FY12 FY13 FY12 FY13 FY12 FY13 FY12 FY13

Transcription

1 Malaysia PP 7767/09/2012(030475) MARKET DATELINE Corporate Highlights Sector Update Property - M-REITs Everything Comes With A Price RHB Research Institute Sdn Bhd A member of the RHB Banking Group Company No: M 24 September 2012 Recom : Neutral (Maintained) Table 1 : REIT Sector Valuations Company FYE Price FV EPU (sen) EPU Growth (%) Premium valuations to hold. Although the REITs are likely to have limited room for yield compression, we believe the premium valuations will hold. The low interest rate and volatility in the local equity market led by uncertain global economic outlook as well as the election risk continue to favour dividend-paying stocks and the MREIT sector is one of them. YTD, the larger-cap MREITs have appreciated by 26%, outperformed the FBM KLCI s 8%. As such, the gross yield, particularly for the top three big cap MREITs have compressed to %, just about bps above the FD rate. Potential surprises from yield accretive acquisitions. While we think the EPU (average 4%) and DPU growth have been largely factored in, potential surprises are likely to come from yield accretive acquisitions. Thus far, only Axis REIT, Starhill REIT, AmFirst REIT and Amanahraya REIT have announced their acquisitions this year. On the other hand, the retail REIT players, which are more favourable in the investor community, have yet to acquire any new properties. Growth has been largely driven organically and through the reasonable ROI from AEI works. Given the current valuations and hence lower cost of capital as well as the low interest rate environment, the relatively higher physical asset yields suggest that assets can be acquired accretively. Sponsored MREITs with ready pipeline assets ahead of the game. Admittedly, quality physical property asset values have also appreciated significantly, largely driven by liquidity. Both local and foreign institutional funds have been actively hunting for property assets in the region. As a result, competition for quality assets that come with reasonable yield is intense. We believe sponsored MREITs with ready pipeline assets will be ahead of the acquisition game. The backing of the sponsor will give investors better visibility on acquisition growth and also eliminate the unnecessary resource-consuming process if the REITs have to bid in the market. Risks. In general, the REITs are subject to macroeconomic risk. Maintain Neutral; focus on MREITs with acquisition growth catalyst. We encourage investors to focus on MREITs with acquisition growth catalysts, which we have not factored into our forecasts and valuations. Among the MREITs under our coverage, we think Sunway REIT, CMMT, Axis REIT and Pavilion are more likely to embark on acquisition mode in this and next year. Capital structure of these REITs will be kept at a reasonable level, as they are expected to fund their acquisitions via a combination of equity and debt. PER (x) NDY (%) Gearing (RM/s) (RM/s) FY12 FY13 FY12 FY13 FY12 FY13 FY12 FY13 (%) Axis REIT Dec (0.9) MP CMMT Dec MP Hektar REIT Dec (5.8) (4.2) MP IGB REIT Dec n.m OP Pavilion REIT Dec > OP Quill Capita Dec MP Sunway REIT Jun MP Sector Avg Sector Avg (ex-quill Capita and Axis REIT) *Prices at 21 Sept 12 Table 2. Implied FY12 Gross Yield MREITs DDM- Based FV Implied FY13 Net Yield (%) Axis REIT CMMT Hektar REIT IGB REIT Pavilion REIT Quill Capita Sunway REIT Loong Kok Wen, CFA (603) loong.kok.wen@rhb.com.my Alia Arwina Izyani Azani (603) alia.arwina@rhb.com.my Rec Please read important disclosures at the end of this report. Page 1 of 28 A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from

2 24 September 2012 Premium valuations to hold. We believe the premium valuations of MREITs will continue to hold, despite limited room for further yield compression. Defensive exposure is still preferred in view of the volatility in the local equity market led by uncertain global economic outlook as well as the election risk. Many dividend-paying stocks including the consumer, telco and MREIT sectors are currently trading at peak valuations. Among the top big cap REITs, MREIT s typical larger yield spread has shrunk to just 0 bps above the -year MGS, compared to SREIT s 390 bps (FSTREI s yield). The low-beta large-cap MREITs have appreciated by about 26%, outperformed the FBM KLCI s 8%. As such, the gross yield, particularly for the top three big cap MREITs have compressed to %, just about bps above the FD rate, and bps above the -year MGS yield. MREITs will remain vibrant. The strong demand has spilt over to other smaller-sized REITs. The unique plantation REIT - Boustead REIT and the one and only healthcare REIT Aqar, have also gained significant investors interest this year. By end Sept 2012, the MREIT market will grow to an asset size of RM28.0bn (from RM17.3bn last year) with the new listing of Pavilion REIT and IGB REIT. In the meantime, KLCC Property has indicated its intention to explore the possibility of injecting its assets into a REIT. If this materialises, the REIT, with a potential asset size of RM8bn, will be the largest in Malaysia. Fig 1: MREITs relative performance against FBM KLCI YTD 40% 35% 30% 25% 20% 15% % 5% 0% Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12-5% -% PREIT CMMT SREIT AXRB AQAR Boustead Source: Bloomberg A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from Page 2 of 28

3 24 September 2012 Fig 2: Yield spread of key large-cap MREITs above the - year Malaysia Government Bond Yield % 2.1 Fig 3: Yield spread of some SREITs above the -year Singapore Benchmark Government Bond Yield % PREIT SREIT CMMT IGB REIT 0 FSTREI CT Suntec FCT Source: Bloomberg, RHBRI Source: Bloomberg, RHBRI Retail REITs have better growth prospects. Among all the sub-sectors, the retail REITs have relatively stronger growth prospects in our view. We believe the organic growth of 4-5% p.a. driven by rental reversion is only a base case. Over the past two quarters in 2012, the retail REITs have been able to achieve a rental reversion of 5-15% for their new lease renewals. Our expectation is underpinned by: (i) (ii) (iii) (iv) Resilient local consumption. As Malaysia has a closed economy, consumption growth is mainly driven domestically. Only urban malls in KL city centre, such as Pavilion and KLCC will have an additional spur from overseas tourists. Unlike the retail REITs in Singapore which have seen a decline in shopper traffic and retail sales, retail sales grew positively in Malaysia on the back of steady shopper traffic surrounded by established households, partly stimulated by the BR1M (Bantuan Rakyat 1 Malaysia) scheme initiated by the Government. Meanwhile, unemployment rate remained steady at 3%. Tenancy demand for anchor malls is unlikely to be shakened. Although recently there is an emerging wave of the establishment of new community malls Setia City mall, Paradigm mall and Empire Gallery, the big cap MREITs such as Pavilion REIT, Sunway REIT and IGB REIT are unlikely to be negatively affected. These REITs are all holding a solid quality anchor mall within the Klang Valley. Most retailers are therefore unlikely to move out from these anchor malls that typically have >1m sqf NLA, as these malls ensure steady and constant flow of shopping population. Replacement of vacated space is also much easier given the ready tenants in the waiting list. Portfolio of assets with plenty growth opportunities. The organic growth could be higher for Pavilion REIT given its efficiently designed asset and the early stage of rental cycle. Pavilion REIT has also exhibited its strength in attracting new international retail brands as well as luxury specialty retailers to set up flagship stores in the mall. Future long-term growth will be boosted upon the completion of MRT network which will bring in higher shopper traffic into the core city centre. On the other hand, although Sunway REIT and CMMT are holding a pool of relatively matured assets, the new residential areas expanded from the established townships outside the city centre will continue to support growth. Upon completion of refurbishment, Sunway REIT will also see a spike in growth given the turnaround of Sunway Putra Mall, which we think will be a successful one. More creative AEIs to drive rental and asset values. Compared to other sub-segments, the retail asset owners have more flexibility to come out with creative AEI works and events to drive shoppers, and hence retail sales, rental and ultimately asset value. The scope of AEI for the office and industrial subsegments is, however, comparatively limited. A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from Page 3 of 28

4 24 September 2012 Fig 4: Historical quarterly rental reversion of retail MREITs (by calendar year) 25 % (5) 1Q 6M 9M 12M 1Q 6M 9M 12M 1Q 6M 9M 12M 1Q 6M 9M 12M 1Q 6M FY () Hektar REIT Sunway REIT C MMT Source: Companies Fig 5: Higher private consumption growth vs. GDP growth % 20 Fig 6: Rising % of household in middle-income category Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q 2Q 3Q 4Q 1Q11 2Q11 3Q11 4Q11 1Q12 2Q Private consumption growth GDP growth Source: Department of Statistics Source: Department of Statistics Still challenging for office REITs. Downside risk in office REITs dividend yield is relatively higher. Although there is an improvement in tenancy in the recent months, the oversupply of office space will take time to be absorbed by the market. As such, we expect rental rate to remain under pressure at least over the next three years. Outside the central region, the oversupply of office space is not as excessive, and due to more accommodative rental rate and better traffic conditions, the decentralisation effect helps alleviate the concern. According to CBRE, there will be an additional 26m sqf of new office space within the Klang Valley by This excludes the mega projects KL Metropolis (Naza TTDI s Matrade), Warisan Merdeka and Tun Razak Exchange, which will top up the total by at least m sqf. Occupancy remained steady at 87% for city centre Grade A office space, down slightly because of the completion of Menara Platinum Park (NLA 690k sqf). Felda has taken up 20% of the newly completed Menara Felda. Meanwhile, ICT solutions provider Hua Wei has committed to a significant amount of space at The Icon Tun Razak. British High Commission has also announced its relocation to the new Menara Binjai, and its current premises have been put up for sale. A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from Page 4 of 28

5 24 September 2012 Similarly, Quill Capita Trust, which is the REIT with high exposure to the office sector, is also facing difficulty in its lease renewals and tenants replacement. Its 2Q s revenue was hit, mainly due to the vacancy of the singletenanted Quill Building. The property was previously occupied by HSBC, and the bank has embarked on downsizing for cost-cutting. The same trend is seen for other office REITs (UOA REIT and Tower REIT) that are not under our coverage. Their quarterly earnings have been flattish largely due to the same concerns we mentioned. Table 3: Incoming office supply in Klang Valley Source: CBRE Research Fig 7: Estimated future supply of office space in Klang Valley Fig 8: Vacancy rate of office space in KL city Source: CBRE Research Source: CBRE Research A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from Page 5 of 28

6 24 September 2012 Stable outlook for industrial REITs. We see an opportunity for the industrial MREITs that have yet to tap into. This sub-segment can be more exciting if any of the existing industrial REITs can have a portfolio of industrial parks (rather than scattered industrial properties) or the existing industrial park owners opt for new listings. There are many industrial parks in Malaysia. The key industrial areas include Penang Seberang Perai, Kedah Kulim, Selangor Klang and Shah Alam, Johor Tanjung Langsat, Nusa Cemerlang, Skudai and Senai. By owning industrial parks, this would give the (REIT) owners the necessary funding and flexibility in putting up value-added infrastructure and peripheral amenities with economies of scale, which would translate into better rental rates and yields. Currently, only two industrial MREITs are listed on Bursa Malaysia. As Atrium REIT has a smaller portfolio, investors interest concentrates more on Axis REIT with a bigger asset size of RM1.5bn. Although the Malaysia s Industrial Production Index (IPI) is softening in the recent months, 1.4% yoy in Jul from 3.7% in Jun and 7.8% in May, the risk is low as the tenancy tenure for Axis REIT is generally longer with a low single-digit growth. Atrium REIT, however, has a shorter tenancy term. Overall, leasing activities are still healthy with steady lease renewal rate. Axis REIT was able to renew some leases with a decent rental reversion of 2-25% during the 2Q. The REIT is expected to acquire more industrial properties primarily located in Johor, as some Singapore-based industrial players are expected to be relocated to Iskandar as some land leases in Jurong and Tuas are not renewed or have been cut short by the Singapore government. The cheaper operating cost and scarcity of land in Singapore are likely to drive the rental and leasing activities in the industrial sub-segment within the Iskandar region over time. Fig 9: Correlation of IPI and GDP growth % Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q 2Q 3Q 4Q 1Q11 2Q11 3Q11 4Q11 1Q12 2Q IPI growth GDP growth Source: Department of statistics Potential surprises from yield accretive acquisitions. The key re-rating catalysts for MREITs will be the potential yield accretive acquisitions. We believe the decent EPU and DPU growth have been largely priced in given the peak valuations. Among our MREITs universe, we expect an average EPU growth of 3.5% and 3.4% for FY Growth has been largely driven organically, and the reasonable ROI from AEI works. Thus far, only Axis REIT, Starhill REIT, AmFirst REIT and Amanahraya REIT have announced their acquisitions this year, which amounted to RM1.44bn in total. Excluding the foreign assets acquired by Starhill REIT, total net addition of local assets is only RM134m, compared to RM1.54bn last year. It is worth noting that, the retail REIT players, which are more favourable in the investor community, have yet to acquire any new properties. Given the current valuations and hence lower cost of capital as well as the low interest rate environment, the relatively higher physical asset yields suggest that assets can be acquired accretively. The inorganic growth via acquisitions will therefore be a strong catalyst for the retail REITs, which size is already topping the MREIT chart. A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from Page 6 of 28

7 24 September 2012 Table 4: Total addition of assets into MREITs from 2011 (based on first announcement date) Year Buildings REIT Consideration (RM mil) YTD 2012 Kompleks Tun Sri Lanang, Melaka AmFirst 86.0 Wisma UEP Subang (Disposal) Amanahraya REIT (40.0) Wisma Academy & Annex PJ Axis REIT 85.0 Nilai industrial property (Emerson Facility) Axis REIT 26.5 Kayangan Depot (Disposal) Axis REIT (23.6) Sydney Harbour Marriott Hotel Starhill REIT Melbourne Marriott Hotel Starhill REIT Brisbane Mariott Hotel Starhill REIT Total 1,444.5 Total net addition - excl. overseas assets East Coast Mall CMMT 3.0 Gurney Plaza Extension CMMT The Putra Place Sunway REIT Landmark Central Shopping Centre, Kulim Hektar REIT 98.0 Central Square Shopping Centre, Sg Petani Hektar REIT 83.0 FSBM Cyberjaya office Axis REIT 51.3 Seberang Perai logistics DC Axis REIT 59.0 Bayan Lepas logistics DC Axis REIT 48.5 Prima 9 & Cyberjaya AmFirst Warehouse at UEP Subang Atrium REIT 25.0 Total 1,536.7 * Exclude rationalisation exercise of Starhill REIT in 2011 Source:Bursa Malaysia Sponsored MREITs with ready pipeline assets ahead of the game. Admittedly, the prices of quality physical property assets have also appreciated significantly, largely driven by liquidity. Both local and foreign institutional funds have been actively hunting for property assets in the region. A few examples are the privatisation of Bandar Raya Developments Berhad that owns several crown jewel assets: Bangsar Shopping Centre, CapSquare Retail Centre, Menara BRDB, and Permas Jusco Mall; as well as the acquisition of Citta Mall by Ara Asset s ARA Asia-Dragon Fund. As a result of the demand and supply mechanism plus liquidity factor, cap rate for property asset valuations has been on a declining trend, from above 7% in 2008 to 5-6% this year. Many asset owners/holding companies have taken the golden opportunity to list their assets as REITs. The competition for quality assets that come with reasonable yield is, therefore, intense. We believe sponsored MREITs with ready pipeline assets will be ahead of the acquisition game. The backing of the sponsor will give investors better visibility on inorganic growth path and also eliminate the unnecessary resource-consuming process if the REITs have to bid in the market. Among the REITs under our coverage, Pavilion REIT, Sunway REIT, CMMT and Axis REIT (to a certain extent) have a strong backing of sponsor that should provide stable flow of pipeline assets to be injected. A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from Page 7 of 28

8 24 September 2012 Table 5: Declining cap rate for property asset valuations Year of valuation Property Cap rate 2008 Wetex Parade, Muar 7.65% 2008 CITTA Mall Subang 7.00%* 2008 Plaza Mont' Kiara 7.90%^ 2009 The Tun Razak 6.80% 2009 Menara Citibank 6.67% 20 Sungei Wang Plaza 6.90% 20 Gurney Plaza Penang % 20 The Mines % 20 Sunway Pyramid 6.85% 20 Lot Shopping Centre 6.80% 20 Starhill Gallery 6.80% 20 Sunway Tower 6.70% 2011 Pavilion Mall 6.37% 2011 The Gardens Mall 7.19% 2012 The Gardens Mall 6.11% 2012 Mid Valley Megamall 5.32% * Based on guaranteed 7.0% net yield p.a. ^ Based on guaranteed 7.1m p.a. (7-year leaseback arrangement) Source: Bursa Malaysia, Prospectus, CBRE, Knight Frank Research, Henry Butcher Table 6: Sponsored REITs with their pipeline assets REIT Sponsor/Promoter Pipeline/Identified assets Pavilion REIT Urusharta Cemerlang S/B Fahrenheit 88 Pavilion Extension Da men USJ Sunway REIT Sunway Bhd Sunway Medical Centre Sunway Giza Shopping Mall Sunway University Monash University, Sunway Campus The Pinnacle Sunway Pyramid 3 Sunway Velocity CMMT CapitaMalls Asia Ltd Queensbay Mall Penang Taman Melawati Shopping Mall (50% JV with Sime Darby) Axis REIT * Major shareholder A Technology Centre in PJ (RM30m) An industrial facility in PTP Johor (RM29m) An industrial facility in PTP Johor (RM17m) Two industrial facilities in Johor (RM21.8m) A warehouse in Shah Alam (RM130m) * Include some third party assets A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from Page 8 of 28

9 24 September 2012 Healthy capital structure and supportive capital markets make acquisitions easier. In our view, MREITs generally have a healthy debt/equity structure. Many newly listed REITs have opted for lower gearing upon IPO (Pavilion REIT at 20% and IGB REIT at 26%), giving themselves ample flexibility in its financing sources to fund their potential acquisitions and minimise the dilutive impact. We still believe the MREITs would go for conventional equity rights issue and placement exercise, and debt bank borrowings/sukuk financing, as the average gearing of MREITs remains at manageable level of 30%, well below the statutory cap of 50%. Other REITs such as AmFirst REIT, Hektar REIT and Aqar REIT are likely to see limitations in acquisition growth due to their high debt leverage. This could only be mitigated through a substantial property revaluation surplus or equity calls. Fig : MREIT s gearing profile Gearing (x) Starhill 0.14 Al- Hadharah Source: Companies, Bloomberg PavREIT Tower IGB REIT CMMT Axis Atrium Sunway Amanah Raya QCT UOA Hektar AmFirst Al-'Aqar Valuations. We advise investors to focus on sponsor-backed MREITs which give better visibility of step-up inorganic growth. Among the MREITs under our coverage, we see Sunway REIT, CMMT, Axis REIT and Pavilion REIT having strong acquisition growth catalysts. These REITs are likely to embark on acquisition mode in this and next year, and the associated yield-accretion impact has yet to be factored into our forecasts and valuations. In our view, catalyst of potential liberalisation of withholding tax regime is minimal, given that the concessionary tax rate of % on dividends has been extended for another five years until Dec 2016 under the Budget Table 7: MREITs Estimated P/NAV REIT CAPITAMALLS MALAYSIA TRUST Share Price (RM) Market Cap (RMm) NAV (RM m) NAV/share (RM) P/NAV (x) FY13 Net Dividend yield (%) 2012 YTD Price Appreciation (%) , , AXIS REIT , IGB REIT , , n.a PAVILION REIT , , SUNWAY REIT , , AL-'AQAR HEALTHCARE REIT AL-HADHARAH BOUSTEAD REIT , , ATRIUM REIT UOA REIT HEKTAR REIT STARHILL REIT , , AMANAHRAYA REIT QUILL CAPITA TRUST TOWER REIT AMFIRST REIT Sector Average Source: Companies, Bloomberg, RHBRI estimates A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from Page 9 of 28

10 24 September 2012 Pavilion REIT The Best of the Best Share Price : RM1.36 Fair Value : RM1.60 Recom : Outperform (Maintained) Table 8 : Investment Statistics (PAVREIT; Code: 5212) Bloomberg: PREIT MK Net Gross FYE Turnover Profit # EPU Growth PER DPU C. EPU* P/NAV ROE Gearing NDY Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (%) (%) (%) 2011# n.m f f f Main Market Listing /Trustee Stock By The SC * Consensus Based On IBES Estimates #Based on RHBRI s full-year forecast for FY11 Growth still in its infancy. PavREIT still has a long way to go before reaching its peak. We believe that organic growth will be driven by: 1) its new 69k sqf precinct, the Fashion Avenue (previously tenanted by CK Tang), which officially opened its doors earlier this month. Rental for the precinct will be around RM25 psf, doubled the rate that CK Tang previously paid. The new drop-off zone and taxi stand linked to Fashion Avenue will also help to improve connectivity and shopper flow into the mall; 2) its upcoming major rental reversion. About 74.6% of NLA in Pavilion Mall is due to expire in FY13. Management is confident of achieving a -15% growth for base rental, excluding the increase in services revenue and turnover rent. There is little risk of non-renewals, given that it has a ready list of potential tenants waiting to take up any vacated space; and 3) constant remixing of tenants as a way to remain fresh and retain its top position as a fashion/f&b mall. This will ensure constant flow of shoppers. Future opportunities. Besides organic growth, we believe that the catalysts for PavREIT s future growth would come from: 1) acquisitions of new assets from its Sponsor such as Fahrenheit88 and the Pavilion Extension (of which PavREIT has been given the ROFR); 2) the upcoming Bukit Bintang MRT station, which will result in a better catchment to Pavilion Mall; 3) possible underground linkage from Pavilion Mall to Fahrenheit88 that will allow shoppers to move seamlessly between the two malls. The Manager is also looking at the possibility of linking its underground connection with that of the MRT station to further improve shopper flow; and 4) future developments within the vicinity of PavREIT s assets that will give Pavilion Mall a steady catchment of shoppers. Low gearing, more debt headroom. PavREIT currently has one of the lowest gearings for MREIT at 19% (vs. sector average of 30%), and we estimate that PavREIT still has a debt headroom of about RM1.18bn before reaching the SC gearing cap of 50%. This is an advantage to PavREIT, as it might not have to resort to full equity funding, which is typically earnings dilutive, for future acquisitions. Equity-raising exercises may also delay the acquisition process, given that authorities and unitholders approvals are required prior to execution. Issued Capital (m shares) 3,004.1 Market Cap (RMm) 4,085.6 Daily Trading Vol (m shs) wk Price Range (RM) Major Shareholders: (%) Datuk Lim Siew Choon & 37.6 Datin Tan Kewi Yong Qatar Holdings LLC 36.1 FYE Dec FY12 FY13 FY14 EPS chg (%) Var to Cons (%) PE Band Chart PER = 22x PER = 21x PER = 20x Relative Performance To FBM KLCI Pavilion REIT FBM KLCI Risks and concerns. These include: 1) Weaker-than-expected consumer spending; and 2) Competition from other malls. Forecasts. No changes to forecasts. Investment case. We reiterate our Outperform call on PavREIT, with an unchanged DDM-based fair value of RM1.60. In our view, the growth angle is certainly relatively more interesting compared to the other retail REITs. The REIT, therefore, should deserve some premium valuations. Alia Arwina Izyani Azani (603) alia.arwina@rhb.com.my A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from Page of 28

11 Fig 11: Pavilion Mall Tenancy Expiry Profile FY12-15 (as % of Total NLA) Fig 12: Pavilion Tower Tenancy Expiry Profile FY13-15 (as % of Total NLA) % % FY12 FY13 FY14 FY15 and Beyond FY13 FY14 FY15 Table 9: PavREIT s Pipeline Assets Properties Description Est. NLA (sqf) Granted by Targeted completion Fahrenheit88 ROFR Five levels of retail space with three levels of basement car parks located at Bukit Bintang opposite Pavilion KL Mall 280,000 Makna Mujur S/B Operational since 20 Pavilion Extension ROFR A potential expansion to Pavilion Mall 300,000 Urusharta Cemerlang KL 2013/14 USJ ROFR Six-storey retail mall to be developed at Subang Jaya 400,000 Equine Park Country Resort S/B 2014 Source: Prospectus Table : Earnings Forecasts Table 11: Forecasts Assumptions FYE Dec (RMm) 2011# 2012F 2013F 2014F FY12 FY13 FY14 Revenue Retail YoY Revenue Growth (%) NLA (sqf) 1,335,119 1,335,119 1,335,119 Operating profit Occupancy Rates (%) Operating margins Average Rental (RM (%) psf/month) Interest expenses (32.1) (32.8) (35.0) (35.4) YoY Rental Reversion (%) PBT Tax Minority interest Office Normalised net profit NLA (sqf) 167, , ,407 Normalised net profit margins (%) Occupancy Rates (%) Normalised EPU Average Rental (RM (sen) psf/month) DPU (sen) #Based on RHBRI s full-year forecast for FY11, RHBRI estimates, RHBRI estimates Page 11 of 28

12 IGB REIT Banking On Its Mega Size Share Price : RM1.39 Fair Value : RM1.43 Recom : Outperform (Maintained) Table 12 : Investment Statistics (IGBREIT; Code: 5227) Net Bloomberg: IGBREIT MK FYE Turnover Profit # EPU Growth PER DPU C. EPU P/NAV ROE Gearing NDY Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (%) (%) (%) f (26.3) f f Main Market Listing /Non-Trustee Stock # Normalised * Consensus Based On IBES Estimates Overtaking Pavilion REIT as largest pure-retail REIT. IGB REIT will be the second-largest REIT in Malaysia in terms of market cap and asset size, slightly behind Sunway REIT. However, with its two assets Mid Valley Megamall (worth RM3.44bn) and The Gardens Mall (RM1.16bn), IGB REIT will be the largest pure retail REIT thus far, ahead of Pavilion REIT and SunREIT. Future growth driver The Gardens Mall (TGM). TGM is the relatively younger sister to Mid Valley Megamall (MVM) and is interconnected with MVM. It opened its doors in 2007, and has a total NLA of 817k sqf as at 31 May. TGM was designed to complement MVM, and is positioned to cater towards the higher-end market segment. Since 2009, average occupancy rate for TGM has consistently been above 96% and currently operates at near-full capacity. Average rental rate is at RM8.74 psf as at 31 May. TGM currently contributes about 30% to IGB REIT s topline. We believe that TGM will be the main driver for IGB REIT s EPU and DPU growth over the next few years, given that it is a high-end mall and is still in the early stages of its rental cycle as compared to the more matured MVM. About 54% of TGM s NLA is due to expire next year. We expect a -15% growth from here, narrowing the rental gap between TGM and MVM. Other growth prospects. Other factors that could potentially drive IGB REIT s growth going forward include: 1) Strength of the management team; 2) Proactive asset enhancement initiatives; 3) Potential development of the surrounding areas; and 4) Resilient consumer spending buoying retail sales. Issued Capital (m shares) 3,400.0 Market Cap (RMm) 4,726.0 Daily Trading Vol (m shs) 1. 52wk Price Range (RM) n.a 8 Major Unitholders: (%) IGB Corp Bhd 51.0 FYE Dec FY12 FY13 FY14 EPU chg (%) Var to Cons (%) (4.8) (6.6) (0.4) Risks and concerns. These include: 1) Lack of pipeline assets; and 2) Competition from other malls. Earnings outlook. On the back of our rental growth assumption of 5-6% p.a. for MVM and 7-9% p.a. for TGM, our EPU and DPU projections are slightly higher than the prospectus forecasts, as the latter s assumptions could be conservative, based on KrisAssets track record. Our estimated EPU growth of about 6-7% p.a. for IGB REIT is comparable to other retail REIT peers. Based on a payout of 0% for FY12-14, this translates into net yields of %. Maintain Outperform. We value IGB REIT at RM1.43, with a cost of equity assumption of 7% on our DDM valuations. Our fair value implies a P/NAV ratio of 1.43x and 4.3% net yield for FY13, which we believe is fair, given that: 1) its peers such as Pavilion REIT, CMMT and Axis REIT currently trade at a P/NAV of x; and 2) the current average FY13 net yield of 4.6% for the top three MREITs. Overall, we are positive on IGB REIT due to: 1) its well-known assets; 2) the significant growth prospects for TGM; and 3) its strong management team. Alia Arwina Izyani Azani (603) alia.arwina@rhb.com.my Page 12 of 28

13 Fig 13: IGB REIT s Tenancy Expiry Profile 35.5% 38.7% 34.6% 31.0% 16.2% 19.0% 13.7% 11.3% and beyond By NLA By Gross Rental Income Fig 14: IGB REIT s Portfolio Occupancy Rates (2009- May 2012) Fig 15: IGB REIT s Portfolio Average Rental Rates (2009- May 2012) May-12 Mid Valley Megamall The Gardens Mall May-12 Mid Valley Megamall The Gardens Mall Table 13: Earnings Forecasts Table 14: Forecasts Assumptions FYE Dec (RMm) F 2013F 2014F FY12 FY13 FY14 Revenue Mid Valley Megamall Gross profit NLA (sqf) 1,718,951 1,718,951 1,718,951 Operating profit Occupancy Rate (%) Interest expenses 0.0 (54.8) (55.0) (55.0) Rental psf (RM/mth) PBT Other income (RM m) Tax Minority interest The Gardens Mall Net profit NLA (sqf) 817, , ,053 Core net profit Occupancy Rate (%) Non-cash items Rental psf (RM/mth) Distributable income Other income (RM m) EPU (sen) , RHBRI estimates DPU (sen) , RHBRI estimates Page 13 of 28

14 Sunway REIT Strong Visibility Of Inorganic Growth Share Price : RM1.45 Fair Value : RM1.53 Recom : Market Perform (Maintained) Table 15: Investment Statistics (SUNREIT; Code: 5176) Net Bloomberg: SREIT MK FYE Turnover Profit # EPU Growth PER DPU C. EPU P/NAV ROE Gearing NDY Jun (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (%) (%) (%) f f f Main Market Listing /Non-Trustee Stock # Normalised * Consensus Based On IBES Estimates Refurbishment of Sunway Putra Mall (SPM) to drive medium-term growth. Sunway REIT s RM200m refurbishment plans for SPM, which is expected to start in 1QCY13 with duration of months, will include a total revamp of the facade and interior of the mall, installation of new connections, new drop-off zones for better access and possible improvisation of traffic circulation around SPM. We see strong upside potential of at least 15-20% in the first rental reversion cycle post AEI, given that the mall s current rental is only at about RM6-7 psf (vs. the current estimated average rental of its peers: Suria KLCC - RM30 psf, Pavilion Mall - RM17 psf, Sg. Wang Plaza - RM13 psf and Sunway Pyramid - RM11 psf). We note that in FY06/13, there could be some decline in the contributions from the Sunway Putra Place as SPM will be closed for renovation during the year. Management expects growth in the retail and hospitality segments to remain stable at 4-5% p.a., but is cautious on the outlook for the office sector. Over the short term, we believe that SunREIT s earnings growth momentum will be sustained, given that: 1) an average portfolio rental reversion of 13.3% achieved over three years in FY12; 2) Sunway Pyramid s major rental reversion of about 62.8% of total NLA in FY14; and 3) the availability of pipeline assets to be injected into the REIT from the Sponsor. Strong asset pipeline. SunREIT has one of the strongest assets pipeline amongst the MREITs, given that it is sponsored by Sunway Bhd. The Sponsor currently has four completed properties in its books with a total value of about RM600m, as well as three on-going constructions, including the third phase of Sunway Pyramid. We believe that SunREIT will acquire at least one new asset in FY13, given that its last acquisition, the SPP, was done way back in Apr 2011, and the pipeline assets from its Sponsor are starting to mature. Capital management. In addition to the rental reversions and injection of new assets, SunREIT s proactive capital management will also help to mitigate the loss of income from the closure of SPM. The REIT has entered into several debt facilities that has managed to lower its current cost of debt to 3.73% as at Jun 2012 (from 4.42% in Mar 2012). Going forward, management plans to keep its average cost of debt at about 4%, slightly below the MREIT sector average of about 4.3-5%. Issued Capital (m shares) 2,698.6 Market Cap (RMm) 3,913.0 Daily Trading Vol (m shs) wk Price Range (RM) Major Shareholders: (%) Sunway Berhad 37.0 EPF.1 Capital Income Builder 6.5 FYE Jun FY13 FY14 FY15 EPS chg (%) Var to Cons (%) PE Band Chart PER = 20x PER = 19x PER = 18x Relative Performance To FBM KLCI Sunway REIT FBM KLCI Risks. The risk include: Unfavourable economic conditions. Forecasts. No changes to forecasts. Investment case. We maintain our Market Perform rating on SunREIT, with an unchanged DDM-based fair value of RM1.53. Given Sunway REIT s track record with past refurbishments, we believe that the overhaul of the Sunway Putra Place, coupled with its strong asset pipeline, will be the major drivers for the REIT s medium- to long-term EPU and DPU growth. Alia Arwina Izyani Azani (603) alia.arwina@rhb.com.my Page 14 of 28

15 Table 16: Sunway REIT's Rental Reversions (1QFY11-4QFY12) Qtr 1QFY11 6MFY11 9MFY11 FY11 1QFY12 6MFY12 9MFY12 FY12 Rental Movement vs. Preceding Rental (%)* * rental reversions reported are for total reversions over a three-year period Fig 16: Sunway REIT s Tenancy Expiry Profile % FY13 FY14 Beyond FY14 Fig 17: Sunway REIT s Pipeline Assets (Completed Properties) Sunway Medical Centre (GFA: 755k sqf) Sunway Giza Shopping Mall (NLA: 98k sqf) Sunway University Monash University, Sunway Campus (Combined GFA: More than 1.4m sqf) Page 15 of 3

16 Fig 18: Sunway REIT s Pipeline Assets (On-Going Constructions) The Pinnacle: Artist impression. Only Grade A office building in Bandar Sunway with approximately 560,000 sq. ft. of NLA Sunway Pyramid 3: Artist impression. Retail Mall with NLA of 62,000 sq.ft. and 435 rooms 4-Star Hotel with more than 760 car parks. Sunway Velocity: Artist impression. Shopping Mall with NLA of more than 800,000 sq. ft. and more than 2,000 car parks Table 17: Earnings Forecasts FYE Jun (RMm) F 2014F 2015F Gross revenue Operating profit Interest expenses (81.2) (74.1) (70.5) (70.5) PBT Tax Minority interest Realised net income EPU (sen) DPU (sen) , RHBRI estimates Table 18: Forecast Assumptions Asset NLA (sqft) FY13 FY14 FY15 Average Rental per NLA/month (RM) Retail Sunway Pyramid Mall 1,699, Sunway Carnival Mall 487, Suncity Ipoh Hypermarket 181, Sunway Putra Mall - pre-renovation 505, Sunway Putra Mall - post-renovation 620, Office Menara Sunway 276, Sunway Tower 268, Sunway Putra Tower 317, Asset No. of Rooms Average Daily Room Rate (RM) Average Daily Room Rate (RM) Average Daily Room Rate (RM) Hospitality Sunway Resort Hotel & Spa Pyramid Tower Hotel Sunway Hotel Seberang Jaya Sunway Putra Hotel data, RHBRI estimates Page 16 of 3

17 CapitaMalls Malaysia Trust Acquisition To Spur Re-rating Share Price : RM1.72 Fair Value : RM1.69 Recom : Market Perform (Maintained) Table 19: Investment Statistics (CMMT; Code: 5180) Bloomberg: CMMT MK Net Gross FYE Turnover Profit # EPU Growth PER DPU C. EPU P/NAV ROE Gearing NDY Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (%) (%) (%) > f f f Main Market Listing /Trustee Stock By The SC * Consensus Based On IBES Estimates Organic growth from acquisitions and AEI works. Ever since its inception in Jul 20, CMMT has been active on the renovation front for its assets and have also made two acquisitions in 2011, which are: 1) Gurney Plaza Extension in Apr 2011; and 2) East Coast Mall in Nov The acquisition of these malls, coupled with the strong rental reversions and the completion of the refurbishment works at Gurney Plaza, have led to a strong double-digit yoy growth in revenue for CMMT. Going forward, CMMT s Manager plans to grow its EPU and DPU by at least 5% p.a., and is on track to achieve the target for FY12. Rental reversions have been steady for CMMT s portfolio, at an average rate of about 5-8% over the past two years. A major project over the immediate term for CMMT is the proposed RM20m refurbishment of Sg. Wang Plaza (SWP), which is expected to start soon. The Manager believes that the proposed Bukit Bintang MRT station will have a positive impact on SWP over the long term as the MRT commuters are part of SWP s target market. However, SWP could see a drop in shopper traffic during the construction of the station. Nonetheless, the manageable negative impact over the intermediate term should not dampen CMMT s organic growth. Backed by a regionally-established Sponsor. CMMT has the advantage of being sponsored by one of the regional established retail mall developers, the Singapore-listed CapitaMalls Asia (CMA), and it has been able to tap onto CMA s expertise in managing shopping malls. CMMT has been granted with the ROFR on the malls that CMA owns in Malaysia when CMA decides to sell the malls. Currently, CMA owns about 90.7% of the retail strata area of Queensbay Mall in Penang, and has a 50-50% joint venture with Sime Darby to build an approximately 635k sqf mall in Taman Melawati (expected completion in 2016). We do not discount the possibility that these assets will be injected into the REIT in future, provided that the assets will have a yield-accretive impact. Capital management. CMMT has always been proactive in its capital management. Its gearing is at a healthy 28%, and given the current low interest rate environment, CMMT could be looking into avenues to reduce its existing average cost of debt of 4.74%. Management has also stated that it will likely remain conservative in the valuation of its assets, and will maintain a cap rate of about 6.5-7% for its portfolio assets. In our view, there should be an upside in the valuations given the new benchmark set by IGB REIT. Issued Capital (m shares) 1,768.0 Market Cap (RMm) 3,041.0 Daily Trading Vol (m shs) wk Price Range (RM) Major Shareholders: (%) CapitaMalls Asia Limited 35.3 Employees Provident Fund Governmetn of S pore Investment FYE Dec FY12 FY13 FY14 EPS chg (%) Var to Cons (%) (1.1) (2.1) (4.1) PE Band Chart PER = 19x PER = 17x PER = 15x Relative Performance To FBM KLCI CapitaMalls FBM KLCI Risks. The risks include: i) higher inflationary risk dampening consumer demand and retail sales; and ii) country risk. Forecasts. No changes to our earnings forecasts. Investment case. We reiterate our Market Perform rating on CMMT, with an unchanged fair value of RM1.69. We continue to believe that defensive stocks with yields will still be in favour for investors in the near term, especially in times of economic uncertainties. Alia Arwina Izyani Azani (603) alia.arwina@rhb.com.my Page 17 of 3

18 Table 20: CMMT's Rental Reversions (9M - 1H12) Qtr 9M FY 1Q11 1H11 9M11 FY11 1Q12 1H12 Rental Movement vs. Preceding Rental (%) Fig 19: CMMT s Tanancy Expiry Profile (as % of Gross Rental Income) % FY12 FY13 FY14 FY15 Beyond FY15 Table 21: Earnings Forecasts Table 22: Forecasts Assumptions FYE Dec (RMm) F 2013F 2014F Asset NLA (sqft) Average Rental (RM sqf/month) Revenue Gurney Plaza 872, Operating profit Sungei Wang Plaza 447, Interest expenses (38.7) (38.9) (41.4) (43.2) The Mines 717, PBT East Coast Mall 441, Tax , RHBRI estimates Minority interest Realised Net Profit EPU (sen) DPU (sen) , RHBRI estimates Page 18 of 3

19 Axis REIT Still one of MREITs strongest players Share Price : RM2.98 Fair Value : RM2.88 Recom : Market Perform (Maintained) Table 23 : Investment Statistics (AXREIT; Code: 56) Net Bloomberg: AXRB MK FYE Turnover profit EPU Growth PER DPU C. EPU P/NAV ROE Gearing NDY Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (%) (%) (%) f (0.9) f f Main Market Listing /Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates Steady organic growth. We believe that positive rental reversions, coupled with ongoing refurbishment works, will be the main driver for Axis REIT s organic growth. Although in some assets recorded negative rental reversions, this was more than made up by the positive rental reversions of up to % for other renewals (see Table 25). In 1H12, Axis continues to record positive rental reversions for its tenancy renewals, with FCI Senai recording a significant rental reversion of 25%. Lease expiry profile is relatively spread out, with about 15-20% of NLA due to expire p.a. for FY12-14, hence mitigating its renewal risks. An estimated RM27.6m will be spent in FY12 for AEI on two of its assets located in Petaling Jaya. Given Axis track record on AEI and the assets prime location, we see some upside potential in the rental rates upon the completion of the refurbishment works. Pipeline assets aplenty. Axis REIT remains as one of the most aggressive MREITs in terms of asset acquisitions. Currently it owns about 30 assets; and is finalising the acquisition of two more assets. Axis REIT s Manager is also currently negotiating to acquire more assets, including four industrial assets in Johor, and all these assets are expected to be injected into the REIT by the end of FY13. The Manager is now shifting its focus towards Johor properties and is bullish on the long-term prospects for the Johor industrial properties, given Johor s proximity to Singapore and also the aggressive developments in recent years. The injection of these assets could potentially increase Axis REIT s portfolio assets value to above RM1.7bn (current asset size: RM1.4bn). Axis aggressive acquisition strategy is reflected in its DPU, which has generally been on an uphill trend (see Figure 21). Its FY12 DPU will also be boosted by the gains from the disposal of Kayangan Depot (expected to be completed in 4Q12), which will translate into a distribution of 1.3 sen per unit. Prudent capital management. Going forward, Axis will continue to keep its gearing at around 35%. Given more acquisitions in the pipeline, the Manager is looking to pare down gearing (which will be slightly above 35% upon completion of the ongoing acquisitions) through the placement of up to 90.8m new units by end The timing should coincide with the new acquisitions as to minimise the risk of earnings dilution. Axis has also successfully issued RM1m in nominal sukuk (the first amongst the MREITs) that will provide it with the ability to lock in a fixed interest rate on a longer tenure debt, i.e. beyond the conventional 5 years. Risks. The risk include: Unfavourable economic conditions. Forecasts. No changes to forecasts. Maintain Market Perform. Fair value is unchanged at RM2.88 (adjusted for placement). Going forward, its DPU growth will largely hinge on the timing and the quantum of yield accretion of its pipeline assets. Issued Capital (m shares) Market Cap (RMm) 1,360.4 Daily Trading Vol (m shs) wk Price Range (RM) Major Shareholders: (%) EPF.7 KWAP 6.1 Teoh Peng Hwee 6.0 FYE Dec FY12 FY13 FY14 EPS chg (%) Var to Cons (%) (2.6) (.3) (11.1) PE Band Chart Relative Performance To FBM KLCI FBM KLCI PER = 16x PER = 14x PER = 12x Axis REIT Alia Arwina Izyani Azani (603) alia.arwina@rhb.com.my Page 19 of 28

20 Table 24: Axis REIT's Rental Reversions (1Q - 2Q12) Quarter 1Q 2Q 3Q 4Q 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Rental Movement vs. Preceding Rental (%) to to to -3.8 to -3.5 to -3.0 to 1.6 to to 25 Fig 20: Axis REIT s Tenancy Expiry Profile (FY12-14) % FY12 FY13 FY14 As % of Total NLA As % of Gross Rental Income Table 25: Axis REIT's Pipeline Assets 2012/2013 Asset Asset Value (RM m) Acquisition Status Logistic Distribution Centre in Bayan Lepas 48.5 Completed - 2Q12 Logistic Distribution Centre in Prai 59.0 Completed - 2Q12 Emerson Facility in Nilai 27.0 Completed - 3Q12 Wisma Academy and Annex 85.0 In Progress Technology Center in Petaling Jaya 30.0 Under negotiation Industrial Facility in PTP, Johor 29.0 Under negotiation Industrial Facility in PTP, Johor 17.0 Under negotiation Two Industrial Facilities in Johor 21.8 Under negotiation Warehouse in Shah Alam Under negotiation Total 2012/2013 Estimated Pipeline Assets Value (RM m) Other portfolio assets value as at 2Q12 1,327.3 Total estimated enlarged investment assets base value (RM m) 1,774.6 Page 20 of 28

21 Fig 21: Axis REIT s Historical Quarterly Performance RMm 25 sen Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q 2Q 3Q 4Q 1Q11 2Q11 3Q11 4Q11 1Q12 2Q Net Profit (LHS) DPU (RHS) Table 26: Earnings Forecasts FYE Dec (RMm) FY11 FY12F FY13F FY14F Gross revenue Operating profit Interest expenses (22.9) (22.4) (24.3) (24.6) PBT Tax Minority interest Realised net income EPU (sen) DPU (sen) , RHBRI Page 21 of 28

22 Table 27: Forecasts Assumptions Asset NLA/GFA (sqf) Average Rental per NLA/GFA (RM/sqf/month) FY12 FY13 FY14 Axis Business Park 340, Axis Plaza 118, Crystal Plaza 200, Infinite Centre 149, Menara Axis 174, Wisma Kemajuan 200, Kayangan Depot 163, Wisma Bintang 172, Axis Shah Alam DC 1 1, Giant Hypermarket Sg Petani 138, FCI Senai 136, Nestle Office & Warehouse 27, Quattro West 6, Kompakar CRC HQ 4, Niro Warehouse 167, BMW Centre PTP Johor 161, Delfi Warehouse 130, Axis Vista 118, Axis Steel Centre 366, Bukit Raja Distribution Centre 456, Seberang Prai Logistic Warehouse 1 6, Seberang Prai Logistic Warehouse 2 41, D8, PTP 171, Axis PDI Center 58, Axis Technology Centre - Office 56, Axis Technology Centre - Warehouses 114, Tesco Bukit Indah, Johor 233, Axis Eureka Cyberjaya 116, Bukit Tengah Logistic Warehouse 408, Bayan Lepas - Leaseback to DHL Properties 231, Emerson Industrial Facility Nilai 192, Wisma Academy Parcel 234,326 nil Annex 37,200 nil , RHBRI estimates Page 22 of 28

23 Hektar REIT Small But Formidable Share Price : RM1.42 Fair Value : RM1.55 Recom : Market Perform (Maintained) Table 28 : Investment Statistics (HEKTAR; Code: 5121) Net Gross Net Bloomberg: HEKT MK FYE Turnover Profit EPU Growth PER DPU C.EPU* P/NAV ROE Gearing NDY Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (%) (%) (%) f (5.8) f (4.2) f Main Market Listing /Trustee Stock By The SC * Consensus Based On IBES Estimates Stronger emphasis on organic growth. Hektar REIT is the smallest pure-retail MREIT, with an asset size of RM822m (vs. its larger peers with asset size of >RM1bn). We do not see its size as a hindrance. Hektar currently offers a net yield of almost 7%, the highest amongst the retail REITs. Although the rental reversions during were somewhat volatile, as the portfolio assets underwent major renovations during the period, rental growth has started to normalise at 5-7% range with the completion of AEI works last year. Meanwhile, FY14 will see the bulk of its tenancies expiring that represent 45% of NLA, due primarily to the lease expiry of an anchor tenant. Negotiations have already started and the management is confident that the leases will be renewed. Another major growth driver over the immediate term is from its Kedah shopping malls, which the acquisition is expected to be completed by end The two Kedah malls are estimated to contribute at least % to Hektar s topline from FY13 onwards. About RM19m will be spent on AEI for the two assets. Given Hektar s track record on Wetex, we believe that the AEI works will similarly yield fruition and lead to significant upside in rental rates. Other acquisition opportunities. As the value potential of the two Kedah malls has yet to be realised, we believe Hektar will take a breather on the acquisition front over the next few quarters. Nevertheless, the management will still likely to seek for yield-accretive acquisitions from time to time when strategic opportunities arise. Capital management. Hektar currently has one of the highest gearings among the MREITs at 42% (vs. sector average of 30%). As such, Hektar has proposed a 1-for-4 rights issue concurrently with the acquisition of the Kedah malls to pare down its debt. Although there have been concerns that the rights issue will have a dilutive impact on Hektar s DPU, management remains committed to deliver a payout of at least.5 sen for FY12 post exercise. Hektar has also been active in its debt management. Previously, all of Hektar s debts were based on floating rates. However, given that floating rates have been on an increasing trend, Hektar has hedged a tranche of RM184m debt at a rate of 4.85% and will continue to monitor its other tranches. Going forward, the average cost of debt will be kept at below 5%. Risks. These include: 1) Liquidity risks; 2) Competition from other malls; and 3) Competition from other REITs. Forecasts. No changes to forecasts. Investment case. We reiterate our Market Perform call on Hektar with an unchanged fair value of RM1.55. The steady long-term growth, undemanding valuations against the larger retail REITs, and resilient dividend yield remain as Hektar s key selling points. Issued Capital (m shares) Market Cap (RMm) Daily Trading Vol (m shs) wk Price Range (RM) Major Shareholders: (%) Frasers Centrepoint Trust 31.1 Hektar Premier S/B 27.4 Hektar Black S/B 12.7 FYE Dec FY12 FY13 FY14 EPS chg (%) Var to Cons (%) (4.6) (8.6) (9.3) PE Band Chart Relative Performance To FBM KLCI FBM KLCI PER = 12x PER = 11x PER = x Hektar REIT Alia Arwina Izyani Azani (603) alia.arwina@rhb.com.my Page 23 of 28