May 21, 2014

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

SINGAPORE STRATEGY

CIMB cost of living survey series – will rents get stuck? With the cost of living in Singapore on the rise, we examined both the affordability and attractiveness of Singapore from the hospitality and retail angles. With the data from our survey, we asked ourselves: can hotel room rates and retail mall rents grow further from here on?

Figure 1: CPI vs. household income

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Source:

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SOURCES: CIMB, COMPANY REPORTS

Our recent survey highlighted several key trends, including i) Singapore remains an attractive destination, particularly for business purposes, ii) mid-range to upscale hotels that are well located may outperform peers, and iii) the growing popularity of online shopping will have a negative impact on retail mall owners. Given this, we identify several stocks, including OUE-HT and FCT, as potential outperformers.

Value for money From this survey, it can be deduced that Singapore remains a favourable destination for visitors, particularly for business purposes. In addition, as visitors seek better value for their money, the performance of mid-tier and high-end hotels, particularly those in good locations, are expected to be better than their peers in the luxury or budget space.

Retail rents expected to remain stable On the other hand, with the growing trend of online shopping, mall owners may find it hard to raise rental rates, particularly on the back of dampened demand as a result of higher operating costs and difficulty in hiring help to man shops. We believe prime malls that focus on high street fashion and accessories may be the most affected while suburban malls are expected to be more resilient due to the nature of their business.

Favour OUE-HT and FCT Given the locality and segment in which OUE-HT is positioned in, we believe this REIT may continue to outperform its peers. Meanwhile, in the retail segment, we believe FCT is very well positioned to weather the growing trend of online shopping and will continue to enjoy positive rental reversions and growth for years to come.

Sources: CIMB. COMPANY REPORTS

Notes from the Field

—————————————————————————————————————————

PANG Ti Wee T (65) 6210 8609 E tiwee.pang@cimb.com

Jessalynn CHEN T (65) 6210 8672 E jessalynn.chen@cimb.com

Singapore Research Team

Highlighted Companies

Frasers Centrepoint Trust We rate FCT an Add with a target price of S$2.13. We continue to favour FCT for its potential to grow organically through positive rental reversions over the next two years. In addition, its yield-accretive acquisition of Changi Citfy Point is expected to be completed by 2014.

OUE Hospitality Trust OUE-HT is our top pick among hospitality REITs on the back of its stable outlook, high proportion of income secured under fixed rates and room for RevPAR growth from AEI at MOS.

May 21, 2014

2

KEY CHARTS

The gateway to business In the top 10 convention cities in the world in 2012 as ranked by the International Congress and Convention Association (ICCA), Singapore was the only Asian city to be listed. In addition, the Singapore Tourism Board (STB) previously highlighted that business travellers contributed 33% of the country’s tourism receipts and it aimed to increase it to 36% by 2020. Currently, with six existing convention and exhibition venues in the market, Singapore maintains its position as a leading MICE destination in Asia in terms of venue supply. Our survey similarly highlights this trend, with a staggering 62.5% of respondents coming to Singapore for business.

Business, 62.5%

Leisure, 31.3%

Others, 6.3%

Price and locality rule Interestingly, price has been identified as the key determining factor when choosing a hotel. Aside from price, the locality of the hotel is deemed to be the second most important choice. On this basis, we believe hotel owners within the upscale segment and with good locations may outperform peers.

Price, 58.8%

Location, 41.2%

Brand, 0.0% Others,

0.0%

Higher discretionary spending Despite all the complaints about the rising costs of groceries, eating out, transport and kids’ education, 74% of our respondents say they have increased the amount of money spent on discretionary items over the past two years. Travel appears to have taken a bigger weight of that spending, compared to buying items of desire. 64% spent more money on holidays compared to two years ago, none spent lower. As for retail spending, the majority of respondents (34%) spent the most incremental dollars through online shopping channels.

Risen by >50%, 5.3%

Risen by 25-50%, 34.7%

Risen by 1-25%,

24.0%

Stayed about the

same, 36.0%

Lower, 0.0%

Over the last two years, the amount of money I allocate for holidays has...

Suburban shopping

malls, 27.5%

City center shopping

malls (Orchard, City Hall, Marina), 15.0%

Overseas countries,

23.8%

Internet shopping,

33.8%

Over the last two years, the channel that has seen the most increase in my retail spending is..

Too many malls? Currently, Singapore offers 4.6 sq ft per capita of suburban retail space (6.9 sq ft if prime malls are included), a level that is significantly lower than most developed cities around the world (11.8-45.2 sq ft per capita of retail space). Although there is an estimated upcoming supply of c.2.6m sq ft in 2014, the level of pre-commitment (80-100%) for these new malls is expected to provide mall owners with the ability to hold their rental rates steady.

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4.66.9

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May 21, 2014

3

Figure 2: CIMB REIT Overview

Price Target Price

(local curr) (local curr) CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 CY2016 CY2014 CY2015 CY2014 CY2015Ascott Residence Trust ART SP Hold $1.20 $1.22 $1,464 20.3 19.9 0.9 0.9 4.3% 4.5% 4.7% 36% 37% 6.9% 7.0% 0.7%Ascendas Hospitality Trust ASCHT SP NR $0.74 NA $651 43.2 33.4 1.0 1.0 2.5% 3.1% 5.9% na na 7.9% 8.0% naCDL Hospitality Trust CDREIT SP Add $1.74 $1.97 $1,354 15.4 14.5 1.1 1.1 6.9% 7.3% 7.4% 30% 30% 6.6% 7.0% 4.4%Far East Hospitality Trust FEHT SP Reduce $0.88 $0.80 $1,242 17.8 17.1 0.9 0.9 5.1% 5.3% 5.5% 31% 31% 6.3% 6.5% 1.3%OUE Hospitality Trust OUEHT SP Add $0.89 $0.96 $930 14.7 14.5 1.0 1.0 6.5% 6.7% 6.9% 32% 32% 7.9% 8.0% naHospitality simple average 22.3 19.9 1.0 1.0 5.1% 5.4% 6.1% 32% 32% 7.1% 7.3% 2.1%

AIMS AMP AAREIT SP NR $1.42 NA $704 9.1 13.9 1.0 1.0 7.0% 7.3% 7.5% na na 7.7% 7.7% 62.0%Ascendas REIT AREIT SP Hold $2.42 $2.36 $4,642 16.1 15.8 1.2 1.2 7.5% 7.6% 7.8% 30% 34% 6.1% 6.3% 3.6%Cache Logistics Trust CACHE SP Add $1.20 $1.33 $743 15.0 14.6 1.2 1.2 8.1% 8.4% 9.2% 32% 35% 7.2% 7.5% 3.1%Cambridge Industrial Trust CREIT SP Add $0.76 $0.80 $757 17.8 17.3 1.1 1.1 6.2% 6.5% 6.7% 33% 33% 6.9% 7.0% 3.2%Mapletree Industrial Trust MINT SP Add $1.47 $1.64 $1,984 15.5 15.2 1.2 1.2 8.0% 8.1% 8.4% 34% 38% 6.8% 7.0% 3.3%Mapletree Logistics Trust MLT SP Hold $1.19 $1.13 $2,327 15.7 15.5 1.2 1.2 7.9% 7.9% 8.2% 33% 35% 6.3% 6.5% 3.1%Sabana Shariah SSREIT SP NR 1.07 NA $589 16.1 15.4 1.0 1.0 6.1% 6.5% 7.0% na na 7.6% 7.7% -3.6%Soilbuild Business Space REIT SBREIT SP NR 0.79 NA $507 15.4 12.7 1.0 1.0 6.0% 7.7% 7.6% na na 7.4% 7.6% naViva Industrial Trust VIT SP Add $0.79 $0.87 $373 15.5 14.9 1.1 1.1 6.8% 7.2% 8.5% 38% 38% 8.7% 8.9% 87.6%Industrial simple average 15.1 15.0 1.1 1.1 7.1% 7.5% 7.9% 33% 35% 7.2% 7.4% 20.3%

Capitacommercial Trust CCT SP Hold $1.62 $1.55 $3,746 21.3 19.6 1.0 1.0 4.5% 4.9% 5.2% 30% 30% 5.0% 5.3% 3.5%Frasers Commercial Trust FCOT SP Add $1.32 $1.39 $708 15.8 15.0 0.9 0.9 5.4% 5.7% na 37% 37% 6.7% 7.3% naKeppel REIT KREIT SP Hold $1.27 $1.21 $2,829 21.1 19.0 0.9 0.9 4.3% 4.8% 5.0% 39% 36% 6.1% 6.0% -1.6%OUE Commercial REIT OUECT SP Add $0.80 $0.90 $550 na 23.7 0.8 0.8 na 3.2% 3.2% 41% 43% na 6.7% naSuntec REIT SUN SP Add $1.78 $1.83 $3,544 28.5 23.3 0.9 0.9 3.0% 3.7% 4.1% 36% 39% 5.0% 5.8% 4.3%Office simple average 21.7 20.1 0.9 0.9 4.3% 4.5% 4.4% 37% 37% 5.7% 6.2% 2.1%

CapitaMall Trust CT SP Hold $2.04 $2.06 $5,637 17.5 18.4 1.2 1.2 6.7% 6.3% 6.4% 35% 35% 5.4% 5.7% 4.6%Frasers Centrepoint Trust FCT SP Add $1.85 $2.13 $1,219 16.6 15.4 1.1 1.1 6.3% 6.9% na 31% 31% 5.9% 6.4% naMapletree Commercial Trust MCT SP Add $1.33 $1.33 $2,205 18.8 18.2 1.1 1.1 6.1% 6.2% 6.4% 39% 39% 5.7% 5.8% 3.1%SPH REIT SPHREIT SP NR 1.02 NA $2,035 21.9 21.4 1.1 1.1 5.4% 5.3% na na na 5.2% 5.2% naStarhill Global REIT SGREIT SP Hold $0.82 $0.80 $1,410 15.6 15.2 0.9 0.9 5.6% 5.8% 5.9% 29% 29% 6.5% 6.6% 3.6%Retail simple average 18.0 17.7 1.1 1.1 6.0% 6.1% 6.2% 33% 34% 5.7% 5.9% 3.8%

CapitaRetail China Trust CRCT SP NR $1.54 NA $1,003 16.5 14.9 1.0 1.0 7.1% 6.9% 11.0% na na 6.4% 7.0% 10.0%Croesus Retail Trust CRT SP NR $0.98 NA $334 11.2 11.7 1.1 1.0 15.0% 9.6% na na na 8.8% 8.8% naLippo Malls Indonesia Retail LMRT SP NR $0.41 NA $795 13.5 12.7 0.9 0.8 10.1% 10.6% 9.0% na na 7.4% 7.9% 3.5%Mapletree Greater China MAGIC SP NR $0.90 NA $1,918 17.8 16.7 0.8 0.8 5.8% 6.2% 6.7% na na 6.9% 7.3% naPerennial China Retail Trust PCRT SP Reduce $0.54 $0.50 $494 na 20.2 0.7 0.7 -4.5% 3.5% 3.2% 37% 37% 6.8% 4.1% -18.5%Retail Ex-Sin simple average 14.8 15.3 0.9 0.9 6.7% 7.4% 7.5% 37% 37% 7.3% 7.0% -1.7%

First REIT FIRT SP NR $1.18 NA $672 12.0 12.0 1.2 1.2 9.3% 9.3% 9.6% na na 7.0% 7.2% 5.4%Parkway Life REIT PREIT SP Reduce $2.37 $2.41 $1,145 20.0 19.0 1.5 1.5 7.2% 7.6% 7.9% 34% 34% 4.9% 5.2% 5.9%Religare Health Trust RHT SP Add $0.88 $0.91 $553 15.9 14.5 1.0 1.0 6.2% 6.9% 7.2% 10% 19% 8.9% 8.9% 5.0%Healthcare simple average 16.0 15.2 1.2 1.2 7.6% 7.9% 8.2% 22% 27% 6.9% 7.1% 5.4%

CapitaMalls Malaysia Trust CMMT MK Hold $1.46 $1.47 $805 16.5 15.7 1.3 1.4 8.0% 8.6% 9.1% 31% 31% 6.4% 6.8% 6.0%IGB REIT IGBREIT MK Hold $1.18 $1.25 $1,259 17.7 17.0 1.2 1.2 6.9% 7.1% 7.3% 26% 26% 6.5% 6.4% 2.2%Pavilion REIT PREIT MK Hold $1.37 $1.45 $1,281 18.5 18.3 1.4 1.4 7.7% 7.8% 7.8% 19% 19% 5.7% 5.7% 2.8%Sunway REIT SREIT MK Hold $1.36 $1.40 $1,236 15.5 14.3 1.2 1.2 7.8% 8.3% na 35% 36% 6.3% 7.0% naMalaysia retail simple average 17.1 16.3 1.3 1.3 7.6% 8.0% 8.1% 28% 28% 6.2% 6.5% 3.7%

Axis REIT AXRB MK Add $3.39 $3.67 $486 18.0 17.1 1.5 1.6 8.6% 9.1% 9.6% 34% 34% 6.3% 5.8% 4.2%Malaysia Industrial simple average 18.0 17.1 1.5 1.6 8.6% 9.1% 9.6% 34% 34% 6.3% 5.8% 4.2%

Simple Average (all) 18.0 17.2 1.1 1.1 6.4% 6.6% 7.0% 32% 33% 6.6% 6.8% 9.1%

CompanyBloomberg

TickerRecom.

Market Cap

(US$ m)

Core P/E (x) 3-year DPS

CAGR (%)

P/BV (x) Recurring ROE (%) Dividend Yield (%)Asset leverage (%)

SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG

Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

May 21, 2014

4

CIMB cost of living survey series #3 – will rents get stuck? 1. BACKGROUND

1.1 Singapore, the expensive city

Singapore has been ranked as the most expensive city in the world by the Economist Intelligence Unit (EIU). Our recent survey on affordability in Singapore displayed a similar opinion from the general population. This report presents some of the data we collected and analysed from the survey and attempts to discuss the affordability of Singapore for both locals and visitors, particularly focusing on room rates and retail rents in Singapore.

1.2 Visitor arrivals expected to continue to grow

Back in 2005, STB forecast visitor arrivals of 17m per year by 2015. With 2013 drawing around 13.5m visitors and given the fact that there are more attractions and events to support further growth in tourism, we remain confident that visitor arrival numbers could rack up 4.7% CAGR over the next two years to achieve STB’s 2015 goal. Although the recent MH370 incident may have dissuaded some Chinese citizens (accounted for 14.6% of visitors in 2013) from visiting Singapore, we believe this is a short-term effect and sentiment will recover gradually. Recently, STB forecast tourist arrivals to grow 5.2-8.4% yoy.

1.3 Purchasing power of Singaporeans remains strong

With inflation growing steadily by c.2.2% p.a. since 2001 while household income on average grew 4.6% p.a. over the same period, real income of the Singapore household has strengthened over time. As highlighted by Singstat in a recent report, over the past five years from 2008 to 2013, the median monthly income from resident-employed households rose by 11% in real terms.

Figure 3: CPI vs. household income

Title:

Source:

Please fill in the values above to have them entered in your report

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Household Income CPI

SOURCES: CIMB, Singstat

Table of Contents

1. BACKGROUND p.4

2. HOSPITALITY p.5

3. RETAIL p.9

4. IMPLICATIONS p.12

May 21, 2014

5

2. HOSPITALITY

2.1 Singapore’s stellar tourism growth

Singapore’s tourism sector has gone from strength to strength over the past decade, recording a CAGR of 6.7% in visitor arrivals in 2002-13 and a rise in tourism receipts from S$8.8bn to a preliminary estimate of S$23.5bn. Tourism in Singapore received an additional boost in 2010 when both integrated resorts (IRs) were launched. Since then, tourist arrivals have posted a CAGR of 12.4% while tourist spending notched up a CAGR of 16.8%. In 2013, visitor numbers reached 15.5m (+7.2% yoy), the top end of STB’s forecast range of 14.8m-15.5m.

Figure 4: Singapore visitor arrivals

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SOURCES: CIMB, STB

Figure 5: Singapore tourism receipts (S$)

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SOURCES: CIMB, STB

2.2 Historical supply and demand of hotels

Since 2002, the supply of hotel rooms in Singapore has delivered a CAGR of 3.7%, significantly lower than the 6.7% CAGR for visitor arrivals. Tourist arrivals during this period rose 89% while the supply of available hotel rooms went up by only 40%. Consequently, average room rate (ARR) grew by 105%, coupled with a strong occupancy, drove RevPAR up substantially by 1.6x over the same period, except during the 2008-09 global financial crisis.

May 21, 2014

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Figure 6: Supply of hotel rooms Figure 7: Historical supply vs. demand for hotel rooms

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Supply Demand

SOURCES: CIMB, STB, CBRE, HORWATH HTL SOURCES: CIMB, STB, CBRE

Figure 8: Hotel room occupancy rate Figure 9: Revenue per available room

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Source:

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RevPAR RevPAR - Luxury RevPAR - Upscale

RevPAR - Mid-Tier RevPAR - Economy

SOURCES: CIMB, STB, CBRE

SOURCES: CIMB, CEIC, URA

2.3 A place for business

In the top 10 convention cities in the world in 2012 as ranked by the International Congress and Convention Association (ICCA), Singapore was the only Asian city to be listed. In addition, STB previously highlighted that business travellers contributed 33% of the country’s tourism receipts and it aimed to increase it to 36% by 2020. In the nearer term, STB targets to raise tourism receipts from the BTMICE sector from S$5.6bn in 2011 to S$10.5bn by 2015. Currently, with six existing convention and exhibition venues in the market (Marina Bay Sands (MBS), Resorts World Sentosa, Raffles City Convention Centre, Changi Exhibition Centre, Singapore Expo and Suntec Singapore), Singapore maintains its position as a leading MICE destination in Asia in terms of venue supply.

May 21, 2014

7

2.4 Further boost factors to make it more business-friendly

One-third of the S$905m committed to boost Singapore’s tourism in 2012 was set aside for the development of the MICE sector over the next five years. Singapore’s attractiveness for business and MICE is reflected in our survey results, where c.63% of the survey respondents highlighted that the strongest reason for coming to Singapore is business. On the flip side, the same group of respondents highlighted that both the largest deterrence to (37.5% of total respondents) and the main reasons for visiting Singapore (41.2% of total respondents) hinge on their employers’ willingness to send them for work here; both trends implying a rising dependence on corporate spending for hotels in Singapore.

Figure 10: Reasons for visiting Singapore Figure 10: Main deterrence to visiting Singapore

Figure 11: Main drivers for visiting Singapore more often

Business, 62.5%

Leisure, 31.3%

Others, 6.3%

My office has

stopped sending me

there, 37.5%

A stronger Singapore

dollar, 6.3%

Expensive offerings,

18.8%

A lack of new

attractions, 37.5%

Social or political

instability, 0.0%

My employer sends me there more

often, 41.2%

A weaker Singapore

dollar, 35.3%

More tourism

offerings, including

cruise offerings,

11.8%

More meetings, incentives

and conference

events, 11.8%

SOURCES: CIMB SOURCES: CIMB SOURCES: CIMB

2.5 Impact of strong currency

Aside from higher hotel room rates, the Singapore dollar has been on an upward trend - as demonstrated in Figure 12. Although the continuous strengthening of the Singapore dollar does not currently pose a material deterrence for visitors to Singapore (Figure 10), the results of the survey show that a weaker Singapore dollar (Figure 11) could boost the number of visitors.

Figure 12: Singapore exchange rate

99

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Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13

NEER

Stronger S$

Weaker S$

SOURCES: CIMB, COMPANY REPORTS

May 21, 2014

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2.6 Value for money

Approximately 59% and 41% of total respondents highlighted that room prices and the location of the hotel, respectively, remain the key determining factors when considering their hotel choice. The survey further highlighted that 87.6% of respondents paid between US$135 and US$240 per night during their stay in Singapore - indicating that most visitors surveyed prefer to stay in upscale and mid-tier hotels. In 2013, tourism receipts inched up by only 1.7% yoy – the slowest growth in a decade vs. 3.6-50% in 2009-2012. The slower growth can be partly attributed to lower spending by business travellers as corporates cut their spending, a weaker Indonesian rupiah and more visitors choosing to travel via budget airlines as they become more cost-conscious. According to CEIC, since 2006, approximately 18-24% of tourist expenditure was spent on accommodation. With visitors’ growing focus on getting the best value for the price paid, we believe the upscale and mid-tier hotels in prime locations will outperform luxury hotels.

Figure 13: Key determinant for choice of hotels

Figure 14: Average price paid for hotels Figure 15: Choice of airlines to Singapore

Price, 58.8%

Location, 41.2%

Brand, 0.0% Others,

0.0%

Less than US$135 (or less than S$170),

6.3%

US$135 –US$180 (or

S$170 –S$230), 43.8%

US$180 –US$240 (or

S$230 –S$300), 43.8%

US$240 –US$300 (or

S$300 –S$380),

6.3%

More than US$300 (or more than S$380),

0.0%

SIA, 24.3%

Budget airlines, 58.1%

Middle Eastern airlines,

2.7%Asia-based full-service

airlines, 14.9%

Europe or US-based full-service

airlines, 0.0%

SOURCES: CIMB SOURCES: CIMB SOURCES: CIMB

2.7 Supply and demand for hotels balances out in 2014

Growth in new rooms in 2014 is forecast to be 5.7% (an average of 3,200 rooms per year between 2013 and 2015). This high supply is expected to be mitigated by stronger tourist arrivals, estimated to be 5.2-8.4% yoy by STB recently. As new supply gets digested, a stronger turnaround in the global economy, more events in 2014 and recovering corporate travel/spending are expected to stabilise RevPAR in 2014 after the weakness witnessed in 2013.

May 21, 2014

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3. RETAIL

3.1 Where is the money?

From our survey, it was indicated that household necessities (31.7%) and cars/transport (24.4%) were the top two expenditure items in Singapore. However, when compared to two years ago, 73.7% of survey respondents said that the proportion of disposal income they spent on discretionary items had risen, with near to one-third of respondents indicating that the dollar amount of discretionary spending had risen by 25-50%. But where is this spending being channelled to?

Figure 16: Largest expenditure item Figure 17: Second-largest expenditure item

Figure 18: Change in discretionary spending vs. two years ago

Bags, shoes,

gadgets and

entertainment, 4.9%

Cars and transport,

24.4%

Food, household necessities

and children’s education,

31.7%

Holidays and

staycations, 15.9%

Savings, retirement planning

and medical

expenses, 23.2%

Bags, shoes,

gadgets + entertainme

nt, 7.3%

Cars and transport,

20.7%Food,

household necessities

and children’s education,

28.0%

Holidays and

staycations, 19.5%

Savings, retirement planning

and medical

expenses, 24.4%

Risen by >50%, 2.5%

Risen by 25-50%, 32.5%

Risen by 1-25%, 38.8%

Been about the same,

21.3%

Gone lower, 5.0%

SOURCES: CIMB SOURCES: CIMB SOURCES: CIMB

3.2 Advent of the e-commerce era

Most respondents indicated that they chose to spend additional dollars on discretionary items through the e-commerce channel (33.8%) compared to suburban malls (27.5%), city centre shopping malls (15.0%) and overseas (23.8%). Why is this so? The majority say that they can find better prices online (52.0%) while convenience is another big factor (33.8%). This finding is in line with a report where it was highlighted that when delivery costs are included, 10 out of 15 sample items offer lower prices. The most popular category of items bought online is apparel and accessories (53.8%) – similar to the trend in the U.S.

Figure 19: Channel with the largest expenditure

Figure 20: Key motivation to shop online Figure 21: Items bought via Internet shopping

Suburban shopping

malls, 27.5%

City center shopping

malls (Orchard, City Hall, Marina), 15.0%

Overseas countries,

23.8%

Internet shopping,

33.8%

Lower pricing, 51.9%

Wider product

offerings, 13.0%

Convenience, 33.8%

Low shipping

costs, 1.3%

Apparel & accessories

, 53.8%

Food & beverage,

5.1%Computers

& consumer

electronics, 14.1%

Household goods, 7.7%

Others, 19.2%

SOURCES: CIMB SOURCES: CIMB SOURCES: CIMB

May 21, 2014

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3.3 Mall space vs. e-space

Mall owners have regularly highlighted that fashion anchor tenants are able to pay higher rentals. However, with the shift in shopping preference towards e-commerce, particularly for fashion and accessories, the rental bargaining power of mall owners may be more subdued going forward. Particularly, as highlighted in a report, nearly one in five online consumers research information on products and prices offline before buying them online. Although the strengthening of e-commerce remains a key challenge for mall owners, traditional brick-and-mortar shops offer services and experiences that online shops lack. The major distinctions include: i) offering the touch and feel of the physical goods, ii) goods can be taken right away, iii) easier to resolve issues, if any arises, iv) only certain goods are available in-store, etc. Although some of these distinctions may change over time as the e-commerce market matures, we believe high-end shops can still continue to attract traffic to the malls as a separate report from Europe has highlighted that the value of purchases made online tend to be fairly low, with c.70% of online shoppers spending less than €200.

3.4 Strength of suburban malls

The performance of suburban malls is usually deemed as indifferent to the external economic conditions as these malls are usually situated in neighbourhoods with high resident concentration. Retailers in these malls are usually in the trade of household goods and daily necessities. Based on our survey, 27.5% of respondents highlighted their preference to shop in these malls vs. the malls in the city centre (15.0%). This result coincides with the data that food and beverages (5.1%) and household goods (7.7%) are the least-preferred items to be bought online. With this, we can deduce that suburban malls will continue to play an imperative role in the retail business in Singapore and may be the least likely to be affected by the strengthening trend of online shopping.

3.5 Median income vs. retail sales per capita

As demonstrated in Figure 22, on the back of a high employment rate and growing family income, the median income to retail sales has been growing steadily since 2006. This, in our view, will continue to provide fundamental support to retail sales as affordability remains steady.

Figure 22: Median income vs. retail sales Figure 23: Net take-up rate

Title:

Source:

Please fill in the values above to have them entered in your report

x

1x

2x

3x

4x

5x

6x

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

S$

Gross Median Annual Income (LHS) Retail Sales per capita (LHS)

Median income to retail sales (RHS)

Title:

Source:

Please fill in the values above to have them entered in your report

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Net take-up of shop space

Net take-up of shop space in Outside Central Region

Net take-up of shop space in Central Region

SOURCES: CIMB, CEIC SOURCES: CIMB, URA

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3.6 Oversupply of malls?

With a growing supply of mall space in Singapore – averaging c.500,000 sq ft per year since 2009 – one has to wonder if there are too many malls in Singapore. However, our recent data revealed that the majority of the new supply over the past few years was mainly new malls in the suburban parts of the island. Currently, Singapore offers 4.6 sq ft per capita of suburban retail space (6.9 sq ft if prime malls are included), a level that is significantly lower than most developed cities around the world (11.8-45.2 sq ft per capita of retail space). Although there is an estimated upcoming supply of c.2.6m sq ft in 2014, the level of pre-commitment (80-100%) for these new malls is expected to provide mall owners with the ability to hold their rental rates steady.

Figure 24: Population growth vs. retail space growth Figure 25: Retail sales vs. retail space growth

Title:

Source:

Please fill in the values above to have them entered in your report

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Population Growth

Islandwide Retail Space Growth

Outside Central Region Retail Space Growth

Central Region Retail Space Growth

Title:

Source:

Please fill in the values above to have them entered in your report

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Retail sales growth Retail space growth

SOURCES: CIMB, CEIC, URA SOURCES: CIMB, CEIC, URA

Figure 26: Retail space per capita in Singapore Figure 27: Retail space per capita globally

* Suburban retail space per capita excludes non-residents living in suburban areas

4.1

4.2

4.2

4.3

4.3

4.4

4.4

4.5

4.5

4.6

4.6

6.9

7.1

7.3

7.5

7.7

7.9

8.1

8.3

8.5

('sf)('sf)

Retail space per capita (LHS) Suburban retail space per capita (RHS)

Title:

Source:

Please fill in the values above to have them entered in your report

4.66.9

11.814.0 14.4

16.4

23.7

45.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Reta

il space p

er capita

(sf)

SOURCES: CIMB, CEIC SOURCES: CIMB, CEIC

3.7 The tightening of labour supply

Since 2013, the Singapore government has restricted access for most trades to foreign labour. As a result of these tightening measures, operating costs for the traditional brick-and-mortar shops have been on the rise. This, in turn, has resulted in one of the key deterring factors when retailers consider the prospect of opening new shops in Singapore.

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4. IMPLICATIONS

4.1 Hotels – Value for money

From this survey, it can be deduced that Singapore remains a favourable destination for visitors, particularly for business purposes. In addition, as visitors seek better value for their money, the performance of mid-tier and high-end hotels, particularly those in good locations, is expected to be better than their peers in the luxury or budget space.

4.2 Retail – Headwinds from online shopping but rental expected to remain stable

On the other hand, with the growing trend of online shopping, mall owners may find it hard to raise rental rates, particularly on the back of dampened demand as a result of higher operating costs and difficulty in hiring help to man shops. We believe prime malls that focus on high street fashion and accessories may be the most affected while suburban malls are expected to be more resilient due to the nature of their business.

4.3 Stock implications

HOSPITALITY

Pure Singapore upscale hotel play (OUEHT SP, Add). We continue to favour OUE-HT for its ability to boost RevPAR by potentially charging higher room rates for its renovated rooms (40% of rooms scheduled for refurbishment in FY14) and its attractive yield of 8% vs. the industrial peers’ 7.1%. In addition, with its asset located in the prime district of Orchard Road and positioned in the upscale hotel segment, we believe OUE-HT will be one of the key beneficiaries of the strengthening of the hotel market in 2014.

Strengthening of Singapore portfolio (CDREIT SP, Add). Similarly, CDL-HT, which owns a diversified portfolio of upscale hotels in Singapore, is expected to benefit from the increasingly cost-conscious visitors to Singapore. In addition, with c.55% of its total revenue coming from corporate spending, we believe CDL-HT will benefit from an event-packed calendar in Singapore and the potential recovery of corporate spending. Other factors that can boost earnings include the continued strengthening of tourism in the Maldives, where CDL-HT owns two resorts.

RETAIL

Frasers Centrepoint Trust remains top pick (FCT SP, Add). With its portfolio of well-positioned malls in the suburban parts of Singapore, we believe FCT will be one of the mall owners least affected by the growing online shopping trend. In addition, with 13.3% and 39.6% of leases due to be renewed in FY14 and FY15 respectively, concentrating in Causeway Point and North Point, two of its strongest-performing malls, FCT is expected to undergo positive rental reversions in FY14 and FY15. Lastly, with the upcoming acquisition of Changi City Point, we expect the REIT to be able to achieve 20-30% of positive rental reversion from this mall over the next two years where 38.4% of leases are due to be renewed in FY15 and 40.3% in FY16.

SPH REIT may continue to have pricing power (SPHREIT SP, Unrated). The owner of Paragon along Orchard Road may similarly be one of the mall owners the least affected by the rise of online shopping. As highlighted previously, the value of purchases made online tends to be fairly low. Paragon, which enjoys a portfolio of luxury brand tenants, is expected to continue to do well. Clementi mall, SPH REIT’s other asset, is located in the suburban part of Singapore and is also expected to continue to do well.

Buy SingPost (SPOST SP, Add). A key beneficiary of the rising e-commerce trend is SingPost, which provides e-commerce logistics solutions across the Asia-Pacific region. SingPost also operates vPOST, an international shipping service that allows customers to ship items from overseas merchants.

May 21, 2014

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Rating Distribution (%) Investment Banking clients (%)

Outperform/Buy/Trading Buy/Add 56.2% 4.6%

Neutral/Hold 28.0% 2.7%

Underperform/Sell/Trading Sell/Reduce 15.8% 1.0%

Distribution of stock ratings and investment banking clients for quarter ended on 31 March 2014

1416 companies under coverage for quarter ended on 31 March 2014

As at the time of publishing this report CIMB is phasing in an absolute recommendation structure for stocks (Framework #1). Please refer to all frameworks for a definition of any recommendations stated in this report.

CIMB Recommendation Framework #1 Stock Ratings Definition Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months. Sector Ratings Definition Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation. Country Ratings Definition Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

CIMB Stock Recommendation Framework #2 * Outperform The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months. Neutral The stock's total return is expected to be within +/-5% of a relevant benchmark's total return. Underperform The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months. Trading Buy The stock's total return is expected to exceed a relevant benchmark's total return by 3% or more over the next 3 months. Trading Sell The stock's total return is expected to be below a relevant benchmark's total return by 3% or more over the next 3 months. * This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

CIMB Stock Recommendation Framework #3 ** Outperform Expected positive total returns of 10% or more over the next 12 months. Neutral Expected total returns of between -10% and +10% over the next 12 months. Underperform Expected negative total returns of 10% or more over the next 12 months. Trading Buy Expected positive total returns of 10% or more over the next 3 months. Trading Sell Expected negative total returns of 10% or more over the next 3 months. ** This framework only applies to stocks listed on the Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

May 21, 2014

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Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013. AAV – Good, ADVANC - Excellent, AMATA - Very Good, ANAN – Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH – Good, BCP - Excellent, BEC - Very Good, BGH - not available, BJC – Very Good, BH - Very Good, BIGC - Very Good, BTS - Excellent, CCET – Very Good, CENTEL – Very Good, CK - Excellent, CPALL - Very Good, CPF – Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EGCO – Excellent, GLOBAL - Good, GLOW - Very Good, GRAMMY – Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH – Excellent, ITD – Very Good, IVL - Excellent, JAS – Very Good, KAMART – not available, KBANK - Excellent, KKP – Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR – Very Good, MAKRO – Very Good, MCOT - Excellent, MINT - Excellent, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS – Excellent, SAMART – Excellent, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI – Very Good, SPALI - Excellent, STA - Good, STEC - Very Good, TCAP - Excellent, THAI - Excellent, THCOM – Excellent, TICON – Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW – Excellent, TUF - Very Good, VGI – Excellent, WORK – Good.