Starhill Global REIT

OCBC on 25 Jul 2012

Starhill Global REIT (SGREIT) announced DPU of 1.08 S cents for 2QFY12 (+3.8% YoY), in line with our projections. Wisma Atria was the key driver for the quarterly performance, thanks to improved office occupancy and comparatively higher rentals following the asset redevelopment at its retail segment. Going forward, we believe SGREIT will continue to perform as the full impact of positive rental reversions may only be realized in the upcoming quarters. The stock is currently trading at a P/B of 0.8x, one of the lowest among other retail REITs. We now raise our fair value from S$0.70 to S$0.74, as we factor in higher rental assumptions on both its retail and office segments. Maintain BUY on SGREIT.

Consistent set of 2QFY12 results
Starhill Global REIT (SGREIT) reported NPI of S$37.1m (+4.4% YoY) and distributable income of S$23.3m (+2.0% YoY) for 2QFY12, in line with our projections. DPU came in at 1.08 S cents (+3.8% YoY), after netting off S$2.3m in distribution to CPU holders. Together with the distribution in 1Q, 1HFY12 DPU amounted to 2.15 S cents, meeting 49.6% of our FY12 DPU forecast (50.0% of consensus). This translates to an annualized DPU yield of 6.2%.

Strong numbers from Wisma Atria
Wisma Atria was the key driver for the quarterly performance, thanks to improved office occupancy (99.0% vs. 92.0% a year ago) and comparatively higher rentals following the asset redevelopment (AEI) at its retail segment. We understand that SGREIT had achieved positive rental reversions of 33% for leases committed at the property, since the start of refurbishment works (Jul 2011 - Jun 2012). In addition, management updated that the AEI at Wisma Atria was substantially completed in the quarter and that the ROI of 12.8% based on annualized NPI had exceeded its initial target of 8%.

Maintain BUY
As at 30 Jun, SGREIT’s portfolio occupancy rate improved 50bps QoQ to 99.5% as a result of higher occupancies at all properties except Daikanyama in Japan. Aggregate leverage also remained healthy at 30.5% (30.4% in 1Q), with no debt refinancing until Jan 2013. In our view, SGREIT’s growth potential has yet to be unleashed as the full impact of positive rental reversions may only be realized in the upcoming quarters. The stock is currently trading at a P/B of 0.8x, one of the lowest among other retail REITs. We now raise our fair value from S$0.70 to S$0.74, as we factor in higher rental assumptions on both its retail and office segments. Maintain BUY. Other catalysts, we note, may come from interest savings from refinancing of its outstanding debts, favourable outcome from court appeal pertaining to the master lease arrangement with Toshin Development (expected latest by Sep 2012) and divestment of Japan properties at attractive valuations.