Singapore Property Refer to important disclosures at the end of this report

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1 Singapore Industry Focus Refer to important disclosures at the end of this report DBS Group Research. Equity 8 Jan 2015 Year of Reckoning Modest growth prospects for Singapore property market; sectors linked to external demand to do well Prefer Developers to S-REITs on valuations S-REITs focus on growth rather than rate hikes Modest growth prospects; sectors linked to external demand to outperform. The Singapore property market will likely see a further downshift in growth in 2015 as prices and rentals across major real estate subsectors feel the brunt of ongoing economic restructuring (Retail sector). In addition, demand/supply imbalance due to supply completion schedules is positive for Office prospects but result in a drop in rents and prices in Industrial and Residential sector respectively. We believe that the Hospitality sector will post a rebound in RevPARs as accommodation demand (mainly from China) picks up faster than supply growth. Prefer Property Developers to S-REITs. From a valuation perspective, we prefer developers to S-REITs as we expect valuations to normalize towards historical average of 0.90x P/Bk NAV (vs 0.83x P/Bk NAV currently) while forward yield spreads at c. 3.5% for S-REITs is already at normalized historical average levels, which we deem to be fair. Property Developers opportunities outside of Singapore. Property developers are expected to continue (i) clearing existing unsold inventories and remain selective on land-banking opportunities in Singapore, (ii) deploy capital in opportunities outside of Singapore to diversify and build up a recurring income base. Valuations are attractive at 0.83x P/Bk NAV, 0.7x P/RNAV. Our top developer pick is CAPL for its improving ROEs and diversified earnings base. Focus on growth for S-REITs rather than rate hikes. It will be a year of two halves for S-REITs and we believe the sector will see more pressure in 2H15 as rate hikes loom. We see (i) a modest growth outlook of c.5.3% in 2015 with potential downside from foreign exchange (AUD, JPY and EUR) impacting distributions and (ii) stronger USDSGD rate impacting on returns as hurdles to further outperformance in That said, further clarity from MAS recent regulatory recommendations is near term catalyst for investors in the space. Our picks are CDL HT, A-REIT, CMT, MAGIC and FCOT. STI : 3, Analyst Derek TAN derektan@dbs.com Mervin SONG CFA mervinsong@dbs.com Rachael TAN rachaeltan@dbs.com STOCKS PICKS Price Mkt Cap Target Price Yield (%) P/Bk (S$) 6/1/15 US$m S$ FY15F FY15F Rating Developers CapitaLand , % 0.8 BUY REITs CDL Hospitality , % 1.1 BUY Trusts Ascendas REIT , % 1.2 BUY Capitamall Trust , % 1.2 BUY Mapletree Greater , % 0.9 BUY China Trust Frasers Commercial Trust % 0.9 BUY Source: Bloomberg Finance LLP, DBS Bank ed: TH / sa: JC

2 Derek TAN (65) Mervin SONG CFA (65) Rachael TAN (65) Table of Contents Investment Summary 3 Key Charts 4 Peer Comparisons 7 Singapore REITs Navigating tougher times 9 Developers Awaiting re-rating catalysts 17 Subsector Outlook Summary: Residential Approaching a slippery slope 20 Retail - The swing to the suburbs 32 Office Displacement demand to sustained uplift in rents for Industrial Sector Business Park space to shine 45 Hospitality Sector Renewed hope 50 Charts S-REIT yield and P/Bk NAV 59 Charts Developers P/Bk NAV 68 Stocks Profiles Ascendas REIT 72 Capitaland 76 CapitaMall Trust 80 CDL Hospitality Trusts 84 Fraser Commercial Trust 88 Mapletree Greater China Commercial Trust 92 Page 2

3 1. Investment Summary Subdued outlook for Singapore property market - sectors hinging on external demand to do better will continue to be a year of further moderation for Singapore property market with most real estate subsectors expected to feel the brunt of ongoing economic restructuring or demand/supply imbalance due to a spike in supply completions in 2015/2016. Office rents to peak in 1H16; office REITs prices typically lead spot rents by 9months-1year. Amongst the key real estate sectors, we see the brightest rental prospects in the office sector, supported by a lack of supply in space in the CBD and expect rents to increase by c. 10% over We expect a positive flow-through to demand in the Business Parks/Suburban office space. We are however, aware of the medium term risk in the sector due to a skew in supply completions in 2016/2017 and expect medium term downside risks. Office REITs prices typically lead spot rents by 9 months to 1 year, meaning that further upside from current levels is limited. Hospitality rebound from a low base. We believe that the Singapore hospitality sector is poised for a rebound in 2015 driven by returning tourists from China. We project demand for accommodation to more than compensate for a 5.7% growth in room supply. RevPARs is expected to post a turnaround, albeit at a more moderate rate of 3.6%. Retail remains resilient; but reversions to fall below inflation growth rate. The retail sector is expected to continue to remain resilient despite an increasing tough operating climate for retailers faced with increasing labour cost, shortage impacting productivity. In addition, e-commerce remains a rising threat for retailers who are unable to establish an online presence. That said, retail REITs should remain stable given that they (i) own only c.34% of total retail space in Singapore and (ii) actively manage their properties which see high recurring spending and traffic. Supply concerns for industrial but business park subsector fundamental improving. We remain cautious on the industrial sector due to increased downside risks on the back of heightened supply completion schedule in 2015/2016. This will spike vacancy rates to >10% and spot rents are projected to dip by c.5% per annum over 2015/2016. Industrial REITs will see flattening or potentially negative rental reversion rates over the next two years. That said, we are positive on the business park subsector as we see demand returning due to a lack of office supply in the CBD. Residential prices projected to drop 15% over 2015/16. With prices only down c.3.9% from the peak, we believe that the residential sector remains on an early part of a down-cycle. With a reduced population growth rate resulting in slowing demand, we see prices falling by up to c.15% over in anticipation of (i) a hike in supply completion over , resulting in vacancy rates rising to 9%-10%, and (ii) yield compression on the back of weakening rental rates impacting and rising interest cost. Strategies for: Singapore REITs stock specific catalyst to drive performance Singapore REITs have done their job well over the past two years, offering investors stable returns in market uncertainty. Looking into 2015, while timing of rate hikes will remain a sector overhang, we see road-bumps to further outperformance from (i) a modest DPU growth of c.5.3% with downside risks in earnings stemming from Singapore s domestic restructuring impacting on margins, (ii) forex exchanges losses (especially for S-REITs with exposure to the AUD/JPY and EUR) will be a key dampener for earnings in 2015 and (iii) strengthening USD-SGD which may lead to fund outflows from the sector. We expect S-REITs to continue to look at overseas for growth opportunities and acquisitions to feature. Catalyst will come from clarity from the recent MAS consultant paper and expiring tax incentives. Our preferences are S-REITs with the opportunity to surprise on the upside through acquisitions or portfolio-specific catalysts. Top picks are CDL HT, A-REIT, CMT, MAGIC and FCOT. Singapore Developers Diversifying out of Singapore Our call on the developers is mainly due to valuations. Firstly, we view current trading levels of (P/Bk NAV of 0.83 and 0.70x P/RNAV) as attractive given that developers trade at close to historical 0.5 SD level. While we expect further downside to Singapore residential prices in 2015, we note that developers have in general (i) locked in a substantially portion of sales in residential projects in Singapore residential and have been selective in land-banking strategies, (ii) diversified their exposures away from Singapore and have been focused on building up their recurring income base. We see catalysts coming from a potential loosening of selective property measures when further price declines occur and value unlocking events through asset divestments over the year. Our pick is CAPL. Risks 1. Earlier than expected rise in interest rates negatively impacting on earnings 2. External shocks impacting on demand/supply fundamentals. Page 3

4 2. Key Charts Summary of DBS assertions on Major Property Subsectors Residential Market to see a surplus in housing units in ,000 30,000 20,000 10,000 (10,000) (20,000) (30,000) (40,000) (50,000) Surplus/Deficit (units) Change in Dwellings URA PPI (RHS) Surplus Key Assertions New supply completions spiking in 2015/16 adds pressure to rentals and vacancy rates Widening spread between HDB resale and private property prices affecting upgrader affordability Residential market still early in the down-cycle; project prices to dip 12-15% over Outlook Negative Vacancy Rates and PPI movement Index 12.0% 10.0% 50.0 Property Price Index (LHS) 2.0% Vacancy Rate (RHS) 0.0% Risks Slower than projected decline in prices resulting in a delayed relaxation of cooling measures External shock causing a downturn in the Singapore economy and a significant decline in the property market (%) 8.0% 6.0% 4.0% Retail Outlook - Neutral Rental reversions to moderate as RSI declines Overseas travel causing a slowdown in retail spend 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% RSI Growth over 3 years ago Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 RSI ex-motor vehicles (LHS) Re versions (%) CMT portfolio reversions (%) RHS Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Re tail sales growth vs 3 years pr ior: worse than during GFC Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul ,000 25,000 20,000 15,000 10,000 5,000 0 S$'m Residents' Expenditure Abroad Residents' Expenditure Abroad as % of PCE % of PCE % 17.5% 17.0% 16.5% 16.0% 15.5% 15.0% 14.5% 14.0% Key Assertions Muted retail sales outlook poses a risk to retailers occupancy costs and rental reversions Consolidation among retailers to intensify in 2015 amid rising labour costs and labour shortage Retail REITs will continue to remain defensive, given welllocated assets, good management track record and staggered WALE Risks Increased penetration of e-commerce causing decline in retail sales Lower fuel prices drives growth in disposal income and retail sales Page 4

5 Office Historical net supply and absorption rate 4,000 '000 sqft Outlook - Positive City Fringe Rents to rise faster as CBD crunch worsens S $ psf pm 3, ,000 1, Rent differential of up to 60% for c e ntral area vs city fringe offices ,000-2,000 Net Supply: Private Sector Net absorption: Private Sector 0.00 Mar-90 Feb-91 Jan-92 Dec-92 Nov-93 Oct-94 Sep-95 Aug-96 Jul-97 Jun-98 May-99 Apr-00 Mar-01 Feb-02 Jan-03 Dec-03 Nov-04 Oct-05 Sep-06 Aug-07 Jul-08 Jun-09 May-10 Apr-11 Mar-12 Feb-13 Jan-14 Median Rent psf: Office Central Area Median Rent psf: Office Fringe Area Key Assertions Office rents outperformed the market in 2014 on the back of limited supply Displacement demand from Equity Plaza and 2HR should bolster rents in 2015 Office REITs could enjoy stronger-than-expected reversions in 2015 as new supply only anticipated to complete in 2H16 Industrial Risks Earlier completion of new office supply Shadow space from further contraction in demand from the financial services sector Outlook Negative Industry facing 14% expansion in industrial supply 3,000 Sqm 3-year average 2.4 m sqm 2,500 Rental Reversions to turn negative 50% 40% Negative reversion 2,000 1,500 1, year average 1.1m sqm 30% 20% 10% - 0% F 2015F 2016F -10% Demand Supply -20% Business Park Warehouse Factory Key Assertions Market rents to moderate 5% p.a. due to concentration of new industrial supply completions in Business Park space to surprise on the upside, given lack of office space in the CBD Industrial REITs rental reversions to flatten out or turn negative over Risks Weaker than-expected Singapore economy resulting in further-than-expected declines in rents Shadow space in the single-user factory space resulting in increased competition within multi-user factory space Source: DBS Bank Page 5

6 Hospitality Outlook - Positive Downturn in Chinese tourists in 2014 but recovery from 2015 Bounce in occupancy and ADR in 2015 y-o-y growth 40% 30% 20% 10% 0% -10% -20% -30% -40% -3.2% -13.2% 34.7% 28.9% 25.0% 11.6% -25.0% -27.8% 15.0% 12.5% 10.0% 90% 88% 86% 84% 82% 80% 78% 76% 74% 72% 70% Occupancy (LHS) ADR (RHS) S$ Key Assertions Recovery in Chinese tourists and overall tourist arrivals to catalyse performance in 2015 RevPAR to turn positive despite supply completions, projecting a 3.6% growth in 2015 Risks Slower-than-expected rebound in Chinese tourist arrivals resulting in lower-than-projected recovery in RevPAR Source: DBS Bank Page 6

7 3. Peer Comparisons Singapore REITs Peer Comparisons REIT FYE Price 6/1/15 Rec Target Price Total Return Mkt Cap (S$) (%) S$'m FY14 /15F DPU Yield(%) DPU Growth FY15 /16F FY16 /17F FY14/ 15F FY15/ 16F P/Bk FY16/ 17F FY14-16 (x) Office CCT Dec 1.75 Hold % 5, % 5.0% 5.5% 2% 1.05 FCOT Sep 1.42 Buy % % 7.1% 7.2% 19% % 6.2% 6.4% Retail CRCT Dec 1.63 Buy % 1, % 7.3% 8.0% 10% 1.11 CMT Dec 2.06 Buy % 7, % 5.5% 5.6% 3% 1.19 CRT Jun 0.92 Buy % % 8.9% 8.5% 1% 1.23 FCT Sep 1.91 Buy % 1, % 6.0% 6.1% 3% 1.03 SPH REIT Aug 1.04 Hold % 2, % 5.2% 5.2% -8% % 5.8% 5.9% Commercial MCT Mar 1.45 Hold % 3, % 5.9% 6.4% 7% 1.25 MAGIC Mar 0.95 Buy % 2, % 7.0% 8.0% 8% 0.90 SGREIT Dec 0.81 Buy % 1, % 6.6% 6.9% 3% 0.86 Suntec Dec 1.94 Hold % 4, % 5.1% 5.5% 10% % 5.6% 6.4% Industrial a-itrust Mar 0.84 Buy % % 6.3% 7.0% 14% 1.27 A-REIT Mar 2.40 Buy % 5, % 6.3% 6.5% 3% 1.19 Cache Dec 1.16 Buy % % 8.0% 8.3% 7% 1.18 CREIT Dec 0.69 Hold % % 7.6% 7.7% 4% 1.01 MINT Mar 1.50 Buy % 2, % 6.8% 7.3% 1% 1.28 MLT Mar 1.18 Buy % 2, % 6.6% 6.9% 2% 1.07 SBREIT Dec 0.79 Buy % % 8.7% 8.8% 10% % 6.7% 4.4% Hospitality ASCHT Mar 0.67 Hold % % 9.2% 9.3% 12% 1.13 ART Dec 1.27 Buy % 1, % 7.0% 7.1% 7% 0.89 CDREIT Dec 1.75 Buy % 1, % 6.8% 6.9% 9% 1.08 FEHT Dec 0.83 Hold % 1, % 6.6% 6.7% 3% 0.84 FHT Sep 0.89 Buy % 1, % 7.0% 7.1% 5% 1.06 OUEHT Dec 0.91 Buy % 1, % 7.7% 8.0% 4% % 7.2% 7.3% Others P-Life Dec 2.34 Buy % 1, % 5.2% 5.3% 5% 1.44 IREIT Dec 0.90 Buy % % 7.5% 7.5% 3.0% 1.05 Sector Average 6.0% 6.2% 6.5% 1.03 Source: Bloomberg Finance LLP, DBS Bank Page 7

8 Singapore Developers Peer Comparisons Mkt Price Target Company FYE Cap 6-Jan-15 RNAV *Assumed Price Upside P/RNAV Latest Qtr Latest Qtr (S$m) (S$) (S$) Discount (%) (S$) % Rcmd (x) NBV/Share P/NBV Residential Developers Capitaland Dec 13, % % Buy City Dev Dec 9, % % Hold Fraser Centrepoint Ltd Sep 4, % % Buy Ho Bee Dec 1, NR Wheelock Dec 2, NR Wing Tai Dec 1, % % Buy Landlords Global Logistics Properties Mar 11, % % Buy UOL Dec 5, % % Buy Source: DBS Bank Page 8

9 4. Singapore REITs Navigating tougher times Key Assertions Timing of rate hikes a sector overhang but not the sole determinant of price performance Modest growth prospects and weakening SGDUSD to impact flows into sector MAS consultation paper and expiring tax incentives key datapoints in 1H15 Picks CDL HT/A-REIT/CMT/MAGIC/FCOT Year of outperfomance; compression in bond yields brought yield spreads up to 4.0%. The Singapore REITs (S-REITs) came out winners in 2014, rising by c.9% YTD, higher than Straits Times Index (FSSTI) and Property Developers (FSTREH) which increased by a lower 4-5%. We believe that the sector s outperformance stems from continued interest from investors due to the sector s attractive yield of c.6.2% while 10-year yields compressed to c. 2.2% from (spread of 4.0% against the 10-year bond of c.2.2%). We have also seen demand from new investors in the S-REIT space, attracted by the sector s strong earnings visibility and consistent payouts. S-REIT outperformance the STI and Developers 800 Index Pt Index Pt 3500 Retail REITs delivered strongest growth in distributions Hospitality Industrial Retail Office/Commercial S-REITs 0% 2% 4% 6% 8% 10% 12% Source: Companies, DBS Bank Gearing to increase to c.35% in 2015; 75% of interest obligations hedged. S-REIT s average gearing remains at the 32-35% range over FY14F-15F, which is likely to remain stable as most S-REIT managers have indicated that they see a 35-40% level as being optimal at the current market cycle. We understand that 75% of interest obligations in FY15/16F have been hedged into fixed rates (either through fixed rate MTNs, swaps, etc). S-REIT average gearing 3% 5% 4% 5% 10% % 35.0% 34.5% 34.8% Singapore REITs Singapore Developers % 33.0% 32.0% 31.0% 30.6% 32.8% 32.3% 32.6% 660 Straits Times Index (RHS) % 640 2/1/2014 2/4/2014 2/7/2014 2/10/2014 Source: Bloomberg Finance L.P., DBS Bank % 28.0% F 2015F Source: Bloomberg Finance L.P., Companies, DBS Bank The S-REITs delivered a consistent set of results over the past year as rental reversions remained positive, and portfolio occupancies remained stable. Together with opportunistic acquisitions/completion of development projects since the start of 2014, the S-REITs sector has delivered c.5% y-o-y growth in distributions over the past year. Retail/Commercial REITs and Healthcare REITs delivered the strongest y-o-y growth at 9-13% y-o-y. Well Spread out Debt Maturity Profile > % % % % Source: Companies, DBS Bank % Page 9

10 Key Issues in 2015 Heading into 2015, we believe that with the market casting an eye on rate hikes on the horizon, we believe that S-REITs' outperformance in 2014 is not likely to be repeated. Our strategy is to stick to S-REITs that offer higher growth prospects or absolute yields that we believe will compensate for the risk of higher interest costs. Key themes in 2015 are: A. Overhang in performance as rate hike looms Upward bias for 10-year US Treasury despite divergent monetary policies globally. Looking forward into 2015, differing global growth prospects in the developed economies of Japan, Europe and US will likely mean that the timing of rate hikes is likely to be uncertain again, although DBS Group s view is for the US Federal Reserve (Fed) to contemplate a first, moderate hike from 4Q15. That said, current 10-year US Treasury yields (UST) of 2.2% seem low in a post-taper environment and should see an upward bias to 3.10% by 4Q15, implying a 90-bps increase. Over that period, the yield curve is expected to flatten with the shorter end of the yield curve (3m Libor and 2Y Libor) rising faster than longer duration yields. Likewise, the SGD yields are also expected to rise in tandem and 10-year yields are expected to rise by c.39bps over the course of the year. DBS Group forecasts interest rates to increase steadily over 2015 USA 10 th Dec 14 4Q15 Changes (%) 3m Libor 0.24% 0.40% 0.16% 2Y 0.61% 1.60% 0.99% 10Y 2.21% 3.10% 0.89% 10Y-2Y 1.60% 1.50% -0.10% Singapore 10 th Dec 14 4Q15 Changes (%) 3m Sibor 0.44% 0.60% 0.16% 2Y 0.61% 1.35% 0.74% 10Y 2.26% 2.65% 0.39% 10Y-2Y 1.65% 1.30% -0.35% Source: DBS Bank Higher cost of funds in The short end of the curve (3m SIBOR and 2-Year SIBOR) on which typical lending rates are expected to see marginal hikes of 16-74bps over While most of the increases are coming from 2H15, we believe that there is still a small window for S-REITs to continue to renew expiring loans early before feeling the impact of higher rates on their numbers. In addition, with a high hedge ratio of 75% as a guard against higher interest rates, impact of an earlierthan-expected increase is likely to be muted. S-REITs Rising rates and overhang for the sector but not totally out. Rising interest rates are generally negative for yield instruments like S-REITs as opportunity costs (measured as 10- year government bond yields) rise and yield spreads compress. Based on our estimates, S-REITs currently offer a FY15F yield of 6.2% or a yield spread of close to 4.0% might look attractive (between its mean and -1SD of its historical range), but is expected to approach 3.55% on a forward basis, which is in line with its historical mean, implying prices are fair. S-REITs yield spread to compress towards mean by 4Q15 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% Jan-11 Jan-12 Jan-13 Jan-14 1Q15 S-REIT Yield Spread Average ( ) -1 SD +1 SD Source: Bloomberg Finance L.P., companies, DBS Bank Losing allure of a strengthening USDSGD exchange rate. Since , following three rounds of quantitative easing by the Fed, we saw a greater negative correlation (-0.84x) between a strengthening SGDUSD rate and the FSTREI index, implying the carry trade that has boosted returns for holding S- REITs over With this trend expected to reverse in 2015, we see less of a pull for S-REITs from 2015 onwards. Yield Curve to flatten as short rates rise faster than the longer-end rates 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 0.60% 0.44% 1.35% 0.61% 2.65% 3m SIBOR 2Y 10Y Source: Bloomberg Finance L.P., DBS Bank 2.26% 10-Dec-14 4Q15 1,200 1, FSTREI index vs SGDUSD exchange rate - Index Pt Correlation of USDSGD exchange FSTREI Index Correlation of USDSGD Rate Source: Bloomberg Finance L.P., DBS Bank Page 10

11 Mean reversion a target for S-REITs. While S-REITs are trading at FY15F yield spreads of 4.0% compared to the current 10- year bond rate of 2.2%. The strong share price performance in 2014 resulted in the current yield spread at a more compressed level than the average 2.4%-2.5% for most of With, expected further hikes in Singapore 10-year bond rates to 2.84% by middle of 2015 are seen to bring spreads closer. Based on this assumption, yield spreads are expected to compress further towards %, which will place it in line with the sector long term mean of c. 3.5%. S-REIT Performance is closely linked to growth prospects % % % % % % 400 As such, with S-REITs facing a modest 5.3% DPU growth outlook coupled with further upside risks to the long bond yields, we believe that mean reversion is our medium-term target and thus at current prices, we believe that S-REITs' valuations are fair. 300 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 FSTREI Index S-REIT Growth Rate y-o-y Source: Bloomberg Finance L.P., companies, DBS Bank -10.0% Growth to lead the way. Despite an expected overhang in share prices due to rotation from yield-sensitive sectors like S- REITs as the year progresses, we believe that the market should not take a broad-brushed approach but instead focus on underlying fundamentals and stick to REITs with strong underlying growth prospects and high absolute yields which will compensate for the risk of rising interest rates. Historical S-REIT yields and S-REIT yield spreads (2005-current) Period Years 10 Year bond (%) S-REIT Yields (%) S-REIT Yield Spreads (%) Comments % 5.0% 2.1% was a period of high growth High Growth % 5.0% 1.6% for the S-REITs where average distribution growth was c.13% over Key % 4.2% 1.3% Catalysts were acquisitions Aberration in valuations due to the GFC % 7.9% 5.1% % 9.4% 7.0% Yield spread expanded to >5.1% due to financial crisis Liquidity driven recovery % 6.3% 3.9% % 6.6% 4.5% % 6.2% 4.8% % 5.5% 3.8% % 6.4% 3.9% Post-global financial crisis period, the sector saw yield compression in before the Fed hinted of rate hikes in mid-2013 Periods 2005-cuurent 2.5% 6.0% 3.5% % 5.5% 2.5% 2010-current 2.0% 6.1% 4.1% Forward Current (FY15F) 2.2% 6.2% 4.0% Forward(FY15F) 2.6% 6.2% 3.6% Source: Bloomberg Finance L.P. Finance L.P, DBS Bank Page 11

12 B. Growth opportunities Slight pick-up in DPU growth for FY15/16 Moving into FY15/16, we expect a slight pick-up in overall S- REIT DPU growth of 5.3% from the projected 2.8% in FY14/15. This is largely driven by improvements in the Office/Commercial, Industrial and Hospitality sectors. This is partially offset by lower contribution from the retail sector. Better performance from the Office/Commercial sectors is mainly organically driven as FCOT (switch from master lease at Alexandra Technopark), Suntec (benefits recent AEI) and MAGIC (strong tenant sales) are able to generate healthy rental reversions. Meanwhile, the hospitality sector should benefit from a recovery in tourist arrivals into Singapore with ART boosted by recently announced acquisitions. For the industrial sector, despite the supply headwinds, acquisitions should underpin the DPU growth outlook. In contrast, the retail sector should be buffeted by slowing tenant sales. FY15/16F DPU growth Hospitality Industrial Singapore retail Retail Office/Commercial S-REITs Source: Various REITs, DBS Bank 1.7% 3.2% 5.5% 5.3% 6.1% 5.8% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Decent growth over next three years Over the next three years, we still expect decent growth for S- REITs, with a projected 3.4% p.a. increase in DPU. Organic growth of 3.1% p.a. is supplemented by 1.1% p.a. boost from acquisitions. This is partially diluted by issuance of shares for management fees. The sector with the best growth prospects is the Office/Commercial sector, which has the highest organic growth outlook of 4.1% p.a. with 1.6% p.a. boost from the contribution of acquisitions/new developments. In comparison, the industrial and Singapore retail sectors which face headwinds in the form of excess supply and slowing retail sales, should deliver the slowest organic growth at 2.3% and 2% respectively. Office/commercial sector offers the highest growth prospects over next 3 years -0.8% Hospitality -0.4% Industrial -0.3% Singapore retail -0.7% Retail -1.3% Office/Commercial -0.8% S-REITs Organic Inorganic Equity Dilution Source: Companies, DBS Bank Jump in M&A activities in 2014 There has been an increase in M&A activities by S-REITs in This was led by the hospitality, retail and Office/Commercial REITs. Notable transactions include the highly anticipated acquisition of 1/3 interest in MBFC Tower 3 by K-REIT for S$1.2bn, A-REIT s purchase of Aperia (a mixed use development) for S$458m and OUEHT s proposed purchase of Crown Plaza Changi and extension for S$495m. Increase in M&A activities lead hospitality and retail sectors Total Healthcare Hospitality Industrial Retail Office/Commercial 2.6% 2.3% 2.0% 3.5% 3.1% 4.1% 0.0% 0.9% 1.5% 0.1% 1.1% 1.6% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Net 3 year DPU CAGR ( ) 2.7% 3.4% 1.7% 2.8% 4.4% 3.4% S$m 0 1,000 2,000 3,000 4,000 5,000 Source: Various REITs, DBS Bank In terms of country allocation, Singapore continues to be the main investment market with c.s$2.9bn worth of properties purchased in There has also been a noticeable increase in interest in Japanese properties with S$734m invested compared to S$37m in This is on the back of expectations of further cap compression as the Japanese government pursues reflationary policies or Abenomics. Page 12

13 Singapore remains the core investment destination 3% 7% 28% 1% 16% % Singapore China Japan Australia Indonesia Others Source: Various REITs, DBS Bank 9% 6% 2% Meanwhile, sponsor-related properties remain an important source of acquisition pipeline for S-REITs, contributing about 58% of total acquisitions by value in % 16% % Singapore China Japan Australia Indonesia Others Sponsor continues to be valuable source of acquisition pipeline 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 68% 32% 49% 51% Sponsor/Strategic partner Source: Various REITs, DBS Bank 42% 58% rd party Acquisitions by S-REITs in 2014 REIT Property Country Sector Value (S$m) Vendor A-REIT Aperia Singapore Commercial/Mixed 458 3rd Party K-REIT 1/3 interest in MBFC Tower 3 Singapore Office 1,248 Sponsor Related FIRT Siloam Hospitals Purwakarta Indonesia Healthcare 31 3rd Party P-Life 2 nursing homes and extended-stay lodging facility Japan Healthcare 37 3rd Party for elderly P-Life Habitation Jyosui Japan Healthcare 39 3rd Party Religare Mohali Clinical Establishment India Healthcare 58 3rd Party ART Quest Sydney Olympic Park, Mascot & Campbelltown Australia Hospitality 93 3rd Party ART Citadines Gaoxin Xian China Hospitality 35 Sponsor Related ART Citadines Zhuankou Wuhan China Hospitality 32 Sponsor Related ART Dalian serviced residence China Hospitality 119 3rd Party ART Best Western Shinjuku Astina Japan Hospitality 95 3rd Party ART Infini Garden in Fukouka Japan Hospitality 78 Sponsor Related ART Somerset Ampang Kuala Lumpur Malaysia Hospitality 65 Sponsor Related ASCHT Osaka Namba Washington Hotel Plaza Japan Hospitality 111 3rd Party CDREIT MyStays Asakusabashi and MyStays Kamata Japan Hospitality 64 3rd Party OUEHT Crown Plaza Changi Airport and room extension Singapore Hospitality 495 Sponsor Related Cache DHL BTS at Tampines LogisPark Singapore Industrial 105 3rd Party MINT 2A Changi North Street Singapore Industrial 14 3rd Party MINT Hewlett Packard BTS Singapore Industrial 250 3rd Party MLT Daehwa Logistics Centre Korea Industrial 31 3rd Party SBREIT 39 Senoko Way Singapore Industrial 18 3rd Party Viva Jackson Square and Jackson Design Hub Singapore Industrial 112 3rd Party CRT Luz Omori Japan Retail 43 Strategic Partner CRT NIS Wave I Japan Retail 134 3rd Party CRT One's Mall Japan Retail 133 3rd Party FCT Changi City Point Singapore Retail 305 Sponsor Related LMRT Lippo Mall Kemang Indonesia Retail 362 Sponsor Related Source: Various REITs, DBS Bank Page 13

14 Overseas acquisitions a potential driver for 2015 With slowing growth rates and limited investment opportunities in Singapore, we expect S-REITs to focus their efforts on acquisitions in overseas markets, especially Japan and Australia on the back of the declining JPY and AUD. Furthermore, Australia may come into focus for the Fraser Centerpoint Limited (FCL) group of REITs, as FCL may look to monetize some of its Australand properties. For ART, Australia could also be a growing investment market on the back of its sponsor CapitaLand inking a deal to acquire a 20% interest in Quest Australia s serviced apartment provider and investing up to A$500m new properties that Quest will secure for its franchise network. In addition, with China loosening its monetary policy, this may be a catalyst for greater interest for S-REITs. Finally, the CapitaLand group of REITs, may be presented with greater investment opportunities, as CapitaLand, post the acquisition of CapitaMalls Asia, may look to recycle assets of its balance sheet. Well place to fund acquisitions With a majority of S-REITs gearing around the 30-35% level, they have sufficient debt headroom available to fund acquisitions. Nevertheless, with prospects of rising interest rates, the ability to complete yield accretive acquisition will become more challenging. S-REITs gearing headroom and sponsor pipeline REIT Gearing end FY14/15F Headroom 40% Headroom 45% Office CCT 32% 962 1,721 Capitaland Remaining stake in CapitaGreen FCOT 37% Frasers Centrepoint Land Sponsor Potential Pipeline Remarks Valley Point/Alexandra Point/Cecil Street Office property/australand properties Contingent on performance of CapitaGreen High likelihood for Australand's properties though subject to FCOT share price Retail CRCT 32% Capitaland Malls in China Subject to valuation and malls being stabilised CMT 38% 283 1,176 Capitaland Westgate, Star Vista, Bedok Mall, Ion Orchard Possible acquisition of Westgate CRT 52% n/a n/a Croesus Group, Daiwa House, Marubeni Mallage Saga, Forecast Kyoto Kawaramachi, China properties No immediate plans to purchase Chinese properties FCT 29% Frasers Centrepoint Limited Waterway Point, Northpoint City Pipeline assets under construction SPH REIT 26% 774 1,142 SPH Seletar Mall Seletar Mall yet to be stabilised as it only opened in Dec14 Commercial MCT 39% Mapletree Investments Mapletree Business City (MBC) 1&2 MBC 2 under construction MAGIC 38% Mapletree Investments Kowloon East Office Kowloon East Office under construction, MAGIC looking at opportunities in China Focused on existing assets at the moment SGREIT 29% YTL Corporation Suntec 36% 607 1,429 Cheung Kong Holdings/ARA No acquisitions expected Source: Various REITs, DBS Bank Page 14

15 S-REITs gearing headroom and sponsor pipeline (cont d) REIT Industrial Gearing end FY14/15F Headroom 40% Headroom 45% a-itrust 24% Ascendas Group A-REIT 34% 795 1,582 Ascendas Group Sponsor Potential Pipeline Remarks Cybervale Chennai Industrial assets Subject to share price performance and stabilisation of INR Acquisitions likely to be from sponsor (business park properties in Singapore). Cache 32% CWT/ARA Ramp up warehouses from CWT Likely to acquire one asset in CREIT 33% N/A Exploring opportunities in Australia, Japan and Malaysia. MINT 35% Mapletree Group MLT 36% Mapletree Group SBREIT 35% Soilbuild Group Holdings Hospitality ASCHT 36% Ascendas Group/Accor Tai Seng development Properties in Hong Kong, China Various industrial properties Asia Pacific properties Under development and not likely to be acquired in the near term. High likelihood of M&A to supplement growth, given headwinds in Singapore Potential disposal of Pullman Cairns to provide additional financial flexibility. ART 36% Ascott Group Serviced apartments in China, Quest apartments in Australia Potential expansion into China, Japan and Australia. CDREIT 31% City Developments St Regis, South Beach project Lower gearing provides firepower for acquisitions. FEHT 31% Far East Organisation 7 hotels & serviced residences Assets not ready to be injected. FHT 42% n/a 106 Frasers Centrepoint Limited and TCC Group 18 hotels and serviced residences Delivery of IPO prospectus forecasts before considering acquisitions. OUEHT 32% OUE Limited Limited, given proposed acquisition of Crowne Plaza Changi and extension Healthcare P-Life 34% IHH Hospitals in the region including Novena Mt Elizabeth Others IREIT 33% Stella Holdings, Shanghai Summit, Mr Lim Chap Huat Source: Various REITs, DBS Bank Low likelihood, given current share price Page 15

16 C. Reforms and Key tax issues to address Proposed new REIT enhancements from the MAS Consultation Paper to be implemented by end The Monetary Authority of Singapore (MAS) released a consultation paper back in Oct 14 highlighting potential tweaks to the current regulatory regime governing REITs and REIT managers. Key proposals include: (i) improving the corporate governance and disclosures for REIT managers; (ii) minimizing instances of conflicts of interests between REIT managers and investors through refining REIT managers compensation methodologies; and (iii) operational tweaks like having REITs adhere to a higher leverage limit of 45% (vs 35% currently) and eliminating the 60% cap on REITs with a credit limit. In addition, MAS proposes to raise the development limit for REITs to 25% from the current 10% of total assets. These measures are likely to be implemented from 1st Jan 2016 onwards. Summary of Key Proposals Areas of interest Main proposals Corporate governance Increased independence (e.g. at least half of board to be independent directors) and transparency (e.g. disclosure of remuneration). Assuming the proposals are passed, we should result in (i) a reduction in fees; and (ii) greater transparency and alignment between REITs and their unitholders. This should increase confidence and attractiveness of REITs to investors and potentially result in lower cost of capital for S-REITs. A strong and functioning REIT sector is also a long term positive for sponsor/property developers who have another avenue to recycle assets efficiently. Sunset clauses for tax incentives expire in 31 st Mar We note that tax incentives that were extended back in 2010 will expire come 31 st Mar 15, which is a key uncertainty for S-REITs going forward. These incentives are (i) tax holidays for overseas-sourced income; (ii) stamp duty and goods and services tax (GST) remission; and (iii) concessionary income tax rate of 10% for non-resident non-individual investors. Summary of Sunset Clauses Clauses 1. Concessionary income tax rate of 10% for non-residential non-individual investors. Potential Impact if not renewed Lower returns for investors Refining alignment of incentives Pegging fees to long-term unitholders interests including linking performance fee to NAV or DPU/unit rather than REIT's gross revenues and acquisition/divestment fees determined on a cost recovery basis. Removing link between fees of directors of REIT manager to shares in Sponsor and prohibiting remuneration of executive officers to revenue of the REIT. Operational flexibility Moving to single tier gearing limit of 45% regardless of whether credit rating is obtained. Change from 35% gearing limit without a credit rating and 60% with a credit rating. 2. Stamp Duty and GST remission on transfer of a Singapore immovable property to a REIT. 3. Subject to satisfying certain conditions and approval from the authorities, S- REITs currently enjoy tax exemption for foreign-sourced income. Source: Bloomberg Finance L.P., DBS Bank Higher acquisition cost and lower yields S-REITs might have to incur restructuring cost to maintain its tax efficiency or incur tax leakages going forward REIT structuring Source: MAS, DBS Bank Additional development limit for REITs to 25% from current 10% of total assets (additional 15% for assets held for 3 years or more). Increased clarity of income support arrangements and greater disclosure of operating expenditure, WALE and debt maturity profile. Positive catalyst for the sector; lower cost of capital. In our report, Strengthening REIT regulations dated 10 th Oct 14, we remain positive that these proposed better governance and confidence for investors in SREITs in general. Uncertainty for S-REITs. The impact on distributions and growth for S-REITs for the two clauses is uncertain at this moment, although we believe that it will make business sense to do so. These tax incentives have been a popular measure as Singapore s clear regulatory and tax frameworks are key attractions that made Singapore one of the leading REIT hubs in the Asia Pacific (ex Japan) region. In addition, Singapore needs to remain ahead, given that regional markets like India, Thailand and China have been fine-tuning and instituting their own REIT regulations to draw in capital investments. Page 16

17 5. Developers Awaiting re-rating catalysts Key Assertions Expect 12-15% drop in price over ; expectations of government policy loosening unlikely to happen unless an accelerated price drop Developers substantially de-risked residential exposure and sought to diversify and build up recurring income Top pick: CAPL Developers underperformed the S-REITs in While Developers (measured by the FSTREH index) returned a positive c.4% in 2014, it still underperformed both the STI and S-REITs which were up by c.5% and c.9% respectively. The lacklustre performance for the developers stocks in 2014 can be attributable to a lack of catalysts due to a stagnant property market. Investors have continued to prefer to stay in the S-REIT space due to their relative attractiveness backed by strong income stability and high yield/yield spreads of c.6.2%/4.0%, which we believe are preferred characteristics in times of uncertainty. What are key themes for 2015? A.Policy relaxation a catalyst Relaxation of tight Government policy measures a catalyst for the sector, but will they or will they not? After multiple rounds of cooling measures, the Singapore private residential home prices, measured by the PPI, have moderated by c.3.9%, while HDB resale prices have dropped by a wider 7.1% from the peak. While government measures have worked somewhat in halting the rise in prices and curbing speculation, recently, there have been calls by developers to the government to relax specific policy measures that are deemed more cyclical. We believe that Singapore's residential market has moved beyond further tightening but expectations of policy loosening might not happen anytime soon. This is because, we believe that the current price drop, measured by the PPI, is still fairly moderate and the current low interest rate environment will mean that the government is likely to take a more cautious stance towards any policy loosening at this juncture. Recently signs from the government also suggest that the property measures are here to stay, subject to a "meaningful drop in prices. That said, we believe that the government stands fast to act when it happens or if an external shock has a disproportionate impact on prices. Attractive valuations. In our analysis, we have removed Global Logistics Properties (GLP) as the stock trades at a premium due to its niche exposure in logistics real estate. Since the start of the policy tightening cycle over two years ago, we have seen the Singapore developers (FSTREH) underperforming the S-REITs as the market attempted to digest the impact of policies. As such, the developers' performance has been sideways and are currently trading at a P/Bk NAV of 0.83x (on an ex GLP basis or 0.88x including GLP). This is between its -1SD and historical mean. On an RNAV perspective, the sector is trading at a 30% discount and is close to its historical -1SD level Developers returned 4% in 2014; underperforming the STI and S-REITs Singapore REITs Singapore Developers 650 2/1/2014 2/4/2014 2/7/2014 2/10/2014 Source: URA, DBS Bank Developers trading at close to -1SD -to-rnav P/RANV Mean +1 SD 1 SD Mar 1997 Mar 1998 Mar 1999 Mar 2000 Mar 2001 Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Page 17

18 Developers - stay nimble. We view current valuations as attractive (P/Bk NAV of 0.83 and 0.70x P/RNAV) and given that developers trade at close to historical -0.5SD level. We believe that current levels have already priced in the negatives from a weakening market outlook. Based on historical price performance, we note that share price for developers reacts quickly to expectations of declines/rises in the physical property price index. In previous down-cycles in 1996, 2000 and 2009, the PPI declined between 20-45% from its respective peaks. Property developers declined by a more significant 46-74% from the peak (measured on a P/Bk NAV basis) and bottomed at around c.0.5x P/Bk NAV over the past three cycles. Prices for property developers typically stabilised at c x after the troughs in 4Q98/1Q04 and 3Q09. However, we note that developer prices are quick to react on the upside once the property market turns around. While we do not expect this to happen in 2015, we believe that valuations are attractive, given that developers' current P/BK NAV of 0.83x is already trading at a discount to historical stabilized levels which average c x. As such, we believe that there is a buffer against any further expected negative data points in the residential market. Singapore property market cycles and developers' performance Private Residential Property Index (PPI) Periods Peak Trough Number of % Chg (ppt) (ppt) quarters to trough P/Bk NAV Trough (x) Developers (P/Bk NAV pefromance) % decline from Peak Average P/Bk NAV post declines 4Q83-2Q % N/A N/A N/A 2Q96-4Q % 0.45x -69% 0.90x 2Q00-1Q % 0.54x -46% 0.93x 2Q08-4Q % 0.55x -74% 0.92x 3Q13- YTD N/A N/A -4% YTD 0.74x -39% - Source: URA, Bloomberg Finance L.P. Finance LLP, DBS Bank Developers Price-to-Bk NAV vs PPI Property Price Index Developer P/Bk NAV Developers trading at 0.83x P/Bk NAV (-0.5x SD from historical trading range) Jan 97 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Source: URA, DBS Bank P/Bk NAV Mean 1 SD +1 SD Source: URA, DBS Bank Page 18

19 Asset Divestments and Increased Recurring income base Quick asset-turn strategy; focus on recurring income and overseas. Over the years, developers have raked in strong sales in their residential projects, maintained a quick-asset turn strategy in their project launches amidst tightening regulatory environments. Most have been selective in their land-banking and have focused on clearing unsold inventories selectively. As such, developers average debt-to-equity ratio stands at 33% and is estimated to continue improving over the next few years as its uncompleted projects receive TOP. We also note that most developers have substantially derisked their Singapore residential exposure as the total number of unsold inventory is only a small proportion of its total exposure in the Singapore residential market. That said, based on our estimates, Singapore residential comprises of 5% -30% of total GAVs. This means that an expected drop in residential prices is unlikely to dent RNAVs significantly. With valuations already at 30% discount to P/RNAV, we believe that negatives are already priced in. In addition, property developers see better returns overseas and have been venturing and diversifying their exposures beyond Singapore, with key investment markets of London, Australia, Japan and China. For example, we have seen the likes of City Developments Limited (CDL), that has been predominantly focused in Singapore, diversifying away from Developers exposure to Singapore residential (as % of RNAV) SG Resi SG Overseas others CapitaLand 9% 25% 66% City Dev 27% 52% 21% Fraser Centrept Ltd 7% 35% 58% Ho Bee 15% 56% 29% Wheelock 30% 39% 32% UOL Limited 5% 87% 8% OUE Ltd 9% 56% 35% Wing Tai (Jun 2014) 19% 20% 60% Global Logistics Properties 0% 0% 100% Source: URA, DBS Bank Singapore through (i) recycling assets in Singapore through a newly formed investment vehicle, and (ii) acquiring properties in Japan, UK for development. The group continues to look outside for opportunities in the new year. Frasers Centerpoint Limited (FCL) delisted Australia-based Australand and now derives a substantial portion of its revenues from Australia. Developers like Hobee and UOL Group have also been investing in UK in recent years, in the chase for higher returns. Keppel Land has also recycled close to S$1.0bn worth of properties in 2014 and invested in development opportunities in Indonesia/Vietnam and Indonesia. Looking ahead, with limited land-banking opportunities in Singapore, we see developers continuing to venture overseas for opportunities to further diversify earnings and boost returns on equity (ROE). In addition, we believe that developers are likely to continue looking at asset-recycling strategies divesting stabilised assets and redeploying proceeds overseas. We believe that CapitaLand Limited (CAPL) and Global Logistics Properties (GLP) are most likely to divest properties to their existing REITs in order to boost ROEs. For CAPL, completed and stabilised properties like Westgate Mall in Singapore and various malls in China might be ripe for recycling into their listed REITs. For GLP, management has previously alluded to potentially recycling c.us$500m worth of its Japan logistics properties into GLP J-REIT. Developers Price-to-RNAV 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% Disc to RNAV Mean +1 SD -1 SD Page 19

20 6. Residential Approaching a slippery slope Key Assertions New supply completions spiking in 2015/16 adds pressure to rentals and vacancy rates Widening spread between HDB resale and private property prices affecting upgrader affordability Residential market still early in the down-cycle; project prices to dip 12-15% over Key Themes With the private property market continuing to operate in a tight financing and regulatory environment, we believe that the market remains in the early part of the down-cycle. As such, we think that a widely anticipated reversal in policy measures is unlikely in the near term. Looking ahead, we expect buyers sentiment to remain weak, which will have an overhang on transaction volumes in With a slew of completions flooding the market over , we expect vacancy rates to hike to 9%-10%, implying further pressure on rentals and prices. We forecasts volumes to dip to 8,000-9,000 units in 2015 and price to dip by between 12-15% over Key themes for the residential market in 2015 are: A.Singapore property market in the early part of the downturn Home prices in 2014 softened for all sub-segments was visibly a quieter year for property developers with prices and volumes declining as tighter financing and regulatory rules continued to bite following seven rounds of cooling measures over The last of the lot, being the total debt servicing ratio (TDSR) framework, is seen as the most effective in halting the rise in prices of the Singapore property market. Since the institution of the TDSR framework in mid- 2013, transaction volumes declined by a significant c.51% y- o-y in 2H14. Since then, we note that from the peak, prices have only dipped by only 3.9% till 3Q14, with the HDB resale market dipping by a wider 7.1% margin. The overall Singapore property price index (PPI) was down by 3.0% since the start of the year. This represents a c.3.9% decline in the index since the peak in 3Q13. However, properties in the Core Central region (typically representing the upper-mid to high end of the residential market), was the hardest hit, down -5.4% YTD, followed by properties in the Rest of Central region (-4.0% YTD) and in the outside Central region which dipped marginally by -1.3%. HDB resale market the worst hit. The HDB resale market index, which has historically been the more resilient sub-segment of the property market, is the worst hit this time round, mainly due to tighter financing regulations (total debt financing ratio or TDSR) and selling restrictions. The index retraced back by 4.7% YTD 3Q14 (or 7.1% down from the peak) and is currently at 2012 levels. Primary transaction volumes collapsed by c.47% y-o-y as of 3Q14. Since the start of 2014, we have seen property cooling measures starting to take its toll on buyers sentiment and YTD 3Q14 transaction volumes tumbled c.47% y-o-y to 5,940 units. Despite a c.18% y-o-y (or 765 units transacted) rebound in Oct 14, this is short-lived as total primary sales volumes collapsed again in Nov 14 to 412 units. This means that total primary sales in 2014 was lower than 8,000 units for the year, less than half the total number of transactions in This will also represent one of the quietest years for primary property transactions since Speculators out Subsale volumes shrank as secondary market volumes fell 47% y-o-y. Secondary transaction volumes also declined significantly as expectations of softer market conditions combined with hefty seller stamp duties (c.16%/12%/8%/4% of selling price if property is resold within 1/2/3/4 years of purchase) kept speculators away. Total transactions in the secondary market plunged c.47% y- o-y to c.4,043 units, with sub-sale transaction volumes now only contributing c.10% of total secondary volumes (vs c.15% over the past 10 years) and c.4% of total property transactions. Strong developer balance sheet & interest rates helped keep prices more sticky. We believe that property prices declining by a smaller degree compared to volume drops can be attributable to (i) developers' strong balance sheets and holding power after locking in strong sales over ; and (ii) current low borrowing rates, which allow investors and homeowners to prefer holding on to their units and not sell, given low opportunity costs. However, weak holders might be forced to sell if expectations that prices will continue to drop and that interest rates will rise over Page 20