singapore company guide sph reit - dbs vickers online trading€¦ · singapore research team...

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: JC, PY

BUY (Upgrade from HOLD)

Last Traded Price ( 15 Mar 2017): S$0.97 (STI : 3,137.43) Price Target 12-mth: S$1.03 (7% upside and 6% yield) (Prev S$1.00) Potential Catalyst: Acquisition of The Seletar Mall in the next 12 months Where we differ: Built in The Seletar Mall’s contributions from FY18 Analyst Singapore Research Team [email protected] Derek TAN +65 6682 3716 [email protected]

What’s New Opportune time to acquire The Seletar Mall within

next six months prior to first renewal cycle

Market have not priced in upside from a

potentially value accretive deal

Assumed both equity and debt fundraising still

results in improved distributions and liquidity

Upgrade to BUY with total return exceeding 13%

Price Relative

Forecasts and Valuation FY Aug (S$m) 2015A 2016A 2017F 2018F Gross Revenue 205 210 221 264 Net Property Inc 156 161 164 192 Total Return 154 128 127 144 Distribution Inc 139 141 146 165 EPU (S cts) 6.08 5.02 4.97 5.39 EPU Gth (%) (29) (17) (1) 8 DPU (S cts) 5.47 5.55 5.69 5.94 DPU Gth (%) 1 1 2 4 NAV per shr (S cts) 94.3 93.4 92.7 92.9 PE (X) 15.9 19.2 19.4 17.9 Distribution Yield (%) 5.7 5.8 5.9 6.2 P/NAV (x) 1.0 1.0 1.0 1.0 Aggregate Leverage (%) 25.5 25.5 26.0 30.6 ROAE (%) 6.5 5.3 5.3 5.8 Distn. Inc Chng (%): (1) 10 Consensus DPU (S cts): 5.7 5.8 Other Broker Recs: B: 2 S: 1 H: 3

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.

Get Ready (before it's too late) Upgrade to BUY, TP raised to S$1.03. We believe that it is an opportune time for SPH REIT to consider acquiring The Seletar Mall from its Sponsor, most ideally within the next six months prior to the asset undergoing its first renewal cycle at the end of 2017 as we see upside to rents. We believe that this deal will re-accelerate SPH REIT's growth profile in the medium term and market will be supportive of this deal. Imputing the acquisition in our forecasts, our TP is increased by 3% to S$1.03. Upside from acquisition not priced in yet. Following the potential acquisition of Seletar Mall (c.S$500m), we estimate a 3-4% rise in DPUs on the assumption of an optimal funding scenario which involve a partial equity fund raising of S$200m. Post the acquisition, gearing will increase slightly from 26% to 31% but still conservative compared to average peer level of 34%. Most importantly, we see inproved liquidity in the stock, which will be positive for stock prices.

Seletar Mall to drive higher growth. With Seletar Mall, we are positive that SPH REIT’s portfolio will see stronger performance in the medium term. SPH REIT will derive a higher proportion of its income from necessity shopping (rising from 20% to 32%), which adds to its diversity and resilience. Growth will derive from higher rents achieved at Seletar Mall once its leases rollover from FY18F which will enable SPH REIT to deliver a sustained growth in dividends. Valuation:

We increased our DCF-backed TP to S$1.03 from S$1.00 after incorporating the contributions from Seletar Mall from FY18, and the increase in gearing ratio to acquire the asset. The stock offers a dividend yield of around 6% and price upside potential of 7%. Upgrade to BUY. Key Risks to Our View:

Timing and price of the Seletar Mall acquisition. Later than projected acqusition of Seletar Mall could mean downside to accretion estimates. At A Glance Issued Capital (m shrs) 2,553 Mkt. Cap (S$m/US$m) 2,464 / 1,740 Major Shareholders (%) Singapore Press Holdings 68.6 National Trades Union Congress 5.3

Free Float (%) 26.1 3m Avg. Daily Val (US$m) 0.59 ICB Industry : Real Estate / Real Estate Investment Trusts

DBS Group Research . Equity 16 Mar 2017

Singapore Company Guide

SPH REIT Version 6 | Bloomberg: SPHREIT SP | Reuters: SPHR.SI Refer to important disclosures at the end of this report

ASIAN INSIGHTS VICKERS SECURITIES

Company Guide

SPH REIT

Potential acquisition of The Seletar Mall to re-accelerate growth profile Upgrade to BUY after assuming the acquisition of The Seletar Mall from FY18. We believe that the potential acquisition of The Seletar Mall from the REIT’s Sponsor SPH Ltd will be a value-accretive purchase for the REIT. As the mall approaches its first rental renewal cycle towards the end of 2017, it would be an optimal time to acquire the property and enjoy the upside from earnings when the leases are rolled over from 2018 onwards. We incorporated the acquisition of The Seletar Mall in our assumptions and assume an acquisition by the end of FY17, with contributions from the new asset from FY18 in our model. We assume SPH REIT to (i) issue S$200m in new equity, (ii) raise its gearing to a higher level of 31% (vs 26% currently) by raising the rest of the S$300m in debt. The additional contribution would result in a 3-4% rise in DPUs from FY18F onwards. The REIT is therefore projected to grow its distributions by a higher rate of 5% in the medium term (vs 1% previously). As a result, our TP is increased by 3% to S$1.03 from S$1.00. With a total return of >13% from current level, we upgrade the stock to BUY.

Value-accretive deal. We estimate the NPI yield for The Seletar Mall to be 5.2%, based on a total acquisition cost of S$500m (the latest appraised value of S$495m plus acquisition fees), which is marginally higher than the current estimated 5.1% NPI yield for its existing portfolio, meaning that acquiring the mall will be value accretive to the REIT. Why is a equity fund raising requited? Although SPH REIT has the debt capacity to fully debt fund the purchase, we believe that it will be of the interest of the REIT manager and unithodlers to part fund the purchase through equity as it will improve the stock’s liquidity and at the same time, maintain a conservative gearing profile. We have assessed three scenarios according to different combinations of debt versus equity funding to acquire The Seletar Mall (Table 1). Note the projected numbers are based on acquisition of 100% stake of The Seletar Mall. The impact will be less if the REIT only acquires 70% of the what is owned by its Sponsor alone.

Table 1: Impact on Forecast after The Seletar Mall acquisition (assuming 100% stake acquired)

Before Acquisition

Scenario 1: 100% debt-funded

acquisition

Scenario 2: Max. equity financing to be non-DPU dilutive

Scenario 3 (Base-case Scenario): Debt+Equity funded

acquisition NPI $167.8m $194.2m NPI Yield (Book) 5.10% 5.18% Portfolio Aggregate Gearing 26% 36% 26% 31% Seletar Acquisition - debt financing $500m

100% S$100m

20% S$300m

60% Seletar Acquisition – equity financing $0m

0% S$400m

80% S$200m

40% FY18F DPU 5.72 Scts 6.27 Scts 5.72 Scts 5.94 Scts Change in DPU (Amount/%) +0.55 Scts

+9.7% Nil +0.22 Scts

+3.8% DPU Forward Yield* 5.9% 6.5% 5.9% 6.1% TP S$1.00 S$1.03 Total Potential Return* c.10% >13% NAV S$0.94 S$0.96 (est.) TP/NAV 1.06x 1.07x DBS Thoughts: - Unlikely as it will result

in a higher than comfortable gearing

level of 36%. This will further limit the REIT to be able to tap on any

opportunities that may arise after.

Unlikely as it will mean no accretion to current unitholders who would

then not be incentivised to vote for

the acquisition.

A base-case scenario in our view as it will result in a 3-4% rise in DPUs, improve liquidity of the

stock while maintaining a conservative gearing of

31%.

Source: DBS Bank *Based on last traded price of S$0.97


Company Guide

SPH REIT

Graph 1: Projected NPI Growth with The Seletar Mall

Source: Corporate and DBS Bank estimates

Graph 2: Projected DPU Growth with The Seletar Mall

Source: Corporate and DBS estimates

The Seletar Mall offers improved earnings visibility Mall in the North-East. The Seletar Mall is located in the west of the Sengkang subzone in the North-East Region of Singapore, serving its immediate catchment area named Fernvale, a neighbourhood with two schools and a population of 44,570, around 20% of the population of Sengkang (Graph 3 and Graph 4). The Seletar Mall has a fairly small footprint with a total net lettable area (NLA) of 188,000 sqft. Compared to SPH REIT’s other assets in its portfolio, the mall is similar to Clementi Mall and about a quarter of Paragon. A convenience mall that serves “everyday needs”. There are no large or mega malls in the Sengkang subzone. In fact, the closest mega malls (NLA >300,000 sqft), such as Waterway Point, Nex and Ang Mo Kio Hub, are all located between 5-10km away and require more than 30-minute travel time on public transport (Graph 4). As such, we believe that the lack of competition from mega malls, which usually draw shoppers beyond their immediate catchment areas, gives The Seletar Mall an edge and a clear positioning as a neighborhood shopping destination serving the residents’ necessities. Furthermore, there is no real competition even within Sengkang as there are only four shopping centres in the subzone and all have NLA below 300,000 sqft. The other three malls are closer to each other in the east side of Sengkang (Graph 3). There is no material retail supply planned in the North East region either. Hence, no matter it is for an individual to go grocery shopping, a couple to see a movie, or a family to have a meal, The Seletar Mall is the go-to place in the Fernvale neighbourhood, and partially the Anchorvale and Compassvale neighbourhoods (Graph 3). Strong population growth. The Fernvale neighbourhood has new many residential projects and more than 4,500 new units to be filled in the near future. Three condos are completing in the next couple of years, namely the 555-unit Riverbank@Fernvale in 2017, the 487-unit RiverTrees Residences in 2018 and the 1,390-unit High Park Residences in

2019. Two built-to-own (BTO) projects, the 727-unit Fernvale Riverwalk (2013 BTO) and the 1,160-unit Fernvale Woods (2015 BTO) will receive estimated T.O.P. in 2017 and 2019 respectively. In addition, Lush Acres, a 380-unit executive condominium (EC), has just been completed in 2016. Filling up these units will mean that captive population within the neighborhood will expand. While we do not exclude the possibility of new shopping malls being built to meet the new demand, The Seletar Mall would be the most established shopping centre in the area and will reap the benefit from the strong population growth. Table 2: Factsheet of The Seletar Mall

Location 33 Sengkang West

Avenue, Singapore

797653

Ownership SPH (70%)

United Engineers (30%)

GFA 284,000 sqft

NLA 188,000 sqft

Building Structure Six levels of retail and

three levels of parking

with 384 lots

Land Lease 99 years since Aug 2012

Open Year Nov 2014

Number of Stores 132

Anchor Tenants (% of mall NLA) NTUC FairPrice Finest

(12%)

NTUC Foodfare (6%)

Shaw Theatres (9%)

Occupancy (30/11/2016) 100%

Valuation (31/8/2016) S$495.0m

Valuation psf (31/8/2016) S$2,633

Est. Revenue (FY16) c.S$37m

Est. NPI (FY16) c.S$26m

Est. NPI Yield (incl. acquisition cost) 5.2%

Source: www.theseletarmall.com, press release, SPH LTD financial reports, DBS Bank estimates

0

50

100

150

200

250

FY16A FY17F FY18F FY19F

S$m

Paragon Clementi Mall Seletar Mall

161

197164

192

5.55 5.69 5.72

5.82

0.22

0.22

5.30

5.40

5.50

5.60

5.70

5.80

5.90

6.00

6.10

FY16A FY17F FY18F FY19F

Scts

DPU w/o Seletar Mall DPU contribution from Seletar Mall


Company Guide

SPH REIT

Graph 3: Subzones and Population. The Seletar Mall serves the immediate catchment area of Fernvale

Source: URA, Google Map, DBS Bank Graph 4: Location by rail of The Seletar Mall vs Large/Mega Malls around

Source: Translink Singapore, DBS Bank. Note the map is not drawn in scale.

16km away:

Orchard Road

20km away:

CBD

The Seletar Mall (NLA 188,000

sqft) 11km away: Northpoint Shopping Centre (NLA 225,000 sqft) &

Northpoint City – to be completed in 2018 (site area 422,200 sqft)

5km away: Waterway Point (NLA 370,800 sqft)

9km away: Nex (NLA

600,000 sqft)

7km away: Ang Mo Kio Hub (NLA

350,000 sqft)

1 2 3

4

1 The Seletar Mall (NLA 188,000 sqft) 2 Compass One (NLA 270,000 sqft) 3 Rivervale Mall (NLA 81,200 sqft) 4 Rivervale Plaza (NLA est.<100,000 sqft)


Company Guide

SPH REIT

Positive Financial impact to SPH REIT Benefitting from revenue and asset diversification as well as rental upside. We believe SPH REIT will benefit from the acquisition of The Seletar Mall, as it brings diversity to its portfolio and reduce the concentration of Paragon in the portfolio’s revenue as it falls from c.80% to c.70%. This is based on our assumed acquisition cost of S$500m and estimated NPI from The Seletar Mall of c.S$26m. The acquisition will diversify SPH REIT’s income and will have an increased focus on the consumer staples segment in Singapore which offer improved resilience and volatility to external economic shocks.

Upside from potentially higher rents. Furthermore, we estimate the psf per month rent for The Seletar Mall at around S$15-16, lower than the other comparable malls (Table 3). This means The Seletar Mall will add a pillar to the future growth engine of SPH REIT.

Table 3: Rental and Valuation Comparison

Est. Avg Rental (S$psf/m)

Cap Rate Value psf (S$)

Lot One 16.8 5.35% 2,329 Northpoint 16.8 5.35% 2,986 Clementi Mall 16.9 5.00% 2,988 The Seletar Mall

15.1-16.0 (est.) 5.35% (est.) 2,633

Source: Corporate, DBS estimates

Graph 5: Change in Revenue Contribution (pro-forma FY2016)

Source: Corporate, DBS Bank

Graph 6: Change in Asset Contribution (pro-forma FY2016)

Source: Corporate, DBS Bank

80% 68%

20% 17%

15%

0

50

100

150

200

250

SPHREIT Portfolio SPHREIT Portfolio + SeletarMall

S$m

Revenue Contribution


82% 71%

18% 15%

13%

0

1,000

2,000

3,000

4,000

SPHREIT Portfolio SPHREIT Portfolio + Seletar Mall

S$m

Value of Investment Properties



Company Guide

SPH REIT

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Acquisition of The Seletar Mall before end of 2017. The Seletar Mall began operating in December 2014, and will be undergoing its first rental renewal cycle towards the end of 2017. We believe there is room for rental uplift, and hence SPH REIT can benefit from this if it acquires The Seletar Mall before the renewal period. Maximising mall efficiency to generate higher yields. At Paragon, the additional 7,000 sqft of net lettable area (NLA) to be generated by the chiller decanting project is progressing as scheduled. Once completed, it is expected to generate additional revenue of c.S$1m p.a. and ROI of >7%. This project will be spread over three years from September 2015 to March 2018, in order to coincide with various lease expiries of tenants in the area. Stable earnings profile. SPH REIT secured overall rental reversions of 5.4% for FY16 (5.2% for Paragon; 7.8% for Clementi Mall) while maintaining a track record of 100% occupancy. The REIT’s portfolio had a weighted average lease expiry (WALE) of around 2.5 years. Without any acquisition, we expect earnings to be stable over the next two years. The next largest leasing tranche in the current portfolio will be in FY17, when more than 30% of Clementi Mall’s NLA will come up for renewal. Regardless of the results, earnings in FY17 should be stable due to the income support from the Sponsor at Clementi Mall. However, reversion levels are still crucial as they would set a new base for Clementi Mall when the income support ends in 2018. Healthy occupancy costs ensure a vibrant medium-term outlook for the malls. While Paragon’s occupancy costs rose to 19.6% in FY16 as tenant sales grew at a slower rate than rents, this is still within the healthy range for a mall in Orchard Road, where tenants are typically willing to count higher rents as part of marketing costs. Higher sales growth in subsequent years will allow the REIT to generate higher rental revenue in a sustainable manner. Revitalised tenant mix. The REIT has a strategy to continuously restructure the tenant mix to keep its investment properties relevant to respective target shoppers. The aim is to enable the REIT to reap better tenant synergies to improve traffic and potentially boost the attractiveness of its malls which can lead to higher rental reversions and renewals.

Net Property Income and Margins (%)

Net Property Income and Margins (%)

Distribution Paid / Net Operating CF

Interest Cover (x)

Source: Company, DBS Bank


Company Guide

SPH REIT

Balance Sheet:

Gearing Ratio. SPH REIT has maintained a healthy gearing ratio of around 26% that is well within the Manager’s comfortable range of up to 40%. This provides the REIT with a significantly larger headroom for debt financing should it decide to gear up on acquisitions. Net Asset Value (NAV) per unit. NAV of S$0.94 is underpinned by stable asset valuations. Share Price Drivers:

Potential acquisitions. With a healthy gearing below 30% and cost of debt of less than 3.0%, SPH REIT is well poised for debt-funded acquisitions. The next growth catalyst for the REIT will be the acquisition of the Sponsor’s 70% stake in The Seletar Mall, which was completed in December 2014. We believe the transaction is likely to happen in the next 12 months, and most ideally in the next six months before the mall’s first rental recycle at the end of 2017. Key Risks:

Timing and Price of The Seletar Mall acquisition. While we believe it is very likely for the transaction to happen in the next 12 months at a price marginally higher than the current appraised value of S$495m, the exact timing and price are uncertain. Visitor traffic trended down by 2.5% and 2.4% in FY16 at Paragon and Clementi Mall respectively. However, we do not believe it is a concern. Paragon’s tenant sales registered a positive growth of 1.4%, and more traffic could be drawn from the opening of the link bridge. The decline at Clementi Mall was most likely from the unproductive traffic as a new MRT exit at Clementi station opened early in the year provides an alternative route for the train passengers. Management fees payable in units. The REIT is one of the few S-REITs that pays 100% of management fees in units as opposed to cash (S$16.3m in FY16, 11.7% boost to distributions). The Manager has in 1Q17 proposed to consider partial payment in cash. Once approved by the Board, we believe this will strengthen the sustainability of DPU growth although this may dampen DPUs in the next few years. Company Background

SPH REIT is a real estate investment trust that invests in income-producing retail malls in Singapore. It currently owns the Paragon Mall within the Orchard Road district, as well as Clementi Mall, located in the west of Singapore.

Aggregate Leverage (%)

ROE (%)

Distribution Yield (%)

PB Band (x)



Company Guide

SPH REIT

Income Statement (S$m)

FY Aug 2014A 2015A 2016A 2017F 2018F Gross revenue 202 205 210 221 264 Property expenses (51.6) (49.5) (48.7) (56.9) (71.9) Net Property Income 151 156 161 164 192 Other Operating expenses (17.2) (17.7) (17.9) (16.9) (19.7) Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (19.6) (21.0) (23.1) (19.6) (28.8) Exceptional Gain/(Loss) 103 36.6 7.69 0.0 0.0 Net Income 217 154 128 127 144 Tax 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Income After Tax 217 154 128 127 144 Total Return 217 154 128 127 144 Non-tax deductible Items 22.5 21.6 21.2 18.7 20.9 Net Inc available for Dist. 136 139 141 146 165 Growth & Ratio Revenue Gth (%) (6.7) 1.4 2.2 5.3 19.7 N Property Inc Gth (%) (5.2) 3.3 3.4 1.8 17.4 Net Inc Gth (%) 85.0 (29.1) (16.9) (0.2) 13.1 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 74.5 75.9 76.8 74.2 72.8 Net Income Margins (%) 107.1 74.9 60.9 57.7 54.4 Dist to revenue (%) 67.4 67.5 67.3 66.1 62.3 Managers & Trustee’s fees 8.5 8.6 8.6 7.7 7.5 ROAE (%) 9.6 6.5 5.3 5.3 5.8 ROA (%) 6.8 4.7 3.9 3.9 4.1 ROCE (%) 4.2 4.2 4.4 4.5 4.9 Int. Cover (x) 6.8 6.6 6.2 7.5 6.0


Assuming full-year contribution of $37m in revenue and S$24.5m in NPI from The Seletar Mall from FY18


Company Guide

SPH REIT

Quarterly / Interim Income Statement (S$m)

FY Aug 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 Gross revenue 52.1 53.1 52.2 52.2 52.6 Property expenses (12.0) (12.5) (12.2) (12.0) (11.2) Net Property Income 40.1 40.6 40.0 40.2 41.4 Other Operating expenses (4.5) (4.6) (4.6) (4.3) (4.6) Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (5.8) (5.8) (5.8) (5.7) (5.8) Exceptional Gain/(Loss) 0.0 0.0 0.0 7.69 0.0 Net Income 29.8 30.3 29.6 37.9 31.1 Tax 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Income after Tax 29.8 30.3 29.6 37.9 31.1 Total Return 28.6 30.7 29.3 28.1 29.8 Non-tax deductible Items 5.48 6.18 5.36 4.17 5.30 Net Inc available for Dist. 35.3 36.4 35.0 34.4 36.4 Growth & Ratio Revenue Gth (%) 3 2 (2) 0 1 N Property Inc Gth (%) 5 1 (1) 0 3 Net Inc Gth (%) (54) 1 (2) 28 (18) Net Prop Inc Margin (%) 77.0 76.5 76.6 77.0 78.8 Dist. Payout Ratio (%) 95.4 97.5 98.8 104.5 94.0

Balance Sheet (S$m)

FY Aug 2014A 2015A 2016A 2017F 2018F Investment Properties 3,159 3,213 3,230 3,240 3,746 Other LT Assets 13.5 14.4 7.99 7.35 7.35 Cash & ST Invts 90.7 77.4 67.4 43.1 47.7 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 5.91 5.01 5.89 5.89 5.89 Other Current Assets 0.0 0.37 0.0 0.0 0.0 Total Assets 3,269 3,310 3,311 3,296 3,807 ST Debt 0.0 249 0.0 0.0 0.0 Creditor 35.1 30.2 34.2 11.6 13.9 Other Current Liab 0.0 0.0 0.0 0.0 0.0 LT Debt 843 596 846 856 1,166 Other LT Liabilities 37.7 36.7 42.7 42.7 42.7 Unit holders’ funds 2,353 2,398 2,389 2,386 2,584 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Funds & Liabilities 3,269 3,310 3,311 3,296 3,807 Non-Cash Wkg. Capital (29.2) (24.9) (28.3) (5.7) (8.0) Net Cash/(Debt) (752) (768) (779) (813) (1,118) Ratio Current Ratio (x) 2.7 0.3 2.1 4.2 3.9 Quick Ratio (x) 2.7 0.3 2.1 4.2 3.9 Aggregate Leverage (%) 25.8 25.5 25.5 26.0 30.6 Z-Score (X) 3.5 3.4 3.5 3.6 3.5


Thanks to the REIT’s low leverage ratio, it has ample debt room to finance the acquisition of The Seletar Mall. Under our base-case scenario, the acquisition will be funded by 60/40 debt/equity, lifting gearing ratio from 26% to 31%.


Company Guide

SPH REIT

Cash Flow Statement (S$m)

FY Aug 2014A 2015A 2016A 2017F 2018F Pre-Tax Income 114 117 120 127 144 Dep. & Amort. 0.12 0.16 0.21 0.0 0.0 Tax Paid 0.0 0.0 0.0 0.0 0.0 Associates &JV Inc/(Loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 21.0 1.28 (1.9) (22.6) 2.29 Other Operating CF 39.5 40.0 16.1 16.3 19.0 Net Operating CF 175 158 134 121 165 Net Invt in Properties (2.7) (15.3) (8.5) (9.9) (506) Other Invts (net) (0.2) (0.1) (0.1) 0.63 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc. & JVs 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.21 0.61 0.85 0.0 0.0 Net Investing CF (2.7) (14.8) (7.8) (9.3) (506) Distribution Paid (115) (138) (139) (146) (165) Chg in Gross Debt 0.0 (0.2) (1.0) 10.0 310 New units issued (9.0) (18.8) (22.3) 0.0 200 Other Financing CF (17.8) 0.0 0.0 0.0 0.0 Net Financing CF (142) (157) (162) (136) 345 Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 29.8 (13.3) (35.6) (24.3) 4.63 Operating CFPS (S cts) 6.10 6.22 5.36 5.61 6.10 Free CFPS (S cts) 6.82 5.66 4.95 4.34 (12.8)


Target Price & Ratings History

Source: DBS Bank

Analyst: Singapore Research Team

Derek TAN

Built in the acquisition of The Seletar Mall in FY2018, funded by S$300m in debt and S$200m in equity.


Company Guide

SPH REIT

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends Completed Date: 16 Mar 2017 07:25:13 (SGT) Dissemination Date: 16 Mar 2017 08:48:29 (SGT)

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This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.


Company Guide

SPH REIT

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public

offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage

in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the

issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real

estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the

management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or

his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the

DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in SPH

REIT recommended in this report as of 28 Feb 2017.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.

Compensation for investment banking services:

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of

which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.


Company Guide

SPH REIT

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No.

198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.


Company Guide

SPH REIT

United Kingdom

This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States This report was prepared by DBS Bank Limited. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd

12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888

e-mail: [email protected] Company Regn. No. 196800306E

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