propertylink group 2016 09 15 - research-doc.credit-suisse.com

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

15 September 2016 Asia Pacific/Australia

Equity Research Real Estate Management & Development

Propertylink Group

(PLG.AX / PLG AU) Rating OUTPERFORM Price (15-Sep,A$) .75 Target Price (A$) .92 Target price ESG risk (%) Market cap (A$mn) 452.1 Yr avg. mthly trading (A$mn) 109.0 Projected return: Capital gain (%) 22.7 Dividend yield (net %) 9.3 Total return (%) 32.0 *Stock ratings are relative to the relevant country benchmark.

¹Target price is for 12 months.

[V] = Stock Considered Volatile (see Disclosure Appendix)

Research Analysts

Mikhail Mohl

61 2 8205 4413

[email protected]

Ian Randall

612 8205 4580

[email protected]

Martin Patz

61 2 8205 4018

[email protected]

Specialist sales: Bhupen Master

61 2 8205 4792

[email protected]

INITIATION

8.70% implied cap rate, 5% MT growth

■ 32% Total Return. We initiate coverage on PLG with an Outperform rating

and a $0.92 Target Price. Our SOTP val ascribes no premium to the book

WACR (7.65%) & 12.0x to funds mgt, similarly, our DCF val adopts a sector

high 11.2% geared cost of equity. PLG offers a prospective distribution yield

of 9.1%, which equates to a 420bp spread to the A-REIT average.

■ What's being priced in? At current levels, PLG is trading on an implied cap

rate of 8.70%, reflecting a 7% discount to current book values vs the 6% avg

premium implied for A-REITs. Similarly, running spot bonds through our DCF

valuations suggests PLG is pricing in un-levered terminal growth of -1.8% vs

+1.4% for A-REITs. Notably, this is despite PLG's 5.2%pa MT (FY17-21)

FFO growth trajectory under our base case or 8.0%pa under our bull case.

Our base case assumes a 39% reduction in average AUM growth (in

absolute terms) relative to FY15 & FY16 AUM growth. As such, we believe

execution risks around leasing & FUM growth are being more than priced in.

■ Investment case. PLG is an Australia-focused internally managed property

trust with a fully integrated real estate platform, a $685mn portfolio of 33

predominantly industrial assets (>80% Sydney & Melbourne) with a rapidly

growing funds management platform (~$1bn) backed by 8 global institutional

investors. PLG backs its deep in-house asset management capability to take

advantage of typically B–Grade commercial assets with value add potential.

■ Solid progress since listing. PLG has made a promising start to the 2017

fiscal year. 2.5mths into the year, PLG is running ahead of PDS estimates on

a number of fronts including leasing (90% tenant retention ytd / 11 of 27

deals completed), debt costs, co-investment income and property

management & leasing fees. Post the Denison acquisition (~$176m), PLG is

targeting a further ~$500m of acquisitions in FY17 and is currently bidding

(or in exclusive due-diligence) on ~$280m of potential transactions.

Performance 1M 3M 12M Absolute (%) -7.41 Relative (%) -2.13

Financial and valuation metrics

Year 6/17E 6/18E 6/19E Revenue (A$ mn) - - - EBITDA (A$ mn) 53 58 60 EBIT (A$ mn) 53 58 60 Net Income (Adj.) (A$ mn) 43 47 49 EPS (Adj.) (Ac) 7.21 7.82 8.12 Change from previous EPS (%) EPS growth (%) 8.5 3.9 Consensus EPS (Ac) 7.00 7.00 8.00 P/E (x) 10.4 9.6 9.2 Dividends (Ac) 6.85 7.43 7.69 Dividend yield (%) 9.1 9.9 10.3 Price/Book (x) 0.9 0.9 0.9 Net debt/EBITDA (x) 5.1 4.8 4.7

Source: Company data, Thomson Reuters, Credit Suisse estimates

15 September 2016

Propertylink Group

(PLG.AX / PLG AU) 2

Table of contents

Executive Summary 4

Investment thesis...................................................................................................... 4

PLG overview ........................................................................................................... 4

$0.92 Target Price, Outperform Rating 5

Valuation methodologies .......................................................................................... 7

Peer comparison .................................................................................................... 10

Operational progress since listing 14

Financial Forecasts 15

Strengths and opportunities 20

Key risks 26

Investment portfolio 29

Portfolio metrics and comps ................................................................................... 32

External Funds 34

Business overview .................................................................................................. 34

Historical performance of External funds ............................................................... 36

Management fees ................................................................................................... 36

Co-investments in External funds........................................................................... 37

External fund investors ........................................................................................... 37

Australian Industrial Markets 39

Sydney .................................................................................................................... 39

Melbourne ............................................................................................................... 41

Brisbane ................................................................................................................. 43

Perth ....................................................................................................................... 45

ESG 47

Summary ................................................................................................................ 47

Environment ........................................................................................................... 47

Social ...................................................................................................................... 48

Governance ............................................................................................................ 48

Senior management and board 51

Senior management team ...................................................................................... 51

Board of Directors .................................................................................................. 52

15 September 2016

Propertylink Group

(PLG.AX / PLG AU) 3

Propertylink Group (PLG.AX / PLG AU)

Price (15 Sep 2016): A$0.75; Rating: OUTPERFORM; Target Price: A$0.92; Analyst: Mikhail Mohl

Income Statement 6/17E 6/18E 6/19E

Net Property Income 49 50 51 Residential Development income - - - Construction income - - - Infrastructure development 3 2 1 Operating Expenses (excl. D&A) (11) (12) (12) EBITDA 53 58 60 EBIT 53 58 60 Net interest exp. (9) (10) (10) Other non-operating & non-recurring items (19) (20) (20) Profit before tax 44 48 50 Surplus/deficit on inv property 0 0 0 Income tax (1) (1) (1) Minorities - - - Exceptionals 0 0 0 Net profit (Reported) 43 47 49 Analyst after tax adjustments 0 0 0 Normalised NPAT 43 47 49 Distributable income to unitholders 43 47 49

Balance Sheet 6/17E 6/18E 6/19E

Cash & equivalents 8 10 11 Receivables 0 0 0 Other current assets 4 4 4 Current assets 12 13 15 Property, plant & equip. 92 92 92 Intangibles 5 5 5 Properties under development 0 0 0 Investment properties 614 626 638 Other assets 50 59 67 Total assets 773 795 816 Accounts Payables 0 0 0 Interest bearing debt - Current 0 0 0 Other short-term liabilities 0 0 0 Total current liabilities 0 0 0 Interest bearing debt - Non-Current 280 287 293 Other non-current Liabilities 9 9 9 Total liabilities 288 296 302 Ordinary Equity 485 499 514 Minorities & Others - - - Total liabilities and equity 773 795 816

Cash Flow 6/17E 6/18E 6/19E

EBIT 53 58 60 Net Interest (9) (10) (10) Depr & Amort 0 0 0 Tax Paid (1) (1) (1) Change in Working capital -0 -0 -0 Other cash and non-cash items 1 2 3 Operating cashflow 44 49 52 Capex (17) (1) (1) Capex - expansionary (16) 0 0 Capex - Maintenance (1) (1) (1) Acquisitions & Invest 0 0 0 Asset sale proceeds 9 0 0 Other - - - Investing cashflow (7) (1) (1) Dividends paid (41) (45) (46) Equity raised - - - Net borrowings 7 0 0 Other financing cash in/(outflows) 0 0 0 Financing cashflow (35) (45) (46) Total cashflow 2 3 4 Adjustments 0 0 0 Movement in cash/equivalents 2 3 4

Earnings 6/17E 6/18E 6/19E

Equiv. FPO (period avg) (mn) 603 603 603 EPS (CS underlying) (C) 7.2 7.8 8.1 EPS Growth (%) - 8.5 3.9 Net Income Margin 88.8 93.4 95.2 DPS (C) 6.9 7.4 7.7 AFFO per share (C) 7.1 7.7 7.9 NTA per share (C) 79.7 82.1 84.6 NRI growth - 3.2 1.9

Valuation 6/17E 6/18E 6/19E

EV/EBITDA (x) 13.4 12.4 12.0 P/E (CS) (x) 10.4 9.6 9.2 P/NTA (X) 0.9 0.9 0.9 P/AFFO (X) 10.6 9.8 9.5 Dividend Yield (%) 9.1 9.9 10.3

Returns 6/17E 6/18E 6/19E

Return on Equity (%) 9.0 9.4 9.5 ROIC (avg.) (%) - 7.4 7.5 Asset turnover (X) 0.1 0.1 0.1 Interest Cover 5.7 6.0 6.1

Gearing 6/17E 6/18E 6/19E

Net debt / Investment properties (%) 44.2 44.4 44.2 Debt / EBITDA (X) 5.2 4.9 4.9 Total Liabilities / Total Assets (%) 37.3 37.2 37.0 Dividend Cover - - - Prem/disc NTA (%) (5.9) (8.6) (11.3)

MSCI IVA Rating

Share price performance

On 15-Sep-2016 the S&P ASX 200 Index closed at 5239.9

On 15-Sep-2016 the spot exchange rate was A$1.34/US$1

Source: Company data, Credit Suisse estimates

Global Local Country

Environment Social Governance

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15 September 2016

Propertylink Group

(PLG.AX / PLG AU) 4

Executive Summary

Investment thesis

We view Propertylink as a relatively unique real estate investment opportunity in the

context of the A-REIT sector. PLG has an experienced management team (+20yrs

average experience), a fully integrated real estate platform and a sound balance sheet,

which means it is well positioned to deal with its relatively high level of income expiry risk

in the medium term, but also continue to demonstrate its ability to add value. Our analysis

and site visits suggest PLG has had good success in adding value to the majority of

balance sheet and fund acquisitions in recent years on the back of well executed asset

specific leasing and positioning strategies.

In our view, PLG's business model is well positioned to generate above sector average

earnings growth in the medium term. PLG's track record of growing its FUM base

considerably in recent years, whilst still generating very strong returns for its investors

demonstrates this capability. Furthermore, even based on our conservative medium term

FUM growth assumptions, we believe PLG can generate considerably higher quality

investment management fees as the magnitude of transactional fees reduces relative to

the FUM base, but also, we see considerable scope to improve margins overtime given

each dollar of incremental FUM is more than twice as profitable as the existing fee base.

PLG overview

PLG is the only Australia-focused, internally managed industrial & logistics trust and

integrated investment and asset management platform. PLG wholly owns a diversified

portfolio of 33 industrial properties (including Business parks) located across Sydney,

Melbourne, Brisbane and Perth. The portfolio was independently valued at $685m as at 30

June 2016, has an occupancy rate of 95.0%, a weighted average lease expiry (WALE) of

3.6 years (by income and by GLA) and a diversified income profile with approximately 176

tenants and no single tenant contributing more than 5% of lease income.

Figure 1: Balance sheet portfolio summary (as at June 2016)

Source: Company data

The investment and asset management business generates fee revenue from the

management of External funds, as well as income from distributions paid in respect of

PLG's fund co-investments. On our estimates, investment management (excluding co-

investment income) represents ~9% of FY17 operating EBIT. As at 30 June 2016, the

investment and asset management business had total AUM of over $1.55bn, of which

approximately $873m is managed through 9 External funds. Subsequent to listing, PLG

launched a 10th fund (Propertylink Enhanced Partnership) to house the ~$176m Denison

portfolio acquisition. In addition, PLG settled on the $135m Charter Hall industrial portfolio

acquisition on behalf of PAIP II. These transactions are consistent with the Group's goal to

grow external FUM by $675m (net) to >$1.5bn in FY17.

Number of properties 33

Independent valuation (A$m) $685.0

Gross lettable area (sqm) 515,403

Occupancy by GLA 95.0%

WALE by income (years) 3.6

WALE by GLA (years) 3.6

Weighted Average Capitalisation Rate 7.92%

Passing net rental income (p.a.) $52,892,279

Fully leased passing net rental income (p.a.) $56,207,488

15 September 2016

Propertylink Group

(PLG.AX / PLG AU) 5

$0.92 Target Price, Outperform Rating We initiative coverage on PLG with an Outperform rating

Our PLG Target Price of $0.92 represents 23% capital upside from current pricing and a

prospective total shareholder return of 32% compared with 3% and 9% (arithmetic

average) respectively on offer from our broader A-REIT coverage universe.

Figure 2: CS Total Shareholder Returns & Ratings Figure 3: Credit Suisse A-REIT ratings composition

Source: Credit Suisse estimates Source: Credit Suisse estimates

Execution risk more than priced in

At PLG's last close of $0.75, PLG is trading on par with its NTA backing, however, this

ignores the contribution from the Group's investment management business, which

contributes 12% of FY18 operating EBIT (post cost allocation). On our estimates, PLG is

trading on an implied cap rate of 8.70% (vs a book WACR of 7.65%) and has the most

undervalued portfolio in the sector (Figure 4). Specifically, we have deducted our valuation

of PLG's investment management business ($82m / 12.0x EBIT multiple) from the current

enterprise value, which implies that the market is ascribing a 6% discount to the book

value of PLG's industrial portfolio compared with a +6% average premium (arithmetic) for

the broader A-REIT sector.

Another valuation exercise we believe provides a good cross-check to our SOTP is to run

spot bonds (risk free rate) through our 5yr DCF valuations in order to estimate the terminal

growth rate that is implied by current share prices. We then compare this on an unlevered

basis and overlay this with the level of capital being retained by each A-REIT over the 5yr

forecast period. Once again, this highlights PLG's considerable relative and absolute value

proposition. Specifically, this analysis suggests that PLG's current share price is implying

unlevered terminal growth of -1.8% vs +1.4% on average for A-REITs (Figure 5).

-10%

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15%

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PLG WFD SCG GPT GDI SGP MGR GMG IOF VCX DXS CQR CMW SCP BWP CHC

Neutral UnderperformOutperform

OUTPERFORM25%

NEUTRAL37%

UNDERPERFORM38%

Pricing in a negative terminal growth rate

15 September 2016

Propertylink Group

(PLG.AX / PLG AU) 6

Figure 4: Implied premium (discount) to book value Figure 5: Implied un-levered terminal growth rate

Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates

Below we provide a valuation sensitivity highlighting the valuation upside (downside) vs

the current share price based on tighter (softer) cap rates and higher (lower) EBIT

multiples on investment management EBIT within our SOTP valuation framework (all other

variables/assumptions held constant).

Figure 6: SOTP valuation sensitivity – WACR & Funds Mgmt multiples

Source: Credit Suisse estimates

Figure 7: SOTP valuation upside to current share price


Above sector average growth on conservative FUM growth assumptions

Furthermore, we estimate PLG can deliver above sector average (4.2%) FFO ps growth of

5.5% per annum over FY17 to FY20, despite allowing for 39% reduction in FUM growth in

absolute terms relative to the prior two years and PLG's considerably larger FUM base

(/platform). Notably, our estimates assume comparable NOI growth of ~1.9% pa (allowing

for some negative re-leasing spreads detracting from higher embedded fixed increases).

In addition we have not explicitly incorporated any balance sheet acquisitions, which would

be highly accretive given PLG's ~3.2% WACD.

23%

10%9%

8%6% 6%

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PLG

Implied unlevered term growth (LHS) Sector avg growth (LHS) % of A-FFO retained (RHS)

7.05% 7.25% 7.45% 7.65% 7.85% 8.05% 8.25%

0.0x $0.89 $0.85 $0.81 $0.78 $0.74 $0.71 $0.68

4.0x $0.93 $0.89 $0.86 $0.82 $0.79 $0.76 $0.73

8.0x $0.98 $0.94 $0.90 $0.87 $0.83 $0.80 $0.77

12.0x $1.03 $0.98 $0.95 $0.92 $0.87 $0.84 $0.81

16.0x $1.07 $1.03 $0.99 $0.95 $0.92 $0.88 $0.85

20.0x $1.12 $1.07 $1.03 $1.00 $0.96 $0.93 $0.89

FM MultipleWeighted Avg Cap Rate

7.05% 7.25% 7.45% 7.65% 7.85% 8.05% 8.25%

0.0x 17% 12% 7% 3% -3% -7% -11%

4.0x 22% 17% 13% 8% 4% 0% -4%

8.0x 29% 24% 18% 14% 9% 5% 1%

12.0x 36% 29% 25% 21% 14% 11% 7%

16.0x 41% 36% 30% 25% 21% 16% 12%

20.0x 47% 41% 36% 32% 26% 22% 17%

FM MultipleWeighted Avg Cap Rate

Pricing in cap rate expansion and no value

to Funds Mgmt

6% MT growth despite assuming significantly

slower FUM growth

15 September 2016

Propertylink Group

(PLG.AX / PLG AU) 7

Figure 8: Propertylink AUM growth FY13 to FY20f


Valuation methodologies

We have used two primary valuation techniques in arriving at a valuation of the equity of

PLG: (1) a DCF-based valuation of forecast Adjusted Funds From Operations (A-FFO);

and (2) an NAV-based valuation (SOTP).

DCF-based equity valuation: $0.93

Our DCF valuation discounts five years of forecast Adjusted Funds From Operations (A-

FFO).

Key valuation parameters include:

■ An assumed risk-free rate of 4.0%.

■ Equity risk premium of 5.0%.

■ The adoption of an unlevered Beta of 0.91x.

■ We then adjust the applied Beta to take into account PLG's leverage (debt to equity),

resulting in a cost of equity of 11.2%.

■ We allow for terminal (geared) growth of 3.30%, resulting in a terminal yield of 7.88%.

■ Our A-FFO forecasts assume average External FUM growth via acquisition over FY18-

21 of $263m per annum (vs PLG's forecast $675m of FUM additions in FY17), in

addition to underlying valuation growth for PLG's FUM in line with forecast property

income growth (~2.0% per annum).

39

295

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2,6962,859

3,098

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

FY13 FY14 FY15 FY16 FY17pf FY18f FY19f FY20f

43%

21%

6%

8%

656%

262%

46%

15 September 2016

Propertylink Group

(PLG.AX / PLG AU) 8

Figure 9: A-REIT geared cost of equity

Based on a 4% Rf (domestic A-REITs) / 5% ERP & our explicit levered beta assumptions


NAV (SOTP) based equity valuation: $0.91

Our SOTP valuation uses FY18F as the base year. With PLG's forecasts assuming a 43%

increase in external FUM over FY17, we believe adopting FY18 as the base valuation year

provides a more "stabilised" picture of PLG's Fund and Asset Management earnings.

Our NAV-based valuation is predicated on the following key valuation parameters:

■ Income from investment properties: Valuation capitalises our estimate of FY18 fully

leased NOI. We apply a WACR of 7.65%, reflecting no additional cap rate tightening to

the current book weighted average cap rate (7.65%). We believe this is conservative

considering the extent to which secondary industrial investment yield compression has

lagged that of prime. This is illustrated in the chart below which is representative of the

broader Sydney industrial market. We note that as at June 2016, the spread between

prime and secondary industrial yields stood at 127bps compared with only 29bps in

Sep-2007 and an average of 108bps since 2000.

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12.0%

CM

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Rf (trend) Geared premium

Secondary yields spreads to prime

remain considerable

15 September 2016

Propertylink Group

(PLG.AX / PLG AU) 9

Figure 10: Sydney Prime vs Secondary Industrial Yields

Mind the gap

Source: JLL Research, Credit Suisse estimates

■ Income from investment management: Our NAV valuation applies 12.0x to our

FY18F investment management EBIT. In setting our multiple, we have had regard for

the multiples implied by the trading prices of comparable businesses within the A-REIT

sector. Although several A-REITs engage in Funds Management activities, for most

groups, these represent a relatively small component of overall earnings. Hence,

estimating an implied multiple for the Funds Management earnings of these groups

entails a high degree of subjectivity.

In our view, Charter Hall Group (CHC.AX) and Goodman Group (GMG.AX) offer the

"cleanest" comps for PLG's Fund and Asset Management businesses. We estimate

that current market pricing implies FY18F EBIT multiples for these Groups' Investment

Management businesses of 15.8x and 12.5x respectively. In setting our multiple range

for PLG relative to those implied for CHC and GMG, we have taken into account

several factors, including: (1) the absence of performance fees from our earnings

forecasts for PLG (whereas we estimate these will make up 9% and 7% of CHC and

GMG Investment Management revenues respectively in FY18f); (2) PLG's relatively

short track-record in its current form, vs the well-established CHC and GMG

businesses; (3) PLG's far smaller scale in terms of FUM. It could be argued that this

size differential warrants either a discount for PLG (reflecting its less established

nature) or a premium (given greater growth potential and scaleability benefits, given

that PLG believes its current cost base could support far higher levels of FUM).

■ Cornerstone investment in External funds: We value PLG's drawn cornerstone

equity stakes in line with our estimate of their book value in FY18.

■ Corporate expenses & other net assets. From our derived asset-level valuation, we

then deduct forecast RE fees and other expenses (capitalised at 10.0x), net debt and

other assets / (liabilities).

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Dec-05 Jun-07 Dec-08 Jun-10 Dec-11 Jun-13 Dec-14 Jun-16

Spread (RHS) Sydney Prime Sydney Secondary

We apply 12x vs 16x implied for CHC

15 September 2016

Propertylink Group

(PLG.AX / PLG AU) 10

Figure 11: PLG.AX – SOTP Val (FY18)


Adopted valuation: $0.92

Our adopted valuation represents the mid-point of our DCF-based and SOTP valuations.

In setting our valuation range, we have also taken into account FFO yield, dividend yield

and price to NTA relativities versus comparable groups. This valuation range reflects:

■ A multiple of 1.22x net tangible assets (NTA).

■ A forecast annualised distributable earnings yield (based on FY17 forecasts) of 7.4%.

■ A forecast annualised distribution yield (again based on FY17 forecasts) of 7.8%.

Figure 12: Valuation summary metrics at variable pricing

Source: IRESS, Company data, Credit Suisse estimates

Peer comparison

As an owner and investment manager of predominantly industrial real estate assets and

funds, PLG has a number of domestic companies that are relevant for valuation purposes.

We have examined eleven comparable A-REITs with reference to a number of valuation

and performance measures.

Investment Properties 56.2 7.65% 735.3

Cornerstones (FY18f avg book value) 54

Management (post notional overhead allocation) 6.5 12.0x 78

Gross Asset Value 867

Corporate costs (50bp MER) -3.7 10.0x -36.8

Net debt (FY18f avg) -274.5

Net other assets -4.8

Net asset value 551.0

Weighted avg securities on issue (FY18; fully diluted) 603

Value per security 0.91$

Propertylink SOTP Val FY18f / trend

income

Cap rate /

multiple

Value

(A$m)

Equity pricing range A$ $0.65 $0.75 $0.85 $0.95 $1.05

Premium / (discount) to last close) -14.5% -1.3% 11.8% 25.0% 38.2%

Premium / (discount) to NTA ps -13.9% -0.7% 12.6% 25.8% 39.1%

Premium / (discount) to CS TP -29.4% -18.6% -7.7% 3.1% 14.0%

FY17 FFO Multiple 9.0x 10.4x 11.8x 13.2x 14.6x

FY18 FFO Multiple 8.3x 9.6x 10.9x 12.1x 13.4x

FY17 DPS Yield 10.5% 9.1% 8.1% 7.2% 6.5%

FY18 DPS Yield 11.4% 9.9% 8.7% 7.8% 7.1%

Weighted average cap rate 7.65% 7.65% 7.65% 7.65% 7.65%

Implied Cap Rate 9.50% 8.72% 8.00% 7.45% 6.95%

15 September 2016

Propertylink Group


Figure 13: Australian REIT valuation comparison

Source: Company data, Bloomberg, Thomson Reuters, Credit Suisse estimates

FFO yields, distribution yields and price to NTA

Our selected peer group trades on a prospective (FY17) average FFO yield of 8.0% (7.0%

on a weighted average basis). In comparison PLG currently trades on a prospective FFO

yield of 9.6% and would trade in line with the sector average at our $0.92 Target Price.

Figure 14: Prospective FFO yield Figure 15: P/E multiple time series

Source: Company data, IRESS, Credit Suisse estimates Source: Company data, IRESS, Credit Suisse estimates

Our selected peer group trades on a prospective (FY17) average distribution yield of 6.9%

(5.1% on a weighted average basis). This compares to a 9.1% distribution yield for PLG at

current pricing, the highest among the peer group. At our Target Price, PLG would trade at

a distribution yield of 7.4%.

Ticker

Symbol

Price

(local)Rating

Price

Target

Mkt Cap

(local)

(mn)

52 Wk

Trading

Range

1mth

Return

3mth

Return

6mth

Return

FFO

Yield

12mths

fwd

DPS

Yield

12mths

fwd

Payout

Ratio

FFO

Growth

into 2018

DPS

Growth

into 2018

Book

Cap

Rate

NTA

cpsP/NTA

Propertylink Group PLG.AX 0.75 OPFM 0.92 452 0.7-0.9 -7% n.a n.a 9.6% 9.1% 95% 8.5% 8.5% 7.7% 0.76 -0.7%

Primary Comps

Industria REIT IDR.AX 2.13 NR NR 331 1.9-2.3 -3% 1% 4% 8.2% 7.8% 95% 4.8% 2.9% 7.6% 2.12 0.5%

360 Capital TIX.AX 2.72 NR NR 566 2.3-2.9 0% 0% 10% 8.6% 8.1% 94% 16.9% 2.2% 7.5% 2.32 17.2%

Grow thpoint Prop GOZ.AX 3.21 NR NR 1,886 2.9-3.4 0% -1% 4% 7.0% 6.7% 95% 2.5% 1.7% 6.9% 2.67 20.2%

Abacus Prop Grp ABP.AX 2.82 NR NR 1,603 2.8-3.4 -10% -12% -4% 10.7% 6.2% 58% -17.1% -0.5% 7.5% 2.66 6.0%

Cromw ell Property Group CMW.AX 0.95 UPFM 0.91 1,684 0.9-1.1 -12% -9% -5% 9.0% 8.7% 96% 4.0% 1.2% 7.1% 0.81 17.3%

GDI Property Group GDI.AX 0.97 OPFM 0.99 506 0.8-1.0 2% 7% 13% 9.8% 8.1% 83% 1.7% 2.0% 7.7% 1.01 -4.5%

GPT Metro Office GMF.AX 2.51 NR NR 323 2.0-2.5 2% 6% 21% 6.8% 6.4% 95% 2.4% 2.4% 6.7% 2.33 7.7%

Centuria CMA.AX 2.24 NR NR 259 1.9-2.4 -5% 3% 9% 8.6% 7.9% 92% 5.2% 2.0% 7.9% 2.18 2.8%

Australian Unity AOF.AX 2.11 NR NR 302 2.1-2.2 n.a n.a n.a 7.8% 7.0% 90% 4.9% 5.4% 7.4% 1.96 7.7%

Charter Hall Group CHC.AX 5.23 UPFM 4.60 2,142 4.2-5.9 -5% 5% 13% 5.9% 5.3% 90% 3.0% 2.3% 6.5% 3.04 72.0%

Goodman Group GMG.AX 7.02 NTRL 7.37 12,506 5.6-7.8 -6% 0% 7% 6.2% 3.7% 59% 5.0% 5.7% 6.4% 4.10 71.2%

Simple Average -4% 0% 7% 8.0% 6.9% 86% 3.0% 2.5% 7.2% 20%

Weighted Average -5% -1% 6% 7.0% 5.1% 71% 3.1% 3.9% 6.7% 51%

9.8%9.6%

9.0%

8.6% 8.6%

8.2%

7.8% 7.8%

7.0%6.8%

6.2%5.9%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

GDI PLG CMW TIX CMA IDR PLG* AOF GOZ GMF GMG CHC

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16

IDR.AX TIX.AX GOZ.AX

ABP.AX GDI.AX GMF.AX

CMA.AX CHC.AX GMG.AX

15 September 2016

Propertylink Group


Figure 16: Prospective dividend yield Figure 17: Distribution yield time-series


Our selected peer group trades on an average price to NTA multiple of 1.20x or 1.53x for

Group's with active income streams such as GMG, CHC and CMW. In comparison PLG

currently trades at a 1% discount to NTA.

Figure 18: Premium (discount) to NTA Figure 19: Price/NTA time-series


9.1%

8.7%

8.1% 8.1% 7.9%7.8%

7.4%

7.0%6.7%

6.4%6.2%

5.3%

3.7%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

PLG CMW GDI TIX CMA IDR PLG* AOF GOZ GMF ABP CHC GMG

*At price target

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16

IDR.AX TIX.AX GOZ.AX ABP.AX GDI.AX

GMF.AX AOF.AX CHC.AX GMG.AX

72.0% 71.2%

21.8% 20.2%17.3% 17.2%

7.7% 7.7% 6.0%2.8%

0.5%

-0.7%-4.5%-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

CHC GMG PLG* GOZ CMW TIX GMF AOF ABP CMA IDR PLG GDI

*At price target

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

2.2x

2.4x

Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16

IDR.AX TIX.AX GOZ.AX ABP.AX GDI.AX

GMF.AX CMA.AX CHC.AX GMG.AX

15 September 2016

Propertylink Group


Credit Suisse bottom up A-REIT valuation tables

Figure 20: A-REIT Leader Tables


Bottom Up Sector Valuation Preferences

TickerCurrent

Price ($)

Target

Price ($)

Prem. / (Disc)

to Target

Price

Dividend

Yield

TSR

(%)

Earnings

Yield

12mth

fwd PE

FY16-17

EPS

Growth

FY17-19

EPS

Growth

EPS Yield

plus 3yr

growth

Book Cap

Rate

Prem. /

(Disc) to NTARating

LLC.AX 13.26 17.00 -22.9% 5.3% 33.7% 9.8% 10.2x 8.2% 9.4% 19.2% NA n.a OUTPERFORM

PLG.AX 0.76 0.92 -19.7% 9.1% 31.1% 9.5% 10.5x n.a 6.5% 16.0% 7.7% -0.7% OUTPERFORM

WFD.AX 9.56 11.34 -16.0% 3.5% 22.2% 4.9% 20.5x 5.2% 12.5% 17.3% 4.9% 60.4% OUTPERFORM

SCG.AX 4.53 5.27 -14.5% 4.8% 21.3% 5.3% 18.9x 5.3% 5.2% 10.5% 5.6% 31.5% OUTPERFORM

GPT.AX 4.77 5.21 -9.4% 5.1% 14.4% 6.4% 15.7x 2.9% 4.1% 10.5% 5.9% 8.9% NEUTRAL

GDI.AX 0.94 0.99 -7.0% 8.2% 13.8% 9.6% 10.4x -0.7% 5.4% 15.1% 7.5% -7.2% OUTPERFORM

MGR.AX 2.16 2.30 -7.2% 4.8% 11.6% 6.7% 14.9x 11.3% 1.8% 8.5% 6.5% 12.2% NEUTRAL

SGP.AX 4.50 4.73 -6.1% 5.7% 11.0% 6.6% 15.3x 6.0% 6.0% 12.5% 6.5% 17.7% NEUTRAL

GMG.AX 6.93 7.37 -6.7% 3.7% 10.1% 6.2% 16.1x 7.0% 6.6% 12.8% 6.6% 69.0% NEUTRAL

IOF.AX 4.33 4.48 -4.4% 4.6% 8.3% 6.8% 14.8x 2.2% 2.8% 9.5% 6.3% 2.2% NEUTRAL

VCX.AX 3.02 3.08 -3.2% 5.8% 7.8% 6.2% 16.1x -1.7% 4.3% 10.6% 6.1% 16.6% NEUTRAL

DXS.AX 8.68 8.78 -2.2% 5.2% 6.4% 7.3% 13.7x 0.6% -1.0% 6.4% 6.5% 15.3% UNDERPERFORM

CQR.AX 4.08 4.00 0.3% 7.1% 5.3% 7.5% 13.3x 1.1% 3.6% 11.1% 6.9% 7.5% UNDERPERFORM

CMW.AX 0.96 0.91 3.8% 8.7% 3.2% 8.8% 11.3x -9.5% 2.0% 10.9% 7.5% 18.8% UNDERPERFORM

SCP.AX 2.13 2.04 2.8% 5.9% 2.0% 6.6% 15.1x 2.5% 4.7% 11.3% 7.3% 10.7% UNDERPERFORM

BWP.AX 3.06 2.92 3.5% 5.7% 1.1% 5.7% 17.6x 3.3% 3.1% 8.7% 6.8% 19.5% UNDERPERFORM

CHC.AX 5.17 4.60 11.1% 5.4% -5.6% 6.0% 16.7x 2.0% 3.8% 9.8% 6.6% 70.1% UNDERPERFORM

Average -5.8% 5.8% 11.6% 7.1% 14.8x 2.9% 4.8% 11.8% 6.6% 22.0%

Weighted -9.1% 5.0% 14.8% 6.3% 16.3x 4.4% 5.6% 11.9% 5.7% 28.9%

Thursday, 15 Sep, 2016

15 September 2016

Propertylink Group


Operational progress since listing PLG has made a promising start to the 2017 fiscal year. Two and a half months into the

year, we note that PLG is running ahead of PDS estimates on a number of fronts including

investment portfolio leasing, debt costs, co-investment income and is well on track in

regards to property management, leasing and acquisition fees.

Denison transaction – 26% targeted FY17 acquisitions in the bag

Most notably, PLG exercised its option to acquire the 13 asset Denison portfolio on August

31 2016 for ~$176m. As expected, PLG acquired 9 of the assets for $142m and

subsequently sold 4 assets to individual buyers at a ~10% premium (~$3m) to PLG's

acquisition price. Notably, PLG acquired the portfolio at a ~10% discount to book values

and reflected a passing yield of 8.9%. In line with the supplementary PDS, PLG have

committed $17.7m of equity (or 25%) to the new PEP fund which includes Goldman Sachs

as the sole investor. Management are confident of growing the PEP fund with further

acquisitions and PLG are likely to maintain a 25% stake in the fund. The large co-

investment stake in PEP (25%) means that PLG has already secured its FY17 PDS

forecast for co-investment income.

Well positioned in terms of investment management fees for FY17

Similarly, PLG has secured in excess of 3 quarters of its forecast property management,

leasing fees and acquisition fees. Compositionally, the gap is largely made up by

acquisition fees. To date, PLG has secured $1.5m of the $3.5m full year forecast. We note

that PLG anticipate to complete a further ~$500m of acquisitions by year end and are

currently bidding (or in due diligence) on ~$280m of opportunities at present for its PAIP II

and SEDCO Funds. We note that PLG is also on track to dispose of 36-52 National

Boulevard, Campbellfield (Vic), with settlement forecast for late September 2016.

Year-to-date tenant retention running at 90%

We note that PLG has already completed 11 of the 27 leases that are forecast to be

completed over FY17. We understand that 10 of these were renewals with no income

downtime and the single new lease over ~600sqm of office space at the Villawood

property was not included in PDS forecasts for FY17. Below we highlight some more

colour on leasing progress to date on several key assets.

Figure 21: Leasing progress and update on key expiries


Secured interest swaps 32bp below PDS forecasts

PLG secured better than expected terms on interest rate hedging over 50% of its drawn

debt ($128m). PLG locked in 3yr and 5yr swaps at a rate of 1.83%, which was 32bp below

PDS expectations of 2.15%. PLG are now forecasting a WACD of ~3.2% for FY17.

Property State BV $%

Total

Cap

Rate

Occu-

pancy

WALE

(yrs)

GLA

(sqm)CS Comment

Gundah & Beaumont Rd, Mt Kuring-GaiNSW 56.2 8% 7.25% 98% 1.8 34,037

In discussions w ith key tenant Sheldon & Hammond (14% NPI) re a 5yr lease extension over 5,300sqm expiring in

Jan-17

Whitside & Main Rd, Clayton VIC 24.0 4% 8.50% 100% 0.5 28,195

Were previously looking to extend Corning Cable on a ST basis over ~11,000sqn, how ever, there is another tenant

interested in a a longer term deal over the entre 28,000sqm

Melbourne Markets, EppingVIC 92.0 13% 7.50% 100% 5.5 74,968

PLG replaced a distressed tenant w ith a new tenant on a long term (10yr) deal and achieved a 20% higher rent

7 Modal Crescent, Canning ValeWA 16.4 2% 8.00% 100% 0.3 15,251

Cahill Transport expected to renew its lease over 7,090sqm (October 2016 expiry)

44 Mandarin St, Villaw oodNSW 18.0 3% 9.75% 92% 3.0 20,294

Completed an off ice lease over 600sqm to a new tenant - upside to PDS forecasts

17-19 Leadership Way, WangaraWA 7.0 1% 8.25% 100% 0.6 5,415

Existing teant Pentair renew ed over the entire property 5,145sqm (August 2016 expiry). Likely to have exercised its

3 year option

39-41 McDow ell St, WelshpoolWA 8.0 1% 8.00% 100% 0.7 6,925

Confident that existing tenant (Iron Mountain) is likely to renew its lease over the entire property

8 Sylvania Way, LisarowNSW 7.4 1% 10.00% 100% 0.9 9,933

Demand stronger than expected w ith 2 potential leasing options. Non-core asset. Likely to be sold post leasing

success

122 New ton Rd, Wetherill ParkNSW 16.3 2% 7.00% 0% 0.0 9,614

Confident spec development w ill be leased on completion (Feb 2017)

15 September 2016

Propertylink Group


Financial Forecasts Above sector average growth on conservative FUM growth assumptions

Our earnings forecasts include proforma income statement estimates in addition to our

explicit forecasts from FY17 onwards.

We note that PLG's ability to generate earnings growth in excess of inflation (adjusted

leverage) is largely dependent on its ability to grow Funds Under Management (FUM) in its

investment management business. The operating leverage in investment management

earnings is material with each dollar of incremental FUM generating an incremental margin

of in excess of 70%, on our estimates. Furthermore, 'one off' acquisition fees also

represent a material proportion of FFO – for example, proforma (FY17) acquisition fees of

$3.5m equates to 8.0% of proforma FFO.

We have adopted relatively conservative FUM growth assumptions in our explicit forecasts

from FY17 onwards at this juncture. We are also cognisant that proforma estimates are

based on growing external FUM by $675m, representing 77% growth on the FY16 external

FUM base. We note, however, that this figure reduces to 57% after adjusting for the

$176m Denison portfolio acquisition that recently settled.

5.5% MT growth under base case or 8.0% under our bull case

We estimate PLG can deliver above sector average (4.2%pa) FFO ps growth of 5.5% per

annum over FY17 to FY20, despite allowing for a 39% reduction in AUM growth in

absolute terms relative to the prior two years and PLG's considerably larger AUM base

(/platform). Our base case estimates assume average external FUM growth of $385m pa

over FY17-20. As a sensitivity, if we were to assume PLG could grow external FUM by

$500m pa on average over FY17-20 (all else equal), we note that MT FFO ps growth

would increase to 8.0% pa.

Figure 22: PLG AUM composition and Credit Suisse base case forecasts


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY15a FY16a FY17pf FY18f FY19f FY20f

Balance sheet External FUM Incremental AUM % total AUM (RHS)

15 September 2016

Propertylink Group


Figure 23: PLG.AX – Financial Forecasts


Figure 24: FFO, A-FFO and DPS forecasts ($m) Figure 25: Implied FFO, AFFO and DPS yields

Source: Company data, Credit Suisse estimates Source: Company data, IRESS, Credit Suisse estimates

Figure 26: PLG Operating EBIT composition ($m) Figure 27: PLG Operating EBIT composition (%)

Source: Company data, Credit Suisse estimates. N.B we have allocated a portion of group operating expenses to the investment manager.

Source: Company data, Credit Suisse estimates. N.B we have allocated a portion of group operating expenses to the investment manager.

Propertylink Financial Forecasts FY17pf FY18f FY19f FY20f FY21f FY18f FY19f FY20f FY21f

Net Property Income 47.9 50.5 51.4 52.4 52.8 5.4% 1.9% 1.9% 0.8%

Co-investment income 3.3 4.8 5.5 6.1 7.2 47.4% 12.9% 11.9% 16.9%

Investment management fee income 5.1 8.3 9.7 10.7 12.1 62.2% 18.0% 10.4% 12.5%

Prop mangement fees 3.9 4.3 5.1 5.7 6.4 11.7% 18.0% 10.4% 12.5%

Prop acquisition fees 3.5 1.9 0.9 0.9 1.6 -44.4% -54.3% -1.4% 78.6%

Investment management fees 12.5 14.5 15.7 17.3 20.0 16.7% 8.3% 9.7% 15.9%

EBITDA - pre costs 63.6 69.8 72.6 75.8 80.0 9.7% 4.0% 4.4% 5.5%

Group operating expenses -11.3 -11.8 -12.3 -12.8 -13.5 4.0% 4.5% 4.5% 5.5%

Depreciation -2.5 -2.5 -2.5 -2.5 -2.5 0.0% 0.0% 0.0% 0.0%

Operating EBIT 49.85 55.6 57.9 60.5 64.0 11.5% 4.1% 4.5% 5.8%

Net interest expense (incl amortisation of cap costs) -9.7 -10.1 -10.3 -10.5 -11.1 4.1% 2.1% 1.8% 6.3%

Net Income Before Tax 40.2 45.5 47.6 50.0 52.9 13.3% 4.5% 5.1% 5.7%

Tax -0.6 -1.2 -1.4 -1.8 -2.5 118.1% 19.6% 23.0% 41.5%

Net Income After Tax 39.6 44.3 46.2 48.3 50.4 11.9% 4.1% 4.5% 4.4%

Add back rent straightlining & amort of capitalised TI's 1.0 0.0 0.0 0.0 0.0

Add depr & amort (incl amort of borrow ing costs) 2.8 2.8 2.8 2.8 2.8

Funds From Operations 43.4 47.1 49.0 51.1 53.2 8.5% 3.9% 4.3% 4.1%

...FFO ps 7.2 7.8 8.1 8.5 8.8 8.5% 3.9% 4.3% 4.1%

Less maintenance capex -0.9 -1.0 -1.2 -1.4 -1.6 11.1% 20.0% 16.7% 14.3%

Adjusted Funds From Operations 42.5 46.1 47.8 49.7 51.6 8.5% 3.5% 4.0% 3.8%

...AFFO ps 7.1 7.7 7.9 8.2 8.6 8.5% 3.5% 4.0% 3.8%

Distribution 41.3 44.8 46.4 48.2 50.1 8.5% 3.5% 4.0% 3.8%

...DPS 6.9 7.4 7.7 8.0 8.3 8.5% 3.5% 4.0% 3.8%

40.0

42.0

44.0

46.0

48.0

50.0

52.0

54.0

FY17pf FY18f FY19f FY20f FY21f

Funds From Operations Adjusted Funds From Operations Distribution

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%


FFO Yield AFFO Yield DPS Yield

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0


Investment Management Co-investment income Net property income

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Investment Management Co-investment income Net property income

15 September 2016

Propertylink Group


Below, we provide some additional colour on key income and expense items:

Net property income

Our estimates assume comparable NOI growth of ~1.9% pa (implicitly incorporating

negative re-leasing spreads partly offsetting the positive impact of higher embedded fixed

increases) and relatively stable occupancy and tenant retention levels (~95% and ~65%,

respectively). We believe this is appropriate given PLG has c.47% of income expiring over

the next 3 years. In addition, we have not explicitly incorporated any balance sheet

acquisitions, which would be highly accretive given PLG's 3.2% WACD.

Figure 28: A-REIT avg occupancy & comp NOIg Figure 29: A-REIT Industrial Comp NOI growth

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates. N.B DXS on effective basis.

Co-investment income

PLG's co-investment income consists of its equity accounted share of income from co-

investment stakes in its External Funds. PLG typically targets co-investment stakes of 5-

10%. Notably, given the relatively high leverage (~55%) in PLG's external funds, the co-

investment stakes generate a high yield (>10%).

Our forecasts assume PLG's co-investment stakes grow in-line with our discrete external

FUM growth assumptions (in addition to organic asset growth) – i.e. we have assumed a

constant PLG co-investment stake (~10%) for acquisitions from FY17 onwards. We

assume PLG's $23.9m drawn co-investment stake as at June 2016 increases to $49.9m

by June 2017 (consistent with PDS forecasts for an additional $26m to co-invest in the

$750m of targeted acquisitions).

Specifically, PLG has already committed $17.7m (25% equity stake) towards the recently

established PEP fund following the settlement of the Denison portfolio ($142m). The

remaining $8.3m of co-investments which form the $26m of additional forecast co-

investments over FY17 are expected to be invested in PAIP II, POP III and SEDCO.

Investment management

PLG generates both recurring and 'one-off' transactional and performance fees from its

External Funds platform (detailed below).

Notably, acquisition fees represent 28% of FY17 proforma investment management EBIT,

however, given our assumption for a more moderate rate of FUM growth over FY-18-21,

this reduces to 8% on average. As such, the underlying quality of investment management

earnings should improve overtime. We note that our forecasts do not explicitly assume any

performance fees including the $9.5m of performance fees that would be crystalised if the

asset in the POP II (320 Pitt St) Fund was sold down at its current valuation.

94.4%

-1.3%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

92.5%

93.5%

94.5%

95.5%

96.5%

97.5%

98.5%

Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

A-REIT average occupancy A-REIT average comparable NOI growth

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Dec-12 Jun-13 Dec-13 Jun-14

Dec-14 Jun-15 Dec-15 Jun-16

GPT DXSGPT MGR

15 September 2016

Propertylink Group


Figure 30: PLG—External fund fee schedule


We forecast investment management fees (comprising funds management, acquisition

and property management and leasing) increase from $12.5m in FY17 (proforma) to

$20.1m by FY21 (12.6% CAGR). We note however that this does not take into account the

scalability benefits as unallocated group costs increase below the rate of FUM growth.

After separately allocating trust expenses (based on a 50bp MER), our analysis suggests

that net investment management EBIT increases by 23%pa over FY17 to FY21.

This is illustrated below, Figure 31 highlights that net investment management fees (after

allowing for our estimate of the costs required to achieve those fees) as a percentage of

External FUM are forecast to moderately improve despite the fact that acquisition fees

reduce by 69% on average ($1.3m) over FY18-21 relative to FY17 ($3.5m)

Figure 31: Investment Management Fees as % External FUM

Net IM fees should steadily increase despite lower transactional fees in our est.


Type Description Typical Range

Acquisition feesPayable when Propertylink acquires property on behalf of the External Fund. A one-off

fee paid on settlement of an asset acquisition.0.45% - 0.50% of GAV p.a.

Base feesAn ongoing base management fee. Typically paid on a quarterly basis in arrears in

March, June, September and December.0.45% - 0.50% of GAV p.a.

Performance fees

A performance fee payable to Propertylink, and based on the level of return Propertylink

has generated for the investors in the External Funds. Typically paid on the return of

capital to External Funds Investors post an asset sale (or sales).

20.0% - 40.0% of fund

outperformance above hurdles

of 10.0% - 15.0%

Property management feesA fee payable for the day to day management of the properties in the External Fund. Paid

monthly in arrears.

2.0% - 2.5% of gross income

p.a.

Leasing fees

Payable when Propertylink signs a new tenant to the property or renews a lease, and

may be based on the length of the tenancy. Paid on the successful execution of a new

lease.

Market standard rates

Project management feesPayable where Propertylink oversees projects undertaken on properties (including

developments and improvements). Paid as invoices are paid in relation to a project.Market standard rates

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%


Gross IM fees % External FUM Net IM fees % External FUM

15 September 2016

Propertylink Group


Interest expense

PLG has initially drawn $256.6m (35% balance sheet gearing) from its $300m syndicated

bank debt facility, which comprises two tranches of $150m over both three and five year

durations and in aggregate giving the group a weighted average debt maturity of four

years. Notably, the margin on the 3yr facility of 135bp compares to 160bp for the 5yr

facility, however these rates increase to 150bp and 160bp, respectively in the event that

PLG's balance sheet LVR exceeds 40%.

We note that PLG's policy is to hedge its interest rate exposure to between 50% and

100% of drawn borrowing. We understand that post-IPO, PLG has hedged 50% of its

drawn debt at more favorable rates than those assumed in PDS forecasts.

PLG guided to a WACD of 3.52% for FY17, which we have assumed will be relatively

static in the MT (with upside potential) based on our economists view that the interest rate

easing cycle may still have some way to go. We allow for interest costs to tick up to 4.25%

by FY20, which is broadly consistent with what we have assumed for other A-REITs with

standard hedging profiles.

Figure 32: PLG vs peer weighted average debt cost Figure 33: PLG vs peer look through gearing

Source: Company data Source: Company data

Figure 34: PLG vs peer weighted avg debt maturity Figure 35: PLG vs peer % debt hedged


Distributions

PLG's distribution policy is to payout 80% to 100% of distributable earnings. PDS

forecasts for FY17 reflect a 95% payout ratio on this basis. Our explicit forecasts from

FY18-21 assume an average payout ratio of 94% of distributable income or 97.1% of

Adjusted Funds From Operations (A-FFO).

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

ABP GMF CHC GDI GOZ IDR CMA TIX AOF Propertylink

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

TIX GOZ Propertylink GDI CMA IDR ABP AOF GMF CHC

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

AOF GOZ Propertylink CHC CMA GMF ABP IDR GDI TIX

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

TIX CHC AOF GOZ IDR GMF CMA ABP GDI Propertylink

15 September 2016

Propertylink Group


Strengths and opportunities Australia focused and internally managed platform

We note that PLG is the only Australia-focused, internally managed industrial & logistics

trust and integrated investment and asset management platform

Stable income and structured rental growth & Portfolio diversification

PLG provides investors exposure to institutional grade industrial, logistics and commercial

office real estate assets which are well diversified by geography, tenants and leasing

profile. We see the portfolio's 81% exposure (by revenue) to Sydney and Melbourne and

the portfolio's diversified tenant base (with no single tenant contributing more than 5% of

total lease income) as attractive. We also note that approximately 90% of leases (by

income) are subject to annual fixed or CPI-linked rent reviews. Furthermore, PLG has a

strong history of retaining existing tenants. We note the retention rate for all expiring

leases for the 12 months ending 30 June 2016 was 83.9%.

Figure 36: Portfolio geographic diversification Figure 37: Portfolio asset diversification

Note: As at 30 June 2016. Source: Company data Note: As at 30 June 2016. Source: Company data

Access to an experienced and stable management team with over 20 years average

experience and majority independent board. Highly experienced management team

and majority independent board

PLG's senior management team has over 20 years average experience and has worked

together since 2009. Furthermore, we note that PLG has a well-established governance

structure due to its 15 years as an unlisted public company. The board has over 30 years

average corporate and industry experience and in excess of five years average tenure in

relation to PLG.

Established and rapidly growing investment and asset management platform,

backed by leading global investors

Since 30 June 2013, the business has successfully grown AUM from $39m to over

$1.55bn as at 30 June 2016. Management forecasts AUM growth of $675m in FY17,

which is generally consistent with the quantum of AUM growth achieved over the past two

years. In August, PLG launched a 10th fund (Propertylink Enhanced Partnership) to house

the $142m Denison portfolio acquisition.

Sydney46%

Melbourne34%

Brisbane15%

Perth5%

Unit Estate21%

Business Park17%

Logistics31%

Industrial29%

Development2%

15 September 2016

Propertylink Group


Figure 38: PLG historical and forecast growth in total AUM

A$m unless otherwise stated


PLG intends to establish new external funds as additional capital is made available by its

new and existing investors. It is currently in the process of raising further capital for two of

the External funds:

■ PAIP II: The second PLG Australian Industrial Partnership vehicle has a target AUM of

$700m to $900m. As noted above, PAIP II has a mandate to pursue core-plus and

value-add industrial and logistics investment opportunities across Australia’s capital

cities. As at 30 June 2016, PAIP II had $127.0m of equity commitments and $166.8m

of assets.

■ POP III: A multi-asset fund targeting core-plus and value-add office assets. As at 30

June 2016, the fund had $44.5m of equity commitments and had successfully acquired

$91.1m of assets.

According to Colliers International, PLG was the second largest acquirer of Industrial

assets (by value) over 2014/15. The company was second to Frasers Centrepoint but

came in ahead of Charter Hall, Mapletree Logistics Trust and Mirvac Group.

We note that the balance sheet portfolio was originally the PLG Australian Industrial

Partnership (PAIP), which was the Group's flagship External fund. The cornerstone

investors of this fund were Goldman Sachs and Grosvenor. Notably, the Fund achieved

rapid growth through acquisitions from early 2014 to mid-2015.

On our estimates, almost 70% of the portfolio (PAIP) was acquired by way of portfolio

acquisitions as illustrated below. Breaking these transactions down by their book value (as

at 30 June 2016), we can see that the majority of the portfolio was acquired from Equity

Commonwealth (19%), Abacus (18%), Valad (18%), AMP (13%) and Dexus (11%). We

note that many of these transactions included additional assets that form part of PLG's

External funds.

39

295

1,068

1,558

2,233

$0

$500

$1,000

$1,500

$2,000

$2,500

FY13 FY14 FY15 FY16F FY17F

43%

656%

262%

46%

15 September 2016

Propertylink Group


Figure 39: Book value of balance sheet portfolio acquisitions

As at 30 June 2016


PLG's existing investors within its External funds include significant global institutional

investors from North America, Europe, Middle East, Asia and Australia. These include

Goldman Sachs, Grosvenor Group, The Norinchukin Bank, Townsend Group, Fosun,

Sedco and Al Salam Bank. We note these investors have considerable AUM and some

are actively looking to increase their exposure to Australian commercial real estate. Given

five of these major investors have only invested in Australia with PLG to date, we believe

PLG is well positioned to grow AUM from both existing and new funds with its existing

investor base.

Operational leverage in funds management

PLG typically earns 70-75bp in recurring fees (investment management and property

management) on external AUM and one-off acquisition fees, which are typically 50bp of

the fair value of the assets acquired. In our view, the funds management business has

considerable operating leverage with operating margins expected to grow as AUM grows.

PLG has now reached a scale where significant increases in AUM will only require a

relatively small increase in direct headcount.

Opportunity to earn performance fees

We note that since the establishment of POP I, POP II, PALT and PAIP, PLG has

delivered a weighted average equity (levered) IRR of 28.5% across these External funds.

To date, PLG has earned a performance fee of $26.2m from the divestment of the PAIP

fund. While this fee is not attributable to new investors, any future performance fees will

however be available for distribution to PLG Security holders. Whilst performance fees are

not included in the pro forma forecasts we note that a performance fee of $9.5m would be

payable to PLG if the properties in the External funds were sold at their current valuation

on 30 June 2016. However, we note that the final amount of performance fees is ultimately

dependent on the sale proceeds realised for the properties when actually sold.

Further value potential through active asset management

PLG has a fully integrated investment and asset management business platform which

provides it with the ability to actively manage assets to deliver superior risk-adjusted

returns. As such, PLG sees its relatively low weighted average lease expiry (WALE) as an

AMP13%

Valad8%

Abacus18%

Equity Commonwealth

19%

Dexus11%

Other31%

15 September 2016

Propertylink Group


opportunity to re-set leases on better terms for certain properties and extend the WALE,

which should result in valuation uplift (all else equal).

15 Talavera Rd, Macquarie Park is one case study. This property was acquired from

AMP in June 2015 for ~$34m. Since acquiring the asset, PLG has re-leased 75% of the

leases, increasing the WALE from 2.4 years to 4.4 years and is currently refurbishing the

building. The property has since been re-valued at $62m as at 30 June 2016. Similarly, we

also note that the ten assets acquired from Abacus and its managed (ADIF II) fund in June

2014 for $106.7m have since been re-valued at $124.8m reflecting leasing success such

as the new ten-year lease at 144-168 National Boulevard, Campbellfield with the existing

tenant and new leases (albeit short-term) over 100% of the property at 4 Brunker Rd,

Chullora.

122 Newton Rd, Wetherill Park is another value-add opportunity. The property was

acquired from Metcash in May 2015 and is entirely vacant. PLG will speculatively develop

a new 8,914 sqm warehouse at the rear of the property and refurbish the existing

warehouse (9,614 sqm). PLG has allowed for $9.6m in capital expenditure in FY17 with

work scheduled to commence in August 2016 and practical completion expected in

February 2017. PLG will target rents of $115-120/sqm for the new warehouse and

$105/sqm for the existing property. Given the tight prevailing occupier conditions in this

established industrial market, we expected lease enquiry levels should ramp up as

building works near completion.

144-156 McCredie Rd, Smithfield is another property where leasing success could

deliver solid valuation upside given the current book value of $19.7m equates to a

relatively modest $997/sqm of GLA. We note the property was acquired as part of a

portfolio transaction with Valad in October 2014. This existing tenant (Trust Company) will

formally vacate the c.20,000 sqm property in January 2017. The property is a classic

secondary industrial warehouse located in a well-established industrial market that attracts

national and international manufacturing and logistics space users. The property is

suitable for a variety of users given its 7 to 10m clearance and a flexible configuration that

provides future subdivision opportunities. PLG will undertake a comprehensive

refurbishment program at expiry in order to minimise downtime and enhance the

marketability of the asset to prospective tenants.

In the table below, we also highlight a number of other balance sheet properties where

PLG will look to add value through active asset management.

15 September 2016

Propertylink Group


Figure 40: Key opportunities to add value through active management


We also note two assets within the single-asset External funds POP I and POP II, which

have considerable potential upside through repositioning and may ultimately result in

performance fees for the Group:

■ 73 Miller St, North Sydney (POP I). PLG acquired the property in January 2015 for

$116.5m from an Investa managed wholesale fund. The acquisition was acquired

through POP I which is backed by cornerstone investor Fosun. The book value of the

property is $130m as at 30 June 2016 and PLG has a $5.8m co-investment in the fund.

Notably, PLG is awaiting the outcome of the current planning review under way in

North Sydney. However, based on its preliminary due diligence, it may be feasible to

demolish the existing 13-storey building in order to build a taller more efficient (c.20-

storey) commercial building. The property is fully leased and the major tenant is

Government Property NSW which has a June 2019 expiry. As such, any potential re-

development would not take place until late 2019.

■ 320 Pitt St, Sydney (POP II). PLG acquired the property in June 2015 for $200m

(8.26% cap rate) from Equity Commonwealth Trust as part of a broader transaction

($303.3m) which included eight industrial assets. This specific asset was acquired

through POP II, which is backed by cornerstone investors Goldman Sachs and

Grosvenor Group. The longer term strategy is to reposition this secondary property

through refurbishment. We note that PLG investigated the feasibility of residential

conversion but found this would be challenging given the building has no basement car

parking.

Balance Sheet Properties State BV $/sqmOccu-

pancy

Cap

Rate

GLA

(sqm)

WALE

(yrs)CS Comment

7 Gundah & 22 Beaumont Rd, Mt Kuring-Gai NSW 56.2 1,604 98.0% 7.25% 35,037 1.8Acquired from local private developer. Well presented and modern multi-unit estate. Looking to renew Sheldon &

Hammond (14.1% NPI) on a longer term lease. Market rents around $125/sqm. Incentives relatively low at ~10%

10-12 Pike St, Rydelmere NSW 21.9 1,094 100.0% 8.50% 20,022 2.0

Older syle secondary grade industrial facility located in a precinct that has been identif ied for higher & better use.

100% leased to WACO Kw ikform until June 2018. Strategy is to renew as much as as possible and generate cash

f low , w hilst continuing to explore future development potential w ith neighbouring landlords (i.e. GMG, DXS, AMP)

150-156 McCredie Rd, Smithfield NSW 19.7 997 100.0% 8.50% 19,765 0.6Secondary grade property - looking for new tenant w ith the near term expected departure of the incumbent tenant

(Trust Company).

122 New ton Rd, Wetherill Park NSW 16.3 1,695 0.0% 7.00% 9,614 0.0Previously occupied by Mitre 10. Propertylink is planning to refurbish the existing building and speculatively develop

the rear building and w ill target rents of $115-120/sqm for the new build

4 Brunker Rd, Chullora NSW 11.0 1,711 100.0% 7.25% 6,428 2.7 Was 25% vacant w hen acquired. Now 100% leased

1 Orielton Rd, Smeaton Grange NSW 8.2 1,066 30.6% 7.50% 7,689 1.2 This is a secondary grade Unit Estate and is just under 70% vacant.

8 Sylvania Way, Lisarow NSW 7.4 745 100.0% 10.00% 9,933 0.9 Non-core asset. Likely to be sold to ow ner occupier at some point dow n the track

71-93 Whitside & 74-78 Main Rd, Clayton VIC 24.0 851 100.0% 8.50% 28,195 0.53 buildings on 6.6ha of land w ith future subdivision potential. Entirely leased to Corning Cable w ho supply cable to

NBNco. Likely to contract to 11ksqm on a S-T extentsion. PLG noted that another tenant may lease the entire facility

18-24 Ricketts Rd, Mount Waverley VIC 16.9 1,895 100.0% 7.75% 8,916 2.4B-grade Business Park. Multi-tenanted property. Office Rents $185-225/sqm & Industrial $75/sqm. Strategy to

extend WALE through renew als

1-5 Lake Dr, Dingley VIC 16.4 941 100.0% 7.50% 17,430 2.0Built late 80's. Leased to Unicharm w ho manufacture nappies. Tenant may look to contract from 18ksqm to 10ksqm.

Tenant may relocate to new smaller facility. Propertylink could strata the property. Property is currently over-rented

82 Taryn Dr, Epping VIC 12.3 1,161 100.0% 7.00% 10,590 1.8Leased to Stanley Black & Decker w ho have a brief in the market and are looking to re-locate to the South East

region - expect to vacate

25 Strezlecki Ave, Sunshine West VIC 10.7 1,022 100.0% 7.50% 10,467 3.5Strategy is to entend the current lease w ith Bitzer and also in discussions w ith the tenant about the potential to

develop another facility on the residual land of the site

36-52 National Blvd, Campbellf ield* VIC 9.3 795 0.0% 7.50% 11,705 0.0 100% vacant and currently in DD w ith local investor. Currently expected to settle in September 2016

571 Mount Derrimut Rd, Derrimut VIC 7.7 921 0.0% 7.25% 8,357 0.0 Completely vacant since Nov-15. Previously occupied by GAM steel. Highly competitive market

7 Modal Crescent, Canning Vale WA 16.4 1,075 100.0% 8.00% 15,251 0.3 Strategy is to renew the Cahill Transport lease, w hich is set to expire in October 2016 (7,090sqm)

17-19 Leadership Way, Wangara WA 7.0 1,293 100.0% 8.25% 5,415 0.6 Pentair Flow Control has exercised its right to extend the least by 3 years over the entire facility

39-41 McDow ell St, Welshpool WA 8.0 1,155 100.0% 8.00% 6,925 0.7100% leased to Iron Mountain (lease expiry on Feb-17). Tenant (Recall) delayed renew al negotiations after being

acquired by Iron Mountain. Management expect to renew this lease

15 September 2016

Propertylink Group


However, given the current strength of the Sydney B-Grade office market, which is

expected to improve further as c.60,000 sqm of commercial space is withdrawn to

accommodate new metro stations (displacing incumbent tenants), we expect the longer

term strategy will be a major refurbishment. PLG is likely to undertake a rolling

refurbishment of the building including lobby upgrades, new lifts and end of trip

facilities. This will enable the property to attract higher rents than the current passing

rent of c.$600/sqm (market closer to $700/sqm). The timing will largely depend on

Telstra who is the major tenant with a lease expiry in 2020.

15 September 2016

Propertylink Group


Key risks Retention of key personnel

PLG's senior management team is a critical part of the company's business and growth

strategy. If PLG was to lose any of its senior management members or was unable to

employ adequate replacement personnel, its operations could be adversely affected. In

particular, we see the greatest "key man" risk in the External funds business, which, like

any Funds Management business, is underpinned by relationships with the existing

management team. In the event of a material change in personnel, it is not unreasonable

to assume that the potential growth of the External funds business and the existing Assets

Under Management (AUM) could be negatively impacted.

Ability to secure additional capital and fund assets at attractive pricing

In our view, PLG's ability to grow Fund and Asset Management earnings is dependent on

sourcing additional capital from investors and acquiring further assets for third party funds

at attractive prices. Importantly, further growth in FUM is implicit in our adopted valuation

range for PLG.

FUM growth key to generating above sector average FFO ps growth

We note that PLG's ability to generate earnings growth in excess of inflation (adjusted

leverage) is largely dependent on its ability to grow Funds Under Management (FUM) in its

investment management business. The operating leverage in investment management

earnings is material with each dollar of incremental FUM generating an incremental margin

of in excess of 70%, on our estimates. Furthermore, 'one off' acquisition fees also

represent a material proportion of FFO – for example, proforma (FY17) acquisition fees of

$3.5m equates to 8.0% of proforma FFO or 28% of Fund and Asset Management

revenues. We are also cognisant that proforma estimates are based on growing external

FUM by $675m, representing 77% growth on the FY16 external FUM base. We note,

however, that this figure reduces to 57% after adjusting for the $176m Denison portfolio

acquisition that recently settled.

Figure 41: PLG growth drivers: FY17-21 CAGR


Cyclicality of real estate values

PLG's Fund Management fees are tied to the market value of its Funds Under

Management. Hence, material shifts in industrial market valuations (upward or downward)

0.0%

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15 September 2016

Propertylink Group


will impact (positively or negatively) upon PLG's Fund Management fees and overall level

of profitability.

Re-leasing and vacancy risk given PLG's relatively short WALE

PLG's assets are generally secondary grade in nature and could be subject to higher

downtime and capital expenditure (incentives and maintenance capex) when leases

expire, which in turn could have a negative impact on rental income.

We note that PLG's portfolio has relatively high lease expiry risk relative to peers with

~44% of leases expiring by CY18. Similarly, PLG's portfolio WALE of 3.6 years is the

second lowest in the sector after ABP and is below the A-REIT average of 5.6 years. We

note however, that PLG's tenant retention rate for all expiring leases for the 12 months

ending 30 June 2016 was 83.9% and the retention rate for the Portfolio on a standalone

basis was 63.2%, which fares well relative to peers.

Figure 42: PLG Portfolio Lease Expiry Profile Figure 43: A-REIT Industrial Portfolio WALE

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

We believe that in certain instances, some smaller secondary grade industrial assets will

be more difficult to lease-up, particularly those exposed to more challenging markets. For

example, we see potential downside risks to existing vacancies and near-term expiries for

properties located in West Melbourne, Campbellfield and Perth.

Specifically, the existing vacancy at 571 Mount Derrimut Rd, Derrimut (8,357 sqm) is

located in the highly competitive Melbourne West market where there is over 350,000 sqm

of vacant stock according to Knight Frank. To date, the property has received only limited

enquiry. The property has been vacant since November 2015 and is forecast to be re-

leased by the end of the calendar year.

PLG's second largest Melbourne asset at 71-93 Whitside Rd, Clayton in the South East

of Melbourne is entirely leased to Corning Cable over 28,195 sqm which is also PLG's

largest single tenant exposure (c.5% income). Notably, PLG expects the tenant will

downsize by around 17,700 sqm and may only extend their lease for a relatively short

duration (c.2 years) at this juncture. More recently however, we understand that PLG is in

discussions with a prospective tenant which may look to occupy the entire facility on a

longer term lease. We note the property comprises three freestanding warehouses and

offers good heavy vehicle access, facilitated by multiple entry points along two street

frontages. We note that the potential risks are party mitigated by the stronger occupier

market conditions in the South East Melbourne market with existing vacant stock tracking

at historic average levels.

Similarly, we see potential risk at 82 Taryn Drive, Epping (VIC), located in the

oversupplied Melbourne North market, which has the highest overall vacancy (430,000

sqm) of all the Melbourne industrial markets, according to Knight Frank. The property has

a WALE of 1.8 years and the major tenant Stanley Black and Decker has notified PLG of

its intention to vacate in May 2018. Despite the challenging market backdrop, we note that

the property is relatively modern (built in 2008) and offers a high clearance distribution

12.6%16.3% 15.3%

9.0%

46.8%

0%

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40%

50%

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CY16 CY17 CY18 CY19 CY20+ 0.1

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GPT MGR GOZ IDR TIX DXS Propertylink ABP

15 September 2016

Propertylink Group


warehouse with direct access to the Hume Freeway. The site is suitable for a range of

users and is located in the established suburb of Epping and is in close proximity to the

new Melbourne Markets.

Figure 44: PLG - major vacancies Figure 45: PLG - upcoming lease expiries


Development risk

There are typically higher risks associated with development activities than holding

developed assets. The risks faced by PLG in relation to existing or future development

projects include construction delays (which may result in a loss of rent), and development

costs may be materially greater than expected.

Following completion of development works, PLG may also be exposed to residual

defects, which although are mitigated by certain contractual protections and obligations or

third parties to rectify defects, the Group remains exposed to potential losses

We note that PLG's only development project is at 122 Newton Rd, Wetherill Park, which

involves a speculative development of a relatively minor (8,914 sqm) facility at the rear of

the existing property. PLG anticipates the construction to commence in August 2016 with

practical completion in February 2017 and is expected to cost $9.6m. Importantly, the

property is located in the established Wetherill Park market in Sydney's South East and

should benefit from relatively strong occupier demand fundamentals.

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15 September 2016

Propertylink Group


Investment portfolio Portfolio summary

PLG owns a diversified portfolio of 33 industrial properties located across Sydney,

Melbourne, Brisbane and Perth. The Portfolio was independently valued at $685m as at

30 June 2016, has an occupancy rate of 95.0%, a weighted average lease expiry (WALE)

of 3.6 years (by income and by GLA) and a diversified income profile with approximately

176 tenants with no single tenant contributing more than 5% of lease income.

Figure 46: PLG balance sheet portfolio


Balance Sheet Properties State Valuation $/sqm% of

portfolioOccupancy

Initial

YieldCap Rate

GLA

(sqm)

WALE

(yrs)

Acquisition

dateAcquired from

15 Talavera Rd, Macquarie Park NSW 62.0 4,922 9.1% 100.0% 7.36% 7.25% 12,597 3.9 Jun-2015 AMP

7 Gundah & 22 Beaumont Rd, Mt Kuring-Gai NSW 56.2 1,651 8.2% 98.0% 7.63% 7.25% 34,037 1.8 Jan-2015 Industrial Parks of Australia

16 Rodborough Rd, Frenchs Forest NSW 29.7 3,532 4.3% 100.0% 7.42% 7.00% 8,410 6.5 Jun-2015 Equity Commonw ealth

50-52 Airds Rd, Minto NSW 27.2 1,160 4.0% 91.9% 8.45% 8.00% 23,452 3.6 Jul-2014 JSKM Pty Ltd

10-12 Pike St, Rydelmere NSW 21.9 1,094 3.2% 100.0% 9.68% 8.50% 20,022 2.0 Jun-2014 Abacus

144-156 McCredie Rd, Smithfield NSW 19.7 997 2.9% 100.0% 9.55% 8.50% 19,765 0.6 Oct-2014 Valad

44 Mandarin St, Villaw ood NSW 18.0 887 2.6% 91.8% 7.98% 9.75% 20,294 3.0 Jun-2015 Equity Commonw ealth

164-166 New ton Rd, Wetherill Park NSW 17.3 1,459 2.5% 100.0% 8.00% 7.50% 11,854 2.1 Oct-2014 Valad

122 New ton Rd, Wetherill Park NSW 16.3 1,695 2.4% 0.0% 0.00% 7.00% 9,614 0.0 May-2015 Metcash

4 Brunker Rd, Chullora NSW 11.0 1,711 1.6% 100.0% 6.87% 7.25% 6,428 2.7 Jun-2014 Abacus ADIF II

22 Rodborough Rd, Frenchs Forest NSW 10.5 2,602 1.5% 100.0% 8.65% 7.50% 4,035 6.7 Jun-2015 Equity Commonw ealth

13 Boundary Rd, Northmead NSW 10.2 1,802 1.5% 95.0% 7.30% 7.00% 5,660 2.5 Jun-2014 Abacus ADIF II

1 Orielton Rd, Smeaton Grange NSW 8.2 1,066 1.2% 30.6% 1.41% 7.50% 7,689 1.2 Jun-2014 Abacus

8 Sylvania Way, Lisarow NSW 7.4 745 1.1% 100.0% 13.01% 10.00% 9,933 0.9 Jun-2014 Abacus

Melbourne Markets, 315 Cooper St, Epping VIC 92.0 1,227 13.4% 100.0% 8.55% 7.50% 74,968 5.5 Jul-2014 Hansen Yuncken

71-93 Whitside & 74-78 Main Rd, Clayton VIC 24.0 851 3.5% 100.0% 10.07% 8.50% 28,195 0.5 Jun-2015 Equity Commonw ealth

144-168 National Blvd, Campbellf ield VIC 22.8 1,372 3.3% 100.0% 6.65% 6.50% 16,620 8.5 Jun-2014 Abacus ADIF II

18-24 Ricketts Rd, Mount Waverley VIC 16.9 1,895 2.5% 100.0% 8.19% 7.75% 8,916 2.4 Jul-2014 AMP

1-5 Lake Dr, Dingley VIC 16.4 941 2.4% 100.0% 8.84% 7.50% 17,431 2.0 Jun-2014 Abacus ADIF II

127-161 Cherry Lane, Laverton North VIC 14.0 546 2.0% 100.0% 11.04% 10.00% 25,639 6.3 Jun-2015 Equity Commonw ealth

82 Taryn Dr, Epping VIC 12.3 1,161 1.8% 100.0% 8.62% 7.00% 10,590 1.8 Jul-2014 AMP

25 Strezlecki Ave, Sunshine West VIC 10.7 1,022 1.6% 100.0% 7.62% 7.50% 10,467 3.5 Feb-2014 Charter Hall

63 Woodlands Dr, Braeside VIC 9.9 1,303 1.4% 100.0% 6.89% 6.50% 7,598 7.9 Jun-2014 Abacus ADIF II

36-52 National Blvd, Campbellf ield VIC 9.3 795 1.4% 0.0% 0.00% 7.50% 11,705 0.0 Jun-2014 Abacus

571 Mount Derrimut Rd, Derrimut VIC 7.7 925 1.1% 0.0% 0.00% 7.25% 8,321 0.0 Jun-2014 Abacus ADIF II

163 Vilking Dr, Wacol QLD 46.8 1,809 6.8% 100.0% 6.49% 6.50% 25,869 6.2 Feb-2014 Dexus

57-101 Balham Rd, Archerfield QLD 27.7 1,138 4.0% 77.8% 7.21% 8.50% 24,335 3.1 Feb-2014 Dexus

848 Boundary Rd, Richlands QLD 13.7 1,395 2.0% 69.4% 5.13% 8.25% 9,818 1.9 Oct-2014 Valad

9-13 Titanium Court, Crestmead QLD 6.9 1,066 1.0% 100.0% 7.83% 7.50% 6,472 4.4 Jun-2015 Equity Commonw ealth

37-53 Eurora St, Kingston QLD 7.2 1,181 1.1% 100.0% 8.97% 8.00% 6,096 2.1 Oct-2014 Valad

7 Modal Crescent, Canning Vale WA 16.4 1,075 2.4% 100.0% 9.25% 8.00% 15,251 0.3 Jun-2015 Equity Commonw ealth

17-19 Leadership Way, Wangara WA 7.0 1,293 1.0% 100.0% 9.66% 8.25% 5,415 0.6 Jun-2015 Equity Commonw ealth

39-41 McDow ell St, Welshpool WA 8.0 1,155 1.2% 100.0% 9.10% 8.00% 6,925 0.7 n.a n.a

Total / weighted average 685.0 132.9 100% 95.0% 7.94% 7.65% (1) 515,403 3.6

15 September 2016

Propertylink Group


Figure 47: Portfolio summary (as at June 2016)


■ Rental structure. Approximately 90% of lease income from properties within the

Portfolio is subject to annual fixed or CPI-linked rent reviews. Provisions for market rent

reviews exist at intervals within all leases and predominantly contain ratchet provisions.

Figure 48: Rental review composition (as at 30 June 2016)


■ Lease expiries and tenant retention. PLG's portfolio has relatively high lease expiry

risk relative to peers with ~44% of leases expiring by CY18. We note however, that

PLG's tenant retention rate for all expiring leases for the 12 months ending 30 June

2016 was 83.9% and the retention rate for the Portfolio on a standalone basis was

63.2%, which fares well relative to peers.

Number of properties 33

Independent valuation (A$m) $685.0

Gross lettable area (sqm) 514,454

Occupancy by GLA 95.0%

WALE by income (years) 3.6

WALE by GLA (years) 3.6

Weighted Average Capitalisation Rate 7.65%

Passing net rental income (p.a.) $52,892,279

Fully leased passing net rental income (p.a.) $56,207,488

5%

24%

34%

2%1%

34%

CPI 3%-3.5% 3.5%-4.0% <3% >4% CPI (Cap + Collar)

15 September 2016

Propertylink Group


Figure 49: PLG portfolio lease expiry profile


■ Major tenants. PLG has about 176 tenants across its portfolio with no single tenant

contributing more than 5% of lease income. Figure 50 illustrates PLG's ten major

tenancies which represent about 30% of total portfolio income.

Figure 50: PLG Major Tenants


■ Geographic composition. The PLG portfolio is diversified across four States and

Territories with the strongest weighting to New South Wales (46%) and Victoria (34%).

Notably the portfolio has a limited exposure to the challenged resources-based

markets of Brisbane (15%) and Perth (5%).

■ Asset diversification. The Portfolio is also diversified across asset classes, with

industrial, logistics and multi-let unit estates properties constituting 81% (by asset

value) of the Portfolio as at 30 June 2016.

12.6%16.3% 15.3%

9.0%

46.8%

0%

10%

20%

30%

40%

50%

60%

70%

CY16 CY17 CY18 CY19 CY20+

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Stanley Black & Decker

Supply Linq

Cotton On

Unicharm Australasia

Pacific Brands

VIP Plastics

The Trust Company

Virgin Active

WACO Kwikform

Corning Cable Systems

15 September 2016

Propertylink Group


Figure 51: Geographic diversification

as at 30 June 2016

Figure 52: Asset diversification

as at 30 June 2016


The table below summarises the geographic composition of the industrial portfolios for

PLG and A-REIT peers.

Figure 53: A-REIT industrial portfolio geographic composition by state PLG IDR TIX GOZ ABP DXS GPT MGR Average

NSW 46% 35% 44% 14% 20% 57% 66% 85% 46%

VIC 34% 21% 25% 45% 33% 36% 22% 7% 27%

QLD 15% 41% 19% 20% 13% 5% 12% n.a 16%

WA 5% 0% 9% 12% n.a n.a n.a n.a 3%

SA n.a 3% 1% 9% 17% 2% n.a n.a 5%

ACT n.a 0% 2% 0% 17% n.a n.a n.a 3%

Other n.a n.a n.a 0% n.a n.a n.a 8% 1%


Portfolio metrics and comps

■ Portfolio value. PLG's $685m balance sheet portfolio places it above Industria (IDR)

and Abacus (ABP) but below other A-REIT peers.

■ Portfolio cap rates. PLG's industrial portfolio WACR of 7.65% is slightly above the A-

REIT average of 7.30% and is the second highest across the sector after ABP.

■ Portfolio Weighted Average Lease Expiry (WALE). The PLG portfolio has a WALE

of 3.6 years, which is the second lowest in the sector after ABP and below the A-REIT

average of 5.6 years.

■ Occupancy. PLG's portfolio is 95% occupied as at 30 June 2016, which is in line with

the A-REIT average as at June 2016 (Figure 58).

■ Portfolio lease expiry. PLG has a relatively high level of upcoming expiries (31.6%)

over FY17 and FY18 relative to A-REIT peers which have ~20% of leases expiring on

average over this period (Figure 59).

Sydney46%

Melbourne34%

Brisbane15%

Perth5%

Unit Estate21%

Business Park17%

Logistics31%

Industrial29%

Development2%

15 September 2016

Propertylink Group


Figure 54: A-REIT Industrial portfolio value ($m) Figure 55: A-REIT Industrial portfolio value ($/sqm)


Figure 56: A-REIT industrial portfolio WACR Figure 57: A-REIT Industrial Portfolio WALE


Figure 58: A-REIT industrial portfolio – Vacancy Figure 59: Portfolio lease expiry (FY17 + FY18)

Source: Company data Source: Company data. Note: Reflects CY for PLG

0

200

400

600

800

1,000

1,200

1,400

1,600

DXS GPT GOZ TIX MGR Propertylink IDR ABP0

500

1,000

1,500

2,000

2,500

3,000

IDR GPT MGR DXS GOZ Propertylink TIX ABP

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

ABP Propertylink IDR TIX DXS GOZ GPT MGR

0.1

1.1

2.1

3.1

4.1

5.1

6.1

7.1

8.1

9.1

GPT MGR GOZ IDR TIX DXS Propertylink ABP

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

DXS GPT ABP Propertylink IDR TIX MGR GOZ

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Propertylink GPT DXS ABP TIX MGR IDR

15 September 2016

Propertylink Group


External Funds

Business overview

PLG’s investment and asset management business focuses on institutional, investment

grade Australian property, primarily in the industrial, logistics and commercial office

sectors.

PLG currently manages 10 external funds (including PEP) on behalf of global institutional

investors, including banks, REITs, pension funds, insurance companies, large corporates,

family offices and investment advisors. Existing investors include Goldman Sachs,

Grosvenor Group, The Norinchukin Bank, Townsend Group and Fosun.

PLG co-invests with its funds investors providing an alignment of interests and an ability to

share in the risks and returns offered by the funds. The total value of PLG's drawn equity

co-investments as at 30 June 2016 was $23.9m ($41.6m including PEP).

As at 30 June 2016, the investment and asset management business had total AUM of

over $1.55bn ($1.69bn including PEP), of which approximately $873m ($1.0bn including

PEP) is managed through External funds.

Figure 60: Overview of PLG's External funds

As at June 2016 – excludes PEP


15 September 2016

Propertylink Group


Figure 61: PLG – summary of External funds


A brief history of the industrial and logistics External funds is provided below:

■ PAIP II: Following the closure of the investment of new real estate assets in PAIP, a

new fund, PLG Australian Industrial Partnership II (“PAIP II”), was established in 2015.

PAIP II follows a similar investment model to the model PAIP had when it was

established, targeting a portfolio of core-plus and value-add industrial and logistics

assets. PAIP II has a target AUM of $700m to $900m. It has a mandate to pursue core-

plus and value-add industrial and logistics investment opportunities across Australia’s

capital cities. As at 30 June 2016, PAIP II had $127m of equity commitments and

$166.8m of assets.

■ SEDCO Mandate: Established in 2015 with a mandate to target a portfolio of core

industrial and logistics assets, although more recently the mandate has been expanded

to enable PLG to target value-add opportunities.

■ Confidential Mandate: Established in 2015 on behalf of an Australian-based

alternative investment manager to acquire and own a single core logistics property.

■ PLG Australian Logistics Trust (“PALT”): Established in 2013 to own two core long

lease logistics assets in Brisbane and Melbourne.

■ M&G Mandate: A management mandate for two core logistics assets in Sydney and

Melbourne. This mandate primarily covers property management services, with a small

component of strategic advisory.

■ The Gantry Investment Trust: Established in 2010 on behalf of small wholesale

investors (prior to the existing management team joining PLG). The fund holds one

asset in Fortitude Valley, Brisbane, which has a development approval to build 230

apartments.

The investment and asset management business also manages a series of commercial

office funds.

■ POP I & POP II: The PLG Office Partnership (“POP”) and PLG Office Partnership II

(“POP II”) series of funds were established in February 2015 and June 2015

respectively, as core-plus, single office asset mandates.

■ POP III: A third office fund, PLG Office Partnership III (“POP III”), opened for

investment in March 2016. Rather than having a single asset mandate, the investment

and asset management business will target total asset value of approximately $450m.

The risk spectrum for POP III is flexible, with office assets from core-plus to value-add

being considered for acquisition, should they meet the investment objectives of the

fund. As at 30 June 2016, the fund had $44.5m of equity commitments and had

successfully acquired $91.1m of assets.

Diversified

Fund PAIP II1 SEDCO

Mandate

Confidential

Mandate 2 PALT

M&G

Mandate 3

Gantry

Investment

Trust

POP POP II POP III PEP Total

Establishment 2015 2015 2015 2013 2014 2010 2014 2015 2016 2016

AUM 166.8 29 42.8 69.0 85.4 14.3 130 245.0 91.1 141.9 1015.3

Committed Equity ($m) 127.0 14.0 18.0 26.5 N/A 7.9 116.7 93.6 44.5 70.7 518.9

Target AUM ($m) 700.0-900.0 N/A 42.8 69 85.4 14.3 130 245 450 N/A 1,700+

Target IRR 14-16% 11% 13% 14% N/A N/A 15% 15% 12-14% 17% 11-16%

Review date 2020 N/A3rd

anniversaryN/A Oct-16 N/A N/A

7th

anniversary

6th

anniversary2023

1.Data excludes CHC (PAIP II) transactions

2. Mandate on behalf of an Australian-based alternative investment manager

3. The M&G mandate is expected to be w ound up during FY17

Industrial and Logistics Commercial Office

15 September 2016

Propertylink Group


Since listing PLG has made further progress in meeting its target to grow external FUM to

above $1.5bn in FY17.

■ PEP: In August 2016, PLG announced the acquisition of a $141.93 million portfolio of

from Denison Funds Management. The portfolio of nine industrial, commercial and

retail assets will be managed under a new external fund, Propertylink Enhanced

Partnership (PEP), in which Goldman and Sachs and PLG are the investors, with PLG

contributing 25% of the equity ($17.7m).

■ PAIP II: PLG settled on the acquisition of an industrial portfolio for $135m from Charter

Hall. The acquisitions was made on behalf of PLG's PAIP II fund in 1H17.

Historical performance of External funds

Prior to the disposal of assets in a fund, investors in the fund typically assess PLG’s

performance by referencing the Internal Rate of Return generated by the fund. PLG has

calculated that the funds it manages have achieved a combined IRR of 28.5% since

establishment.

Performance fees payable to PLG are based on the levels of return generated for

investors upon the sale of fund assets as compared to benchmark return hurdles. As such,

IRR calculations are an indicator as to whether PLG’s performance in managing the

relevant assets may earn PLG additional performance fees, although whether

performance fees are ultimately paid will depend on the valuation ultimately realised in the

particular External fund relative to the return hurdles.

Figure 62: PLG external historical performance*

N.B * Combined * Combined IRR is calculated as the weighted average (by total equity) IRR from POP, POP II, PALT, PAIP and the Confidential Mandate. Source: Company data.

Management fees

The investment and asset management business principally generates fee revenue from

the management of the External funds. Management fees vary from fund to fund, and are

based on the nature and mandate of the fund. Figure 63 provides a summary of the types

of fees that are generated from the External funds:

26.9%

30.9%

28.5%

24.0%

25.0%

26.0%

27.0%

28.0%

29.0%

30.0%

31.0%

32.0%

Industrial and Logistics Office Combined

15 September 2016

Propertylink Group


Figure 63: PLG—External fund fee schedule


Co-investments in External funds

PLG generally aims to hold a 5% to 25% interest in each of the External funds it manages.

It may initially take a larger co-investment stake upfront to establish a new fund before

engaging new or existing investors, allowing PLG to reduce its co-investment stake.

PLG had total committed co-investments in External funds of $26m as at 30 June 2016, of

which $23.9m has been drawn.

We note that in August 2016, PLG committed an additional $17.7m of equity as part of the

acquisition of the Denison portfolio ($142m) and the establishment of PEP. The $17.7m of

additional equity represents 68% of the $26m targeted by PLG to be invested into existing

funds during FY17.

Figure 64: PLG – co-investment summary


External fund investors

The investment and asset management business is supported by global institutional

investors. External funds Investors include global institutional investors in North America,

Europe, Middle East, Asia and Australia. A summary of the key External funds Investors is

provided in Figure 65.

Type Description Typical Range

Acquisition feesPayable when Propertylink acquires property on behalf of the External Fund. A one-off

fee paid on settlement of an asset acquisition.0.45% - 0.50% of GAV p.a.

Base feesAn ongoing base management fee. Typically paid on a quarterly basis in arrears in

March, June, September and December.0.45% - 0.50% of GAV p.a.

Performance fees

A performance fee payable to Propertylink, and based on the level of return Propertylink

has generated for the investors in the External Funds. Typically paid on the return of

capital to External Funds Investors post an asset sale (or sales).

20.0% - 40.0% of fund

outperformance above hurdles

of 10.0% - 15.0%

Property management feesA fee payable for the day to day management of the properties in the External Fund. Paid

monthly in arrears.

2.0% - 2.5% of gross income

p.a.

Leasing fees

Payable when Propertylink signs a new tenant to the property or renews a lease, and

may be based on the length of the tenancy. Paid on the successful execution of a new

lease.

Market standard rates

Project management feesPayable where Propertylink oversees projects undertaken on properties (including

developments and improvements). Paid as invoices are paid in relation to a project.Market standard rates

Diversified

Fund PAIP II1 SEDCO

Mandate

Confidential

Mandate 2 PALT

M&G

Mandate 3

Gantry

Investment

Trust

POP POP II POP III PEP Total

AUM 166.8 29.0 42.8 69.0 85.4 14.3 130 245 91.1 141.9 1015.3

Propertylink committed co-

investment ($m)5.0 1.0 1.8 2.7 - - 5.8 4.7 5.0 17.7 43.7

Propertylink drawn co-investment 3.2 0.9 2.2 2.8 - - 6.5 6.3 2.0 17.7 41.6

Propertylink co-investment (%) 3.7% 6.4% 12.2% 10.6% - - 5.6% 6.7% 4.8% 25% 3.7% - 25%

1.Data excludes CHC (PAIP II) transactions

2. Mandate on behalf of an Australian-based alternative investment manager

3. The M&G mandate is expected to be w ound up during FY17

Industrial and Logistics Commercial Office

15 September 2016

Propertylink Group


Figure 65: PLG—fund investor summary


Name Indicative AUM Overview

The Norinchukin Bank US$830bn

The Norinchukin Bank is a long-standing Japanese financial institution established by

Japan’s agricultural cooperatives. It is a leading institutional investor, with total assets

of approximately US$830 billion invested globally (as at September 2015). The

Norinchukin Bank is a key investor in PAIP II.

Fosun RMB 63.4bn

Fosun International Limited is a company incorporated under the laws of Hong Kong

and its shares are listed on the main board of The Stock Exchange of Hong Kong

Limited. The principal businesses of the Fosun Group are (i) integrated finance

(wealth) which includes four key segments: insurance, investment, wealth

management and internet finance; and (ii) industrial operations which include five key

segments: health, happiness, steel, property development and sales and resources.

Total assets under management of the Fosun Group for the year ended 31 December

2015 is approximately RMB63.4 billion.

Goldman Sachs US$1,252bn

Goldman Sachs is a leading global investment banking, securities and investment

management firm that provides a wide range of financial services to a substantial and

diversified client base that includes corporations, financial institutions, governments

and individuals.

Grosvenor Group US$17.2bn

Grosvenor Group is a privately owned property group, operating across three

continents. Grosvenor has previously partnered with Propertylink to invest in PAIP, and

has also invested in POP II and III through its Indirect Investments arm.

SEDCO US$3.9bn

SEDCO, the Saudi Economic and Development Company is a leading Sharia

compliant organisation, responsible for a spectrum of operating companies, real

estate investments, and public and private investments globally. By creating what is

believed to be the first Sharia-compliant investment structure in Australia, Propertylink

has been able to benefit from SEDCO’s investment

M&G Investments US$360bn

M&G Investments is a leading global retail and institutional fund manager, with

approximately US$360 billion assets under management across equities, multiasset,

fixed income, real estate and cash.

Townsend Group US$13.6bnThe Townsend Group is a global investment platform, serving a diverse group of

institutional investors.

Al Salam Bank- Bahrain US$4.5bn1 Al Salam Bank-Bahrain is a diversified Islamic Bank, investing across real estate and

corporations globally.1 Total assets

15 September 2016

Propertylink Group


Australian Industrial Markets Propertylink geographic exposures

The Propertylink balance sheet portfolio is diversified across 4 States and Territories with

the strongest weighting to Sydney (46%) & Melbourne (34%). Notably the Fund has limited

exposure to the challenged resource-based markets of Brisbane (15%) & Perth (5%).

Sydney

Demand conditions in the broader Sydney industrial market remain robust supported by

strong construction activity in the residential and infrastructure sector. In 2015 annual

gross take-up reached ~860k sqm well above the ten-year average of ~607k sqm. Gross

take-up volumes continue to be driven by leasing activity in the new build market, with pre-

lease and design and construct deals accounting for a majority of leasing activity. Going

forward, demand for industrial space is expected to remain positive with ongoing economic

growth in New South Wales as well considerable investment in the infrastructure sector

set to support occupier activity.

Figure 66: Industrial demand (gross take-up) Figure 67: Industrial supply (completions)

Source: JLL Research Source: JLL Research

Over the past three years, the Sydney market experienced only limited levels of new

supply, with ~350k sqm being completed in 2015, compared to the 20-year average of

~500k sqm. Supported by high levels of pre-commitments, overall development activity is

expected to rise and see stronger levels of new industrial stock to enter the market in the

medium term.

Rental market conditions remain generally positive but have been mixed across individual

sub-markets over the past 12 months. In particularly Sydney's South and Inner West

precincts have experienced tighter leasing conditions as the ongoing trend of rezoning and

residential conversions is reducing the stock base and hence putting upward pressure on

rents. This trend is expected to continue and should support rental growth going forward in

these areas.

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD

Sq

ua

re m

ete

r

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e*

Squ

are

met

er

*Under construction or complete

15 September 2016

Propertylink Group


Figure 68: Industrial rental growth Annual growth by grade

Figure 69: Industrial rental growth Annual growth by submarket and grade (as at June 2016)


Sydney remains the preferred investment destination across the domestic industrial

markets, recording robust demand for industrial real estate with annual transaction volume

reaching over $2bn in 2015, and $785.5m YTD. Strong demand by domestic and

international investors for prime grade assets has seen prime yields continue to compress

with prime yields now trading below their pre-GFC levels.

Figure 70: Sydney Prime and Secondary Yields

Source: JLL Research

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

Sydney Prime Sydney Secondary

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

North South Sydney Inner West Outer North West Outer South West Outer CentralWest

Prime Secondary

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%


Spread (RHS) Sydney Prime Sydney Secondary

15 September 2016

Propertylink Group


Figure 71: Sydney industrial transaction activity and yields

Source: Colliers Research

Key submarkets for Propertylink

Sydney North

The Sydney North precinct continues to be characterised by a lack of stock for both

occupiers and investors. As a result the market has experienced yield compression as well

as positive rental growth in both the Prime and Secondary markets. However, landlords

remain reluctant to offer longer term leases as they await the outcome of major rezoning

plans. This has pushed occupiers further north, benefitting leasing activity in markets such

Mount Kuring-Gai.

Sydney South West

The south western corridor is one of Sydney's major growth areas and as such is

experiencing strong levels of industrial leasing activity. The precinct continues to benefit

from tenant migration out of the Inner West and South Sydney precincts, where ongoing

residential rezoning has caused a lack of available industrial space.

The outlook for the South West remains attractive. The precinct is set to cater for a new

terminal at Port Botany and should also benefit from the development of the Moorebank

Intermodal, Australia's largest intermodal freight precinct. Furthermore, the precinct is also

expected to experience significant investment into road infrastructure, including upgrades

to the M5 and Hume Highway, which will provide improved access to the Sydney Airport,

the Port of Sydney as well as the Sydney CBD.

Melbourne

Occupier demand for warehousing and logistic space in Melbourne remains robust

supported by ongoing strong activity at the Port of Melbourne and a solid residential

construction market. In 2015 Melbourne recorded industrial gross take-up of ~700k sqm

well above the ten-year average of ~580k sqm and the highest annual levels since 2006.

The most active precincts were the South East and West where almost half of all leasing

activity was recorded.

15 September 2016

Propertylink Group




Post the Global Financial Crisis, industrial project completion levels were limited but have

picked up considerably since 2014. While still remaining below the ten-year average in

2015, Melbourne recorded the largest amount of stock completions across Australia

adding about 450k sqm to total stock levels. The outlook for supply remains strong with a

large pipeline of new projects planned and under construction. However, speculative

development remains limited with the majority of new projects securing pre-commitments

prior to construction start.




Despite solid occupier demand and take-up levels, prime rental growth across Melbourne

remains muted due to significant competition amongst developers and landlords of

existing premises to secure tenants. However, with limited stock available, the secondary

market has experienced solid rental growth over the past 12 months across most

precincts.

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD

Sq

ua

re m

ete

r

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e*

Squ

are

met

er


-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

Melbourne Prime Melbounre Secondary

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

North West South East City Fringe

Prime Secondary

15 September 2016

Propertylink Group


Figure 76: Melbourne Prime vs Secondary Yields

Mind the gap


The Melbourne industrial market continues to be characterised by strong investment

demand by both domestic as well as offshore capital with transaction volumes reaching a

record $1.5bn in 2015 and $447.9m YTD. The large volume of capital searching for

investment grade assets has continued to drive capital value appreciation with prime

yields now trading below pre-GFC levels.

Key submarkets for Propertylink

Melbourne West

The Melbourne West precinct remains the preferred location by major logistic companies

given its proximity to strategic transport infrastructure. Despite strong leasing activity,

elevated levels of supply have led to an increase in vacancy levels, which in turn has put

downward pressure on rents. However, land values have started to pick up over the past

18 months after stable to negative growth for the previous two-and-a-half years, which

indicates the level of land supply is slowing. Going forward key infrastructure projects such

as the Western distributor should support ongoing demand by the transport, distribution

and logistics sector in the Melbourne West.

Melbourne North

Similar to Melbourne West, the North precinct has also experienced significant levels of

supply. Project completions in Melbourne North accounted for almost half of all new supply

entering Melbourne over the past 12 months, which has limited the upside for rental growth.

Melbourne's North is expected to be the first market to be affected by the upcoming

closures in the car manufacturing industry with Ford being the first manufacturer to cease

production in 2016. However, with its proximity to the Melbourne Airport the precinct

remains an attractive location for exporting industries. As such, Melbourne North has

already experienced a shift in demand, with the decline in the automotive industry being

partly offset by rising demand by sectors such as food manufacturing.

Brisbane The Queensland economy continues to be impacted by the slowdown in the mining sector

but strong residential construction and growing trade activity in the Port of Brisbane

continue to support the local transport and logistics sector. Industrial gross take-up in 2015

reached ~464k sqm, the highest level since 2012. However, tenant movement activity over

the past two quarters was soft as tenants opted to extend existing leases rather than

committing to new premises as a consequence of landlords offering significant incentives.

0.00%

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Spread (RHS) Melbourne Prime Melbourne Secondary

15 September 2016

Propertylink Group


Industrial completions in 2015 reached about 354k sqm, which was softer than compared

to 2014 but in line with the ten-year average. With limited stock under construction or in

the planning stage, supply levels in the medium term are expected to be significantly lower

compared to the previous years.



Due to subdued leasing conditions and fierce competition amongst developers and

landlords to secure or keep tenants, rental conditions in both the Prime and Secondary

markets remain challenging. Prime and secondary stock in the Southern precinct was the

most affected, experiencing the biggest annual declines in rental growth.




Despite the challenging leasing conditions, investor demand for industrial assets remains

robust, with Brisbane recording transaction volumes of $854m in 2015. Strong capital

inflows to the sector and a lack of investment grade product have led to continued yield

compression across the Brisbane industrial precincts.

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e*

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Brisbane Prime Brisbane Secondary

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Northern Southern Trade Coast

Prime Secondary

15 September 2016

Propertylink Group


Figure 81: Brisbane Prime and Secondary Yields


Southern precinct

While the Southern precinct continues to record the strongest level of leasing activity in the

Brisbane market it was also the most active one in terms of new supply, which in turn has

put pressure on rental growth. Going forward the precinct is set to benefit from Government

investment in transport infrastructure such as the widening of the Ipswich Motorway which

will further support the expansion of the Acacia Ridge freight intermodal terminal.

Perth

With the contraction in the resources market and the subsequent slowdown in economic

activity, employment and population growth, demand conditions in the Perth industrial

market remain subdued. With ongoing consolidation in the occupier market vacancy levels

continue to rise.



The Perth Industrial market experienced limited levels of supply in 2015, however, there is

a significant pipeline scheduled to enter the market in 2016.

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Spread (RHS) Brisbane Prime Brisbane Secondary

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15 September 2016

Propertylink Group





In line with challenging demand conditions, industrial rents have continued to trend lower.

With occupiers having plenty of space options available, landlords have started to offer

greater levels of incentives to keep and secure tenants. Rents across all precincts have

been affected by the large amount of vacant space with soft leasing conditions expected to

prevail over the medium term.

Despite the challenging economic conditions, investment demand for industrial assets in

Perth remains robust with solid levels of transactional activity. Due to ongoing investment

demand the Perth industrial market has experienced considerable yield compression over

the past 18 months.

Figure 86: Perth Prime and Secondary Yields


-15.0%

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5.0%

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Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16

Perth Prime Perth Secondary

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North South East

Prime Secondary

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Dec-05 Jan-07 Feb-08 Mar-09 Apr-10 May-11 Jun-12 Jul-13 Aug-14 Sep-15

Spread (RHS) Perth Prime Perth Secondary

15 September 2016

Propertylink Group


ESG

Summary

■ Disclosure: PropertyLink have very little disclosure on the ESG front, which is not

unusual among small cap companies..

■ Climate change: We highlight a possible long-term climate adaptation risk associated

with flooding in low-lying industrial areas, and with risks associated with the health,

safety and environmental liabilities of tenants, however we do not see these as

material at this stage.

■ Governance: PLG has a board well experienced in the property business and in the

process of an IPO. WE note that the 9 person board has three executive directors and

two long serving directors, including the Chairman, leaving only four non-executive

independent directors. In addition, the board is all-male. Post the IPO, as with many

small cap companies, the addition of new directors with skills in the listed space may

add to the diversity and skill-set required by the board in the future.

■ Valuation: We do not include any downside impact in our target price for ESG.

Environment

Disclosure

■ PropertyLink have very little disclosure on the ESG front, which is not unusual among

small caps. For covered companies in this sector, MSCI consider Opportunities in

Green Buildings, Health & Safety, Human Capital Development and Corporate

Governance as the most material issues. SASB view Energy management, Water and

Wastewater management, Lifecycle impacts and Climate Change Adaptation as the

material issues for the industry. We note that not being the operator of properties

PropertyLink has little exposure to above themes which relate to operations at their

properties.

Opportunities in Green Buildings

■ Given PropertyLink's business model – which focuses on industrial properties rather

than high-end developments – we see opportunities in green buildings as being limited.

Climate Change Adaptation

■ Flooding in low lying areas risk: Climate Change Adaptation risk may be relevant for

PropertyLink, as it owns primarily industrial properties and many of these tend to be

developed in low-lying areas. This is a mid-range risk, but in the case that sea levels

rise the frequency of flooding events in low lying areas will increase, which may impact

PropertyLink properties.

■ It is difficult to gauge the exposure of PropertyLink's portfolio on this front as

government flood maps often do not extend across suburban industrial areas.

However, we note that a few properties jump out at us from personal experience. 138

Viking Drive in Wacol in Queensland sits next to the Wolston Park Golf course, across

the Ipswich Motorway. The Golf course has recently been a site of flooding – being one

of the first Brisbane parks to go underwater in the 2011 floods. Scrubby Creek – which

runs close to the 37 Eurora St property in Kingston in QLD – most recently flooded in

2013. We have not run the fine comb over PropertyLink's entire portfolio, as we think

individual property exposure is unlikely to be material, with risk effectively diversified by

the number of properties in the portfolio and their wide geographic distribution.

15 September 2016

Propertylink Group


Exposure to Industrial Liability

■ We note that were PropertyLink to have exposure to liabilities associated with property

operation or cleanup for their industrial properties this may present a very long-run risk.

PropertyLink highlight possible exposure to health and safety liability in their risk

disclosure, and although we have no disclosure on this front this may possibly extend

to issues such as cleanup liability.

■ There is a risk that liability arising from occupational health and safety matters at a

property in the Portfolio or in an External Fund may be attributable to the Group as the

landlord instead of, or as well as, the tenant. Such liability may include fines and

penalties imposed by regulatory authorities as well as claims for compensation from

injured parties, and may not be fully covered by insurance policies. Any such liabilities

may be incurred by the Group (which are not covered by insurance policies) and could

materially adversely affect the financial performance of the Group and Distributions.

■ PropertyLink's tenants undertake a mix of activities, most being light industrial. As such

we think their exposure to environmental liability through the property portfolio is likely

to be limited.

Social

Health & Safety

■ PropertyLink do not presently have significant disclosure on Health & Safety, which is

identified as an important consideration for the sector. Although this is material for

other REITs thanks to their operation of properties, this may be less material for

PropertyLink as a property owner. PropertyLink do note that they may have exposure

to the health and safety liabilities of their tenants, a risk which we cover in more detail

above.

Human Capital

■ As with health and safety, at this stage PropertyLink do not have significant disclosure

on their human capital management. We note that PropertyLink's board and senior

management ranks contain no women. PropertyLink do have a diversity policy as

outlined in section 9 of their IPO disclosure, which involves the remuneration and

nominations committee setting measurable objectives for diversity each year. Although

not covered in depth as of yet, further disclosure is promised in the annual report.

Governance

Board

■ Board size appears large: The Board has 9 directors (Figure 87). Based on our

analysis in a previous note published here, we have found board sizes of 6-8 members

for companies below $5bn market capitalisation have out-performed companies with

both smaller and larger boards over 2008-2013.

■ Board renewal and tenure: The median tenure on the Board is 5.1 years, nicely

within the 4-6 year "sweet spot" (Figure 88). We note the company has appointed one

independent director in the past five years. Two board members have 16 years' tenure.

We raise these issues as a focus if Boards lose too much corporate memory

unexpectedly when Board succession planning is not smooth.

■ Board independence: The board has three executive directors, which is unusual for

an ASX listed company. In addition its Chairman and one other non-executive director,

Mr Christopher Ryan, have 16 years tenure, which would mean we no longer consider

them independent.

https://plus.credit-suisse.com/r/oaIg8D

15 September 2016

Propertylink Group


■ Gender diversity: The 9 person board is all male (Figure 89). ASX guidelines call for

at least 30% female representation on Boards by 2018, which for PLG would mean

three female directors.

■ Director workload: We raise some concerns with the workload of several Board

members, which may warrant further investigation, especially now the PLG is a listed

company. We note Chris Ryan, Derek Nix and Anthony Ryan all appear to have

external executive roles in addition to their non-executive board roles at PLG. Chris

Ryan is executive director of InvestorLink Group, but we note his M&A and IPO

experience would have been invaluable for PLG. Derek Nix is Managing Director and

Principal of Nix Anderson, a construction management and advisory firm. Anthony

Ryan is a real estate consultant. We count a chairmanship as equivalent to two

appointments due to the higher workload involved (Figure 90 ).

■ Fees: NED fees are capped at $600,000, with an expectation they will not exceed

$340,000 in FY17. NED roles are paid $50,0000, with an additional $20,000 for the

Chair role and $10,0000 for a Committee Chair. There are 2 committees – The Audit

Risk Committee and the Remuneration and Nominations Committee.

■ Shareholding: Post the IPO, directors are listed as owning 2.8-4.9% of the issued

securities.

■ Director disclosure: Stephen Day was a NED at Kayzanate Pty Limited, which was

unable to service its bank facility with NAB post the GFC. The company was

deregistered in 2009, and re-registered in 2015 to allow NAB to allow NAB to exercise

its rights as mortgagee. Peter McDonald was a director of companies that were unable

to service their debt post the GFC. Peter Day personally guaranteed these companies

and he entered voluntary bankruptcy in 2010. This was annulled in 2011, with the

effect that it is treated as if it never occurred. Peter was also a director of BTSY Pty

Limited which provided funding to the above companies. Creditors would this company

up in 2010 and it was deregistered in 2014.

■ Related party disclosures: Nix Anderson, a company related to Derek Nix, provides

~$10,000 per month in consulting. An entity associated with Peter Ryan has acted an

financial adviser to PLG. The fee of $350,000 is intended to be applied to purchasing

securities in PGL.

Figure 87: Directors, tenure and independence


Peter Lancken May-00 16.4 Male Yes - tenure >10 years Non-Executive Chair

Stuart Dawes Jun-16 0.3 Male Chief Executive, Executive Director

Stephen Day Jun-11 5.3 Male Executive Director, Vice Chairman

Ian Hutchinson Mar-13 3.5 Male Non-Executive Director

Christopher Ryan May-00 16.4 Male Yes - tenure >10 years Non-Executive Director

Derek Nix Aug-11 5.1 Male Non-Executive Director

David Epper Aug-11 5.1 Male Non-Executive Director

Peter McDonald Dec-14 1.8 Male Executive Director

Anthony Ryan Jun-16 0.3 Male Non-Executive Director

Median_tenure median 5.1

Average_tenure mean 6.0

DirectorTenure on the

Board (yrs)Gender Independent Position

15 September 2016

Propertylink Group


Figure 88: Board - tenure Figure 89: Board - gender diversity


Figure 90: Director workload


Remuneration

■ CEO base of $550,000: Stuart Dawes the CEO will have a base salary of $550,000.

The other two executive directors will have a base salary of $525,000.

■ CEO max STI of $660,000: The CEO is entitled to a target STI of $330,000 and a

maximum STI of $660,000, 120% of base salary. 50% will be paid in cash and 50%

into deferred equity for 1 year. Budgeted funds from operation will be a gateway hurdle

for the STI, but no further details have been disclosed. The STI hurdles will include

non-financial hurdles which are being formulated.

■ The CEO is entitled to an LTI award in the form of rights with a face value of

$275,000. Performance hurdles are 50% based on relative TSR to the ASX300 A-

REITS index over three years, with the vesting norm of 50% vesting at the 50th

percentile and 100% vesting at the 75th percentile. The other 50% of the LTI rights is

subject to a 3 year CAGR EPS hurdle of 6-8.5% with vesting of 50% if CAGR EPS is

6% through to 100% vesting for a CAGR EPS of 8.5%.

■ In total the maximum salary package for the CEO is valued at $1.485mn.

MSCI ESG

■ MSCI ESG does not rate PLG.

Target Price Impacts from ESG

■ We do not include any downside impact in our target price for ESG.

33%

45%

22%

First term Second TermThird Term More than three terms

100%

0%

Male Female

15 September 2016

Propertylink Group


Senior management and board

Senior management team

Stuart Dawes, Chief Executive Officer

Stuart has over 17 years’ experience in the property industry in a variety of executive

roles. Prior to being appointed Chief Executive Officer of PLG, Stuart was PLG’s Chief

Operating Officer (“COO”) since 2014, in addition to his role as Head of Investment

Management which he has held since 2009. As COO and head of investment

management, Stuart was responsible for the oversight of the operations of the PLG Group

in addition to leading PLG’s investment management business. Under Stuart’s leadership,

the PLG investment management business has grown from $36m to over $1.55bn in

assets under management.

Prior to joining PLG, Stuart worked in the United Kingdom for Lendlease Investment

Management, where he primarily focused on the development of new fund and investment

opportunities. Before moving to the United Kingdom in 2003, Stuart worked with

Lendlease’s Australian wholesale fund, Australian Prime Property Fund. Stuart also has

experience with Barclays Capital in its European structured finance business, where he

concentrated on debt and equity transactions within Europe.

Stuart holds a Bachelor of Commerce from the University of Western Sydney and a

Master of Applied Finance from Macquarie University.

Stephen Day, Vice Chairman and Executive Director

Steve has a career spanning over 31 years in the property industry in a variety of

executive roles in Australia and overseas. Steve is currently Executive Director of PLG, a

role in which he is responsible for managing mergers & acquisitions, assisting the property

team on deal flow and chairing the review of property strategy and operations, in addition

to assisting the CEO with corporate strategy and wholesale investor relationships.

Steve was formerly the managing director of PLG where he was responsible for the

strategic direction and day-to-day leadership of PLG. Steve was co-founder and Executive

Chairman of Valad. Steve guided the strategic growth of Valad to achieve in excess of

$10bn in AUM. In 2009, he founded Echo Capital which merged with PLG in 2011. Steve’s

previous experience includes various roles with Lendlease from 1985 to 1995.

Steve holds a Bachelor of Economics from Macquarie University. He is a fellow of the

Royal Institute of Chartered Surveyors (FRICS), sits on the Australian Chapter Board of

the Asia Pacific Real Estate Association (APREA) and is a Fellow of the Australian

Property Institute (API).

Peter McDonald, Executive Director & Head of Property

Peter has 27 years of property market experience across the industrial and office sectors

within Australia. As Head of Property, Peter is ultimately responsible for the overall

operations of the Portfolio and the management of the Property team. Peter has a

particular focus on capital transactions and has sourced or been heavily involved in all of

the Group’s acquisitions to date.

His previous experience includes senior roles with Jones Lang LaSalle, Lendlease, Dexus

and Valad and has a long track record in concluding major acquisitions and leasing

transactions.

Peter holds an Associate Diploma in Business (Valuation).

15 September 2016

Propertylink Group


Tony Groth, Chief Financial Officer

Tony joined PLG in July 2015 as Chief Financial Officer, following PLG’s decision to

internalise outsourced administration and accounting services previously provided by the

Investorlink Group. Prior to joining PLG Tony spent eight years as Chief Operating Officer of

Investorlink Group, where, among other tasks, he was responsible for the provision of

services to PLG. In total, Tony has been associated with PLG operations for over nine years.

Tony has more than 30 years’ experience in the financial services industry. Tony was a

business services partner with the Sydney office of Grant Thornton from 1983 to 1999.

Between 2000 and 2007 Tony managed a polystyrene manufacturing business, helping

build it from a start up to a prominent market share position in both the Sydney and

Melbourne markets.

Tony is a Non-Executive Director of ASX listed company 99 Wuxian Limited, and Non-

Executive Director and Treasurer of Oatlands Golf Club Limited. Tony a Fellow of the

Institute of Chartered Accountants in Australia.

Board of Directors

Peter Lancken, Independent Chairman

Peter joined the PLG Board in May 2000. He has a career spanning over 25 years in a

range of executive and director roles in equipment hire, industrial, and real estate

companies. Peter was formerly the Managing Director and Non-Executive Chairman of

Kennards Hire Pty Limited. He managed an era of growth spanning two decades with

Kennards with sales now exceeding $300m from a network of over 170 locations and

remains on the Board as a Non-Executive Director.

Peter is also a Non-Executive Director of Acrow Formwork and Scaffolding Pty Ltd. He

was the deputy chairman and non-executive director of CMA Corporation Limited, a public

company listed on the ASX.

Peter holds a Bachelor of Engineering (Civil) from the University of New South Wales, is a

Fellow of the Institute of Engineers Australia and is a member of the Australian Institute of

Company Directors.

Stuart Dawes, Chief Executive Officer and Executive Director

See Senior Management section.

Stephen Day, Vice Chairman and Executive Director

See Senior Management section.

Ian Hutchinson, Independent Non-Executive Director

Ian joined the PLG Board in March 2013. He has been a professional non-executive

company director for over 20 years. Before that he was Chairman and Senior Partner of

one of Australia’s largest law firms, Freehills (now Herbert Smith Freehills).

Ian was the Representative of Lloyds of London Underwriters, appointed under the

Australian Insurance Act, and Counsel for Lloyds Australia. He has been the chairman or a

director of companies, both listed on the Australian Securities Exchange and non-listed

companies, across a broad range of industries and services, including investment banking,

financial services, life and general insurance, mining and energy, property, transport,

hotels, infrastructure and health. Ian is Chairman and President of the Global

Sustainability Foundation in New York. He is also Vice-Chairman of Wealth Resources Pty

Limited, a Chinese-owned energy company in Australia. Ian holds a Bachelor of Laws and

is a Fellow of the Australian Institute of Company Directors. He is actively involved in the

Australian Institute of Company Directors, and gives presentations to company directors

and assists in training and mentoring directors

15 September 2016

Propertylink Group


Christopher Ryan, Independent Non-Executive Director

Chris joined the PLG Board in May 2000. He is an Executive Director of Investorlink Group

Limited, a Sydney-based corporate finance and advisory firm. Chris has diverse

experience and expertise in mergers and acquisitions together with initial public offerings.

He has advised on ASX listings since 1986. Chris has served as Chairman of ASX listed

Bravura Solutions Limited and China Waste Corporation Limited and is currently Co-

Chairman of ASX listed TTG Fintech Limited (ASX:TTG) and Non-Executive Director of

eCargo Holdings Limited (ASX: ECG).

Chris holds a Bachelor of Financial Administration from the University of New England and

is a Fellow of the Institute of Chartered Accountants in Australia.

Derek Nix, Independent Non-Executive Director

Derek joined the PLG Board in August 2011. Derek is the Managing Director and Principal

of Nix Anderson Pty Ltd, a construction project management and property advisory firm

working principally in the commercial, industrial, health and retail sectors. Nix Andersons’s

clients include LGS, Aventus, Health Infrastructure, Colonial First State, Stockland,

Charter Hall and other industry leaders.

Derek has over 35 years’ experience in the construction and property industry. Initially with

Concrete Constructions Group Limited, where he was project manager, he later moved to

the Reed Group Pty Ltd where over 17 years, he covered roles from commercial manager,

and chief estimator to project manager, becoming a director in 1988 before leaving and

forming Nix Management in 1999. In 2014 Nix Management merged with industry leading

infrastructure delivery expert, Scott Anderson, to become Nix Anderson Pty Ltd.

Derek holds a Bachelor of Applied Science (Building) (Hons) from the University of

Technology (Sydney) and is a member of the Property Council.

David Epper, Independent Non-Executive Director

David joined the PLG Board in August 2011. He has over 40 years’ experience in the

insurance underwriting business and is the former managing director and owner of

Accident & Health International Underwriting Pty Ltd. David owned and operated this

business from 1998 to 2015 before selling the business to CGU Insurance Australia.

David is a Life Governor of Autism Spectrum Australia and was also awarded the Order of

Australia Medal in 2014. He is a Member of the Australian and New Zealand Institute of

Insurance and Finance.

Peter McDonald, Executive Director

See Senior Management Section.

Anthony Ryan, Non-Executive Director

Anthony joined the PLG Board in 2016. He is a real estate finance professional with over

20 years’ experience in Australia and Asia spanning real estate corporate, project and

structured finance. Anthony is a former managing director of JPMorgan and was head of

real estate investment banking for Asia.

Anthony is also a Non-Executive Director of Grocon Group Holdings, an Australian Tier 1

construction contractor and developer, Real Estate Consultant to OCP Asia, an alternative

asset manager based in Hong Kong and an Independent Member of the PLG Australia

Industrial Partnership II (PAIP II) Investment Committee.

Anthony holds a Bachelor of Commerce from the University of New South Wales.

15 September 2016

Propertylink Group


Companies Mentioned (Price as of 15-Sep-2016) 360 Capital (TIX.AX, A$2.67) Abacus Prop Grp (ABP.AX, A$2.8) Centuria (CMA.AX, A$2.17) Charter Hall Group (CHC.AX, A$5.19) Charter Hall Retail REIT (CQR.AX, A$4.11) Cromwell Property Group (CMW.AX, A$0.96) Dexus Property Group (DXS.AX, A$8.75) GDI Property Group (GDI.AX, A$0.94) GPT Group (GPT.AX, A$4.79) GPT Metro Office (GMF.AX, A$2.51) Goodman Group (GMG.AX, A$6.99) Growthpoint Prop (GOZ.AX, A$3.16) Investa Office Fund (IOF.AX, A$4.35) Lend Lease (LLC.AX, A$13.32) Mirvac Group (MGR.AX, A$2.18) Propertylink Group (PLG.AX, A$0.75, OUTPERFORM, TP A$0.92) SCA Property Group (SCP.AX, A$2.13) Scentre Group (SCG.AX, A$4.55) Westfield Corporation (WFD.AX, A$9.59)

Disclosure Appendix

Important Global Disclosures Mikhail Mohl and Ian Randall each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. F or Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includ es 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

15 September 2016

Propertylink Group


Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 53% (50% banking clients) Neutral/Hold* 29% (24% banking clients) Underperform/Sell* 18% (44% banking clients) Restricted 0% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individ ual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. See the Companies Mentioned section for full company names The subject company (GDI.AX, MGR.AX, LLC.AX, WFD.AX, SCG.AX, SCP.AX) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (PLG.AX, WFD.AX) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (PLG.AX) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (SCP.AX) within the past 12 months Credit Suisse has received investment banking related compensation from the subject company (PLG.AX, WFD.AX) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (CMW.AX, CQR.AX, CHC.AX, GPT.AX, GDI.AX, GMG.AX, MGR.AX, LLC.AX, PLG.AX, WFD.AX, SCG.AX, SCP.AX) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (SCP.AX) within the past 12 months As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (GPT.AX, MGR.AX, LLC.AX, PLG.AX, SCG.AX).

Target Price and Rating Valuation Methodology and Risks: (12 months) for Propertylink Group (PLG.AX)

Method: We strike our $0.92 Target Price for Propertylink Group at the mid-point of our SOTP ($0.91) and DCF ($0.93) valuations. Our DCF

includes an RFR of 4% and ERT of 5%, beta 0.91x. PLG trades at an 18% discount to our TP and offers a 9.0% distribution yield, which is almost double the sector average. Hence, we assign PLG an Outperform rating

Risk: Key risks to our $0.92 Target Price and Outperform rating for Propertylink Group include a marked deteriorating in Australian industrial market conditions, which given PLG's relatively short WALE and relatively high MT expiry profile could have a disporportionately negative impact on both PLG's income and valuations relative to peers. Other risks include personnel risk, re-leasing and vacancy risk, development risk, real estate values cyclicality, the ability to generate FUM growth and the ability to secure additional capital and fund assets at attractive pricing.

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15 September 2016

Propertylink Group


This research report is authored by: Credit Suisse Equities (Australia) Limited ................................................................................................. Mikhail Mohl ; Ian Randall ; Martin Patz To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Equities (Australia) Limited ................................................................................................. Mikhail Mohl ; Ian Randall ; Martin Patz

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15 September 2016

Propertylink Group


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