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REIT│Singapore│January 9, 2017

Eyes on the Ground

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Viva Industrial Trust Rose among the thorns

VIT is a Singapore-focused business park and industrial trust. Based on Bloomberg ■estimates, VIT is trading at 9.5% FY17 dividend yield, highest in the sub-sector.

Unlike its small-cap counterparts that reported an average 13.4% yoy decline in ■3Q16 DPU, VIT registered a 9.7% yoy increase in 3Q16 DPU.

Its DPU growth has been driven by acquisitions and AEI at VBP. Management ■expects DPU growth qoq in next few quarters due to rising contribution from VBP.

Risks are: i) non-renewal by McDermott, ii) expiry of rental support for UEBH-■business park component in FY18, and iii) short land lease tenure.

Highest-yielding industrial S-REIT currently VIT is a Singapore-focused business park and industrial trust. Including the proposed acquisition of 6 Chin Bee Avenue, the group has a total of nine assets with AUM of S$1.3bn and aggregate NLA of 3.3m sq ft. As business parks make up 54.2% of the group’s AUM, the group has the highest concentration of business parks among the S-REITs. Based on Bloomberg estimates, VIT is trading at 9.5% FY17 dividend yield, making it the highest-yielding industrial S-REIT currently.

Rose among the thorns In contrast to its small-cap counterparts that reported an average 13.4% yoy decline in 3Q16 DPU (market-cap weighted average), VIT bucked the trend and registered a 9.7% yoy increase in 3Q16 DPU. Its DPU growth has been driven by acquisitions and asset enhancement inititative (AEI) at Viva Business Park (VBP).

AEI at Viva Business Park Recall that in May 15, VIT announced its plan to maximise the “white” space at VBP (15% of total space) and to transform the business park into a “work-play-eat-shop” destination in the Chai Chee neighborhood. Average passing rent for the “white” space is about 2x that of the industrial space. For the next few quarters, management believes there could be DPU growth qoq as 93.4% of the “white” space has been committed. Only 43% of the “white” space contributed to 3Q16 DPU, indicating room for upside.

Inorganic growth with built-in stability Including the proposed acquisition of 6 Chin Bee Avenue, VIT has expanded its initial portfolio of three properties worth S$0.7bn to a total of nine assets worth S$1.3bn. The latest acquisition is expected to be slightly DPU accretive. Additionally, 76.1% of 3Q16 rental income was derived from master lease and full rental support arrangements. Nonetheless, VIT has been working to decrease its reliance on rental support.

Risks I: non-renewal risk Given its high yield, we focus on downside risks. We understand from management that McDermott (top 10 client; accounted for 3.8% of the group’s rental income in Sep 16) would not be renewing its lease in Jackson Square (expires in Apr 17). Downside is mitigated by rental guarantee for Jackson Square (until 2019). Additionally, VIT has partially backfilled the space and does not foresee issues in finding tenants due to Jackson Square’s central location (Toa Payoh).

Risks II: rental support for UEBH, short land lease tenure The rental support for UE BizHub’s (UEBH) business park component expires in Nov 2018. A material gap exists between the passing rent of UEBH and implied rent under the rental support arrangement. In the worst-case scenario, management deems that rising contribution from VBP could offset the absence of income support. Also, VIT has a weighted average land lease of 35.1 years. The manager remains confident of renewing the remaining 15.3-year land lease for VBP (at end-15).

▎Singapore

NON RATED Current price: S$0.76 Consensus Tgt Price: S$0.83 Up/downside: N/A Reuters: VIVA.SI Bloomberg: VIT SP Market cap: US$490.7m S$703.2m Average daily turnover: US$0.29m S$0.41m Current shares o/s: 931.4m Free float: 33.9%

Source: Bloomberg Price performance 1M 3M 12M Absolute (%) -0.7 -3.2 7.1 Relative (%) -1.6 -6.9 -1.3

Major shareholders % held Tong Jinquan 54.2 Ho Lee Group Trust 7.7 China Enterprises Limited 4.4

Analyst(s)

YEO Zhi Bin T (65) 6210 8669 E [email protected] LOCK Mun Yee T (65) 6210 8606 E [email protected]

SOURCE: COMPANY DATA, CIMB , BLOOMBERG

Financial summaryFYE Dec, S$m FY14 FY15 9MFY16 9MFY15Gross property revenue 61.7 74.0 69.6 54.3 Net property income 40.8 50.8 50.4 37.1 NPI margin 66.0% 68.7% 72.5% 68.4%Distributable income 47.5 41.0 45.0 35.0 Asset leverage 44.3% 38.6% 39.8% 38.8%DPS (S cts) 6.83 7.00 5.20 5.37 Dividend yield 9.0% 9.3% 9.2%* 9.5%*BVPS (S cts) 75.8 81.3 80.3 82.7 P/BV (x) 1.00 0.93 0.94 0.91 *Annualised

91.096.0101.0106.0111.0116.0

0.6000.6500.7000.7500.8000.850

Price Close Relative to FSSTI (RHS)

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REIT│Singapore│Viva Industrial Trust│January 9, 2017

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Rose among the thorns Company snapshot VIT is a Singapore-focused business park and industrial trust, comprising Viva Industrial Real Estate Investment Trust (VI-REIT) and Viva Industrial Business Trust (VI-BT). Including the proposed acquisition of 6 Chin Bee Avenue, the group currently has a total of nine assets with AUM of S$1.3bn and aggregate NLA of 3.3m sq ft. Management views Viva Business Park (valued at S$330m) and UE BizHub East’s business park component (valued at S$335m) as the jewels in the group’s crown. As business parks make up 54.2% of the group’s current AUM, the group has the highest concentration of business parks among the industrial S-REITs. Post-acquisition, management expects VIT’s gearing to be 39.3%. The key shareholder and sponsors of VIT are Tong Jinquan (54.2% stake), Ho Lee Group (7.7%) and Kim Seng Holdings (4.2%). The group is externally managed, with the REIT manager owned by Maxi Capital Pte Ltd (55.5% stake), Kim Seng (16.7%) and Ho Lee (27.8%).

Rose among the thorns Bucking the trend Supply pressures in the form of lower portfolio occupancy and passing rents, multi-tenanted building (MTB) conversions, as well as the absence of capital distribution and manager’s fees paid in units have resulted in the small-cap industrial SREITs reporting an average 13.4% yoy decline in headline 3Q16 DPU (market-cap weighted average). VIT, however, has bucked this trend and registered a 9.7% yoy increase in its 3Q16 DPU.

To illustrate, VIT’s 3Q16 revenue increased by 31.9% yoy or S$5.9m. 3Q16 revenue growth was driven by the acquisition of 30 Pioneer Road in 2Q16 (which accounted for 19% of the revenue growth), acquisitions of 11 Ubi Road 1 and the Home-Fix Building in 4Q15 (44% of revenue growth) and AEI at Viva Business Park (34% of revenue growth).

Figure 1: Among the small-cap industrial REITs, VIT has bucked the 3Q16 trend by reporting a 9.7% yoy increase in DPU

Figure 2: 3Q16 revenue growth, by key driver (% yoy)

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

Organic driver: AEI at Viva Business Park Recall that in May 15, VIT announced its plan to maximise the “white” space (space allowable for mixed uses, 15% of total space) of Viva Business Park (VBP). The asset enhancement initiative (AEI) involved the conversion of unutilised areas (around 230,000 sq ft) into retail and commercial space at three

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Newly-acquired 30 Pioneer Road

Newly-acquired 11 Ubi Road 1 & Home-Fix Building

AEI at Viva Buisness Park

Others

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of the six blocks at VBP; and aimed to transform the business park into a “work-play-eat-shop” destination in the Chai Chee neighbourhood.

The AEI was conducted in three phases and cost more than S$80m (including c.S$59m incurred for development charge for the change in use). Phases 1 and 2 obtained temporary occupation permit (TOP) on 11 Jan 16 and 4 May 16, respectively. Management expects Phase 3 to be completed by 4Q16. The manager has targeted S$9.8m incremental NPI from the AEI.

At end-Sep 16, 93.4% of the “white” space was committed and the majority of the amenities are due to start operations by 1Q17. The amenities can be broadly categorised as: i) sports and fitness, ii) food and beverage, as well as iii) family-oriented destinations such as a Halal-certified supermarket and learning centres for children. Anchor tenants include Decathlon (French sports retailer), True Fitness gym and Burger King (F&B chain). Interestingly, VBP has a cluster of Halal-dining options to better cater to the population catchment in the Bedok area.

Retail rents for VBP range from single digit to mid-teens, with average passing rent of around S$5.50 psf pm or 2x the average passing rent for the industrial space. In comparison, the average passing rent for the industrial space is around S$2.80 psf pm. The industrial component was around 75% occupied as at end-3Q16 (occupancy for the entire VBP was 73% at end-3Q16).

For the next few quarters, management expects DPU growth qoq as 93.4% of the “white” space for VBP has been committed. Meanwhile, only 43% of the “white” space contributed to 3Q16 DPU, indicating room for further upside. As for 9M16, VBP accounted for about 23% of the group’s NPI (including rental support).

Figure 3: Increasing contribution from VBP as AEI nears completion

Figure 4: Transformation of VBP into a “work-play-eat-shop” destination in the Chai Chee neighbourhood

SOURCES: CIMB, COMPANY REPORTS SOURCES: COMPANY REPORTS

Inorganic growth driver: acquiring 6 Chin Bee Avenue Since IPO, VIT expanded through acquisitions, accompanied by equity fund-raising exercises. Including the proposed acquisition of 6 Chin Bee Avenue, the group’s has expanded its initial portfolio of three properties worth S$0.7bn to a total of nine assets worth S$1.3bn. The manager has demonstrated discipline in not exercising its right of first refusal (ROFR) on assets in the pipeline as the acquisitions would not have been DPU accretive. In the meantime, its recent acquisitions of 11 Ubi Road 1 and Home-Fix Building in 4Q15 plus the acquisition of 30 Pioneer Road in 2Q16, boosted VIT’s 3Q16 DPU growth.

As for 6 Chin Bee Avenue, the property is a newly-completed 5-storey ramp-up, high specifications warehouse development that caters to the food services sector. The agreed price tag was S$87.3m (7.4% discount to independent valuation of S$94.3m). The asset would be leased to Sharikat Logistics, a third-party logistics (3PL) and warehouse space solutions provider. The lease would be a 7-year triple-net master, contributing S$7.4m p.a. to VIT, with an option to

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extend for another three years. The lease also builds in 1.5% rental escalation p.a. at the beginning of the third year and for every subsequent year of the lease term.

Management expects the acquisition to be slightly DPU accretive. The manager guided that 9M16 DPU would have experienced a 0.04% uplift if the acquisition was completed on 1 Jan 16.

To partly fund the acquisition, VIT issued a private placement of 60.8m new stapled securities at an issue price of S$0.74 plus 31.1m consideration units to the vendor, which raised net proceeds of S$66.5m.

Figure 5: Since IPO, VIT has expanded through acquisitions Figure 6: Key milestones

SOURCES: COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

VIT is the highest-yielding industrial S-REIT currently Based on Bloomberg estimates, VIT is trading at 9.5% FY17 dividend yield and 0.94x P/BV. The REIT is the highest-yielding industrial S-REIT currently (vs. the small-cap industrial REIT average of 8.6% FY17 dividend yield).

Figure 7: VIT 12-month forward dividend yield Figure 8: Viva Industrial Trust P/BV

SOURCE: BLOOMBERG SOURCE: BLOOMBERG

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(S$m) Date Event04Nov13 Listed on Singapore Exchange Mainboard12Sep14 Issuance of 4.15% 4-year S$100m note21Nov14 Completed acquisitions of Jackson Square and Jackson Design Hub at

S$111.5m 02Dec14 Private placement of 20m new stapled securities at S$0.78 to raise

gross proceeds of S$15.6m05Jun15 Private placement of 80.3m new stapled securities at S$0.785 to raise

gross proceeds of S$63m18Nov 15 Private placement of 52m new stapled securities at S$0.725 to raise

gross proceeds of S$37.7m24Nov15 Completed acquisitions of 11 Ubi Road 1 and Home-Fix Building at

S$122.7m15Dec15 Preferential offering of one new stapled security for every existing seven

at S$0.715 to raise gross proceeds of S$72.3m11Feb16 Refinanced outstanding loans maturing in 2016 and 2017 respectively15Apr16 Completed acquisition of 30 Pioneer Road at S$45m27Oct16 Proposed acquisition of 6 Chin Bee Avenue for S$87.3m27Oct16 Private placement of 60.8m new stapled securities at S$0.74 to raise

gross proceeds of S$66.4m

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Figure 9: CIMB REIT/BT Overview

SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG

Property portfolio Property portfolio details VIT currently has a total of nine assets with AUM of S$1.3bn and aggregate NLA of 3.3m sq ft (including the proposed acquisition of 6 Chin Bee Avenue). Management views Viva Business Park (valued at S$330m) and UE BizHub East’s business park component (valued at S$335m) as the jewels in the group’s crown. Business parks make up 54.2% of the group’s current AUM, and the REIT has the highest concentration of business parks among the industrial S-REITs.

In Figure 10, we provide details on VIT’s properties. UE BizHub East’s (UEBH) business park component and VBP are the largest contributors to VIT’s distributable cash flow, accounting for estimated 34% and 23%, respectively, of the group’s 9M16 NPI (including rental support).

SREIT Price as at08 Jan 17

HospitalityAscott Residence Trust ART SP $1.16 $1,333 41.0% 1.30 0.89 $1.11 H 6.8% 7.1% 7.2%Ascendas Hospitality Trust ASCHT SP $0.72 $550 33.2% 0.73 0.98 NA NR 7.6% 7.7% 7.6%CDL Hospitality Trust CDREIT SP $1.39 $962 36.3% 1.57 0.88 $1.30 H 6.6% 6.8% 7.0%Far East Hospitality Trust FEHT SP $0.60 $754 32.8% 0.93 0.65 $0.56 H 7.2% 7.0% 7.2%Frasers Hospitality Trust FHT SP $0.66 $849 38.3% 0.80 0.82 NA NR 8.2% 7.9% 8.1%OUE Hospitality Trust OUEHT SP $0.69 $856 31.2% 0.79 0.87 $0.70 A 6.5% 7.1% 7.3%

Simple Average 35.5% 0.85 7.1% 7.3% 7.4%IndustrialAIMS AMP AAREIT SP $1.34 $593 33.1% 1.53 0.87 NA NR 8.5% 8.5% 8.8%Ascendas REIT AREIT SP $2.38 $4,736 37.0% 2.03 1.17 $2.25 H 6.5% 6.4% 6.4%Cache Logistics Trust CACHE SP $0.82 $514 41.2% 0.83 0.99 $0.74 RD 9.2% 8.7% 8.3%Cambridge Industrial Trust CREIT SP $0.55 $496 36.9% 0.68 0.80 $0.55 H 8.0% 7.9% 8.1%Keppel DC REIT KDCREIT SP $1.21 $950 29.1% 0.92 1.32 $1.18 H 5.1% 5.7% 5.8%Mapletree Industrial Trust MINT SP $1.65 $2,075 29.0% 1.37 1.20 $1.68 A 6.8% 6.9% 6.9%Mapletree Logistics Trust MLT SP $1.04 $1,806 37.6% 0.98 1.06 $1.02 H 7.1% 7.2% 7.4%Sabana Shariah SSREIT SP $0.34 $177 41.5% 0.81 0.42 NA NR 0.0% 0.0% 0.0%Soilbuild Business Space REIT SBREIT SP $0.66 $482 36.0% 0.77 0.86 NA NR 9.2% 9.5% 8.9%Viva Industrial Trust VIT SP $0.76 $489 39.8% 0.80 0.94 NA NR 9.3% 9.5% 10.6%

Simple Average 36.1% 0.92 7.0% 7.0% 7.1%OfficeCapitaLand Commercial Trust CCT SP $1.54 $3,174 37.8% 1.72 0.89 $1.52 H 5.8% 6.1% 6.3%Frasers Commercial Trust FCOT SP $1.27 $705 36.3% 1.55 0.82 $1.26 H 7.8% 7.5% 7.3%Keppel REIT KREIT SP $1.05 $2,412 39.0% 1.41 0.74 $1.02 H 6.4% 6.4% 6.3%OUE Commercial REIT OUECT SP $0.70 $629 40.2% 0.91 0.76 $0.65 H 7.6% 7.6% 7.7%

Simple Average 38.3% 0.80 6.9% 6.9% 6.9%RetailCapitaLand Mall Trust CT SP $1.97 $4,858 35.4% 1.89 1.04 $1.96 H 5.6% 5.5% 5.6%Frasers Centrepoint Trust FCT SP $1.96 $1,255 28.3% 1.93 1.01 $2.01 A 6.0% 6.0% 6.2%Mapletree Commercial Trust MCT SP $1.46 $2,472 37.3% 1.32 1.10 $1.45 H 5.6% 5.7% 5.9%SPH REIT SPHREIT SP $0.97 $1,718 25.7% 0.94 1.03 $0.95 H 5.7% 5.9% 6.0%Starhill Global REIT SGREIT SP $0.77 $1,164 35.0% 0.92 0.83 $0.76 H 6.8% 6.9% 7.1%Suntec REIT SUN SP $1.68 $2,970 37.8% 2.13 0.79 $1.54 RD 6.1% 6.2% 6.2%

Simple Average 33.3% 0.97 6.0% 6.0% 6.2%Retail Ex-SinCapitaLand Retail China Trust CRCT SP $1.41 $852 36.7% 1.58 0.89 NA NR 7.2% 7.9% 7.8%Croesus Retail Trust CRT SP $0.85 $469 44.6% 1.00 0.84 $0.98 A 8.1% 9.4% 9.4%Lippo Malls Indonesia Retail Trust LMRT SP $0.37 $724 27.9% 0.39 0.95 $0.38 H 8.6% 9.1% 9.2%Mapletree Greater China Commercial Trust MAGIC SP $0.96 $1,867 39.9% 1.19 0.81 $1.13 A 7.6% 7.8% 7.9%

Simple Average 37.3% 0.87 7.9% 8.5% 8.6%HealthcareFirst REIT FIRT SP $1.29 $692 30.0% 1.03 1.25 $1.26 H 6.5% 6.5% 6.7%Parkway Life REIT PREIT SP $2.38 $1,005 38.2% 1.67 1.43 $2.53 A 5.1% 5.3% 5.4%RHT Health Trust RHT SP $0.92 $515 19.1% 0.88 1.04 $0.89 H 8.5% 33.3% 6.9%

Simple Average 29.1% 1.24 6.7% 15.0% 6.3%Simple average for SIN 35.0% 0.93 6.8% 7.7% 6.9%

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Figure 10: Property details

SOURCES: CIMB, COMPANY REPORTS

THE ACQUISITION OF 30 PIONEER ROAD WAS COMPLETED ON 15 APR 2016 WHILE THE ACQUISITION OF 6 CHIN BEE AVENUE HAS NOT BEEN COMPLETED AT THE TIME OF WRITING

Among the industrial sub-asset types such as warehouses and factories, we are most positive on business parks. Given the minimal supply post-2016 and the high pre-commitment levels, we believe that business park rents and capital values are supported by Singapore’s structural shift towards higher-value activities. That said, we foresee some near-term supply pressure after completions peaked in 2016 (refer to Appendix: Business park outlook).

We note that for an area zoned for business park, a maximum of 15% of GFA is allowed for “white” uses, which may include retail shops, offices and restaurants. As for a business park zoned as “business park white”, more than 15% and up to 40% of the development’s overall GFA is allowed for “white” uses.

The land at UEBH is zoned for “business park white” development, while the land at VBP is zoned for “business park”.

As at 30 Sep 16, VIT’s portfolio has a weighted average lease expiry (WALE) of 3.3 years (by rental income), with portfolio occupancy of 88.6% (up from 80.8% at 30 Sep 15). VIT has a diverse set of tenants and sub-tenants from trade sectors, including Cisco System (global IT company), Meiban Group (local precision engineering company), Decathalon (French sporting goods) and NTUC Fair Price (local grocery retailer). Please refer to Figure 20: top 10 customers. About 44% of the group’s tenants are from the IT sector and 18.4% from the engineering sector. Interestingly, VIT has leased out data centre space at VBP (on a shell and core basis) to 1-Net, a government linked data centre operator. 1-Net accounted for around 5% of rental income in Sep 16.

Figure 11: Asset type, by valuation (post-acquisition of 6 Chin Bee Avenue)

Figure 12: Tenant type, by gross rental income (30 Sep 16)


# Property Property type Valuation (S$m) FY15 gross revenue (S$m)

GFA (sq ft) Building age (yr)

Remaining land lease (yr)

FY15 occupancy (%)

1 UE BizHub EAST - business park component

Business park 355.0 23.5 626,018 3.7 52.1 88.4%

2 UE BizHub EAST - hotel component

Hotel 160.0 9.4 157,397 3.7 52.1 99.5%

3 Viva Business Park Business park 330.0 27.0 1,524,685 19.2 15.3 68.3%4 Mauser Singapore Logsitics 28.0 1.9 107,566 3.5 50.6 100.0%5 Jackson Square Light industrial 82.0 9.0 418,586 6.1 13.4 98.9%6 Jackson Design Hub Light industrial 33.4 2.1 85,070 6.9 51.4 100.0%7 11 Ubi Road 1 Light industrial 87.0 0.7 253,058 18.1 39.7 100.0%8 Home-Fix Building Light industrial 47.8 0.3 120,556 4.6 51.7 100.0%9 30 Pioneer Road Logistics 45.0 na 281,090 6.3 20.1 na10 6 Chin Bee Avenue Logistics 87.3 na 324,166 0.7 26.8 na

Business Park,

54.2%

Hotel, 12.5%

Light Industrial, 19.5%

Logistics, 13.8%

MNC, 58.4%

SME, 36.9%

GLC, 4.7%


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Rental income has downside protection We note that 76.1% of VIT’s 3Q16 rental income was derived from master lease and full rental support arrangements, such as the rental support for UEBH’s business park component and rental guarantee for Jackson Square. That said, VIT’s reliance on rental support for UEBH’s business park component has been decreasing owing to new tenancies at UEBH’s business park component, as well as contribution from new acquisitions (refer to Figure 14: Rental support has been narrowing).

Five of the group’s nine properties are on master leases with embedded rental escalation clauses. They are i) UEBH’s hotel component, ii) Mauser Singapore, iii) Jackson Design Hub, iv) Home-Fix Building and lastly, v) 6 Chin Bee Avenue.

The vendor for UEBH’s business park component has agreed to provide net rental support of up to S$25.35m p.a for five years (until Nov 2018), along with 5% rental escalations in the third and fifth years. The vendor for Jackson Square has also provided a 5-year guarantee (until Nov 2019), based on an amount that approximates the current total gross rental collection from the underlying tenants.

Figure 13: Downside risk offset by master lease and full rental support arrangements

Figure 14: Rental support has been narrowing; contributed less than 16% of rental income in 3Q16


Capital management As at 30 Sep 16, VIT had total borrowings of S$488m, with all-in borrowing costs of 3.9%. Gearing stood at 39.8%. Post-acquisition, management expects gearing to improve to 39.3%. Around 86.1% of VIT’s borrowings were hedged against interest rate. In Feb 16, VIT refinanced outstanding loans maturing in FY16 and FY17, with additional credit facilities and extended tenors. As such, VIT has no major refinancing requirements until FY18, when its 4.15% S$100m 4-year note matures in Sep 18.

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Rental income from properties without full downside protection arrangements

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Figure 15: Balance sheet metrics Figure 16: Debt maturity profile

SOURCES: CIMB, COMPANY REPORTS

1 EXCLUDES THE REVOLVING CREDIT FACILITY OF S$50 MILLION SOURCES: CIMB, COMPANY REPORTS

Shareholder & management The key shareholders and sponsors The key shareholders and sponsors of VIT are:

1) Tong Jinquan, founder of the Summit Group (50.5% stake). Mr Tong has over 20 years of experience in property investment, development and management. He founded Summit Group in 1994, which held total assets of approximately Rmb55bn as at end-15.

2) Ho Lee Group (invested through Ho Lee Group Trust, 7.7% stake). Established in 1972, Ho Lee Group is a diversified company in construction and construction-related businesses, as well as property development. Its other businesses include steel fabrication, equipment and machinery, as well as aluminium manufacturing through its SGX-listed subsidiary, LH Group Limited.

3) Kim Seng Holdings Pte. Ltd (invested through China Enterprises Ltd, 4.2% stake). Kim Seng Holdings is the investment vehicle controlled by Mr Tan Kim Seng and his family. Mr Tan was the founder and former Executive Chairman of KS Energy, an oil services company listed on the SGX. KSH also holds a 6.7% stake in Heeton Holdings, a small-cap property developer listed on the SGX.

The REIT manager VIT is externally managed, with the REIT manager (Viva Investment Management Pte Ltd) owned by Maxi Capital Pte Ltd (55.5% stake), Kim Seng (16.7%) and Ho Lee (27.8%). The shareholders of Maxi Capital comprise Shanghai Summit and the key executives of the manager. Most of its board of directors are independent.

The CEO of the REIT manager, Mr Wilson Ang Poh Seng, is an experienced professional in the Singapore industrial property sector. In 2006, he co-founded and became CEO of Cambridge Industrial Trust (CREIT SP, HOLD), the first industrial REIT manager in Singapore. Before that, he spent more than 13 years with Colliers International (Singapore) as head of the industrial division.

The Head of Investor Relations & Capital Markets, Mr Frank Ng Tze Wei, works with the CEO and members of the management team to formulate strategic plans for VIT. He was key in the listing of VIT on the SGX. Prior to joining the REIT manager, Mr Ng was lead economist at the Monetary Authority of Singapore (MAS).

The Head of Asset Management, Mr Kendrick Kwek Chin Liang, has over 26 years of real estate experience in property and asset management in Singapore

As at 30 Sep 2016Total Borrowings S$488 millionGearing Ratio (Total Borrowings over Total Assets) 39.8%All-in Borrowing Cost 3.9%Weighted Average Debt Maturity 1 3.5 yearsInterest Rate Exposure Fixed 86.1%Interest Cover 4.18 times

135 135100

073

140

140

0

50

100

150

200

250

2016 2017 2018 2019 2020 2021


9

and China. He has extensive experience in managing a wide range of real estate portfolios. Prior to joining the REIT manager in May 16, Mr Kwek was Senior Director of Tishman Speyer, where he was the Head of Property Management in China.

Figure 17: VIT sponsors & strategic partners Figure 18: REIT manager structure


Risks Non-renewal risk As at 30 Sep 16, about 16.1% of VIT’s gross rental income is due for renewal in 2017. We understand that US oil services company, McDermott Asia Pacific will not be renewing its lease on Jackson Square (expires in Apr 17). The non-renewal follows the move by oil services MNCs such as Technip, Subsea 7 and Saipem to relocate their Southeast Asia headquarters from Singapore to Kuala Lumpur. The MNCs want to take advantage of the lower cost base and more importantly, to be closer to strategic clients such as Petronas (Malaysia’s state-owned oil & gas company).

McDermott accounted for around 3.8% of the group’s rental income in Sep 16; and occupies about 109,500 sq ft in Jackson Square (or 23% of its NLA). We understand that a multinational electronics contract manufacturing company has taken up a portion of the McDermott space; and that the signing rent was on par with McDermott’s.

In addition, Jackson Square is located in Toa Payoh, the central region of Singapore. Hence, the manager does not foresee any issues in backfilling the vacant space. Lastly, Jackson Square has a rental guarantee in place that would protect VIT from any drop in rental income until 2019.

On MTB conversions risks, we note that the Mauser Singapore master lease will expire in 2019, with an option to renew for another five years.

1. Investment holding company of sponsor Kim Seng Holdings2. Shareholdings as at 10 October 2016.3. 1 stapled security comprises 1 unit in VI-REIT and 1 unit in VI-BT.4. VI-BT will remain dormant and exist primarily as a "lessee of last resort".

Ho Lee Group Trust (“HLGT”)

China Enterprises

Limited (“CEL”)1

Other Stapled SecurityholdersTong Jinquan

54.2%2 7.7%2 4.2%2 33.9%2

Stapling Deed

VIT3

VI-REIT VI-BT 4

Maxi Capital Pte. Ltd

Sponsor: Kim Seng Holdings Pte. Ltd.

Sponsor: Ho Lee Group Pte. Ltd.

Viva Investment Management Pte. Ltd.

55.5% 27.8%

VITM (VI-REIT Manager)

VAM (VI-BT Trustee Manager)

16.7%

100%


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Figure 19: Lease expiry, by gross rental income (30 Sep 16) Figure 20: Top 10 customers accounted for 43.2% of monthly committed rental income in Sep 16


Rental support for UEBH expires in FY18 The rental support for UEBH’s business park component expires in Nov 2018.

In 9M16, UEBH’s business park component contributed around S$12m to NPI, while rental support for UEBH was around S$8m. We understand from management that the average passing rent of c.S$4.50 psf pm and occupancy of c.90% underpinned the S$12m NPI contribution. Including the rental support, this implies that the average passing rent for UEBH’s business park component is around S$5.90 psf pm (vs. spot rent of S$5.60 for comparable properties in Changi Business Park) and occupancy rate is 95%. This also means that VIT needs to increase UEBH’s passing rent by 30% in two years (or by FY18) and raise occupancy by 5% to achieve the desired stabilised state.

In mitigation, the completion of the new Downtown Line in 3Q17 would increase the accessibility of UEBH, and enable VIT to negotiate for higher rents, closer to the spot rate of S$5.60 when it renews leases in 2017-18. Additionally, some of the shortfall could be partially offset by an additional S$1m p.a. in NPI from UEBH’s hotel component (function of the 10-year master lease agreement that started in Nov 13).

In the worst-case scenario of VIT being unable to bridge the rental gap of S$4.50 and S$5.90, the manager deems that increasing contribution from VBP should offset the absence of income support for UEBH’s business park component. This could result in a plateau for DPU profile, rather than an increasing one (refer to Figure 1).

Short land lease tenure VIT has a weighted average land lease (by valuation) of 35.1 years. Of note, VBP has a remaining land lease of 15.3 years (as at end-15). The implication of shorter land tenure is that it could restrict industrial end-users’ longer-term business planning, making the space less attractive to them. In addition, we understand that the valuers are likely to treat properties with land lease tenure of less than 10 years as depreciating assets. This could spell NAV erosion.

The manager remains confident that the land lease for VBP will be renewed. The renewal of land lease depends on the Urban Redevelopment Authority’s (URA) master plan zoning, as well as the site owner’s investment commitment.

In the Master Plan 2008, VBP was rezoned from High-Tech Industrial to Business Park. The rezoning took into account the site’s location within mature residential estates and the shifting profile of businesses that are likely to locate there. In addition, VIT has invested more than S$80m in VBP’s AEI to utilise the “white” component of the development, converting industrial space into retail and office space.

0.3%

16.1%

18.7%

35.0%

29.9%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

FY16 FY17 FY18 FY19 FY20 & beyond

6.9%

5.7%5.2% 5.0%

4.1% 3.8% 3.6% 3.6%

2.9%2.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%


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Hence, the manager remains confident that the land lease for VBP will be renewed. It believes that there is potential upside to VBP’s value from the land lease being extended.

Appendix: Business park outlook We deem business parks as the pinnacle of industrial space sophistication and a real estate proxy for Singapore’s shift towards higher value-added activities. Business park buildings are located in government-identified zones called “Business Parks”, which accommodate various amenities such as food and beverage outlets, convenience stores and childcare centres. The business park buildings are high-rise, multi-tenanted buildings located in a landscaped environment. The concentration of companies from the same sector allow for greater economies of scale from shared infrastructure.

As at end-3Q16, Singapore had a total of 23m sq ft of business park space. After a sizeable 2.37m sq ft of completions in 9M16 (prominent completions included Ascent at the Singapore Science Park and MBC II), supply in the pipeline is expected to stay low in 2017. According to the JTC, around 0.28m sq ft of supply (assuming 80% efficiency) or 1.2% of the existing stock is expected to be completed between now to 2018. There is notable incoming supply in the form of purpose-built business park being developed by BP-Vista, a JV between Boustead Singapore and a Middle-Eastern sovereign wealth fund, in 4Q16.

As a result of the supply peak in 2016, we expect island-wide occupancy to fall to 80.2% in 2016 (2015: 84.1%). However, assuming a moving 5-year average net absorption, occupancy is expected to recover to 90.2% in 2018. Furthermore, we understand that the developments under construction are 100% pre-committed.

Amid limited supply and expected recovery of the office market, we expect business park rents to strengthen in 2H17/2018. As at end-3Q16, business park median monthly rent stood at S$4.25 psf pm, an improvement of c.5% from end-2015.

Figure 21: Annual supply, net absorption and occupancy of business parks island-wide

Figure 22: Average rents for business parks have been stable

SOURCES: CIMB, URA SOURCES: CIMB, CBRE

60

65

70

75

80

85

90

95

100

-50

0

50

100

150

200

250

Annual supply ('000 sq m) Annual demand ('000 sq m)

Occupancy (%, RHS)

5-yr ave. supply: 104k sq m

3-yr fwd ave. supply: 82k sq m

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

Business Park (city fringe) Business Park (Rest of the Island)

(S$ psf pm)


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as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. In South Korea, this report is for distribution only to professional investors under Article 9(5) of the Financial Investment Services and Capital Market Act of Korea (“FSCMA”). Spain: This document is a research report and it is addressed to institutional investors only. The research report is of a general nature and not personalised and does not constitute investment advice so, as the case may be, the recipient must seek proper advice before adopting any investment decision. This document does not constitute a public offering of securities. CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden. Switzerland: This report has not been prepared in accordance with the recognized self-regulatory minimal standards for research reports of banks issued by the Swiss Bankers’ Association (Directives on the Independence of Financial Research). Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China. Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (“CIMBS”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CIMBS has no obligation to update its opinion or the information in this research report. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient are unaffected. CIMB Securities (Thailand) Co., Ltd. may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions. AAV, ADVANC, AMATA, ANAN, AOT, AP, BA, BANPU, BBL, BCH, BCP, BDMS, BEAUTY, BEC, BEM, BH, BJCHI, BLA, BLAND, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EGCO, EPG, ERW, GL, GLOBAL, GLOW, GPSC, GUNKUL, HANA, HMPRO, ICHI, IFEC, INTUCH, IRPC, ITD, IVL, JWD, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LPN, MAJOR, MINT, MTLS, PLANB, PS, PTG, PTT, PTTEP, PTTGC, QH, ROBINS, RS, S, SAMART, SAWAD, SCB, SCC, SGP, SIRI, SPALI, SPCG, STEC, STPI, SVI, TASCO, TCAP, THAI, THCOM, TISCO, TMB, TOP, TPIPL, TRC, TRUE, TTA, TTCL, TTW, TU, TVO, UNIQ, VGI, VNG, WHA, WORK. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result Description: Excellent Very Good Good N/A

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constitute independent “investment research” under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. Any such non-independent report must be considered as a marketing communication. United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. CIMB Securities (USA) Inc does not make a market on the securities mentioned in the report. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2016, Anti-Corruption 2016. AAV – Very Good, n/a, ADVANC – Very Good, Certified, AEONTS – Good, n/a, AMATA – Excellent, Declared, ANAN – Very Good, Declared, AOT – Excellent, Declared, AP – Very Good, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Very Good, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – not available, Declared, BCP - Excellent, Certified, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, Declared, BEC - Good, n/a, BH - Good, Declared, BIGC - Excellent, Declared, BJC – Good, n/a, BLA – Very Good, Certified, BPP – not available, n/a, BTS - Excellent, Certified, CBG – Good, n/a, CCET – not available, n/a, CENTEL – Very Good, Certified, CHG – Very Good, n/a, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, Declared, DEMCO – Excellent, Certified, DTAC – Excellent, Certified, EA – Very Good, Declared, ECL – Good, Certified, EGCO - Excellent, Certified, EPG – Good, n/a, GFPT - Excellent, Declared, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Very Good, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Declared, ICHI – Very Good, Declared, INTUCH - Excellent, Certified, ITD – Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Declared, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Declared, M – Very Good, Declared, MAJOR - Good, n/a, MAKRO – Good, Declared, MALEE – Very Good, Declared, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Declared, MEGA – Very Good, Declared, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Very Good, Declared, PSH – not available, n/a, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Declared, RATCH – Excellent, Certified, ROBINS – Very Good, Declared, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI - Good, n/a, SPALI - Excellent, Declared, SPRC – Very Good, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, Declared, TCAP – Excellent, Certified, THAI – Very Good, Declared, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Very Good, Certified, TICON – Very Good, Declared, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Good, n/a, TMB - Excellent, Certified, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Very Good, Declared, TTW – Very Good, Declared, TU – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a.

Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into: - Companies that have declared their intention to join CAC, and - Companies certified by CAC

Rating Distribution (%) Investment Banking clients (%)Add 58.4% 5.4%Hold 29.6% 1.4%Reduce 11.6% 0.4%

Distribution of stock ratings and investment banking clients for quarter ended on 31 December 20161626 companies under coverage for quarter ended on 31 December 2016


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CIMB Recommendation Framework 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.

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