Singapore REITs. Singapore Industry Focus. Pockets of Opportunity. DBS Group Research. Equity 19 Aug 2015 STI : 3,041.25

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1 Singapore Industry Focus Refer to important disclosures at the end of this report DBS Group Research. Equity 19 Aug 2015 Pockets of Opportunity S-REITs facing an uneasy mix of low growth and higher interest rates Pockets of opportunity after recent market rout; upgrade CapitaLand Mall Trust, CapitaLand Commercial Trust and CDL Hospitality Trust to BUY Temporary shelter in S-REITs that offer sustainable growth with solid financial metrics. Our picks survived the choppy ride. S-REITs price performance have turned increasingly choppy given uncertainties in the timing of FED rate hikes and the recent Yuan devaluation. Our call to stay selective and focus on S-REITs with the ability to drive growth names (MAGIC, MINT, FCT, FCOT) have paid dividends as they have held up better than their peers. Pricing in slower DPU growth. Looking ahead, we see rising operational headwinds across all major subsectors, taking the hit from slower economic and trade growth in Singapore and the region. We have cut our estimates by up to 5% to factor in these risks. Moreover, acquisitions, which have been a major driver of earnings upside, are likely to slow, given higher cost of capital. Although the sector s DPU CAGR (FY15-17F) has been cut to 3.2% from, this is higher than the 1% growth generated by STI companies. Opportunities after the recent price correction. We have cut our TPs by 3-25% to reflect higher cost of capital and lower earnings expectations going forward. Despite the revised TPs, we see value in CapitaLand Commercial Trust (CCT) (upgrade to BUY, TP S$1.48), and CDL Hospitality Trust (CDL HT) (upgrade to BUY, TP S$1.61), trading at c.0.77x P/bk and c.0.83x respectively with yield spreads above historical mean. We have also upgraded CapitaLand Mall Trust (CMT) to BUY, TP S$2.07 on attractive yields of 6.1%. We prefer to HOLD Croesus Retail Trust, Cache Logistics Trust, Mapletree Industrial Trust, Frasers Hospitality Trust and Ascendas India Trust due to limited upside to our revised target prices. REITS with sustainable growth and low gearing should be more resilient. While we maintain our cautious view on S-REITs, we believe quality S-REITS are positioned to provide temporary shelter till the next rate hike. Our selection criteria to pick resilient names are : (i) a steady DPU growth profile of >3.0% which will more than compensate for interest rate hikes, (ii) conservative financial metrics which include long debt maturity profiles and lower gearing levels and (iii) valuations trading above historical mean. On this front, we like Mapletree Greater China Trust (BUY, TPS$1.12) and Frasers Centrepoint Trust (BUY, TPS$ 2.05) as they meet most of the above metrics. STI : 3, Analyst Derek TAN derektan@dbs.com Rachael TAN rachaeltan@dbs.com Mervin SONG CFA mervinsong@dbs.com TOP PICKS REIT 18th Aug 15 Price (S$) Target Price (S$) Mkt Cap (US$ m) FY16F/ 17F Yield (%) P/Bk (x)* Top Picks Mapletree Greater China , % 0.85 Trust Frasers Centrepoint Trust , % 7 Upgrade to BUY CapitaLand Commercial , % 0.78 Trust CDL Hospitality Trusts % 0.84 CapitaLand Mall Trust , % 8 Downgrade to HOLD Croesus Retail Trust % 1.10 Ascendas India Trust % 1.14 Cache Logistics Trust % 7 Mapletree Industrial , % 1.13 Trust Frasers Hospitality Trust % 0.92 * Based on the latest NAV per unit Source: DBS Bank ed: TH / sa: JC

2 Macro headwinds abound for S-REITs Macro headwinds to persist in the immediate term. The past month hasn t been a good one for the S-REITs with the FSTREI index losing its gains for the year and is now 7% down YTD. This is in line with the decline of the Straits times index (STI). The REITs have underperformed the Developers who remain marginally higher than at the start of the year. With the recent price correction, S-REITs FY16 yield has increased by 40bps to 6.9%, implying a spread of 4.2% against current 10-year bond rates of 2.7%. Looking ahead, we believe the share price performance are likely to be affected by macro drivers, especially (i) timing and magnitude of Fed rate hikes which are expected to increase investors returns expectations and (ii) directional strength of the SGD which affects fund flows in the sector. While we believe that the recent correction in S-REIT share prices have somewhat priced in some of these macro risks, we are seeing a gradual moderation in distribution growth over the coming years (FY15-16F DPU growth of 3.0%) with potential downside in the event of further deterioration of operational environment. With a moderate growth outlook, coupled with possible risks from an environment of rising interest rates and increased currency volatility impacting on returns, we see rising risks to distributions going forward and have cut our forecasts by 1%- 5% over the results season to reflect those changes. Figure 1: S-REITs index have performed in line with the STI YTD, underperformed the developers Figure 2: S-REITs offer yields of 6.4%; Spreads widened to 3.8% against current 10-year bonds 1.20 (X) (%) Straits Times Index (FSSTI) S-REITs (FSTREI) Property Developers (FSTREH) S-REIT Yield S-REIT Mean Yield Yield Spread S-REIT (-1 SD Yield) Source: Companies, DBS Bank Page 2

3 Dimming growth prospects remain a drag Growth prospects rather than interest rate a key driver for share price performance historically. The market has correctly focusing on the impact of rising interest rates on S-REIT prices and distributions as there is indeed an inverse correlation between historical share prices for S-REITs and movements in interest rates (see table 1). However, we note that the relationship is not as straightforward as people expect. Our analysis shows that S-REITs have historically delivered positive returns (i.e. no capital loss) for investors despite periods of rising interest rates. In fact, over the past 12 years, the performance scorecard for S-REITs has been good in our view, with the sector outperforming the FSSTI index in eight out of the past 12 years, as shown in the table below. One of the key reasons for the positive historical price performance has been the ability of S-REITs to deliver strong growth in distributions, either through rental growth or acquisitions, which more than compensate for the rise in interest costs. Historical S-REIT prices track fairly closely to the sector s DPU prospects (figure 3). Back in , S-REITs, on average returned a respectable 20.3% over the period, coinciding with a high-growth period when DPU growth average 11.8%. Since the global financial crisis in 2008, S- REITs have returned on average 5.2%, which coincided with a DPU growth of 4.6% (see figure 3). Dimming growth outlook a concern. The outlook for S-REITs is turning cloudy, with the sector projected to deliver a DPU CAGR of 3.2% over FY15-16F (3.4 % growth in DPU in FY16F, 3.0% growth in DPU in FY17F). This is on the back of continued operational headwinds across all major subsectors of retail, office, industrial and hospitality which are projected to be a drag on rental prospects. While the retreat in share prices has resulted in a spike in yields, we believe this will result in increased difficulty for S- REITs to acquire accretively. As such, the sector is faced with an uncomfortable mix of slowing topline growth, coupled with the risk of higher interest rates. As such, the performance of S- REITs will likely remain bumpy and we advocate investors to remain selective and zoom in on S-REITs that have the nimbleness to acquire and ability to grow distributions to outperform their peers. Table 1: S-REIT performance against FSSTI and interest rate movements Year S-REIT Total Returns FSSTI Total Returns Performance of S-REITs vs FSSTI DPU Growth 10-Year Bond Yield (Start) 10-Year Bond Yield (End) Ppt Chg (%) (%) (%) (%) (%) (%) Interest Rate trend Correlation With S-REITs % 13% Outperform 3.4% 2.6% -0.8% Decreasing -47% % 17% Outperform 9.0% 2.6% 3.2% 0.6% Increasing -87% % 31% Outperform 17.0% 3.2% 3.0% -0.2% Decreasing -86% % 22% Underperform 13.0% 3.0% 2.7% -0.4% Decreasing 1% % -46% Underperform - 2.7% -0.6% Decreasing 20% % 67% Outperform -7.0% 2.7% 0.6% Increasing 81% % 13% Outperform 2.7% 2.7% 0.1% Increasing -63% % -14% Outperform 2.7% 1.6% -1.1% Decreasing 80% % 23% Outperform 5.5% 1.6% 1.3% -0.3% Decreasing -80% % 3% Underperform 1.3% 2.6% 1.3% Increasing -95% % 9% Outperform 2.6% 2.3% -0.3% Decreasing -76% YTD % -1% Underperform 3.3% 2.3% 2.6% 0.4% Increasing -66% Source: Bloomberg Finance L.P., DBS Bank Page 3

4 Figure 3: S-REIT performance against forward DPU Growth 1200 Index FSTREI (LHS) 200 GDP Growth (%) (RHS) Forward DPU Growth (%) (RHS) 0 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 (%) Jul-14 Jan DBS view: DPU growth is closely intertwined with GDP growth which is expected to slow given ongoing economic restructuring efforts (impacting retail, industrial sectors). Oversupply outlook dampen the rental outlook for office and hospitality sectors. -1 Moderating growth outlook to limit rerating opportunities for S-REITs Source: REIT Managers, DBS Bank Table 2: S-REIT yields and returns across time Year 10-year Bon S-REIT Yield Yield Spread Growth S-REIT Total Returns FSSTI Total Returns What is driving growth (%) (%) (%) (%) (%) (%) % 6.5% 3.2% 30% 10% Rising growth outlook % 4.9% 9.0% 13% 14% Rising growth outlook % 5.3% 1.9% 17.0% 41% 28% High growth (acquisitions / rental growth) % 4.1% 1.2% 13.0% -3% 19% High growth (acquisitions / rental growth) % 7.3% 4.6% - -59% -49% Global Financial Crisis % 9.7% 7.3% -7.0% 69% 64% Global Financial Crisis % 6.4% 11% 10% Recovery from a low base effect % 6.5% 4.4% -16% -17% % 6.6% 5.2% 5.5% 37% 20% % 3.9% -9% 0% % 6.3% 3.9% 9% 6% % 3.6% 3.0% -1% -3% % 5.2% 2.1% 11.8% 20.3% 17.8% 2010-now 2.1% 6.3% 4.1% 4.6% 5.2% 2.7% Source: REIT Managers, DBS Bank Continued recovery and acquisition growth driven by low interest rates Acquisition growth fuelled with low interest rates, interest savings a Acquisitions (industrial REITs, selected office REITs, hospitality REITs); Positive Rental reversions (all sectors) and interest savings Acquisitions (industrial REITs, hospitality REITs), rental growth (office, retail and industrial sector) and interest savings Acquisitions YTD. Rental growth outlook moderating Page 4

5 Acquisitions to slow going forward An active quarter as S-REITs head overseas for growth. S-REITs have announced close to S$4.6bn worth of deals YTD, which is almost the total value of deals transacted in In terms of target markets, Singapore makes up 48% of total deals transacted to date, helped by large transactions like OUE Commercial Trust's (OUECT) acquisition of One Raffles Place for S$bn. We note that S-REITs have continued to head towards overseas markets in search of higher growth and to diversify their earnings base, given limited opportunities and high prices in Singapore. Australia appears to be an attractive key market for S-REITs, the likes of Cache Logistics Trust, Frasers Commercial Trust, Frasers Hospitality Trust, Starhill Global REIT, Ascott Residence Trust, Keppel DC REIT and Mapletree Logistics Trust (MLT) have taken advantage of the weak AUD to snap up assets in Australia (c.23% of total YTD acquisition value). Australia the first overseas stop for industrial REITs. With new Jurong Town Corporation (JTC) rules regarding anchor tenants coming into force in two years, competition for industrial assets with solid tenant credentials has become more intense, and industrial S-REITs are increasingly hard-pressed to make DPU-accretive acquisitions in Singapore. As such, industrial REITs (Cache and MLT) have made their maiden acquisitions overseas with Australia as a first stop, a country that most managers have been reviewing for some time. Key reasons for growing into Australia are its deep and transparent market with clear tax rules, similar characteristics as Singapore. In addition, leases are typically long and they appeal to S-REITs looking for stable returns with an added kicker from a weak currency. Figure 4: S-REIT total debt vs gearing SGD'bn 32.4% 33.8% 33.5% 32.6% Source: REIT Managers, DBS Bank 32.3% 33.4% 33.9% F 2016F Total Debt (LHS) Gearing Level (RHS) (%) 35% 34% 34% 33% 33% 32% 32% 31% Looking ahead, we expect more Australia deals given that (i) the manager of MLT has already guided for more acquisitions in order to scale up the business; (ii) Ascendas Group (sponsor of Ascendas REIT) is quoted in the media to be reviewing over $1.1bn of logistics assets. However, acquisitions are tougher to come by as cost of capital rises. Sponsor-related acquisitions accounted for nearly twothirds of transaction value this quarter, especially in key gateway cities (Singapore, Sydney, Melbourne, and Tokyo) where capital values have grown significantly due to liquidity in the market. Looking ahead, we believe third-party acquisitions are likely to remain tough to come by, given (i) current elevated yields of 6.4%, implying that most S-REITs will find it tough to find accretive acquisitions, and (ii) lower gearing limits of 45% (vs 60% limit if S-REITs have a rating) from the revised guidelines from the latest revised consultation paper from the Monetary Authority of Singapore (MAS) guidelines. Scale is important as S-REITs with strong sponsors to pull ahead. While we note that the revised gearing limits are within most S-REITs' comfortable level (S-REIT gearing levels are expected to increase to c.34% by FY16F), this could mean that S-REITs have lower flexibility from usage of gearing levels to take on opportunistic acquisitions. On that front, we believe that S-REITs with Sponsors are at an advantage from a warehousing point of view armed with larger balance sheets, they are able to make opportunistic acquisitions and subsequently inject them into their sponsored REITs at an appropriate time (see FCL s divestment of Sofitel Wentworth in Australia to FHT as an example). S-REITs under the Mapletree, Frasers, Ascendas, Keppel, OUE and CapitaLand names are in a stronger position compared to some of the smaller S-EITs. Figure 5: Acquisitions YTD by geography Europe/USA 10% Other Asia 13% Australia 29% Source: REIT Managers, DBS Bank Singapore 45% Japan 3% Page 5

6 Figure 6: Value of YTD acquisitions comparable to 2014 Figure 7: Acquisition breakdown by seller 5,000 S$m 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, YTD Aug 2015 Source: REIT Managers, DBS Bank 3rd Party 37% Source: REIT Managers, DBS Bank Sponsor Related 63% Table 3: Acquisitions announced in 2Q15 REIT Acquisitions Sector Country S$ m Yields (%) SGREIT Myer Centre Adelaide Retail/Office Australia % FCOT 357 Collins Street Office Australia % FHT Sofitel Sydney Wentworth Hotel Australia % MLT Mapletree Logistics Park Bac Ninh Phase 1 and Dakonet Logistics Centre Industrial Vietnam South Korea % MLPBN P1 8% DLC ART Citadines Bourke Melbourne, 40% remaining stake in Serviced Residence/ Australia % Citadines Shinjuku Tokyo and Citadines Karasuma-Gojo, four rental properties in Osaka Rental Property Japan Keppel DC Intellicentre 2 (IC2) in Sydney Data Centre Australia % OUECT One Raffles Place Office Singapore 1, % MAGIC Sandhill Plaza, Shanghai Business Park China % LMRT Lippo Plaza Batu and Palembang Icon Retail Indonesia % IREIT Berlin office Office Germany % MLT Coles Chilled Distribution Centre Industrial Australia % Source: various S-REITs, DBS Bank Total 3,194 Page 6

7 2Q15 Highlights and Guidance Investors caught between a rock and a hard place. Of the S- REITs that have announced their 2QCY earnings so far, 19 were in line with our estimates, while seven surprised on the downside. Based on our conversations with the various REIT managers, the various subsector-specific pressure points show no signs of abating. With the MAS guiding for lower economic growth of % this year, Singapore's economic outlook is an uncertainly on the horizon which is an added overhang on the sector s performance going forward. Hospitality REITs generally underperformed; office REITs' guidance turns cautious. Among the hospitality S-REITs, FEHT and OUEHT failed to meet our expectations, largely on the back of weak corporate demand and heightened competition. ASCHT s DPU came in below due to a cutting back of its payout ratio to 95%. Among the retail REITs, MCT and CMT both came in slightly below due to lower-thanexpected occupancy rates. For MCT, contribution from Mapletree Anson is expected to be weaker this year, as it has taken quite some time for the REIT to backfill spaces vacated by AON. Meanwhile, CMT, IMM, Clarke Quay and JCube reported <90% occupancy rates due to AEI/reconfiguration works. Reversions also dropped to 4.6%, one of the lowest seen in recent years. For the office sector, FCOT s DPU came in slightly below expectations due to the depreciation of the AUD, which contributes to 40% of earnings. Modest growth outlook with rising uncertainty. With rising operational headwinds seen across most real estate subsectors, we have cut our earnings estimates by 1-5% across the REITs, mostly in the hospitality and office sectors. We are seeing slowing topline growth outlook for most S- REITs, translating into a more modest outlook for distributions in the coming years. Based on our forecasts, the S-REITs are projected to deliver 3.3% growth in DPU over FY15-17F. The growth outlook differs across various real estate sub-sectors, ranging between 0.8% and 4.9%. Table 4: Summary of Results and Outlook 2Q15 Results CAGR Rental Reversion Market Outlook Sector Beats In line Misses (FY15-17F) Trend Office % Retail % Commercial % Industrial % Hospitality % Healthcare % Total % Source: DBS Bank Figure 8: S-REIT DPU Growth by Sectors (FY15-17F) 4.2% 3.2% Figure 9: Earnings cut post results season by sectors 0% Office Retail Commercial Industrial Hospitality Healthcare 2.5% 2.1% 2.3% -2% -1% 1.1% -3% Office Retail Commercial Industrial Hospitality Healthcare S-REIT Average Source: DBS Bank -4% Source: DBS Bank -5% Page 7

8 Table 5: Salient points and forward guidance from 2Q15 results REIT FYE DPU QoQ YoY Results Key take-away Earnings Drivers and Potential Risks (Outlook) (Scts) % % Office CapitaLand Commercial Trust (CCT) Frasers Commercial Trust (FCOT) Keppel REIT (KREIT) Dec % 0.5% In line 57% of leases signed in 2Q15 coming from new leases mainly from TMT, energy/commodities and insurance sectors. Occupancy and average rentals improved to 9 and S$8.88 psf respectively as CapitaGreen achieved 80.4% commitment rate. Sep % 7.3% Below While Singapore assets (55 Market Street, China Square Central, Alexandra Technopark) reported better than anticipated earnings. AUD depreciation and lower occupancy rates at Central Park in Perth hit earnings. Dec % -9.5% In line 9.5% drop in DPU y-o-y was attributable to the cessation of income support at Ocean Financial Centre and the divestment of Prudential Tower. Renewed 390k sqft of space for 1H15 at average reversions of 18%, and retention rate of 84%. Manager expects KREIT's effective exposure of "shadow spaces" to be <100k sqft, and is optimistic that it will be able to re-lease 85-90% of these spaces. Drivers: Upside risks to office rents reversions from greater new and expansionary demand in the near term, potential acquisition of remaining 60% of interest in CapitaGreen Risks: Slower-than-expected leasing activity may cap rental expectations. Drivers: Further positive rental reversions from Alexandra Techno Park. Risks: Forex volatility as hedges from its AUD exposures expire in end-cy15. We forecasted a 6% decline in the AUD/SGD exchange rate. There could be downside risks to our estimates should the AUD/SGD fall below parity. Drivers: Positive rental renewals and reviews for the remaining 22% of NLA due for renewal or review in FY16 will boost earnings and DPU. We understand that underlying leases are c.15-20% below current market levels. Risks: Further downsizing of financial institutions create more shadow space which subsequently compete with, and drive down rents in KREIT's portfolio. Source: various S-REITs, DBS Bank Page 8

9 REIT FYE DPU QoQ YoY Results Key take-away Earnings Drivers and Potential Risks (Outlook) (Scts) % % Retail CapitaLand Retail China Trust (CRCT) CapitaLand Mall Trust (CMT) Frasers Centrepoint Trust (FCT) Dec % 5.4% In line CRCT made the strategic decision in 2Q15 to attract various popular international retailers such as UNIQLO, resulting in a short-term dip in reversions to +4.6% y-o-y vs % in previous quarters. Tenant sales remain healthy across the portfolio. Wangjing and Xizhimen Mall continue to perform strongly. Dec % 0.7% Below Distributable income fell 3% y-o-y due to lower occupancy at Jcube and Clarke Quay, as well as AEIrelated disruptions at Bukit Panjang Plaza and IMM. Portfolio reversions for 1H15 fell to +4.6%, with suburban malls such as Tampines Mall, Junction 8 and Lot One faring better. Sep % 0.5% In line Results boosted by new contribution from recently acquired Changi City Point. Overall rental reversions of 6.2% for 9M15 were healthy, underpinned by tenant sales growth of 3%. Drivers: Continued strong performance of CRCT's other stabilised multi-tenanted malls (Xizhimen, Wangjing, Grand Canyon, Qibao). Risks: Currency volatility of the RMB and a slowdown in retail sales impacting consumer sales. Drivers: Fresh contribution from Bedok Mall which is forecasted to be DPU accretive. Risks: Lower-than-expected rental reversions due to slowing retail sales and retailers consolidating their store network; drop in income from AEIs. Drivers: Given lack of new retail supply in Woodlands and Yishun over the next 2-3 years, expect healthy growth at Causeway Point and Northpoint. Risks: Lower occupancy at Changi City Point as the Manager fine-tunes the tenant mix. SPH REIT Aug % In line Performance was lifted by higher contribution from Paragon. Portfolio reversions of 9.2% were largely contributed by Paragon, which saw 9.8% uplift in rents. Clementi Mall saw a 11.4% dip, and we understand that this drop in rent was due to the Manager choosing to retain a fairly popular tenant. Drivers: Contribution from newly created NLA at Paragon post AEI completion. Risks: Newly completed malls in Jurong could erode earnings for Clementi Mall in the medium term. Source: various S-REITs, DBS Bank Page 9

10 REIT FYE DPU QoQ YoY Results Key take-away Earnings Drivers and Potential Risks (Outlook) (Scts) % % Commercial Mapletree Commercial Trust (MCT) Mapletree Greater China Commercial Trust (MAGIC) Starhill Global REIT (SGREIT) Mar % 3.1% In line DPU grew 3.1% y-o-y, as income growth at VivoCity was dragged down by higher frictional vacancies at PSAB and Mapletree Anson. Shopper traffic and tenant sales at Vivocity fell by 7% and 2% respectively, which the Manager attributed to tenant relocations and fitting outs. However, reversions were still strong at 14.4% for retail, and 13.4% for office. Mar % 8.7% In line Tenant sales remains robust, up 6.3% y-o-y and bucking the 1.8% decline in overall HK retail sales for the first five months of Demonstrates the strong positioning of Festival Walk in terms of location and the mall s focus on the local catchment area and mid-tier/mass market. Jun % 3.2% In line Performance mainly from (a) continued outperformance of the Singapore assets, (b) 1.5 months' contribution from the newly acquired Myer Centre Adelaide (MCA), as well as (c) the reversal of deferred tax relating to the downward revaluation of Chengdu mall. Drivers: Income contribution from additional NLA generated post AEI works at Basement 2 of Vivocity. Risks: Vacancy risk at the office properties as spaces are filled more slowly due to high competition from landlords within the CBD. Drivers: Better-than-forecasted rentals and contribution from the newly acquired Sandhill Plaza in Shanghai. Risks: Significant slowdown in retail sales in HK and oversupply of office properties in Beijing could adversely impact earnings. Drivers: Contribution from the recently acquired Myer Centre Adelaide in Australia. Risks: Forex volatility could negatively impact distributable income and DPU growth. Further decline in performance of its Chengdu mall. Suntec REIT (Suntec) Dec % 10.3% In line Committed occupancy at Phase 3 of Suntec City retail AEI has reached 86%. Overall mall occupancy of 95.3%. S$12.12 psf pm for Suntec retail was below expectations, office continues to hold its own, with average signing rentals of S$9.14 psf pm. Source: various S-REITs, DBS Bank Drivers: Contributions from Phases 1, 2 and 3 of Suntec AEI. Risks: Vacancy risks as Phase 1 of Suntec retail mall will be renewing its rents from 2016 onwards. Office vacancy given heighted competition. Page 10

11 REIT FYE DPU QoQ YoY Results Key take-away Earnings Drivers and Potential Risks (Outlook) (Scts) % % Industrial Ascendas India Trust (a-itrust) Ascendas REIT (A-REIT) Cache Logistics Trust (Cache) Cambridge REIT (CREIT) Mapletree Industrial Trust (MINT) Mapletree Logistics Trust (MLT) Mar % 19.1% In line Strong DPU growth underpinned by contributions from newly acquired CyberVale and organic growth in Chennai and Bangalore. Mar % 5.5% In line Performance driven by expanded portfolio, in particular the acquisition of the Aperia property. AREIT also benefitted from 5-13% rental reversions, given low expiry rents. Portfolio occupancy improves marginally to c.86%. Dec % -0.3% In line Lower interest costs offset the 1% dip in NPI which was caused by a marginal drop in occupancy rates to 97.6% and rent-free periods. Dec % -1.7% In line 2Q15 DPU fell 2% y-o-y as higher income from newly acquired properties were offset by increased units from DRP, and absence of distribution from capital. Contribution from newly acquired properties are lower than anticipated due to more muted industrial demand. Mar % 8.8% In line Strong performance supported by higher rentals and occupancies, and new contribution from Equinix BTS. Average rentals improved marginally to S$1.86 psf pm from S$1.84. Portfolio occupancy improved to 93.5% vs 90.2% last quarter. Mar % -3.7% In line Topline grew due to an expanded portfolio offset by ongoing conversions in SG and weaker JPY. Distributable income dropped due to (i) enlarged share base (due to DRP programme), and (ii) one-off divestment gain paid last year. Stripping this off, DPU would have been c.1% lower y-o-y. Drivers: Contribution from new acquisitions and development activities. Risks: Volatility in SGD/INR rate. Drivers: Positive rental reversions in the mid-single-digit range and potential acquisitions from its sponsor. Risks: Higher operating expenses cannot be passed on to tenants and slower-thanexpected rental reversions on increased Industrial supply in Singapore. Drivers: Contribution from recently acquired Australian properties and an added boost when the DHL built-to-suit project is completed in Risks: Oversupply of industrial properties. Drivers: Contributions from newly acquired properties. Risks: Lower underlying occupancy rates will lead to a drop in income when STB master leases expire and are converted into MTB. Drivers: Positive rental reversions, completion of various AEI works. Risks: Deterioration in Singapore's economic outlook leading to tenant downsizing and weaker-than-expected take-up for space in MINT's portfolio. Drivers: Acquisitions from Sponsor in China. Better-than-projected performance. Risks: Longer-than-expected downtown following conversion to multi-tenanted properties. Soilbuild Business Space REIT (SBREIT) Dec % 7.7% In line Performance driven by the acquisition of three industrial properties in SBREIT achieved and 1.6% uplift in rents over the quarter for renewals and new leases. Source: various S-REITs, DBS Bank Drivers: DPU growth from new acquisitions. Risks: Slowdown in industrial activity which could negatively impact rents and occupancy rates. Page 11

12 REIT FYE DPU QoQ YoY Results Key take-away Earnings Drivers and Potential Risks (Outlook) (Scts) % % Hospitality Ascendas Hospitality Trusts (ASCHT) Ascott Residence Trust (ART) CDL Hospitality Trusts (CDREIT) Mar % 3.2% Below ASCHT delivered a second consecutive quarter of y-o-y growth in DPU. However, 1Q16 DPU was below expectations, coming in at 1.28 Scts (+3.2% y-o-y) as payout ratio was reduced to 95%. Dec % -4.6% In line Growth largely on the back of contributions from acquisitions made over Performance of Chinese properties impacted by refurbishments, depreciation of EUR, and weaker corporate demand in Southeast Asia. Dec % -1 In line Weak Singapore hotel performance, and depreciation of the NZD and AUD were offset by a stronger USD. Singapore hotel s RevPAR was down 4.4% y-o-y to S$173/night Drivers: Continued improvement in RevPAR for the Australian hotels and growth in Japanese hotels. Risks: Increased competition in the Brisbane and Chinese hotel markets, decline in the AUD and JPY. Drivers: Asset refurbishment initiatives and initial contribution from acquisitions in Australia, Japan and US made over the past year. Risks: Slowdown in corporate demand and currency volatility. Drivers: Recovery in the Singapore hospitality market and contribution from recently acquired Japanese hotels. Risks: New supply completing earlier than expected and continued weakness in tourist arrivals. Decline in Russian tourists arrivals into Maldives impact hotel yields. Far East Hospitality Trusts (FEHT) Dec % -6.5% Below Hotel RevPAR declined 2.1% y-o-y to S$147/night due to weak corporate travel. The serviced apartment saw a 7.3% decline in ADR to S$207/night due to lower demand from project groups, and the oil & gas sector. Drivers: Improvement in RevPAR after asset refurbishments. Risks: New hotel supply this year could negatively impact FEHT's Orchard hotels. Frasers Hospitality Trusts (FHT) OUE Hospitality Trusts (OUEHT) Sep % 0.6% In line DPU 0.6% ahead of IPO forecasts. With the exception of its hotels in Malaysia and Singapore which were weaker y-o-y, its hotels in Australia, Japan and UK outperformed forecasts. Dec % -7.3% Below The underperformance came mainly from Mandarin Orchard (MOS) which experienced a 10% fall in RevPAR to S$218. Crown Plaza Changi Airport saw RevPAR of S$231, marginally higher y-o-y. Source: various S-REITs, DBS Bank Drivers: Uplift from Intercontinental Singapore post AEI. Potential acquisitions. Risks: Depreciation of GBP, AUD, JPY and MYR versus SGD. Drivers: Acquisition of Phase 2 of Crowne Plaza Changi, which has been delayed to 2Q16 (vs 1Q16) due to delays in overseas pre-fabrication works. Risks: Equity fund raising for the acquisition of CPCA will be an overhang for share price in the near term. Page 12

13 REIT FYE DPU QoQ YoY Results Key take-away Earnings Drivers and Potential Risks (Outlook) (Scts) % % Healthcare Parkway Life REIT (P-Life) Religare Health Trust (RHT) Dec % 15.5% In line 15.6% rise in distributable income to S$20.3m (DPU to 3.35 Scts) was largely due to payment of S$2.3m in divestment gains. Mar % 7.8% In line 7.4% increase in DPU largely on the back of higher service fee and hospital income. ARPOB improved from INR13.47m in 1Q15 versus INR12.31m in 1Q14. Drivers: Contribution from Japanese assets acquired over the last 12 months and further acquisitions. Risks: Forex and JPY hedging risk. Drivers: Continued demand for medical services and development of new hospitals. Risks: Volatility in SGD/INR FX rate Others IREIT Dec % nm Topline was 4% lower mainly due lower service incomes. Acquisition of Berlin Campus in Aug 7.1% yield to contribute from 2H15. Drivers: Potential acquisitions and cap rate compression. Risks: Volatility in EUR/SGD FX rate. Keppel DC REIT (KDCREIT) Dec 1.62 nm nm In line Beats IPO forecasts by 4% due to higher variable income from Singapore and cost recovery clawbacks from tenants at Gore Hill. Acquisition in Australia to contribute positively from 2H15. Drivers: Potential acquisitions. Risks: Volatility in AUD and EUR/SGD FX rates, though this has been mitigated by hedges for the next two years. Source: various S-REITs, DBS Bank Page 13

14 Currency Volatility to impact distributions Winners and losers when S-REITs head overseas. Due to constraints and limited acquisition opportunities within the Singapore property market, S-REITs have been expanding overseas which has exposed them to currency volatility (for a breakdown of geographic exposures, please see the table overleaf). The REITs which have benefitted from currency tailwinds, i.e. strengthening HKD, CNY and INR, include MAGIC, CRCT, AIT and RHT. Conversely, those with larger exposures to Australia (ASCHT, FCOT, KDCREIT, KREIT, SGREIT, CDREIT and FHT), Japan (CRT, MLT and FHT) and Europe (IREIT) have experienced headwinds despite having hedges in place. For PREIT, it has been insulated from the falls in JPY due to hedges taken out five years ago. ART which has a diversified global portfolio, thereby having exposure to both strengthening and weakening currencies, has been the most resilient with overall FX movements having only a 1.2% impact on earnings. Going forward, we expect the AUD and MYR to remain a drag on earnings, and to a smaller extent from EUR and JPY, as these currencies have been more stable over the last few months. Meanwhile, the boost from HKD and CNY over the last 12 months may potentially slow, given the PBOC s recent decision to devalue the CNY. Table 6: Our FX assumptions Currency Pair Assumed long Spot rate 5 year average term rate AUD/SGD SGD/CNY SGD/HKD SGD/JPY SGD/INR SGD/MYR USD/SGD GBP/SGD EUR/SGD Source: Bloomberg Finance L.P., DBS Bank Figure 10: Winning and losing currencies 1 1 Winners versus SGD - CNY, HKD, INR, GBP HKD CNY INR GBP Losers versus SGD - AUD, JPY, MYR, EUR EUR MYR JPY AUD -2 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 AUD CNY HKD JPY INR MYR GBP EUR Source: Bloomberg Finance L.P., DBS Bank Page 14

15 Table 7: Forex Exposures for S-REITs with regional/global portfolios REIT SGD MYR JPY INR AUD HKD CNY IND GBP EUR USD Others FCOT 63% 37% CCT 100% K-REIT 73% 27% OUECT 62% 38% IREIT 100% CMT 100% CRCT 100% FCT 100% SGREIT 65% 14% 2% 16% 4% Suntec 94% 6% MCT 100% Magic 72% 28% CRT 100% SPHREIT 100% AREIT 97% 3% a-itrust 100% MINT 100% MLT 45% 5% 19% 15% 8% 10% CREIT 100% Cache 89% 9% 2% SBREIT 100% ASCHT 6% 12% 71% 11% ART 9% 2% 15% 3% 17% 4% 13% 17% 20% CDLHT 61% 6% 10% 5% FEHT 100% FHT 31% 6% 16% 15% 32% OUEHT 100% PREIT 63% 1% 36% RHT 100% KDCREIT 39% 4% 27% 29% Denotes currency headwinds as currency has depreciated against the SGD Denotes currency tailwinds as currency has appreciated relative to SGD Indicates currency exposure amounting to >25% of revenue Source: various S-REITs, DBS Bank Page 15

16 Interest rates Hikes Be prepared Interest cost to rise between ppts over the next one year. While the market is looking at a potential delay in Fed hikes due to the devaluation of the RMB, implying a respite in share prices in the immediate term, we believe that investors should continue to be prepared as the general direction in interest rates is likely to be higher in the medium term. As such, with rate hikes anticipated towards the end of 2015, this will kick-start an interest rate up-cycle trend which is expected to hit S-REIT distributions in the medium term. According to DBS economist, Eugene Leow, given the close corelationship between SGD-USD yields, the rate hikes in the US will likely result in an upward movement in the USD yield curve and the SGD yield curve is expected to move in a similar direction (the 3-month SGD swap offer rate [SOR] & 3-month SGD Sibor track closely and in line with the movements in the 3- month USD Libor). Looking ahead, we are looking at a further flattening of the yield curve, meaning that we are expecting rates across the yield curve to rise but the shorter end of the yield curve to increase at a much faster rate than the longer end of the curve. Based on our estimates, we are projecting a ppt rise in Singapore yields over the next one year, meaning that interest costs are likely to rise when S-REITs roll over their debts in the coming two years. Figure 11: SG Yield curve to flatten further by 2H (%) SG 3mth SIBOR + 0.4% SG 2Y SIBOR + 0.6% SG10Y SIBOR + 0.2% Current 6 Months Ago 1 Year Ago Source: Companies, DBS Bank Figure 12: 3M SGD SOR & 3M SGD Sibor vs 3M USD Libor. Short-term SGD rates are at a premium %pa 1.2 Figure 13: 3M SGD SOR & 3M SGD Sibor tracked closely together during the past Fed hike cycle. %pa M SGD SOR 4.5 Gap explained by SGD appreciation path 3M SGD SOR 0.6 3M SGD Sibor M USD Libor 0.0 3M USD Libor 1.5 3M SGD Sibor Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: Bloomberg Finance L.P., DBS Bank -1.5 Jan-03 Jan-04 Jan-05 Jan-06 Page 16

17 Higher debt quantum; growth in revenues might not be enough to compensate for hikes in interest rates. Gearing has remained fairly static at c.33% as of Jun 15. However, we note that total quantum of loans has risen over by S$10bn over the past four years as S-REITs grow their portfolios. S-REITs have also diversified their funding sources (i.e. capital markets like MTNs, bonds). While we believe that capital markets will likely continue to support them going forward, cost of debt will most likely increase in tandem with the rise in base rates. Historically, REITs have been able to compensate for the rise in interest costs by growing revenues at a faster rate, we believe the uncertain operational outlook is a cause for concern that future increases in interest rates will eat into distributions. Substantial portion of interest costs are hedged at this point; but roll-over of loans to impact distributions. S-REITs have proactively renewed and taken a higher portion of fixed rate debts over time. While refinancing risks will continue to rise, this is mitigated somewhat by (i) having c.80% of its interest costs hedged into fixed rates, and (ii) an average WALE of three years, meaning that a full 100-bps hike will only see the full impact in the medium term. REITs with larger refinancing. REITs that have a larger portion of their debts up for renewal (>30%) over include CapitaLand Commercial Trust, CDL Hospitality Trust, Frasers Centerpoint Trust, Ascendas Hospitality Trust and SPH REIT. In general, we have priced in a 50-bp average weighted cost of debt when these debts become due. Figure 14: S-REIT debt expiry profile >2018, 46% Source: Companies, DBS Bank 2015, 5% 2016, 11% 2018, 21% 2017, 15% Figure 15: S-REITs have lengthed (%) Cost of Debt (%) LHS Debt Maturity (Years) RHS Years % 80% 78% 76% 74% 72% 70% 68% (%) 80% 80% % Fixed Rates 78% 78% 77% 77% 78% 75% 75% 73% Shorter Tenure Longer Tenure - Source: various S-REITs, DBS Bank Page 17

18 Table 7: Debt expiry profile (as of latest reporting date) Total Debt >2018 Code (S$ bn) (S$ bn) (S$ bn) (S$ bn) (S$ bn) (S$'bn) AIMSAMP % 31% 53% ASHT % 29% 37% 14% a-itrust % 13% 15% 27% 41% A-REIT % 12% 13% 16% 46% ART % 18% 8% 15% 50% CDREIT % 11% - 28% 20% Cache % 48% 34% CREIT % 19% 29% 50% CCT % 27% 8% 9% 31% CRCT % 16% 19% 19% 41% CMT % 12% 7% 15% 60% CRT FEHT % - 31% 29% 25% FCT % 37% 27% 8% 27% FCOT % 21% 53% FHT % - 83% IREIT % KDCREIT % 46% K-REIT % 18% 20% 58% MCT % 23% 8% 70% MAGIC % 30% 29% 30% MINT % 13% 73% MLT % 20% 20% 56% OUECT % - 44% OUEHT % - 33% 33% P-Life % - 13% 18% 68% SBREIT % 21% 35% 22% SPH REIT % - 35% 35% SGREIT % 1% 34% 62% Suntec % 14% 7% 36% 41% Total % 10.9% % 47.0% Source: Companies, DBS Bank Page 18

19 Revised target prices and recommendations. Higher discount rates. We have rolled forward our valuations and raised our discount rates to account for higher assumed risk-free rates (3.0% vs 2.6% previously) and raise our cost of debt assumptions by 50bps. We have also standardised gearing targets to 35% or 40% for REITs with overseas portfolios, given lower gearing limits by MAS. As such, our target prices are revised by 3-25% and our recommendations, which are as summarized in table 9. Table 9: Change in target prices and recommendations for S-REITs under coverage REIT Office FYE Previous Recommendation Updated Recommendation Previous Target Price (S$) Updated Target Price CCT Dec HOLD BUY FCOT Sep BUY BUY KREIT Dec BUY BUY Retail CRCT Dec BUY BUY CMT Dec HOLD BUY CRT Jun BUY HOLD FCT Sep BUY BUY SPH REIT Aug HOLD HOLD Commercial MCT Mar HOLD HOLD MAGIC Mar BUY BUY SGREIT Dec BUY BUY Suntec Dec HOLD HOLD Industrial a-itrust Mar BUY HOLD A-REIT Mar HOLD HOLD Cache Dec BUY HOLD CREIT Dec HOLD HOLD MINT Mar BUY HOLD MLT Mar BUY BUY SBREIT Dec BUY BUY Hospitality ASCHT Mar BUY BUY ART Dec BUY BUY CDREIT Dec HOLD BUY FEHT Dec HOLD HOLD FHT Sep BUY HOLD OUEHT Dec BUY BUY Healthcare P-Life Dec BUY BUY RHT Mar HOLD HOLD 4 5 Others KDCREIT Dec BUY BUY Source: DBS Bank (S$) Page 19

20 Stock Picks. A tough road ahead. Looking ahead, we believe the outlook remains uncertain given that S-REITs are facing an uncomfortable mix of low growth, heightened currency volatility, coupled with rising risk to distributions from an anticipated rise in interest rates in the medium term. In addition, accretive acquisition opportunities are llikely to turn increasingly difficult given recent price declines and rising cost of capital, meaning that S-REITs are likely to turn to asset optimisation, rely or combine with sponsors for investment opportunities. Screening for winners. Looking ahead, we screen S-REITs for the following broad categories of Growth, Financial metrics and Operational outlook and also Valuations as summarised in the table below. We believe that the S-REITs with these characteristics will overcome upcoming challenges better than peers. Based on the above screens, our top picks are: Frasers Centerpoint Trust (BUY, TP S$2.05) Reversions outlook underpinned by robust tenants performance; occupancy cost remains low at <16%, particularly at Causeway Point, a key driver to topline at 41% of revenue Resilient performer even in times of uncertainty given high exposure to necessity shopping Robust capital management ensures minimal risk to earnings Mapletree Greater China Trust (BUY, 1.12) Attractive 15% discount to NAV Growth of 4.8% ahead of peers in the retail REITs space; upside from better than projected rents Sandhill Plaza Currency tailwind from the strengthening HKD-SGD which contribute 70% of assets Table 10: Summary of characteristics that will enable S-REITs to overcome challenges Catogory Characteristics DBSV Views (i) Sponsors with ample balance sheet capacity We believe that S-REITs with sponsors that have ample balance sheet capacity will be ahead of the acquisition game as sponsors can warehouse opportunities and offer visible acquisition pipelines when opportunities dry up. 1. Growth (ii) DPU Growth > 3.0% We believe growth will still be the key driver for share prices and will enable the REITs to continue growing their DPU despite risk of higher interest rates. (iii) Currency Volatility Distributions are mainly paid in SGD and given that a majority of the S- REITs have regional portfolios, volatility of source foreign currencies vs SGD will be key. Most S-REITs hedge their foreign currency exposures through natural hedges or forwards. 2. Financial Metrics (ii) (i) Gearing < 35% Weighted Average Debt Maturity > 3.0 Years (iii) High Fixed Rated Debt of 60% 3. Outlook (i) Positive/ Stable or Weakening A low gearing will offer more flexibility for acquisitions, given tighter gearing limits of 45%. A longer debt maturity year will mean lower refinancing risks in the medium term in an environment of low growth. A higher percentage of fixed debt will shield the REIT from any sudden spikes in short-term interest rates. The operational outlook will determine if there will be potential earnings risks going forward. We acknowledge that S-REITs within the same sector might have differing outlooks and headwinds which we will differentiate in our analysis. 4. Valuations (i) Source: DBS Bank Stocks Trading below historical mean S-REITs which are trading below historical mean ((yield spread) will mean that price less downside to prices from current levels. Page 20

21 Table 9: Characteristics of various REITs REIT Sector Sponsor Acquisition Pipeline FY15-17F Financial Metrics Operational Valuations CAGR Currency Gearing Debt Fixed rate Outlook Above Growth Volatility < 36% Maturity > 75% historical >3.0%? >3.0 yrs mean yield spread CCT Office Y 6.2% Nil 29.5% Weakening Y FCOT Office Y 1.7% AUD 37.3% - 75 Stable N KREIT Office N 2.5% AUD 42.6% Weakening N CRCT Retail Y 2.4% RMB 27.7% Stable N CMT Retail Y 3.1% Nil 36.5%# Stable Y CRT Retail Y - JPY 49%% - - Stable N FCT Retail Y 2.5% Nil 28.7% Stable N SPH REIT Retail Y 1.7% Nil Stable N MCT Retail/Office Y 4.1% Nil 36.4% Stable N MAGIC Retail/Office Y 4.8% HKD/RMB 41.2% Growth Y SGREIT Retail/Office N 5.2% AUD 35.5% Stable N Suntec Retail/Office N 5.2% AUD 35.3% Stable N a-itrust Industrial Y 8.6% INR Stable N A-REIT Industrial Y 0.2% Nil 34.7% Weakening N Cache Industrial Y 2.4% AUD Weakening N CREIT Industrial N 1.1% Nil 37.2% Weakening N MINT Industrial Y 3.2% Nil Weakening N MLT Industrial Y 3.9% JPY 34.4% Weakening N SBREIT Industrial Y 1.4% Nil 35.5% Weakening N ASCHT Hospitality Y 0.3% AUD Stable Y ART Hospitality Y 2.3% GBP 4% Weakening N CDREIT Hospitality Y 0.3% AUD Weakening Y FEHT Hospitality Y -1.6% Nil 31.5% - 60 Weakening Y FHT Hospitality Y 1.7% AUD 38.8% Weakening - OUEHT Hospitality Y 1.3% Nil Weakening N P-Life Healthcare Y JPY Stable N RHT Healthcare N 9.0% INR Growth N IREIT Office N -3.0% EUR 4% Stable - KDCREIT Data centres Y 7.6% AUD 29.0% Growth N* *KDCREIT is trading at a lower yield than US peers after adjusting for their lower payout ratios on average # after accounting for the proposed acquisition of Bedok Mall Legend: Stable/Positive impact Negative impact Source: REIT Managers, DBS Bank Page 21

22 Peer Comparisons REIT FYE Price Rec Target Mkt Total Price Cap Return Yield (%) P/NAV (S$) (S$) S$'m (%) FY15/16F FY16/17F FY17/18F (x) Office CCT Dec 1.35 Buy ,969 16% 6.4% 6.9% 7.2% 0.78 FCOT Sep 1.39 Buy ,080 16% 7.0% 7.1% 7.2% 0.83 KREIT Dec 1 Buy ,214 18% 6.9% 7.1% 7.2% 0.72 Retail CRCT Dec 1.44 Buy ,205 25% 7.4% 7.6% 7.8% 0.85 CMT Dec 1.94 Buy ,703 15% 5.9% 6.1% 6.2% 7 CRT Jun 0.91 Buy % 8.8% 8.6% 8.5% 1.14 FCT Sep 1.98 Buy ,811 10% 6.1% 6.3% 7 SPH REIT Aug 0.99 Hold ,491 6% 5.5% 5.6% 5.7% 6 Commercial MCT Mar 1.32 Hold ,783 15% 6.3% 6.6% 6.8% 6 MAGIC Mar 0.97 Buy ,651 23% 7.6% 8.3% 8.3% 0.82 SGREIT Jun 0.79 Buy ,723 12% 6.4% 6.9% 7.1% 0.86 Suntec Dec 1.62 Hold ,075 4% 5.9% 6.2% 6.5% 0.78 Industrial a-itrust Mar 0.92 Buy % 6.1% 6.4% 7.2% 1.35 A-REIT Mar 2.21 Hold ,321 11% 6.7% 6.8% 6.8% 6 Cache Dec 5 Buy % 8.1% 8.3% 8.5% 8 CREIT Dec 0.64 Hold % 7.9% 0.94 MINT Mar 1.49 Buy ,615 8% 7.1% 7.0% 7.6% 1.13 MLT Mar 5 Buy ,588 13% 7.2% 7.4% 7.7% 3 SBREIT Dec 0.84 Buy % 7.5% 7.6% 7.8% 5 Hospitality ASCHT Mar Buy % 8.6% 8.6% 8.6% 0.92 ART Dec Buy ,975 11% 6.9% 7.2% 7.2% 0.95 CDREIT Dec Hold ,345 26% 8.1% 8.1% 8.2% 0.83 FEHT Dec Hold ,142 19% 7.4% 7.3% 7.2% 0.66 FHT Sep Buy ,052 15% 7.8% 7.8% 7.9% 0.82 OUEHT Dec Buy ,139 22% 7.6% 7.7% 7.8% 0.95 Healthcare P-Life Dec 2.40 Buy ,452 12% 5.5% 5.1% 5.2% 1.41 RHT Mar 2 Hold % 7.2% 7.9% 8.6% 9 Others KDCREIT Dec 8 Buy % 5.9% 6.5% 6.9% % 6.9% 7.3% 0.98 Source: Bloomberg Finance L.P., DBS Bank Page 22

23 S-REIT yield spread and P/Bk Ratios Ascendas Hospitality Trust Historical Yield Spread 1 9.0% 7.0% 3.0% % ASHT Yield Spread ASHT Yield Mean Ascendas REIT Historical Yield Spread Ascendas Hospitality Trust Historical P/BV ASHT P/BV Mean +1 SD -1 SD Ascendas REIT Historical P/BV AREIT Yield Spread AREIT Yield Mean Yield Ascendas India Trust Historical Yield Spread AIT Yield Spread AIT Yield Mean Yield AREIT P/BV Mean +1 SD -1 SD Ascendas India Trust Historical P/BV AIT P/BV Mean +1 SD -1 SD Source: Bloomberg Finance L.P., DBS Bank Page 23