20120823 - Far East Hospitality Trust (D) - CIMB

REIT SINGAPORE August 23, 2012

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

New local tourism proxy FEHT stands out among hospitality trusts in Singapore for its pure local exposure and potential for improved yields. It has one of the strongest acquisition pipelines among the hospitality trusts, offering growth visibility all the way till 2016. Its offer price of S$0.93 translates to yields of 6.0-6.3% for FP12-FY13 and 1x P/BV. This is priced near the forward yields of 6.0-6.2% and 1.2x P/BV for its closest peer, CDLHT, previously the main liquid proxy for the buoyant local tourism industry.

New proxy After its listing on 27 Aug, FEHT will be the first and only Singapore-focused hotel and serviced residence hospitality trust listed locally. Prior to this, CDLHT was the chief proxy for the buoyant local tourism industry. FEHT’s listing will provide an alternative. FEHT stands out for its pure local exposure, room for organic growth through improved yields and ROFR pipeline from its sponsor. Its positioning and asset locations are arguably not as strong as CDLHT’s, though this could present upside from improved yield management and asset enhancement.

Strongest local acquisition pipeline

FEHT has one of the strongest local acquisition pipelines among locally-listed hospitality trusts. These include ROFR to seven local assets (three hotels and four residences) at a time when accretive third-party assets are hard to find. This pipeline provides acquisition visibility all the way until 2016. Acquisitions could reinforce FEHT’s local hospitality positioning.

Priced near closest peer FEHT’s shareholding structure is tight with its sponsor holding 52/56% stakes (depending on whether the over-allotment option is exercised) and cornerstone investors holding another 23.5%. The institutional offering has been over 30x subscribed, closing at S$0.93, the top end of its pricing range. At pro-forma yields of 6.0-6.3% for FP12-FY13 and 1.0x P/BV, FEHT is priced near its closest peer, CDLHT, which trades at 1.2x P/BV and forward yields of 6.0-6.2%, assuming 90% payouts.

CIMB Analyst

Tan Siew Ling

T +65 6210 8698 E [email protected]

Donald Chua

T +65 6210 8606 E [email protected]

Company Visit Expert Opinion

Channel Check Customer Views

Far East Hospitality Trust NOT RATEDFEHT SP

Offer price S$0.93 Market Cap Avg Daily Turnover Free Float Target N/A

US$1,198m US$-m 44.0% Previous Target N/A S$1,492m S$-m 1,604 m shares Up/downside N/A

Conviction

Shareholding & other details: Major shareholders: % held Far East Organisation 52/56% AIA 3.7% APG 3.4% Indicative timetable: Closing date for public offer 23-Aug, 12nn Commence trading on a “ready” basis 27-Aug, 2pm

Financial SummaryDec-09A Dec-10A Dec-11A Dec-12F* Dec-13F**

Gross Property Revenue (S$m) 74 93 104 50 125 Net Property Income (S$m) 65 84 95 45 113 Net Profit (S$m) 57 56 66 51 84 Distributable Profit (S$m) 47 65 76 37 94 Core EPS (S$) 0.04 0.04 0.04 0.03 0.05 Core EPS Growth -0.4% 17.9% -23.1% 64.0%FD Core P/E (x) 26.38 26.48 22.46 29.21 17.81 DPS (S$) 0.03 0.04 0.05 0.02 0.06 Dividend Yield 3.15% 4.37% 5.07% 2.49% 6.27%Asset Leverage 30.4% 30.4% 30.4% 30.4% 30.4%BVPS (S$) 0.93 0.93 0.93 0.93 0.93 P/BV (x) 1.00 1.00 1.00 1.00 1.00 Recurring ROE 3.8% 3.8% 4.4% 3.4% 5.6%% Change In DPS Estimates

* & **: FORECASTS ACCORDING TO FEHT PROSPECTUS; FP 2012: 1 AUG 2012 – 31 DEC 2012

SOURCE: CIMB, FEHT PROSPECTUS

Far East Hospitality Trust August 23, 2012

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1. BACKGROUND 1.1 Local hospitality trust FEHT is the first and only Singapore-focused hotel and serviced residence hospitality trust to be listed on the Singapore Stock Exchange. The institutional offering of its IPO has been over 30x subscribed, closing at the top end of its pricing range of S$0.93/share. This translates to FP12-FY13 yields of 6.0-6.3% with a resultant market cap of about S$1.5bn. Trading will start on 27 Aug.

The REIT will be managed by FEO Hospitality Asset Management Pte Ltd and sponsored by a group of companies under the Far East Organisation (FEO). Asset operator will be Jelco Properties Pte Ltd, the hospitality management arm of FEO which is wholly owned by Far East Orchard (renamed from Orchard Parade Holdings Ltd). On listing, FEHT will own 11 assets (seven hotels and four serviced residences) in Singapore with a total asset value of S$2.1bn.

Figure 1: Assets can be found near core central region 1 Albert Court Village 7 Changi Village Hotel2 Landmark Village Hotel 8 Regency House3 The Quincy Hotel 9 Riverside Village Residences4 Regency House 10 Central Square Village Residences5 Orchard Parade Hotel 11 Hougang Village Residences6 Oasia Hotel

SOURCES: CIMB, COMPANY REPORTS

2. INVESTMENT HIGHLIGHTS Against its listed peers, we like FEHT for its: 1) pure local exposure (minimal risks from foreign exchange and tax leakage overseas); 2) fee structure, pegged at a higher percentage of revenue and gross operating profit; 3) organic growth potential; 4) acquisition pipeline from sponsor; and 5) strong backing of FEO. See Appendix 7.2 for a comparison between FEHT and closest peer, CDLHT.

2.1 100% local exposure FEHT’s investment mandate is to invest locally, where the hospitality outlook is favourable and risks from foreign exchange and tax leakage from overseas expansion are minimised. Of these, hotels (including commercial space/ rentals) are responsible for 74.4% and 78.7% of its asset value and FP12 gross revenue respectively, with the rest coming from serviced residences. Although only four of its 11 assets are located near “traditionally more hotel-centric” areas like the CBD and Orchard Road (Orchard Parade Hotel, Elizabeth Hotel, The Quincy Hotel and Regency House), several others are located nearer tourist districts like Bugis and Clarke Quay. Assets outside the city centre such as Oasia in Novena and Changi Village in Changi have the potential to capture visitors to

Notes from the Field

“We have a very strong pipeline of projects that we will eventually like to add. When they are added, … the value of the assets will easily double, which will make us a very big player, easily one of the biggest.”

– Gerald Lee, CEO of FEHT


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the Mount Elizabeth Novena Hospital and Changi Business City respectively, in our view.

Figure 2: Pure exposure to Singapore

No. Asset Location Type Rooms GFA (sf) Master lease terms Land tenure Purchase

Price S$m Valuers' cap

rates (%) 1 Albert Court Village 180 Albert Street Hotel 210 122,989 20+20 75 yrs 121 5.75-6.00%2 Changi Village Hotel 1 Netheravon Road Hotel 380 126,186 20+20 65 yrs 239 6.00-6.25%3 The Elizabeth Hotel 24 Mount Elizabeth Hotel 256 189,428 20+20 75 yrs 187 5.50-5.60%4 Landmark Village Hotel 390 Victoria Street Hotel 393 88,371 20+20 66 yrs 218 6.00-6.10%5 Oasia Hotel 8 Sinaran Drive Hotel 428 436,028 20+20 92 yrs 318 5.25-5.40%6 Orchard Parade Hotel 1 Tanglin Road Hotel 388 299,982 20+20 50 yrs 413 6.25%7 The Quincy Hotel 22 Mount Elizabeth Hotel 108 51,775 20+20 75 yrs 82 5.50-5.60%8 Central Square Village Residences 20 Havelock Road Svc Resi 128 145,045 20+20 80 yrs 183 4.00%9 Hougang Village Residences 1 Hougang Street Svc Resi 78 157,725 20+20 81 yrs 65 4.25%10 Regency House 121 Penang Road Svc Resi 90 84,627 20+20 81 yrs 166 3.75%11 Riverside Village Residences 30 Robertson Quay Svc Resi 72 101,085 20+20 78 yrs 113 4.00%


Figure 3: Hotel revenue* Figure 4: Serviced residence revenue*

Oasia18.5%

Orchard Parade29.4%

Albert Court Village7.1%

The Quincy4.9%The Elizabeth

11.4%

Landmark Village14.3% Changi Village

14.4%

Regency Hse28%

China Sq Village39%

Hougang Village12%

Riverside Village21%

* Forecast period between Aug-Dec 2012

SOURCES: CIMB, COMPANY REPORTS * Forecast period between Aug-Dec 2012


2.2 Stability with upside potential To temper volatility from the short stays in hotels/ serviced apartments, master leases for FEHT’s assets (likewise CDLHT’s) have been structured for downside protection with fixed rents and upside from variable rents tied to underlying revenues and profits. Percentages tied to gross operating revenue and gross operating profit (GOP) for FEHT are higher than for CDLHT’s local assets, which we believe could offer higher upside to rising REVPARs.

While the above structure could result in larger downside when REVPARs drop, there is protection from fixed and commercial rentals. Excluding commercial space, fixed and variable rentals for its hotel master leases are estimated near 50:50 for FP12, similar to CDLHT’s. Downside protection is, however, higher if we were to include commercial rentals (typically on longer leases), given FEHT’s higher exposure to commercial rentals than CDLHT.


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Figure 5: Rentals under master leases Fixed rent

(S$'m)% of gross operating revenue % of GOP

HotelsAlbert Court Village Hotel 3.5 33% 25%Changi Village Hotel 7.5 33% 24%The Elizabeth Hotel 5.5 33% 34%Landmark Village Hotel 7 33% 29%Oasia Hotel 8 33% 28%Orchard Parade Hotel 10 33% 37%The Quincy Hotel 2.5 33% 23%

Serviced ResidencesCentral Square Village Residences 3.5 33% 41%Hougang Village Residences 1.5 33% 38%Regency House 2.5 33% 40%Riverside Village Residences 2.5 33% 40%Total/ Simple ave. 54.0 33% 33%

Variable rent = Sum of % GOP and % of GOP less fixed rent


2.3 Historical RevPAR and RevPAU comparisons We compare the operating performances of FEHT’s assets with those of its closest listed peers, CDLHT and ART. On the whole, REVPARs and ARRs have been generally lower for FEHT, which we attribute to its less-centralised locations, mid-tier positioning and lower corporate-visitor exposure. We note stronger-than-peers occupancy for FEHT’s hotels during the recession of 2009, which we believe could be the result of its leisure-visitor exposure and ‘more value’ positioning, though yoy REVPAR growth was weaker in 2011. Yoy growth in REVPAU for its serviced residences tracked that of its closest peer, ART, despite its less-centralised locations.

Figure 6: FEHT’s hotels Figure 7: CDLHT’s hotels

85%

88%

84%

169

198

144

182

160

121

100

120

140

160

180

200

220

FY09 FY10 FY11*

S$

80%

82%

84%

86%

88%Occ rate (RHS) ARR (LHS) RevPAR (LHS)

81%

88%89%

85%87%

184

149

197

243

215232

191204208

172

120

140

160

180

200

220

240

260

FY07 FY08 FY09 FY10 FY11

S$

80%

82%

84%

86%

88%

90%Occ rate (RHS) ARR (LHS) RevPAR (LHS)

* EXCLUDING OASIA HOTEL

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, CDLHT


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Figure 8: FEHT's serviced residences: similar REVPAU trends Figure 9: ART's serviced residences in Singapore

146182

214

25%

18%

0

50

100

150

200

250

FY09 FY10 FY11

S$/day

0%

5%

10%

15%

20%

25%

30%RevPAU (LHS) Yoy Chg (RHS)

201249

167208

243

-33%

24% 25%17%

0

50

100

150

200

250

300

FY07 FY08 FY09 FY10 FY11

S$/day

-40%

-30%

-20%

-10%

0%

10%

20%

30%RevPAU (LHS) Yoy Chg (RHS)

SOURCES: CIMB, COMPANY REPORTS * Note addition of new property (Citadines Mount Sophia) in 2010

SOURCES: CIMB, ART

2.4 Organic growth potential We foresee organic growth from the following:

• Higher REVPAR and ARRs at Oasia Hotel (highest number of rooms) which commenced operations in Apr 11 and is near the newly-opened Mount Elizabeth Novena hospital

• Higher REVPAR and ARRs after asset enhancement at: 1) Elizabeth Hotel which was refurbished in 2H11; 2) Landmark Village Hotel in May 12-Mar 13; 3) Orchard Parade Hotel between Aug and Sep 12; and 4) minor refurbishments at Central Square Village Residences and Riverside Village Residences.

• Higher contributions from higher-yielding corporate customers to about 50% of revenue (management’s target) from 44% in FY11 and 48% in 1Q12, given intentions to optimise yields after refurbishment.

2.5 Strong ROFR pipeline from sponsor FEHT has one of the strongest local acquisition pipelines among locally-listed hospitality trusts. These include rights of first refusal (ROFR) to seven local assets (three hotels and four serviced residences) from its sponsor. The seven have the potential to jack up its number of rooms by 49% from 2,531 (on listing) to 3,773, at a time when accretive third-party hotel acquisitions locally are difficult to find. Three of these are completed properties (Orchard Parksuites and Orchard Scotts Residences are expected to be refurbished before being offered to FEHT) while four are under development. These provide acquisition visibility all the way until 2016, and could reinforce FEHT’s local hospitality positioning.

The first which could be offered to FEHT is likely The Amoy Hotel, a small boutique hotel with 37 rooms with completion expected in 1H13. We believe that the injection of some assets such as Orchard Parksuites, Orchard Scotts Residences, Oasia Downtown Hotel and The Outpost Hotel can increase the trust’s presence in CBD and along Orchard Road.


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Figure 10: ROFR properties from sponsor

ROFR property LocationMarket

segment Asset typeExpected

completion date

Estimated no. of hotel rooms/ svc

resi unitsCompletedOrchard Parksuites 11 Orchard Turn Upscale Svc Resi Completed 225Orchard Scotts Residences

5 Anthony Road Upscale Svc Resi Completed 207

West Coast Village Residences

154 West Coast Road

Mid-tier Svc Resi Completed 51

Subtotal: 483Under development

The Amoy Hotel Far East Square Boutique upscale

Hotel 1H2013 37

Oasia Downtown Hotel Peck Seah Street Mid-tier/ upscale

Hotel 2H2015 314

Oasia West Residences West Coast Crescent/ Link

Mid-tier/ upscale

Svc Resi 2H2015 116

The Outpost Hotel Far East Square Mid-tier/ upscale

Hotel 1H2016 292

Subtotal: 759 SOURCES: CIMB, COMPANY REPORTS

2.6 Strong backing of FEO As FEO does not have an ultimate holding company, FEHT is sponsored by a group of companies under FEO. Formed by 185 private and three listed companies, FEO is Singapore’s largest private property developer and one of the largest owner-operators of hospitality assets. It has a rather long record in hospitality asset enhancement and operations, having established a dedicated hospitality business in the mid-2000s. It is also a leading developer of mixed-use property projects with residential, commercial and hospitality components. The sponsor has provided a ROFR pipeline to FEHT and will, as a sign of commitment and aligned shareholders’ interest, hold a majority stake in FEHT. We believe FEO’s strong branding has also contributed to attractive borrowing terms and costs for FEHT.

2.7 Tight shareholding structure Shareholding is tight with the sponsor retaining more than 50% regardless of whether the over-allotment option is exercised. This should help align shareholders’ interests. The listing has attracted overwhelming response from cornerstone investors. The sponsor and cornerstone investors are expected to hold 75-79% of the stock, depending on whether the over-allotment option is exercised. We believe that this tight shareholding could have partly contributed to the overwhelming response to the institutional offering.

Figure 11: Sponsor retains majority stake; Strong cornerstones No. of shares % stake

Sponsor 898,178 52% (over-allotment)56% (w/o over-allotment)

Cornerstone investorsAberdeen Asset Mgmt 37,634 2.3%AIA 59,141 3.7%APG 53,763 3.4%Havenport Asset Mgmt 16,129 1.0%Hwang Investment Mgmt Bhd 48,387 3.0%Indus 21,505 1.3%JF Asset Mgmt 48,387 3.0%Lion Global Investors 26,882 1.7%Myriad Asset Mgmt 16,129 1.0%NTUC Income Co-operative 48,387 3.0%Subtotal 376,344 23.5%

Total 1,274,522 75% (over-allotment)79% (w/o over-allotment)



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3. RISKS 3.1 Recession and geographical concentration Given the short stays at hotels and higher percentages of master lease rentals tied to assets’ underlying revenue and GOP, FEHT could be susceptible to economic slowdowns, disease outbreaks or factors affecting the hospitality industry. Nonetheless, we see mitigation from a higher percentage of its revenue tied to fixed and commercial rentals and exposure to the mid-tier and leisure segment which could be more resilient in a downturn.

While FEHT’s pure local exposure is a boon when Singapore’s hospitality outlook is positive, this pure exposure could result in concentration risks during a business downturn, from disease outbreaks, changes in travel patterns, economic slowdowns etc.

3.2 Competition from peers As leisure visitors are generally more price-elastic and owing to the mid-tier positioning of some of its assets, price competition could be a threat, which could affect its REVPARs and variable rentals. That said, demand-supply dynamics remains favourable in the near term and FEHT plans to build up its corporate-visitor exposure over time.

3.3 Sponsored by group of companies rather than FEO While the REIT Trustee has been granted a corporate guarantee for each of the master leases, save for Orchard Parade Hotel, there is no assurance that these companies can fulfil their obligations under the corporate guarantees, particularly during bankruptcies, insolvencies or business downturns. That said, risks should be buffered by the substantial operations of each master lessee/sponsor company, and the likelihood that other sponsor companies/master lessees could take over the master tenancies in the worst case.

3.4 Rise in interest rates Borrowing costs are low at 2.5%, as assumed by management in FEHT’s prospectus. This assumes 40% hedging. A rise in interest rates could result in higher interest costs and reduce FEHT’s appeal as a yield instrument. That said, interest rates could remain low for some time and FEHT could still hedge its future exposure if required.

3.5 Acquisition risks Given buoyant expectations for the hospitality industry in Singapore and Asia, the values of hospitality assets could remain elevated. This could result in overpayment for assets or potential delays in acquisitions because of the difficulties of making yield-accretive acquisitions.


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4. SWOT ANALYSIS

Figure 12: SWOT analysis Strengths Opportunities• Pure local exposure and local investment mandate • Positive tourism outlook - riding on growth in leisure

visitors with new local tourist attractions• Sponsor/ operator has track record of running hospitality assets

• Increased contributions from newly-opened and well-located Oasia Hotel

• Shareholders' interests aligned with majority stake from sponsor

• Improved REVPARs after asset refurbishments

• Higher leverage to upside from performance given higher % pegged to revenue and gross operating profit

• Room for yield-management to improve RevPARs

• High fixed and commercial rentals for stability and downside protection

• ROFR pipeline from sponsor for acquisitions

• Strong backing by Far East Organisation

Weaknesses Threats• Not all assets located within the traditional 'tourist-centric' areas

• Macro slowdown or recession

• Lower exposures to higher-yielding corporate segment • Price competition given higher price elasticity of leisure visitors

• Less recognised operator and brand names • Acquisition risks• Rise in interest rates and potential drop in distribution once maintenance capex is to be funded out of distributions rather than debt


5. FINANCIALS 5.1 Growth led mainly by hotels FEHT has projected 18.1% growth and 5.4% growth in distributable profits for FP12 (annualised) and FY13 respectively. The bulk of its revenue growth in FP12 is supposed to come from its hotels, led by higher full-year contributions from Oasia Hotel and higher RevPARs from higher room rates after refurbishment on steady occupancy of an estimated 84.9%. Serviced-apartment contributions are expected to be flat, as higher room rates offset a slight weakness in occupancy. In FY13, management is projecting 5% growth for revenue from both hotels and serviced residences on room-rate increases.

Figure 13: Revenue breakdown Figure 14: Variable component to rise over time

46.662.3 69.7

84.3 88.711.9

15.117.9

17.8 18.7

15.5

15.516.8

16.917.5

0

20

40

60

80

100

120

140

FY09 FY10 FY11 FY12F FY13F

Reve

nue (

S$'m

)

Hotel Svc resi Commercial rentals

62%50% 47% 45% 43%

17%34% 37% 40% 43%

21% 17% 16% 14% 14%

0%10%20%30%40%50%60%70%80%90%

100%

FY09 FY10 FY11 FY12F FY13F

% of

reve

nue

Fixed Variable Commercial rentals

SOURCES: CIMB, FEHT PROSPECTUS SOURCES: CIMB, FEHT PROSPECTUS

Overall, hotels should remain FEHT’s bread-and-butter, accounting for an estimated 71% of its revenue in FP12 and FY13 while serviced residences and commercial rentals form 15% and 14% respectively. NPI from hotels (inclusive of commercial rentals) and serviced residences is expected to be at 81% and 19% of the total respectively. Rising contributions from both should raise the


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variable component of its revenue over time, though fixed and commercial rentals should still form 57% of its revenue in FY13.

Management fee structures echo those of the other listed peers (see appendix). Management has elected to receive 80% of its fees in the form of stapled securities in FP12-FY13.

5.2 Asset leverage of 30.4% At listing date, FEHT will have aggregate leverage of 30.4%. Borrowing terms are attractive: 2.5% interest; 40% hedging; all assets unencumbered; and staggered maturities of three, five and seven years. This should provide debt headroom of above S$100m and above S$500m to asset leverage of 35% and 45% respectively for acquisitions.

Figure 15: Debt maturities

0 0

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2013 2014 2015 2016 2017 2018 2019

Debt

matur

ity (S

$'m)


5.3 100% payouts for FP12 and FY13 FEHT has committed to 100% distribution in FP12 and FY13 and at least 90% thereafter. These compare with CDLHT’s guidance of 90%. The difference lies in the funding of annual maintenance capex. FEHT plans to fund its near-term requirements with debt to take advantage of low interest rates while CDLHT prefers to fund capex through distribution.

6. VALUATION 6.1 Priced on par with peer

Figure 16: Valuation comparisons Far East Hospitality Trust CDL Hospitality Trust

Value per room key (S$'k)

~S$725k (across hotel & svc resi; stripping out 14% of asset value as

commercial in acc with revenue contribution)

S$459k (S$596k for local assets)

P/BV (x) 1.0x 1.2xFY12 NPI yield (%) 5.0% ~5.4% (local hospitality assets)FY12 DPU yield (%) 6.0% 6.0%FY13 DPU yield (%) 6.3% 6.2%


At pro-forma yields of 6.0-6.3% for FY12-13, FEHT will be priced fairly on par with its closest peer, CDLHT. At 1.0x P/BV vs. CDLHT’s current 1.2x, we believe its listing price captures the differential in their book valuations (estimated value per room key of S$725k for FEHT vs. S$596k for CDLHT’s local assets). CDLHT currently trades at forward yields of 6.0-6.2% on a 90% payout, though


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this could rise if management decides to pay more than 90%. We believe that FEHT stands out for its pure local exposure, room for organic growth through improved yields and strong pipeline from its sponsor.

Figure 17: CIMB REIT Overview

SREIT Price as of23 Aug 12

HospitalityAscott Residence Trust ART SP $1.23 $1,393 39.7% 1.42 0.86 1.21$ N 7.4% 7.3% 6.0%CDL Hospitality Trust CDREIT SP $1.95 $1,882 25.2% 1.60 1.22 2.21$ N 6.0% 6.2% 19.8%

Simple Average 32.5% 1.04 6.7% 6.8%IndustrialAscendas Reit AREIT SP $2.29 $5,124 32.7% 1.84 1.24 2.14$ N 6.0% 6.4% -0.7%Cache Logistics Trust CACHE SP $1.12 $782 32.5% 0.92 1.21 1.19$ O 7.7% 8.0% 14.2%Cambridge Industrial Trust CREIT SP $0.61 $725 33.1% 0.62 0.98 NA NR 8.1% 8.3%Mapletree Logistics Trust MLT SP $1.06 $2,572 37.0% 0.90 1.18 1.07$ O 6.9% 7.1% 7.8%Mapletree Industrial Trust MINT SP $1.34 $2,184 37.8% 1.02 1.31 1.31$ N 6.4% 6.7% 4.5%Sabana Shariah SSREIT SP $1.04 $662 34.1% 1.05 0.99 NA NR 9.0% 8.9%

Simple Average 34.5% 1.15 7.4% 7.6%OfficeFrasers Commercial Trust FCOT SP $1.12 $721 39.5% 1.30 0.86 1.21$ O 6.4% 7.6% 14.2%CapitaCommercial Trust CCT SP $1.40 $3,963 30.1% 1.58 0.88 1.48$ O 5.6% 5.8% 11.6%K-Reit KREIT SP $1.14 $2,993 41.8% 1.25 0.91 1.21$ O 6.7% 6.8% 13.0%Suntec REIT SUN SP $1.45 $3,241 39.3% 1.98 0.73 1.59$ O 6.4% 6.4% 16.3%

Simple Average 37.7% 0.85 6.3% 6.7%RetailCapitaMall Trust CT SP $1.93 $6,428 38.4% 1.58 1.22 2.01$ N 5.2% 5.7% 9.1%Frasers Centrepoint Trust FCT SP $1.79 $1,469 31.7% 1.41 1.27 1.91$ O 5.6% 6.0% 12.4%Starhill Global REIT SGREIT SP $0.74 $1,438 30.5% 0.95 0.78 0.75$ N 6.2% 6.8% 7.1%Mapletree Commercial Trust MCT SP $1.08 $2,010 37.6% 0.95 1.13 1.14$ O 5.5% 5.9% 11.5%

Simple Average 34.6% 1.10 5.6% 6.1%HealthcareParkway Life REIT PREIT SP $1.95 $1,180 34.8% 1.46 1.34 1.96$ O 5.5% 5.9% 6.0%

Simple Average 34.8% 1.34 5.5% 5.9%Simple average for SIN 35.0% 1.07 6.5% 6.8%

MREIT Price as of23 Aug 12

RetailCapitamalls Malaysia Trust CMMT MK $1.74 $3,072 28.4% 1.10 1.59 1.80$ O 4.7% 4.9% 8.0%Sunway REIT SREIT MK $1.50 $4,045 35.3% 1.01 1.48 1.55$ O 5.1% 5.2% 8.7%Pavilion REIT PREIT MK $1.37 $4,111 19.1% 0.96 1.43 1.42$ O 4.9% 5.3% 8.3%

Simple Average 27.6% 1.50 4.9% 5.1%IndustrialAxis REIT AXRB MK $3.05 $1,384 24.0% 2.07 1.48 NA NR 5.9% 6.2%

Simple Average 24.0% 1.48 5.9% 6.2%Simple average for MAL 26.7% 1.49 5.2% 5.4%Simple average for ALL 33.5% 1.15 6.2% 6.5%

Bloomberg Ticker

Mkt Cap (LC $m)

Last reported

asset leverage

Last stated

NAV

Bbg CodeMkt Cap (LC $m)

Last reported

asset leverage

Last stated

NAV

Price / Stated

NAV

Price / Stated

NAV

Target Price

(DDM-based) Rec.

Target Price

(DDM-based) Rec.

Total return (Prospective

price upside + 2012 yield)

2012 Yield

2013 Yield

Total return (Prospective

price upside + 2012 yield)

2012 Yield

2013 Yield

SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG


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7. APPENDIX 7.1 Trust structure

Figure 18: Trust structure similar to CDLHT



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7.2 Management team Figure 19: Management team Management TeamKoh Boon HweeChairman and Non-Executive Director

Mr Koh Boon Hwee is the Chariman of the REIT Manager Board and of the Trustee-Manager Board. Mr Koh is currently executive Chairman at Credence Capital Fund II (Cayman) Ltd and Credence Partners Pte Ltd. He is also currently Non-Executive Chairman of Sunningdale Tech Ltd, Yeo Hiap Seng Limited, Yeo Hiap Seng (Malaysia) Berhad, AAC Technologies Holdings Inc and Rippledot Capital Advisers Pte Ltd. Prior to this, he sat on various boards including S i2i Limited, Sunningdale Tech Ltd, SingTel, DBS Group and Temasek Holdings Pte Ltd. Mr Koh graduated from Imperial College with a Bachelor of Science (Mechanical Engineering), First Class Honours, in 1972 and obtained a Master in Business administration with Distinction from Harvard Business School in 1976.

Gerald Lee Hwee KeongChief Executive Officer

Mr Gerald Lee is the CEO of the REIT Manager. He has been employed by the REIT Manager since early 2011, where he is responsible for overseeing hospitality asset management. Prior to this role, he was the Executive Director of 08hundred LLP from 2010-11. He was with Capitaland Ltd/ The Ascott Ltd from 2005-10 with roles including CEO (Europe) and Deputy CEO. From 1991-2005, Mr Lee was with the Singapore Tourism Board, and his last held position was Assistant CEO (Leisure), where he was in charge of all the leisure divisions.Mr Lee graduated from Cornell University with a Bachelor of Science (with Distinction) in 1991, and obtained an Executive Master of Business Adminstration (with Distinction) from INSEAD and Tsinghua University in 2012.

Danny Peh Kok KhengChief Financial Officer, Head of Investor Relations

Mr Danny Peh is the CFO and Head of Investor Relations of the REIT Manager. From 2000-2012, Mr Peh was with Far East Management Pte Ltd, and his last held position at Far East Management Pte Ltd was Director of Financial Management Division. From 2008-2012, Mr Peh was also the Chief Corporate Officer and Group Financial Controller of Far East Orchard. Mr Peh holds directorships in various companies in Far East Organisation. Mr Peh was also a director of several subsidiaries in the Far East Orchard Group. Mr Peh obtained his professional degree from the Association of Chartered Certified Accountants, UK. He is a fellow member of the Association of Chartered Certified Accountants, UK as well as a member of the Institute of Certified Public Accountants of Singapore.

Bryant Lee PetteyAsset Manager

Mr Pettey is the Asset Manager of the REIT Manager. From 2010-2012, Mr Pettey was with W Hotels (Starwood) and his last held position was Director of Residences, where he was incovled in the opening of The Residences at W Singapore Sentosa Cove. From 2005-9, he was with The January Group and his last-held position was Director of Development. From 2003-4, he was with The Hodgson Company as a project manager. Mr Pettey graduated from Brigham Young University with a Bachelor of Science in 2000, and subsequently obtained a Master of Science in Real Estate Development from Columbia University in 2005.

Lee Pei YeeInvestment Manager

Ms Lee Pei Yee is the Investment Manager of the REIT Manager. From 2011-12, she was with Far East Organisation as a Manager - Special Projects, where she was responsible for providing corporate finance support to loacl and overseas business expansion. From 2009-11, she was with Fortune Capital Management as an Investment Manager and prior to that, PrimePartners Asset Management as an Assistant Manager - Investments. Ms Lee graduated from National University of Singapore with a Bachelor of Arts in 1999 and a Bachelor of Social Sciences (with Honours) in 2000, and obtained a Master in Business Administration (Dean's Honours List) from Nanyang Technological University in 2007.



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7.3 Comparing FEHT with CDLHT Figure 20: Comparing FEHT and CDLHT

Far East Hospitality Trust CDL Hospitality TrustStructure Stapled security (dormant business trust) Stapled security (dormant business trust)Sponsor stake 56% or 52% if over-allotment option is exercised 36% stakeAssetsNo. of assets 11 (7 hotels and 4 serviced residences) 13No. of rooms 2,531 (2,163 hotel; 368 serviced residences) 4307 (2,716 local; 1,591 overseas)Asset value (S$'bn) S$2.14bn S$2.03bn (S$1.98bn excl. Orchard Hotel Shopping Arcade)

Remaining land tenure for local assets 72yrs (weighted ave)50-92yrs

76yrs (weighted ave)63-94yrs

Corporate-Leisure mix (%) Hotels: 44%/ 56%Serviced Residences: 88%/ 12%

~65%/ 35%

Value per room key (S$'k) ~S$725k (across hotel & svc resi; stripping out 14% of asset value as commercial in acc with revenue contribution)

S$459k (S$596k for local assets)

Leases

Master lease tenures for local assets 20+20yrs from listingIPO portfolio: 20+20yrs from listing

Novotel Clarke Quay: 13.5yrs from Jun 2007Studio M: 20+20+20+10yrs from May 11

Fees - % of revenue and gross operating profit (GOP) for local assets

33% of revenue; 23-41% of gross operating profit

IPO portfolio: 20% of revenue; 20% of GOPNovotel Clarke Quay: Variable rental of GOP less Accor's

management fee (>90% of GOP)Studio M: 30% of revenue; 20% of GOP

Master-lessees/ Operator for portfolio Jelco (prev. Far East Hospitality Services) M&C, the Accor Group, Rendezvous Hotel (NZ) LtdFixed rent (S$'m) S$54m (S$44m for hotel; S$10m for service apartments) ~S$65m (~S$38m local; S$27m overseas)

Revenue mix

Fixed/variable rental mix (% of revenue)FY11: 47% fixed/ 37% variable/ 16% commercial rental

FP12E: 45% fixed/ 41% variable/ 14% commercial rental FY11:47% fixed/ 50% variable/ 3% commercial rental1H12: 45% fixed/ 51% variable/ 4% commercial rental

Geographical mix (% of revenue) 100% local 80% local; 20% overseas

Asset mix (% of FY11 revenue) Hotel (66.8%), Service Apts (17.1%), Commercial (16.1%) Local hotels (76.7%), Overseas hotels (19.6%), Commercial (3.7%)

Balance sheet/ YieldAsset leverage (%) 30.4% 25.2%FY12 NPI yield (%) 5.0% ~5.4% (local hospitality assets)FY12 DPU yield (%) 6.0% 6.0%FY13 DPU yield (%) 6.3% 6.2%

ROFR Pipeline

Assets

7 assets Completed: Orchard Parksuites, Orchard Scotts Residences,

West Coast Village ResidencesUnder devt: The Amoy Hotel, Oasia Downtown Hotel, Oasia

West Residences, The Outpost Hotel

2 potential (W Hotel, St. Regis Hotel)



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7.4 Management fee comparisons FEHT’s fee structure mirrors those of its peers, particularly CDLHT. Worth noting is its slightly lower acquisition fees for related-party transactions.

Figure 21: Fee comparisons

Far East Hospitality Trust CDL Hospitality Trust Ascendas Hospitality Trust Ascott Residence Trust

Structure Stapled security Stapled security Stapled security REIT

Base fee 0.3% p.a. of gross assets 0.25% p.a. of deposited property 0.3% p.a. of deposited property 0.3% of property values

Performance fee4.0% of NPI for REIT; 10% of EBIT

for business trust5.0% of NPI for REIT; 10% of EBIT

for business trust4.0% of NPI for REIT, 4.0% p.a. of

NPI for business trust

4.0% of gross profit; 1.0% of difference between gross profit and

106% of preceding yr's gross profit if gross profit increases by more than

6%

Acquisition fee0.75% for acquisition price for

related-party acquisitions 1.0% for all others

1.0% of acquisition price 1.0% of acquisition price 1.0% of acquisition price

Divestment fee 0.5% of divestment price 0.5% of divestment price 0.5% of divestment price 0.5% of divestment price

Development management fee

3.0% of total project costs NA 3.0% of total project costs NA

Trustee feeUp to 0.02% p.a. of value of

property, subject to min. of S$20k per mth

Up to 0.1% of value of deposited property, subject to min. of S$10k

per mth

0.015% p.a. of deposited property, subject to min. of S$13.5k per mth

0.1% p.a. of value of assets, subject to min. of S$10k per mth

Property management fee

3.0% of NPI of excluded commercial premises Nil. Variable across assets

All except Belgium, Spain & UK: 2-3% of total revenue; incentive fee of up to 10.0% of gross operating profit

Belgium, Spain & UK: 3% of revenue; 6% of net operating profit (NOP); incentive fee of 50% of any excess NOP achieved above NOP

hurdle



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Recommendation Framework #1 *

Stock Sector OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months.

NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total return.

NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.

UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months.

TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months.

TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)


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Recommendation Framework #2 **

Stock Sector OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 12 months.

NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months.

NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months.

UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 12 months.

TRADING BUY: Expected positive total returns of 10% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 3 months.

TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011. ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCP - Excellent, BEC - Very Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY – Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH – Very Good, ITD - Good, IVL - Very Good, JAS – Very Good, KBANK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM – Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good.

20120823 - Far East Hospitality Trust (D) - CIMB

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