EC World REIT COMPANY UPDATE. Well posi oned for China s new economy. Not Rated

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1 COMPANY UPDATE EC World REIT (ECWREIT SP) Monday, 24 October 2011 Not Rated Price as of 24 Nov M target price (S$) Previous target price (S$) Upside (%) Trading data Market Cap (S$m) Issued Shares (m) Ave Daily Traded (3 Month) Vol / Val 0.0m / $0.0m 52 week lo / hi $0.70 / $0.82 Free Float 50.8% Major Shareholders Forchn Holdings(Sponsor 53.4% China Cinda Asset Mgt 12.2% ECWREIT SP (Blue) vs. FSSTI Well posi oned for China s new economy EC World REIT (EC World) is a pure play Chinese REIT, focused on proper es used for e Commerce, supply chain management and logis cs. The por olio consists of six proper es in Hangzhou, PRC, a fast growing capital city with economic growth outpacing the na onal average (~10% vs 6 7% for China). The company has guided for a DPU of 5.94 SG Cents for FY17, implying a dividend yield of 7.8% based on its current price. Its current dividend yield is in the mid range of its peers in the Logis cs/ Industrial REITs space. Given its healthy balance sheet (28% gearing ra o), we expect a yield accre ve acquisi on to help li DPU in the next 12 months. Well posi oned in Hangzhou, a key regional centre that is developing to be the high tech centre of China. Hangzhou is one of the largest hubs in China for e commerce ac vity, with Alibaba Group headquartered in the city. Hangzhou s ports are also u lized for shipment of steel, which is rela vely more resilient given that it caters mainly to internal Chinese demand. Our understanding from management is that steel volume going through its ports are expected to grow at around 10 20% next year. Hangzhou s economy con nues to outperform the overall growth rate of China, with its economy growing at 10.2% in 2015 and 10.8% in 1H16 (vs 6 7% overall for China). This is due to the city s exposure to the high tech and services industry, a key focus of China s transforma on towards a sustainable services oriented economy. Decent yield with posi ve rental reversion. industrial/logis cs REITs are currently yielding 6.9 to 9.8% based on consensus es mates for next year, but may be unsustainable given the challenging local economic outlook in the short mid term. EC World is expected to pay around 5.94 SG cents for FY17, or an implied 7.8% dividend yield. All of its proper es have rental escala on terms, ranging from 1 10% p.a. On average, we es mate around 3% posi ve rental reversions p.a. over the next 4 years. This is excluding increased contribu ons from any yield accre ve acquisi on. Source: Bloomberg Joel Ng Joel.ng@kgi.com Master lease arrangement with sponsor. EC World s FY17 forecasted 7.8% dividend yield is supported by the master lease arrangement with its sponsor, Forchn Holdings Group (Forchn). Without the master lease agreement, its FY17 forecasted dividend yield would be lower by 1 percentage point. However, we note this arrangement is for the next 4 years and it is highly likely that the leases would be renewed, in our view. Growth pipeline with two proper es. EC World s gearing was 28% as at 30 Sep We es mate that it has headroom to make a RMB1bn acquisi on while keeping its gearing below 40% (MAS has set a gearing limit of 45% for REITs). The company already has two ROFR e commerce related proper es that will be completed in Jan 17 and Dec 17. These two proper es would effec vely increase its total GFA by 55%. Key risks: Economic slowdown in China. Changes in gov t regula ons. Deprecia on of RMB against SGD may affect DPU. EC World has so far only hedged FY16 DPU at 4.95 SGD/RMB. Please see important disclosures at the end of this publica on

2 Diversified between steel logis cs and e commerce infrastructure market. Three of its six proper es are related to the steel transporta on hub, which includes port opera on, storage and processing, and logis cs distribu on for steel products. Its port handles 50% of steel logis cs in Hangzhou in Two proper es are related to e commerce infrastructure market. The remaining property is substan ally leased to China Tobacco Zhejiang Industrial for the purpose of tobacco leaves storage in a controlled environment. Rental reversions range from 1% to 10% increase p.a., averaging around 3% p.a. over the next 4 years. Weighted Average Lease Expiry (WALE) of its proper es is 4.1 years. Gross rental income currently is s ll largely from its port logis cs (47% of gross rental income), E Commerce (39%) and Specialized Logis cs (14%). However, future acquisi ons would be expected to raise gross rental income from E Commerce to ~50% in the next two years. Figure 1: Six proper es located in Hangzhou Source: Company Figure 2: Posi ve rental reversions over the next four years of between 1% to 10% Property Lease Type Rental Reversion Type End Tenant occupancy Independent Valuation (RMB m) NLA (sqm) Chongxian Port Investment Master leased Rental escalation of 6.0%, 5.0%, 4.0% and 3.0% on Port Logistics 100.0% 2, ,726 1st January of 2017, 2018, 2019 and 2020 Chongxian Port Logistics Multi tenanted Built in fixed rental escalation of between 5% and Port Logistics 100.0% ,856 10% per annum for 105 leases. Fu Zhuo Industrial Multi tenanted Fixed rental escalation of between 10.0% per Port Logistics 100.0% ,128 annum for the shorter lease and 7.5% every three years for the longer lease. Stage 1 Properties of Bei Gang Logistics Master leased Paid monthly Rental escalation of 1.0% every 1st January of 2017, 2018, 2019 and 2020 E Commerce Logistics 67.5% 1, ,449 Fu Heng Warehouse Master leased Rental escalation of 6.0%, 5.0%, 4.0% and 3.0% on E Commerce Logistics 100.0% ,287 1st January of 2017, 2018, 2019 and 2020 Hengde Logistics Multi tenanted Negotiable rental escalation of approximately 10.0% every five years for two of the leases. Specialised Logistics 100.0% 1, ,032 Source: Company, KGI Securi es November 28, 2016 $ 222 2

3 Figure 3: Posi ve growth prospects for Hangzhou Source: Company presenta on Hangzhou a key regional centre that is developing to be the high tech centre of China. Hangzhou is located in the southern part of the Yangtze River Delta near Ningbo and Shanghai (Hangzhou is ~180km southwest from Shanghai). The city is the capital of Zhejiang province. The province, which accounted for ~6 percent of China's economy last year, is benefi ng from reforms being rolled out across China, such as tax breaks for high tech firms, more funding for internet start ups, and a be er logis cs network to aid e commerce. Entrepreneurs get housing subsidies, and companies are invited to networking and industrial design events run by the government. Source: China Britain Business Council Although much of the a en on for technology and innova on have been focused on the big first er ci es of Beijing, Shanghai, Guangzhou and Shenzhen, we note that Hangzhou has been catching up partly due to the ecosystem that has been developing around Alibaba. It has a vibrant economy where 60% of the city s GDP is contributed by private enterprises. According to the China Britain Business Council, Hangzhou has taken first place in China for 12 years in terms of the number of Top 500 private companies. These companies include Alibaba, Hangzhou Wahaha Group (one of the largest beverage producer in China), Wanxiang Group, Geely and others. Hangzhou is home to one of China s largest private enterprise: Alibaba Group, which owns the world's largest Customer To Customer (C2C) site Taobao.com, Business To Business (B2B) site Alibaba.com and Business To Customer (B2C) Tmall.com e business pla orms. The government is also encouraging new industries including medicine, informa on technology, heavy equipment, automo ve components, household electrical appliances, electronics, telecommunica on, fine chemicals, chemical fiber and food processing. November 28, 2016 $ 333 3

4 Comparison among the REITs. industrial/logis cs REITs are currently yielding 6.9 to 9.8% based on consensus es mates for next year. EC World s focused peers are currently yielding 9 10%, but we note they may have difficulty sustaining their DPU over the next 2 3 years due to the weak outlook for s industrial/logis cs sector. On the other hand, EC World s fundamentals are more closely ed to China s and specifically, Hangzhou s, growth prospect. Furthermore, EC World s leverage ra o is among the lowest of its peers, allowing for yield accre ve acquisi ons. Figure 4: Peer comparison among REITs Last Price Market Cap (S$) (S$ m) Distribution Frequency Cons/KGI DPU (cents) Current FY Next FY Current FY Yield (%) Leverage ratio Ne xt FY (%) Price-tobook (x) Office S$14, CapitaLand Commercial Trust ,356 Semi-Anl Frasers Commercial Trust ,016 Quarter Keppel REIT ,386 Quarter Suntec Real Estate Investment Trust ,104 Quarter OUE Commercial Real Estate Investment T Semi-Anl NM IREIT Global Semi-Anl NM Retail S$21, CapitaLand Retail China Trust ,239 Semi-Anl CapitaLand Mall Trust ,820 Quarter Frasers Centrepoint Trust ,789 Quarter Lippo Malls Indonesia Retail Trust ,051 Quarter Mapletree Commercial Trust ,032 Quarter Mapletree Greater China Commercial Trus ,668 Semi-Anl SPH REIT ,385 Quarter Starhill Global REIT ,625 Quarter Healthcare S$2, , First Real Estate Investment Trust Quarter Parkw ay Life Real Estate Investment Trus ,440 Quarter Hospitality S$6, Ascott Residence Trust ,860 Semi-Anl Ascendas Hospitality Trust Semi-Anl OUE Hospitality Trust ,146 Quarter Far East Hospitality Trust ,036 Quarter CDL Hospitality Trusts ,289 Semi-Anl Industrial S$17, AIMS AMP Capital Industrial REIT Quarter Ascendas Real Estate Investment Trust ,533 Semi-Anl Cache Logistics Trust Quarter Cambridge Industrial Trust Quarter EC World Semi-Anl NM 5.9 NM NM Mapletree Industrial Trust ,829 Quarter Mapletree Logistics Trust ,487 Quarter Sabana Shari'ah Compliant Industrial Real Quarter NM NM NM NM Soilbuild Business Space REIT Quarter Keppel DC REIT ,362 Semi-Anl Viva Industrial Trust Quarter Source: Bloomberg, KGI Securi es November 28, 2016 $ 444 4

5 KGI s Ra ngs Ra ng BUY HOLD SELL Defini on KGI Securi es Research s recommenda ons are based on an Absolute Return ra ng system. >10% total return over the next 12 months 10% to +10% total return over the next 12 months < 10% total return over the next 12 months Disclaimer This report is provided for informa on only and is not an offer or a solicita on to deal in securi es or to enter into any legal rela ons, nor an advice or a recommenda on with respect to such securi es. This report is prepared for general circula on. It does not have regard to the specific investment objec ves, financial situa on and the par cular needs of any recipient hereof. You should independently evaluate par cular investments and consult an independent financial adviser before dealing in any securi es men oned in this report. This report is confiden al. This report may not be published, circulated, reproduced or distributed and/or redistributed in whole or in part by any recipient of this report to any other person without the prior wri en consent of KGI Securi es. This report is not intended for distribu on and/or redistribu on, publica on to or use by any person in any jurisdic on outside or any other jurisdic on as KGI Securi es may determine in its absolute discre on, where the distribu on, publica on or use of this report would be contrary to applicable law or would subject KGI Securi es and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of ) to any registra on, licensing or other requirements within such jurisdic on. The informa on or views in the report ( Informa on ) has been obtained or derived from sources believed by KGI Securi es to be reliable. However, KGI Securi es makes no representa on as to the accuracy or completeness of such sources or the Informa on and KGI Securi es accepts no liability whatsoever for any loss or damage arising from the use of or reliance on the Informa on. KGI Securi es and its connected persons may have issued other reports expressing views different from the Informa on and all views expressed in all reports of KGI Securi es and its connected persons are subject to change without no ce. KGI Securi es reserves the right to act upon or use the Informa on at any me, including before its publica on herein. Except as otherwise indicated below, (1) KGI Securi es, its connected persons and its officers, employees and representa ves may, to the extent permi ed by law, transact with, perform or provide broking, underwri ng, corporate finance related or other services for or solicit business from, the subject corpora on(s) referred to in this report; (2) KGI Securi es, its connected persons and its officers, employees and representa ves may also, to the extent permi ed by law, transact with, perform or provide broking or other services for or solicit business from, other persons in respect of dealings in the securi es referred to in this report or other investments related thereto; and (3) the officers, employees and representa ves of KGI Securi es may also serve on the board of directors or in trustee posi ons with the subject corpora on(s) referred to in this report. (All of the foregoing is herea er referred to as the Subject Business.) However, as of the date of this report, neither KGI Securi es nor its representa ve(s) who produced this report (each a research analyst ), has any proprietary posi on or material interest in, and KGI Securi es does not make any market in, the securi es which are recommended in this report. Each research analyst of KGI Securi es who produced this report hereby cer fies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject corpora on(s) and securi es in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of KGI Securi es or any other person, any of the Subject Business involving any of the subject corpora on(s) or securi es referred to in this report; and (4) he/she has not received and will not receive any compensa on that is directly or indirectly related or linked to the recommenda ons or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transac on in respect of the securi es in this report. However, the compensa on received by each such research analyst is based upon various factors, including KGI Securi es total revenues, a por on of which are generated from KGI Securi es business of dealing in securi es. Copyright KGI Securi es Pte. Ltd. All rights reserved. November 28, 2016 $