Hui Xian REIT（87001，HK）

The first RMB denominated REIT

Summary

Hui Xian is the first RMB denominated REIT, which is related to RMB offshore center and rich RMB investment demand. Hui Xian REIT's portfolio comprises Oriental Plaza（BOP）, one of the largest and most iconic commercial complexes in Beijing, PRC. The development comprises four businesses: The Malls, The Tower Offices, The Tower Apartments and Grand Hyatt Beijing.Over the past 10 years, this landmark development has enjoyed a solid track record of market leadership in Beijing with wide brand recognition, high occupancy and impressive financial performance. BOP has experienced a growth in both revenue and operating profit at a CAGR of approximately 14.3% and 19.3%, respectively, during the period from 2002 to 2009 based on its management accounts. In terms of occupancy, the committed occupancy levels of The Malls, The Tower Offices and The Tower Apartments as at 31 March 2011 were approximately 100.0%, approximately 99.7% and approximately 95.4%, respectively, and the average occupancy rate of Grand Hyatt Beijing for the month ended 31 March 2011 was approximately 72.9%.Results of first financial report of Hui Xian were in line with estimates as well as the profit forecast given in IPO prospectus. Hui Xian paid off all its outstanding debt in July, 2011, becoming the only debt free REIT in the HK market.

Hui Xian is believed to be one of the best quality REITs in Asia market due to: solid fundamentals backed by robust growth of the Beijing commercial market, being denominated in a currency that has been least directly impacted by the global debt crisis and zero debt position and potential asset injection.

We expect that its distribution profit in 2011 and 2012 will be 744million and 1.288billion, DPU at 0.15 and 0.26, dividend yield will reach 3.56% and 6.16%. We give Hui Xian Buy rating, 12m TP at RMB4.96, 18% higher than current price.

Figure1, RMB denominated corporate bond yield and government bond yield in Hong Kong Market

Hui Xian is the first RMB denominated REIT, which is related to RMB offshore center and rich RMB investment demand.

Both China and Hong Kong are striving to make the city a RMB offshore center following the July 2010 signing of an agreement between the People's Bank of China and the Hong Kong Monetary Authority to expand the financial hub's RMB business. Since then, RMB deposits soared to Rmb451bn as at 31 March 2011, representing a growth rate of 638% YoY.

Among the RMB371bn deposits, we think about 1/3 is for the cross-border RMB trade settlement purpose, the remaining are mainly the idle capital. There are very limited alternatives available for RMB investors. The products currently available in the market are namely, bank deposits, government bonds and corporate bonds. Overall, these products are in general three factors including offer relatively low yield, having a high capital requirement and relatively illiquid.

Table1, RMB product yield comparison

Figure2, RMB deposits in Hong Kong and RMB/HKD exchange rate

BOP-Best investment properties in Beijing

Figure3, Changes in percents of the major four segments in recent years

Source, Company report and Phillip Securities

Hui Xian REIT's portfolio comprises Oriental Plaza（BOP）, one of the largest and most iconic commercial complexes in Beijing, PRC. It is strategically located at No.1 East Chang` an Avenue, the political and commercial heart of Beijing, the capital of the PRC. It is within the Second Ring Road and Wangfujing. The development is in a unique position in Beijing. The location is one which is unprecedented for a large scale commercial development in the PRC. The development comprises four businesses: The Malls, The Tower Offices, The Tower Apartments and Grand Hyatt Beijing. The synergy created by the four entities — The Malls, The Tower Offices, The Tower Apartment and Grand Hyatt Beijing — helps to propel the rental and occupancy rates for each entity.

BOP was developed on a plot of land with a total area of approximately100K sq.m. and has a total Gross Floor Area of approximately 800,000 sq. m.. Although Hui Xian REIT has only operated BOP since 29 April 2011, the development has been in business in Beijing for over ten years and enjoyed a compound annual growth rate (`CAGR`) of 17.2% in operating profit from 2002 to 2010.

Over the past 10 years, this landmark development has enjoyed a solid track record of market leadership in Beijing with wide brand recognition, high occupancy and impressive financial performance. BOP has experienced a growth in both revenue and operating profit at a CAGR of approximately 14.3% and 19.3%, respectively, during the period from 2002 to 2009 based on its management accounts. In terms of occupancy, the committed occupancy levels of The Malls, The Tower Offices and The Tower Apartments as at 31 March 2011 were approximately 100.0%, approximately 99.7% and approximately 95.4%, respectively, and the average occupancy rate of Grand Hyatt Beijing for the month ended 31 March 2011 was approximately 72.9%.

Currently, BOP has an attractive and well-rounded tenant mix that provides Hui Xian REIT with a diversified revenue base and sustainable income. Given the high quality and diversified assets, we believe Hui Xian REIT will produce stable and attractive overall returns to unit holders going forward.Figure4, Percents of GFA of the segments

Source, Company report and Phillip Securities

Figure5, Percents of revenue of the segments

Source, Company report and Phillip Securities

Results in 1H2011 was line in with estimates

Results of first financial report of Hui Xian were in line with estimates as well as the profit forecast given in IPO prospectus. BOP's total revenue was RMB1,118m(+9%,YoY),while net income rose to RMB740m(+5.7%,YoY). Total distributable income for the period was 202m, DPU at RMB0.0403, and NAV per Unit was 5.1604.

Hui Xian paid off all its outstanding debt in July, 2011, becoming the only debt free REIT in the HK market. As a result, it is no longer subject to the adverse effect on DPU from the rising interest rate cycle. In addition, Hui Xian maybe acquire new project to improve the return rate.

Table2, View of financial details of BOP in 1H2011

Source, Company report

Risk

Macro economy may slowdown in China, which would hurt the occupancy rate and rentals.

Valuation

Hui Xian is believed to be one of the best quality REITs in Asia market due to: solid fundamentals backed by robust growth of the Beijing commercial market, being denominated in a currency that has been least directly impacted by the global debt crisis and zero debt position and potential asset injection.

We expect that its distribution profit in 2011 and 2012 will be 744million and 1.288billion, DPU at 0.15 and 0.26, dividend yield will reach 3.56% and 6.16%. We give Hui Xian Buy rating, 12m TP at RMB4.96, 18% higher than current price.

Table3, Peers valuation