Starhill Global REIT;
Price Target : 12-Month S$ 0.87
Sunny in Australia
•Higher income from Singapore and Australia mitigated weaker overseas contribution
•Growth to be driven by Singapore and Australia
•Maintain HOLD, TP S$0.87
4Q13 results in line. Starhill Global REIT (SGREIT) reported higher gross revenues and NPI of S$49m (+3.6% y-o-y) and S$39m (+3.4%), respectively. This was attributed to solid performance of Singapore assets: Ngee Ann City is enjoying 6.7% higher base rents after Toshin renewed its master lease in 2Q13; Wisma Atria continued to perform post-AEI and remix which saw tenant sales increase by +20% y-o-y and a positive impact on rents. Australia also contributed strongly after the acquisition of Plaza Arcade in March 2013. But strong income from Singapore and Australia was tempered by weak performance of Chengdu and Japan properties. Hence, distributable income was only S$27m, translating into 1.23Scts DPU (+9% y-o-y).
Stable valuations. SGREIT booked S$138m property revaluation gain led by the addition of Plaza Arcade in Australia, as well as a 25bps compression in the cap rate for Singapore retail properties. Valuations for properties in Malaysia and Japan fell due to translation losses. Assuming full conversion of CPU outstanding, NAV would rise to S$0.92. Gearing fell to 29% with higher property valuations.
Income growth to be driven by Singapore and Australia. We project 3%-4% DPU growth in FY14F-15F driven by a higher base post-Toshin rent review, as well as positive reversions from lease expiries for office and retail space at Wisma Atria. We understand the Manager may refresh tenant mix on the first floor to raise income, which could present the opportunity to replace current tenants with higher end names. In Australia, we expect full year contribution from Plaza Arcade to boost revenues, as well as higher rents post-rent review for Malaysia properties. Stronger performance in Australia/Singapore and Malaysia should mitigate expected weaker performance from Japan and China. Contributions from the Chengdu mall may weaken as government austerity measures are affecting high-end retail sales, while increasing competition from new supply in the vicinity implies operational challenges and potential income downside. The weak JPY-SGD rate suggests further translation losses for the trust.
Weak foreign currencies remain a threat. Although the Manager hedges its balance sheet through foreign currency loans, with 34% of its income derived from overseas (Malaysia/Australia and Japan), further weakness in these currencies could erode distributions going forward. We assumed current spot rates for the currencies (JPY/MYR/AUD/RMB vs SGD) will remain stable going forward.
Maintain HOLD, TP S$0.87. While SGREIT offers attractive 6.6-6.8% dividend yield, there is limited upside to our S$0.87 TP. Therefore, we maintain HOLD call.
Publish date: 27/04/14