SporeProperty3Jun08

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Singapore, 3 June 2008

Singapore Equity Strategy

Equity Research

Kum Soek Ching, CFA, +65 6212 6065

[email protected]

Important disclosures are found in the Disclosure appendix

Even as some market pessimists are projecting a precipitousdrop in the Singapore property market, a luxury condominiumproject- Nassim Park Residences- developed by UnitedOverseas Land has turned in strong preview sales, with 38 ofthe 100-units development priced at more than SGD 3,000psf sold. With a size of at least 3,000 sf each, each unit costSGD 10 m or more.

In Q1 2008, prices of private residential, office, retail andindustrial properties continued to rise, with a QoQ gain of3.7%, 1.1%, 2.6% and 3.4%. Rentals also increased QoQ by6%, 7.3%, 1% and 5.7% respectively for these segments.Given a more uncertain global economy and prospect of higher supply of property from 2009 onwards, prices and rentals areat risk of receding from their peaks, especially after a strongprice appreciation in 2007 of 31% and 32.6% YoY for the

housing and office sector respectively. However, we continueto believe that the risk will only be more pronounced at thehigh end segment of the housing market, given that it is moredependent on investment demand. We expect prices at mid-to-mass market properties to be more resilient, with demandfirmly supported by genuine owner-occupiers.

Healthy economic picture does not support worst-case

outlook

In any case, we do not subscribe to a doomsday scenario of abroad-based 30-40% price declines as in previous down-

cycles such as in 1997-98 and 2000-01. Firstly, the currenteconomic backdrop does not warrant such pessimism. After the Asian financial crisis hit in 1997, Singapore's GDPdeclined by 1.44% in 1998. In 2001, the economy headedinto a recession with the GDP contracting 2.2%, beforerecovering in 2002 (fig 2). CS IB is projecting GDP growth of5.5% in 2008 and 5.2% in 2009. While there is downside riskto the forecast even with a stronger than expected 6.7% YoYeconomic growth in Q1, the Singapore economy is highlyunlikely to be anywhere near recession in the next 2 years, inview of strong investments from the private and governmentsector.

According to Singapore's Urban Redevelopment Authority,6,068 units of private residential properties are under construction in 2008, of which 5,032 units have been sold.Between 2009 - 2010, some 17,392 units are estimated tobe under construction, of which 9,484 were already sold (fig

Research Flash

Investment IdeasSingapore Property: Focus on S-REITs and large diversifiedproperty developers

Private Banking

Highlights

Mid-cycle correction on uncertain globaleconomy and increased supply likely to be

more pronounced at the luxury housing

segment; we expect prices at mid-to-mass

market properties to be more resilient

Sound macro fundamentals, an expanding

population from a liberal immigration policy,

and on-going transformation of Singapore

into a more cosmopolitan city to support

long-term demand for real estate

We see strong investment case for S-

REITs, and diversified and financially strong

developers

Top investment ideas

Capitaland (CAPL SP)Geographically diversified earnings stream and well-executed asset recycling business model

CapitaMall Trust (CT SP)

Strong mall management franchise and organic growthfrom asset enhancement

Suntec REIT (SUN SP)

Strong rental renewal ; trading at below net asset value




Research Flash 2

1). We reckon that only under the worst case scenario,whereby all projects that are still in the planning stage will beconstructed, will there be an avalanche of up to 51,000 unitsflooding the market between 2009-2011, as compared to anaverage take-up of 11,534 units per year between 2005-2007.

Major property developers have strong financials and

holding power

Major developers today are sitting on strong balance sheets.

For example, City Developments, Capitaland, Wing Tai andKeppel Land each have less than 50% net gearing as at their last financial year-end, as compared to 88%- 143% duringthe last down-cycle in 2001. The sector, meanwhile, is gearedat 62% on average. Hence, with developers' stronger holdingpower, and with the capacity in the construction sector stretched in the next 3 years given the infrastructure boom onthe island, we believe some of the planned projects are likelyto be deferred.

Mass market property underpinned by below-average

supply of public housing

Thirdly, during the previous property down-turn in 1997-98,there were more than 30,000 HDB flats being built per year,on top of the 12,000 private residential units completed eachyear. Hence, home buyers had cheaper alternatives. Today,only 6,000 new HDB flats are projected to be built each year up to 2010. This will underpin demand and pricing for mass-to-mid mid market private housing in the next few years.

Very often, the short term direction of the property marketis dictated by investors' sentiment. The Singapore economyremains fundamentally sound, with the government having hadto further relax rules on the employment of foreign workers in

order to ease rapid wage inflation from the strong jobs creation(68,400 new jobs created in Q1) and high labor participation.In the long run, we see a structurally strong Singaporeeconomy with more diversified growth drivers supportinggenuine demand for property.

Investment case for S-REITs remain strong

Sentiment towards developers could stay subdued in the near term as investors assess the economic fall-out from the USsub-prime crisis. However, with property developer stockstrading at close to parity to their revalued net asset values(RNAV), we see trading opportunity emerging in financiallystrong players if prices dip further. Our top pick is Capitaland(CAPL SP, BUY) for its diversified property exposure and itsasset-light, capital recycling REIT management business

model.We remain positive on S-REITs given their defensive

revenue stream as rentals are locked in for at least 2 yearsand rental reversions remain strong. The sector has deliveredstrong Q1 2008 distribution per unit (DPU) growth averaging19.1%, on the back of reversionary rental growth and fulloccupancy rates. Acquisitions at the financially strong trustssuch as Ascendas REIT and CapitaMall Trust are also pickingup momentum, and contrary to expectations, the REITs havebeen able to raise funds for new acquisitions and debtrefinancing at low financing costs. With some of the S-REITstrading near to or below their net asset values, conditions for

M&As (merger & acquisition) could become conducive as thecredit market improves, a trend observed in more mature REITmarkets. Our top picks are CapitaMall Trust (CT SP, BUY),Suntec REIT (SUN SP, BUY), and Ascendas REIT (AREITSP, HOLD).

Figure 1 Figure 2

Composition of residential pipeline Whole Island Supply & Demand

Sold units Under construction Planned

0

5,000

10,000

15,000

2008 2009 2010 2011 2012 >2012

Total

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

New units sold New un its Launched

Source: URA Source: Credit Suisse, URA




Research Flash 3

Disclosure appendix

Analyst certification

The analysts identified in this report hereby certify that views about the companies

and their securities discussed in this report accurately reflect their personal viewsabout all of the subject companies and securities. The analysts also certify that nopart of their compensation was, is, or will be directly or indirectly related to thespecific recommendation(s) or view(s) in this report.

Important disclosures

Credit Suisse policy is to publish research reports, as it deems appropriate, based on

developments with the subject company, the sector or the market that may have amaterial impact on the research views or opinions stated herein. Credit Suisse policyis only to publish investment research that is impartial, independent, clear, fair andnot misleading.

For more detail, please refer to the information on independence of financialresearch, which can be found at:

https://entry4.credit-

suisse.ch/csfs/research/p/d/de/media/independence_en.pdf

The analyst(s) responsible for preparing this research report received compensationthat is based upon various factors including Credit Suisse total revenues, a portion ofwhich are generated by Credit Suisse Investment Banking business.

The Credit Suisse Code of Conduct to which all employees are obliged to adhere, isaccessible via the website at:

https://www.credit-suisse.com/governance/en/code_of_conduct.html

Equity rating history as of 02/06/2008

Company Rating Date

HOLD since 05/05/2008

BUY since 24/04/2008




ASCENDAS REAL ESTATEINVESTMENT TRUST (AREIT SP)





CAPITALAND LTD (CAPL SP)





CAPITAMALL TRUST (CT SP)





SUNTEC REAL ESTATE INVESTMENTTRUST (SUN SP)


The subject issuer (CAPITALAND LTD, CAPITAMALL TRUST, ASCENDAS REALESTATE INVESTMENT TRUST) currently is, or was during the 12-month periodpreceding the date of distribution of this report, a client of Credit Suisse.Credit Suisse provided non-investment banking services, which may include Sales

and Trading services, to the subject issuer (ASCENDAS REAL ESTATEINVESTMENT TRUST) within the past 12 months.Credit Suisse expects to receive or intends to seek investment banking relatedcompensation from the subject issuer (CAPITALAND LTD, CAPITAMALL TRUST, ASCENDAS REAL ESTATE INVESTMENT TRUST, SUNTEC REAL ESTATE

INVESTMENT TRUST) within the next three months.

Credit Suisse holds a trading position in the subject issuer (CAPITALAND LTD,

CAPITAMALL TRUST, ASCENDAS REAL ESTATE INVESTMENT TRUST,SUNTEC REAL ESTATE INVESTMENT TRUST).

Additional disclosures for the following jurisdictions

Hong Kong: Other than any interests held by the analyst and/or associates as

disclosed in this report, Credit Suisse Hong Kong Branch does not hold anydisclosable interests. United Kingdom: For fixed income disclosure information for clients of Credit Suisse (UK) Limited and Credit Suisse Securities (Europe) Limited,please call +41 44 333 33 99.

For further information, including disclosures with respect to any other issuers, pleaserefer to the Credit Suisse Global Research Disclosure site at:

https://entry4.credit-suisse.ch/csfs/research/p/d/de/disclosure_en.html

Guide to analysis

Equity rating allocation as of 02/06/2008Overall Investment banking

interests only

BUY 45.12% 45.05%

HOLD 52.60% 52.82%

SELL 1.65% 1.37%

RESTRICTED 0.63% 0.76%

Relative performance

At the stock level, the selection takes into account the relative attractiveness ofindividual shares versus the sector, market position, growth prospects, balance-sheetstructure and valuation. The sector and country recommendations are “overweight,”

“neutral”, and “underweight” and are assigned according to relative performanceagainst the respective regional and global benchmark indices.

Absolute performance

The stock recommendations are BUY, HOLD and SELL and are dependent on theexpected absolute performance of the individual stocks, generally on a 6-12 monthshorizon based on the following criteria:

BUY: 10% or greater increase in absolute share price

HOLD: variation between -10% and +10% in absolute share priceSELL: 10% or more decrease in absolute share priceRESTRICTED: In certain circumstances, internal and external regulations

exclude certain types of communications, including e.g. aninvestment recommendation during the course of Credit Suisseengagement in an investment banking transaction.

TERMINATED: Research coverage has been concluded.

Corporate and emerging market bond recommendations

The recommendations are based fundamentally on forecasts for total returns versusthe respective benchmark on a 3–6 month horizon and are defined as follows:

BUY: Expectation that the bond issue will be a top performer in itssegment

HOLD: Expectation that the bond issue will return average performancein its segment

SELL: Expectation that the bond issue will be among the poor performer in its segment

RESTRICTED: In certain circumstances, internal and external regulations

exclude certain types of communications, including e.g. aninvestment recommendation during the course of Credit Suisseengagement in an investment banking transaction.

Abbreviations frequently used in reports

Abb. Description Abb. Description Abb. Description

CAGR Compound annual growth rate EPS Earnings per share P/B Price-to-book value

CFO Cash from operations EV Enterprise value P/E Price-earnings ratio

CFROI Cash flow return on investment FCF Free cash flow PEG P/E ratio divided by growth in EPS

DCF Discounted cash flow FFO Funds from operations ROE Return on equity

EBITDA Earnings before interest, taxes, depreciation and amortization IBD Interest-bearing debt ROIC Return on invested capital




Research Flash 4

Credit ratings definition

Credit Suisse assigns rating opinions to investment-grade and crossover issuers.Ratings are based on our assessment of a company’s creditworthiness and are notrecommendations to buy or sell a security. The ratings scale (AAA, AA, A, BBB, BB)is dependent on our assessment of an issuer’s ability to meet its financialcommitments in a timely manner.

AAA: Best credit quality and lowest expectation of credit risks,including an exceptionally high capacity level with respect to debtservicing. This capacity is unlikely to be adversely affected byforeseeable events.

AA: Obligor’s capacity to meet its financial commitments is verystrong

A: Obligor’s capacity to meet its financial commitments is strong

BBB: Obligor’s capacity to meet its financial commitments is adequate,

but adverse economic/ operating/financial circumstances aremore likely to lead to a weakened capacity to meet its obligations

BB: Obligations have speculative characteristics and are subject tosubstantial credit risk due to adverse economic / operating /financial circumstances resulting in inadequate debt-servicing

capacity

For the AA, A, BBB, BB categories, creditworthiness is further detailed with a scale

of High, Mid, or Low, with High being the strongest sub-category rating. An Outlookindicates the direction a rating is likely to move over a two-year period. Outlooks maybe positive, stable or negative. A positive or negative Rating Outlook does not imply arating change is inevitable. Similarly, ratings for which outlooks are “stable” could beupgraded or downgraded before an outlook moves to positive or negative ifcircumstances warrant such an action.

Credit Suisse HOLT

The Credit Suisse HOLT methodology does not assign ratings to a security. It is ananalytical tool that involves use of a set of proprietary quantitative algorithms and

warranted value calculations, collectively called the Credit Suisse HOLT valuationmodel, that are consistently applied to all the companies included in its database.Third-party data (including consensus earnings estimates) are systematicallytranslated into a number of default variables and incorporated into the algorithmsavailable in the Credit Suisse HOLT valuation model. The source financial statement,

pricing, and earnings data provided by outside data vendors are subject to qualitycontrol and may also be adjusted to more closely measure the underlying economics

of firm performance. These adjustments provide consistency when analyzing a singlecompany across time, or analyzing multiple companies across industries or national

borders. The default scenario that is produced by the Credit Suisse HOLT valuationmodel establishes the baseline valuation for a security, and a user then may adjustthe default variables to produce alternative scenarios, any of which could occur. TheCredit Suisse HOLT methodology does not assign a price target to a security. Thedefault scenario that is produced by the Credit Suisse HOLT valuation model

establishes a warranted price for a security, and as the third-party data are updated,the warranted price may also change. The default variables may also be adjusted toproduce alternative warranted prices, any of which could occur. Additional informationabout the Credit Suisse HOLT methodology is available on request.

For technical research

Where recommendation tables are mentioned in the report, “Close” is the latestclosing price quoted on the exchange. “MT” denotes the rating for the medium-termtrend (3 – 6 months outlook). “ST” denotes the short-term trend (3 – 6 weeks

outlook). The ratings are “+” for a positive outlook (price likely to rise), “0” for neutral(no big price changes expected) and “-“ for a negative outlook (price likely to fall).Outperform in the column “Rel perf” denotes the expected performance of the stocksrelative to the benchmark. The “Comment” column includes the latest advice from theanalyst. In the column “Recom” the date is listed when the stock was recommended

for purchase (opening purchase). “P&L” gives the profit or loss that has accruedsince the purchase recommendation was given.

For a short introduction to technical analysis, please refer to Technical Analysis

Explained at:https://entry4.credit-

suisse.ch/csfs/research/p/d/de/techresearch/media/pdf/trs_tutorial_en.p

df

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Research Flash 5

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