Thailand Industry Focus Property Funds, REITs, and IFFs

Refer to important disclosures at the end of this report

DBS Group Research . Equity 4 Apr 2018

Offering decent yield with low risks SET : 1,765.24 Analyst • Offering generous yield of 6.4% for PFPO/REITs and Chanpen SIRITHANARATTANAKUL +662 857 7824 7.2% at IFFs, with relatively low risks [email protected]

• Less sensitive to US interest-rate hikes vs regional peers Thailand Research Team +662 658 1222 • Expect highest net investment income growth at infrastructure funds and industrial REITs, boosted by STOCKS acquisition of additional assets 12-mth Price Mkt Cap Target Price Performance (%) • Top picks are DIF, TLGF, and WHART Bt US$m Bt 3 mth 12 mth Rating Turning more positive on industrial PFPO/REITs. We Digital Telecommunications believe the worst should be over for the industrial REIT sector. Infrastructure Fund 14.30 2,663 16.00 (2.1) 0.7 BUY Tesco Lotus Retail Growth Despite the oversupply situation, occupancy rate has gradually Freehold and Leasehold started to improve at most industrial REITs. This is on the back Property Fund 18.10 1,357 20.00 4.6 7.1 BUY of recovering demand while new supply is growing much Wha Premium Growth Freehold 10.10 636 11.80 5.2 3.6 BUY slower than demand. Looking forward, we expect the robust Source: DBSVTH, Bloomberg Finance L.P. growth of the e-commerce sector will help boost demand for Closing price as of 3 Apr 2018 logistic warehouses while strong exports and the Eastern Economic Corridor (EEC) should stimulate more demand for Digital Telecommunications Infrastructure Fund : DIF is a closed-ended ready-built factories. On the supply side, we expect new fund that owns towers and other related passive telecommunications buildings will be more built-to-suit, which mean future supply infrastructure. It also owns core fiber optic cable grid. should come with tenants and thus vacancy rate should Tesco Lotus Retail Growth Freehold and Leasehold Property Fund : Property Fund - Investing in Retail Property continue to fall. Wha Premium Growth Freehold & Leasehold REIT : WHA is a real estate investment trust that invests in logistic warehouses and Positive near-term outlook for office and retail sectors, factories in Thailand. but we see notable increase in supply in the longer term. The key risks for both sectors are the potential increases in PFPO Sector Index vs SET Index supply from various large-scale mixed-used projects from 2020 130% onwards, which could put pressure on rents. E-commerce is another rising threat for the retail sector in the medium to long 120% term. Most office and retail PFPOs/REITs are also trading at a hefty premium to their NAVs while offering limited upside to 110% our DCF target prices. 100%

Avoid those PFPOs/REITs/IFFs with very short remaining 90% leases/concession periods. Don’t be lured by the high yields offered now as they may generate negative IRRs, given the 80% remaining short leases/concession periods. 70% Jan-15 Jan-16 Jan-17 Jan-18 Our top picks are DIF, TLGF and WHART. These three funds SET Index SETPFUND Index are relatively large with decent trading liquidity. DIF and WHART will acquire additional assets into their portfolios this Source: SET, DBSVTH year. Both are offering generous yield of 6.9% and 7.7%, respectively. We also like TLGF for its large portion of freehold assets, decent yield with low risks.

ed: CK / sa: TP, PY, CS Industry Focus

What’s new REIT conversion in 4Q17

Conversion of property funds (PFPO) into REITs in 4Q17. We REIT Conversion have seen seven property funds being converted into REITs in SPWPF Converted into SRIPANWA in 4Q16 4Q17, just right before the tax waivers ended at end-2017. CPNRF Converted into CPNREIT in 4Q17 These included CPNRF, DTCPF, SSTSS, WHAPF, TFUND, TLOGIS, DTCPF Converted into DREIT in 4Q17 and TGROWTH. Once converted and all assets transferred to SSTSS Converted into SSTRT in 4Q17 REITs, these property funds were delisted and the REITs were WHAPF Converted into REIT and assets transferred to WHART in 4Q17 listed on the SET last year. We also saw consolidation of the TFUND Converted into REIT and assets transferred to TREIT in 4Q17 WHAPF assets into WHART, and the assets of TFUND, TLOGIS TLOGIS Converted into REIT and assets transferred to TREIT in 4Q17 and TGROWTH into TREIT. TGROWTH Converted into REIT and assets transferred to TREIT in 4Q17 Source: Company, DBSVTH Three new REIT listings YTD. These include AIM Industrial Freehold and Leasehold REIT (AIMIRT), Bhiraj Office Leasehold IPOs of PFPOs/REITs/IFFs REIT (BOFFICE), and Bualuang Office Leasehold REIT (B-WORK). AIMIRT invests in cold storages and warehouses, while BOFFICE Btm and B-WORK invest in office buildings. The combined market 160,000 capitalisation of these three new IPOs was Bt10.4bn. The chart 140,000 on the right hand side shows the value of IPOs of property 120,000 PFPO/REIT IFF funds, REITs, and infrastructure funds during 2013-2018. 100,000

80,000 No new REIT filing as of now. There is no REIT listing filing at the Stock Exchange of Thailand (SET) at the time of this report. 60,000 Nonetheless, Singha Estate Plc. (S) plans for REIT IPO in 2020. 40,000 The company plans to inject S Hotel and Resorts (SHR) and the 20,000 Suntowers office building, worth a combined Bt20bn into the 0 REIT by 2020. 2013 2014 2015 2016 2017 YTD

Source: Company, DBSVTH

Three new listings YTD

REIT AIM Industrial Freehold & Leasehold Bhira j Offic e Le a se hold REIT Bua lua ng Offic e Le a se hold REIT REIT Tic ke r AIMIRT BOFFICE B-WORK IPO Price (Bt) 10.00 10.00 10.00 Price (Bt) 10.00 13.00 10.50 Units (m) 155 515 369 Market Cap (Btm) 1,550 6,699 3,872 Type of assets Industrial Office Office Assets Cold storage and warehouses Bhiraj Tower @ Emquartier True Tower 1 & 2 Ownership Freehold Leasehold Leasehold Acquisition price (Btm) 2,140 6,605 4,600 Appraised Value (Btm) Appraiser 1 2,068 6,178 4,172 Appraiser 2 2,047 6,062 4,231 Debt/Total assets 26% 26% 20% 2018 DPU (Bt) 0.74 0.71 0.73 Yie ld (%) 7.4% 5.5% 7.0% Source: Company, DBSVTH

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Industry Focus

Two property funds (FUTUREPF and CRYSTAL) are considering - VAT, specific business tax, and stamp duty for move to convert into REITs. While most property funds that transferring assets from PFPOs to REIT, would like to convert into REITs should have already done so last - income tax on unitholders of property funds that are year, there remain two property funds which are considering converted into REITs, and studying the possibility of converting from property funds - transfer fees of 2%, mortgage registration of 1%, into REITs. They are Future Park Leasehold Property Fund leasehold registration 1% (in case of long-term lease) (FUTUREPF) and Crystal Retail Growth Leasehold Property Fund (CRYSTAL). The sponsors of these two property funds still It remains to be seen if CRYSTAL and FUTUREPF will proceed possess assets that can be injected into their REITs once the with the conversion into REITs. Both will have to study the pros property funds are converted into REITs. and cons of doing so. Note that without converting into REITs, property funds can no longer acquire more assets which mean Rangsit Plaza, the sponsor of FUTUREPF, would like to inject they will have to rely on organic growth i.e. improvement in Zpell @ Future Park into FUTUREPF once it is converted into a occupancy rate and rental reversion. REITs can gear up to 35% REIT. This is an expansion phase of Future Park which was of total assets (or 60% if they secured investment-grade rating), opened in late 2015. Benjakij Pattana, the sponsor of CRYSTAL, as compared to property funds which can gear up only 10% of plans to inject Crystal Rajapruk and the expansion phase of NAV. Crystal Ramindra into CRYSTAL once it is converted into a REIT. Nonetheless since the tax waivers have ended, there will be a lot of transaction costs involved. These include:

Two property funds looking to convert into REITs with new asset injection

Fund CRYSTAL FUTUREPF Asset The Crystal Ramindra Phase 1 Future Park Rangsit Crystal Design Center (CDC) Asset type Retail Retail Asset ownership Leasehold Leasehold Remaining life 25.5 years 23.7 years Asset Value (Btm) The Crystal - Bt1,616m Bt6,965m CDC - Bt2,496m Total - Bt4,112m Assets to acquire The Crystal Ramindra Phase 2-3 Zpell @ Future Park The Crystal Rajapruk

Source: Company, DBSVTH

HREIT has acquired additional assets in 1Q18. YTD, Hemaraj Who are looking to acquire new assets? A number of REITs Leasehold REIT (HREIT) has completed the acquisition of new and Infrastructure Funds (IFF) plan to acquire additional assets assets from WHA Corporation (WHA). It has acquired 60-year into their portfolios. These include WHART, TREIT, AIMIRT, leasehold rights to factories & warehouses in five locations in DIF, JASIF, LHHOTEL, GVREIT, SRIPANWA, etc. These asset Rayong, Chonburi and Saraburi from WHA for Bt1.6bn. acquisitions will be financed by debts and/or capital increase. Most REITs plan to keep their debt/total assets ratio below The acquisition represents a 3% premium to the average 30%, still below the ceiling at 35% (or 60% if such REITs appraised value by the two independent appraisers. The secure investment-grade rating). acquisition was financed by both debt (loan from bank) and equity (rights, private placement and public offering). The acquisition was slightly accretive to DPU as DPU was expected to increase slightly to Bt0.77 per unit post acquisition of new assets, vs Bt0.763 per unit pre-acquisition.

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Industry Focus

Expect more debenture issuance this year… A number of US interest-rate hike. The Federal Reserve raised interest rates REITs plan to issue local debentures (3-7 years maturity) to on 21 March 2018 by a quarter of a percentage point to refinance their debts. This should help fix their interest rates 1.75% and signalled that the central bank is on track to raise amid a rising interest rate environment. So far, WHART and rates twice more in 2018. TREIT have already secured A ratings with Stable Outlook from Tris Rating. We expect to see some interest savings Thai Central Bank maintained policy rate. On 28 Mar 2018, from such debenture issuance as the cost of these debenture the Monetary Policy Committee voted 6 to 1 to maintain the issuances is likely to be lower than their current cost of debts. policy rate at 1.50%. The Committee viewed that Thailand’s growth outlook has improved on the back of external …and more secondary offerings. As stated earlier, since most demand while the strength of the domestic demand recovery REITs plan to keep their debt/total assets ratio below 30%, and inflation developments must be monitored. Hence, the the acquisition of new assets will probably be financed by monetary policy should remain accommodative and would debts or debts plus capital increase. Nonetheless, we are not stand ready to utilise available policy tools to sustain too concerned over such capital increase as this will require economic growth while also ensuring financial stability. unitholders’ approval and should be DPU accretive.

REITs that are looking to acquire additional assets

WHART TREIT AIMIRT FUTUREPF CRYSTAL New assets to acquire 170,000-180,000 sqm of 170,000 sqm of warehouses Warehouses & Cold storages Zpell @ Future Park Crystal Ramindra Ph warehouses and factories Rangsit 2,3, Crystal Rajapruk

Estimate injection date 4Q18 April 2018 and Aug 2018 2018 n.a. n.a. Value of new assets (Btm) 4,500-5,000 3,870 n.a. n.a. n.a. Current asset size (Btm) 27,815 31,961 2,294 % Increase 16-18% 12.1% n.a. n.a. n.a. Funding Debt and Equity Bt370m cash and Bt3.5bn debt n.a. n.a. n.a. Debt/Total assets 27% 17% 26% 1% 0%

DIF JASIF GVREIT LHHOTEL SRIPANWA New assets to acquire 2,589 towers and 1,210,292 core 980,000 core km of FOC FYI Centre Grande Centrepoint Baba Beach Club km of FOC Thonglor Huahin and Pang-Nga

Estimate injection date Jul-18 4Q18 - 1Q19 n.a. n.a. n.a. Value of new assets (Btm) 55,000 - 58,000 50,000 - 55,000 n.a. n.a. n.a. Current asset size (Btm) 119,806 59,683 10,621 8,251 3,671 % Increase 46-48% 84-92% n.a. n.a. n.a. Funding Bt2bn debt and Bt53-56bn equity 40% Debt and 60% Equity Debt and Equity n.a. n.a. Debt/Total assets 22% 0% 19% 20% 12% Source: Company, DBSVTH

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Industry Focus

Overview PFPO/REIT Sector breakdown by market capitalisation

Cineplex 39 PFPOs, 21 REITs and 6 IFFs listed on the SET. The sector’s 1% market capitalisation has grown steadily to Bt710.6bn Airport currently, representing 3.9% of the SET’s market capitalisation. Retail 6% 33% The number of listed PFPOs and their market capitalisation dropped significantly in 2017. This was due to (i) the delisting of three large-cap property funds (TCIF, THIF, and TRIF) under Industrial TCC Group, and (ii) the conversion of seven property funds 20% into REITs. They are CPNRF, DTCPF, SSTSS, WHAPF, TFUND, Hotel TLOGIS and TGROWTH. We also saw the consolidation of 9% WHAPF into WHART, and the consolidation of TFUND, TLOGIS, Exhibition and TGROWTH into TREIT in late 2017. Center 7% Office No. of listed PFPOs, REITs, and IFFs 23%

80 Source: SET, DBSVTH Asset ownership (by number of funds) 70 IFF 5 5 60 6 6 REITs 3 4 9 13 50 3 18 21 Property Funds 1 Leasehold 40 1 & Freehold 1 23% 30 1 52 1 46 51 49 20 1 40 34 39 39 28 10 25 15 20 8 12 Leasehold 0 2 2 38%

Freehold

2003 2004 2006 2007 2008 2009 2010 2011 2012 2013 2015 2016 2017 2018 2014 2005 39% Source: SET, DBSVTH Market capitalisation of Thai PFPOs and REITs

Btm 700,000 Source: SET, DBSVTH 600,000 IFF REITs Property Funds IFF Sector breakdown by market capitalisation 500,000

400,000 Power plants, 300,000 12% 200,000

100,000 - Mass Telecom

transit,

2004 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015 2016 2018 2010 2017 2003 infrastruct 27% ure, 61% Source: SET, DBSVTH

Source: SET, DBSVTH

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Industry Focus

Share price performance Top gainers YTD

Price (Bt) % Change Mkt Cap An outperformer vs SET YTD. The PFPO sector index inched up Code 30-Mar-18 (Btm) 2.0% YTD, slightly outperforming the SET Index’s 1.3% gain. BOFFICE * 13.20 32.0 6,802 The IFF sector eased 0.8% YTD, slightly underperforming the IMPACT 16.30 14.0 24,165 SET Index. TNPF 4.20 13.5 615 WHART 10.20 6.3 20,033 PFPO/REIT sector vs SET Index SRIPANWA 11.30 5.6 3,153 GLANDRT 12.20 5.2 6,097 % MNIT2 5.55 4.7 (13.8) 125 SSPF 10.10 4.7 12.2 120 TLGF 18.00 4.1 1.8 115 B-WORK 10.40 4.0 na 110 SET Index 1776.26 1.3 SETPREIT Index 192.91 2.0 105 * New listing on 23 January 2018, price change from IPO price of Bt10 100 95 Source: SET, DBSVTH 90 An outperformer vs SG REIT YTD. Both the PFPO sector and the Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 SET Index SETPREIT Index IFF sector however outperformed Singapore REIT Index which Source: SET, DBSVTH dropped 4.1% YTD. Note that Thai PFPO/REIT sector has been relatively less sensitive to US interest rate movement as Exhibition centre and Industrial subsectors performed best. The compared to the Singapore REITs. exhibition centre sector gained 14% in 1Q18, boosted by Impact Growth REIT (IMPACT). IMPACT’s share price surged Total return after news reports that the Queen Sirikit National Convention Centre (QSNCC) will be closed for renovation for three years Total return of PFPO/REIT sector outperformed SET Index in from end-2018. This means that events organised at the four of the past eight years (2010-2017). The following chart QSNCC will have to move to other venues like IMPACT, Bitec, shows the total return of the sector outperformed the market Siam Paragon, etc. In addition, IMPACT’s top management in 2011, 2012, 2013 and 2015. This was due mainly to the went on the road with DBS to see our investors in Hong Kong relatively generous distribution yield of 6-7%, vs the SET recently. The feedback from such roadshows was positive. Index’s yield of only 3-4%.

The industrial subsector rose 4.0% in 1Q18, boosted by Total return of the PFPO/REIT sector vs SET Index Hemaraj Leasehold REIT (HREIT), WHA Premium Growth % Freehold and Leasehold REIT (TREIT) and Ticon Freehold and 50 PF&REIT SET Index Leasehold REIT (TREIT). This subsector saw rebounding interest given its improved outlook. HREIT has already acquired 40 additional assets from HEMRAJ via debt and equity financing, 30 while WHART and TREIT also plan to acquire additional assets 20 this year. 10 Performance by subsector 0 Index at end of Change 2010 2011 2012 2013 2014 2015 2016 2017 YTD -10 29-Dec-17 30-Mar-18 YTD SET 1753.71 1776.26 1.3% -20 SETPREIT 189.22 192.91 2.0% Source: SET, DBSVTH Market Cap as of Change 29-Dec-17 30-Mar-18 YTD Exhibition Centre 21,200 24,165 14.0% Office 71,678 82,305 0.0% Hotels 35,128 34,703 -1.2% Retail 121,822 123,577 1.4% Industrial 64,683 68,774 4.0% Others 23,299 23,561 1.1% Total PFPOs & REITs 337,810 357,085 2.1% IFFs 250,598 248,599 -0.8% Source: SET, DBSVTH

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Industry Focus

Yield Yield of Thai PFPOs/REITs vs Thai 10-yr government bond % Sector offers moderate 2018F market-cap weighted 8.0 WA PFPO/REIT yield distribution yield of 6.4%. This is a 388-bp premium to the 7.0 Thai 10-year government bond yield of 2.56% currently. Most 10-yr govt bond yield 6.0 funds pay quarterly dividends, while some pay semi-annually. 5.0 Market-cap weighted distribution yield of Thai PFPOs/REITs 4.0 % 3.0 8.0 2.0 7.0 1.0 6.0 0.0 5.0 2010 2011 2012 2013 2014 2015 2016 2017 2018F 4.0 Source: SET, DBSVTH 3.0

2.0 Premium over Thai 10-year government bond yield 1.0 % 4.5 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018F 4.0 3.5 Source: SET, DBSVTH 3.0 Note: Distribution includes dividends and capital reduction 2.5 2.0 PFPO/REIT – yield comparison. The following chart shows our estimated 2018F market-cap weighted yields for several types 1.5 of PFPO/REITs. 1.0 0.5 2018F yield comparison for various types of PFPO/REIT 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018F % 8.0 Source: SET, DBS VTH 7.0 6.0 Offering attractive returns vs other investment alternatives. At 5.0 6.4% market-cap weighted average distribution yield, the 4.0 property fund/REIT/infrastructure fund sector still offers 3.0 attractive risk-adjusted returns as compared to other 2.0 investment alternatives. 1.0 - PFPO/REIT returns vs other investment alternatives Hotel Retail

Office 7% Airport

Industrial 6%

Exhi. Exhi. Center 5% 4% Source: SET, DBSVTH 3% Yield spread. The following chart shows that the spread 2% between the market-cap weighted average yield of Thai 1% PFPO/REITs and the Thai 10-year government bond yield 0% PFPO/REIT Listed 10-year 2-year fixed 1-year fixed Savings rate averaged 3.01% during 2010-2018. The current yield spread yield companies' government deposit deposit is now at 3.88%, which is above the historical average. yield bond yield

Source: SET, DBSVTH

Valuation

Page 7 Industry Focus

considering that the revenue sharing agreement of the two The sector is now trading at 1.3x P/NAV. Thai PFPOs/REITs have power plants will end in Sep 2019 and Sep 2022, we estimate been trading in the range of 1.05-1.27x P/NAV during the last that the IRR could be negative. five years. Our top picks are DIF, TLGF, and WHART. These three picks are relative large in market cap, with decent trading liquidity. Price/NAV The following table is a summary of valuations for PFPOs/REITs 1.6 under our coverage. The key factors we consider to arrive at

1.4 our conclusion of top picks are distribution yields, IRR (given that the remaining leasehold period of these funds varies), 1.2 upside to our DCF-based TP, quality of assets in the portfolio 1.0 and potential for growth. 0.8 (x) The key reasons for our top three picks are: 0.6 DIF: DIF is our top infrastructure pick, thanks to its healthy 0.4 yield of 6.9% and long guarantee periods. The fund is in the 0.2 process of acquiring additional assets from the sponsor. With - the asset purchases, yield is expected to rise from 6.6% in 2012 2013 2014 2015 2016 2017 2018 FY17 to 7.3% in FY19F. The weighted average contract tenor Source: SET, DBSVTH should also rise from 9.5 years (pre-Phase I) to 21 years (post- Phase II). After Phase II is completed, all fibre assets will have Recommendation 16+10 years of guarantee while the towers will have 16 years of guarantee; previously, old assets only had 9-10 years of We prefer IFFs and industrial REITs. These two subsectors guarantee. The potential upside to DIF’s income could arise should register highest net investment income growth in 2018 from more third-party rents going forward. DTAC has already and 2019, thanks to the acquisition of new assets into their shown interest in leasing more towers from DIF (Phase II portfolios. For IFFs, DIF and JASIF are planning to acquire new towers) and ADVANC is looking at the locations of DIF’s assets into their portfolios. As for industrial REITs, growth will towers and may be considering renting the towers for the first be driven by HREIT, TREIT and WHART which are adding new time. assets into their portfolios. TLGF: TLGF invests in 23 Tesco Lotus malls throughout Most office and retail PFPOs/REITs offer limited upside to our Thailand. Freehold assets represent 61% of TLGF’s total TPs. While the office and retail PFPOs/REITs are still seeing leasable area and 77% of its appraised value. Occupancy rate positive near-term outlook, most of them are trading at a has always been high at 98%+ since inception. Twelve of the hefty premium to their NAVs while offering limited upside to malls are located in Bangkok and 11 in the provinces. The our DCF target prices. We are also seeing rising threat from geographical diversification helps to reduce concentration new supply and E-commerce on these two subsectors in the risks. As many of its assets are freehold and in good locations, medium- to long-term. the fund stands to benefit from future capital appreciation. TLGF is now offering 11.1% upside to our TP of Bt18.50, and Avoid those PFPOs/REITs/IFFs with very short leases/concession. a moderate dividend yield of 5.1%. For those leasehold funds with very short remaining leases or funds with very short remaining concession periods or rights to revenue, investors should pay more attention to IRRs than WHART: Following the consolidation of WHAPF assets into its yield. Those offering high yields may offer very low or even portfolio, WHART is now the largest logistics warehouse REIT negative IRRs. in Thailand. WHART invests in 20 logistics centres in Thailand with a total leasable area of 971,578 sqm. These assets enjoy For instance, Amata B.Grimm Power Power Plant Infrastructure high occupancy rate of 94.7% at end-2017, or 97.4% if the Fund (ABPIF) is a closed-end infrastructure fund that invests in undertaking from the sponsor (WHA Corporation) is included. in the Revenue Sharing Agreement which transfers the The assets are 70% freehold and 30% leasehold (with 26 benefits from the electricity generated from two small power years remaining leasehold life). WHART is now offering a very plants namely ABP1 and ABP2. If there is no additional generous 2018F distribution yield of 7.7%. The successful investment, the Revenue Sharing Agreement will be acquisition of additional assets in 4Q18 should help lift the terminated on 16 September 2019 and 27 September 2022 yield further. for ABP1 and ABP2 respectively. Total distribution per unit in 2017 amounted to Bt1.60, which translates into very generous yield of 19% at the current price of Bt8.55. However,

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Industry Focus

Peer comparison

Ticker Price (Bt) Units Mkt Cap TP Upside IRR DPU (Bt) Dividend Yield (%) NAV (Bt) P/NAV Avg 3-mth

30-Mar (m) (Btm) (Bt) (%) 2017A 2018F 2019F 2017A 2018F 2019F 2017 (x) Val (Btm)

Retail

CPNREIT 22.50 2,212 49,781 22.80 1% 7.5% 1.14 1.67 1.83 5.1% 7.4% 8.1% 13.32 1.69 27.03

TLGF 18.00 2,337 42,071 20.00 11% 8.0% 0.86 0.86 0.90 4.8% 4.8% 5.0% 11.80 1.53 23.09

FUTUREPF 20.90 530 11,068 22.90 10% 7.7% 1.40 1.44 1.48 6.7% 6.9% 7.1% 12.79 1.63 3.14

CRYSTAL 10.90 390 4,251 10.10 -7% 6.3% 0.74 0.72 0.72 6.8% 6.6% 6.6% 11.04 0.99 1.26

Average 5,469 107,171 7.4% 5.3% 6.4% 6.9% 1.55

Industrial

AIMIRT 9.90 155 1,535 11.60 17% 8.8% n.a. 0.74 0.74 n.a. 7.5% 7.5% n.a. n.a. n.a.

AMATAR 10.40 358 3,722 11.60 12% 6.9% 0.75 0.70 0.67 7.2% 6.7% 6.5% 10.11 1.03 0.92

TREIT 10.80 2,602 28,106 11.30 5% 9.5% 0.63 0.71 0.78 5.9% 6.6% 7.2% 9.79 1.10 18.89

WHART 10.20 1,964 20,033 11.80 16% 9.5% 0.74 0.79 0.81 7.3% 7.7% 8.0% 9.72 1.05 6.99

Average 5,079 51,860 8.7% 6.8% 7.3% 7.8% 1.03

Office

BOFFICE 13.20 515 6,802 NR n.a. n.a. 0.71 0.71 5.4% 5.4%

CPNCG 14.20 427 6,058 14.20 0% 6.1% 1.02 1.02 1.07 7.2% 7.2% 7.5% 11.04 1.29 2.24

CPTGF 12.50 967 12,088 12.53 0% 8.3% 0.78 0.81 0.85 6.3% 6.5% 6.8% 10.36 1.21 2.42

GLANDRT 12.20 500 6,097 NR n.a. n.a. 0.72 0.73 0.73 5.9% 6.0% 6.0% 11.15 1.09 6.46

GVREIT 14.40 815 11,733 13.80 -4% 6.6% 0.74 0.85 0.88 5.1% 5.9% 6.1% 10.08 1.43 4.48

POPF 13.90 482 6,695 12.40 -11% 6.9% 1.07 1.09 1.11 7.7% 7.9% 8.0% 11.07 1.26 3.81

TPRIME 11.90 548 6,515 11.00 -8% 8.3% 0.65 0.69 0.73 5.4% 5.8% 6.2% 10.70 1.11 3.04

Average 49,186 7.2% 6.1% 6.5% 6.7% 1.28

Hotel/Serviced Apartment

LHPF 8.75 330 2,888 9.70 11% 7.9% 0.52 0.53 0.54 6.0% 6.1% 6.2% 10.73 0.82 1.11

LHHOTEL 15.50 538 8,338 16.00 3% 7.4% 0.97 1.07 1.10 6.2% 6.9% 7.1% 12.34 1.26 1.40

QHHR 8.80 336 2,957 10.60 20% 8.9% 0.60 0.63 0.69 6.8% 7.1% 7.8% 12.53 0.70 1.11

DREIT 5.10 409 2,088 5.04 -1% 7.2% 1.42 0.32 0.33 27.9% 6.3% 6.4% 8.33 0.61 0.33

SHREIT 9.65 353 3,405 NR n.a. n.a. n.a. 0.77 0.77 n.a. 7.9% 7.9% n.a. n.a. n.a.

ERWPF 6.05 176 1,065 5.89 -3% 6.3% 0.38 0.38 0.39 6.2% 6.2% 6.4% 9.23 0.66 0.36

Average 20,740 7.6% 8.8% 6.6% 6.8% 0.91

Others

IMPACT 16.30 1,483 24,165 17.00 4% 8.0% 0.77 0.81 0.84 4.7% 5.0% 5.2% 10.81 1.51 8.98

MJLF 12.60 330 4,158 9.30 -26% 6.0% 0.90 0.84 0.87 7.1% 6.7% 6.9% 12.03 1.05 1.03

SPF 23.30 950 22,135 24.00 3% 7.4% 1.50 1.61 1.69 6.4% 6.9% 7.2% 12.22 1.91 6.87

Average 50,458 7.2% 6.1% 6.4% 6.6% 1.50

Infrastructure funds

EGATIF 10.70 2,086 22,315 NR n.a. n.a. 0.79 0.80 0.80 7.4% 7.5% 7.5% 10.00 1.07 9.77

BRRGIF 10.60 350 3,710 NR n.a. n.a. n.a. 1.08 1.08 n.a. 10.2% 10.2% 10.44 1.02 3.46

BTSGIF 11.90 5,788 68,877 10.20 -14% 5.4% 0.69 0.72 0.79 5.8% 6.1% 6.6% 11.58 1.03 53.56

DIF 14.60 5,808 84,797 16.00 10% 9.3% 0.98 1.01 1.06 6.7% 6.9% 7.3% 15.56 0.94 86.46

JASIF 11.60 5,500 63,800 12.80 10% 8.5% 1.01 1.01 1.06 8.7% 8.7% 9.2% 10.68 1.09 146.26

Average 217,474 7.7% 7.0% 7.2% 7.6% 1.01 Source: Company, DBSVTH

Page 9 Industry Focus

Industry Outlook

- Office sector

Office: Still bright prospects in the near term but large future Demand: Net take-up of office space in Bangkok was 194,200 supply could put pressure on rents in the medium term. We sqm in 2017, a slight drop of 0.7% y-o-y. It is estimated that continue to have a positive outlook for the office sector, total net take-up will be around 200,000 sqm in 2018. thanks to the reasonable level of demand while near-term supply is quite limited. The vacancy rate had dropped steadily Office: Annual take-up to 7.8% in 4Q17. Sqm. 400,000 Office: Supply, demand and vacancy 350,000 300,000 Sq.m. 10.0 40% 250,000 9.0 35% 200,000 8.0 30% 7.0 150,000 25% 6.0 100,000 5.0 20% 50,000 4.0 15% 3.0 10% 0 2.0

5%

2002 2004 2006 2008 2010 2012 2014 2016 1.0 2000 0.0 0% 2018F

Source: CBRE, DBSVTH

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019F Total supply Total take-up Vacancy (RHS) Rents: Average rental rates of Grade A CBD office rose by 4.3% y-o-y to Bt994/sqm/month in 4Q17. Gaysorn Tower, the Source: CBRE, DBSVTH new office tower opened in 2017, became the most expensive Supply: According to CBRE (Thailand), total supply of office building in Bangkok with a record rent of Bt1,400/sqm/month. space in Bangkok was 8.78m sqm at end-4Q17. Looking forward, around 584,000 sqm of office space is under The highest y-o-y rental growth was seen at Grade A offices in construction, and due for completion between 2018 and the non-CBD area, given higher achieved rents at the new 2021. Most of the new supply will be in non-CBD areas. office buildings. The average rent of Grade A offices in non- Nonetheless, 2m sqm of office space have been planned and CBD locations was Bt810/sqm/month, up 5.2% y-o-y. should be completed within the next 5-6 years. Among these include some large-scale mixed used projects like One Bangkok Office: Average rental rates on Rama IV Road, The Parq at the corner of Rama IV Road and Ratchadapisek Road, JV between Central Pattana & Dusit Thani Hotel at the corner of Silom Road & Rama IV Road.

Office: New office supply by area

Sqm. 300,000 Non CBD 250,000 CBD 200,000

150,000

100,000

50,000

0

2010 2009 2011 2012 2013 2014 2015 2016 2017

2019F 2020F 2018F Source: CBRE (Thailand), DBSVTH Source: CBRE (Thailand), DBSVTH

Page 10

Industry Focus

Office: New office supply by area Building NLA (Sqm) Location Zone Grade 2017 Gaysorn Village 30,000 Rajdamri CBD A Bhiraj Tower @ Bitec 32,000 Bangna Non CBD A G Tower (North Tower) 30,000 Rama IX Road Non CBD A SC Tower 4 11,000 Phahonhothin Non CBD A Pearl Bangkok 30,000 Phahonhothin Non CBD A M Tower 12,000 Sukhumvit 62 Non CBD B Cosmo Office Park 60,000 Chaengwattana Non CBD B Toyota Buzz 12,000 Vibhavadi Rangsit Non CBD B Thairat Building 12,000 Vibhavadi Rangsit Non CBD B 2018 Singha Complex 60,000 Asoke-Petchburi CBD A Bank of Ayudhya 25,000 Ploenchit CBD A Bhiraj Tower @ Sathorn 3,500 Sathorn CBD B MS Siam Tower 37,000 Rama III Road Non CBD B Summer Hill 5,000 Prakanong Non CBD B Aree Hill 12,000 Soi Aree Non CBD B Ladprao Hills 6,000 Ladprao Non CBD B T1 Office 23,340 Sukhumvit 40 Non CBD B 2019 Samyan Mitrtown 45,000 Samyan CBD A Whizdom 101 30,000 Sukhumvit 101/1 Non CBD A Chiatai Head Office 10,000 Sukhumvit 60 Non CBD B 2020-2024 The Parq 60,000 Rama IV-Ratchada CBD A Royal Symphony Bangkok 16,000 Wireless Road CBD A 548 Ploenchit 61,000 Ploenchit CBD A One Bangkok 500,000 Rama IV CBD A CPN & DTC 70,000 Silom CBD A KSS Mixed-use 45,000 Rama IV CBD n.a. Aspiration One 28,740 Rajthevi CBD A Block H 13,000 Siam Square CBD n.a. Phyathai Complex 21,000 Phyathai CBD B TRR Office Building 20,000 Narathiwas 28 CBD B Silom Square 56,699 Silom CBD A Super Tower 90,000 Rama IX Road Non CBD A Summer Lasalle 43,000 Sukhumvit 103-105 Non CBD n.a. Tipco Tower 2 15,000 Rama VI Non CBD B CP Tower North Park 26,110 Vibhavadi Rangsit Non CBD B Mo Chit Complex 78,000 Chatuchak-Mochit Non CBD n.a. Source: CBRE (Thailand), DBSVTH

Page 11

Industry Focus

- Retail sector

Retail: Improving outlook. Newly completed retail supply in Retail: Retail sales turned positive for four consecutive quarters Bangkok has begun to slow down after rising sharply in recent years. According to CBRE (Thailand), total supply of 240 15% Retail sales index retail space in Bangkok was 7.36m sqm at end-4Q17. The 230 occupancy rate has improved to 94.6%. Rents continued to y-o-y change (RHS) 10% grow, albeit at a softer rate amid a slow economy. E- 220 commerce, however, is a rising threat for the sector. 5% 210 0% Supply: In 2017, there was 100,00 sqm of new retail supply in 200 Bangkok, still lower than the new supply in 2016 and 2015 at -5% 230,000 sqm and 500,000 sqm respectively. The biggest retail 190 development being added to the market was Century the 180 -10% Movie Plaza Sukhumvit which covers a total area of 27,000

sqm and Mega Bangna Phase 2 with 10,000 sqm of net

3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 lettable area. 1Q13

Source: Bank of Thailand, DBSVTH Retail: Rising occupancies Retail: Same-store-sales growth at major retailers sqm 8,000,000 100% SSSG 4Q16 1Q17 2Q17 3Q17 4Q17 7,000,000 98% CPALL -0.4% 1.2% -1.0% 2.4% 3.8% 96% 6,000,000 MAKRO 3.9% 2.4% -1.4% 2.2% 2.1% 94% HMPRO -1.8% -2.5% -6.3% 2.8% 3.1% 5,000,000 92% 4,000,000 90% BIGC -22.2% -20.0% -15.2% 9.2% 3.8% ROBINS -1.8% -4.4% -4.7% -0.1% -3.4% 3,000,000 88% 86% MK -1.0% 2.0% -3.0% 3.0% 5.0% 2,000,000 84% Yayoi 3.0% 1.0% -1.0% 8.0% 7.0% 1,000,000 82% BEAUTY 9.2% 14.4% 20.8% 18.6% 25.9% - 80%

Source: Bank of Thailand, DBSVTH

2008 2017 2000 2001 2002 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 2014 2015 2016 Retail: Consumer Confidence Index Supply (Sqm) Demand (Sqm) Occupancy (RHS) 80 Source: CBRE, DBS VTH 79 Rising new supply in the medium to long term. Looking 78 77 forward, about 500,000 sqm of new lettable area is under 76 construction and over 500,000 sqm is being planned. Among 75 these include the second IKEA store @ CentralPlaza WestGate, 74 ICON Siam, One Bangkok, Bangkok Mall, Dusit-CPN JV, etc. 73 72 71 Retail sales are growing. Retail sales have shown positive y-o-y 70 growth for four consecutive quarters since 1Q17. The latest

January 2018 data is encouraging, with retail sales index

Jul-16 Jul-17

Jan-16 Jan-17 Jan-18

Oct-17 Oct-16 Apr-17 surging 12.7% y-o-y. The strong retail sales were supported Apr-16 by the rebounding consumer confidence as well as the strong Source: University of Thai Chamber of Commerce, DBSVTH growth in tourist arrivals which increased by 8.6% in 2017 and 15% in 2M18.

E-commerce: a rising threat. We deem e-commerce a rising threat for physical store operators. The robust growth of online shopping platforms has resulted in shrinking demand for physical space, resulting in falling occupancy at some malls. Successful shopping malls therefore need to continue to adjust their tenant mix to cater to consumers’ changing lifestyles.

Page 12

Industry Focus

- Industrial sector

Ready-built factories: Oversupply persists. The vacancy rate Hotel: We prefer downtown Bangkok hotels. We have a remained very high at 29.6% in 4Q17, as demand remained positive outlook for the hotel sector, thanks to calmer politics weak. Looking forward, the good thing is that new supply and the continued strong growth in tourist arrivals to Thailand. will likely be limited. We believe developers will try hard to fill In 2017, international tourist arrivals to Thailand rose by 8.6% their vacant spaces, rather than building more spaces. Any y-o-y to a record high of 35.4m people. In 2M18, tourist new builds, if any, will be built-to-suit which means that they arrivals to Thailand surged 15% y-o-y. will come with full occupancy. In terms of demand, we believe demand should gradually pick up, thanks to the According to CBRE, the total supply of hotels in Bangkok stood strong export and the government’s aggressive promotion for at 44,732 keys as of end-2017, up 5% y-o-y. There were 16 the Eastern Economic Corridor (EEC) project. new hotels (2,276 keys) that opened in 2017. These included Hyatt Place Sukhumvit 24, Lancaster Bangkok, SureStay Plus by Ready-built factories: Oversupply persists Best Western, Holiday Inn Express Soi Soonvijai, Zazz Urban

Sqm Bangkok, Bangkok Midtown Hotel, Travelodge Sukumvit 11, 2,500,000 35% etc. The ADR in Bangkok hotels was Bt3,432/night in 4Q17, Sup ply up 2% y-o-y. RevPAR stood at Bt2,713/night, up 4% y-o-y. Demand 30% 2,000,000 Vacancy (RHS) 25% We still prefer downtown Bangkok hotels which should 1,500,000 20% continue to benefit from the strong tourism outlook. Their occupancies are always high, regardless of seasonality, 15% 1,000,000 resulting in relatively stable cash flows. 10% 500,000 5% Tourist arrivals to Thailand

0 0% '000 People

3,400

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2005 3,000 Source: CBRE, DBSVTH 2,600 Logistics centres (warehouse): Vacancy improved slightly q-o-q 2,200 The vacancy rate improved slightly q-o-q but remained high at 1,800 20.8% in 4Q17. Total supply increased slightly by 30,000 sqm 1,400 to 3.43m sqm in 4Q17. Total net new take-up for the year 1,000 was 316,000 sqm in 2017. Looking forward, we see 600

improving outlook for the sector given the robust growth of

Jul

Jan

Jun

Feb Oct

Apr Sep

Dec

Nov

Mar

Aug May E-commerce in Thailand. 010 011 01 013 01 015 016 01 01 Warehouses: Vacancy rate remained high at 20.8% in 4Q17 Source: Immigration Bureau, Department of Tourism, DBSVTH

4,000,000 30% Hotel occupancy rate 3,500,000 25% 3,000,000 % 20% 80 2,500,000

2,000,000 15% 70 1,500,000 10% 60 1,000,000 5% 500,000 50

0 0%

40

2Q13 3Q13 1Q14 2Q14 4Q14 1Q15 2Q15 3Q15 1Q16 2Q16 4Q16 1Q17 3Q17 4Q17 4Q13 3Q14 4Q15 3Q16 2Q17

Total Space (Sqm) Leased Space (Sqm) Vacancy (RHS) 30

Jul

Jan

Jun

Feb Oct

Apr Sep

Dec

Nov

Mar

Aug May Source: CBRE, DBSVTH 009 010 011 01 013 01 015 016 01 01

Source: Bank of Thailand, DBSVTH

Page 13

Industry Focus

Company Guide

Page 14

Thailand Company Guide Digital Telecommunications Infrastructure Fund Version 8 | Bloomberg: DIF TB | Reuters: DIFu.BK Refer to important disclosures at the end of this report

DBS Group Research . Equity 4 Apr 2018 BUY Still our favorite yield play Last Traded Price ( 3 Apr 2018): Bt14.30 (SET : 1,765.24) Price Target 12-mth: Bt16.00 (12% upside) DIF remains one of our favourite yield plays. Digital Telecommunications Infrastructure Fund (DIF) has long-term Analyst lease agreements in place, which provides strong cash flow Wasu MATTANAPOTCHANART +66 2857 7826 [email protected] visibility. We maintain our BUY call on the back of c.7% yield in FY18-19F and 10% upside to our TP of Bt16.00, which already includes the new asset injection taking place in June 2018.

Price Relative Where we differ. We are quite conservative on the purchase price of Phase II. After the purely debt-financed Phase I was completed in Nov 2017, the capital raising exercise for Phase II, comprising 2,589 towers and 1,210,292 core km of fibre optic cable (FOC), should take place in June 2018 and the assets transferred to the fund in 2H18. DIF hinted that the purchase price could be in the range of Bt53bn-Bt56bn (c.Bt2bn to be financed by debt), so our forecast of Bt58bn purchase price is Forecasts and Valuation FY Dec (Btm) 2016A 2017A 2018F 2019F rather conservative. Revenue 6,381 6,741 10,369 13,052 EBITDA 6,111 6,477 9,663 12,220 Potential catalyst. Yield and guarantee to rise after Phase II. Pre-tax Profit 18,855 11,105 8,091 10,817 With the asset purchases, yield is expected to rise from 6.7% in Net Profit 18,855 11,105 8,091 10,817 FY17 to 6.9% in FY18F and 7.3% in FY19F. The weighted Net Pft (Pre Ex.) 5,370 5,687 8,091 10,817 average contract tenor should also rise from 9.5 years (pre- Net Pft Gth (Pre-ex) (%) 6.4 5.9 42.3 33.7 Phase I) to 21 years (post-Phase II). After Phase II is completed, EPS (Bt) 3.25 1.91 1.02 1.07 all fibre assets will have 16+10 years of guarantee while the EPS Pre Ex. (Bt) 0.92 0.98 1.02 1.07 EPS Gth Pre Ex (%) 6 6 4 5 towers will have 16 years of guarantee; previously, the old Diluted EPS (Bt) 3.25 1.91 1.02 1.07 assets only had 9-10 years of guarantee. Post Phase I, TRUE will Net DPS (Bt) 0.96 0.98 1.01 1.06 not be able to install new fibre networks in the same location. BV Per Share (Bt) 14.6 15.6 25.2 25.2 PE (X) 4.4 7.5 14.0 13.3 Valuation: PE Pre Ex. (X) 15.5 14.6 14.0 13.3 Our TP of Bt16.00 is based on the DCF method (WACC = P/Cash Flow (X) 15.8 13.6 12.0 13.1 EV/EBITDA (X) 15.6 16.6 14.4 13.9 7.5%, TG = 2%). Net Div Yield (%) 6.7 6.8 7.1 7.4 P/Book Value (X) 1.0 0.9 0.6 0.6 Key Risks to Our View: Net Debt/Equity (X) 0.1 0.3 0.2 0.2 Technology advancement could lead to more efficient use of ROAE (%) 24.1 12.7 6.8 7.4 tower slots in the future. Also, weak economic conditions Earnings Rev (%): 0 0 could lead to lower-than-expected investments by mobile Consensus EPS (Bt): 1.05 1.06 Other Broker Recs: B: 4 S: 0 H: 4 telecommunications operators. Source of all data on this page: Company, DBSVTH, Bloomberg Finance At A Glance L.P Issued Capital (m shrs) 5,808 Mkt. Cap (Btm/US$m) 83,054 / 2,663 Major Shareholders (%) True Corporation (%) 28.11 The Siam Commercial Bank (%) 5.12 HSBC (Singapore) Nominees Pte Ltd (%) 1.79 Free Float (%) 63.46 3m Avg. Daily Val (US$m) 3.1 ICB Industry : Telecommunications / Fixed Line Telecommunications

Existing asset + Phase I + Phase II

ed: JS / sa: PY, CS Company Guide Digital Telecommunications Infrastructure Fund

Source of all data: Company, DBSVTH

Phase I Assets

Source of all data: Company, DBSVTH

Page 2

Company Guide Digital Telecommunications Infrastructure Fund

Phase II Assets

Source of all data: Company, DBSVTH

New asset purchases Unit: Btm Value Debt Equity Asset yield Equity yield* Phase I 12,898 12,898 0 7.2% na Phase II 58,000 2,000 56,000 7.1% 7.2% Total 70,898 14,898 56,000 7.2% 7.8%

*before fund-related expenses Source of all data: Company, DBSVTH

Page 3 Company Guide Digital Telecommunications Infrastructure Fund

Revenue and net investment income CRITICAL DATA POINTS TO WATCH

Critical Factors Continuous network expansion creates growth opportunities. The three leading Thai telcos are investing heavily to expand their networks. The small potential upside to DIF’s income could arise from more third-party rents going forward; Total Access Communication (DTAC) has already shown interest in leasing more towers from DIF (Phase II towers) and Advanced Info Service (ADVANC) is looking at the locations of DIF’s towers and may be considering renting the towers for the first time.

Asset injections are slightly positive to yield and valuation. With Growth of net investment income the asset purchases, DIF’s yield is expected to rise from 6.7% in FY17 to 7.3% in FY19F. The weighted average contract tenor should also rise from 9.5 years (pre-Phase I) to 21 years (post- Phase II). After Phase II is completed, all fibre assets will have 16+10 years of guarantee while the towers will have 16 years of guarantee; previously, the old assets only had 9-10 years of guarantee.

Non-competing clause to help suppress TRUE’s bargaining power. The transaction of Phase I in Nov 2017 also introduced a non-competing clause for TRUE, which means TRUE must not install new fibre networks in the same location as DIF unless i) DIF does not have enough capacity for TRUE’s requirements, ii) Prices of 3G/4G licenses Avg price per Price per MHz Auction DIF chooses not to lease to TRUE, or iii) the commercial terms of the additional leases cannot be agreed upon by both parties. licence (Btm) per year (Btm) date 2.1GHz 13,875 62 Oct-12 Lease extension will come if Phase II succeeds. Phase I in Dec 1.8GHz 40,389 150 Nov-15 900MHz 75,976 506 Dec-15

2017, financed by debt of Bt12.9bn, comes with 459 towers and 259,755 core km of fibre; this batch will have a lease term of 16 years, expiring in 2033. Phase II, expected to be financed Revenue breakdown (TRUE vs third parties) with Bt2bn debt and Bt56bn equity, will comprise 2,589 towers and 1,210,292 core km of fibre. If Phase II is approved, all fibre in Phase I, Phase II and those injected after the IPO will be granted a lease term of 16 + 10 years, which essentially means DIF can allow TRUE to continue leasing the fibre for ten years after 2033. The existing tower leases will also be extended to 2033. Post Phase I, the weighted average contract tenor will be around 17 years; after phase II, the tenor will jump to 21 years.

Source: Company, DBSVTH

Page 4

Company Guide Digital Telecommunications Infrastructure Fund

Leverage & Asset Turnover (x)

Balance Sheet: DIF’s debt-to-EBITDA ratio stands at 1.98x, on Bt13bn interest- bearing debt. The infrastructure fund has a debt covenant of 4.0x, so DIF has plenty of room to finance new asset purchases in the future. Debt to EBITDA in FY19F (full-year operation of new assets) is expected to be 2.2x.

Share Price Drivers: Potential upside from TRUE. Our model has already factored in asset purchases from TRUE in Dec 17 and Jun 18. Capital Expenditure

Key Risks: Technological risks. New technologies such as Single RAN (using different types of technology on a single spectrum) and carrier aggregation (combining different frequency bands for the same technology) could lead to more efficient use of tower slots in the long run.

Weak macroeconomic environment. A continued weak macroeconomic environment could result in lower investments by telcos, resulting in lower-than-expected demand for towers ROE (%) and fibre optic network assets.

Failure of DIF to be seen as an independent player If DIF is seen to be aligned to the interests of TRUE Group, other telcos may not lease towers from DIF for strategic reasons.

Company Background DIF is the first telecom infrastructure fund listed on the Thai Stock Exchange. The closed-end fund raised Bt58bn (~US$1.8bn) in December 2013 through an initial public offering (IPO). The fund’s initial assets included 6,000 Forward PE Band (x) telecommunication towers (gradually constructed and transferred in 2014-2015), a core fibre optic cable grid (5,112km), and upcountry broadband network. In addition, the fund owns the rights to net revenues from 6,183 telecom towers (one slot per tower) and a fibre optic cable transmission grid. Further, in March 2015, the fund further acquired 7,981 km of FOC and 338 towers from a subsidiary of TRUE for Bt13.1bn. This was 100% funded by a commercial bank loan for a period of five years at a fixed interest rate of 5.46%.

PB Band (x)

Source: Company, DBSVTH

Page 5

Company Guide Digital Telecommunications Infrastructure Fund

Income Statement (Btm) FY Dec 2015A 2016A 2017A 2018F 2019F

Revenue 5,890 6,381 6,741 10,369 13,052 Cost of Goods Sold (165) (177) (163) (525) (539) Gross Profit 5,725 6,204 6,578 9,844 12,513 Other Opng (Exp)/Inc (90.4) (93.5) (101) (181) (293) Operating Profit 5,635 6,111 6,477 9,663 12,220 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (586) (741) (791) (1,572) (1,403) Exceptional Gain/(Loss) (196) 13,485 5,419 0.0 0.0 Pre-tax Profit 4,853 18,855 11,105 8,091 10,817 Tax 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 4,853 18,855 11,105 8,091 10,817 Net Profit before Except. 5,048 5,370 5,687 8,091 10,817 EBITDA 5,635 6,111 6,477 9,663 12,220 Growth Revenue Gth (%) 36.4 8.3 5.6 53.8 25.9 EBITDA Gth (%) 36.7 8.4 6.0 49.2 26.5 Opg Profit Gth (%) 36.7 8.4 6.0 49.2 26.5 Net Profit Gth (Pre-ex) (%) 21.8 6.4 5.9 42.3 33.7 Margins & Ratio Gross Margins (%) 97.2 97.2 97.6 94.9 95.9 Opg Profit Margin (%) 95.7 95.8 96.1 93.2 93.6 Net Profit Margin (%) 82.4 295.5 164.7 78.0 82.9 ROAE (%) 6.8 24.1 12.7 6.8 7.4 ROA (%) 6.1 20.1 10.1 5.4 6.1 ROCE (%) 7.2 6.8 6.1 6.7 7.1 Div Payout Ratio (%) 113.2 29.4 51.0 72.8 57.1 Net Interest Cover (x) 9.6 8.3 8.2 6.1 8.7 Source: Company, DBSVTH

Page 6

Company Guide Digital Telecommunications Infrastructure Fund

Quarterly / Interim Income Statement (Btm) FY Dec 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017

Revenue 1,670 1,622 1,628 1,633 1,859 Cost of Goods Sold (41.1) (37.0) (37.1) (38.4) (50.7) Gross Profit 1,629 1,585 1,591 1,595 1,808 Other Oper. (Exp)/Inc (23.6) (23.8) (25.6) (25.2) (26.1) Operating Profit 1,605 1,561 1,565 1,570 1,782 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc Net Interest (Exp)/Inc (162) (210) (163) (211) (207) Exceptional Gain/(Loss) 93.3 5,521 (58.5) (29.3) (14.7) Pre-tax Profit 1,536 6,872 1,344 1,330 1,560 Tax 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 1,536 6,872 1,344 1,330 1,560 Net profit bef Except. 1,443 1,351 1,402 1,359 1,575 EBITDA 1,605 1,561 1,565 1,570 1,782

Growth Revenue Gth (%) 5.7 (2.9) 0.4 0.3 13.8 EBITDA Gth (%) 6.2 (2.8) 0.3 0.3 13.5 Opg Profit Gth (%) 6.4 (2.8) 0.3 0.3 13.5 Net Profit Gth (Pre-ex) (%) 10.8 (6.4) 3.8 (3.1) 15.9 Margins Gross Margins (%) 97.5 97.7 97.7 97.6 97.3 Opg Profit Margins (%) 96.1 96.3 96.1 96.1 95.9 Net Profit Margins (%) 92.0 423.7 82.6 81.4 83.9

Balance Sheet (Btm) FY Dec 2015A 2016A 2017A 2018F 2019F

Net Fixed Assets 84,651 98,136 116,545 174,545 174,545 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 978 1,098 1,923 1,281 1,249 Cash & ST Invts 855 857 1,024 2,072 2,236 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 316 371 314 313 313 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 86,800 100,461 119,806 178,211 178,341

ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 586 752 1,777 0.0 0.0 Other Current Liab 1,699 2,027 1,884 3,948 4,078 LT Debt 12,936 12,975 25,754 27,873 27,873 Other LT Liabilities 0.0 0.0 0.0 0.0 0.0 Shareholder’s Equity 71,579 84,707 90,390 146,390 146,390 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 86,800 100,461 119,806 178,211 178,341

Non-Cash Wkg. Capital (1,969) (2,408) (3,347) (3,634) (3,765) Net Cash/(Debt) (12,081) (12,118) (24,730) (25,801) (25,637) Debtors Turn (avg days) 19.6 19.7 18.5 11.0 8.8 Creditors Turn (avg days) 441.4 903.0 1,748.5 459.6 N/A Inventory Turn (avg days) N/A N/A N/A N/A N/A Asset Turnover (x) 0.1 0.1 0.1 0.1 0.1 Current Ratio (x) 0.5 0.4 0.4 0.6 0.6 Quick Ratio (x) 0.5 0.4 0.4 0.6 0.6 Net Debt/Equity (X) 0.2 0.1 0.3 0.2 0.2 Net Debt/Equity ex MI (X) 0.2 0.1 0.3 0.2 0.2 Capex to Debt (%) 100.0 0.0 50.1 208.1 0.0 Z-Score (X) 3.8 3.9 2.3 2.3 2.7

Source: Company, DBSVTH

Page 7

Company Guide Digital Telecommunications Infrastructure Fund

Cash Flow Statement (Btm) FY Dec 2015A 2016A 2017A 2018F 2019F

Pre-Tax Profit 5,054 5,284 5,595 8,091 10,817 Dep. & Amort. 0.0 0.0 0.0 0.0 0.0 Tax Paid 0.0 0.0 0.0 0.0 0.0 Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 1,010 (451) 997 1,360 220 Other Operating CF 63.4 419 (482) 0.0 0.0 Net Operating CF 6,127 5,252 6,109 9,451 11,037 Capital Exp.(net) (12,936) 0.0 (12,898) (58,000) 0.0 Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (12,936) 0.0 (12,898) (58,000) 0.0 Div Paid (5,228) (5,561) (6,184) (8,404) (10,873) Chg in Gross Debt 12,936 39.3 12,898 2,000 0.0 Capital Issues 0.0 0.0 0.0 56,000 0.0 Other Financing CF (270) 271 241 0.0 0.0 Net Financing CF 7,438 (5,250) 6,956 49,596 (10,873) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 629 2.18 167 1,048 164 Opg CFPS (Bt) 0.88 0.98 0.88 1.02 1.07 Free CFPS (Bt) (1.2) 0.90 (1.2) (6.1) 1.09 Source: Company, DBSVTH

Target Price & Ratings History

Source: DBSVTH Analyst: Wasu MATTANAPOTCHANART

THAI-CAC n/a Corporate Governance CG Rating (as of Oct 2017) n/a

THAI-CAC is Companies participating in Thailand's Private Sector Score Description Collective Action Coalition Against Corruption programme (Thai Declared Companies that have declared their intention to join CAC CAC) under Thai Institute of Directors (as of Feb 2018) are Certified Companies certified by CAC. categorised into: Score Range Number of Logo Description Corporate Governance CG Rating is based on Thai Institute of 90-100 Excellent Directors (IOD)’s annual assessment of corporate governance 80-89 Very Good practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), 70-79 Good disclosure and transparency (20%), role of stakeholders (20%), 60-69 Satisfactory equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to 50-59 Pass each company based on their scoring as follows: <50 No logo given N/A

Page 8

Thailand Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund Version 9 | Bloomberg: TLGF TB | Reuters: TLGFu.BK Refer to important disclosures at the end of this report

DBS Group Research . Equity 4 Apr 2018

BUY (Upgrade from Hold) Offering decent yield with low risks Last Traded Price ( 3 Apr 2018): Bt18.10 (SET : 1,765.24) Price Target 12-mth: Bt20.00 (10% upside) (Previous Bt18.5) Portfolio of quality retail assets in diversified locations. TLGF has invested in 23 Tesco Lotus malls throughout Thailand. Freehold Analyst assets represent 61% of TLGF’s total leasable area and 77% of Chanpen SIRITHANARATTANAKUL +662 857 7824 [email protected] its appraised value. Occupancy rate has always been high at 98%+ since inception. Twelve of the malls are located in Bangkok and 11 in the provinces. The geographical What’s New diversification helps to reduce concentration risks. As many of • 3Q17/18 results in line with our expectation its assets are freehold and in good locations, the fund stands to benefit from future capital appreciation. TLGF is now offering • Net investment income rose 1.6% y-o-y 11% upside to our TP of Bt20.00, and a moderate dividend • Offering decent 5.0% dividend yield in 2018/19 yield of 5.0%. We therefore upgrade the stock from Hold to • Upgrade to BUY with a revised DCF-based TP of BUY. Bt20.00

Where we differ. The property fund/REIT sector is not well covered in Thailand. DBS has so far the most extensive coverage on the sector. For TLGF, there are only a few brokers including Price Relative DBS covering the stock. Our 2018F and 2019F DPU forecasts are a bit more conservative than consensus, as we have assumed only 90% dividend payout ratio in our forecast for 2018F and 2019F, as TLGF will need to reserve some cash for its asset-enhancement initiatives and for some debt repayment.

Potential catalysts. Strong rental reversion as a result of improving economy and the fund’s asset-enhancement Forecasts and Valuation FY Feb (Btm) 2017A 2018F 2019F 2020F initiatives should serve as key catalysts for the share price. Gross Revenue 2,934 2,974 3,104 3,217 Net Property Inc 2,548 2,584 2,691 2,783 Valuation: Net Investment Income 2,842 2,229 2,325 2,407 We value TLGF at Bt20.00, based on DCF valuation. We Distribution Inc 2,008 2,006 2,093 2,335 assume WACC of 7.2%, and a terminal growth rate of 2.2% EPU (Bt) 1.22 0.95 0.99 1.03 EPU Gth (%) 15 (22) 4 4 in our DCF valuation. DPU (Bt) 0.86 0.86 0.90 1.00 DPU Gth (%) (1) 0 4 12 Key Risks to Our View: NAV per shr (Bt) 11.8 11.9 12.0 12.1 Key risks are (i) lower-than-expected rental reversion, and (ii) PE (X) 14.9 19.0 18.2 17.6 Distribution Yield (%) 4.7 4.7 4.9 5.5 weaker-than-expected occupancy rate. P/NAV (x) 1.5 1.5 1.5 1.5 Aggregate Leverage (%) 8.7 8.2 8.2 8.2 At A Glance ROAE (%) 10.5 8.0 8.3 8.6 Issued Capital (m shrs) 2,337 Mkt. Cap (Btm/US$m) 42,305 / 1,357 Major Shareholders (%) Distn. Inc Chng (%): (1) (2) - Ek-Chai Distribution System Co., Ltd. 25.0 Consensus DPU (Bt): 0.89 0.94 1.00 Other Broker Recs: B: 0 S: 1 H: 4 Government Pension Fund 8.2 Bangkok Life Assurance Plc. 6.0 Source of all data on this page: Company, DBSVTH, Bloomberg Finance Free Float (%) 75.0 L.P 3m Avg. Daily Val (US$m) 0.70 ICB Industry : Real Estate / Real Estate Investment Trusts

ed: CK / sa: TP, CS, PY Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund

WHAT’S NEW 3Q17/18 results in line

Net investment income rose 1.6% y-o-y in 3Q17/18 (ending OUTLOOK Nov 2017). This was mainly on the back of a 2.8% increase in Asset enhancement. TLGF plans to spend Bt20m for asset rental and service income and a 4.8% increase in operating enhancement projects in 2018/19. Further details have yet to expenses. The key reasons for the sharp drop in operating be released. expenses are (i) a 30% drop in sales promotion, (ii) lower property tax, and (iii) a reversal in provision for doubtful debts. Around 9.7% of leasable area subject to contract renewal in the remaining 2018/19. A total of 677 contracts covering a Rental & service income rose 2.8% y-o-y to Bt743m. In terms leasable area size of 33,024 sqm of (9.7% of total) are subject of revenue breakdown, fixed rents made up 41% of total to contract renewal in 2018/2019. We have assumed a rental revenue, followed by hypermarkets and foodcourt (Tesco reversion of 5% p.a. in our forecast. Lotus) 26%, temporary rents 18%, variable rents 15%, and others 1%. Loan refinance this year. TLGF has Bt2.6bn borrowings that was due in late Dec 2017. The fund repaid Bt150m loans Occupancy rate eased slightly to 97.4% at end-3Q17/18. This with its cash on hand and managed to refinance the is down slightly from 97.7% at end-2Q17/18, as a result of remaining Bt2.45bn loans at lower interest rate of renovation going on at Krabi and Navanakorn projects. It is BIBOR+1.075% (down from BIBOR+1.25% previously) for expected that occupancy should improve back to 98% level in another five years. 4Q17/18 as new tenants start to move in. Assuming dividend payout of 90% in 2018/19 and 97% Rental reversion of 14.1% for contracts renewed in 2Q17/18. thereafter. TLGF has decided to cut its dividend payout to TLGF managed to renew 286 lease contracts covering 19,182 90% from 3Q16/17 onwards in order to reserve money for its sqm (5.6% of total leasable area) with rental increase of renovation projects and to repay some of its loans. We have 14.1%. Rental reversion was quite high in provincial areas assumed a 90% payout ratio in 2017/18 and 2018/19, and (North +35.7%, South +18.8%, Outer Bangkok +8.0%) but then 97% thereafter. Based on such forecast, TLGF should was quite low (+2.7%) in Central Bangkok given the fierce see its DPU remain flat in 2017/18 before rebounding 4% in competition. 2018/19.

Announced an interim DPU of Bt0.2145 for 3Q17/18 (ending Recommendation Nov 2017) performance. This represents a dividend payout Upgrade to BUY. The fund now offers a moderate 2018/19F ratio of 90%. The stock went ex-dividend on 26 Jan 2018 dividend yield of 5.0%. Such dividend yield could rise to and dividend payment was made on 15 Feb 2018. 5.6% in 2019/20 when we assume dividend payout ratio will revert back to 97%. We upgrade our rating on the stock to BUY with a DCF-based TP of Bt20.

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Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund

Quarterly / Interim Income Statement (Btm) TLGF: Ending 30-Nov-16 31-Aug-17 30-Nov-17 Change Unit: Btm 3Q17 2Q18 3Q18 y-o-y q-o-q Rental and service income 723 741 743 2.8% 0% Other income 0 0 0 -100% 0% Total investment income 723 741 743 3% 0% Operating expenses (78) (79) (82) 4.8% 4% Net property income 645 662 661 2% 0% Fund expenses (68) (77) (74) 9% -4% Amortization expenses 0 0 0 0% 0% Ground lease payment (12) (12) (12) 0% -1% Other expenses (1) (0) (2) 116% 410% Interest Income 4 5 4 -6% -21% Interest Expenses (19) (19) (19) -1% -1% Net investment income 548 558 557 1.6% 0% Revaluation gain (loss) (0) 169 (0) -89% -100% Increase in net assets 548 727 557 2% -23%

Payout 90% 90% 90% 0% 0% Distribution 493 503 501 2% 0% Capital Reduction + DPU (Bt) 0.2109 0.2150 0.2145 2% 0% Source of all data: Company, DBSVTH

Page 3

Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund

Net Property Income and Margins (%) CRITICAL DATA POINTS TO WATCH

Critical Factors Occupancy rate. Occupancy has always been high at 98%+ since its inception. Tesco Lotus is the largest anchor tenant, occupying 57% of the fund’s leasable area and generating 26% of revenue.

Rental reversion. 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 are subject to Net Property Income and Margins (%) 10% rental reversion in 2018/2019. For non-Tesco Lotus area, rents are normally for a period of 1-3 years, and increased by at least 5% p.a. upon renewal.

Asset-enhancement initiatives. TLGF normally has two types of asset-enhancement initiatives including Space Assembling (SPA) Projects and Refresh projects. SPA projects involve readjusting its tenant mix to serve the needs of customers, taking back the leasable area from non-performing tenants and re-leasing it to new tenants with better potential, etc. This involves taking back the leasable area from Tesco Lotus and then re-leasing it Distribution Paid / Net Operating CF to new tenants at much higher rental rates. We estimate the average rental rate for Tesco Lotus at about Bt332/sqm/month, compared with Bt1,326/sqm/month for other clients in 3Q2017/18.

Dividend payout. We currently assume 90% dividend payout ratio in our 2018/19 projections and 97% thereafter. If actual payout differs from our forecast, then DPU could also differ.

No plans for conversion into a REIT. All property funds, including TLGF, can no longer increase capital to acquire additional assets unless they are converted into REITs. According Interest Cover (x) to management, Tesco Lotus Thailand performed very well last year and saw its market share continue to rise. It is now in a debt-free position and sees no need to divest more assets into a REIT for fund raising. With no immediate plans for asset injection by Tesco Lotus, TLGF sees no need for its conversion from property fund into a REIT. Note that the key concern for most property funds (including TLGF) is the 20% tax on dividend income received from REITs by institutional investors, as compared to 0% tax on dividend received from property funds currently. This means TLGF has to rely only on organic growth to grow its revenue and net investment income. Source: Company, DBSVTH

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Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund

Appendix 1: TLGF’s price correlation with critical factors

TLGF: Historical price vs Thai 10-year treasury yield Remarks

% TLGF’s share price has negative correlation with the 10- Bt year government bond yield. As bond yields drop, TLGF’s 20 TLGF 5.0 19 10-Year Govt Bond Yield (RHS) 4.5 share normally rises. This is mainly because TLGF’s yield is 18 4.0 considered more attractive than government bond yields. 17 3.5 On the other hand, if bond yield rises sharply, TLGF’s 16 3.0 15 2.5 share price could fall, as it becomes less attractive for 14 2.0 investors. 13 1.5 12 1.0 11 0.5

10 0.0

Jun-13 Jun-14 Jun-15 Jun-16 Jun-17

Sep-13 Sep-14 Sep-15 Sep-16

Dec-13 Dec-14 Dec-15 Dec-16

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

Source: Company, Bloomberg Finance L.P., DBSVTH

TLGF: Historical yield vs Thai 10-year treasury yield Remarks This chart shows historical TLGF’s yield spread vs the Thai % 10-year government bond yield. The historical average 8 TLGF's Yield spread over the 10-year government bond yield is 7 10-Year Govt Bond Yield 231bps. The fund now offers a distribution yield of 5.0% 6 or 244bps over the Thai 10-year government bond yield 5 at 2.56%. This suggests the current spread is still slightly 4 higher than the historical average. 3 2

1

Jun-13 Jun-14 Jun-15 Jun-16 Jun-17

Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

Dec-13 Dec-14 Dec-15 Dec-16 Dec-17

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Source: Company, Bloomberg Finance L.P., DBSVTH

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Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund

Aggregate Leverage (%) Balance Sheet: Total borrowings amounted to Bt2.59bn, representing 9.3% of its net asset value at end-3Q17/18.

Share Price Drivers: Strong rental reversion could lift rental income and distribution per unit.

Key Risks: Political unrest and slowing economy. Political unrest and a slowing economy could hurt consumer confidence and delay spending, and in turn affect the potential for rental rate hikes ROE (%) and occupancy rates for the fund.

Losing key anchor tenant. If anchor tenant Tesco Lotus does not renew its contract, TLGF would need to fill the area with other tenants. As such area occupied by Tesco Lotus is of considerable size, filling the entire space with new tenants may become difficult if the economy is weak.

Company Background TLGF is Thailand’s second largest property fund in terms of market capitalisation. It invests in 23 Tesco Lotus shopping malls throughout Thailand, with a total leasable area of Distribution Yield (%) 336,400 sqm. Of the total 23 stores, 12 stores are located in Bangkok, three stores in the Northern region, and eight stores in the Southern region.

In terms of asset ownership, 14 stores occupying 61% of total leasable area and 73% of its appraised value are freehold, with the remaining nine stores occupying the remaining 39% of total leasable area and 27% of its appraised value being leasehold. These leasehold assets have a remaining leasehold life of 20 years. PB Band (x) Tesco Lotus is the largest anchor tenant, occupying 57% of the fund’s leasable area and generating 26% of revenue. 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. For non- Tesco Lotus area, we assume rental growth of 5% p.a.

Source: Company, DBSVTH

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Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund

Key Assumptions FY Feb 2016A 2017A 2018F 2019F 2020F

Leasable area (sqm) 351,703 352,078 345,593 339,587 339,587 Occupancy 98.1% 98% 98% 98% 98% Occupied area (sqm) 345,084 345,442 338,704 332,834 332,834 Rents (bt/sqm/month) 687 708 732 777 805 Total rents (Btm) 2,846 2,934 2,974 3,104 3,217

Segmental Breakdown

FY Feb 2016A 2017A 2018F 2019F 2020F

Revenues (Btm) Hypermarkets & foodcourt 784 784 784 849 849 Long-term lease 1,543 1,624 1,638 1,686 1,770 Short-term lease 484 508 533 549 577

Others 35 18 19 20 21

Total 2,846 2,934 2,974 3,104 3,217

Revenue Breakdown Hypermarkets & foodcourt 28% 27% 26% 27% 26% Long-term lease 54% 55% 55% 54% 55% Short-term lease 17% 17% 18% 18% 18% Others 1% 1% 1% 1% 1% Total 100% 100% 100% 100% 100%

Income Statement (Btm) FY Feb 2016A 2017A 2018F 2019F 2020F

Gross revenue 2,846 2,934 2,974 3,104 3,217 Property expenses (421) (386) (389) (413) (433) Net Property Income 2,425 2,548 2,584 2,691 2,783 Other Operating expenses (338) (281) (295) (310) (325) Other Non Opg (Exp)/Inc 2.00 1.50 1.55 1.59 1.64 Net Interest (Exp)/Inc (68.0) (63.4) (61.8) (57.9) (52.7) Net Investment Income 1,738 2,022 2,205 2,259 2,377 Asset Revaluation Gain 444 637 0.0 0.0 0.0 Increase in Net Assets 2,466 2,842 2,229 2,325 2,407

Distributable Income 1,888 2,055 2,205 2,259 2,377 Dist. Payout Ratio (%) 98.7 91.0 90.0 90.0 97.0 Distribution 1,893 2,028 2,008 2,033 2,139

Growth & Ratio Revenue Gth (%) 4.0 3.1 1.4 4.4 3.6 N Property Inc Gth (%) 5.4 5.1 1.4 4.1 3.4 Net Inc Gth (%) 31.4 15.2 (21.6) 4.3 3.5 Distribution payout ratio Dist. Payout Ratio (%) 98.7 91.0 90.0 90.0 97.0 cut to 90% for two years in Net Prop Inc Margins (%) 85.2 86.9 86.9 86.7 86.5 2018F and 2019F Net Income Margins (%) 86.6 96.9 75.0 74.9 74.8 Dist to revenue (%) 71.2 68.4 67.5 67.4 72.6 Managers & Trustee’s fees 9.8 9.6 9.9 10.0 10.1 ROto salesAE (%) %) 9.3 10.5 8.0 8.3 8.6 ROA (%) 8.3 9.3 7.2 7.5 7.7 ROCE (%) 7.2 7.6 7.6 7.8 8.0 Int. Cover (x) 30.7 35.8 37.0 41.2 46.6 Source: Company, DBSVTH

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Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund

Quarterly / Interim Income Statement (Btm) FY Feb 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018

Rental and service income 723 741 745 741 743 Other income 0 1 1 0 0 Total investment income 723 742 746 741 743

Operating expenses (78) (79) (88) (79) (82) Net property income 645 663 658 662 661 Fund expenses (68) (71) (69) (77) (74)

Ground lease payment (12) (12) (12) (12) (12) Other expenses (1) 5 (5) (0) (2) Interest Income 4 2 4 5 4

Interest Expenses (19) (19) (19) (19) (19) Net investment income 548 568 556 558 557 Revaluation gain (loss) (0) 377 0 169 (0)

Increase in net assets 548 946 556 727 557

Payout 90% 88% 90% 90% 90% Distribution 493 502 498 503 501 Capital Reduction + DPU 0.2109 0.2148 0.2129 0.2150 0.2145 (Bt) Balance Sheet (Btm) FY Feb 2016A 2017A 2018F 2019F 2020F

Investment Properties 28,509 29,171 29,271 29,371 29,471 Other LT Assets 446 485 482 478 474 Cash & ST Invts 1,089 1,253 1,252 1,426 1,479 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 0.0 0.0 0.0 0.0 0.0 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 30,043 30,909 31,005 31,275 31,424

ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 0.0 0.0 0.0 0.0 0.0 Other Current Liab 690 731 746 762 778 LT Debt 2,591 2,591 2,450 2,450 2,450 Other LT Liabilities 0.0 0.0 0.0 0.0 0.0 Unit holders’ funds 26,762 27,587 27,809 28,063 28,196 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Funds & Liabilities 30,043 30,909 31,005 31,275 31,424

Non-Cash Wkg. Capital (690) (731) (746) (762) (778) Net Cash/(Debt) (1,502) (1,338) (1,198) (1,024) (971) Ratio Current Ratio (x) 1.6 1.7 1.7 1.9 1.9 Quick Ratio (x) 1.6 1.7 1.7 1.9 1.9 Aggregate Leverage (%) 8.9 8.7 8.2 8.2 8.2 Z-Score (X) 27.8 27.2 27.2 27.0 27.0

Source: Company, DBSVTH

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Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund

Cash Flow Statement (Btm) FY Feb 2016A 2017A 2018F 2019F 2020F

Pre-Tax Income 2,466 2,842 2,229 2,325 2,407 Dep. & Amort. 59.3 0.0 0.0 0.0 0.0 Tax Paid 0.0 0.0 0.0 0.0 0.0

Associates &JV Inc/(Loss) 0.0 0.0 0.0 0.0 0.0

Chg in Wkg.Cap. (444) (637) 0.0 0.0 0.0

Other Operating CF 15.3 96.9 93.9 106 106 Net Operating CF 2,096 2,302 2,323 2,431 2,514 Net Invt in Properties (20.9) (25.7) (100.0) (110) (110) Other Invts (net) 0.0 (217) 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc. & JVs 0.0 0.0 0.0 0.0 0.0 No asset injection plan Other Investing CF (76.0) (76.0) (76.0) (76.0) (76.0) Net Investing CF (96.9) (319) (176) (186) (186) Distribution Paid (1,979) (2,018) (2,007) (2,071) (2,274) Chg in Gross Debt 0.0 0.0 (141) 0.0 0.0 New units issued 0.0 0.0 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF (1,979) (2,018) (2,148) (2,071) (2,274) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 20.2 (34.2) (0.8) 174 53.1

Operating CFPS (Bt) 1.09 1.26 0.99 1.04 1.08 Free CFPS (Bt) 0.89 0.97 0.95 0.99 1.03 Source: Company, DBSVTH

Target Price & Ratings History

Source: DBSVTH Analyst: Chanpen SIRITHANARATTANAKUL

THAI-CAC n/a Corporate Governance CG Rating (as of Oct 2017) n/a

THAI-CAC is Companies participating in Thailand's Private Sector Score Description Collective Action Coalition Against Corruption programme (Thai Declared Companies that have declared their intention to join CAC CAC) under Thai Institute of Directors (as of Feb 2018) are Certified Companies certified by CAC. categorised into: Score Range Number of Logo Description Corporate Governance CG Rating is based on Thai Institute of 90-100 Excellent Directors (IOD)’s annual assessment of corporate governance 80-89 Very Good practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), 70-79 Good disclosure and transparency (20%), role of stakeholders (20%), 60-69 Satisfactory equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to 50-59 Pass each company based on their scoring as follows: <50 No logo given N/A

Page 9

Thailand Company Guide WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust Version 4 | Bloomberg: WHART TB | Reuters: WHARTu.BK Refer to important disclosures at the end of this report DBS Group Research . Equity 4 Apr 2018 BUY Our top industrial REIT pick Last Traded Price ( 3 Apr 2018): Bt10.10 (STI : 3,412.15) Price Target 12-mth: Bt11.80 (17% upside) A good laggard play with generous yields of 7.9%. Following the consolidation of WHAPF assets into its portfolio, WHART is Analyst now the largest logistics warehouse REIT in Thailand. WHART Chanpen SIRITHANARATTANAKUL +662 857 7824 [email protected] invests in 20 logistics centres in Thailand with a total leasable area of 971,578 sqm. These assets enjoy high occupancy rate of 94.7% at end-2017, or 97.4% if the undertaking from the sponsor (WHA Corporation) is included. The assets are 70% Price Relative freehold and 30% leasehold (with 26 years remaining leasehold life). WHART is now offering very generous 2018F distribution yield of 7.9%. Successful acquisition of additional assets in 4Q18 should help lift the yield further.

Where we differ. We are one of a very few brokers that are actively covering the sector and WHART.

Forecasts and Valuation Potential catalysts – Acquisition of additional assets in 4Q18. FY Dec (Btm) 2016A 2017A 2018F 2019F WHART has been adding new assets into its portfolio in 4Q of Gross Revenue 709 1,079 2,040 2,047 every year since its inception. In 4Q18, it plans to acquire Bt4.5- Net Property Income 670 1,018 1,948 1,954 5.0bn worth of logistics warehouses into its portfolio. The Net Investment Income 475 728 1,486 1,542 Distributable Income 517 793 1,557 1,613 acquisition requires unitholders’ approval and therefore must be EPU (Bt) 0.68 0.66 0.76 0.78 yield accretive. We have not factored in the acquisition of new EPU Gth (%) 7.9 (3.2) 14.7 3.8 assets into our forecast, pending more available details. DPU (Bt) 0.76 0.74 0.79 0.81 DPU Gth (%) 12.21 (2.11) 5.63 3.58 NAV per shr (Bt) 9.81 9.72 9.84 9.82 Valuation: PE (X) 14.67 15.16 13.22 12.74 Our target price for WHART is Bt11.80, based on the Distribution Yield (%) 7.59 7.43 7.85 8.13 discounted cash flow (DCF) valuation methodology. It now P/NAV (x) 1.02 1.03 1.02 1.02 offers 9.6% IRR based on the current price. Debt/Total Assets (x) 27.62 26.99 27.01 27.04 ROAE (%) 5.82 5.03 7.68 7.93 Key Risks to Our View: A sharp drop in occupancy rate and rents, a weak economy, Distn. Inc Chng (%): - - - and weak exports. Consensus DPU (Bt): 0.70 0.80 0.80 Other Broker Recs: B: 2 S: 0 H: 0 At A Glance Source of all data on this page: Company, DBSVTH, Bloomberg Finance Issued Capital (m shrs) 1,964 L.P Mkt. Cap (Btm/US$m) 19,836 / 636 Major Shareholders (%) Social Security Office 19.4 WHA Corporation 15.0 Government Pension Fund 6.3 Free Float (%) 75.3 3m Avg. Daily Val (US$m) 0.23 ICB Industry : Financials / Real Estate Investment Trust

ed: CK / sa: TP, PY, CS Company Guide WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust

WHAT’S NEW 4Q17 net investment income boosted by contribution of new assets

4Q17 net investment income surged 75% y-o-y to Bt225m. Top 10 clients make up 61% of total leasable area. These This was on the back of (i) the full-year contribution of new include DKSH (Thailand) Limited 20%, LF Logistics (Thailand) assets acquired in 4Q16 (+157,215 sqm), (ii) the one-month Limited 6%, DSG International (Thailand) 6%, Sino-Pacific contribution of assets from WHAPF added in late Nov 2017 Trading (Thailand) 5%, Nissan Motor (Thailand) 5%, Hitachi (+387,385 sqm), and (iii) the one-month contribution of new Transport System Vantec (Thailand) 4%, Kao Commercial assets acquired in late Nov 2017 (+84,935 sqm). (Thailand) 4%, Thai Beverage Logistics 4%, Lgitem (Thailand) 4%, and Central Department Store Limited 3%. 2017 net investment grew 53.1% y-o-y to Bt728m. This was on the back of (i) the full-year contribution of new assets acquired in 4Q16 (+157,215 sqm), (ii) the one-month OUTLOOK contribution of assets from WHAPF added in late Nov 2017 (+387,385 sqm), and (iii) the one-month contribution of new Looking to issue Bt4.2bn domestic debentures to refinance assets acquired in late Nov 2017 (+84,935 sqm). WHART loans. WHART has just been rated A with stable outlook by recorded an unrealised loss on asset revaluation amounting to Tris Rating. It plans to issue Bt4.2bn senior unsecured Bt49m in 2017. Being a non-cash item, this did not affect debentures due within seven years. Proceeds will be used to distributable income. repay some of its existing loans that cost about 3.5% currently. The cost of the debentures to be issued has not yet An interim distribution per unit of Bt0.1597 for 4Q17. been finalised but should be lower than the cost of existing Combined with the interim distribution per unit paid in debts to be refinanced. We therefore expect some interest 9M17, total distribution per unit for 2017 amounted to savings from such debenture issuance. In addition, since the Bt0.7432. This represents a 103% payout ratio. debenture will carry fix rates as compared to banks’ loans Debt/total assets was 27% at end-2017. This was relatively that carry floating rate, it should help reduce risk from flat as compared with the end of 2016. potential interest-rate hike in the future.

The largest logistic warehouse REIT on the SET. Following the Net investment income to double in 2018. We expect acquisition of assets from WHAPF and additional assets from WHART’s net investment to double in 2018 due to the full- WHA in late 4Q17, WHART’s assets have doubled to now year contribution from the assets acquired from WHAPF and 971,679 sqm, valued at Bt27.8bn. These assets are located in the new assets acquired from WHA in 4Q17. 20 prime strategic locations in Thailand. These assets enjoy Plan to acquire additional assets from WHA in 4Q18. WHART high occupancy rate of 94.7% at end-2017, or 97.4% if the plans to acquire up to 170,000-180,000 sqm of logistics undertaking from the sponsor (WHA Corporation) is included. warehouses worth Bt4.5-5.0bn from WHA Corporation in Its market capitalisation has also risen to now Bt19.6bn or 4Q18. It plans to maintain the debt/total assets at the current US$630m, making it the largest logistic warehouse REIT on level, i.e. 27%. So the new assets will be funded by both the SET. debt and equity. We see the acquisition of new assets as Asset details. Of the total assets in the portfolio, 89% are positive, as it should not only help grow WHART’s revenue logistics warehouses, and 11% being factories. In terms of and asset size, but also enhance its yield. Note that such asset ownership, 70% of the assets are freehold, and the transaction needs to be approved by the unitholders and thus remaining 30% being leasehold assets with remaining should be yield accretive. We have not factored such new leasehold life of 26 years. In terms of lease area by type of asset acquisitions in our forecast, pending more available building, Built-to-Suit warehouses make up 63% of total details. area, with the remaining 37% being ready-built warehouses

and factories. RECOMMENDATION Client details. In terms of client breakdown, Fast-Moving Consumer Goods (FMCG) makes up 52% of the total, Maintain BUY with revised TP of Bt11.8. WHART now offers followed by Third-Party Logistics 33%, Manufacturing 12%, generous 2018 distribution yield of 7.9% at the current price. E-Commerce 2% and Data Centre 1%. WHART has also a Our DCF-based TP is now Bt11.8, offering 18% upside quite diversified portfolio of clients by nationality, with Japan potential from the current share price. making up 26% of the total, followed by Thai 25%, Europe

24%, Asia 16%, and the US 9%.

Page 2

Company Guide WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust

Quarterly / Interim Income Statement (Btm) FY Dec (Btm) 4Q16 1Q17 2Q17 3Q17 4Q17 y -o-y q-o-q Rental & service revenue 182 231 234 234 321 76% 37% Rental guarantee 14 15 15 13 15 5% 16% Gross Revenue 197 246 249 248 336 71% 36% Property Expenses (12) (7) (8) (8) (17) 38% 112% Net Property Income 185 239 242 240 319 73% 33% Property Mgt Fees (3) (5) (5) (5) (7) 136% 50% Fund Related Expenses (9) (11) (12) (12) (15) 62% 26% Amortization Expenses (12) (15) (15) (16) (19) 62% 20% Interest income (expenses) (32) (40) (41) (41) (53) 66% 30% Net Investment Income 129 167 169 166 225 75% 35% Gain (Loss) on asset revaluation 0 (50) (2) 1 1 305% -23% Increase in Net Assets 129 117 167 168 226 75% 35%

No. of Units (m) 972 972 972 972 1,964 102% 102% Core EPU (Bt) 0.1323 0.1721 0.1736 0.1713 0.1146 -13% -33%

Distributable Income 140 183 184 182 244 74% 34% DPU and Capital Reduction (Bt) 0.1795 0.1945 0.1945 0.1945 0.1597 -11% -18% Distribution 146 189 189 189 252 73% 34%

Payout Ratio (%) 104% 104% 103% 104% 104% 0% 0% Source of all data: Company, DBSVTH

Page 3

Company Guide WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust

CRITICAL DATA POINTS TO WATCH Net leasable area keeps on rising Critical Factors Sqm Acquisition of new assets. Since its listing on the SET, WHART 1,400,000 has acquired additional warehouses into its portfolio every year. 1,200,000 These new assets helped expand the REIT’s total warehouse 1,000,000 leasable area to 971,579 sqm currently, up from 167,107 sqm in 2014 when it was listed. That represents a whopping 80% 800,000 CAGR of leasable area over 2014-2017. This helps grow its net 600,000 property income and net investment income every year. 400,000

Looking forward, WHART plans to acquire up to 170,000- 200,000 180,000 sqm of logistics warehouses worth Bt4.5-5.0bn from 0 WHA Corporation in 4Q18. This will help add its leasable area 2014 2015 2016 2017 2018F 2019F by about 17-18% by end 2018. It plans to maintain the High occupancy rate debt/total assets at current level, i.e. 27%. So the new assets 102% will be funded by both debt and equity. The acquisition of new 100% assets need approval from its unitholders and thus should be 98% DPU accretive. As at end 2017, WHA still owns 442,802 sqm of 96% 94% leasable area that can be injected into WHART in the future. 92% 90% Increased occupancy rate. The actual occupancy rate for the 88% Before WHA undertaking portfolio is now 94.7%. Nonetheless, the occupancy rate (after 86% After WHA undertaking the guarantee by WHA) is now 97.4%. Note that WHA has 84%

guaranteed occupancy and rents for the REIT for three years

1Q15 2Q16 3Q17 2Q15 3Q15 4Q15 1Q16 3Q16 4Q16 1Q17 2Q17 4Q17 after the investment date. We have conservatively assumed that the average occupancy rate will be 97%, 95%, and 94% over Lease Expiry (WALE = 2.93 years) 2018-20, before dropping to 93% thereafter. 40% 35% Higher rents. The actual rental rate now ranges from about 30% Bt150-200/sqm/month. The blended average rental rate is now 25% about Bt179/sqm/month currently. We have assumed that the 20% actual rental rate will increase by 0-5% upon contract renewals. 15% Around 38% of its lease area is subject to contract renewals in 2018, 11% in 2019, 14% in 2020, 10% in 2021, 9% in 2022, 10% 6% in 2023 and 12% after 2023. The average weighted 5% average lease expiry is now 2.93 years. 0% 2018 2019 2020 2021 2022 2023 2024 2025

Demand vs supply of logistic warehouses. According to CBRE Distribution per unit (Thailand), the logistic warehouse industry saw its occupancy Bt 0.9 rate improve from 78.6% in 3Q17 to 79.2% in 4Q17. Total Capital reduction supply increased by 30,000 sqm to 3.43m sqm at end-4Q17. 0.8 Total net take-up for the whole year of 2017 was 316.000 sqm. 0.7 DPU Going forward, we see improved outlook for the sector. 0.6 Despite the oversupply situation, we believe occupancy rate 0.5 should continue to increase as the robust growth of e- 0.4 commerce will help spur demand for logistic warehouses. On 0.3 the supply side, we believe new supply would be mainly built- 0.2 to-suit buildings rather than ready-built ones. This suggests the vacancy rate should have peaked and continues to decline. 0.1 0 2015 2016 2017 2018F 2019F

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Company Guide WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust

Appendix 1: WHART’s price correlation with critical factors

WHART: Historical price vs Thai 10-year treasury yield Remarks

Bt % WHART’s share price has negative correlation with the 11.00 WHART 10-Year Govt Bond Yield (RHS) 3.3 10-year government bond yield. As bond yields drop, 3.1 10.50 WHART’s share price normally rises. This is mainly 2.9 because WHART’s yield is considered more attractive than 10.00 2.7 government bond yields. On the other hand, if bond 2.5 9.50 yield rises sharply, WHART’s share price could fall, as it 2.3 becomes less attractive for investors. 9.00 2.1 1.9 8.50 1.7

8.00 1.5

1/1/2015 3/1/2015 5/1/2015 7/1/2015 9/1/2015 1/1/2016 3/1/2016 5/1/2016 7/1/2016 9/1/2016 1/1/2017 3/1/2017 5/1/2017 7/1/2017 9/1/2017 1/1/2018

11/1/2015 11/1/2016 11/1/2017

Source: Company, Bloomberg Finance L.P., DBSVTH

WHART: Historical yield vs Thai 10-year treasury yield Remarks This chart shows historical WHART’s yield spread vs the Thai 10-year government bond yield. The historical 10- year average spread over the Thai 10-year government bond yield is 494bps. The fund now offers a distribution yield of 7.9% or 530bps over the Thai 10-year government bond yield at 2.55%. This suggests the current spread is still above the historical average.

Source: Company, Bloomberg Finance L.P., DBSVTH

WHART: WHART’s share price vs WHA’s share price Remarks

Bt Bt This chart shows historical WHART’s share price moved in 11.0 WHART WHA - RHS 5.00 line with WHA’s share price as they are both in the same 4.50 industry. Nonetheless, WHART’s share price would be 10.5 4.00 more sensitive to the Thai 10-year government bond 3.50 yield. As the Thai 10-year government bond yield spiked 10.0 to 3% in 1H17, WHART’s share price dropped. In 3.00 addition, since WHA took over HEMRAJ in 2016, the 9.5 2.50 company’s businesses are now more diversified and the 2.00 9.0 logistic warehouse business was just 12% of total 1.50 revenue in 2017. 8.5 1.00 0.50 8.0 0.00 2015 2016 2017 2018

Source: Company, Bloomberg Finance L.P., DBSVTH

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Company Guide WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust

Asset Ownership Balance Sheet: Total borrowings amounted to Bt7.7bn at end-2017, with debts to total assets of 27% at end-2017. This is within the 60% maximum gearing allowed for REITs that secure investment- Leasehold, grade rating. 30%

Share Price Drivers: Strong rental reversion could lift rental income and distribution Freehold, per unit. 70%

Acquisition of more assets into the REIT. The successful acquisition of more assets for injection into the REIT should not only expand its REIT size, but also help increase its revenue and Lease Area by Type of Building distribution.

Key Risks: A sharp slowdown in the Thai economy could result in higher General vacancy rates and make rental reversions difficult, as tenants Warehouse would suffer from weaker revenues. , 37%

Built-to- Company Background suit, 63% The largest logistic warehouse REIT in Thailand. WHART was set up in 2014 to invest in logistics centres in three locations in Thailand. It has been adding new assets into its portfolio in 4Q of every year since its inception. In late 2017, it managed to consolidate the assets of WHAPF into its portfolio and acquired Lease Area by Property Type additional assets from WHA. This helped double its asset size. To date, it has 971,579 sqm of warehouse leasable area in Factory, Thailand. They are located in three main zones including (i) 10.90% Bangna-Trad Area (67% of total), (ii) Eastern Economic Area (13%), and (iii) Ayudhya-Saraburi Area (20%). These are strategic locations with easy access to upcountry gateways, and in close proximity of demand and production centres. These assets enjoy high occupancy rate of 94.7% at end-2017, or Warehouse 97.4% if the undertaking from the sponsor (WHA Corporation) , 89.10% is included.

High-quality tenants. The REIT’s tenants are high-quality PB Band (x) tenants in various sectors, including fast-moving consumer goods players (52.3%), third-party logistics providers (33.1%), PE (x) 1.6 manufacturers (11.6%), E-commerce (1.8%), and Data Center (1.3%). The top-ten tenants by area include DKSH (Thailand) 1.4 +2 sd Limited 20.4%, LF Logistic (Thailand) 6.3%, DSG International (Thailand) 6.0%, Sino-Pacific Trading (Thailand) 5.0%, Nissan 1.2 +1 sd Motor (Thailand) Co., Ltd. 4.7%, Hitachi Transport System (Thailand) 4.1%, Kao Commercial (Thailand) 4.0%, Thai 1.0 Mean Beverage Logistics 3.6%, Logitem (Thailand) 3.5%, and -1 sd Central Department Store 3.1%. These top-ten clients made 0.8 up 61% of total leasable area. -2 sd 0.6 1 1 17 18

Source: Company, DBSVTH

Page 6 Company Guide WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust

Key Assumptions FY Dec 2015 2016 2017 2018F 2019F Leasable area (Sqm) 342,023 499,258 971,579 971,579 971,579 OR 100.0% 99.9% 96.4% 97.5% 96.0% Leased area (Sqm) 342,021 499,005 936,602 947,399 933,023 Average rents 166 173 179 179 183 Total rents 332 709 1,079 2,040 2,047 Consolidation of Payout ratio 102% 99% 103% 99% 99% WHAPF assets into its portfolio in 4Q17 Segmental Breakdown FY Dec 2015 2016 2017 2018F 2019F By Business Fast-Moving Consumer 15% 37% 52% 52% 52% ThirdGoods-Party Logistics 50% 44% 33% 33% 33% Manufacturing 35% 19% 12% 12% 12% E-Commerce 0% 0% 2% 2% 2% Data Centre 0% 0% 1% 1% 1% Total 100% 100% 100% 100% 100% By Nationality Japan 34% 28% 26% 26% 26% Thai 34% 41% 25% 25% 25% A more diversified Europe 8% 7% 24% 24% 24% portfolio following the Asia exc Thai and Japan 15% 14% 16% 16% 16% acquisition of WHAPF USA 6% 10% 10% 10% 10% assets Total 97% 100% 100% 100% 100%

Income Statement (Btm) FY Dec 2015 2016 2017 2018F 2019F FY Dec (Btm) 2015 2016 2017 2018F 2019F Gross Revenue 332 709 1,079 2,040 2,047 Property Expenses (19) (29) (40) (51) (51) Net Property Income 313 680 1,040 1,989 1,995 Property Mgt Fees (3) (10) (22) (41) (41) Fund Related Expenses (12) (33) (50) (101) (101) Amortization Expenses (19) (42) (65) (71) (71) Interest income (expenses) (62) (120) (175) (290) (241) Net Investment Income 217 475 728 1,486 1,542 Gain (Loss) on asset (98) (95) (49) 0 0 Increaserevaluation in Net Assets 119 380 679 1,486 1,542

No. of Units (m) - eop 662 972 1,055 1,964 1,964 Core EPU (Bt) 0.6320 0.6817 0.6598 0.7566 0.7850

Distributable Income 236 517 793 1,557 1,613 DPU and Capital Reduction 0.6766 0.7592 0.7771 0.7850 0.8131 Distribution(Bt) 241 512 820 1,542 1,597 Payout Ratio (%) 102% 99% 103% 99% 99%

Source: Company, DBSVTH

Page 7 Company Guide WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust

Quarterly / Interim Income Statement (Btm) FY Dec

Rental & service revenue 182 231 234 234 321 Rental guarantee 14 15 15 13 15 Gross Revenue 197 246 249 248 336 Property Expenses (12) (7) (8) (8) (17) Net Property Income 185 239 242 240 319 Property Mgt Fees (3) (5) (5) (5) (7) Fund Related Expenses (9) (11) (12) (12) (15) Amortization Expenses (12) (15) (15) (16) (19) Interest income (expenses) (32) (40) (41) (41) (53) Net Investment Income 129 167 169 166 225 Gain (Loss) on asset 0 (50) (2) 1 1 Increaserevaluation in Net Assets 129 117 167 168 226

No. of Units (m) – eop 972 972 972 972 1,964 Core EPU (Bt) 0.1323 0.1721 0.1736 0.1713 0.1146

Distributable Income 140 183 184 182 244 DPU and Capital Reduction 0.1795 0.1945 0.1945 0.1945 0.1597 Distribution(Bt) 146 189 189 189 252 Payout Ratio (%) 104% 104% 103% 104% 104%

Balance Sheet (Btm) FY Dec 2015 2016 2017 2018F 2019F Investment in properties 8,971 13,083 25,949 25,949 25,949 Investment in mutual funds 80 182 347 347 347 Cash at banks 260 286 787 1,133 1,167 Other assets 104 126 375 375 379 IPO expenses 179 246 357 286 214 Total assets 9,595 13,923 27,814 28,089 28,056 Accrued expenses 171 140 170 173 177 Unearned rental a income 7 9 106 108 111 Deposit from rental 240 373 882 850 853 Loans 2,629 3,846 7,507 7,587 7,587 Other liabilities 5 14 50 50 50 Total liabilities 3,053 4,382 8,715 8,768 8,777 Net assets 6,542 9,541 19,099 19,320 19,279

Capital 6,617 9,607 19,058 19,058 19,058 Capital reduction -114 -141 -131 -131 -131 Retained earnings 40 74 172 394 352 Net assets 6,542 9,541 19,099 19,321 19,279

NAV (Bt) 9.89 9.81 9.72 9.84 9.82 Debt/Total assets 27% 28% 27% 27% 27% Source: Company, DBSVTH

Page 8 Company Guide WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust

Cash Flow Statement (Btm) FY Dec 2015 2016 2017 2018F 2019F

Net investment income 217 475 728 1,486 1,542 Amortization expenses 19 42 65 71 71 Change in W/C Other assets (62) (22) (249) 0 (4) Accrued expenses 162 (32) 30 3 3 Unearned rental a income 2 2 98 2 2 Deposit from rental 83 133 509 (33) 3 Other liabilities 6 10 36 0 0 Cash flow from operations 425 608 1,216 1,530 1,618 Investment in securities (80) (101) (165) Investment in properties (4,663) (4,209) (3,470) 0 0 Free cash flow (4,318) (3,702) (2,419) 1,530 1,618 Capital 3,509 2,991 0 0 0 IPO expenses (104) (108) (175) Borrowings 1,303 1,216 3,807 80 0 Capital reduction (114) (27) (131) Dividends paid (86) (345) (581) (1,264) (1,583) Cash flow from financing 4,508 3,727 2,920 (1,184) (1,583) Net change in cash flow 190 25 501 346 35 Cash beginning 70 260 285 787 1,133 Cash ending 260 285 787 1,133 1,167 Source: Company, DBSVTH

Target Price & Ratings History

Source: DBSVTH Analyst: Chanpen SIRITHANARATTANAKUL

THAI-CAC n/a Corporate Governance CG Rating (as of Oct 2017) n/a

THAI-CAC is Companies participating in Thailand's Private Sector Score Description Collective Action Coalition Against Corruption programme (Thai Declared Companies that have declared their intention to join CAC CAC) under Thai Institute of Directors (as of Feb 2018) are Certified Companies certified by CAC. categorised into: Score Range Number of Logo Description Corporate Governance CG Rating is based on Thai Institute of 90-100 Excellent Directors (IOD)’s annual assessment of corporate governance practices of listed companies. The assessment covers 235 criteria 80-89 Very Good in five categories including board responsibilities (35% weighting), 70-79 Good disclosure and transparency (20%), role of stakeholders (20%), equitable treatment of shareholders (10%) and rights of 60-69 Satisfactory shareholders (15%). The IOD then assigns numbers of logos to 50-59 Pass each company based on their scoring as follows: <50 No logo given N/A

Page 9 Industry Focus

DBSVTH 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

Completed Date: 4 Apr 2018 06:17:12 (THA) Dissemination Date: 4 Apr 2018 06:48:38 (THA)

Sources for all charts and tables are DBSVTH unless otherwise specified.

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The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

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Page 41 Industry Focus

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Page 42 Industry Focus

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Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

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United This report is produced by DBS Vickers Securities (Thailand) Co Ltd which is regulated by the Securities and Exchange Kingdom Commission, Thailand.

This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, International Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States This report was prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other 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.

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DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS Vickers (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Paul Yong Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 65 6878 8888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 65 65353 418 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong e-mail: [email protected] Company Regn. No. 196800306E

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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