Friday, February 7, 2014

Starhill Global REIT - Risk on the rise (CIMB)

Starhill Global REIT
Current S$0.76
Target S$0.80
Risk on the rise

▊ SGREIT's FY13 results were in line, with DPU coming in at 99% of our full-year estimate. During the year, revenue grew by 7.9% yoy, while NPI grew by 6.3% yoy - mainly attributed to the stronger contributions from its Singapore and Australia properties. However, in the face of a rising interest rate environment coupled with currency fluctuations, we increase the risk-free rate for SGREIT to 4.0% and as a result, our DDM-based target price (discount rate: 8.4%) is lower at S$0.80. Our Hold rating is maintained.

Growth mitigated
4Q13’s revenue came in at S$49.1m (+3.6% yoy), while distributable income was reported at S$26.5m (+20.6% yoy). The strong showing is mainly attributed to the performance of its Singapore properties, as well as additional contribution from Plaza Arcade acquired in 1Q13. However, this was partially offset by lower contributions from the remaining overseas properties as a result of rising competition, higher expenses, and weak foreign currencies. With only 6.8% and 8.4% of leases (as % of total NLA) due to be renewed in FY14 and FY15, respectively, we expect the impact from further positive rental reversion of its retail space to be limited going forward.  
Strong balance sheet
With a strong balance sheet and an asset leverage ratio of 29.0% in 4Q13 (vs. 30.6% in the previous quarter), SGREIT is well-positioned for future accretive acquisitions or AEIs. In addition, with no debt due to be refinanced until 2015, coupled with the fixing of 94% of its debt under a fixed interest rate, SGREIT’s exposure to rate hikes is relatively well sheltered, in our view.  
Maintain Hold
Going forward, SGREIT continues to seek opportunities for potential AEI within its portfolio, particularly in Singapore and Australia. In addition, on the back of keen competition from an influx of large, newly-developed upcoming retail space, it would make sense, in our view, for SGREIT to divest its property in Chengdu, to focus on its four remaining countries for better returns. In the face of a rising interest rate environment coupled with currency fluctuations, we tune up our risk-free rate to 4.0% (from 3.4% previously) and consequently lower our DDM-based target price to S$0.80. Our Hold rating is maintained.  

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 27/01/14

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