Singapore: 4Q11 Strategy Navigating Rough Seas

Transcription

1 UOBKayHian Singapore: 4Q11 Strategy Navigating Rough Seas Andrew Chow, CFA +(65)

2 Disclaimer We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of the addressee only and is not to be taken as substitution for the exercise of judgement by the addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. UOB Kay Hian and its affiliates, their Directors, officers and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add to or dispose of any such securities. UOB Kay Hian and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. UOB Kay Hian (U.K.) Limited, a UOB Kay Hian subsidiary which distributes UOB Kay Hian research for only institutional clients, is an authorised person in the meaning of the Financial Services and Markets Act 2000 and is regulated by Financial Services Authority (FSA). In the United States of America, this research report is being distributed by UOB Kay Hian (U.S.) Inc ( UOBKHUS ) which accepts responsibility for the contents. UOBKHUS is a broker-dealer registered with the U.S. Securities and Exchange Commission and is an affiliate company of UOBKH. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact UOBKHUS, not its affiliate. The information herein has been obtained from, and any opinions herein are based upon sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions and estimates herein reflect our judgement on the date of this report and are subject to change without notice. This report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, the firm preparing this report or its affiliates or the principals or employees of such firm or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal In transactions in any of these securities. Any such non-u.s. persons may have purchased securities referred to herein for their own account in advance of release of this report. Further information on the securities referred to herein may be obtained from UOBKHUS upon request. MICA (P) 048/03/2011 RCB Regn. No E 2

3 Investment Summary Year-end 2011 FSSTI target of 2,980 based on 1SD (to long-term mean PE) PE of 12.3x. Market building in margin of safety High volatility and external uncertainties to linger. End of QE1 saw high volatility and risk aversion; it s no different now. Tactically defensive; BUY on sharp dips. Market trading at 2012F PE of 11.4x vs EPS growth of 12.2%; long-term PE average is 17.3x; other benchmarks such as P/B and earnings yield also undemanding. Seek safety/outperformance in: a) sustainable & high dividend yields telecommunications, b) industrial REITs, and c) oversold stocks with medium-term catalysts Indofood Agri (IFAR), SIA, OUE BUYs: DBS, OCBC, M1, SingTel, Keppel Group, CD REIT, A-REIT, Cache, IFAR SELLs: Tiger, SMRT, City Developments 3

4 Understanding the Market Meltdown What contributed to the market decline? a) Weaker economic outlook in developed markets US and EU account for about 40% of global 2010 GDP vs China s 10% b) Lack of policy options; interest rates at low end of cycle Potential QE3 but limited economic impact c) Lack of coordinated action in EU and bipartisan politics in US Debt ceiling in US raised in the 11th hour not comforting d) Slowing growth in China Economists downgrading its GDP growth e) Rising VIX High market volatility leading to rising risk premium US Consumer Constrained By Debt and Still Deleveraging US household debt to disposable income ratio Trendline (estimated) Source: CEIC, BEA, UOB Econ-Treasury Research Bond Yield (%) Ireland Spain Portugal Italy Greece Germany US Source: Bloomberg 4

5 What is Needed for Upward Re-rating Global markets will re-rate if: a) Credible plans by developed countries to address debt concerns Be it tax or selective spending cuts, markets want to see concrete plans b) Improvement in real economy of US and EU - Job creation is key, spending on productive areas c) Monetary loosening in China CPI needs to trend down d) Announcement of QE3? Expectations of QE3 in 4Q11/1Q12 could provide short-term uplift but real economy is key to sustainable re-rating e) Stabilising VIX Investors need to see markets bottoming out and aggressive selling abating; meanwhile valuations may take a back seat VIX vs FSSTI FSST I Source: Bloomberg VIX LT Mean VIX

6 FSSTI Lessons After Expiry of QE1 FSSTI & Sector Performance 3-mth Post QE1 Expired Telco Supply Chain Shipyard Property Media Healthcare Land Transport Bank Aviation FSSTI (10) (5) (%) Source: UOB Kay Hian FSSTI & Sector Performance 6-mth Post QE1 Expired Telco Supply Chain Shipyard Property Media Healthcare Land Transport Bank Aviation FSSTI (5) (%) Source: UOB Kay Hian End of QE1 saw high volatility and risk aversion It s no different now! Market has now retraced to lows post QE1 but Euro concerns and slowing global growth overhang Potential uplift from QE3? 6

7 Market Themes for Shelter & Outperformance We see several themes playing out in the next 6-12 months, including: 1) Sustainable and high dividend yields Telecommunications is key OVERWEIGHT; SingTel and M1 2) Industrial REITs Average yield of 7.7% and possible yield compression + M&A opportunities 3) Oversold stocks with medium-term catalysts SIA, IFAR, Noble 7

8 Catalysts for the Market Potential drivers for the market towards our year-end 2011 FSSTI target of 2,980 include: a) Normalising VIX as fears over Eurozone/global growth subside and risk premium normalises b) M&A newsflow c) Contract awards for shipyards / oil services; Keppel Corp, SMM and Ezra are prime beneficiaries d) Announcement of QE3 8

9 Sector Weightings/Picks in 2011F Sector Weightings Top Stock Picks Aviation OVERWEIGHT SIA Finance OVERWEIGHT DBS, OCBC Hospitality OVERWEIGHT CDREIT, ART Land Transport MARKET WEIGHT ComfortDelGro Media MARKET WEIGHT - Shipyard OVERWEIGHT Keppel Corp, SMM Shipping UNDERWEIGHT NOL (SELL) Oil Services OVERWEIGHT Ezion, Ezra Plantation UNDERWEIGHT Indofood Agri Property MARKET WEIGHT OUE, Keppel Land REITs OVERWEIGHT A-REIT, Cache Telecommunications OVERWEIGHT SingTel, M1 YTD Performance (%) 0.0 (10.0) (20.0) (30.0) Aviation Finance Healthcare Land Transport Media Oil Services Plantation Property REITs Shipping Shipyard Supply Chain Technology Telecoms Others OVERWEIGHT banking, industrial REITs, telcos Attractive dividends and resilient cash flows from telcos UNDERWEIGHT developers, plantation, shipping Top BUYS: DBS, OCBC, M1, SingTel, CD REIT, A- REIT, Cache, Keppel Corp, IFAR (40.0) FSSTI: -13.3% (50.0) (60.0) Source: UOB Kay Hian 9

10 Lacklustre Growth in 2011, Look Forward to 2012 UOB Kay Hian - Sector Core Earnings Drivers Aviation 93.1 (18.8) Finance Healthcare Land Transport 1.8 (3.6) Media 14.9 (21.7) Oil Services (15.6) (44.3) Plantation (25.3) Property 24.1 (13.0) REITs (3.1) Shipping n.a. n.a. n.a Shipyard 18.9 (10.6) Technology 21.8 (9.3) Supply Chain 2.8 (1.5) Telecommunications (4.3) Others We forecast market EPS growth of 3.4% yoy in 2011 and 12.2% yoy in 2012 Key 2012 earnings drivers are banking, plantation, oil services, supply chain Earnings headwind in 2011 from land transport and media OVERALL (MARKET WEIGHTED) Source: UOB Kay Hian 10

11 Valuations Reasonable but Moderate Growth FSSTI s Historical PE Valuation (x) Average (Excl 1999): 17.4x 03 +1SD -1SD Historical FSSTI P/B (x) SD +1SD Mean 03-1SD -2SD Market is trading at 2012F PE of 11.4x against a projected core EPS growth of 12.2% yoy This is undemanding compared with market s long-term adjusted average PE of 17.3x Our 2012F market EPS growth of 12.2% yoy is ahead of consensus 9.4% Source: Bloomberg, UOB Kay Hian 11

12 Singapore s Valuations Stack Up Well Regionally PE (x) PB (x) Dividend Yield(%) Hist. Curr. Fwd. Hist. Curr. Fwd. Hist. Curr. Fwd. Japan (NIKKEI 225) Hong Kong (HSI) China (SHANGHAI SE) Taiwan (TAIPEX) S Korea (KOSPI) India (SENSEX) Singapore (FSSTI) Thailand (SET) Malaysia (KLCI) Indonesia (JCI) Philippines (PSEI) US (DJIA) US (NASDAQ) UK (FTSE 100) Asia Ex-Japan Average Asia Ex-Japan & China Average Singapore s valuations look reasonable in the region On consensus, Singapore s 2012 PE of 11.7x is slightly higher than Asia ex-japan s PE of 11.0x Using P/B, Singapore s 2012 P/B of 1.27x is undemanding vs regional 2012 P/B of 1.53x Solid 2012 dividend yield of 3.8% provides support Source: UOB Kay Hian 12

13 Top Stock Recommendations (Valuations and Financials) Price Target Last PE Yield ROE Market Price/ Company Ticker Rec 23 Aug 11 Price Year F 2012F 2011F 2011F Cap. NTA ps (S$) (S$) End (x) (x) (x) (%) (%) (S$m) (x) Top Buys Ascendasreit AREIT SP BUY / , CACHE CACHE SP BUY / CDL Htrust CDREIT SP BUY / , DBS DBS SP BUY / , IndoAgri IFAR SP BUY / , Keppel Corp KEP SP BUY / , M1 M1 SP BUY / , O C B C OCBC SP BUY / , S Telecoms ST SP BUY / , Top Sells SMRT MRT SP SELL / , TigerAir TGR SP SELL / Source: UOB Kay Hian 13

14 Top Stock Recommendations Stocks Investment Highlights BUYS A-REIT Largest and broadest exposure to industrial property in Singapore. $500m debt headroom for M&A. Cache Logistics Defensive portfolio of ramp-up warehouses and logistics facilities. Low gearing of 30% with debt headroom of S$60m for M&A. CDREIT Beneficiary of strong tourist arrivals. Catalysts from accretive acquisitions and RevPar improvements. DBS Good execution with broad-based growth in fee income, growth momentum in treasury business and cost control. Indofood Agri Volume-driven growth, underpinned by 24% rise in mature area. Lower gearing of 30% to fund growth post flotation of SIMP. Keppel Corp Good earnings visibility from its orderbook wins of S$7.4b and attractive valuations. Well placed for Brazil's E&P spending. OCBC Strong growth from overseas markets, particularly Malaysia and Indonesia. Excellent asset quality. M1 Sustainable growth in mobile business and compelling dividends. Improving take-up of fibre broadband in 2H11. Source: UOB Kay Hian 14

15 Appendix 15

16 Annex Technical Charts for : (Closing prices based on end of the day on 23 Aug 11) - Ascendas REIT ** Technical Conviction Call - CACHE - CDL HTrust ** Technical Conviction Call - DBS - Indofood Argi - Keppel Corp ** Technical Conviction Call - M1 - OCBC 16

17 Ascendas REIT (S$2.08) Consolidating and has outperformed FSSTI Immediate Support: S$ / S$1.80 Immediate Resistance: S$ Source: Nextview 17

18 Cache Logistics Trust (S$0.94) Sideways movements and has outperformed FSSTI; trading range: S$ Immediate Support: S$0.915 / S$0.885 Immediate Resistance: S$0.955 Source: Nextview 18

19 CDL HTrust (S$1.665) Retraced 38%; potential rebound ahead Immediate Support: S$ / S$1.33 Immediate Resistance: S$ Source: Nextview 19

20 DBS Group (S$13.43) Hovering near support level Immediate Support: S$13.30 / S$12.20 Immediate Resistance: S$14.20 Source: Nextview 20

21 IndoAgri (S$1.305) Advanced stage of a downtrend but no clear buying signal yet. Immediate Support: S$1.16 / S$1.05. Immediate Resistance: S$1.41 Source: Nextview 21

22 Keppel Corp (S$8.74) Strong rebound at support level Immediate Support: S$ / S$8.10 Immediate Resistance: S$9.50 Source: Nextview 22

23 M1 (S$2.44) Testing critical long-term moving averages Immediate Support: S$2.36 / S$2.21 Immediate Resistance: S$2.52 Source: Nextview 23

24 OCBC (S$8.70) Technically neutral, needs to break up above trading range (S$8.10/$9.10) to be positive Immediate Support: S$8.60 / S$8.10 Immediate Resistance: S$ Source: Nextview 24

25 UOBKayHian Defensive REITs Industrial and Suburban Retail Vikrant Pandey (65) Terence Khi (65)

26 REITs Key Benefits and Risks Benefits Defensive: Typically viewed as more defensive than equities but riskier than bonds Tax-efficient: S-REITs do not have to pay corporate income taxes Guaranteed payouts: S-REITs have to distribute at least 90% of taxable income and typically pay out 100% of taxable income Professional experienced property managers to enhance property values Growth prospects come from underlying rental growth, improving occupancies or asset enhancement initiatives and acquisitions Risks Exposure to underlying property price movements Dependent on underlying sector property rentals and occupancies Susceptible to interest rate movements and availability of bank financing Tenant default risk Forex risk mitigated by natural hedging 26

27 REIT Yield and Yield Spread (% ) (%) REITs Yield and 10-year Bond Yield Average sp read : 4.03% Aug 02 Aug 03 Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09 Aug 10 Aug 11 REITs Yield Spread Source: Datastream, UOB Kay Hian +2 SD +1 SD -1 SD 10-y r bond y ield (RHS) REITs Yield ( LHS) Average: 4.03% Average: 3.58% (excl crisis) - Aug 02 Aug 03 Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09 Aug 10 Aug 11 (%) S-REITs currently yield 7.02%, 85bp higher than the average yield, excluding the period from Aug 08 to Aug 09, over the past 9 years REIT yield spread over the 10- year government bond yield has risen to 5.43%, which is 185bp over the historical spread of 3.58%, excluding the period from Aug 08 to Aug 09 27

28 Risk of Equity Fund-raising Mitigated by Lower Gearing REITs which raised funds in Net Gearing (%) Avg 2008 highest gearing: 37% Avg 2Q11 gearing: 28% REITs were in a better financial position in 2Q11, with gearing at 28% vs 37% in 2008 This mitigates the risk of equity fund-raising if property values drop 0.0 Ascendas REIT AimsAMP CapitaCommercial CapitaMall K-REIT FrasersComm Ascott Residence CambridgeREIT CDREIT Frasers Centrepoint Starhill Global Suntec REIT Property values have not recovered to the previous peaks during the last upcycle Company Terms Price (S$) Total Amount (S$m) Ann Date Ascendas REIT Rights 1: Jan 09 AIMS AMP/ MacarthurCook Ind REIT Rights 2: Nov 09 CapitaCommercial Trust Rights 1: Capitamall Trust Rights 9: , Feb 09 Cityspring Infrastructure Trust Rights 1: Aug 09 Fortune Reit Rights 1:1 HK$ Aug 09 Frasers Commercial Trust Rights 3: Jun 09 K-REIT Asia Rights 8: K-REIT Asia Rights 1: Sep 09 Mapletree Logistic Trust Rights 3: Saizen REIT 11 Rights + 11 Wrt: Dec 08 Starhill Global Reit Rights 1: Jun 09 Source: Datastream, UOB Kay Hian Highest Gearing in 2008 Gearing in 2Q11 REITs are also in a better position to acquire properties in a downturn 28

29 Sector Highlights Rank Segment Investment Positives Investment Negatives Stocks 1 Industrial Highest yield of 7.7% among mainstream yield instruments Downside risk protected with long leases/wale due to long master-leases and high capital commitments by tenants Late cycle play on office segment through business parks and hi-tech space Yield-accretive acquisitions to drive growth unlike other segments Defensive factory and warehouse space to benefit from rising foreign asset investments and trade Demand slowdown (falling manufacturing GDP and NODX) may impact viability of manufacturers and logistics providers Land use intensification offsets lower 30-year lease terms Risk of rise in interest rates mitigated by 160bp spread against 10-year bonds A-REIT (BUY) Cache Logistics Trust (BUY) MapletreeInd Trust (BUY) 2 Retail Suburban retail spending is supported by spending on essentials eg supermarkets and department stores Suburban retail rentals relatively more resilient than other property asset classes Oversupply in Orchard leading to fall in Orchard rentals Frasers Centrepoint Trust (HOLD) Starhill Global (HOLD) 3 Office Rental reversion cycle is turning positive as leases up for renewal were signed at the bottom of the market Rentals are still attractive and occupancy costs remain competitive Grade-A offices signed on long leases would protect occupancy downside Beneficiary of relative resilience of office demand in Asia (eg Goldman Sachs and HSBC are still hiring in Singapore) Vacancy trend a concern as tenants move into new offices Deepening of the crisis in Europe and US may impact office demand Hiring may slow due to low unemployment and government measures to moderate inflow of foreign professionals Potential surge in supply post-2015 with two sites in Marina Bay K-REIT (BUY) CCT (BUY) 4 Hotel Further pick-up in ADRs with sustained high occupancy Continued growth in visitor arrivals Delay in opening of upcoming attractions Slowdown in tourism industry CDREIT (BUY) ART (BUY) 29

30 Peer Comparison Price Price Performance vs FSSTI Yield ---- Book Net Company Ticker 23 Aug 11 5D 1M 3M YTD 1Y 50-Day 100-Day Curr Fwd Price/ Book Gearing* (S$) (%) (%) (%) (%) (%) MA MA (%) (%) (x) (%) FSSTI** FSSTI Index (2.4) (13.1) (11.1) (13.3) (5.5) n.a. Real Estate Index FSTRE Index (0.6) (0.7) (4.1) (6.8) (8.7) n.a. Property Developers Index FSTREH Index (1.2) (2.8) (8.5) (12.4) (13.6) n.a. Property REITs Index FSTREI Index n.a. HOSPITALITY REITS AscottREIT ART SP (2.4) CDL Htrust CDREIT SP (2.5) (7.6) (9.6) (6.6) (12.9) INDUSTRIAL REITS AIMSAMPIReit AAREIT SP (0.5) Ascendasreit AREIT SP CACHE CACHE SP Cambridge CREIT SP (1.8) (3.9) MapletreeInd MINT SP MapletreeLog MLT SP Sabana REIT SSREIT SP 0.85 (1.6) (13.6) OFFICE REITS CapitaComm CCT SP 1.19 (2.8) (5.9) (5.1) (7.3) (10.1) FrasersComm FCOT SP K-REIT KREIT SP 1.17 (0.9) (1.5) 2.5 (3.7) SuntecReit SUN SP (3.0) (2.4) (2.5) 0.3 (1.9) RETAIL REITS CapitaMall Trust CT SP (6.0) FrasersCT FCT SP (2.1) LippoMapleT LMRT SP 0.55 (2.0) Starhill Gbl SGREIT SP *Net Debt to Total Assets. ** FSSTI Performance Source: Bloomberg, UOB Kay Hian FSSTI REITs Index has outperformed the FSSTI by 3.8% ytd while developers have underperformed the FSSTI by 12.4% ytd Our preferred picks for defensive REITs: - Cache Logistics Trust for its long leases and master-lease agreements, high dividend yields, together with lower gearing - Frasers Centrepoint Trust for its exposure to the suburban mall segment which is supported by essential spending 30

31 Industrial: Highest Yields Among Mainstream Yield Instruments Yield (%) Fixed Deposit Rate (S$ psf pm) Comparison Of Yields Year Bank Govt BondPreference Share 5.6 Source: Bloomberg (19 Aug), UOB Kay Hian Telco Retail REITs Office Shares REITs Business & Science Parks 7.7 Industrial REITs Years K-REIT Mapletree Log 6.0 Cache Logistics Trust Weighted Average Lease of REITs 5.1 CapitaCommercial Trust Industrial Properties Segment Rentals Ascendas REIT 3.8 Starhill Global REIT Sabana REIT 3.2 Suntec REIT Mapletree Ind CapitaMall Trust Frasers Centrepoint Trust Source: Companies. Note: CCT & K-REIT WALE based on top 10 tenants. Industrial REITs offer investors the highest yield of 7.7% among the various mainstream yield instruments Downside risks protected by long weighted average leases (WALE) for industrial S-REITs Leases for single-tenanted facilities, especially logistics space, are typically for longer periods Factory and warehouse rentals are less volatile than office and business park rentals 2.50 Hi-Tech Industrial 2.00 Multi User Warehouse 1.50 Multi User Factory Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 Source: Datastream, UOB Kay Hian 31

32 Industrial: Comparison Across S-REITs Source: Respective managers, Bloomberg Cache Mapletree Mapletree AIMS AMP Cambridge Ascendas Logistics Industrial Logistics Sabana Capital Ind l Ind l REIT Trust Trust Trust REIT REIT Trust No. of Properties Assets (S$m) 5, ,308 3, NLA ('000 sf) 21,643 4,093* 12,108 27,340 2,637 4,914 6,868 Occupancy Rate (%) Weighted average lease term to expiry (years) Weighted average unexpired lease term (years) Current cost of debt (%) Aggregate Leverage (%) Investment focus Asia Asia Singapore Asia Singapore Asia Asia Manager's management 0.5% p.a. of the 0.5% p.a. of the 0.5% p.a. of the 0.5% p.a. of the 0.5% p.a. of the 0.5% p.a. of the 0.5% p.a. of the base fee deposited property consolidated assets deposited property deposited property deposited property deposited property deposited property Manager's management 0.1% p.a. of the 1.5% p.a. 3.6% p.a. 3.6% p.a. 0.5% p.a. of 0.1% to 0.2% p.a Capped at 0.8% p.a. performance fee deposited property of NPI of NPI of NPI NPI if annual of the deposited of the deposited IN annual growth in growth in DPU property if DPU property dpu exceeds 2.5% is at least 10.0% growth exceeds 2.5% or 5.0% Additional 0.1% p.a. respectively. Of the deposited property if annual growth in DPU exceeds 5.0% (%) Ascendas REIT Cache Logistics Trust Mapletree Ind l Trust Mapletree Logistics Trust Aims AMP Capital Ind l REIT Sabana REIT Business Parks Hi-Tech Industrial Factory Warehouse and Logistics Others Cambridge Ind l Trust AREIT, Cache and Sabana benefit from low gearing to fund future acquisitions Cache has long WALE to protect rentals AREIT and Sabana REIT have highest proportion of business park and hi-tech space to leverage on rising office rentals MapletreeLog and MapletreeInd have the highest performance fees 32

33 Retail: Suburban Retail Rentals Resilient S$psf pm Suburban rentals fell only 4% w hile Orchard rentals fell 12% during the financial crisis Orchard Prime Rent 2005 = Supermarkets Retail Sales Sub-Index 105 Suburban retail rentals more resilient than that of other property asset classes, with suburban rentals falling only 4% during the financial crisis Suburban Prime Rent Retail Sales Index, excl Motor Vehicles, sa Suburban retail spending is supported by spending on essentials, such as supermarket spending Q04 2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 70 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Source: CBRE, UOB Kay Hian Source: Singapore Department of Statistics 33

34 Spending on Essentials Resilient in Downturn Gross Trade Turnover in 2009 vs 2008 Retail spending on essentials, such as supermarket, leisure and entertainment and department stores at CMT malls, remained resilient in the 2009 downturn Gross Trade Turnover in 1H11 vs 1H10 Retail spending during the recovery in 1H11 was driven more by IT, mobile telecoms, jewellery and watches Source: CapitaMall Trust, CapitaMalls Asia 34

35 Office: Singapore Office Rentals Still Competitive (S$psf pm) Prime and Grade A rents 0 2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 Source: CBRE, UOB Kay Hian Grade A Office Rents Prime Office Rents International Office Occupancy Costs City Ranking Cost Previous (Nov 10) Ranking (Nov 09) London (West End), UK (184.85) Hong Kong (Central), China (137.61) Tokyo (Inner Central), Japan (171.64) Mumbai, India (121.11) Moscow, Russia (131.55) Tokyo (Outer Central), Japan (139.09) London (City), UK (103.50) Paris, France (122.51) Hong Kong (Citywide) (75.20) Singapore (63.89) New York Midtown, US (68.93) Source: CBRE, UOB Kay Hian Prime office rentals at S$8.80psf pm in 2Q11 were still at a 45% discount to the peak 3-year rental reversion cycle implies that rentals up for renewal in were signed at the bottom of the market in 2009; Cushman and Wakefield estimates that rent differential for is 43.4% vs -34% for Singapore still ranks 25 th in international office occupancy costs 35

36 Office: Demand and Supply Dynamics Office Demand Supply and Occupancy (sf m) % F 2014F 77% 75% Source: URA, UOB Kay Hian Annual Supply Take-Up Occupancy (%) 95% Sensitivity of Office Rentals to GDP Growth 2010 Office Rents F Office Rents Office Rental Growth 23.0% 2011F Office Rental Growth 6.8% GDP Growth % 2% 3% 4% 5% 6% 2012 Office Rents Office Rents Office Rental Growth -13.1% -5.9% 1.4% 8.6% 15.9% 23.1% 2013 Office Rental Growth -20.3% -13.2% -6.0% 1.2% 8.5% 15.9% Source: UOB Kay Hian. Note: 2011 rentals based on 4.5% GDP growth 93% 91% 89% 87% 85% 83% 81% Office demand to remain positive at about 2m sf p.a. on the back of pre-commitments of 50-60% on upcoming space in Supply pressure to ease from the peak supply of 3m sf in 2011 to an average of 1.8m sf p.a. in Office rental growth is expected to moderate along with GDP growth 36

37 Hospitality: Continued Growth in Visitor Arrivals Visitor Arrival forecast Added attractions (m) (%) Visitor arrivals for June rose 14% yoy to 1.08m, bringing total arrivals for 6M11 to 6.4m (+15% yoy); June marks the 19th straight month of record visitor arrivals; we forecast a 10% growth in visitor arrivals to 12.8m in 2011 Hotel RevPAR increased 15% yoy in 1H11, driven by a 15% yoy rise in average room rate to S$ F Total visitor arrivals(m) %chg Source:STB, UOB Kay Hian We forecast RevPAR to grow 16% yoy in 2011 driven by a 15% growth in room rates on the back of continued high occupancy levels of above 85% 37

38 THANK YOU 38