Threats. Change in Monetary/Fiscal policy. AHL defaults on rental. Market capitalisation: Rs 1.8bn Opportunities from portfolio growth

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1 APL Executive Summary Overview Attitude Property Ltd (APL) owns a portfolio of three hotels which generate rental income under a 20-year contract. Its sole tenant is Attitude Hospitality Ltd (AHL) and has no employees with a view to be cost effective and maximise shareholder return. APL s assets have been (or being) refurbished during the last three years and have been independently valued at Rs1.78bn. Performance: Review & Prospects APL's sole source of revenue is from rental income from AHL under a 20-year contract renewable for another 20 years. The rental amount is revised upwards triennially by an amount equal to the cumulative inflation rate over the three-year period and capped at 15%. Given the steady decline in average inflation since the mid-70s, we expect the cap to be seldom used; subsequently APL will not generate high growth rates. Further given the likely short-term portfolio status quo, we expect income to be steady, inflation-adjusted and dividend pay-out ratio to stand close to 100%. Therefore APL should be regarded as a yield-pick rather than a growth pick. AXYS forecasts that initial annual rent of Rs178M will grow to Rs202M (+13%) in 2019; and initial PAT for the 10Mth-period to Jun- 16 is expected to be Rs98M, then plateau at Rs115M only to increase to Rs131M in Given the nature of its business, APL s income is not expected to experience disruption except in the event of major distress at AHL. AHL is a mid-market operator which has expanded rapidly to fill-in the gaps left in this market segment during the upshift in hotel room-park in recent years. Albeit less profitable we expect this segment to be more resistant to downturns. The troubled tourism industry has witnessed positive indicators in 2015 and therefore expect improvements. Further, AHL has been a proactive young entrant into the sector that has secured its place with Thomson Airways which has started flying its Boeing 787s to Mauritius since Apr-14. This is why we believe the likelihood of APL experiencing default on rental payment is small. Indices = 100 on 25-Mar-14 Rating APL 0.0% ACCUMULATE PER DY PBV FP 15.5x 6.5% 1.0x COVI ALEX-20 TRI Valuation: Introduced as ACCUMULATE Based on the post-refurbishment annual rental of Rs178M over the next three years, we project APL s PER to average 15.5x over the next three years then drop to 13.6x over the following three which stands below its peer-group s 45.7x. Given that proceeds from the IPO would be used to pay down debt, the group s Debt per share is poised to drop from Rs6.42 to Rs2.67 resulting in a Debt:Equity Ratio (DER) of 26.7%. Its average annualised DY during the next three years is forecast to average 6.5% [Peer-group: 1.3%] then climb to 7.4% during the following three years. Our consensus valuation using a linear combination of Ratios, Net Assets and Free Cash Flow methods stands at Rs15.92 per share; i.e. at a 59% premium to its IPO price of Rs10. Based our view that APL is yield-stock rather than a growth stock, we introduce an ACCUMULATE rating for APL. Low 52-Wk Range High Rs 10 VWAP Rs 10 CDS Code: ISIN Code: Bloomberg Code: Reuters Code: APL.I0000 MU0488I00000 APL MP APL.MZ Trading data Shielded from external shocks Change in Monetary/Fiscal policy No of Shares: 178M Inflation indexed revenue AHL defaults on rental Market capitalisation: Rs 1.8bn Opportunities from portfolio growth Finite lifespan of lease Weight on SEM: Weight in ALEX-20: 0.7% Highlights 2016E* 2017E 2018E 2019F 2020F 2021F Weight in ALCAPEX-12: Revenue [RsM] Ave. daily value traded: EBITDA [RsM] Ave. daily vol. traded: PAT [RsM] YoY Total Return: Adj EPS [Rs] All time high: NAV [Rs] DPS [Rs] Key P&L Trends Valuations 2016E* 2017E 2018E 2019F 2020F 2021F EBITDA Marg. [%] Gross Rtl Yld. [%] Net Rtl Yld. [%] PER [x] PEG [x] PBV [x] EV/EBITDA [x] ROE [%] DY [%] DER [%] Strengths Threats Jul E* 2017E 2018E 2019F 2020F Revenue [Rs] Adj EPS [Rs] EBITDA Marg [%] Jul-15 1

2 ABOUT APL Attitude Property Ltd (APL) was contrived during the acquisition of La Plantation hotel 1 by Attitude Hospitality Ltd (AHL) in Q1-14. AHL resolved to alter its business model to segregate, in part, hotel-property ownership and hotel operations. Subsequently the ownership of La Plantation was taken up by a fresh entity: Attitude Property Ltd. Ownership of two other fully owned hotel properties, Le Réçif and le Tropical, would also be transferred to APL. APL s objective is therefore to acquire, hold and develop income generating hospitality real-estate assets. FINANCIAL PERFORMANCE I. Revenue APL only source of revenue is rental income from its tenant. APL s sole tenant is AHL who has signed a 20-Year rental contract with APL. The rental agreement is thereafter renewable for another period of twenty (20) years. According to the contract, the rent amount will be revised triennially by a factor equal to the cumulative inflation during the three-year period and capped at 15%. Following the renovation works 2 at Ex-La Plantation, which will re-open as The Ravenala Attitude, the rental amount is expected to stand at Rs178M per year. The rental will plateau at this level until 2018, and an in 2019, the rental quantum will increase as required by the triennial revision. I.i. Inflation forecasting Inflation has been on the decline in Mauritius since the late seventies (70s). We thus expect inflation to decline asymptotically to ~3% over next two-decades. Subsequently, we do not expect the 15% cap on rental increase to be enforced lest for a major external shock or massive devaluation of the Mauritian Rupee. Fig. 2 Long-term inflation trends II. Forward Strategy In the short term, APL is expected to maintain a status quo of its current asset portfolio which transcribes to non-stellar revenue growth. From longer term perspective, APL would seek to realise gains or grow its portfolio should the opportunity arise. The key covenant when conducting any portfolio related transaction would be to preserve yield for the shareholder if not enhance it. Subsequently, an acquisition and subsequent rental agreement would be similar to the one with AHL, i.e. the tenant would be responsible for property maintenance with administrative tasks outsourced. Fig. 1 APL s Rental Income and EBITDA forecasts Based on our inflation forecasting algorithms, we expect APL s income to increase by 13% to Rs202M in 2019 and thereafter continue to grow in-sync with inflation. In Fig. 1 above, all 20XXE 3 estimates are as per APL s listing particulars which have been vetted by Ernst & Young. 1 Offered for sale by the receiver manager of the Apavou Group in late On-going at the time of writing and expected to be completed by Oct E spans a 10Mth-period with rental starting on Sep 1 st 2015 III. Earnings In order to maximise yield for its shareholders, APL has embraced the lean strategy. As a result, APL has no employees and all of its expenses are in the form of professional/administrative fees for outsourced services, finance costs, and other charges. As no capital expenditure is expected to be incurred by APL, we project that PAT will grow over the years, but follow a slight three-year (3Y) sawtooth pattern. Concretely, APL s FY16 PAT is poised to stand at Rs98M for the 10Mth-period, thereafter levelling-off at Rs115M in FY18. AXYS projects that PAT would then jump to Rs131M in 2019 in-line with the triennial income increase and continue to hover at ~Rs131M until 2021 ahead of its next triennial increase. APL is expected to distribute all of its profits in the form of dividends. 2

3 III.i. Capital Expenditure Under the terms of the APL s rental agreement with AHL, the tenant has to return the properties to its landlord in the same state as it initially was. Consequently, AHL will be responsible for the regular Furniture, Fixtures and Equipment (FF&E) expenditure incurred as part of the normal course of business. APL s tenant will build an FF&E reserve by placing 3% of turnover generated at APL s hotels in an escrow account. The cost of any structural changes brought about would be borne by APL. Thereafter, the rental charged would also be increased so as to keep shareholder s yield unaffected. IV.i. Tourism Industry The tourism industry has been through a rough spell since the financial crisis of The boom years during the mid-noughties triggered expansion of hotel rooms in the upmarket, but when the crisis hit, demand for 5-Star hotels shrank triggering a price war. The amplitude of hoteliers struggles is epitomised by the halving of combined market capitalisation of the top four groups since Dec-07. In 2015 thus far, arrivals figures have been promising driven by organic growth in core European and African markets; as well as inorganic 4 growth from the UK, Scandinavia and China. We believe the worst is behind for the industry, but forward performance of hotel groups will be uneven in-line with their heterogeneous strategies. Fig. 3 APL's recurrent PAT and Key Ratio evolution IV. Risk Assessment Given APL s simple business model, the flow of income is deemed to be independent of macroeconomic exogenous shocks, volatile currencies and/or commodity prices, and consumer demand. The main risk to APL s steady flow of income is the financial health of its tenant, i.e. AHL. APL s rental is expected to be steady, predictable and continuous so long as AHL have the financial capacity to pay. AHL s ability to meet its rental obligations however is linked to the macro-environment of the tourism industry as well as how its business is run. In essence, APL s principal risk is AHL. IV.ii. About Attitude Hospitality Ltd (AHL) AHL, formerly Attitude Resorts Ltd, commenced operation during the crux of the crisis with two mid-market hotels, Coin de Mire Attitude and Blumarine Attitude, with a total of 210 rooms. The upshift in the hotel room park from mid-market to upmarket created a space which AHL chose to fill. AHL s objective is to be the leading mid-market hotel operator. The group has since expanded its network and operates more than 1,100 rooms, thereby making it the 2 nd largest 5 Mauritian group. FY14 NMHL LUX SUN CHSL AHL Hotels [#] In Mtius Stars [ ] Rooms [#] 2,119 1,419 1, ,131 In Mtius 1, , ,131 Occupancy [%] RevPOR [Rs] 12,600 11,300 12,100 24,800 5,750 Table 1 AHL figures versus listed groups The space in which AHL operates has been less affected by the crisis and will remain an important segment 6 as Mauritius grows arrivals figures. Further, AHL s resorts are among those offered by Thomson (TUI Group) on its weekly flights from the UK and seasonal flights from Scandinavia. Given the group s rapid mainly inorganic expansion in a short few years, PAT figures have not been stellar. However the group has built a foundation for future growth in its segment as best exemplified by Zilwa s success. Given the experienced management team behind the Attitude group of hotels, we are of the opinion that lest for a major exogenous Fig. 4 Key industry and APL growth rates 4 By inorganic we mean driven by the arrival of new carriers linking Mauritius to new or existing destinations 5 Excludes SUN s hotels managed by 3 rd parties 6 It is unfathomable that >1M visitors will all stay in high-end hotels 3

4 shock 7 to the industry AHL s financial position will remain good enough to meet its rental obligations. P&L [RsM] Revenue Op. Profit PBT PAT B.Sheet [RsM] NC Assets 2,311 2,314 3,513 Cur Assets Total Assets 2,414 2,498 3,804 Att Equity 1,245 1,309 1,276 Non-Ctrlg Equity Total Equity 1,307 1,355 1,322 NC Liabilities ,456 Cur Liabilities ,025 Total Liabilities 1,108 1,144 2,481 Table 2 AHL s abridged financial statements CORPORATE STRUCTURE I. Overview AHL. As part of AHL s shift in business model to segregate ownership from day-to-day operations, the ownership of these three hotels were transferred to APL. Asset Value 8 Rooms Last Refurb. [RsM] [#} [Year] Ravenala 1, Réçif Tropical Table 3 APL's detailed hotel portfolio II. Business Model APL s business model is to build a portfolio of strong yielding property assets within the tourism sector. Any realisations or acquisitions to the existing portfolio would be done in manner so as not to decrease shareholder yield. Having adopted a lean policy to maximise yield, APL has no employees and outsources all administrative tasks. APL s freshly 9 refurbished hotels have been independently valued at Rs1.78bn. III. Shareholding Prior to going public, Attitude Hospitality Ltd is APL s sole shareholder. Assuming all of the new 100M shares on offer are subscribed to, AHL s shareholding is expected to drop to 44% with over 56% of shares in public hands. Fig. 5 Distribution APL s hotel portfolio Attitude Property Ltd (APL), incorporated in 2013, owns a portfolio of three hotels which generate rental income under a 20-year contract. Two are located on the North-West coast and the third is found on the East coast in close proximity to the must-see outer island île aux Cerfs. The company was structured in its current form following the successful bid for distressed La Plantation by 7 Think terrorist attack or infectious viral disease outbreak Fig. 6 APL s shareholding structure 8 As valued excluding FF&E by Broll Indian Ocean 9 During the last three years 4

5 VALUATION & RECOMMENDATION Attitude Property Ltd is a property investor whose yielding assets are hotels which have been rented out. Its business model is not different from COVI which rents its premises to Club Med. Under a similar arrangement, SUN also rents Hotel Ambre from the Reunion island-based Apavou Group. As per APL s twenty-year rental agreement, renewable for another twenty years, the rental amount is revised upwards triennially to compensate for inflation. Subsequently, we expect APL s revenue stream to be steady, predictable and shielded from shocks to the business environment. On the down side, given the asymptotical decline in headline inflation over the decades, we expect the 15% to be seldom utilised which means there is no large revenue growth potential. Nevertheless, the dividend pay-out ratio for APL is expected to stand at close to 100%; consequently, APL is expected to generate a steady a predictable dividend income for its shareholders. This is why we view APL as a yield-play rather than a growth play. Based on arrivals figures for 2015, and the government s budgetary commitment to enhance visibility & connectivity, we believe the worst is behind for the Tourism industry. APL s tenant, AHL is a mid-market player. Although this segment generates less RevPAR its costs are more easily managed and are less affected by downturns. AHL has expanded rapidly over the last seven years and now operates the largest hotel room park after NMHL in Mauritius. Further the group was proactive in being included in Thomson s packages amid its introduction of weekly flights from the UK and seasonal flights from Scandinavia. As a result, we believe AHL should be able to meet its rental obligations. Under a worst case scenario, APL would simply have to find a new tenant, or in a worst case scenario, dispose of the non-yielding asset(s). Based on the post-refurbishment annual rental of Rs178M over the next three years, we project APL s PER to average 15.5x over the next three years then drop to 13.6x over the following three which stands below its peer-group s 45.7x. Given that proceeds from the IPO would be used to pay down debt, the group s Debt per share is poised to drop from Rs6.42 to Rs2.67 resulting in a Debt:Equity Ratio (DER) of 26.7%. Its average annualised DY during the next three years is forecast to average 6.5% [Peer-group: 1.3%] then climb to 7.4% during the following three years. Our consensus valuation using a linear combination of Ratios, Net Assets and Free Cash Flow methods stands at Rs15.92 per share; i.e. at a 59% premium to its IPO price of Rs10. Based our view that APL is yieldstock rather than a growth stock, we introduce an ACCUMULATE rating for APL. DISCLAIMER AXYS Stockbroking Ltd has issued this document without consideration of the investment objectives, financial situation or particular needs of any individual recipient. Recipients should not act or rely on any recommendation in this document without consulting their financial adviser to determine whether the recommendation is appropriate to their investment of this document. This document is not, and should not be construed as, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. This document has been based on information obtained from sources believed to be reliable but which have not been independently verified. AXYS Stockbroking Ltd makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. AXYS Stockbroking Ltd and its officers, directors and representatives may have positions in securities mentioned in this document, or in related investments, and may from time to time add to or dispose of such securities or investments. AXYS Stockbroking Ltd is a member of the Stock Exchange of Mauritius and is licensed by the Financial Services Commission. DISCLOSURE Please note that AXYS Stockbroking Ltd (ASL) a fully owned subsidiary of AXYS Group Ltd (AXYS) is the sponsoring broker for Attitude Property Ltd s (APL) listing and initial public offer (IPO). ASL conducts stock analysis and issues recommendations independently of any other interests, including those of AXYS and/or its affiliates. ASL encourages investors to independently evaluate APL and consult any independent advisors if they deem necessary. APL is a fully owned subsidiary of Attitude Hospitality Ltd (AHL). AHL and AXYS are both investees of United Investments Ltd (UTIN) which is listed on the Stock Exchange of Mauritius. AUTHORS Bhavik Desai Head of Research Melvyn Chung Kai To Head of Trading 5

6 APPENDIX A I. Calculations Methods Bottom-line profit figures, e.g. Profits after Tax, Attributable Earnings, and EPS among, have all been adjusted for non-recurrent exceptional items. All per Share metrics or calculations requiring the No. of Shares have been computed using a single constant. AXYS has used the total number of issued shares by the company excluding treasury shares as given by its latest annual report. Our valuation reached from a consensus derived using three (Ratios, Net Assets, and DCF) different valuation methods whose forecasting algorithms incorporate Monte Carlo methods. II. Price to Earnings Growth (PEG) Ratio PEG Ratio = PPPPP/EEEEEEEE < EEE GGGGGh > III. Enterprise Value PEG Ratio 0 PEG < 1 Under-valued PEG = 1 Fair-Valued PEG > 1 Over-valued APPENDIX B I. Valuation Forecasts DPS NAVPS EPS FCF 2016E E E F F F F F F F F F F F F F F F F EV = Shaaaa LLL + CCCh DDDD REFERENCES Attitude Property Ltd, Prospectus, Jul Statistics Mauritius, CPI Historical Series, Jun