StarHill Global – DBSV

Stable performer

At a Glance

• DPU of 1.0 Scts in line

• Recovering office occupancy at Wisma Atria positive sign

• BUY, TP revised to S$0.76 offers 31% total return

Comment on Results

DPU of 1.0 Scts in line. Starhill Global REIT (SGREIT) reported a strong growth in topline and net property income to S$45.2m (+38.7% yoy, 22% qoq) and S$35.8m (37% yoy, 24%qoq), boosted by an expanded portfolio – from recently completed acquisitions: (i) David Jones in Australia and (ii) Lot 10 and Starhill Gallery in Malaysia. NPI was also slightly eroded from higher A&P, leasing commissions expensed by SGREIT. Distributable income to unitholders of S$19.4 (net of S$2.5m to CPU holders) translates to a DPU of 1.0 Scts.

Wisma Atria office occupancy levels rebounds – positive sign. While its retail portfolio continue to remain stable, SGREIT’s office revenues continue to remain weak at S$5.7m (-5%yoy, -4% qoq). However, we notice a pick-up in occupancy levels to 85.7% as of Sept 2010 (vs 81.4% in 2Q10) at Wisma Atria as positive sign and we understand that the manager is in negotiations with a couple more prospective tenants to take up further space, which should filter through to earnings in the coming quarter. The expected improved office leasing environment (projecting office occupancy to head up to 95% in FY11) should somewhat offset the projected negative rental renewals come 2011, mitigating downside earnings risk from its office portfolio in the coming quarters.

Recommendation

Valuations attractive, BUY, TP S$0.76. Trading at 0.7x P/BV, and offering forward FY11-12 yields of c7.3%, we see relative value in SGREIT compared to other SREIT peers who trade at 1.05x P/BV, and offer a weighted average yield of 6.0%. Our TP is raised to S$0.76 as we roll forward our valuation to FY11.