thailand industry focus property fund/reit sector central rama 2, central rama 3, central pinklao,...

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Take shelter in volatile market

The sector now comprises 51 PFPOs and five REITS with a combined market capitalisation of Bt333bn (US$9.3bn), representing 2.6% of the SET

The sector is offering generous 2015F distribution yield of 6.6%, a hefty premium to Thai 10-year government bond yield of 3.0%

We prefer office and retail PFPO/REITs; there is excess supply in the industrial space sector

Our preferred picks are CPNRF, CPTCG, FUTUREPF, SPF and TLGF. These PFPOs/REITs possess good assets and offer relatively generous distribution yield of 6-8%, while liquidity is quite decent.

A safe haven in the volatile market. The Thai PFPO/REIT sector has gained 2.4% YTD, out-performing the SET Index’s 7.7% loss. Most Thai PFPOs/REITs are generating strong recurring income streams which should be less exposed to internal and external risks. They are also paying generous dividend yields of about 6-8%, mostly quarterly.

Potential upside to yields of property funds which convert to REITs. The SEC and the Revenue Department have yet to reveal the transactions costs involved in converting to a REIT. Since 2014, all new setups have to be under the REIT structure and existing PFPOs can no longer increase their capital. On this note, PFPOs which have access to a pipeline of injection assets would have to convert in order to grow their fund/trust sizes. REITs are allowed to take on higher net gearing of up to 35% of NAV (up to 60% if they have investment grade rating) vs 10% maximum under the property fund scheme, suggesting distribution per unit and yields should rise after conversion.

Our preferred Funds/REITs. We prefer retail and office to industrial PFPO/REITs, given more balanced demand-supply outlook for the former two asset segments. We like CPNRF, FUTUREPF, and TLGF in the Retail asset segment, POPF and CPNCG for Office assets, and TGROWTH for Industrial assets. We also like SPF (airport assets) and IMPACT (exhibition centres).

SET : 1,389.70

Analyst Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected] Thailand Research Team +662 658 1222

STOCKS

*Yields are for FYE Mar 2016-17

Source: DBS Vickers CP Tower Growth Leasehold (CPTG): CPTGF has leasehold rights to operate three CP Office Towers namely CP Tower Silom, CP Tower Fortune Town, and CP Tower Phayathai. Key anchor tenants are quality names like CP Group and its subsdiaries, Tesco Lotus, etc.

CPN Retail Growth Leasehold Property Fund (CPNRF): Thailand’s largest and most liquid property fund. It has leasehold rights to operate four successful Central Plaza shopping malls, namely Rama 2, Rama 3, Pinklao, and Chiangmai Airport.

Future Park Leasehold Property Fund (FUTUREPF): FUTUREPF has leasehold rights to operate Future Park Rangsit, one of Thailand’s most successful sub-urban malls, thanks to its location being a gateway to the Central, North, and Northeastern parts of Thailand.

Samui Airport Property Fund Leasehold (SPF): SPF has leasehold rights to operate Samui Airport. Revenue is derived from the number of departing passengers and incoming flights at Samui Airport.

Tesco Lotus Retail Growth Freehold and Leasehold Property Fund (TLGF) : TLGF owns freehold and leasehold rights to operate 23 Tesco Lotus shopping malls throughout Thailand. Freehold assets account for 60% of total leasable area. Tesco Lotus is the key anchor tenant, accounting for 58% of total leasable area and 28% of total rental income.

DBS Group Research . Equity 18 Sep 2015

Thailand Industry Focus

Property Fund/REIT Sector

Refer to important disclosures at the end of this report

Type of Price Mkt Cap Target Price Yields (%)

Assets Bt US$m Bt 2015F 2016F

CPTGF Office 10.00 269 10.70 8.0 8.6CPNRF Retail 16.70 1,025 18.00 6.0 7.6FUTUREPF Retail 18.20 267 22.30 7.0 7.3IMPACT* Exhibition Center 11.20 461 12.00 6.4 6.6LHSC Retail 10.40 138 11.40 7.0 7.0POPF Office 13.30 178 14.00 8.1 8.3SPF Airport 19.60 517 21.40 6.6 6.6TLGF Retail 13.20 188 15.10 6.1 6.1TGROWTH Industrial 12.20 856 12.90 7.6 7.6

Industry Focus


Analyst

Chanpen Sirithanarattanakul +662 657 7824

[email protected]

Thailand Research Team

[email protected]

Table of Contents

Yield, Valuation and Recommendation 3

Regional Comparison 8

Evolution of Thai Property Funds/REITs 10

Key differences between PFPO/REIT 11

Major sponsors of the assets 12

Current Status 13

Price Performance 15

Industry Outlook

Office 15

Retail 17

Ready-Built Factories 19

Warehouses 19

Company Guides

- CP Tower Growth Leasehold (CPTGF TB) 26

- CPN Retail Growth Property Fund (CPNRF TB) 32

- Future Park Prop Fund (FUTUREPF TB) 38

- Impact Growth REIT (IMPACT TB) 44

- LH Shopping Centers REIT (LHSC) 50

- Prime Office Property Fund (POPF TB) 56

- Samui Airport Property Fund (SPF TB) 62

- Tesco Lotus Retail Growth Freehold and Leasehold Property Fund (TLGF TB) 68

- TICON Industrial Growth Property Fund (TGROWTH TB) 74

Disclaimers 80

Industry Focus


Yield, Valuation and Recommendation Sector is offering generous 2015F distribution yield of 6.6%. This is a hefty 340bps premium to the Thai 10-year government bond yield of 3.0% currently. Most funds pay quarterly dividends, while some pay semi-annually. Distribution Yield of Thai PFPOs/REITs

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Yield-Spread. The following chart shows the yield-spread between Thai PFPO/REIT and Thai 10-year government bond averaged 3.2% over the past decade.

Yield of Thai PFPOs/REITs vs Thai 10-yr Government Bond

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Offering better yields than other investments. The following chart shows Thai PFPO/REITs also pay higher yields than bank deposits, government and corporate bonds, and dividend yields of listed corporates. PFPO offers better yields vs other investment alternatives

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PFPO/REIT – yield comparison. The following chart shows our estimated 2015 yields for several types of PFPO/REITs. 2015 yield comparison for various types of PFPO/REIT

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Industry Focus


Valuation and Recommendation Sector is now trading at average 1.07x P/NAV. This represents +1SD of its historical average multiple of 0.9x. PFPO/REIT: Price/NAV

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We prefer Office and Retail over Industrial PFPO/REITs. The Office sector is now in an up-cycle. With limited new supply entering the market, the occupancy and rents should continue to rise. On the Retail front, occupancy remains high at over 90% for prime retail malls. Nonetheless, the weak domestic consumption could derail rental hikes in the near term. But quality malls in good locations should continue to do well. And for the Industrial sector, high vacancies amid weakening demand and abundant supply remain our key concerns. In addition, rents can hardly rise because of the current high vacancy rate. Our top picks are CPNRF, FUTUREPF, SPF, CPTGF, and TLGF. The key factors we take into consideration include: Industry subsector – Prefer office, retail over industrial Location of the assets Quality of the assets and the anchor tenants Quality of the property manager Occupancy trend Potential for rental reversion Potential growth prospects Remaining leasehold life Distribution yield P/NAV IRR Upside to our TP Trading liquidity

Top Picks

CPN Retail Growth Leasehold Property Fund (CPNRF) Thailand’s largest and most liquid property fund CPNRF holds leasehold rights to operate four successful CentralPlaza shopping malls in several locations. They are Central Rama 2, Central Rama 3, Central Pinklao, and Central Chiangmai Airport. Portfolio occupancy rate has always been high at 90% and the fund has been paying consistently higher dividends since its inception. Nonetheless, we expect dividend yield to come down to 6.1% in 2015 as Central Pinklao undergoes renovation, before surging to 7.7% and 8.4% in 2016 and 2017, respectively. CPNRF plans to convert into a REIT after more details on transaction costs are available. Successful conversion would allow higher gearing, which means upside to yields. CPNRF: Yields

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Samui Airport Leasehold Property Fund (SPF) Riding on Samui’s tourism recovery SPF holds leasehold right to operate Samui Airport until 2036. Tourist arrivals have continued to improve in 2Q15 following the lifting of martial law. We estimate the fund’s DPU will grow 4% this year and 7% each in 2016-17 on rising number of passengers and flights. The fund is currently offering generous dividend yield of 6.9% for 2015, and 7.4% in 2016. Key risk is a sharp drop in Samui tourism. Nonetheless, downside risk is protected by annual revenue guarantee of Bt570m from Bangkok Airways, the Property Manager, which suggests a dividend yield of 3.2% at current price.

Industry Focus


SPF: Yields

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Tesco Lotus Retail Growth Property Fund (TLGF) Decent yields TLGF invests in 23 Tesco Lotus shopping malls throughout Thailand. The majority of the assets (60% of total leasable area) are freehold assets. Tesco is the anchor tenant, accounting for 58% of total leasable area and 28% of total rental income. Occupancy rates have been high at 98-99% since its inception. The fund now offers generous dividend yield of 6.2%. Tesco Lotus has granted right of first refusal to TLGF to acquire its existing and future malls. The successful conversion to a REIT structure would allow the fund/REIT to borrow more for future acquisitions and rely less on equity financing. This should lift distribution per unit and yields. TLGF: Yields

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CP Tower Growth Leasehold Property Fund (CPTGF) Offering very generous yields CPTGF invests in leasehold rights to operate three successful CP Towers in prime locations. The Fund’s assets include i) C.P. Tower I (Silom), ii) C.P. Tower II (Fortune Town), iii) C.P. Tower III (Phayathai). Portfolio occupancy rate has been high, averaging 98%. Anchor tenants are high quality tenants like CP Group and its subsidiaries, and Tesco Lotus. The Fund now offers generous 2015F dividend yield of 8.0%. CPTGF: Yields

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Future Park Leasehold Property Fund (FUTUREPF) One of the most successful suburban malls in Thailand FUTUREPF invests in leasehold rights to operate a part of Future Park Rangsit, one of Thailand’s most successful suburban shopping malls. The mall is located at the gateway to Central, North and Northeastern Thailand, covering 56 provinces. Daily customer traffic count has been over 150k during the last three years, one of the highest among retail malls in Thailand. The fund now offers generous 2015 and 2016 dividend yield of 7.0 and 7.3%, respectively. FUTUREPF: Yields

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Industry Focus


Thailand’s listed PFPO/REITs

Name Ticker Freehold/Leasehold Mkt Cap

Yield

(%) P/NAV Daily Turnover

(US$) FY15 (x) (US$m)

Samui Airport Leasehold Property Fund SPF Leasehold 518 6.4 1.8 0.29 Airport 518 6.4 1.8 0.29 Land And Houses Freehold And Leasehold Property Fund LHPF Freehold and Leasehold 77 8.4 0.8 0.02 Gold Property Fund Leasehold GOLDPF Leasehold 31 6.1 0.5 0.00 UOB Freehold Eight Thonglor Property Fund UOB8TF Freehold 58 5.0 0.8 0.01 Urbana Property Fund URBNPF Leasehold 8 9.7 0.7 0.00 Apartment 174 7.3 0.7 0.01 IMPACT Growth REIT IMPACT Freehold 462 6.4 1.0 0.36 Others 462 6.4 1.0 0.36 Major Cineplex Lifestyle Fund MJLF Leasehold 120 7.7 1.1 0.08 Cineplex 120 7.7 1.1 0.08 Centara Hotelsl & Resorts Leasehold Property Fund CTARAF Leasehold 35 9.4 0.4 0.01 Dusit Thani Freehold & Leasehold Property Fund DTCPF Leasehold & Freehold 97 5.1 0.8 0.08 Erawan Hotel Growth Property Fund ERWPF Freehold 47 6.7 0.9 0.04 MFC Patong Heritage Property Fund M-PAT Freehold 29 7.1 1.0 0.00 Siri Prime Office Property Fund SIRIP Freehold 51 5.9 1.0 0.00 Luxury Real Estate Investment LUXF Freehold 30 5.5 0.5 0.01 Samui Buri Property Fund SBPF Freehold 18 - 0.7 0.00 Quality Hospitality Leasehold QHOP Leasehold 23 14.2 0.4 0.01 Qualty Houses Hotel and Residence Freehold and Leasehold Proprety Fund QHHR Leasehold & Freehold 77 9.0 0.8 0.03 SRI Panwa Hotel Property Fund SPWPF Freehold 55 8.3 0.9 0.01 Thai Hotel Investment Freehold And Leasehold Property Fund THIF Leasehold & Freehold 860 3.6 1.1 0.01 Hotel 1,321 6.8 0.8 0.02 Amata Summit Growth Freehold And Leasehold Real Estate Investment Trust AMATAR Freehold and Leasehold 111 7.6 3.3 0.21 MFC Industrial Investment Property and Leashold Fund M-II Leasehold 45 7.5 0.9 0.00 MFC-Strategic Storage Fund M-STOR Freehold 18 6.6 0.9 0.00 TICON Property Fund TFUND Freehold 339 6.0 1.0 0.07 Thai Industrial Fund 1 TIF1 Freehold 18 7.3 0.7 0.01 TICON Industrial Growth Leasehold Property Fund TGROWTH Leasehold 188 7.6 1.2 0.09 Hemaraj Industrial Property And Leasehold Fund HPF Freehold and Leasehold 111 7.8 0.8 0.01 101 Montri Storage MONTRI Freehold 15 8.0 0.9 0.00 Pinthong Industrial Park Property Fund PPF Freehold 68 7.3 1.0 0.01 Sub Sri Thai Property Fund SSTPF Freehold 18 7.4 0.9 0.00 Subsrithai Smart Storage Property Fund SSTSS Freehold 22 7.2 0.9 0.00 TPARK Logistics Property Fund TLOGIS Freehold and Leasehold 142 6.1 1.0 0.03 Wha Premium Factory And Warehouse Property Fund WHAPF Freehold 298 6.4 1.1 0.09 Wha Premium Growth Freehold And Leasehold Real Estate Investment Trust WHART Freehold and Leasehold 91 7.3 n.a. 0.08 Ticon Freehold And Leasehold Real Estate Investment Trust TREIT Freehold and Leasehold 98 5.8 1.0 0.04 Industrial 1,582 7.1 1.1 0.04 Source: SET, DBS Vickers

Industry Focus


Thailand’s listed PFPO/REITs (continued)

Name Ticker Freehold/Leasehold Mkt Cap Yield (%) P/NAV Daily Turnover

(US$) FY15 (x) (US$m)

Bangkok Commercial Property Fund BKKCP Freehold 27 6.7 0.8 0.00 CPN Commercial Growth Leashold Property Fund CPNCG Leasehold 140 7.1 1.0 0.15 JC Property JCP Leasehold 17 4.0 1.1 - KPN Property Fund KPNPF Freehold 50 6.4 0.9 0.02 Millionaire Property Fund MIPF Freehold 106 5.8 1.5 0.00 Prime Office Leasehold Property Fund POPF Leasehold 178 8.1 1.1 0.10 Sala & Sathorn Property Fund SSPF Freehold 44 2.7 1.0 0.07 C.P. Tower Growth Leasehold Property Fund CPTGF Leasehold 269 8.0 1.0 0.17 Quality Houses Property Fund QHPF Leasehold 221 7.5 0.9 0.08 Thai Commercial Investment Fund TCIF Leasehold 825 5.0 1.1 0.00 Office 1,878 6.1 1.0 0.06 Uniloft Property Fund UNIPF Freehold 14 7.4 0.9 0.00 MFC-Nichada Thani PF MNIT Leasehold 11 5.4 0.5 0.00 Nichada-Thani Property Fund 2 MNIT2 Leasehold 22 8.7 0.7 0.01 Multi-National Residence Fund MNRF Leasehold 20 8.3 0.5 0.01 TU Dome Residential Complex TU-PF Leasehold 5 - 0.3 0.00 Residential 71 6.0 0.6 0.00 CPN Retail Growth Leasehold Property Fund CPNRF Leasehold 1,028 6.0 1.3 0.56 Crystal Retail Growth Leasehold Property Fund CRYSTAL Leasehold 109 7.7 0.9 0.02 Future Park Property Fund FUTUREPF Leasehold 268 7.0 1.5 0.07 Tesco Lotus Retail Growth Freehold And Leasehold Property Fund TLGF Freehold and Leasehold 859 6.1 1.2 0.47 Trinity Freehold and Leasehold Property Fund TNPF Freehold and Leasehold 20 - 0.5 0.01 Thai Retail Investment Fund TRIF Freehold 632 4.3 1.1 0.00 Talaad Thai Leasehold Property Fund TTLPF Leasehold 96 8.3 1.7 0.00 LH Shopping Centers Leasehold Real Estate Investment Trust LHSC Leasehold 141 7.3 1.0 0.08 Retail 3,153 5.8 1.1 0.15


Industry Focus


Regional Comparison

La st Pri c e %

FYE 11-Se p-15 Pric e Ta rge t Upside 2015 2016 2015 2016 Re com'd

Singa pore (S$)Offi c eCapitaLand Commercial Trust Dec 1.315 1.48 13% 8.6 9.2 6.5% 7.0% BuyFraser Commercial Trust Sep 1.310 1.51 15% 9.7 9.8 7.4% 7.5% BuyKeppel Reit Dec 0.950 1.12 18% 6.9 7.1 7.3% 7.5% BuyRe ta i lCapitaLand Mall Trust Dec 1.890 2.07 10% 11.4 11.8 6.0% 6.2% BuyCapitaLand Retail China Trust Dec 1.345 1.69 26% 10.6 11.0 7.9% 8.1% BuyCroesus Retail Trust * Mar 0.840 0.92 10% 7.6 7.8 9.0% 9.3% HoldFrasers Centrepoint Trust Sep 1.895 2.05 8% 11.8 12.0 6.2% 6.3% BuySPH REIT Aug 0.960 0.99 3% 5.5 5.5 5.7% 5.7% HoldMixe d (Re ta i l & Offi c e )Starhill Global REIT Jun 0.760 0.91 20% 7.6 5.4 10.0% 7.1% BuySuntec REIT Dec 1.515 1.58 4% 9.5 10.1 6.3% 6.6% HoldMapletree Commercial Trust * Mar 1.320 1.35 2% 8.3 8.6 6.3% 6.5% HoldMapletree Greater China Commercial Trust * Mar 0.935 1.12 20% 7.3 7.9 7.8% 8.4% BuyIndustria lA-Reit * Mar 2.200 2.30 5% 14.9 15.0 6.8% 6.8% HoldAscendas India Trust * Mar 0.840 0.90 7% 5.6 5.8 6.7% 6.9% HoldMapletree Industrial Trust * Mar 1.530 1.50 -2% 10.6 10.4 6.9% 6.8% HoldMapletree Logistics Trust * Mar 1.010 1.11 10% 7.5 7.8 7.4% 7.7% BuyCambridge Industrial Trust Dec 0.610 0.61 0% 5.0 5.1 8.2% 8.3% HoldCache Logistics Trust Dec 0.990 1.09 10% 8.5 8.7 8.6% 8.8% HoldSoilbuild Business Space Reit Dec 0.790 0.86 9% 6.3 6.4 8.0% 8.1% BuyHospi ta l i ty & He a l thc a reAscendas Hospitality Trust * Mar 0.605 0.74 22% 5.6 5.7 9.3% 9.4% BuyAscott Residence Trust Dec 1.210 1.38 14% 8.8 9.2 7.3% 7.6% BuyCDL Hospitality Trust Dec 1.365 1.65 21% 11.1 11.3 8.1% 8.3% BuyFar East Hospitality Trust Dec 0.615 0.71 16% 4.7 4.7 7.7% 7.6% HoldFrasers Hospitality Trust Sep 0.725 0.83 14% 6.0 6.1 8.3% 8.3% HoldOUE Hospitality Trust Dec 0.800 0.98 22% 6.5 6.6 8.2% 8.2% BuyParkway Life Dec 2.260 2.56 13% 13.1 12.2 5.8% 5.4% BuyReligare Health Trust * Mar 0.950 0.97 2% 8.0 8.7 8.4% 9.2% HoldOthe rsIREIT Global Dec 0.645 0.90 40% 6.5 6.4 10.0% 10.0% BuyKeppel DC REIT Dec 1.005 1.14 13% 6.4 7.0 6.4% 7.0% Buy

Hong Kong (HK$)Champion REIT Dec 3.95 4.78 21% 20.0 19.0 5.2% 4.9% BuyFortune REIT Dec 7.50 9.18 22% 42.0 46.0 5.6% 6.2% BuyProsperity REIT Dec 2.78 3.06 10% 16.0 17.0 5.9% 6.2% BuySunlight REIT Jun 3.90 4.23 8% 20.0 22.0 5.1% 5.6% BuyLink REIT Mar 41.25 48.10 17% 166.0 183.0 4.0% 4.4% Hold

Ma la ys ia (RM)Axis REIT Dec 1.66 1.75 5% 9.9 9.0 5.9% 5.4% Hold CapitaMalls Msia Trust Dec 1.39 1.50 8% 8.9 8.8 6.4% 6.3% BuyIGB REIT Dec 1.30 1.40 8% 7.8 8.0 6.0% 6.2% BuyPavilion REIT Dec 1.52 1.60 5% 8.0 8.1 5.2% 5.3% Hold MRCB-Quill REIT Dec 1.11 1.25 13% 8.4 8.4 7.5% 7.5% Hold Sunway REIT Jun 1.52 1.75 15% 8.7 9.1 5.7% 6.0% Buy

Tha i la nd (B t)CP Tower Growth Leasehold Dec 10.00 10.70 7% 80.0 86.0 8.0% 8.6% BuyCPN Retail Growth Leasehold Property Fund Dec 16.70 18.00 8% 99.7 126.0 6.0% 7.6% BuyFuture Park LH Prop Fund Dec 18.20 22.30 23% 127.0 133.0 7.0% 7.3% BuyImpact Growth Real Estate Investment Trust Mar 11.20 12.00 7% 42.0 75.0 3.8% 6.4% BuyLH Shopping Centers Leasehold Dec 10.40 11.40 10% 73.0 73.0 7.0% 7.0% BuyPrime Office LH Prop Fund Dec 13.30 14.00 5% 108.0 111.0 8.1% 8.3% BuySamui Airport Property Fund (Leasehold) Dec 19.60 21.40 9% 129.6 129.6 6.6% 6.6% BuyTesco Lotus Retail Growth Feb 13.20 15.10 14% 81.0 80.9 6.1% 6.1% BuyTICON Industrial Growth Leasehold Property Fu Dec 12.20 12.90 6% 93.2 93.2 7.6% 7.6% Buy

DPU c e nts Yie ld

Industry Focus


Regional Comparison

La st Pri c e Ge a ring Ra tio BV Pe r Sh P/B ra tio

Y/E 11-Se p-15 FY15F FY15F 1M 3M 6M 12M

Singa pore (S$)Offi c eCapitaLand Commercial Trust Dec 1.315 19% 1.74 0.75 -4.7% -16.8% -22.7% -21.3%Fraser Commercial Trust Sep 1.310 36% 1.67 0.79 -7.4% -11.5% -10.3% -5.4%Keppel Reit Dec 0.950 37% 1.41 0.67 -9.1% -17.4% -22.1% -23.7%Re ta i lCapitaLand Mall Trust Dec 1.890 36% 1.82 1.04 -6.0% -10.9% -8.7% -5.3%CapitaLand Retail China Trust Dec 1.345 28% 1.69 0.80 -11.2% -20.7% -17.5% -15.4%Croesus Retail Trust * Mar 0.840 47% 0.94 0.89 -9.7% -9.7% -10.6% -11.1%Frasers Centrepoint Trust Sep 1.895 30% 1.85 1.02 -5.7% -6.2% -5.7% -2.8%SPH REIT Aug 0.960 26% 0.93 1.04 -5.4% -8.1% -7.3% -10.3%Mixe d (Re ta i l & Offi c e )Starhill Global REIT Jun 0.760 36% 0.92 0.83 -8.4% -11.6% -7.9% -7.3%Suntec REIT Dec 1.515 35% 2.07 0.73 -8.5% -13.4% -18.6% -16.8%Mapletree Commercial Trust * Mar 1.320 36% 1.24 1.07 -2.6% -10.2% -13.7% -9.3%Mapletree Greater China Commercial Trust * Mar 0.935 41% 1.18 0.79 -7.0% -10.1% -9.7% -1.6%Industria lA-Reit * Mar 2.200 34% 2.08 1.06 -4.4% -10.2% -10.9% -6.8%Ascendas India Trust* Mar 0.840 35% 0.68 1.24 -9.2% -6.7% -5.6% 1.2%Mapletree Industrial Trust* Mar 1.530 35% 1.32 1.16 2.3% 0.7% 0.3% 5.9%Mapletree Logistics Trust* Mar 1.010 39% 1.02 0.99 -6.1% -10.2% -17.2% -14.4%Cambridge Industrial Trust Dec 0.610 36% 0.68 0.90 -4.7% -11.6% -12.2% -14.7%Cache Logistics Trust Dec 0.990 40% 0.97 1.02 -5.7% -13.9% -14.3% -16.1%Soilbuild Business Space Reit Dec 0.790 36% 0.80 0.99 -6.0% -6.0% -1.3% 0.0%Hospita l i ty & He a l thc a reAscendas Hospitality Trust * Mar 0.605 37% 0.72 0.84 -10.4% -14.2% -12.3% -16.0%Ascott Residence Trust Dec 1.210 39% 1.35 0.90 -4.0% -4.0% -4.7% -2.4%CDL Hospitality Trust Dec 1.365 35% 1.63 0.84 -6.5% -17.0% -20.4% -19.5%Far East Hospitality Trust Dec 0.615 32% 0.97 0.64 -10.9% -20.7% -24.5% -27.2%Frasers Hospitality Trust Sep 0.725 40% 0.94 0.77 -10.5% -15.7% -19.0% -18.5%OUE Hospitality Dec 0.800 42% 0.90 0.89 -10.1% -14.0% -14.0% -10.6%Parkway Life Dec 2.260 36% 1.70 1.33 -7.4% -0.9% -3.4% -3.8%Religare Health Trust * Mar 0.950 15% 0.94 1.01 -9.5% -5.5% -10.0% 0.0%Othe rsIREIT Global Dec 0.645 32% 0.75 0.86 -4.4% -6.3% -6.9% -16.8%Keppel DC REIT Dec 1.005 34% 0.88 1.15 -8.2% -4.7% -2.9% 0.0%

Hong Kong (HK$)Champion REIT Dec 3.95 22% 8.36 0.47 -6.6% -12.2% 5.9% 11.6%Fortune REIT Dec 7.50 30% 12.76 0.59 -7.3% -4.0% -8.5% 2.3%Prosperity REIT Dec 2.78 27% 4.90 0.57 -4.8% 0.4% -6.7% 6.9%Sunlight REIT Jun 3.90 22% 7.99 0.49 -0.3% -0.5% 4.3% 17.5%Link REIT Mar 41.25 12% 51.53 0.80 -6.7% -10.1% -13.7% -10.7%

Ma la ys ia (RM)Axis REIT Dec 1.66 33% 1.21 1.37 -0.9% -5.4% -6.7% -5.7%CapitaMalls Msia Trust Dec 1.39 29% 1.29 1.08 8.6% -2.1% -4.8% -1.4%IGB REIT Dec 1.30 24% 1.06 1.22 0.8% -2.3% -2.3% 0.8%Pavilion REIT Dec 1.52 15% 1.26 1.20 5.6% 0.0% 2.0% 10.1%MRCB-Quill REIT Dec 1.11 36% 1.39 0.80 1.8% -4.3% -11.2% -5.9%Sunway REIT Jun 1.52 31% 1.26 1.21 1.3% -8.4% -5.0% 1.3%

Tha i la nd (B t)CP Tower Growth Leasehold Dec 10.00 Net Cash 10.34 0.97 0.0% 0.0% 0.5% 1.5%CPN Retail Growth Leasehold Property Fund Dec 16.70 6% 13.02 1.28 0.0% 1.2% 1.2% -1.2%Future Park LH Prop Fund Dec 18.20 6% 12.52 1.50 -1.6% 1.1% 5.3% 4.7%Impact Growth Real Estate Investment Trust Mar 11.20 24% 10.80 1.04 -1.8% 4.7% 8.7% nmLH Shopping Centers Leasehold Dec 10.40 18% 10.26 1.01 -3.7% -1.0% 1.0% nmPrime Office LH Prop Fund Dec 19.60 7% 11.55 1.15 1.5% 6.4% 10.8% 5.6%Samui Airport Property Fund (Leasehold) Dec 19.60 Net Cash 11.04 1.78 1.6% 9.6% 12.1% 10.8%Tesco Lotus Retail Growth Feb 13.20 9% 11.24 1.17 -2.2% 0.0% -0.6% -4.6%TICON Industrial Growth Leasehold Property Fu Dec 12.20 7% 10.28 1.09 0.0% 0.0% 2.6% 13.2%

Sha re Pric e Pe rforma nc e

* A-Reit, Ascendas Hospitality Trust, Ascendas India Trust, Croesus Retail Trust, Mapletree Industrials Trust, Mapletree Logistics Trust, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, Religare Health Trust Religare Health Trust (FY16 - 17) Source: DBS Bank, DBS Vickers, AllianceDBS Research, Bloomberg Finance L.P, Thomson Reuters

Industry Focus


Evolution of Thai Property Funds (PFPOs)/REITs The first Thai PFPO, UOB Apartment Property Fund (UOBAPF, or BOA Apartment Property Fund at that time) entered the market in late 2003. The sector enjoyed strong growth in 2005 and 2006, when the listing of several new PFPOs boosted the sector’s market capitalisation significantly. But growth slowed when the Bank of Thailand (BOT) introduced the 30% unremunerated reserve requirement (URR) – in late 2006 -for foreign investors who invested in Thai PFPOs, to prevent speculation on the Thai baht. But subsequently on 3 Mar 2008, the BOT lifted the URR for short-term capital inflows, citing an improving economy. The sector’s market capitalisation surged again in 2012-2014 when a number of large funds entered the market before the expiry of the deadline to set up new property funds. REIT regulations took effect on 1 Jan 2013. The Securities and Exchange Commission (SEC) has barred existing PFPOs from increasing capital, and new IPOs of PFPOs from 2014 (except those who had submitted their applications in 2013 and which listing process had not been completed). All new setups have to be under the REIT structure. Existing PFPOs can convert to the REIT structure, but there have so far been no details on the conversion costs. As a result, there have not been any applications for conversion. Nonetheless, some larger funds such as CPNRF and TLGF are waiting for details from the SEC and are likely to convert into the REIT structure. First REIT listed in 2014. The first Thai REIT, Impact Growth Real Estate Investment Trust (IMPACT), was listed on the SET on 1 October 2014. Since then, there have been four other REIT listings on the SET. 51 PFPOs and 5 REITs listed on the SET currently. Todate, there are 51 PFPOs and 5 REITs listed on the SET with a combined market capitalisation of Bt333.4bn (US$9.3bn). The sector accounts for 2.6% of the SET’s total market capitalisation currently. Initially, these PFPOs were listed under the Property Sector. But as the number of PFPOs grew, the SET created a separate “Property Fund & REIT” sector in 2009.

Number of listed PFPO/REIT

26 2935

4146

51 51

3 5

0

10

20

30

40

50

60

2009

2010

2011

2012

2013

2014

2015

REITs

Property Funds

Source: SET, DBS Vickers Market Capitalisation of PFPO/REIT Sector

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Btm

REITs

Property Funds

Source: SET, DBS Vickers Growth driven by new listings rather than secondary offerings. Sector growth in the last decade was driven mainly by the listing of new PFPOs/REITS, rather than the growth of existing funds. Of the total, only a few including CPNRF, TFUND, TLOGIS, and TLGF, have turned to the market for secondary offerings to acquire new assets. Note that the maximum gearing allowed for property funds is only 10% of NAV, meaning that they need to increase capital for major asset acquisitions as the level of debt alone would not be sufficient.

Industry Focus


Key differences between PFPO and REIT Both PFPO and REIT have the same objective, which is to invest in income-generating assets. Both must pay out at least 90% of their net income as dividends, making them high-yield investment alternatives.

Nonetheless, the legal structure, type of assets they can invest in, leverage limit, holding restrictions, and taxation of dividends differ. The key differences are listed below.

Key differences between PFPO and REIT

Topic Property Fund REIT General

Legal Structure Mutual fund Trust

Minimum Size Not less than 500 million Baht Same

Number of unit holders Upon establishment: ≥250

After establishment: ≥35

Same

Listing of Unit Investment units must be listed REIT unit must be listed

Management Asset management company REIT Manager, namely an asset management company or a company with expertise in managing real estate and is quailed according to the criteria set by the SEC

Registrar Not required to be TSD Requires consent of the SET

Investment

Type of property in which investment can be made

Only ones listed on the SEC’s positive list Not specified, however the real estate shall not be used by the lessee to operate immoral or illegal business

Investment in real estate abroad Not permitted Permitted

Development of real estate (Green-field project)

Not permitted Not exceeding 10% of the total assets

Leverage limit Not exceeding 10% of the net asset value (NAV)

Not exceeding 35% of total assets and not exceeding 60% in the case REIT has received an investment grade.

Distribution and allocation of units

Distribution At least 25% must be offered to the public, and units must be allocated to all free float subscribers equally, one board lot at a time, unit all subscribed units are allocated (Small Lot First)

Not specified; allocated to free float REIT unit holders in accordance with the criteria for listing (no less than 20% of the total trust units and of each tranche (If any))

Holding Restriction for Any Person of Group of Persons

No more than 1/3 of the total number of investment units

No more the 50% of the total number of REIT unit and of each tranche (if any)

Disclosure Similar to mutual funds Similar to listed companies

Annual meeting of unit holders Not specified Annually, within four months from the end of the fiscal year

Codes concerning the acquisition and disposal of assets / related parties transactions

Resolution of unit holders not required Resolution of unit holders holding an aggregate of not less than 15% of the total REIT unit and of each tranche (if any)

Tax Fund is exempt from corporate tax Trust is exempt from corporate tax

In some cases, unit holders are not subject to tax levied on dividends such as a company holding units for three months prior and three months after the date of dividend payment

REIT unit holders of all types are subject to tax.


Industry Focus


Major sponsors Major sponsors. The following table lists the major sponsors of the assets for Thai PFPOs/REITs, together with their current holdings. The top sponsors include TCC Land, Central Pattana (CPN), Bangkok Land (BLAND), Ek-Chai Distribution System (TESCO), TICON Industrial Connection (TICON), and WHA Corporation (WHA). Benefits to sponsors. Injecting their assets into PFPOs/REITs is an alternative fund-raising exercise for these companies, as it helps to unlock the value of their assets and most of them normally recognise huge disposal gains. The proceeds were normally used to finance their expansion plans or

develop new properties. They can still own the assets by taking a stake in the PFPOs/REITs and receive dividend income from the funds/REITs. Most also retain the property management role and receive property management fees from the funds/REITs.

More assets to be injected. Many of these companies still have a pipeline of assets that can be injected into the REIT. Among these are TICON and WHA which are now planning secondary offerings for their REITs. WHA is also planning to inject their office assets into a new office REIT to be set up. CPN has a number of assets that can be injected into a REIT but is waiting for details from the SEC regarding the conversion into a REIT.

Major sponsors of assets for Thai PFPOs/REITs and their current holdings

Sponsor Investment in

Company Fund Mkt Cap Holding Mkt Value

(Btm) (%) (Btm)

CPN CPNRF 36,948 27% 9,862

CPNCG 5,034 25% 1,259

TICON TFUND 12,185 24% 2,878

TLOGIS 5,090 19% 980

TGROWTH 6,771 25% 1,713

under TICON Logistic Park TREIT 3,528 12% 440

WHA WHAPF 10,705 15% 1,606

WHART 3,263 15% 489

HEMRAJ HPF 3,995 23% 924

BLAND under:

Impact Exhibition IMPACT 16,604 50% 8,302

Ekchai Distribution (Tesco Lotus) TLGF 30,852 25% 7,713

Rangsit Plaza FUTUREPF 9,638 33% 3,212

BA SPF 18,620 25% 4,674

TCC Group under:

Asset World Estate TCIF 29,654 33% 9,786

TVC Investments Ltd. TCIF 29,654 32% 9,513

Than Tavorn (2012) Ltd. TCIF 29,654 19% 5,631

Asset World Estate TRIF 22,723 31% 6,930

Yodying Intertrade TRIF 22,723 20% 4,440

Asset World Leisure THIF 30,916 33% 10,208

Panachai Panich THIF 30,916 18% 5,432

CP Land CPTGF 9,670 33% 3,223


Industry Focus


Current status Sector breakdown by asset ownership. The sector now comprises 51 PFPOs and 5 REITs. Of the total, 40% hold freehold assets, 42% hold leasehold assets, and 18% hold both. For leasehold assets, the remaining leasehold life for most funds is 20-30 years. Asset ownership of Thai PFPOs/REIT

Freehold40%

Leasehold42%

Leasehold & Freehold

18%

Source: SET, DBS Vickers Sector breakdown by business. Retail now make up 34% of the sector’s market capitalisation, followed by Office (20%), Industrial (17%), and Hotel (14%). The rest are distributed between Airport (6%), Exhibition Center (5%), Apartment (2%), and Cineplex (1%). Sector breakdown by business

Source: Company, DBS Vickers

Who invests in PFPO/REITs? Investors in Thai PFPOs/REITs are mainly locals. Foreign investors in Thai PFPOs/REITs have increased but are still considered small compared to the sector’s market capitalisation over the last few years. Foreign ownership (%) of Thai PFPOs/REIT

Source: SET, DBS Vickers Local investors comprise both institutional and retail investors. Major institutional investors are Social Security Fund, Government Pension Fund, insurance companies, banks, universities, sponsors, and mutual funds. Mutual funds that invest in PFPO/REITs

Fund By NAV

(Btm)

TMB Property Income Plus TMB A.M. 8,023

One Property Plus Fund One AM Fund 2,408

One Property Plus Dividend Fund One AM Fund 972

MFC Property Dividend Fund MFC Fund 734

MFC Property Wealth Fund MFC Fund 2,220

Thanachart Property Sector Fund Thanachart Fund 1,447

Phatra Property Sector Fund Phatra Asset 1,236 Phatra Property Sector Fund -Diviidend Phatra Asset 61

CIMB-Principal Property Income - A CIMB-Principal

A.M. 542

CIMB-Principal Property Income - R CIMB-Principal

A.M. 742

CIMB-Principal Property Income - D CIMB-Principal

A.M. 199

CIMB-Principal Property Income - C CIMB-Principal

A.M. 341


Industry Focus


Price Performance Sector has yielded 13% average annual returns to investors in last six years. This comprised about 6% price appreciation and 7% distribution yield p.a. The total returns are lower than the SET average return of 14% during the same period, but the level of risk in investing in PFPO/REIT is much lower. This is mainly because PFPO/REITs normally invest in recurring income assets which generate steady cash flows. In addition, it is strictly governed by the SEC to pay out not less than 90% of net income. The borrowing limit is also capped at 10% for PFPOs and 35% for REIT; there is no limit for other stocks. Total return of investing in Thai PFPO/REIT sector

-20%

-10%

0%

10%

20%

30%

40%

2010 2011 2012 2013 2014 2015

Distribution Yield

Price Change


Sector has outperformed the market YTD. The sector index has inched up 2.4% YTD vs the SET’s 7.7% loss as investors turned to less risky assets amid current high market volatility. Thai PFPO/REIT sector index vs SET Index

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

Mar

-13

Jun-

13

Sep-

13

Dec-

13

Mar

-14

Jun-

14

Sep-

14

Dec-

14

Mar

-15

Jun-

15

SET

SET PF&REIT


Most funds/REITs outperformed the market. Of the 56 listed funds/REITs, 48 have outperformed the market YTD. An out-performer YTD

Stock End-2014 11-Sep-15 Change

(Bt) (Bt) (%) SSPF 5.20 9.55 84%WHAPF 9.90 11.40 15%CPNCG 10.30 11.80 15%SPF 17.30 19.60 13%POPF 11.80 13.30 13%TGROWTH 10.90 12.20 12%QHOP 3.82 4.24 11%IMPACT 10.20 11.20 10%MIPF 18.50 20.00 8%QHPF 9.25 9.95 8%MJLF 12.20 13.10 7%UOB8TF 8.20 8.80 7%FUTUREPF 17.00 18.20 7%SIRIP 10.00 10.70 7%SPWPF 9.30 9.95 7%LUXF 5.10 5.45 7%PPF 10.20 10.90 7%TLGF 12.40 13.20 6%CPTGF 9.40 10.00 6%TIF1 7.00 7.35 5%WHART 10.00 10.50 5%TLOGIS 11.80 12.30 4%CPNRF 16.10 16.70 4%CRYSTAL 9.70 10.00 3%KPNPF 9.80 10.00 2%LHSC 10.20 10.40 2%TFUND 10.40 10.60 2%M-STOR 10.60 10.70 1%TTLPF 19.00 19.10 1%ERWPF 9.60 9.60 0%GOLDPF 5.35 5.35 0%JCP 10.00 10.00 0%SSTPF 9.40 9.40 0%CTARAF 3.96 3.94 -1%M-PAT 9.85 9.80 -1%DTCPF 8.55 8.50 -1%TCIF 13.50 13.40 -1%BKKCP 9.75 9.55 -2%LHPF 8.60 8.40 -2%SSTSS 9.70 9.45 -3%QHHR 8.45 8.20 -3%UNIPF 9.80 9.45 -4%MNIT2 8.25 7.90 -4%MNIT 3.00 2.86 -5%M-II 10.00 9.50 -5%THIF 12.70 11.80 -7%MONTRI 9.80 8.80 -10%HPF 9.50 8.50 -11%TRIF 16.20 14.30 -12%SBPF 9.00 7.65 -15%URBNPF 5.15 4.24 -18%TU-PF 2.20 1.74 -21%MNRF 8.55 6.60 -23%TNPF 8.70 4.90 -44%AMATAR 11.10 nmTREIT 10.30 nm


Industry Focus


Industry Outlook

Office – Bright outlook Favourable demand-supply situation. According to CBRE (Thailand), the total supply of office space in Bangkok increased by 86,000 sqm in 1H15 to 8.4m sqm. Among the major Grade A Buildings completed was Bhiraj Tower at Emquartier located on Sukhumvit Road, with a total lettable area of 47,500 sqm. Occupancy rate remained flat at 90.7% at end-1H15. Net take-up surged to 97,000 sqm in 1H15, slightly exceeding the total new supply during the period. It is estimated net take-up of office space for the whole of 2015 will exceed 200,000 sqm. Office: Demand, Supply and Vacancy

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

1H10

2H10

1H11

2H11

1H12

2H12

1H13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

Vac

ancy

Rat

e, A

ll G

rade

s

Sqm

(Net

Let

tabl

e A

rea)

Stock Demand Vacancy Rate

Source: CBRE, DBS Vickers

Net take-up surging in 2015. Despite the slowing economy, net take-up has been strong YTD, with demand coming from expanding companies in the finance, logistics, insurance and e-commerce sectors. Office: Net take-up is on the rise

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

F

Sqm.

Source: CBRE Thailand, DBS Vickers

Future supply not a concern. It is estimated that 103,035 sqm of new supply will be completed in 2H15, 75% of which are located in non-CBD areas. In 2016, about 119,210 sqm of new supply will enter the market, all of which will be outside the CBD. Office: Future supply will be mostly non-CBD

0

50,000

100,000

150,000

200,000

250,000

2009

2010

2011

2012

2013

2014

2015

F

2016

F

2017

F

Sqm.

Non CBD

CBD


Office: Future Supply

Building Lettable

Area Completion (Sqm) - 2H15 Major Tower, Thonglor 10 10,405 3Q15 G-Land Tower, Rama 9 65,630 4Q15 Bhiraj Tower, Sathorn 27,000 2015 - 2016 The Metropolis, Sukhumvit 39 13,540 1Q16 Bhiraj Tower, BITEC 31,880 2Q16 FYI Center, Rama IV 48,095 4Q16 M Tower, Sukhumvit 62 9,990 4Q16 Rungrojthanakul 4, Ratchadapisek 15,705 4Q16 - 2017 Shinawatra 4, Phaholyothin 13,060 1Q17 Pearl Bangkok, Phaholyothin n.a. 2017 Singha Complex, Asoke 36,000 1Q17 Gaysorn Office Tower, Rajdamri 19,500 2Q17 -2018 Whizdom 101, Sukhumvit 101 30,000 2018 -2020 and beyond Super Tower, Rama 9 94,000 2020 SJ Infinite II, Bangna KM 7 30,000 n.a. The Bangkok Mall, Bangna 100,000 n.a. Suan Lum Night Bazaar, Rama IV 137,500 n.a.

Source: Knight Frank Thailand, DBS Vickers

Industry Focus


Vacancy rate to fall further. With take-up expected to outpace new supply, we estimate vacancy rate would continue to fall and there could be a deficit in office space supply by the year 2020. Office: Vacancy should continue to fall

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

- 1,000,000 2,000,000 3,000,000

4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000

10,000,000

2010

2011

2012

2013

2014

2015

F

2016

F

2017

F

Vac

ancy

Rat

e, A

ll G

rade

s

Sqm

(Net

Let

tabl

e A

rea)

Stock Demand Vacancy Rate


Rising rents. According to Knight Frank Thailand, average office rental rate in Bangkok increased 7% y-o-y to Bt674/sqm/month in 2Q15. Rents rose in all segments, thanks to the strong increase in demand coupled with moderate new supply. The rising rents and limited new supply in CBD have led many occupiers to relocate to emerging business locations, e.g. on Rama 9 and Ratchadapisek streets where rents are cheaper. Looking forward, rents should continue to trend up as demand growth outpaces supply growth. Office: Rising rents

300

400

500

600

700

800

900

1,000

1Q20

11

2Q20

11

3Q20

11

4Q20

11

1Q20

12

2Q20

12

3Q20

12

4Q20

12

1Q20

13

2Q20

13

3Q20

13

4Q20

13

1Q20

14

2Q20

14

3Q20

14

4Q20

14

1Q20

15

2Q20

15

Bt p

er s

qm p

er m

onth

CBD Grade A CBD Grade B

Non-CBD Grade A Non-CBD Grade B

Source: Knight Frank Thailand, DBS Vickers

Bangkok office rents are still cheap vs regional peers. The following chart shows prime office rents in major cities in Asia Pacific. According to Knight Frank, Bangkok office rents are still one of the cheapest in Asia, averaging US$29.1/sqm/month in 2Q15 vs US$96.6 in Singapore and US$173.1 in Hong Kong. Office: Bangkok office rents vs regional peers’

0 50 100 150 200

Kuala Lumpur

Phnom Penh

Bangkok

Guangzhou

Jakarta

Seoul

Shanghai

Beijing

Singapore

Hong Kong

US$/sqm/month

Source: Knight Frank, DBS Vickers

Ten office property funds offering average yield of 6.1%. We expect CP Tower Growth Leasehold Property Fund (CPTGF) and Prime Office Property Fund (POPF) to offer 2015 yields of 8.1% and 8.0%, respectively, the highest among peers. Of the total, three hold freehold assets; they are BKKCP, MIPF, and SSPF. The rest hold leasehold assets. 2015 estimated yield of listed office property funds

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

SSPF JC

P

TCIF

MIP

F

KPN

PF

BKKC

P

CPNC

G

QHP

F

CPTG

F

POPF

%


Industry Focus


Retail – Competition grows as supply rises Demand vs supply. Total retail space in Bangkok increased by 169,040 sqm to 6.9m sqm in 1H15, according to CB Richard Ellis. The major developments that opened in 1H15 were The EmQuartier with total lettable area of 50,000 sqm, The Hub which is an expansion of Zeer Rangsit, with a total area of 70,000 sqm, and The Rest Area community mall with 3,040 sqm of lettable area at Prachachuen Toll Plaza on Si Rat Expressway. Take-up rate was about 50,000 sqm in 1H15, raising occupied space to 6.3m sqm at end-1H15. Occupancy easing but remains strong. Despite the rising supply, occupancy rate has eased from 94% at end-2014 to 93.1% at end-1H15, as supply grew faster than demand. Retail: Demand, Supply and Occupancy

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

1H15

sqm

Supply (Sqm) Demand (Sqm) Occupancy (RHS) Source: CBRE (Thailand), DBS Vickers Strong demand from international brands. Take-up continued to grow with demand coming from international retailers. According to Jones Lang Lasalle Thailand, a total of 41 internationally recognised brand-name retailers recently opened their stores at EmQuartier, and six at The Emporium. A lot of new supply entering the market. Colliers International estimates that 724,920 sqm of new supply will be completed in 2H15, 88% of which is located in Bangkok suburban area. These include CentralPlaza WestGate with a gross area of 500,000 sqm, which aims to be the most complete Super Regional Mall in Southeast Asia.

CentralPlaza WestGate : the biggest mall to open this year. The project is located on a 100-rai (1 rai =0.4 acre) plot of land along the West Ring Road at the Bangyai intersection, where Kanchanapisek Road meets Rattanathibet Road. This is the largest regional gateway in western Bangkok, with the most comprehensive transportation system including the MRT Purple Line, public transportation, piers, a ring road, expressway and motorway. It is surrounded by a lot of residential projects. The mall is developed by Central Pattana (CPN) and was opened on 28 August 2015 with 83% occupancy rate on opening date. Occupancy is now over 90%. The project comprises: - Central Department Store (31,000 sqm) - 6 Specialty Anchor stores (14,000 sqm) including Tops

Market, Tops Super Store, Super Sports, PowerBuy, B2S, Office Mate

- 4-storey CentralPlaza shopping mall (150,000 sqm), housing approximately 400 leading retailers

- 12-screen WestGate Cineplex (10,200 sqm) - Virgin Active Club (3,000 sqm) - Doraemon Comic World (2,600 sqm) CentralPlaza WestGate

Source: CBRE (Thailand), DBS Vickers

Industry Focus


Falling consumer confidence. According to data from the University of Thai Chamber of Commerce, Thailand’s consumer confidence index has been dropping steadily for eight consecutive months to 72.3 in August, a 15-month low. This was the result of a combination of factors including the recent bombing at the Rajchaprasong intersection, the sharp drop in exports, the low agricultural produce prices which have led to low farm incomes, a slowing Chinese economy, global economic uncertainties, and the sharp correction in the Thai stock market.

Consumer Confidence dropped for 8 consecutive months

405060708090

100110120

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

CCI Index

CCI Index - Current

CCI Index - Future

Source: Bank of Thailand, DBS Vickers

Retail sales index fell 3.5% y-o-y in 1H15. With consumer confidence falling amid global economic uncertainties and a slowing domestic economy, Thailand’s retail sales index also fell by 3.5% in 1H15, after falling 5.9% in 2014. Retail sales and growth

-10%

-5%

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

1H15

Retail sales indexGrowth (y-o-y)

Source: Bank of Thailand, DBS Vickers

Bangkok retail rents still among the cheapest in Asia. The following chart shows prime retail rents in Asia Pacific. According to Jones Lang Lasalle, rents in shopping centers in CBD in Bangkok averaged US$667/sqm/year, still much lower than US$4,366 in Singapore and US$15,642 in Hong Kong.

Retail: Asia Pacific shopping centers rents

0 5,000 10,000 15,000 20,000

Manila

Jakarta

Bangkok

Chennai

Bangalore

Delhi

Mumbai

Auckland

Adelaide

Perth

Beijing

Singapore

Brisbane

Melbourne

Shanghai

Guangzhou

Sydney

HK, Central

Net Rents (US$ /sqm/year)

Source: Jones Lang Lasalle, DBS Vickers

Seven retail property funds offering average yield of 6.7%. Excluding Trinity Freehold and Leasehold Property Fund (TNPF) which has not finalised a dividend payment for 2015, we estimate the seven listed retail property funds are offeringq an average distribution yield of 6.7% in 2015. 2015 estimated yield of listed retail property funds

- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

TNPF

TRIF

CPN

RF

TLGF

FUTU

REPF

LHSC

CRYS

TAL

TTLP

F

%


Industry Focus


Industrial – High vacancies

- Ready-Built Factories (RBF) Excess supply. Total new RBF supply increased by 92,000 sqm in 1H15 to 2.5m sqm, according to CB Richard Ellis. But net take-up rate had slowed to only 10,000 sqm in 1H15 amid the slowing economy. According to Knight Frank Thailand, as much as 70% of RBF supply is located in Chonburi, Rayong and Samut Prakan, because these are the major locations of various industrial hubs and home to Thailand’s automotive industry. RBF: Supply by provinces

Chonburi, 30%

Samut Prakan, 21%

Rayong, 19%

Ayudhya, 16%

Pathum Thani, 6%

Saraburi, 4%

Prachinburi, 2% Chachoengsao,

1% Nonthaburi, 1%

Source: Knight Frank Thailand, DBS Vickers Vacancy rate rising steadily since heavy flooding in 2011. With the increase in supply far outpacing demand, vacancy rate continued to rise from 33% at end-2014 to 35% at end-1H15. RBF: Demand, Supply and Vacancy

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

50,000

100,000

150,000

200,000

250,000

300,000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

F

Sqm

SupplyDemandVacancy

Source: CBRE (Thailand), DBS Vickers Rents remain flat. The average factory rental rate inched up a meager 1.4% to Bt217/sqm/month in 2Q15, according to Knight Frank Thailand. With demand likely to remain slow, we expect rental rate of RBF to remain quite stagnant during the rest of this year.

- Logistics Property (Warehouses) Rising vacancies. According to Knight Frank Thailand, total supply of warehouse rental space increased by 101,327 sqm in 1H15 to 3.5m sqm at end-1H15. This has dropped from an increase of 310,000-440,000 sqm semi-annually in the previous years, as rental warehouse developers slowed down expansion plans amid weakening demand, which is in turn the result of deteriorating exports and a slowing economy. Vacancies rose to 22% in 1H15. Warehouse: Demand, Supply and Vacancy

0%

5%

10%

15%

20%

25%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2011 2012 2013 2014 1H15

Sqm

SupplyOccupied SpaceVacancy (RHS)

Source: Knight Frank Thailand, DBS Vickers Rents are stagnant. Average rental rate of warehouses eased to Bt160/sqm/month in 1H15, given weak demand and rising vacancies. The largest drop was in the Eastern Seaboard, because of high competition in the area. Warehouse: Rents were stagnant

135

140

145

150

155

160

165

170

175

1H11

2H11

1H12

2H12

1H13

2H13

1H14

2H14

1H15

Btm/Sqm/Month

Eastern Bangkok

Suvarnabhumi-Bangpakong

Eastern Seaboard

Pathum-Ayudhya

Source: CBRE (Thailand), DBS Vickers

Industry Focus


Industrial REIT offering average 7.1% yield in 2015. There are now 15 listed property funds/REITs that invest in industrial assets including ready-built factories, logistic warehouses and storage. These funds are now offering generous dividend yield of 7.1% at current price. This is relatively high, but we are concerned about the sustainability of the yields of some industrial funds over the medium- to long-term, given weak demand and still high vacancy rates. Some funds are now being saved by the temporary revenue guarantees by the sponsors, which mean their yields could drop in the future.

The industrial property funds/REITs that offer the highest 2015 dividend yields include 101 Montri Storage Property Fund, Hemaraj Industrial Property & Leasehold Fund (HPF) and Ticon Industrial Growth Leasehold Property Fund (TGROWTH), which are offering 8.0%, 7.8%, and 7.6%, respectively.

2015 estimated yields of listed industrial property funds

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

AM

ATA

R

M-II

M-S

TOR

TFU

ND

TIF1

TGRO

WTH HPF

MO

NTR

I

PPF

SSTP

F

SSTS

S

TLO

GIS

WH

APF

WH

ART

TREI

T

%


Industry Focus


Major office property funds/REITs

Office

CPNCG CPTGF POPF QHPF

Units (m) 427 967 482 797

Price (Bt) 11.80 10.00 13.30 9.95

Mkt Cap (Btm) 5,034 9,670 6,406 7,930

Mkt Cap (US$m) 140 269 178 220

Listing 21-Sep-12 16-Dec-13 12-Apr-11 12-Dec-06

TP (Bt) 12.50 10.80 14.00 n.a.

Upside 6% 8% 5% n.a.

NAVps (Bt) 11.78 10.37 11.40 11.06

P/NAV (x) 1.0 1.0 1.2 0.9

DPU (Bt) - 2015 0.84 0.80 1.08 0.74

Div. Yield 7.1% 8.0% 8.1% 7.5%

DPU (Bt) - 2016 0.88 0.86 1.11 n.a.

Div. Yield 7.5% 8.6% 8.3% n.a.

IRR 8.5% 9.7% 8.6% n.a.

Asset type Office Office Office Office

Asset CentralWorld CP Tower Silom UBC II Tower Q House Ploenchit

CP Tower Fortune Town

Ploenchit Center Q House Lumpini

CP Tower Phyathai Nation Tower Wave Place

Ownership (by leasable area)

Freehold 0% 0% 0% 0%

Leasehold 100% 100% 100% 100%

Remaining leasehold life (yrs) 17.3 28.2 22.8 19.5

Leasable area (Sqm) 80,604 70,293 125,184 115,678

Cost (Bt) 4,765 9,660 5,491 7,194

Acquisition price (Bt/sqm) 59,119 137,421 43,860 62,193

Latest appraised value (Btm) 5,197 9,626 5,754 7,837


Industry Focus


Major retail property funds/REITs

Retail

CPNRF TLGF FUTUREPF CRYSTAL LHSC

Units (m) 2,212 2,337 530 390 488

Price (Bt) 16.70 13.20 18.20 10.00 10.4

Mkt Cap (Btm) 36,948 30,852 9,638 3,900 5,076

Mkt Cap (US$m) 1,026 857 268 108 141

Listing 23-Aug-05 19-Mar-12 07-Dec-06 27-Jun-13 26-Dec-14

TP (Bt) 18.00 15.1 22.27 11.44 11.40

Upside 8% 14% 22% 14% 10%

NAVps (Bt) 13.06 11.18 12.55 10.95 10.63

P/NAV (x) 1.3 1.2 1.5 0.9 1.0

DPU (Bt) - 2015 1.00 0.81 1.27 0.77 0.76

Div. Yield 6.0% 6.1% 7.0% 7.7% 7.3%

DPU (Bt) - 2016 1.26 0.84 1.33 0.79 0.77

Div. Yield 7.6% 6.3% 7.3% 7.9% 7.4%

IRR 8.8% 7.4% 9.2% 9.3% 8.5%

Asset type Retail Retail Retail Retail Retail

Asset Central Rama 2 23 Tesco Lotus malls

Future Park Rangsit The Crystal Terminal 21 Mall

Central Rama 3 Crystal Design Center

Central Pinklao

Central Chiangmai Airport


Freehold 0% 60% 0% 0% 0%

Leasehold 100% 40% 100% 100% 100%

Remaining leasehold life (yrs) 34.9 21.7 27.5 28.0 25.0

Leasable area (Sqm) 218,269 331,563 65,500 118,018 34,058

Cost (Bt) 27,973 27,761 6,403 4,132 5,942

Acquisition price (Bt/sqm) 128,159 83,729 97,761 35,015 174,456


Industry Focus


Major industrial property funds/REITs

A MA TA R HPF TREIT WHA PF WHA RT TF UND TGROWTH TLOGIS

Units (m) 358 470 343 939 311 1,150 555 414

Price (Bt) 11.10 8.50 10.30 11.30 10.60 10.60 12.20 12.30

Mkt Cap (Btm) 3,973 3,995 3,528 10,611 3,294 12,185 6,771 5,090

Mkt Cap (US$m) 110 111 98 295 92 338 188 141

Listing 30-Jun-15 23-Jan-14 16-Dec-14 24-Dec-10 18-Dec-14 12-May-15 18-Dec-13 16-Dec-09

TP (Bt) 11.0 n.a. 10.4 11.6 11.0 11.0 12.9 11

Upside -1% n.a. 1% 3% 4% 4% 6% -8%

NAVps (Bt) 10.0 10.1 9.9 10.2 9.8 11.1 10.4 11.8

P/NAV (x) 1.1 0.8 1.0 1.1 1.1 1.0 1.2 1.0

DPU (Bt) - 2015 0.4 0.7 0.6 0.7 0.8 0.6 0.9 0.7

Div. Yield 7.6% 7.8% 6.1% 6.3% 7.6% 6.0% 7.6% 5.9%

DPU (Bt) - 2016 0.8 n.a. 0.7 0.7 0.8 0.6 1.0 0.8

Div. Yield 7.5% n.a. 7.2% 6.5% 7.2% 6.0% 7.9% 6.2%

IRR 9.3% n.a. 10.3% 9.2% 9.4% 0.0% 8.1% 6.5%

Asset type Factories Factories Industrial Industrial Warehouses Industrial Industrial Industrial

Asset 88 factories104 factories Warehouses Warehouses Warehouses Factories Warehouses Warehouses

Factories Factories Factories


Freehold 30% 64% 65% 70% 61% 100% 0 100%

Leasehold 70% 36% 35% 30% 39% 0% 100% 0

Remaining leasehold life (yrs) 30 n.a. 28-30 22.4 26 n.m. 28.5 n.a.

Leasable area (Sqm) 160,579 150,117 214,523 397,782 342,021 584,550 303,270 243,625

Cost (Bt) 4,750 4,700 4,228 9,780 9,056 11,716 6,003 4,469

Acquisition price (Bt/sqm) 29,580 31,309 19,709 24,585 26,479 20,043 19,794 18,344

Indust rial


Industry Focus


Major property funds/REITs in other sectors

IMPA CT MJ LF SPF

Units (m) 1482.5 330 950

Price (Bt) 11.20 13.10 19.60

Mkt Cap (Btm) 16,604 4,323 18,620

Mkt Cap (US$m) 461 120 517

Listing 01-Oct-14 18-Jul-07 24-Nov-06

TP (Bt) 12 13.8 21.4

Upside 7% 5% 9%

NAVps (Bt) 10.79 12.16 11.08

P/NAV (x) 1.0 1.1 1.8

DPU (Bt) - 2015 0.71 1.01 1.30

Div. Yield 6.4% 7.7% 6.6%

DPU (Bt) - 2016 0.74 1.03 1.39

Div. Yield 6.6% 7.9% 7.1%

IRR 8.9% 7.8% 8.4%

Asset type Exhibition Center Lifesty le Entertainment Complex Airport

Asset Impact Arena Major Ratchayothin Samui Airport

Impact Forum Major Rangsit

Impact Exhibition 1-8 Suzuki Avenue Ratchayothin

Challenger Hall


Freehold 100% 100% 0%

Leasehold 0% 0% 100%

Remaining leasehold life (yrs) n.a. 30.8 21.0

Leasable area (Sqm) 122,165 45,194 n.a.

Cost (Bt) 19,601 3,194 9,301

Acquisition price (Bt/sqm) 160,448 70,675 n.m.

Others


Industry Focus


THAILAND STOCK PROFILES

ASIAN INSIGHTS VICKERS SECURITIES www.dbsvickers.com

ed: SGC / sa: CS

BUY Last Traded Price: Bt10.00 (SET : 1,381.80)

Price Target : Bt10.80 (9% upside)

Potential Catalyst: Strong rental reversion

Where we differ: n.a.

Analyst Thailand Research Team +662 658 1222 Nantika WIANGPHOEM +662 657 7836 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Bt m) 2014A 2015F 2016F 2017F

Gross Revenue 1,307 1,348 1,452 1,469 Net Property Inc 1,169 1,208 1,301 1,316 Total Return 727 757 824 869 Distribution Inc 733 771 833 843 EPU (Bt) 0.75 0.78 0.85 0.90 EPU Gth (%) nm 4 9 6 DPU (Bt) 0.76 0.80 0.86 0.87 DPU Gth (%) nm 5 8 1 NAV per shr (Bt) 10.31 10.35 10.36 10.39 PE (X) 13.2 12.7 11.7 11.1 Distribution Yield (%) 7.6 8.0 8.7 8.8 P/NAV (x) 1.0 1.0 1.0 1.0 Aggregate Leverage (%) 0.0 0.0 0.0 0.0 ROAE (%) N/A 7.6 8.2 8.7 Dist. Inc. Revision (%): - - - Consensus DPU (Bt): N/A N/A N/A Other Broker Recs: B: 0 S: 0 H: 0

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P

LOW RISK BUT ATTRACTIVE YIELD

BUY, with Bt10.80 TP based on DCF valuation. CPTGF is

offering attractive distribution yield of 8.0% (FY15F), payable

quarterly. The fund invests in leasehold rights to three office

buildings that are strategically located in the prime business

areas of Bangkok, including Silom, Fortune Town and

Phayathai area. Note that these buildings also offer retail rental

space. The office buildings currently enjoy high average

occupancy rate of 98%, except for office space of C.P. Tower

II (Fortune Town) which is at 93% given the location and age

of the building.

Low risks, high quality tenants. The main contracts with anchor

tenant C.P. group and its subsidiaries, Tesco Lotus, and public

sector clients, which cover 34%, 6% and 5% of total lettable

area, respectively, are subject to 10% rental reversion next

year. And, 52 other contracts which account for 9.4% of total

revenue are expiring in FY16 and subject to renewals at 5%

higher rents, at least.

Valuation:

We value CPTGF at Bt10.80 based on DCF valuation (WACC:

6.8%).

Key Risks to Our View:

Key risks are (i) lower-than-expected rental reversion, and (ii)

weaker-than-expected occupancy rate. At A Glance

Issued Capital (m shrs) 967 Mkt. Cap (Btm/US$m) 9,670 / 269 Major Shareholders

CPL Group Pcl. (%) 33.3

KTB (%) 15.0 Social Security Office (%) 15.0 Free Float (%) 50.6

3m Avg. Daily Val (US$m) 0.20

ICB Industry : Financials / Real Estate Investment Trusts

DBS Group Research . Equity

18 Sep 2015

Thailand Company Guide

CP Tower Growth Leasehold Edition 1 Version 1 | Bloomberg: CPTGF TB | Reuters: CPTGFu.BK Refer to important disclosures at the end of this report

69

89

109

129

149

169

189

209

8.2

8.7

9.2

9.7

10.2

10.7

Dec-13 May-14 Oct-14 Mar-15 Aug-15

Relative IndexBt

CP Tower Growth Leasehold (LHS) Relative SET INDEX (RHS)

ASIAN INSIGHTS VICKERS SECURITIES

Company Guide

CP Tower Growth Leasehold

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Invests in leasehold rights to three office buildings in

Bangkok’s prime areas. These are successful office buildings

in good locations with 98% average occupancy rate. The

Fund’s assets include i) C.P. Tower I (Silom), ii) C.P. Tower II

(Fortune Town), iii) C.P. Tower III (Phayathai). With all of the

assets being in prime locations, the Fund stands to benefit

from future rental rate hikes. The remaining tenure of the

lease is about 29 years.

Positive rental reversion to drive growth. With the prime

area of each building, we expect growth to come from

rental reversion (estimated at 3.0 - 5.0% p.a. for retail rental

space and +10% every three years for office rental space).

Also, the geographical diversification helps to reduce

concentration risk.

Low risk with high profile tenants. The main contracts with

anchor tenant C.P. group and its subsidiaries, Tesco Lotus,

and public sector clients, which cover 34%, 6% and 5% of

total lettable area, respectively, are subject to 10% rental

reversion next year. And, 52 other contracts which account

for 9.4% of total revenue are expiring in FY16 and subject

to renewals at 5% higher rents, at least.

Strong occupancy record. Data from 2010-2015 for office

rental shows that the historical average occupancy rate for

C.P. Tower I, II & III were 100%, 99% and 100%, with

occupancy increasing by 3.3%, 5.5% and 16.3% CAGR,

respectively.

For retail space, the average occupancy rate for C.P. Tower I

and II were 99% and 97%, growing by 3.0% and 7.8%

CAGR, respectively. Occupancy at C.P. Tower III had risen

from 46.4% in 2010 to 100% in 2015, or at 8.4% CAGR.

Payout assumptions. We currently assumed 97%payout ratio

throughout our forecast period. CPTGF has paid Bt0.20

quarterly DPU in 1Q15 and 2Q15, respectively. In addition,

the fund has announced par reduction of Bt0.004 in both

1Q15 and 2Q15.

Net Property Income and Margins (%) Leverage & Asset Turnover (x)

Net Property Income and Margins (%) Capital Expenditure

Distribution Paid / Net Operating CF ROE (%)

Net Asset Value / Unit

Occupancy rate in 1H15

C.P. Tower 1 C.P. Tower 2 C.P. Tower 3

(Silom)

(Fortune Town) (Phayathai)

Office rental space Total Office Rental Space (sqm) 35,717 25,414 9,163

Occupancy rates 100% 92% 97%

Retail rental space

Total leasable space (sqm) 9,075 46,528 7,850

Occupancy rates 98% 98%* 97% * excluding OR of Tesco Lotus = 100*


84.9%

86.9%

88.9%

90.9%

92.9%

94.9%

96.9%

0

200

400

600

800

1,000

1,200

1,400

2014A 2015F 2016F 2017F

Bt m

Net Property Income Net Property Income Margin %

65%

66%

67%

68%

69%

70%

71%

72%

73%

0

5

10

15

20

25

30

35

40

45

50

1Q20

14

2Q20

14

3Q20

14

4Q20

14

1Q20

15

2Q20

15


-1.5

-1.0

-0.5

0.0

0.5

2014A 2015F 2016F 2017F

(x)


Company Guide


Balance Sheet:

Currently, the fund is debt-free.

Share Price Drivers:

Strong rental reversion. Strong rental reversion could lift

rental income and distribution per unit.

Attractive yield. CPTGF is offering attractive annual yield of

about 8%, compared to 3.0% for 10-year Thai government

bonds and 3.6-3.9% dividend yields for stocks under DBS

coverage (75% of the SET market cap) in FY15-16F.

Key Risks:

Economic slowdown

Economic slowdown should result in weaker-than-expected

occupancy rate and slower-than-expected rental reversion,

which would limit the Fund’s growth, and hence, DPU.

COMPANY BACKGROUND

CPTGF is a property fund that invests in leasehold rights to

three office buildings in Bangkok’s prime business areas with

a total leasable area of 132,191 sqm. The assets are C.P.

Tower I (Silom), C.P. Tower II (Fortune Town), and C.P.

Tower III (Phayathai). The key anchor tenants are C.P. group

and its subsidiaries, Tesco Lotus, and also public sector

clients, which cover 34%, 6% and 5% of total lettable area,

respectively.

For the office rental space, CPTGF will renew the rental

contract and revise up the rental rate by 10% with the

tenants every 3 years

The fund was listed on the Stock Exchange of Thailand on

16 December 2013. The IPO price was Bt10.15/sh. C.P. Land

Public Company Limited is the fund’s sponsor, a major

shareholder with 33.33% stake, and the Property Manager.

ROE (%)

Distribution Yield (%)

PB Band (x)

Details of assets in CPTGF’s portfolio

Assets Appraised

Value (Btm) Remaining Leasehold

(Years)

C.P. Tower I (Silom) 3,979.86 28

C.P. Tower II (Fortune Town) 4,752.29 28

C.P. Tower III 853.90 28


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2015F 2016F 2017F

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2014A 2015F 2016F 2017F


Company Guide


Key Assumptions

FY Dec 2014A 2015F 2016F 2017F

C.P. Tower I (Silom) Office rental space

Leasable area (sqm) 35,716 35,716 35,716 35,716

Occupancy 99% 100% 100% 100%

Rents (bt/sqm/month) 840 840 924 924

Retail rental space


Occupancy 98% 98% 98% 98%

Rents (bt/sqm/month) 949 996 1046 1088 C.P. Tower II (Fortune) Town)

Office rental space


Occupancy 93% 93% 93% 93%


Retail rental space


Occupancy 99% 99% 99% 97%


C.P. Tower III (Phayathai)

Office rental space


Occupancy 99% 100% 100% 100%


Retail rental space


Occupancy 98% 98% 98% 98%


Dividend payout ratio 96% 97% 97% 97% Income Statement (Bt m)

FY Dec 2014A 2015F 2016F 2017F Gross revenue 1,307 1,348 1,452 1,469

Property expenses (139) (140) (151) (152)

Net Property Income 1,169 1,208 1,301 1,316

Other Operating expenses (451) (456) (484) (454)

Other Non Opg (Exp)/Inc 3 3 3 3

Net Interest (Exp)/Inc 7 2 3 4

Exceptional Gain/(Loss) 3 0 0 0

Net Income 730 757 824 869

Tax 0 0 0 0

Minority Interest 0 0 0 0

Preference Dividend 0 0 0 0

Net Income After Tax 730 757 824 869

Total Return 727 757 824 869

Non-tax deductible Items 14 0 0 0

Net Inc available for Dist. 733 771 833 843

Growth & Ratio

Revenue Gth (%) N/A 3.1 7.7 1.2

N Property Inc Gth (%) nm 3.4 7.7 1.2

Net Inc Gth (%) nm 3.8 8.7 5.5

Dist. Payout Ratio (%) 95.8 97.0 97.0 97.0

Net Prop Inc Margins (%) 89.4 89.6 89.6 89.6

Net Income Margins (%) 55.8 56.2 56.7 59.2

Dist to revenue (%) 56.1 57.2 57.4 57.4

Managers & Trustee’s fees to sales %)

34.5 33.8 33.3 30.9

ROAE (%) N/A 7.6 8.2 8.7

ROA (%) N/A 7.3 7.9 8.3

ROCE (%) N/A 7.5 8.2 8.6

Int. Cover (x) NM NM NM NM



Company Guide


Quarterly / Interim Income Statement (Bt m)

FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015

Gross revenue 329 326 332 333 341

Property expenses (105) (91) (107) (94) (102)

Net Property Income 224 236 225 238 239

Other Operating expenses (44) (47) (49) (46) (43)

Other Non Opg (Exp)/Inc 1 0 1 1 1

Net Interest (Exp)/Inc 0 3 3 2 1

Exceptional Gain/(Loss) 0 2 3 (25) 31

Net Income 182 194 182 171 230

Tax 0 0 0 0 0

Minority Interest 0 0 0 0 0

Net Income after Tax 182 194 182 171 230

Total Return 182 194 182 171 230

Non-tax deductible Items 10 7 7 34 (22)

Net Inc available for Dist. 192 201 189 205 208

Growth & Ratio

Revenue Gth (%) 3 (1) 2 0 3

N Property Inc Gth (%) (1) 5 (5) 6 0

Net Inc Gth (%) 5 7 (6) (6) 34

Net Prop Inc Margin (%) 68.2 72.2 67.7 71.6 70.1

Dist. Payout Ratio (%) 94.8 95.2 95.3 97.3 96.7

Balance Sheet (Bt m)

FY Dec 2014A 2015F 2016F 2017F Investment Properties 9,651 9,651 9,651 9,651

Other LT Assets 0 0 0 0

Cash & ST Invts 561 649 715 747

Inventory 0 0 0 0

Debtors 64 66 71 71

Other Current Assets 80 43 8 8

Total Assets 10,355 10,408 10,444 10,477

ST Debt

0 0 0 0

Creditor 64 66 71 72

Other Current Liab 322 332 356 360

LT Debt 0 0 0 0

Other LT Liabilities 0 0 0 0

Unit holders’ funds 9,969 10,010 10,016 10,045

Minority Interests 0 0 0 0

Total Funds & Liabilities 10,355 10,408 10,444 10,477

Non-Cash Wkg. Capital (243) (290) (348) (352)

Net Cash/(Debt) 561 649 715 747

Ratio

Current Ratio (x) 1.8 1.9 1.9 1.9

Quick Ratio (x) 1.6 1.8 1.8 1.9

Aggregate Leverage (%) 0.0 0.0 0.0 0.0

Z-Score (X) NA NA NA NA



Company Guide


Cash Flow Statement (Bt m)

FY Dec 2014A 2015F 2016F 2017F

Pre-Tax Income 730 757 824 869

Dep. & Amort. 0 0 0 0

Tax Paid 0 0 0 0

Associates &JV Inc/(Loss) 0 0 0 0

Chg in Wkg.Cap. (871) 93 59 4

Other Operating CF (3) 0 0 0

Net Operating CF (144) 850 883 873

Net Invt in Properties 0 0 0 0

Other Invts (net) (402) 0 0 0

Invts in Assoc. & JV 0 0 0 0

Div from Assoc. & JVs 0 0 0 0

Other Investing CF 0 0 0 0

Net Investing CF (402) 0 0 0

Distribution Paid (553) (761) (817) (841)

Chg in Gross Debt 0 0 0 0

New units issued (29) 0 0 0

Other Financing CF 0 0 0 0

Net Financing CF (582) (761) (817) (841)

Currency Adjustments 0 0 0 0

Chg in Cash (1,129) 89 65 33

Operating CFPS (Bt) 0.8 0.8 0.9 0.9

Free CFPS (Bt) (0.1) 0.9 0.9 0.9



ed: SGC / sa: CS

BUY

Last Traded Price: Bt16.70 (SET : 1,381.72)

Price Target : Bt18.00 (8% upside) (Prev Bt18.00)

Potential Catalyst: Strong rental reversion, converts to a REIT

Where we differ: We have assumed more conservative occupancy and

rental growth assumptions

Analyst Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected]

Price Relative


Gross Revenue 3,185 2,948 3,616 3,970 Net Property Inc 3,024 2,776 3,414 3,715 Total Return 3,211 3,483 3,004 3,297 Distribution Inc 2,684 2,373 3,004 3,297 EPU (Bt) 1.62 1.57 1.36 1.49 EPU Gth (%) (2) (3) (14) 10 DPU (Bt) 1.33 1.00 1.26 1.39 DPU Gth (%) 8 (25) 27 10 NAV per shr (Bt) 12.52 13.02 13.18 13.32 PE (X) 10.3 10.6 12.3 11.2 Distribution Yield (%) 7.9 6.0 7.6 8.3 P/NAV (x) 1.3 1.3 1.3 1.3 Aggregate Leverage (%) 6.4 6.0 6.0 5.3 ROAE (%) 14.1 12.3 10.4 11.2 Dist. Inc. Revision (%): 0 0 0 Consensus DPU (Bt): 1.17 1.37 1.43 Other Broker Recs: B: 2 S: 1 H: 1


DIVIDEND HICCUP

Reiterate BUY, Bt18.00 TP (DCF valuation). CPNRF is Thailand’s

largest property fund and is one of the most liquid property

funds in Thailand. It has strong recurring income base from

four successful CentralPlaza shopping malls in diversified

locations. The fund now offers generous dividend yield of

6.0% for 2015 (payable quarterly), a hefty premium over Thai

10-year government bond yield of 2.8%. And yields should

rise to 7.7% in 2016 and 8.5% in 2017 following the

completion of major renovation at CentralPlaza Pinklao.

DPU to surge in 2016 and 2017. Major renovation is now

under way at CentralPlaza PInklao mall, which contributes

22% of the fund’s total revenue. We estimate DPU will drop

by 25% in 2015 because of revenue lost during the

renovation. But, DPU will surge in 2016 and 2017 after the

renovation is completed; the management estimates rents at

CentralPlaza Pinklao should increase by about 9-10%.

Conversion to REIT structure could lift future yields. CPNRF is

awaiting details on the total costs to convert from the existing

property fund structure to a REIT. The fund would like to

convert to a REIT and grow by acquiring more assets from

sponsor Central Pattana (CPN). With the larger trust size and

higher gearing allowed under the REIT structure, we estimate

distribution yield under a REIT structure would be higher.

Valuation:

Our target price for CPNRF is Bt18, based on discounted cash

flow (DCF) valuation methodology. Key Risks to Our View:

Key risks are (i) the lower-than-expected occupancy rate, and

(ii) weaker-than-expected rental rate reversion. At A Glance Issued Capital (m shrs) 2,212

Mkt. Cap (Btm/US$m) 36,948 / 1,025 Major Shareholders Central Pattana (%) 26.7 Mrs.Arunee Chan (%) 3.4 Government Savings Bank (%) 3.1

Free Float (%) 66.9 3m Avg. Daily Val (US$m) 0.52



18 Sep 2015


CPN Retail Growth Property Fund Edition 1 Version 1 | Bloomberg: CPNRF TB | Reuters: CPNRu.BK Refer to important disclosures at the end of this report

72

92

112

132

152

172

192

212

10.4

12.4

14.4

16.4

18.4

20.4

Sep-11 Sep-12 Sep-13 Sep-14 Sep-15

Relative IndexBt

CPN Retail Growth Property Fund (LHS)

Relative SET INDEX (RHS)


Company Guide

CPN Retail Growth Property Fund


Earnings Drivers:

A portfolio of four successful malls in diversified locations.

CPNRF currently operates four successful shopping malls in

Thailand, three of which are located in Bangkok and one in

Chiangmai. The four malls are CentralPlaza Rama 2,

CentralPlaza Rama 3, CentralPlaza Pinklao, and CentralPlaza

Chiangmai Airport. Average occupancy rate at the four malls

had dropped to 90.9% at end-2Q15 from 96.6% at end-

2014, as CentralPlaza PInklao is under renovation.

Major renovation at CentralPlaza Pinklao. This project

currently contributes 27% of the fund’s total revenue. The

renovation includes improvements to the building and facade,

decoration of common areas, expansion of leasable area at

the mall by 5,820 sqm (27%), and revising merchandise mix

to meet customer needs. The renovation will be done in two

phases, covering 85% of the mall area in 2Q15-4Q15, and

the remaining 15% in 1Q16-2Q16. The mall will remain open

during the renovation period. Total investment cost for the

project is Bt350m, and estimated IRR is 11%.

Potential DPU hiccup in 2015. We estimate the fund’s DPU

will drop by 25% in 2015, given revenue lost during the

renovation. But, it will surge in 2016 and 2017 after the

renovation is completed. Management estimates rents would

increase by about 9-10% after the renovation.

Rental rate reversion. CPNRF managed to renew and sign 81

new leases covering 10,268 sqm, or 5% of total leasable area

in 1H15 at average rental reversion rate of 5.8% p.a. This is

impressive considering the weak domestic consumption YTD.

Going forward, we have assumed CPNRF will grow rental rate

by about 5% p.a. Note that leases for 19% of leasable area

will expire in 2H15, 22% in 2016, and 23% in 2017.

Converting to REIT could lift future yields. CPNRF is awaiting

further details on the transaction costs involved. The fund

would like to convert to a REIT and grow by acquiring more

assets from sponsor CPN. A REIT can gear up to 35% of total

assets and to 60% of its assets if it has an investment grade

credit rating, compared with 10% maximum gearing for a

property fund. We estimate the larger trust size and higher

gearing allowed under the REIT structure would lift

distribution yields.

Assets in the Portfolio Assets Leasable Occupancy

(%)

Area (Sqm)

Dec-14 Mar-15 Jun-15

Central Plaza Rama 2 88,038 96.5 95.6 96.0

Central Plaza Rama 3 37,324 93.8 90.8 90.7

Central Pinklao (Mall) 21,829 98.3 76.5 50.2

Central Pinklao (Office) 33,760 96.2 97.0 97.5

Central Chiangmai 37,307 98.9 97.5 96.7

Total 218,258 96.6 93.4 90.9

Rental Structure

Assets Fixed % of

Rate Sales

Central Plaza Rama 2 52% 48%

Central Plaza Rama 3 71% 29%

Central Pinklao (Mall) 95% 5%

Central Pinklao (Office) 100% 0%

Central Chiangmai 72% 28%



Distribtuion Paid / Net Operating CF ROE (%)


88.5%

90.5%

92.5%

94.5%

96.5%

98.5%

100.5%

102.5%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2013A 2014A 2015F 2016F 2017F

Bt m


0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

2013A 2014A 2015F 2016F 2017F

(x)


Company Guide


Balance Sheet:

Net debt amounted to Bt1.95bn, and net gearing reached

6.8% at end-2Q15. This is within the 10% maximum

gearing allowed for property funds.




Conversion to a REIT structure. The successful conversion to a

REIT structure would mean the current Fund can gear up

further and rely less on equity financing. This should lift DPU

and yields.

Key Risks:

Political unrest & 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.

Acquisition-led growth is stalled unless the Fund converts to

a REIT. CPNRF and all property funds can no longer increase

capital to acquire additional assets. To be able to grow the

fund size, the fund needs to convert to a REIT. Further

details, e.g. the related transaction costs, have yet to be

announced.

COMPANY BACKGROUND

CPNRF is Thailand's largest property fund by market CPNRF

is Thailand's largest property fund by market capitalisation.

The fund invests in leasehold rights to four retail assets with

a total gross area of 685,442 sqm and total leasable area of

218,258 sqm. The assets are CentralPlaza Rama 2,

CentralPlaza Rama 3, CentralPlaza Pinklao, and CentralPlaza

Chiangmai Airport. The remaining leasehold life of the

assets is currently 34.9 years. The fund was listed on the

Stock Exchange of Thailand on 23 August 2005. CPN is

the fund’s sponsor, a major shareholder with 26.7% stake,

and the Property Manager.

The followings show details of assets in CPNRF’s portfolio

together with the appraised value and remaining leasehold

life of each asset.

Assets Appraised Remaining

Value Leasehold

(Btm) (Years)

Central Plaza Rama 2 6,532 10.0 Central Plaza Rama 3 8,216 80.0 Central Plaza Pinklao 5,439 9.3 Central Plaza Chiangmai Airport 10,856 28.7

Total 31,043 34.9

Aggregate Leverage (%)

ROE (%)


PB Band (x)


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2013A 2014A 2015F 2016F 2017F

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2013A 2014A 2015F 2016F 2017F

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2013A 2014A 2015F 2016F 2017F


Company Guide


Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F

Leasable Area (Sqm) 182,204 218,539 218,258 224,078 224,078

Occupancy 97.2% 92.5% 85.2% 94.0% 96.2%

Occupied Area (Sqm) 177,054 202,194 186,000 210,724 215,553

Average rents (Bt/sqm/month)

1218.86 1312.74 1320.85 1423.83 1526.95

Rental growth 9% 8% 1% 8% 7%

Total revenue (Btm) 2,590 3,185 2,948 3,600 3,950

Dividend payout 93% 98% 93% 93% 93%

Segmental Breakdown FY Dec 2013A 2014A 2015F 2016F 2017F

Revenues (Bt m)

Central Rama 2 1,062 1,146 1,180 1,239 1,300

Central Rama 3 622 640 680 752 786

Central Pinklao 906 933 292 1,040 1,248

Central Chiangmai Airport 522 792 831 873

Total 2,590 3,185 2,944 3,862 4,207

Revenue Breakdown

Central Rama 2 41% 36% 40% 32% 31%

Central Rama 3 24% 20% 23% 19% 19%

Central Pinklao 35% 29% 10% 27% 30%

Central Chiangmai Airport 16% 27% 22% 21%

Total 100% 100% 100% 100% 100%

Income Statement (Bt m)

FY Dec 2013A 2014A 2015F 2016F 2017F

Gross revenue 2,590 3,185 2,948 3,616 3,970


Net Property Income 2,413 3,024 2,776 3,414 3,715



Net Interest (Exp)/Inc (1) (43) (44) (43) (34)

Exceptional Gain/(Loss) 538 527 1,111 0 0

Net Income 2,691 3,211 3,483 3,004 3,297

Tax 0 0 0 0 0


Preference Dividend 0 0 0 0 0

Net Income After Tax 2,691 3,211 3,483 3,004 3,297

Total Return 2,691 3,211 3,483 3,004 3,297

Non-tax deductible Items (538) (527) (1,111) 0 0

Net Inc available for Dist. 2,152 2,684 2,373 3,004 3,297

Growth & Ratio

Revenue Gth (%) 3.1 23.0 (7.4) 22.7 9.8

N Property Inc Gth (%) 3.5 25.3 (8.2) 23.0 8.8

Net Inc Gth (%) 12.9 19.3 8.5 (13.8) 9.7


Net Prop Inc Margins (%) 93.2 94.9 94.2 94.4 93.6

Net Income Margins (%) 103.9 100.8 118.2 83.1 83.0

Dist to revenue (%) 83.1 84.3 80.5 83.1 83.0


13.8 12.8 16.2 13.4 12.7

ROAE (%) 15.2 14.1 12.3 10.4 11.2

ROA (%) 13.8 12.6 11.1 9.3 10.1

ROCE (%) 11.4 10.9 7.6 9.5 10.3

Int. Cover (x) 2,155.7 60.3 51.7 67.9 94.9


Major renovation at CentralPlaza Pinklao


Company Guide



FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015

Gross revenue 800 855 861 845 742






Exceptional Gain/(Loss) 170 108 (38) 944 116

Net Income 851 835 674 1,633 705

Tax 0 0 0 0 0


Net Income after Tax 851 835 674 1,633 732

Total Return 851 835 674 1,633 732

Non-tax deductible Items N/A N/A N/A N/A N/A

Net Inc available for Dist. N/A N/A N/A N/A N/A

Growth & Ratio

Revenue Gth (%) 19 7 1 (2) (12)

N Property Inc Gth (%) 20 7 0 (2) (13)

Net Inc Gth (%) 0 (2) (19) 142 (55)




FY Dec 2013A 2014A 2015F 2016F 2017F Investment Properties 18,535 29,920 31,291 31,401 31,411

Other LT Assets 893 768 499 499 499

Cash & ST Invts 351 304 210 663 832

Inventory 0 0 0 0 0

Debtors 0 0 0 0 0

Other Current Assets 0 0 0 0 0

Total Assets 19,780 30,991 32,000 32,563 32,742

ST Debt

0 0 0 0 0

Creditor 802 994 920 1,129 1,239

Other Current Liab 811 352 352 352 352

LT Debt 340 1,955 1,917 1,915 1,685

Other LT Liabilities 0 0 0 0 0

Unit holders’ funds 17,827 27,690 28,811 29,168 29,467

Minority Interests 0 0 0 0 0

Total Funds & Liabilities 19,780 30,991 32,000 32,563 32,743

Non-Cash Wkg. Capital (1,613) (1,346) (1,272) (1,481) (1,591)

Net Cash/(Debt) 11 (1,651) (1,707) (1,252) (853)

Ratio

Current Ratio (x) 0.2 0.2 0.2 0.4 0.5

Quick Ratio (x) 0.2 0.2 0.2 0.4 0.5

Aggregate Leverage (%) 1.8 6.4 6.0 6.0 5.3

Z-Score (X) 8.9 6.4 6.8 6.3 6.3


Unrealized gain from asset revaluation

Stable gearing


Company Guide



FY Dec 2013A 2014A 2015F 2016F 2017F

Pre-Tax Income 2,691 3,211 3,483 3,004 3,297

Dep. & Amort. 0 0 0 0 0

Tax Paid 0 0 0 0 0

Associates &JV Inc/(Loss) 0 0 0 0 0

Chg in Wkg.Cap. (32) 118 (74) 209 110

Other Operating CF (538) (527) (1,111) 0 0

Net Operating CF 2,120 2,801 2,299 3,213 3,407

Net Invt in Properties (97) (10,742) (260) (110) (10)

Other Invts (net) 0 0 0 0 0

Invts in Assoc. & JV 0 0 0 0 0

Div from Assoc. & JVs 0 0 0 0 0

Other Investing CF 0 0 0 0 0

Net Investing CF (97) (10,742) (260) (110) (10)

Distribution Paid (1,990) (2,480) (2,363) (2,647) (2,998)

Chg in Gross Debt (95) 1,615 (38) (2) (230)

New units issued 0 8,642 0 0 0

Other Financing CF 0 0 0 0 1

Net Financing CF (2,085) 7,777 (2,401) (2,649) (3,227)

Currency Adjustments 0 0 0 0 0

Chg in Cash (62) (163) (363) 453 170

Operating CFPS (Bt) 1.3 1.4 1.1 1.4 1.5

Free CFPS (Bt) 1.2 (4.0) 0.9 1.4 1.5


Target Price & Ratings History

Source: DBS Vickers

S.No. Da teClos ing

Pric e

Ta rge t

Pric eRa ting

1: 02 Mar 15 16.40 18.00 Buy

2: 02 Apr 15 16.20 18.00 Buy

3: 18 May 15 16.40 18.00 Buy

4: 31 Aug 15 16.30 18.00 Buy

Note : Share price and Target price are adjusted for corporate actions.

12

3

4

15.20

15.70

16.20

16.70

17.20

17.70

Sep-14 Jan-15 May-15

Bt

Acquisition of CentralPlaza Chiangmai Airport


ed: SGC / sa: CS



Potential Catalyst: Strong economic recovery could lift occupancy and

rents more than we assumed in our earnings model


Analyst Wasu MATTANAPOTCHANART +662 657 7833 [email protected]

Price Relative


Gross Revenue 924 954 987 1,021 Net Property Inc 751 767 794 821 Total Return 797 781 780 810 Distribution Inc 733 750 780 810 EPU (Bt) 1.51 1.47 1.47 1.53 EPU Gth (%) (2) (2) 0 4 DPU (Bt) 1.25 1.27 1.33 1.38 DPU Gth (%) 5 2 4 4 NAV per shr (Bt) 12.31 12.52 12.68 12.84 PE (X) 12.1 12.3 12.4 11.9 Distribution Yield (%) 6.9 7.0 7.3 7.6 P/NAV (x) 1.5 1.5 1.4 1.4 Aggregate Leverage (%) 6.5 5.7 4.8 4.0 ROAE (%) 12.4 11.9 11.7 12.0 Dist. Inc. Revision (%): - - - Consensus DPU (Bt): N/A N/A N/A Other Broker Recs: B: 0 S: 0 H: 0


STABLE INCOME AND YIELD

BUY with DCF-based TP of Bt22.30. Amid the current low-

interest-rate environment, the Fund offers attractive 7.1% yield

in FY15, higher than 10-year government bond yield of 2.65%

and dividend yield of 3.6% for DBS Thailand universe.

Supported by growing mall traffic, revenue growth should be

sustainable at c.3% p.a.

Rising mall traffic will support future rate hikes. Mall

traffic has been rising since 2006, except during the major

flooding in 2011 and 2013. Daily customer count has risen

from 122k in 2006 to 164k in 2014. We conservatively

forecast 2.2% increase in rental rate for this year because of

the slower economy, but assumed it will improve to 3.5% and

3.2% in FY16 and FY17, respectively, and stabilize at 3% from

FY18 onwards.

Valuation:

We value FUTUREPF at Bt22.30, based on DCF valuation

(WACC: 6.9%, Terminal value of Bt0 at the end of 2041). Even

with conservative assumptions of 3% annual increase in rental

income and stable occupancy rate for most of the 27 years,

the Fund still offers 25% upside to our target price.


Leases for 40% of the Fund’s leasable area will expire in FY16.

While we expect occupancy rate to be stable and rents to

increase by 3.5% next year, the extended economic slowdown

could result in lower-than-expected lease renewals and rental

hikes.

At A Glance

Issued Capital (m shrs) 530 Mkt. Cap (Btm/US$m) 9,638 / 267

Major Shareholders Rangsit Plaza Co Ltd (%) 33.3 Thai Tapioca Dev Institute (%) 5.7 Bangkok Bank Pcl (%) 5.3 Free Float (%) 55.7




18 Sep 2015


Future Park Leasehold Property Fund Edition 1 Version 1 | Bloomberg: FUTUREPF TB | Reuters: FUTUREPFu.BK Refer to important disclosures at the end of this report

69

89

109

129

149

169

189

209

10.8

12.8

14.8

16.8

18.8

20.8


Relative IndexBt

Future Park LH Prop Fund (LHS) Relative SET INDEX (RHS)


Company Guide

Future Park Leasehold Property Fund


Earnings Drivers:

Traffic to remain healthy

Customer traffic has been increasing since 2006, except

during the heavy flooding in 2011 and 2013. Daily customer

count has risen from 122k in 2006 to 164k in 2014, and

peaked at 165k in 1Q15. However, traffic fell 10% q-o-q to

148k in 2Q15 because of renovation work at Central’s mall

and part of Robinson’s (total leasable area of 1,936 sqm)

from 20 April to 30 September 2015. Customer count is

expected to normalize to above 160k in 4Q15 and 2016.

Bridge construction will not affect earnings

Rangsit Plaza, the other owner of Future Park Rangsit mall, is

closing FUTUREPF’s share of leasable area (1,336 sqm) in

order to construct a bridge to link the old building and the

upcoming new phase. That is why occupancy rate at the main

area fell from 97% in 2014 to 92% in 2Q15. However, 2Q15

rental income (+1% y-o-y) was stable because of

compensation from Rangsit Plaza.

Rental hikes to drive growth

Following the economic slowdown and lackluster rate

increases in 1Q15 (+4%) and 2Q15 (+1%), we conservatively

forecast 2.2% rental hike for this year, 3.5% and 3.2% in

FY16 and FY17, respectively, and 3% p.a. from FY18

onwards. Assuming occupancy rate is stable, total rental

income would grow at the the same rate as rents.

Opportunity for rental reversion

Of the total leasable area (59,986 sqm) of shopping space,

20% will see its leases expire in 2H15 and 40% in 2016. If

the economy grows strongly next year, the upcoming

contract renewals might lead to higher-than-expected rental

hike.

Upside to occupancy rate at common space

FUTUREPF divides its leasable space into main area (56,986

sqm) and common area (8,514 sqm). The main area’s

occupancy rate has been around 98% since 2011, and we

expect it to be the same going forward. The occupancy rate

for the common space was 85% in 2014, and we expect it to

gradually improve to 90% in 2019. Currently vacant space in

the common area leaves room for upside to our forecasts.



Customer traffic (‘000 people) ROE (%)

Revenue Breakdown 2014

Lease expiry (excluding common space)


76.0%

78.0%

80.0%

82.0%

84.0%

86.0%

88.0%

0

100

200

300

400

500

600

700

800

900

2013A 2014A 2015F 2016F 2017F

Bt m


74%

75%

76%

77%

78%

79%

80%

81%

82%

83%

84%

0

5

10

15

20

25

30

35

40

45

50

1Q20

13

2Q20

13

3Q20

13

4Q20

13

1Q20

14

2Q20

14

3Q20

14

4Q20

14

1Q20

15

2Q20

15



Company Guide


Balance Sheet:

As of end-2Q15, FUTUREPF had Bt450m debt, representing

only 6.8% of NAV and 60% of FY15F net investment income.

The fund is scheduled to repay Bt60m every year, so the debt

will be fully repaid by 2022.


High yield in the low-rate environment

FUTUREPF is offering attractive 7.1-7.4% yields in FY15F-

FY16F, compared to 2.65% yield for 10-year government

bonds and 3.6-3.9% dividend yield for stocks under DBS

Thailand coverage (75% of the SET’s market cap).

Key Risks:

Non-renewal of leases

Leases for 40% of the Fund’s leasable area will expire in

FY16. While we expect occupancy rate to be stable and

rents to increase by 3.5% next year, the extended economic

slowdown could result in lower-than-expected lease

renewals and rental hikes.

COMPANY BACKGROUND

FUTUREPF is a property fund and part owner of the lease to

Future Park Rangsit, a shopping mall in Rangsit, Bangkok,

Thailand. It collects rent from common (8,514 sqm) and

shopping (59,986 sqm) areas with a remaining leasehold life

of 27.5 years. The Fund has a solid track record of income

growth; revenue grew at a 3-year average of 11.6% despite

the political instability in FY14 (3.6% growth). Historically,

FUTUREPF raises rents by 2.5%-3.7% per year.

Ninety-three percent of the leases (shopping space only) are

under fixed-rate rental contracts while the rest 7% is under

revenue-sharing scheme.


ROE (%)


Lease term (excluding common space)

PB Band (x)


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2013A 2014A 2015F 2016F 2017F


Company Guide


Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F

Leasable Area - main (Sqm) 56,906 56,986 56,986 56,986 56,986

Occupancy 98% 97% 98% 98% 98%

Leasable Area - common (Sqm)

8,514

8,514

8,514

8,514

8,514 Occupancy 86% 85% 87% 87% 88%

Average rental rate (Bt/sqm/month)

1,332 1,393 1,423 1,473 1,524

Growth of rental rate 10.7% 4.5% 2.2% 3.5% 3.4%

Rental revenue (Btm) 892 924 954 987 1,021 Income Statement (Bt m)

FY Dec 2013A 2014A 2015F 2016F 2017F

Gross revenue 892 924 954 987 1,021






Exceptional Gain/(Loss) 117 64 31 0 0

Net Income 811 797 781 780 810

Tax 0 0 0 0 0



Net Income After Tax 811 797 781 780 810

Total Return 811 797 781 780 810

Less: Non-cash gain (117) (64) (31) - -


Growth & Ratio

Revenue Gth (%) 10.7 3.6 3.3 3.5 3.4

N Property Inc Gth (%) 10.7 5.3 2.2 3.5 3.4

Net Inc Gth (%) 10.2 (1.7) (2.0) (0.2) 3.9




Dist to revenue (%) 70.3 71.5 70.8 71.1 71.4


1.5 1.5 1.5 1.5 1.5

ROAE (%) 13.0 12.4 11.9 11.7 12.0

ROA (%) 11.3 10.9 10.6 10.5 10.9

ROCE (%) 10.3 10.6 10.8 11.1 11.4

Int. Cover (x) 41.7 48.9 54.1 72.7 107.2


Asset revaluation gain


Company Guide



FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015

Gross revenue 226 233 236 236 228







Net Income 181 221 184 216 185

Tax 0 0 0 0 0



Total Return 181 221 184 216 185



Growth & Ratio

Revenue Gth (%) (1) 3 1 0 (3)

N Property Inc Gth (%) 1 4 (4) 2 (3)

Net Inc Gth (%) (14) 22 (17) 17 (14)





Other LT Assets N/A N/A N/A N/A N/A

Cash & ST Invts 487 490 488 516 544

Inventory 0 0 0 0 0

Debtors 41 44 44 41 41


Total Assets 7,294 7,366 7,394 7,419 7,447

ST Debt

0 0 0 0 0

Creditor 62 25 25 25 25


LT Debt 510 450 390 330 270





Non-Cash Wkg. Capital (359) (341) (320) (324) (324)

Net Cash/(Debt) (23) 40 98 186 274

Ratio

Current Ratio (x) 1.3 1.4 1.4 1.5 1.6

Quick Ratio (x) 1.3 1.3 1.4 1.5 1.6


Z-Score (X) 0.0 0.0 0.0 0.0 0.0



Company Guide



FY Dec 2013A 2014A 2015F 2016F 2017F

Pre-Tax Income 811 797 781 780 810

Dep. & Amort. 0 0 0 0 0

Tax Paid 0 0 0 0 0


Chg in Wkg.Cap. (33) (18) (21) 4 0

Other Operating CF (117) (64) (31) 0 0

Net Operating CF 661 715 729 783 810

Net Invt in Properties (9) (2) 0 0 0

Other Invts (net) (161) (11) (30) (20) (20)




Net Investing CF (169) (13) (30) (20) (20)

Distribution Paid (526) (650) (671) (695) (722)

Chg in Gross Debt (60) (60) (60) (60) (60)

New units issued 0 0 0 0 0


Net Financing CF (587) (710) (731) (755) (782)


Chg in Cash (95) (8) (33) 8 8


Free CFPS (Bt) 1.2 1.3 1.4 1.5 1.5



ed: SGC / sa: CS



Potential Catalyst: Increase in occupancy rate and strong potential

growth

Where we differ: n.a. Analyst Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected] Nantika WIANGPHOEM +662 657 7836 [email protected]

Price Relative

Forecasts and Valuation FY Mar (Bt m) 2015A 2016F 2017F

Revenue 1,110 1,790 1,861 EBITDA 725 1,303 1,347 Pre-tax Profit 632 1,111 1,154 Net Profit 632 1,110 1,154 Net Pft (Pre Ex.) 628 1,110 1,154 EPS (Bt) 0.43 0.75 0.78 EPS Pre Ex. (Bt) 0.42 0.75 0.78 EPS Gth (%) nm 76 4 EPS Gth Pre Ex (%) nm 77 4 Diluted EPS (Bt) 0.42 0.75 0.78 Net DPS (Bt) 0.42 0.71 0.74 BV Per Share (Bt) 10.80 10.82 10.87 PE (X) 26.3 15.0 14.4 PE Pre Ex. (X) 26.5 15.0 14.4 P/Cash Flow (X) nm 15.7 14.3 EV/EBITDA (X) 27.5 15.3 14.7 Net Div Yield (%) 3.8 6.4 6.6 P/Book Value (X) 1.0 1.0 1.0 Net Debt/Equity (X) 0.2 0.2 0.2 ROAE (%) N/A 6.9 7.2 Earnings Rev (%): - - - Consensus EPS (Bt): N/A N/A N/A

Other Broker Recs: B: 0 S: 0 H: 0


TAPPING ON A GROWING MICE MARKET

Recommend BUY, Bt12 TP (DCF Valuation). The interim

dividend declared for the first quarter of FY16 is Bt0.175/unit.

This implies 6.3% annualised yield, which is much higher than

current Thai 10-year government bond yields. And yield are

forecast to rise along with net earnings, to 6.4% in FY16 and

6.6% in FY17.

Owns completed and freehold assets

The REIT owns the largest exhibition and convention assets in

ASEAN region covering 66% market share in Thailand (at end

March). The REIT has right of first refusal to future assets

developed by IMPACT and with its freehold rights over the

assets, the REIT will enjoy benefit from assets appreciation in

the future.

Strong growth outlook

We expect growth to be driven by (i) revenues from a

diversified group of customers, (ii) the growing MICE (Meeting

Incentive Convention and Exhibition) market, supported by

higher domestic demand and the AEC initiative, and (iii)

acquisition of new assets.

Accessibility by MRT pink line

The MRT pink line (Khae Rai – Min Buri) will run past Mueng

Thong Thani, where the REIT’s assets are located. This would

drive access traffic, and in turn, boost asset value. Valuation:

We value IMPACT at Bt12, based on DCF valuation.


Key risk is a drop in occupancy rate at the REIT’s assets as a

result of a slower economy and political and safety issues. At A Glance Issued Capital (m shrs) 1,483 Mkt. Cap (Btm/US$m) 16,604 / 461

Major Shareholders Impact Exhibition Management Co Ltd (%) 50.00

Social Security Office (%) 2.93

Ayudhya Allianz Cp Life Assur (%) 2.23

Free Float (%) 48.3




18 Sep 2015


Impact Growth Real Estate Investment Trust Edition 1 Version 1 | Bloomberg: IMPACT TB | Reuters: IMPACT.BK Refer to important disclosures at the end of this report

86

106

126

146

166

186

206

9.1

9.6

10.1

10.6

11.1

11.6

12.1

12.6

Sep-14 Dec-14 Mar-15 Jun-15

Relative IndexBt

Impact Growth Real Estate Investment Trust (LHS)



Company Guide

Impact Growth Real Estate Investment Trust


Earnings Drivers:

Higher occupancy rates. The REIT expects overall occupancy

rate to improve to 58%-63% over the longer-term, driven by

the growing MICE market, supported by higher domestic

demand and the AEC initiative. Furthermore, the REIT is able

to attract and retain customers because of its strategically-

located assets with full facilities. IMPACT currently has 66%

of the total MICE market share in Thailand (at end March).

This indicates strong earnings growth ahead.

Higher ARR (Average Rental Rate). The management plans to

raise rents for new leases and renewals by 4%-10%

depending on current rent, rental period, and other factors.

The REIT’s diversified asset offering gives it flexibility to meet

demand for a large range of meetings and exhibitions.

Specifically, the REIT has a major competitive advantage in

being able to offer the space for meetings and exhibitions

that require a large area. The REIT is also targeting to grow

the international customer segment because they can

normally charge higher rental rates. Hence, we expect ARR to

increase by 5%-7% y-o-y.

Cost-saving projects. The REIT is trying to keep cost of

services at less than 15% of total service income (14.2% in

1Q15). This has led to several cost-saving initiatives that were

implemented since last year, including switching to LED light

bulbs, improving efficiency of the cooling tower. The REIT is

also considering solar panel installations in parking lots and

TES (Thermal Energy System) to reduce electricity costs.

Acquisitions in 2016. The REIT will acquire three key assets in

2016 with a total value of Bt2.5-3bn: i) Novotel Bangkok

IMPACT (380 rooms, occupancy rate 75-90%, average room

rate Bt2,500/night); ii) The Geneva office building (50,000

sqm, occupancy rate c.85%, rent Bt280-340/sqm/month);

and iii) indoor car park near the Geneva building.

Furthermore, BLAND is constructing an IBIS hotel (587 rooms

with average room rate of Bt1,000/night) which may be sold

to the REIT when completed. These suggest strong earnings

growth from 2016 onwards.

ARR

Customer Segment breakdown for FY14/15

NAV



Company Guide


Balance Sheet:

Investment properties accounted for 96% of total assets at

the end of June. The properties will be revalued annually. The

REIT has a strong balance sheet with a low leverage ratio of

0.24x at end June, represented by Bt3.9bn long-term loans.

However, leverage could surge if the REIT decides to finance

2016 acquisitions with debt. Since incorporation, the fund

has paid out an average of 96% of distributable earnings

with total amount of Bt0.595 per unit, and the management

plans to retain this.


Improvement in overall occupancy rate. The REIT’s average

occupancy rate is still not stable (55% in FY14, 49% in 1Q15)

and could miss its latest target of 58-63%. Hence, occupancy

rate will be a key revenue and earnings driver in the future.

Key Risks:

Slowing economy, political turmoil and safety issues. These

could lead to lower occupancy rates at the REIT’s assets,

which would reduce investment income.

COMPANY BACKGROUND

IMPACT is one of Thailand’s leading property funds. The

Fund has invested in IMPACT Muang Thong Thani, the

largest exhibition and convention center in South East Asia,

covering a total exhibition area of over 122,165 sqm. The

REIT’s assets are i) IMPACT Arena, ii) IMPACT Forum, iii)

IMPACT Exhibition Hall 1-8, and iv) IMPACT Challenger.

Customers of the REIT can be split into three main

segments: Public Sector, Domestic Private Sector and

International Private Sector.

The REIT’s revenue is driven by occupancy rate which can be

affected by economic, political and safety issues, and rental

rates. The REIT absorbs the operating expenses and the fund

management fees and capital expenditures, but the REIT’s

profit is exempted from tax. The REIT is able to acquire new

assets in the future in accordance with regulations.

Leverage & Asset Turnover (x)

ROE (%)

Forward PE Band (x)

PB Band (x)


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2016F 2017F


Company Guide


Key Assumptions

FY Mar 2013NA 2014NA 2015A 2016F 2017F

Occupancy rate (%) 54.6% 54.8% 54.8% 54.8% 54.8% Cost of services (%) 13.6% 13.6% 13.6% 13.6% 13.6% Fund management fee (%)

15.2% 13.7% 14.2% 21.3% 22.9% Dividend payout ratio (%)

99% 95% 95% 95% 95% Income Statement (Bt m)

FY Mar 2015A 2016F 2017F

Revenue 1,110 1,790 1,861

Cost of Goods Sold (151) (243) (253)

Gross Profit 959 1,547 1,609

Other Opng (Exp)/Inc (237) (246) (265)

Operating Profit 722 1,300 1,343

Other Non Opg (Exp)/Inc 3 3 3

Associates & JV Inc 0 0 0

Net Interest (Exp)/Inc (97) (193) (193)

Exceptional Gain/(Loss) 4 0 0

Pre-tax Profit 632 1,111 1,154

Tax 0 0 0

Minority Interest 0 0 0

Preference Dividend 0 0 0

Net Profit 632 1,110 1,154

Net Profit before Except. 628 1,110 1,154

EBITDA 725 1,303 1,347

Growth

Revenue Gth (%) N/A 61.3 4.0

EBITDA Gth (%) nm 79.9 3.3

Opg Profit Gth (%) nm 80.2 3.3

Net Profit Gth (Pre-ex) (%) nm 76.9 3.9

Margins & Ratio

Gross Margins (%) 86.4 86.4 86.4

Opg Profit Margin (%) 65.0 72.7 72.2

Net Profit Margin (%) 56.9 62.0 62.0

ROAE (%) N/A 6.9 7.2

ROA (%) N/A 5.4 5.6

ROCE (%) N/A 6.5 6.7

Div Payout Ratio (%) 96.4 95.0 95.0

Net Interest Cover (x) 7.5 6.7 7.0



Company Guide



FY Mar 2Q2015 3Q2015 4Q2015 1Q2016

Revenue 4 561 545 497

Cost of Goods Sold (1) (78) (72) (71)

Gross Profit 3 483 472 427

Other Oper. (Exp)/Inc (4) (91) (143) (116)

Operating Profit 0 393 329 310


Associates & JV Inc 0 0 0 0

Net Interest (Exp)/Inc 0 (48) (49) (47)


Pre-tax Profit 1 347 284 266

Tax 0 0 0 0


Net Profit 1 347 284 266

Net profit bef Except. 1 345 282 264

EBITDA 1 394 330 311

Growth

Revenue Gth (%) N/A 13,858.5 (2.9) (8.7)

EBITDA Gth (%) nm 56,560.7 (16.2) (5.9)

Opg Profit Gth (%) nm nm (16.2) (5.7)

Net Profit Gth (Pre-ex) (%) nm 44,943.4 (18.5) (6.2)

Margins

Gross Margins (%) 86.7 86.1 86.7 85.8

Opg Profit Margins (%) (1.7) 70.0 60.4 62.4

Net Profit Margins (%) 19.1 61.9 52.1 53.5


FY Mar 2015A 2016F 2017F Net Fixed Assets 19,603 19,603 19,603

Invts in Associates & JVs 0 0 0

Other LT Assets 0 0 0

Cash & ST Invts 607 590 663

Inventory 0 0 0

Debtors 180 291 302

Other Current Assets 14 0 0

Total Assets 20,404 20,484 20,568

ST Debt

0 0 0

Creditor 79 0 0

Other Current Liab 335 541 562

LT Debt 3,900 3,900 3,895

Other LT Liabilities 84 0 0

Shareholder’s Equity 16,005 16,043 16,111

Minority Interests 0 0 0

Total Cap. & Liab. 20,404 20,483 20,568

Non-Cash Wkg. Capital (221) (250) (260)

Net Cash/(Debt) (3,293) (3,310) (3,232)

Debtors Turn (avg days) N/A 48.0 58.1

Creditors Turn (avg days) N/A 59.7 N/A

Inventory Turn (avg days) N/A N/A N/A

Asset Turnover (x) NM 0.1 0.1

Current Ratio (x) 1.9 1.6 1.7

Quick Ratio (x) 1.9 1.6 1.7

Net Debt/Equity (X) 0.2 0.2 0.2

Net Debt/Equity ex MI (X) 0.2 0.2 0.2

Capex to Debt (%) 0.0 0.0 0.0

Z-Score (X) NA NA NA



Company Guide



FY Mar 2015A 2016F 2017F

Pre-Tax Profit 632 1,111 1,154

Dep. & Amort. 0 0 0

Tax Paid 0 0 0

Assoc. & JV Inc/(loss) 0 0 0

Chg in Wkg.Cap. (18,355) (55) 10

Other Operating CF (4) 0 0

Net Operating CF (17,727) 1,056 1,164

Capital Exp.(net) 0 0 0

Other Invts.(net) (402) 0 0

Invts in Assoc. & JV 0 0 0

Div from Assoc & JV 0 0 0

Other Investing CF 0 0 0

Net Investing CF (402) 0 0

Div Paid (341) (1,073) (1,086)

Chg in Gross Debt 3,900 0 (5)

Capital Issues 15,715 0 0

Other Financing CF 0 0 0

Net Financing CF 19,274 (1,073) (1,090)

Currency Adjustments 0 0 0

Chg in Cash 1,144 (17) 73

Opg CFPS (Bt) 0.4 0.7 0.8

Free CFPS (Bt) (12.0) 0.7 0.8



ed: SGC / sa: CS



Potential Catalyst: Moderate earnings growth


Analyst Thailand Research Team +662 658 1222 Nantika WIANGPHOEM +662 657 7836 [email protected]

Price Relative


Gross Revenue 26 1,036 1,048 1,056 Net Property Inc 13 442 447 450 Total Return 12 400 402 405 Distribution Inc 0 372 373 377 EPU (Bt) 0.02 0.82 0.82 0.83 EPU Gth (%) nm 3,242 0 1 DPU (Bt) 0.00 0.76 0.77 0.77 DPU Gth (%) nm nm 0 1 NAV per shr (Bt) 10.22 10.28 10.34 10.40 PE (X) 424.2 12.7 12.6 12.5 Distribution Yield (%) 0.0 7.3 7.4 7.4 P/NAV (x) 1.0 1.0 1.0 1.0 Aggregate Leverage (%) 18.2 18.2 18.2 18.2 ROAE (%) N/A 8.0 8.0 8.0 Dist. Inc. Revision (%): - - - Consensus DPU (Bt): N/A N/A N/A Other Broker Recs: B: 0 S: 0 H: 0


MODERATE GROWTH POTENTIAL

Recommend BUY, Bt10.4 TP (DCF valuation). LHREIT has

declared Bt0.022/unit interim dividend for the first half of

FY15. This implies 7.9% annualised yield, higher than the

current Thai 10-year government bond yield of 3.0%. Yields

are forecast to rise along with net earnings, to 7.0% in FY16

and 7.0% in FY17.

Prime location, easy accessibility

The REIT owns Terminal 21, a retail mall with 34,058 sqm of

leasable space, including the food court. The asset is located in

the middle of a major business district (Asoke District) where

there are large office buildings and hotels. Terminal 21 is easily

accessible by both MRT and BTS, which will continue to drive

traffic to the store.

Unique theme and proactive marketing

Terminal 21 differentiates itself from other malls with its

unique concept of offering shoppers the experience of

shopping in major cities around the world, all under one roof.

They also have an attractive mix of retail and F&B offering to

attract both local customers and tourists.

Mild growth outlook

Occupancy is currently close to 98% of total leasable area.

Hence, we expect growth to be mostly driven by positive rental

reversions and an increase in the share of variable rent

contracts (i.e. as a % of store turnover).

Valuation:

We value LHSC at Bt11.4, based on DCF valuation.


Key risk is a drop in occupancy rate as a result of a slower

economy and political and safety issues, and lower-than-

expected average rental rate. At A Glance Issued Capital (m shrs) 488.06

Mkt. Cap (Btm/US$m) 4,978 / 138

Major Shareholders

Land and Houses Pcl. (%) 9.0

GIC PRIVATE LIMITED (%) 6.0

Social Security Office (%) 6.0

Free Float (%) 72.9




18 Sep 2015


LH Shopping Centers Leasehold Edition 1 Version 1 | Bloomberg: LHSC TB | Reuters: LHSCu.BK Refer to important disclosures at the end of this report

84

104

124

144

164

184

204

9.1

9.6

10.1

10.6

11.1

11.6

Dec-14 Mar-15 Jun-15

Relative IndexBt

LH Shopping Centers Leasehold (LHS)



Company Guide

LH Shopping Centers Leasehold


Earnings Drivers:

Higher ARR (Average Rental Rate). The leases are divided into

two types: (i) fixed rate contracts which accounts for 85% of

total rental income, and (ii) variable rate contracts which are

mostly signed with the F&B and cinema operators. The fixed-

rate contracts are normally for one to three years, with a rent

review upon renewal. The variable-rate contracts are linked to

the revenues generated by the lessees. We expect overall ARR

to increase by 10% every three years.

High occupancy rates. The REIT’s portfolio occupancy rate is

currently at 98% of total leasable space with 588 lessees. We

expect occupancy rate to be stable or reach 100% in some

months, because the convenient access and stylish interior

design of the property will attract both local customers and

tourists. Hence, earnings growth should remain relatively

stable in the near future.

Development in the surrounding area. The REIT’s asset is

located in one of Bangkok’s major business districts. It stands

between office buildings, hotels, and condominiums. Given

easy access to the Asoke District, there are many property

development projects, including condominiums and malls.

These will drive traffic to the district, as well as Terminal 21,

which suggests growth ahead.

Rent opportunity in common area. The REIT also has a

common (1,600 sqm) available for rental for special events,

such as promotional product fairs that could run from a few

days to a month. If the REIT expands the common area, there

is a room for upside to our forecasts.

ARR and Occupancy rate

Net Property Income and Margins (%)


NAV


Area breakdown



0.1

0.1

0.1

0.1

0.1

0.2

0.2

0.2

0.2

0.2

0.2

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

2015F 2016F 2017F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

2014A 2015F 2016F 2017F

Capital Expenditure (-)

Btm


Company Guide


Balance Sheet:

Investment properties accounted for 90% of the REIT’s total

assets end June. The REIT’s leverage ratio is only 0.11x,

represented by Bt1.1bn long-term loans. The low leverage,

indicates a strong balance sheet. The REIT has no plans to

acquire new assets in the near-term, which means net

gearing will drop as the REIT starts to repay the loan. Since

incorporation in December 2014, the REIT payout has been

c.90% of distributable earnings, or Bt0.022 per unit, implying

0.2% dividend yield (based on IPO price). The REIT will raise

dividend payout ratio to 95% in the future.


Higher ARR. The REIT’s occupancy is expected to be stable, or

reach 100% in some months. Hence, the key revenue and

earnings drivers would be the ability to increase ARR.

Key Risks:

Political turmoil, safety issues and slowing economy. The

political and safety issues could lead to lower traffic at

Terminal 21, which could drive down occupancy rates. And

a slowing economy would make it challenging for the REIT

to increase rents. These would reduce investment income.

COMPANY BACKGROUND

LH Shopping Centers Leasehold Real Estate Investment Trust

(LHSC) was founded in December 2014 with total registered

capital of Bt4.978bn.

LHSC has signed a 26-year lease agreement for Terminal 21,

the unique and stylish shopping mall covering an area of

97,905 sqm, comprising 34,058 sqm of leasable space,

34,584 sqm of common area, and 29,263 sqm of parking

space. The lease ends on 31 Aug 2040.

The REIT’s revenue is driven by occupancy and rental rates,

which can be affected by economic, political and safety

issues. The REIT absorbs all cost of services, operating

expenses and fund management fees. The REIT’s profit is

exempted from tax. The REIT can acquire new assets in the

future in accordance with regulations.

Land and House PCL, GIC Private Limited and Social Security

Office are the major unit shareholders with 9%, 6% and

6% stake, respectively.


ROE (%)


PB Band (x)


10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

2014A 2015F 2016F 2017F

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2015F 2016F 2017F

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2014A 2015F 2016F 2017F


Company Guide


Key Assumptions

FY Dec 2014A 2015F 2016F 2017F

Net leasable area (sqm) 31,622 31,622 31,622 31,622

ARR (Bt/sqm/month) 1,760 2,112 2,112 2,112

Occupancy rate (%) 98% 98% 98% 98%

Margin (%) 45% 37% 37% 37%

Dividend payout ratio (%) 0% 93% 93% 93%


FY Dec 2014A 2015F 2016F 2017F

Gross revenue 26 1,036 1,048 1,056


Net Property Income 13 442 447 450

Other Operating expenses 0 (3) (3) (3)


Net Interest (Exp)/Inc (1) (40) (44) (44)


Net Income 12 400 402 405

Tax 0 0 0 0




Total Return 14 400 402 405



Growth & Ratio

Revenue Gth (%) N/A 3,811.5 1.2 0.7

N Property Inc Gth (%) nm 3,245.2 1.2 0.7

Net Inc Gth (%) nm 3,242.4 0.4 0.9




Dist to revenue (%) 0.0 35.9 35.6 35.7


1.6 0.3 0.3 0.3

ROAE (%) N/A 8.0 8.0 8.0

ROA (%) N/A 6.0 6.0 6.0

ROCE (%) N/A 6.9 6.9 6.9

Int. Cover (x) 15.7 10.9 10.1 10.2



Company Guide



FY Dec 4Q2014 1Q2015 2Q2015

Gross revenue 26 270 274

Property expenses (13) (153) (159)

Net Property Income 13 117 115

Other Operating expenses 0 (3) (3)

Other Non Opg (Exp)/Inc 0 0 0

Net Interest (Exp)/Inc (1) (10) (10)

Exceptional Gain/(Loss) 0 0 0

Net Income 12 104 103

Tax 0 0 0

Minority Interest 0 0 0

Net Income after Tax 12 104 103

Total Return 12 104 103

Non-tax deductible Items 0 0 0

Net Inc available for Dist. 12 104 103

Growth & Ratio

Revenue Gth (%) N/A 919 2

N Property Inc Gth (%) nm 784 (1)

Net Inc Gth (%) nm 667 (1)

Net Prop Inc Margin (%) 49.9 N/A 44.1

Dist. Payout Ratio (%) 0.0 0.0 181.0



Other LT Assets 0 0 0 0

Cash & ST Invts 509 533 561 590

Inventory 0 0 0 0

Debtors 8 27 27 27


Total Assets 6,684 6,726 6,755 6,783

ST Debt

0 0 0 0

Creditor 14 29 29 29


LT Debt 1,080 1,080 1,080 1,080





Non-Cash Wkg. Capital (72) (68) (68) (68)

Net Cash/(Debt) (571) (547) (519) (490)

Ratio

Current Ratio (x) 2.4 2.5 2.5 2.6

Quick Ratio (x) 1.7 1.8 1.8 1.9





Company Guide



FY Dec 2014A 2015F 2016F 2017F


Dep. & Amort. 0 0 0 0

Tax Paid 0 0 0 0


Chg in Wkg.Cap. 381 (4) 0 0

Other Operating CF 0 0 0 0

Net Operating CF 393 396 401 405

Net Invt in Properties (5,942) 0 0 0





Net Investing CF (6,331) 0 0 0

Distribution Paid 0 (372) (373) (377)

Chg in Gross Debt 1,080 0 0 0

New units issued 4,978 0 0 0


Net Financing CF 6,058 (372) (373) (377)


Chg in Cash 120 24 28 28


Free CFPS (Bt) (11.4) 0.8 0.8 0.8



ed: SGC / sa: CS

BUY



Potential Catalyst: Rental rate hike and healthy occupancy rate


Analyst Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected] Nantika WIANGPHOEM +662 657 7836 [email protected]

Price Relative


Gross Revenue 689 922 964 1,019 Net Property Inc 481 665 679 715 Total Return 422 546 561 595 Distribution Inc 395 546 561 595 EPU (Bt) 0.82 1.13 1.17 1.24 EPU Gth (%) (21) 38 3 6 DPU (Bt) 1.04 1.08 1.11 1.17 DPU Gth (%) 2 3 3 6 NAV per shr (Bt) 11.48 11.55 11.61 11.69 PE (X) 16.2 11.7 11.4 10.8 Distribution Yield (%) 7.8 8.1 8.3 8.8 P/NAV (x) 1.2 1.2 1.1 1.1 Aggregate Leverage (%) 7.4 7.3 6.9 6.5 ROAE (%) 8.4 9.8 10.1 10.6 Dist. Inc. Revision (%): - - - Consensus DPU (Bt): 1.06 1.10 N/A Other Broker Recs: B: 0 S: 0 H: 0


ATTRACTIVE DIVIDEND YIELD

BUY, Bt14.0 TP (DCF valuation). The Fund has declared

Bt0.262/unit interim dividend for 2Q15; we are expecting

8.1% dividend yield for FY15F. This is higher than the current

Thai 10-year government bond yield of 3.0% and dividend

yield of 3.6% for DBS Thailand universe. And, yields will rise

along with net earnings, to 8.3% in FY16 and 8.8% in FY17.

Diversified, prime location of assets

The Fund has leased three assets in different locations: (i) UBC

II Building in Prompong, (ii) Ploenchit Center Building in

Ploenchit, and (iii) Bangna Tower. The diverse locations allow

the Fund to capture rising traffic in several areas and minimise

asset concentration risk (to avoid income being disrupted at all

assets by a single event). This helps to generate stable income.

Convenient access

Both the UBC II Building and Ploenchit Center are located in

prime locations and accessible by BTS. And, Bangna Tower is

on Bangna – Trad Road, one of the main transportation routes

for goods, and is only 20-km from Suvarnabhumi Airport.

Consequently, traffic at these assets is supported by easy

access.

Potential growth outlook

Portfolio occupancy has been sustainable at 96-99%, and

considering strong demand for the assets, the Fund expects

average rental rate to increase by 10-15% every three years. Valuation:

We value POPF at Bt14.0, based on DCF valuation.


Key risks are (i) a drop in occupancy rate, (ii) lower-than-

expected average rental rate, and (iii) non-renewal of leases. At A Glance Issued Capital (m shrs) 482 Mkt. Cap (Btm/US$m) 6,406 / 178

Major Shareholders Social Security Office (%) 19.3 SCB Life Assurance PCL (%) 8.8 MTLS (%) 4.3 Free Float (%) 67.6




18 Sep 2015


Prime Office Leasehold Property Fund Edition 1 Version 1 | Bloomberg: POPF TB | Reuters: POPFu.BK Refer to important disclosures at the end of this report

70

90

110

130

150

170

190

210

8.4

9.4

10.4

11.4

12.4

13.4

14.4

15.4

16.4


Relative IndexBt

Prime Office LH Prop Fund (LHS) Relative SET INDEX (RHS)


Company Guide

Prime Office Leasehold Property Fund


Earnings Drivers:

Leasehold rights to three buildings in prime locations. They

are (i) UBC II Building in Prompong, (ii) Ploenchit Center

Building at Ploenchit, and (iii) Bangna Tower. The buildings

are located in prime areas and along the main roads leading

into and out of Bangkok, and register high average

occupancy rates of 96-99%. The remaining tenures of the

lease are 10 - 29 years, which means they will continue to

generate revenues for that period. And, the diversified

location of the assets reduces concentration risk.

Healthy occupancy rate. The Fund’s portfolio occupancy rate

has been hovering at 96-99% of total leasable space in the

past few years. The Fund expects occupancy rate to be stable

because the convenient access and availability of full facilities

will continue to drive demand for the assets.

Average rental rate (ARR) hikes. ARR dropped in 4Q14

because the Fund had added Bangna Tower which

commands lower ARR than the other two assets because of

location. However, the Fund will be able to raise rents

regularly because the assets are in prime locations. We expect

growth to come from positive rental reversion which would

increase overall ARR by 10-15% every three years.

Strong facilities offering. The properties operated by the Fund

have full facilities, i.e. meeting rooms, catering rooms, fitness

facilities, parking lots, etc. One of the largest advantages is

sufficient parking lots for tenants and visitors; most of the

other office buildings in the Central Business District are

facing a shortage of parking space. In addition, the Fund has

kept parking fees stable so far; this suggests room to raise

fees (and income) when there is stronger demand for the

parking lots.

Dividend payout assumptions. We assumed 92% - 100%

dividend payout ratio throughout our forecast period to

reflect its par value reduction plan, vs 79% - 113% historical

payout.

Occupancy rate (%)

ARR by property



NAV

Capital Expenditure


98 98 98

95

97

98

97

98 98

96

100 100

92

93

94

95

96

97

98

99

100

1Q14 2Q14 3Q14 4Q14 1Q15

UBC II Ploenchit Center Bangna Tower

Occupancy rate (%)

697717 711

611589 590

100

200

300

400

500

600

700

800

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Bt/sq.m.

81.4%

83.4%

85.4%

87.4%

89.4%

91.4%

93.4%

95.4%

0

100

200

300

400

500

600

700

800

2013A 2014A 2015F 2016F 2017F

Bt m


0.1

0.2

0.2

0.3

0.3

0.4

0.4

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

2013A 2014A 2015F 2016F 2017F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

3,818 3,875

5,529 5,563 5,594

0

1,000

2,000

3,000

4,000

5,000

6,000

2015F 2016F 2017F

NAV

Btm

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

2013A 2014A 2015F 2016F 2017F

Capital Expenditure (-)

Btm


Company Guide


Balance Sheet:

Investment properties accounted for 97% of the Fund’s total

assets at end June. Total borrowings amount to Bt455m

(long-term loan), implying low leverage at 0.08x. This

indicates a strong balance sheet and also complies with the

SEC’s property fund regulations. The Fund has no plans to

drawdown more loans. Hence, net gearing will improve as

the Fund repays the loan.


Strong growth in ARR. The Fund’s occupancy is expected to

remain stable. Hence, the key revenue and earnings drivers

would be the ability to increase ARR, resulting in higher

distribution and yields.

Key Risks:

Political unrest and slowing economy. Political unrest and a

slowing economy would make it challenging for the Fund to

increase rents, and could even drive down occupancy rates,

and in turn, rental income.

COMPANY BACKGROUND

Prime Office Leasehold Property fund (POPF) was founded in

March 2011 and increased its capital in October 2014,

taking total registered capital to Bt5.03bn.

In March 2011, POPF had signed two agreements for

leasehold rights to (i) UBC II Building in Prompong covering a

leasable area of 33,798 sqm and (ii) Ploenchit Center

Building in Ploenchit covering 42,845 sqm. And in October

2014, the Fund signed another agreement for leasehold

rights to Bangna Tower in Bangna covering 43,466 sqm.

The Fund’s revenues are determined by occupancy and

rental rates, which can be affected by economic, political

and safety issues. The Fund absorbs operating expenses and

fund management fees. The Fund’s profit is exempted from

tax. The Fund cannot acquire anymore assets in accordance

with the SEC’s regulations.

The major unit holders are Social Security Office, SCB Life

Assurance PCL and Muangthai Leasing PCL with 19%, 9%

and 3% stake, respectively.


ROE (%)

EPU and DPU


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2013A 2014A 2015F 2016F 2017F

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

2013A 2014A 2015F 2016F 2017F

0.28 0.28 0.260.24

0.30

0.22

0.300.26 0.26

0.29

79%

108%

99%

110%

96%

0%

20%

40%

60%

80%

100%

120%

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1Q14 2Q14 3Q14 4Q14 1Q15

EPU DPU Payout ratio


Company Guide


Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F

Net leasable area (sqm) 76,695 125,184 125,184 125,184 125,184 ARR (Bt/sqm) 684 614 642 679 702 Occupancy rate (%) 99% 99% 98% 98% 98%

Margin (%) 56% 58% 57% 57% 57%

Dividend payout ratio (%)

127% 95% 95% 95% 92%

ARR (Bt/sqm) 684 614 642 679 702


FY Dec 2013A 2014A 2015F 2016F 2017F

Gross revenue 634 689 922 964 1,019





Net Interest (Exp)/Inc 7 1 (15) (12) (11)

Net Investment Income 353 395 546 561 595

Revaluation Gain 49 27 0 0 0



Net Income After Tax 401 422 546 561 595

Total Return 401 422 546 561 595

Non-tax deductible Items (49) (27) 0 0 0


Growth & Ratio

Revenue Gth (%) N/A 8.7 33.7 4.6 5.7

N Property Inc Gth (%) nm 12.2 38.4 2.2 5.3

Net Inc Gth (%) nm 11.9 38.3 2.8 6.0




Dist to revenue (%) 55.6 57.3 59.2 58.2 58.4


14.3 14.0 12.5 12.1 11.9

ROAE (%) 18.2 8.4 9.8 10.1 10.6

ROA (%) 17.1 7.5 8.6 8.8 9.3

ROCE (%) 17.4 7.8 9.1 9.3 9.8

Int. Cover (x) NM NM 37.6 45.2 53.1



Company Guide



FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015

Gross revenue 165 163 201 223 224







Net Income 95 91 114 143 138

Tax 0 0 0 0 0



Total Return 95 91 114 143 138

Non-tax deductible Items 0 0 0 0 0


Growth & Ratio

Revenue Gth (%) 3 (1) 23 11 0

N Property Inc Gth (%) 1 (4) 34 20 (3)

Net Inc Gth (%) 1 (5) 26 25 (4)




FY Dec 2013A 2014A 2015F 2016F 2017F Investment Properties 0 0 0 0 0

Other LT Assets 3,863 6,182 6,182 6,182 6,182

Cash & ST Invts 241 81 95 100 110

Inventory 0 0 0 0 0

Debtors 22 48 64 67 71


Total Assets 4,127 6,351 6,380 6,388 6,402

ST Debt

0 0 0 0 0

Creditor 240 341 341 341 341


LT Debt 0 455 450 427 404






Net Cash/(Debt) 241 (374) (356) (327) (295)

Ratio

Current Ratio (x) N/A N/A N/A N/A N/A

Quick Ratio (x) 1.1 0.4 0.5 0.5 0.5


Z-Score (X) 0.0 0.0 0.0 0.0 0.0



Company Guide



FY Dec 2013A 2014A 2015F 2016F 2017F

Pre-Tax Income 353 395 546 561 595

Dep. & Amort. 0 0 0 0 0

Tax Paid 0 0 0 0 0


Chg in Wkg.Cap. 0 0 0 0 0

Other Operating CF 200 (2,242) (16) (3) (4)

Net Operating CF 552 (1,847) 530 558 591

Net Invt in Properties 0 0 0 0 0





Net Investing CF 0 0 0 0 0

Distribution Paid (344) (373) (512) (530) (558)

Chg in Gross Debt 0 455 (5) (23) (23)

New units issued 0 1,606 0 0 0


Net Financing CF (344) 1,687 (517) (553) (581)


Chg in Cash 208 (159) 13 5 10

Operating CFPS (Bt) 1.6 (3.8) 1.1 1.2 1.2

Free CFPS (Bt) 1.6 (3.8) 1.1 1.2 1.2



ed: SGC / sa: CT

BUY


Price Target : Bt21.40 (9% upside) (Prev Bt21.40)

Potential Catalyst: Strong recovery of Samui tourism



Price Relative


Gross Revenue 1,216 1,263 1,355 1,448 Net Property Inc 1,216 1,263 1,355 1,448 Total Return 1,178 1,231 1,323 1,415 Distribution Inc 1,185 1,231 1,323 1,415 EPU (Bt) 1.24 1.30 1.39 1.49 EPU Gth (%) (13) 5 7 7 DPU (Bt) 1.25 1.30 1.39 1.49 DPU Gth (%) 0 4 7 7 NAV per shr (Bt) 11.03 11.04 11.07 11.09 PE (X) 15.8 15.1 14.1 13.2 Distribution Yield (%) 6.4 6.6 7.1 7.6 P/NAV (x) 1.8 1.8 1.8 1.8 Aggregate Leverage (%) 0.0 0.0 0.0 0.0 ROAE (%) 11.2 11.7 12.6 13.4 Dist. Inc. Revision (%): - - - Consensus DPU (Bt): 1.30 1.39 1.49 Other Broker Recs: B: 2 S: 0 H: 0


OFFERING GENEROUS YIELDS

Reiterate BUY, Bt21.40 TP (DCF valuation). The fund offers

generous dividend yield of 6.9% for 2015 (payable quarterly),

a hefty premium over the Thai 10-year government bond yield

of 2.65%. And the yields should rise to 7.4% in 2016 and

8.0% in 2017, in line with a recovering tourism industry on

Samui. Unlike many other PFPOs and REITs which are now

running at nearly full capacity, SPF is operating at below its full

capacity, suggesting hefty upside potential.

A prime beneficiary of recovering tourism. SPF derives revenues

from departing passengers and incoming flights at Samui

Airport. With politics getting calmer and martial law lifted in

April, we conservatively expect tourist arrivals to grow 5% in

2015, 7% each in 2016-2018, and 5% thereafter until 2036.

Note that despite the political uncertainty, SPF’s passenger

numbers still expanded at 7% CAGR over the last decade.

Clears key hurdle. Bangkok Airways (BA), the property

manager, had received approval from the Department of Civil

Aviation to increase the maximum number of flights to Samui

Airport from 36 to 50 effective November 2014. This should

remove earlier concerns about capacity. Valuation:

We value SPF at Bt21.40, based on the DCF model. Key Risks to Our View:

Key risk is a sharp drop in tourists to Samui. Nonetheless,

downside risk is protected by annual revenue guarantee of

Bt570m from Bangkok Airways, the Property Manager, which

suggests a dividend yield of 3.2% at current price. At A Glance


Major Shareholders Bangkok Airways (%) 25.0 GPF Startegic Investment Fund (%) 8.1 Ayudhya Allianz C.P. (%) 7.1 Free Float (%) 46.9


ICB Industry : Real Estate / Real Estate Investment Trusts


18 Sep 2015


Samui Airport Property Fund Edition 1 Version 1 | Bloomberg: SPF TB | Reuters: SPFu.BK Refer to important disclosures at the end of this report

84

104

124

144

164

184

204

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0


Relative IndexBt

Samui Airport Property Fund (LHS) Relative SET INDEX (RHS)


Company Guide

Samui Airport Property Fund


Earnings Drivers:

Compelling growth story. Unlike many other PFPOs and REITs

which are now running at nearly full capacity, SPF is

operating at below its full capacity. The fund has ample room

to grow - current traffic is only 1.1m passengers per year

compared to its maximum capacity of over 2m passengers at

Samui Airport. In addition, Bangkok Airways (BA), the

property manager, had received approval from the

Department of Civil Aviation to increase the maximum

number of flights to Samui Airport from 36 to 50 effective

November 2014. This should remove earlier concerns over

capacity.

Recovering tourism industry. Despite the low season,

passenger and flight volumes improved substantially in 2Q15

following the lifting of martial law in April. June traffic was

most impressive, with passenger volume surging 11% y-o-y

and flight volume 9%. The positive momentum should

continue into the high tourist season on Samui in 3Q15. We

conservatively expect passenger volume to grow 5% in 2015,

and 7% each in 2016-2017. Note that despite the political

uncertainty, SPF’s passenger numbers expanded at 7% CAGR

over the last decade.

Increasing international passenger service charge. BA, the

property manager, has secured the Department of Civil

Aviation (DCA) approval to raise passenger service charge

(PSC) for international passengers at Samui Airport from

Bt600 to Bt700. This was effective June 2015. Under the

agreement with BA, SPF will get 20% of the increment and

the rest will go to BA. SPF share of PSC is now Bt340 per

passenger on international flight (from Bt320 earlier).

Although the impact of the PSC hike is small, it will still lift

revenues.

Rising number of flights in line with passenger growth. The

average daily number of flights to Samui Airport is about 36

vs 50 flights maximum permitted currently. We expect the

number of flights to continue to increase along with

passenger numbers. Note that BA accounts for a large

portion of flight volume at Samui Airport. Other airlines

include Thai Airways, Silk Air, and Firefly. BA currently flies

directly to three international destinations from Samui, and

back. These are Hong Kong, Singapore, and Kuala Lumpur.

The company plans to increase flight frequency to these

international destinations soon, while offering direct flights to

new destinations in the medium to long term. These

additional flights and services should help to support growth

in the future.

Monthly Passenger Volume and YoY Growth Leverage & Asset Turnover (x)

Monthly Flight Volume and YoY Growth Capital Expenditure

Revenue Is On The Rise ROE (%)

Passenger Breakdown



Company Guide


Balance Sheet:

Balance sheet is strong with net a cash position and virtually

no debt. SPF has no operating expenses or capex, as these are

borne by Bangkok Airways, the Property Manager. The fund

has only annual fund expenses of about Bt40m. Hence, any

increases in revenue would flow directly to the bottom line.

The fund normally pays out 100% of cash profits every

quarter. Such distribution has been risen steadily since its

inception, in line with rising passenger and flight numbers.

Despite the political unrest in 2014 which has led to military

coup in May 2014, SPF managed to pay flat dividends as

compared to 2013.


Recovering tourism industry. Since the fund’s revenues and

profits are tied directly to Samui tourism, the strong tourist

recovery will be a key driver of both earnings and share price.

1Q and 3Q are normally high seasons for Samui tourism.

Key Risks:

Political unrest. Political unrest, like what happened in 2014

which led to the implementation of martial laws, will affect

tourist arrivals to Thailand including Samui Airport, and

hence, revenues of the fund.

Reliance on a single asset. SPF relies on a single asset to

generate its revenues, which is Samui Airport, and tourism

on Samui.

COMPANY BACKGROUND

SPF is one of Thailand's leading property funds. The Fund

invests in leasehold rights to operate Samui Airport for 30

years (2006-2036). Bangkok Airways, the sponsor, has

voluntarily agreed to retain at least 25% stake in the fund

for 20 years in order to align its interests with the fund. BA

has 25.1% stake in the fund.

SPF’s revenues correlate with the number of passengers and

flights flying from and to Samui Airport, based on the

following formula. All operating expenses and capital

expenditure are borne by the operator, Bangkok Airways.

This eliminates operating cost risks at the fund.

Revenue Sharing

Passenger revenue (per departing passenger)

- Domestic Bt300

- International Bt340

Flight revenue (per incoming flight)

- Cressna Bt5,000

- Dash 7 Bt10,000

- ATR72 Bt50,000

- Airbus/Boeing Bt80,000

Distribution per Unit (Bt)

ROE (%)


PB Band (x)


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2013A 2014A 2015F 2016F 2017F

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

2013A 2014A 2015F 2016F 2017F


Company Guide


Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F

No. of passengers (m) 1.1 1.1 1.1 1.2 1.3 Growth 9.0% -1.6% 5.0% 7.0% 7.0% Sharing (Bt/pax) Domestic passengers 300.0 300.0 300.0 300.0 300.0 International passengers 320.0 320.0 330.0 340.0 340.0 Passenger rev (Btm) 332.2 326.7 348.0 377.5 403.9 Cabin factor 80% 80% 80% 80% 80% Operating hours/day 16.0 16.0 16.0 16.0 16.0 No. of flights p.a.: ATR 4,968 4,731 4,745 4,745 4,745 Boeing/Airbus 7,991 8,146 8,475 9,254 10,088 Sharing: ATR (Bt/flight) 50,000 50,000 50,000 50,000 50,000 Boeing (Bt/flight) 80,000 80,000 80,000 80,000 80,000 Div. Payout 100% 100% 100% 100% 100% Segmental Breakdown

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Bt m) Passenger revenue 332 327 348 378 404 Flight revenue ATR 248 237 237 237 237 Boeing 639 652 678 740 807 Total flight revenue 888 888 915 978 1,044 Total revenue 1,220 1,215 1,263 1,355 1,448

Revenue breakdown Passenger revenue 27% 27% 28% 28% 28% Flight revenue ATR 20% 19% 19% 18% 16% Boeing 52% 54% 54% 55% 56% Total flight revenue 73% 73% 72% 72% 72% Total revenue 100% 100% 100% 100% 100%


FY Dec 2013A 2014A 2015F 2016F 2017F

Gross revenue 1,221 1,216 1,263 1,355 1,448 Property expenses 0 0 0 0 0

Net Property Income 1,221 1,216 1,263 1,355 1,448 Other Operating expenses (38) (40) (41) (42) (43) Other Non Opg (Exp)/Inc 0 0 0 0 0 Net Interest (Exp)/Inc 9 9 9 10 10 Exceptional Gain/(Loss) 168 (7) 0 0 0

Net Income 1,359 1,178 1,231 1,323 1,415 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0

Net Income After Tax 1,359 1,178 1,231 1,323 1,415 Total Return 1,359 1,178 1,231 1,323 1,415 Non-tax deductible Items (168) 7 0 0 0 Net Inc available for Dist. 1,191 1,185 1,231 1,323 1,415 Growth & Ratio Revenue Gth (%) 8.3 (0.4) 3.9 7.3 6.9 N Property Inc Gth (%) 8.3 (0.4) 3.9 7.3 6.9 Net Inc Gth (%) 37.6 (13.3) 4.5 7.4 7.0 Dist. Payout Ratio (%) 99.7 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 96.9 96.7 96.8 96.9 97.0 Net Income Margins (%) 111.3 96.9 97.5 97.6 97.7 Dist to revenue (%) 97.6 97.5 97.5 97.6 97.7 Managers & Trustee’s fees to sales %)

3.1 3.3 3.2 3.1 3.0

ROAE (%) 13.1 11.2 11.7 12.6 13.4 ROA (%) 13.0 11.2 11.7 12.5 13.4 ROCE (%) 11.3 11.2 11.6 12.4 13.3 Int. Cover (x) NM NM NM NM NM


Margins Trend

91.0%

96.0%

101.0%

106.0%

111.0%

116.0%

2013A 2014A 2015F 2016F 2017F

Operating Margin % Net Income Margin %

Martial law lifted in Apr 2015

Political unrest, martial law in place


Company Guide



FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015

Gross revenue 286 319 277 326 306

Property expenses 0 0 0 0 0




Net Interest (Exp)/Inc 2 2 2 2 2

Exceptional Gain/(Loss) 26 18 10 (58) (28)

Net Income 304 329 279 260 269

Tax 0 0 0 0 0



Total Return N/A N/A N/A N/A N/A


Net Inc available for Dist. N/A N/A N/A N/A N/A

Growth & Ratio

Revenue Gth (%) (15) 12 (13) 18 (6)

N Property Inc Gth (%) (15) 12 (13) 18 (6)

Net Inc Gth (%) 14 8 (15) (7) 3


Dist. Payout Ratio (%) N/A N/A N/A N/A N/A



Other LT Assets 366 364 364 364 364

Cash & ST Invts 3 3 14 37 60

Inventory 0 0 0 0 0

Debtors 0 0 0 0 0


Total Assets 10,552 10,542 10,553 10,576 10,599

ST Debt

0 0 0 0 0

Creditor 0 0 0 0 0


LT Debt 0 0 0 0 0





Non-Cash Wkg. Capital 0 0 0 0 0

Net Cash/(Debt) 3 3 14 37 60

Ratio

Current Ratio (x) N/A N/A N/A N/A N/A

Quick Ratio (x) N/A N/A N/A N/A N/A


Z-Score (X) 273.9 273.6 273.5 0.0 NA


No borrowings


Company Guide



FY Dec 2013A 2014A 2015F 2016F 2017F

Pre-Tax Income 1,359 1,178 1,231 1,323 1,415

Dep. & Amort. 0 0 0 0 0

Tax Paid 0 0 0 0 0


Chg in Wkg.Cap. (4) 3 (1) 0 0

Other Operating CF (168) 7 0 0 0

Net Operating CF 1,188 1,188 1,230 1,323 1,415

Net Invt in Properties 0 0 0 0 0

Other Invts (net) (24) (1) 0 0 0




Net Investing CF (24) (1) 0 0 0

Distribution Paid (1,173) (1,188) (1,220) (1,300) (1,392)

Chg in Gross Debt 0 0 0 0 0

New units issued 0 0 0 0 0


Net Financing CF (1,173) (1,188) (1,220) (1,300) (1,392)


Chg in Cash (10) 0 11 23 23


Free CFPS (Bt) 1.3 1.3 1.3 1.4 1.5



Source: DBS Vickers

S.No. Da teClos ing

Pric e

Ta rge t

Pric eRa ting

1: 10 Mar 15 17.40 19.50 Buy

2: 20 Apr 15 17.40 18.80 Buy

3: 15 May 15 17.70 18.80 Buy

4: 21 May 15 17.70 18.90 Buy

5: 22 Jul 15 18.70 21.40 Buy

6: 25 Aug 15 18.60 21.40 Buy


1

23

45

6

16.05

16.55

17.05

17.55

18.05

18.55

19.05

19.55

20.05

20.55


Bt

No capex


ed: SGC / sa: CT



Potential Catalyst: Strong rental reversion, Convets to a REIT



Price Relative

Forecasts and Valuation FY Feb (Bt m) 2014A 2015A 2016F 2017F

Gross Revenue 2,414 2,736 2,907 3,009 Net Property Inc 2,057 2,302 2,453 2,532 Total Return 1,762 1,877 1,976 2,136 Distribution Inc 1,783 1,888 1,890 1,953 EPU (Bt) 0.75 0.80 0.85 0.91 EPU Gth (%) 17 7 5 8 DPU (Bt) 0.76 0.81 0.81 0.84 DPU Gth (%) 10 6 0 3 NAV per shr (Bt) 11.25 11.24 11.28 11.36 PE (X) 17.5 16.4 15.6 14.4 Distribution Yield (%) 5.8 6.1 6.1 6.3 P/NAV (x) 1.2 1.2 1.2 1.2 Aggregate Leverage (%) 8.1 9.1 9.1 9.1 ROAE (%) 6.7 7.1 7.5 8.1 Dist. Inc. Revision (%): - - - Consensus DPU (Bt): N/A N/A N/A Other Broker Recs: B: 4 S: 0 H: 1


DECENT YIELDS

Maintain BUY rating, with Bt15.10 TP based on DCF valuation.

TLGF is offering decent distribution yield of 6.0% (FY16F),

payable quarterly. We have conservatively assumed 95%

payout ratio in our projections vs 100% historical payout. The

fund invests in freehold and leasehold rights to 23 successful

malls that are strategically located throughout Thailand, thus

reducing concentration risks. These malls currently enjoy high

occupancy rate of 99%.

Net investment income to surge this year. The main contracts

with anchor tenant Tesco Lotus, which cover 58% of total

lettable area and account for 28% of revenues, are subject to

10% rental reversion this year. And, 648 other contracts (non-

Tesco Lotus) covering 30,312 sqm or 9% of total lettable area

are expiring in FY16 and subject to renewals at 5% higher

rents, at least.

Mulling conversion to a REIT. TLGF is still awaiting the SEC’s

regulations on transaction costs to transfer assets from a

property fund to a REIT. The fund’s current borrowing is

Bt2.6bn, representing 9.8% of total assets, slightly below its

10% ceiling. Tesco Lotus has granted right of first refusal to

TLGF to acquire its existing and future malls. The successful

conversion to a REIT structure would allow the fund/REIT to

borrow more for future acquisitions and rely less on equity

financing. This should lift distribution per unit and yields.

Tesco Lotus has a lot of potential assets that can be injected

into the REIT in the future. Valuation:

We value TLGF at Bt15.10 based on DCF valuation.


Key risks are (i) lower-than-expected rental reversion, and (ii)

weaker-than-expected occupancy rate. At A Glance Issued Capital (m shrs) 2,337 Mkt. Cap (Btm/US$m) 30,852 / 856

Major Shareholders Ek-Chai Distribution System (%) 25.0

The Government Pension Fund (PI-NON-PHYSICAL) (%)

8.2 The Bank Of New York (Nominees) Limited (%) 7.2 Free Float (%) 59.7


ICB Industry : Real Estate / Real Estate Investment Trusts


18 Sep 2015


Tesco Lotus Retail Growth Freehold and Leasehold Property Fund Edition 1 Version 1 | Bloomberg: TLGF TB | Reuters: TLGFu.BK Refer to important disclosures at the end of this report

81

101

121

141

161

181

201

221

9.4

10.4

11.4

12.4

13.4

14.4

15.4

16.4

Mar-12 Mar-13 Mar-14 Mar-15

Relative IndexBt

Tesco Lotus Retail Growth Freehold and Leasehold PropertyFund (LHS)



Company Guide

Tesco Lotus Retail Growth Freehold and Leasehold Property Fund


Earnings Drivers:

Portfolio of 23 shopping malls in good locations throughout

Thailand, most of which are freehold assets. Freehold assets

represent 60% of TLGF’s total leasable area of 336,291

sqm, and 77% of the appraised value of the assets. These

are successful malls in good locations with 99% average

occupancy rate. 12 of the malls are located in Bangkok and

11 in the provinces. The geographical diversification helps to

reduce concentration risks. With a lot of the assets being

freehold and in good locations, the fund stands to benefit

from future capital appreciation.

Proven track record, average 99% occupancy. Tesco Lotus is

the largest anchor tenant, occupying 58% of the fund’s

leasable area and generating 28% of revenue.

Growth drivers. We expect growth to come from rental

reversion (+estimated at 5.0% p.a. for non-Tesco Lotus

space) and acquisitions. History suggests the fund had been

increasing rents by 8.0-20.0% upon lease renewal for non-

Tesco Lotus space. The contracts with Tesco Lotus are for a

period of 10 years and renewable automatically for two

terms of 10 years each (total 30 years). Rents are raised by

10% every three years. The main contracts with Tesco Lotus

are subject to 10% rental reversion this year.

Mulling conversion to REIT. TLGF is still awaiting the SEC’s

regulations on the transaction costs involved to transfer the

assets to a REIT. The fund’s current borrowing is Bt2.6bn,

representing 9.8% of its net asset value, slightly below its

10% ceiling. Tesco Lotus has granted right of first refusal to

TLGF to acquire its existing and future malls. The successful

conversion to a REIT structure would allow the fund/REIT to

borrow more for future acquisitions and rely less on equity

financing. This should lift distribution per unit and yields.

Tesco Lotus has a lot of potential assets that can be injected

into the REIT in the future; it operates 133 malls in Thailand

(including the 23 malls under TLGF), and is building more.

Dividend payout assumptions. We currently assume 95%

dividend payout ratio in our projections vs 100% payout

historically. This reflects the current net gearing which has

hit the ceiling, suggesting the fund needs to reserve cash for

any capital expenditure that may arise.

Revenue Breakdown (1Q15/16) (%)

Rental Reversion (%)






79.9%

81.9%

83.9%

85.9%

87.9%

89.9%

91.9%

0

500

1,000

1,500

2,000

2,500

2013A 2014A 2015A 2016F 2017F

Bt m


82%

83%

84%

85%

86%

87%

88%

0

5

10

15

20

25

30

35

40

45

50

4Q20

13

1Q20

14

2Q20

14

3Q20

14

4Q20

14

1Q20

15

2Q20

15

3Q20

15

4Q20

15

1Q20

16


0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2013A 2014A 2015A 2016F 2017F

(x)


Company Guide


Balance Sheet:

Total borrowings amounted to Bt2.6bn, representing 9.8% of

its net asset value at end-1Q16.




Converting to a REIT. The successful conversion would mean

the REIT can gear up more. It will then rely less on equity

financing. This should lift DPU and yields.

Key Risks:

Political unrest & 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.

Acquisition growth stalled unless the fund converts to a REIT

All property funds, including TLGF, can no longer increase

capital to acquire additional assets. To be able to grow the

fund size, the fund needs to be converted to a REIT. But that

cannot be done until the SEC finalises further details, such

as transaction costs.

Losing key anchor tenant

Anchor tenant Tesco Lotus does not renew its contracts.

COMPANY BACKGROUND

TLGF is a property fund that invests in freehold and

leasehold rights to 23 retail shopping malls in Thailand, with

Tesco Lotus as a key anchor tenant.

Ek-Chai Distribution System Co., Ltd. (Tesco Lotus) is the

sponsor, major unit holder with 25% stake, and the

Property Manager of the Fund.


ROE (%)


PB Band (x)


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2013A 2014A 2015A 2016F 2017F

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2014A 2015A 2016F 2017F

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2013A 2014A 2015A 2016F 2017F


Company Guide


Key Assumptions

FY Feb 2013A 2014A 2015A 2016F 2017F

Leasable area (sqm) 312,438 314,097 334,453 336,453 336,453

Occupancy 99% 99% 99% 99% 99%

Occupied area (sqm) 309,648 312,019 332,108 334,074 334,074

Rents (bt/sqm/month) 479 645 680 725 751

Total rents (Btm) 1,778 2,414 2,708 2,907 3,009

Dividend payout 100% 100% 100% 95% 95%

Segmental Breakdown FY Feb 2013A 2014A 2015A 2016F 2017F

Revenues (Bt m)

Hypermarkets & food court 587 771 790 869 869

Long-term lease 925 1,300 1,555 1,657 1,740

Short-term lease 249 323 342 360 377

Others 18 20 21 22 23

Total 1,778 2,414 2,708 2,907 3,009

Revenue Breakdown

Hypermarkets & food court 33% 32% 29% 30% 29%

Long-term lease 52% 54% 57% 57% 58%

Short-term lease 14% 13% 13% 12% 13%

Others 1% 1% 1% 1% 1%

Total 100% 100% 100% 100% 100%

Growth

Hypermarkets & food court 31% 2% 10% 0%

Long-term lease 41% 20% 7% 5%

Short-term lease 30% 6% 5% 5%

Others 10% 5% 5% 5%

Total 36% 12% 7% 4%


FY Feb 2013A 2014A 2015A 2016F 2017F

Gross revenue 1,779 2,414 2,736 2,907 3,009


Net Property Income 1,503 2,057 2,302 2,453 2,532





Net Income 1,243 1,762 1,877 1,976 2,136

Tax 0 0 0 0 0



Net Income After Tax 1,243 1,762 1,877 1,976 2,136

Total Return 1,243 1,762 1,877 1,976 2,136

Non-tax deductible Items (538) 0 0 0 0

Net Inc available for Dist. 1,346 1,783 1,888 1,990 2,056

Growth & Ratio

Revenue Gth (%) N/A 35.7 13.3 6.2 3.5

N Property Inc Gth (%) nm 36.8 11.9 6.6 3.2

Net Inc Gth (%) nm 41.8 6.6 5.3 8.1




Dist to revenue (%) 75.7 73.8 69.0 65.0 64.9


7.3 9.5 9.8 10.7 10.8

ROAE (%) N/A 6.7 7.1 7.5 8.1

ROA (%) N/A 6.3 6.4 6.7 7.2

ROCE (%) N/A 5.8 6.3 7.1 7.6

Int. Cover (x) NM NM 26.5 27.8 30.8


Growth continues to come from rental reversion

Assuming 95% payout ratio vs historical 100% payout


Company Guide



FY Feb 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016

Gross revenue 677 688 679 693 708






Exceptional Gain/(Loss) (0) 0 76 64 (1)

Net Income 429 440 508 483 478

Tax 0 0 0 0 0



Total Return 429 440 508 483 478

Non-tax deductible Items 38 38 (38) (28) 18


Growth & Ratio

Revenue Gth (%) 8 2 (1) 2 2

N Property Inc Gth (%) 10 1 (1) 1 3

Net Inc Gth (%) nm nm nm nm nm


Dist. Payout Ratio (%) N/A N/A N/A N/A N/A


FY Feb 2013A 2014A 2015A 2016F 2017F Investment Properties 24,964 27,469 28,043 28,153 28,263

Other LT Assets 716 593 473 380 380

Cash & ST Invts 1,072 1,029 1,070 1,010 1,113

Inventory 0 0 0 0 0

Debtors 0 0 0 0 0


Total Assets 26,752 29,091 29,586 29,543 29,755

ST Debt

0 0 0 0 0

Creditor 0 0 0 0 0


LT Debt 0 2,284 2,591 2,600 2,600






Net Cash/(Debt) 1,072 (1,255) (1,521) (1,590) (1,487)

Ratio

Current Ratio (x) 2.5 2.0 1.5 1.7 1.9

Quick Ratio (x) 2.5 2.0 1.5 1.7 1.9


Z-Score (X) 58.6 27.4 26.1 26.4 26.2


Gain (loss) from asset revaluation

Net gearing close to 10% limit


Company Guide



FY Feb 2013A 2014A 2015A 2016F 2017F

Pre-Tax Income 1,243 1,762 1,877 1,976 2,136

Dep. & Amort. 170 230 230 94 0

Tax Paid 0 0 0 0 0


Chg in Wkg.Cap. (12) (134) (139) 0 0

Other Operating CF 108 34 167 (61) 90

Net Operating CF 1,509 1,892 2,134 2,009 2,226

Net Invt in Properties (25,416) (2,372) (435) (110) (110)




Other Investing CF (55) (76) (76) (76) (76)

Net Investing CF (25,471) (2,435) (504) (186) (186)

Distribution Paid (877) (1,783) (1,900) (1,890) (1,937)

Chg in Gross Debt 0 2,284 308 9 0

New units issued 25,442 0 0 0 0


Net Financing CF 24,565 501 (1,592) (1,881) (1,937)


Chg in Cash 603 (43) 39 (58) 102


Free CFPS (Bt) (12.4) (0.2) 0.7 0.8 0.9



Source: DBS Vickers

S.No. Da teClos ing

Pric e

Ta rge t

Pric eRa ting

1: 19 Jan 15 13.00 15.10 Buy

2: 01 Apr 15 13.50 15.10 Buy

3: 06 May 15 13.50 15.10 Buy

4: 15 Jul 15 13.70 15.10 Buy


1

2

3

4

11.59

12.09

12.59

13.09

13.59

14.09

14.59


Bt


ed: SGC / sa: CS

BUY



Potential Catalyst: Strong economic recovery and rental hike

Where we differ: N/A

Analyst Wasu Mattanapotchanart +662 658 7826 [email protected]

Price Relative


Gross Revenue 593 601 624 625 Net Property Inc 534 543 562 563 Total Return 531 523 541 544 Distribution Inc 516 523 541 544 EPU (Bt) 0.96 0.94 0.98 0.98 EPU Gth (%) nm (2) 4 1 DPU (Bt) 0.97 0.93 0.97 0.97 DPU Gth (%) nm (4) 4 1 NAV per shr (Bt) 10.26 10.28 10.30 10.31 PE (X) 12.7 13.0 12.5 12.4 Distribution Yield (%) 7.9 7.6 7.9 8.0 P/NAV (x) 1.2 1.2 1.2 1.2 Aggregate Leverage (%) 8.1 7.4 6.7 6.0 ROAE (%) N/A 9.2 9.5 9.5 Dist. Inc. Revision (%): - - - Consensus DPU (Bt): 0.80 0.90 0.90 Other Broker Recs: B: 0 S: 0 H: 1


RESILIENT INDUSTRIAL SPACE LESSOR

BUY with DCF-based TP of Bt12.90. Amid the low-interest-

rate environment, the fund offers attractive annual yield of

c.8% over the next three years, higher than the current 2.65%

yield for Thai government bonds and 3.6% yield for stocks

under DBS coverage. It has a solid track record of healthy

occupancy rates and offers 16% total return (price upside +

dividend yield) at the current market price.

Withstanding the economic slowdown.

While the occupancy rates at other property funds under

TICON are in the range of 71-76% and declining because of

the slower economy, TGROWTH has been resilient. Its

occupancy rate had bottomed out at 93% in 2H14 and has

rebounded to 96% in 1H15, close to its peak of 98-100% in

2013 and early 2014. We estimate occupancy rate at

96%/97%/95% for FY15/16/17. Valuation:

We value TGROWTH at Bt12.90, based on DCF valuation

(WACC: 7.1%, Terminal Value of Bt0 at the end of 2043).


Economic slowdown and high-household-debt-to-GDP ratio

(c.85%) could result in extended weak automotive sales in

Thailand. This could, in turn, cause autopart makers (33% of

total leasable areas) to downsize production capacities. Also,

lackluster global growth could hurt exports of electronics parts.

Electronics firms account for 20% of TGROWTH’s leasable

area. At A Glance


Major Shareholders TICON (%) 25.3 HSBC (SINGAPORE) NOMINEES PTE LTD (%) 11.4 MTLS (%) 11.4 Free Float (%) 25.1




18 Sep 2015


TICON Industrial Growth Leasehold Property Fund

Edition 1 Version 1 | Bloomberg: TGROWTH TB | Reuters: TGROWTHu.BK Refer to important disclosures at the end of this report

78

98

118

138

158

178

198

218

7.7

8.7

9.7

10.7

11.7

12.7

13.7

Dec-13 May-14 Oct-14 Mar-15 Aug-15

Relative IndexBt

TICON Industrial Growth Leasehold Property Fund (LHS)



Company Guide



Earnings Drivers:

Occupancy rates remain healthy

TGROWTH’s operations have been resilient. Despite the

ongoing economic slowdown, its occupancy rate had

bottomed out in 2H14 at 93% (factory: 100%, warehouse:

88%) and rebounded in 1H15 to 96% (factory: 100%,

warehouse: 93%).

This is in stark contrast with the other TICON-owned property

funds, of which occupancy rates continue dropping. TFUND’s

occupancy rate has fallen from 95.6% in 4Q11 to 70.6%

now, and TLOGIS’s has fallen from its 95% peak in 2Q13 to

76% in 2Q15. Hence, we believe that TGROWTH would be

able to weather the recession better than other TICON funds.

5-10% rental reversion every three years

The majority of TGROWTH’s rental contracts are for three

years, and the Fund usually raise rents by 5-10% when the

contracts expire, implying 1.7%-3.3% hike p.a. The actual

hikes would depend on the prevailing demand-supply

situation and the size and location of the rental assets. We

forecast average rent would increase by 2.5% p.a. over the

next four years, before slowing to 2% p.a. over FY21-24, and

1% thereafter.

Economic recovery could push up occupancy rates

We project the Fund’s occupancy rate will be in the range of

95-97% over the next five years, before dropping to 90%

from 2020 onward. The majority its clients are involved in

autoparts (33% of leasable area), logistics (21%), and

consumer products (6%), so TGROWTH’s occupancy rate

could beat our estimates during economic upturns. This

would present a mild upside to our forecast earnings and TP.

Its occupancy rate had peaked at 98-100% in 2013 and early

2014.





85.5%

87.5%

89.5%

91.5%

93.5%

95.5%

97.5%

0

100

200

300

400

500

600

2014A 2015F 2016F 2017F

Bt m


87%

87%

88%

88%

89%

89%

90%

90%

91%

91%

92%

0

5

10

15

20

25

30

35

40

45

50

1Q20

14

2Q20

14

3Q20

14

4Q20

14

1Q20

15

2Q20

15


0.4

0.5

0.6

0.7

0.8

0.9

1.0

2014A 2015F 2016F 2017F

(x)


Company Guide


Balance Sheet:

At the end of 2014, TGROWTH had Bt460m debt, equivalent

to 8.1% of NAV. We expect debt to drop to Bt422m (7.4%

of NAV) by the end of this year, and the Fund to be debt-free

by 2026, assuming no acquisition of new rental assets.


Attractive yield

TGROWTH is offering attractive annual yield of c.8% for the

next three years, compared to 2.65% for 10-year Thai

government bonds and 3.6-3.9% dividend yields for stocks

under DBS coverage (75% of the SET market cap) in FY15-

16F.

Key Risks:

Domestic and global economic slowdown

The slower economy and high household debt could result

in extended weak automotive sales in Thailand; falling auto

production could make its autopart makers (33% of

TGROWTH’s total leasable area) to downsize production

lines and warehouse space. Also, lackluster global growth

could hurt exports of electronics parts (20% of total leasable

area).

COMPANY BACKGROUND

Ticon Industrial Growth Leasehold Property (TGROWTH)

owns rental warehouse and factories with total leasable

areas of 182k sqm and 121k sqm, respectively. The

remaining leasehold life of its assets is 28.5 years. All its

assets were developed by the SET-listed Ticon Industrial

Connection (TICON); TICON usually develops and holds

rental assets for a few years before selling them to its

network of property funds and REITs, including TLOGIS,

TFUND, TGROWTH and REIT.

The bulk of TGROWTH’s leasable area is occupied by

Japanese corporations (61%), followed by Thais (8%),

Germans (7%) and French (6%). TGROWTH’s warehouses

and factories are in industrial parks/estates in Ayutthaya,

Patumtani, Chonburi, Chachoengsao and Rayong.


ROE (%)


PB Band (x)


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2014A 2015F 2016F 2017F

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2015F 2016F 2017F

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2014A 2015F 2016F 2017F


Company Guide


Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F

Leasable area (sqm)

Warehouse 182,095 182,095 182,095 182,095 182,095 Factory 104,225 121,175 121,175 121,175 121,175

Total 286,320 303,270 303,270 303,270 303,270

Occupancy (%)

Warehouse 100% 88% 93% 95% 95% Factory 100% 100% 100% 100% 95% Total 100% 93% 96% 97% 95% Income Statement (Bt m)

FY Dec 2014A 2015F 2016F 2017F

Gross revenue 593 601 624 625


Net Property Income 534 543 562 563

Other Operating expenses (14) (13) (13) (13)


Net Interest (Exp)/Inc (14) (17) (17) (15)


Net Income 531 523 541 544

Tax 0 0 0 0




Total Return 531 523 541 544



Growth & Ratio

Revenue Gth (%) N/A 1.5 3.7 0.2

N Property Inc Gth (%) nm 1.7 3.5 0.2

Net Inc Gth (%) nm (1.6) 3.6 0.5




Dist to revenue (%) 90.6 86.0 85.9 86.2


2.4 2.2 2.1 2.1

ROAE (%) N/A 9.2 9.5 9.5

ROA (%) N/A 8.2 8.5 8.6

ROCE (%) N/A 8.3 8.7 8.7

Int. Cover (x) 37.5 31.7 32.0 35.5



Company Guide



FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015

Gross revenue 151 147 147 147 147



Other Operating expenses 0 1 0 0 0




Net Income 138 144 130 127 127

Tax 0 0 0 0 0



Total Return 135 139 126 123 123



Growth & Ratio

Revenue Gth (%) 3 (3) 0 0 0

N Property Inc Gth (%) 2 (2) 1 (3) 1

Net Inc Gth (%) 6 4 (10) (2) 0





Other LT Assets N/A N/A N/A N/A

Cash & ST Invts 336 310 289 257

Inventory 0 0 0 0

Debtors 14 14 15 15


Total Assets 6,370 6,345 6,324 6,293

ST Debt

0 0 0 0

Creditor 0 0 0 0


LT Debt 460 422 383 345





Non-Cash Wkg. Capital 16 17 17 17

Net Cash/(Debt) (124) (112) (94) (88)

Ratio

Current Ratio (x) N/A N/A N/A N/A

Quick Ratio (x) N/A N/A N/A N/A





Company Guide



FY Dec 2014A 2015F 2016F 2017F


Dep. & Amort. 0 0 0 0

Tax Paid 0 0 0 0


Chg in Wkg.Cap. (55) 3 8 0

Other Operating CF (16) 0 0 0

Net Operating CF 461 526 549 544

Net Invt in Properties (460) 0 0 0





Net Investing CF (756) 96 0 0

Distribution Paid (412) (513) (531) (538)

Chg in Gross Debt 460 (38) (38) (38)

New units issued 0 0 0 0


Net Financing CF 48 (551) (570) (576)


Chg in Cash (248) 71 (21) (32)


Free CFPS (Bt) 0.0 0.9 1.0 1.0


Industry Focus


DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10 to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

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thailand industry focus property fund/reit sector central rama 2, central rama 3, central pinklao,...

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