past 12 months to trade at a 68% premium to its NAV. Despite this, the fund’s 12-month trailing yield is still attractive at 6.5%, well above the 4.2% for Tesco Lotus Retail Growth Freehold and Leasehold Property Fund (TLGF), currently Thailand’s largest shopping mall property fund. Figure 5: Growing dividend payment Figure 6: Shopping mall property fund 12-mth trailing yield Bt/Unit 8% 0.35 TTLPF 7% FUTUREPF
d MJLF 0.30 Average CPNRF 0.25 6%
0.20 5%
12-M trail yiel trail 12-M TLGF 0.15 4%
0.10 3% - 10203040 1Q06 4Q06 3Q07 2Q08 1Q09 4Q09 3Q10 2Q11 1Q12 4Q12 Mkt. cap (Btbn)
Source: CPNRF Source: CPNRF, BISNEWS Professional
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CPN Retail Growth Leasehold Tuesday, July 23, 2013
Figure 7: Unit price performance versus NAV Figure 8: Unit price premium (discount) to NAV
Bt/Unit 100% 25 50% 20 0% 15
-50% 10
-100% 5 JCP SPF M-II TIF1 TRIF MJLF LUXF TLGF TCIF LHPF MIPF SSPF MNIT TNPF POPF MSPF QHPF MNRF TTLPF QHHR TU-PF QHOP SSTPF MNIT2 KPNPF BKKCP CPNRF M-AAA ERWPF DTCPF TFUND WHAPF CPNCG TLOGIS Jul-09 Jul-11 M-STOR GOLDPF UOB8TF URBNPF MONTRI CTARAF Jan-06 Jun-06 Oct-06 Oct-08 Apr-12 Jun-13 UOBAPF Mar-07 Dec-07 Feb-09 Dec-09 Sep-10 Feb-11 Dec-11 Sep-12 Feb-13 Aug-05 Aug-07 CRYSTAL May-08 May-10
Unit price NAV FUTUREPF
Source: CPNRF, BISNEWS Professional Source: CPNRF, BISNEWS Professional
New asset acquisition proposal Recapitalization and proposed acquisition of new asset. On July 24, 2013, CPNRF will hold a unit holders meeting to obtain approval for recapitalization and new asset acquisition. It is proposing a total capital increase not exceeding Bt12.6bn and of no more than 800mn units through a rights offering. The proceeds plus a Bt1.35bn bank loan will be used to acquire 30-year leasehold rights for a portion of CentralPlaza Chiangmai Airport, located on Mahidol Road (the main road in Chiang Mai) at the junction to Chiang Mai International Airport. It will purchase the asset from Central Pattana Chiangmai Co. Ltd., 99.9% owned by CPN. The proposed purchase price (not exceeding Bt12.6bn) will not be more than 122% of the lowest appraised value. The asset is appraised at Bt10.35bn by Grand Asset Advisory Co., Ltd and Bt10.33bn by Thai Property Appraisal Lynn Phillips Co., Ltd. The purchase is expected to wind up by October 1, 2013. It will be acquiring net leasable area of 35,343 sqm, or 49.2% of the mall, which will raise the fund’s net leasable area of anchors and shops by 20.6% to 207.2K sqm. Note that the simple average of the life of the outstanding lease contracts for the fund’s assets will shrink slightly to 33.7 years from 35.9 years. The fund’s investment will include: Lease of certain parts of one shopping complex (5-floor complex with basement) Lease of one multipurpose hall (3 floors) Lease of indoor parking spaces (approximately 1,094 cars) Figure 9: Post-acquisition portfolio Unit Rama II Rama III Pinklao Chiangmai (Plaza+Tower)
Land (Rai-Ngan- 53-2-38 12-2-45 24-02-84 32-3-56.85 Sq Wah) Possession rights of the fund Sublease contract Lease contract Sublease contract Lease contract (30+30+30) Expiry date Aug. 14, 2025 Aug. 15, 2035 Dec. 31, 2024 Sept. 30, 2043
The fund’s portfolio Gross area (Sqm) 251,182 169,740 135,018+50,653 122,991 Net leasable area to be invested (Sqm) 93,259 39,671 24,750+33,760 35,343* Net leasable area /Gross area (%) 37.1 23.4 18.3+66.6 28.7 Appraisal value (Btmn) 6,029 5,939 5,573 10,336 (avg.) Date appraisal March 2013 March 2013 March 2013 June 2013 Occupancy rate (As of Mar. 31, 2013) (%) 98.5 97.5 97.3+97.0 97.5 Source: CPNRF, SCBS Investment Research Note: * Net leasable area will be increased to 36,648 Sqm after completion of space reconfiguration 5
CPN Retail Growth Leasehold Tuesday, July 23, 2013
Accretive DPU acquisition. In the information memorandum outlining the investment in CentralPlaza Chiangmai Airport, CPNRF promises that DPU post- acquisition for October 1, 2013-September 30, 2014 will not be less than the DPU on existing assets in the same period, which it estimates at Bt1.22. This implies no DPU dilution for unit holders whether or not they exercise their rights.
CentalPlaza Chiangmai Airport’s past performance High operating growth. Over 2010-2012, occupancy rate at CentralPlaza Chiangmai Airport for the area in which the fund will invest was a high 98-99% and rent was raised a solid 11.6% p.a. to Bt1,290/sqm/mth. In 2010-2012, the mall’s total revenue grew at favorable rate of 11.6% CAGR, higher than the 5.5% CAGR at the fund’s existing assets. Figure 10: CentralPlaza Chiangmai Airport occupancy Figure 11: Rental income growth of CentralPlaza rate and rental rate Chiangmai Airport versus existing assets % Bt/Sqm/Mth Btmn 100 1,290 1,310 1,400 3,000 CAGR 5.5% 99.2 1,121 97.9 2,537 98.0 99.1 1,200 2,500 2,279 2,310 965 1,000 2,000 800 90 1,500 600 CAGR 11.6% 400 1,000 489 532 609 200 500
80 0 0 2010 2011 2012 1Q13 2010 2011 2012 Avg. rental rate Occupanycy rate Revenue of Chiangmai Revenue of existing four assets Source: CPNRF Source: CPNRF Note: The occupancy rate in 1Q13 declined to 97.9% due to a space reconfiguration. Figure 12: Tenant mix by category Figure 13: Tenant mix by business
Others 11% Anchor Vacant 2% Electronics Vacant 753 tenants and Fashion, 2% 8,104 23% furniture health and 12% beauty 39% Entertainme Shop nt 16% Food and tenants beverage 26,486 20% 75%
Source: CPNRF Source: CPNRF Wide catchment area. Occupied by a complete range of leading domestic and international retailers with more than 500 retail outlets, CentralPlaza Chiangmai Airport serves locals as well as those in neighboring provinces Chiang Rai, Lampang, Lamphun and Mae Hong Son. It has an attraction population of 4.3mn persons, working out to about 0.05 sqm of shopping mall per person, which is far less than the average of 0.4 sqm for Bangkok (calculated by SCBS Investment Research using data from government population studies and CBRE). This suggests only moderate competition. Its location right at the entrance to the airport also attracts tourists visiting Chiang Mai, which grew at a CAGR of 14.2% during 2009-2011 to 5.6mn persons.
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CPN Retail Growth Leasehold Tuesday, July 23, 2013
Figure 14: Catchment area Figure 15: Easily accessed
Source: Department of Provincial Administration Source: CPNRF
Value added acquisition DCF forecast at Bt11.6bn or Bt25.3/unit. We estimate DCF of CentralPlaza Chiangmai Airport at at Bt11.6bn during the 30-year lease. Using the information disclosure to unit holders, we calculate the number of RO units at 458mn, which implies a value for CentralPlaza Chiangmai Airport of Bt25.3/unit for new shares, 20% higher than our valuation of Bt21/unit for its existing portfolio. Assuming RO price is same as the current unit price of Bt18, acquisition price works out to Bt9.5bn or 18% below our DCF calculation for CentralPlaza Chiangmai Airport, and a discount of ~8% to average appraisal value by Thai Property Appraisal Lynn Phillips Co., Ltd. and Grand Asset Advisory Co., Ltd. We see this acquisition as adding value to the existing fund. With occupancy rate at 99%, net income margin at 76% and dividend payout ratio at 97%, dividend is estimated at Bt467mn for October 1, 2013-September 30, 2014. Thereafter, we assume stable occupancy rate at 99%, a rent increase of 7% p.a. (versus 11.6% during 2010-2012) with a drop in dividend payout to 95% due to maintenance reserve and repayment of loan principle. Discount rate is 7.5%, slightly lower than the rate we use for the existing portfolio in view of the additional leverage and 50bps lower cost of borrowing. The fund is refinancing its existing Bt400mn loan and post-acquisition total loans will be Bt1.75bn (Bt400mn for the existing one and Bt1.35bn in new loans). The interest rate will fall to approximately MLR-2% from MLR-1.75% for 2013, MLR-1.5% for 2014 and MLR-1% for 2015-2016 for the existing loan. The loan repayment period will be extended another 12 years and this with a back-ended repayment and one-year grace period will enable it to raise dividend payout ratio to 97%. Figure 16: Sensitivity analysis on DCF of CentralPlaza Chiangmai Airport Rental growth rate (%) Unit 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 DCF Btmn 7,427 8,229 9,172 10,285 11,594 13,166 15,028 17,250 19,907 DCF/New unit Bt/Unit 16.2 18.0 20.0 22.5 25.3 28.8 32.8 37.7 43.5 Source: SCBS Investment Research
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CPN Retail Growth Leasehold Tuesday, July 23, 2013
Benefits of the new acquisition Larger fund size and trading liquidity. Post-recapitalization, CPNRF will become the largest property fund listed on the SET. Its market cap will close to Bt40bn, which is much higher than the size of the next largest property fund in the SET. This could draw more investors and raise CPNRF’s trading liquidity. Figure 17: Market cap of Thai property funds Figure 18: Average daily turnover vs. market cap
Btmn 45 45,000 ) 40 TLGF 40,000 35 35,000 30 30,000 25 25,000 20 20,000 CPNCG CPNRF 15,000 15 SPF 10,000 10 5,000 5 TFUND Avg. daily turnover (Btmn
0 0 JCP
SPF 0 5,000 10,000 15,000 20,000 25,000 30,000 M-II TCIF MJLF TRIF TIF1 TLGF LHPF MIPF LUXF SSPF POPF MSPF TNPF MNIT QHPF MNRF TTLPF QHHR QHOP M-AAA BKKCP SSTPF TU-PF CPNRF DTCPF KPNPF ERWPF CPNCG TFUND WHAPF MNIT 2 Market Cap. (Btmn) TLOGIS CRYSTA CTARAF M-STOR FUTURE UOB8TF UOBAPF GOLDPF MONTRI Market cap Recapitalization URBNPF Source: CPNRF, Bloomberg, SCBS Investment Research Source: CPNRF, Bloomberg Diversifies risk. The three assets already in the fund are located in Bangkok, but the new asset is located in Chiang Mai, the largest city in the north. This broadens the fund’s reach, gives it exposure to income from a different economic climate and helps diversify the risk lying in a single location.
Risks and concerns of new acquisition In Chiang Mai, CentralPlaza Chiangmai Airport has been dominant since it first opened its doors, but competition will increase with the completion of three new malls – Promenada Resort Mall (open June 2013), Maya (September 2013), a life style shopping center, and CentralFestival Chiangmai (November 2013). This gives rise to a concern that higher competition could dilute the mall’s bargaining power when raising rent and/or eat into its occupancy. Another concern is that since CentralFestival Chiangmai is also developed and managed by CPN, there could be conflict of interest and/or cannibalization since the malls share at least 30-40% of the same tenants. Figure 19: Existing and future competitors
Source: CPNRF, Google Map, SCBS Investment Research
Figure 20: CentralPlaza Chiangmai Airport & CentralFestival Chiangmai anchors
CentralPlaza Chiangmai Airport CentralFestival Chiangmai Department store Robinson Central Supermarket Tops Supermarket Central Food Hall Business unit HomeWorks Office Depot Source: CPNRF 8
CPN Retail Growth Leasehold Tuesday, July 23, 2013
Reiterate BUY Reiterate BUY. From a risk/reward perspective, we like CPNRF for its excellent track record of increasing its DPU payment to unit holders (CAGR of 6.3% during 2006-2012), which should continue for the foreseeable future. Underwriting this is the good locations and regular upgrading in the malls to constantly provide a better visitor experience. We like the fund’s rent escalation of a solid 9.3% last year, substantially higher than our forecast of 8.4%, and this has led us to raise forecast and PT. With its assets consisting of commercial property, earnings are more reliable and less volatile than other forms of investment. At the current unit price of Bt18, CPNRF provides a good dividend yield of 6.6% in 2013, 7.0% in 2014 and 7.3% in 2015. By our calculations CPNRF’s IRR is an attractive 8.3%, which is 430bps higher than the 10-year government bond yield, 380-430bps higher than 3-to 4-year corporate bond yield and 520-600bps higher than 1-year fixed deposits at banks. With attractive TTR of 23%, we remain BUYERs.
Disclaimer: This document is prepared by SCB Securities Company Limited (“SCBS”) which is wholly-owned by The Siam Commercial Bank Public Company Limited (“SCB”). SCB may act as a joint financial advisor of CPN Retail Growth Leasehold Property Fund. Any opinions, news, research, analyses, prices, statements, forecasts, projections and/or other information contained in this document (the “Information”) is provided as general information purposes only, and shall not be construed as individualized recommendation of an offer to buy or sell or the solicitation of an offer to buy or sell any securities. SCBS and/or its directors, officers and employees shall not be liable for any direct, indirect, incidental, special or consequential loss or damage, resulting from the use of or reliance on the Information, including without limitation to, damages for loss of profits. The investors shall use the Information in association with other information and opinion, including their own judgment in making investment decision. The Information is obtained from sources believed to be reliable, and SCBS cannot guarantee the accuracy, completeness and/or correctness of the Information. SCBS reserves the right to modify the Information from time to time without notice and in its sole discretion. This document is delivered to intended recipient(s) only and is not permitted to reproduce, retransmit, disseminate, sell, distribute, republish, circulate or commercially exploit the Information in any manner without the prior written consent of SCBS
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