CPN Retail Growth Leasehold

COMPANY UPDATE CPN Retail Growth Leasehold

Thursday, April 10, 2014

BUY Value accretive acquisition back on the table

Acquisition of CentralPlaza Chiangmai Airport back on track Stock Data The asset will be value accretive with standalone fair value estimated at Last close (Apr 9) (Bt) 15.50 Bt22/unit and IRR high at 10.6% 12-m target price (Bt) 20.00 Upside (Downside) to TP (%) 29.03= 2014 DPU estimated at Bt1.28/unit with no dilution, attractive 8.2% yield Mkt cap (Btbn) 25.36 Mkt cap (US$mn) 787 Maintain BUY with new end-year TP at Bt20/unit and attractive IRR at 9.1% Bloomberg code CPNRF TB Reuters code CPNR.BK Recapitalization back on track. The acquisition of CentralPlaza Chiangmai Airport is Mkt cap (%) SET 0.21 finally back on the table after being postponed. CPNRF held its rights issue for existing Sector % SET 2.00 unit holders on April 1-4, delayed from last year. Some adjustments were made: the Shares issued (mn) 1,636 Par value (Bt) 10 number of units to be issued is now 576mn from 554mn earlier, subscription ratio is 12-m high / low (Bt) 20 / 14.5 now 1:0.3521 from 1:0.3385 (existing:new), and final offering price is Bt15.00/unit. = Avg. daily 6m (US$mn) 0.62 Still a sweet deal. Combining the recapitalization proceeds of Bt8.4bn plus a bank Dividend policy (%) 90 loan of Bt1.65bn and internal cash of Bt500mn gives an acquisition price of approximately Bt11.1bn, which is marginally (3%) above the new appraised value but Price Performance 12% below our DCF estimate. Based on acquisition cost, our sensitivity analysis Stock Price (Bt) suggests a standalone fair value of the Chiang Mai asset of Bt22/unit with a high IRR of 20 10.6%, both above CPNRF’s rollover end-year fair value of Bt20/unit and IRR of 9.1%. This 15 implies that the acquisition will be value accretive and will help raise CPNRF’s fair value 10 from its current value for the next 24 years. 5 0 Chiang Mai facility will boost performance. Centralplaza Chiangmai Airport has a strong track record with average rental rate increase of 11.6% p.a. during 2010-2012, Jul-12 Jul-13 Oct-12 Jan-13 Oct-13 Jan-14 Apr-12 Apr-13 Apr-14 CPNRF — Stock Price above CPNRF’s average. This will help drive CPNRF’s rental and services income growth CPNRF — Rel. to SET (rebased) by raising average rental rate per sqm by 4-5% in 2014-2016. Assuming the Chiang Mai Source: SET, SCBS Investment Research facility is acquired by May 1, we estimate a 23% YoY jump in 2014 net investment income to Bt2.7bn. Based on a payout ratio of 96%, by our estimates, DPU will be flat Share performance at Bt1.28/unit for 2014 but with no dilution effect from the cash call and thus implying 1M 3M 12M a yield of 8.2% in 2014. Absolute 0.0 3.3 -16.2 Relative to SET -2.4 -6.1 -9.7 2013 net investment income up 7.4% YoY to Bt2.2bn, in line with our estimate. Source: SET, SCBS Investment Research Growth was largely driven by higher rental and service income backed by the overall

increase in average rental rates of 5.8% p.a. for renewals and new leases, while Sirikarn Krisnipat (66-2) 949-1020 property expenses grew at a slower rate. Including total net gain from investments, [email protected] net increase in assets was Bt2.7bn, up 42% YoY; the gain came largely from the higher appraised value for Rama III from the increase in its average rental rate. Total DPU for Tanida Sonphatanayothin 2013 was Bt1.28/unit, 7% above our estimates, putting the payout ratio at 97% for the (66-2) 949-1012 year and implying a 12-month trailing dividend yield of 8.2%. This led us to fine-tune [email protected] our 2014 forecast.

Maintain BUY with new end year TP at Bt20/unit (from Bt21). Although CPNRF is currently trading at a 40% premium to its NAV and above its average premium of 14%, we believe this is justified in view of the value that CentralPlaza Chiangmai Airport will add to its portfolio. CPNRF’s current IRR is 9.1%, 572 bps higher than 10-year government bonds, 531 bps higher than 3-5 investment grade corporate bonds, and 652 bps above 12-mth fixed deposits. Key upside risk is better-than-expected rent and services income and operating margin. We maintain our BUY rating. Forecasts and valuation FY Dec 2012 2013 2014F 2015F 2016F Net investment income 2,004 2,152 2,245 2,307 2,429 Net increase in net assets 2,383 2,691 2,245 2,307 2,429 Distribution income 1,973 2,060 2,165 2,177 2,299 Dividend per unit (Bt) 1.13 1.28 1.28 1.33 1.41 Yield (%) 7.3 8.2 8.3 8.6 9.1 NAV (Bt/Shr) 11.2 11.3 11.4 11.5 11.57 Price/NAV (%) 138.7 137.1 135.9 134.9 133.98 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 Thursday, April 10, 2014

Financial statement Profit and Loss Statement (Btmn) Profit and Loss Statement (Btmn) FY December 31 2012 2013 2014F 2015F 2016F FY December 31 4Q12 1Q13 2Q13 3Q13 4Q13 Rental and services income 2,422 2,590 2,695 2,825 2,903 Rental and services income 617 627 658 640 665 Other income 110 118 122 125 128 Other income 41 29 28 31 29 Total income 2,537 2,708 2,816 2,950 3,031 Total income 658 657 686 671 694 Cost of rental and services 133 179 134 141 145 Cost of rental and services 38 32 31 31 36 Operating income 2,399 2,529 2,682 2,809 2,886 Operating income 620 625 655 640 659 Fund expense 375 404 437 502 456 Fund expense 108 101 100 107 119 Net investment income 2,004 2,125 2,245 2,307 2,430 Net investment income 512 525 555 534 540 Unrealized gain (loss) from investment 375 536 0 0 0 Unrealized gain (loss) from investment 164 (369) 211 210 484 Net increase in net assets 2,383 2,691 2,245 2,307 2,429 Net increase in net assets 676 525 768 744 655 Distributable income 1,973 2,060 2,165 2,177 2,299 Distributable income 512 525 557 534 540 DPU (Bt) 1.13 1.28 1.28 1.33 1.41 DPU (Bt) 0.29 0.29 0.32 0.32 0.30

Balance Sheet (Btmn) Balance Sheet (Btmn) FY December 31 2012 2013 2014F 2015F 2016F FY December 31 4Q12 1Q13 2Q13 3Q13 4Q13 Cash and cash at banks 141 351 422 372 372 Cash and cash at banks 141 151 154 654 351 Investments in securities 0 0 0 0 0 Investments in securities 0 0 0 0 1 Investments in properties 18,820 19,179 19,179 19,229 19,229 Investments in properties 18,820 18,422 18,727 18,375 19,179 Total assets 19,173 19,780 19,850 19,850 19,850 Total assets 19,173 18,821 19,082 19,314 19,780 Interest bearing debt 435 340 260 130 0 Interest bearing debt 435 415 395 375 340 Total liabilities 1,556 1,953 1,873 1,743 1,613 Total liabilities 1,556 1,520 1,495 1,502 1,953 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 17,617 17,827 17,977 18,107 18,237 Net Assets 17,617 17,302 17,587 17,812 17,827 NAVPU (Bt) 10.8 10.9 11.0 11.1 11.1 NAVPU (Bt) 10.8 10.6 10.7 10.9 10.9

Cash Flow Statement (Btmn) Main Assumptions FY December 31 2012 2013 2014F 2015F 2016F FY December 31 2012 2013 2014F 2015F 2016F Chg. in investment value (3,858) (3,349) 0 (50) 0 Occupancy rate (%) Increase in operation 5,532 5,644 2,245 2,307 2,429 - Rama II 98.6 96.2 98.3 99.1 99.5 Net operating cash flow 1,674 2,295 2,245 2,257 2,429 - Rama III 98.3 97.4 98.9 99.0 98.9 Distribution to unitholders (1,785) (1,990) (2,094) (2,177) (2,299) - Pinklao Plaza 96.9 98.9 97.2 96.4 99.3 Net financing cash flow (1,820) (2,085) (2,174) (2,307) (2,429) - Pinklao Office 97.5 97.8 97.6 97.0 97.3 Capital raising 0 0 0 0 0 Net leasable area ('000 Sqm) Net cash flow (146) 210 70 (50) 0 - Rama II 92.2 84.7 87.1 87.1 87.1 - Rama III 38.8 36.9 37.3 37.3 37.3 - Pinklao Plaza 24.6 22.5 21.7 21.7 21.7 - Pinklao Office 33.7 33.8 33.8 33.8 33.8

Key Financial Ratios 2012 2013 2014F 2015F 2016F Operating margin (%) 99.0 97.7 99.5 99.4 99.4 Net income margin (%) 82.8 82.1 83.3 81.7 83.7 ROE (%) 11.4 11.9 12.5 12.7 13.3 ROA (%) 10.5 10.7 11.3 11.6 12.2 Payout ratio (%) 92.2 97.2 93.3 100.0 100.0

CPN Retail Growth Leasehold Thursday, April 10, 2014

Figure 1: Occupancy rates for all assets still at high Figure 2: Rental rate hikes p.a. for new leases and levels renewals in 2013 declined slightly

100% 10%

98% 8% 6% 96% 4% 94% Rama II Rama III 2% 92% Pinklao Plaza Pinklao Office 0% 90% Rama II Rama III Pinklao Pinklao CPNRF Plaza Tower Portfolio

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2010 2011 2012 2013

Source: CPNRF Source: CPNRF

Figure 3: Centralplaza Chiangmai will help boost Figure 4: Every value accretive asset injection helps lift average rent per sqm CPNRF’s fair value

(Bt/sqm/mth) Bt/Unit 1,500 25% 35 30 1,400 1,378 20% 1,348 1,337 1,293 25 1,261 1,301 1,300 1,249 15% 20 1,213 1,200 10% 15 10 4.0% 3.5% 3.6% 3.0% Existing 1,100 5% 5 Combined 1,000 0% 0 2013 2014F 2015F 2016F Existing Combined % increase 2014F 2016F 2018F 2020F 2022F 2024F 2026F 2028F 2030F 2032F 2034F 2036F 2038F 2040F 2042F

Source: CPNRF, SCBS Investment and Research Source: CPNRF, SCBS Investment and Research

Figure 5: Share price/NAV Figure 6: Dividend payment and 12-mth trailing yield

200% (Bt/unit) 0.40 14% 150% 12% 0.30 10% 8% 100% 0.20 6% 50% 0.10 4% 2% 0% 0.00 0% 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 DPU 12-mth Trailing yield

Source: CPNRF Source: CPNRF

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 has acted as a financial advisor and joint-lead underwriter 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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