Month: October 2010
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.
Suntec – DBSV
Buys one third share of MBFC1
• Results in line, topline +2.1% on higher office income
• Buying MBFC1 for $2400psf
• Maintain Buy call, TP $1.66
No surprises in Q3 results. Revenue was up 2.1% yoy and 1.3% qoq, lifted by higher office occupancy of 98.5% and better office rental income. Office rents at Suntec office improved to $7.39psf/mth. NPI was up 7.6% yoy on lower cost to income ratio of 20%. However, distribution income dipped 3.2% to $46.2m (DPU: 2.5cts) largely on increased interest expenses. The group revalued up portfolio by 3.6% translating to NAV of $1.828/share. Going forward, Suntec has c14% of office and 27% of retail NLA due for reversion in 2011 and we expect office rents to show some uptick while retail component to remain stable.
Interest savings from refinancing. Recent refinancing exercise of $700m due in FY12 are likely to lower its current overall cost of debt of 3.77% as the new loans were concluded at a lower spread of 1.5%, as well as smoothen out the group’s debt maturity profile. The impact is likely to be felt from FY11.
Buys 1/3rd MBFC1 at $2400psf. Suntec has announced its plan to buy a one third share of MBFC1 from Cheung Kong for $1495.8m, inclusive of a $113.9m income support payable over 60 months or $2400psf (excl the income support payable). This deal is viewed as a long-term strategic positive as enhance the overall quality of its office portfolio with a prime office property. The actual impact is difficult to ascertain pending details of financing to be released. The deal is subject to minority shareholder’s approval.
Retain current recommendation. We are tweaking our FY11 numbers by 3.1% to reflect the impact of recent refinancing exercise but exclude the effect of the MBFC1 acquisition. Maintain Buy call pending more information on the transaction. Based on FY10 and FY11 DPU of 9.8cts and 9.7cts, Suntec is trading at decent DPU yields of 6.3-6.2%. Our target price of $1.66 offers 12% total return.
Suntec – CIMB
Limelight stolen by MBFC acquisition
• In line; maintain Outperform. 3Q10 DPU of 2.5 Scts met our expectation but was slightly above consensus, forming 25% of our forecast (9M10 at 77%) and 26% of consensus. The limelight, however, was stolen by the announcement of its acquisition of Marina Bay Financial Centre (MBFC 1). See our separate note “Acquisition of MBFC Phase 1” also released today. We keep our DPU estimates intact. Our DDM-based target price, however, has been raised to S$1.63 (discount rate 8.1%) from S$1.60 as we roll over to end-CY11. Maintain Outperform on further improvements in the retail and office outlook. We see near-term catalysts from more concrete signs of DPU accretion from the latest acquisition.
• 3Q10 NPI grew 7.6% yoy, led mainly by a 2.1% yoy increase in gross revenue on stronger office contributions and a lower property tax. 3Q10 DPU declined 14% vs. a milder 3% decline in distributable income due to deferred units payable to the original vendors of Suntec City.
• Positive office occupancy. Portfolio occupancy continued to strengthen on the back of better office occupancy which mitigated lower retail occupancy in the quarter. Office occupancy was up qoq for the fifth consecutive quarter to 98.5%. Retail occupancy at 97.6% was, however, down 1% pt qoq and 2% pts yoy.
• Improved debt maturity profile. Asset leverage was 32.9% at end-3Q10. In Oct 10, Suntec REIT secured a S$700m term-loan facility, which has been used to prepay a S$575m 3-year loan maturing in FY12 and also to refinance part of a S$400m club loan maturing in FY11. This was secured at a blended all-in interest margin of 1.5%, much lower than its average all-in financing cost of 3.77% as at end-3Q10.
• Positive revaluation of assets. Suntec REIT’s portfolio has been revalued at S$5.3bn (including One Raffles Quay) vs. S$5.2bn in Dec 09, with the revaluation driven mainly by higher valuations for Suntec City (S$3.9bn, retail S$1,844 psf, office S$1,819 psf) and ORQ (S$980m, S$2,200 psf).
Suntec – BT
MBFC whets Reit appetite again
Move by Suntec Reit comes in wake of foray by K-Reit Asia
Suntec Real Estate Investment Trust is buying a one-third interest in some properties in Phase One of Marina Bay Financial Centre (MBFC) for $1.4958 billion or $2,568 per sq ft of net lettable area.
The sellers are Cheung Kong Holdings and Hutchison Whampoa, flagship companies of Hong Kong billionaire Li Ka-shing. Suntec Reit’s manager is part of ARA Asset Management which is in turn, linked to Cheung Kong.
The deal – anticipated by some industry players – comes just weeks after K-Reit Asia said it would buy a stake in MBFC Phase One from its parent Keppel Land.
Suntec Reit will be holding an extraordinary general meeting to obtain unit holders’ nod for the acquisition. If it wins approval, it will be getting a stake in two Grade A office towers, Marina Bay Link Mall and 695 carpark lots.
MBFC Phase One was jointly developed by Keppel Land, Hongkong Land and Cheung Kong/Hutchison Whampoa.
The $1.4958 billion which Suntec Reit is paying for the Cheung Kong/Hutchison Whampoa stake includes an income support of $113.9 million.
Suntec Reit is forking out slightly less than what valuers thought the MBFC stake (including the income support) was worth as at Sept 30 – CB Richard Ellis valued it at $1.496 billion and Knight Frank at $1.497 billion.
Excluding the net present value of the income support, the price would have worked out to $1.3977 billion or $2,400 psf.
Suntec Reit yesterday shared a few details about how it would fund the acquisition and how the deal could affect its earnings.
It said that it is reviewing various financing options, which include the issuance of units or debt securities. It also expects the acquisition ‘to improve the earnings and distributions for unit holders’.
According to Yeo See Kiat, CEO of Suntec Reit’s manager, the purchase will further diversify Suntec Reit’s income stream and increase its presence in the Marina Bay area.
‘The high quality attributes of the MBFC property would offer a good long-term growth potential,’ he added.
Unit holders can expect more information when Suntec Reit releases a circular on the deal. This should happen in the next few weeks.
Suntec Reit counts Park Mall, Chijmes, a one-third stake in One Raffles Quay (ORQ) and properties in Suntec City as part of its portfolio. The net lettable area from office space is around 1.9 million sq ft. This could increase to around 2.4 million sq ft after the acquisition.
Some market watchers have been expecting Suntec Reit to purchase the MBFC stake from Cheung Kong/Hutchison Whampoa, after K-Reit said it would buy Keppel Land’s stake for $1.4268 billion or $2,450 psf (which includes a $29 million rental support).
Without the income support, the price of the MBFC stake in that deal works out to $2,400 psf.
These observers were guided by what happened in July 2007 – both Reits had announced on the same day that they would each buy a one-third stake in ORQ.
ORQ was also jointly developed by Cheung Kong, Keppel Land and Hongkong Land. Suntec Reit bought its share from Cheung Kong; K-Reit received its stake from Keppel Land.
Now that Suntec Reit has declared its intention to buy the MBFC stake, analysts will be shifting their focus on working out the financial impact of the acquisition.
With details lacking, it is hard to assess the impact of the deal now, said CIMB analyst Janice Ding. But looking at Suntec Reit’s annualised distribution yield of 6.6 per cent for the third quarter ended Sept 30, she concluded that it might not be easy for the deal ‘to be immediately accretive on the distribution per unit level’.
Suntec Reit gained two cents yesterday to close at $1.56.
StarHill Global – BT
Starhill Global Reit Q3 DPU up 5%
STARHILL Global Real Estate Investment Trust (Reit) yesterday released stellar results buoyed by recent overseas acquisitions.
The trust announced a 5.8 per cent rise in distributable income to $19.4 million for its third quarter ended Sept 30, 2010, up from $18.4 million a year ago.
Distribution per unit (DPU) was one cent – 5 per cent higher than for the previous corresponding period, when it was 0.95 of a cent.
YTL Starhill Global Reit, the manager of the trust, said the latest distribution represents a yield of 6.84 per cent on an annualised basis.
Net property income leapt 37 per cent year-on-year to $35.8 million from $26.1 million, and gross revenue followed suit with a jump of 38.7 per cent to $45.5 million from $32.6 million, which the manager attributed to the ‘contributions from the recently acquired Starhill Gallery and Lot 10 in Malaysia, and the David Jones Building in Australia’.
Francis Yeoh, executive chairman of YTL Starhill Global, said: ‘Our endeavours to grow Starhill Global Reit and create value for our stakeholders have led us to complete three quality acquisitions in 1H 2010 and diversify geographically into the best one-third retail stretch in two key cities – Perth, Australia and Kuala Lumpur, Malaysia.’
Starhill Global Reit’s portfolio includes 13 prime properties across five countries, valued around $2.6 billion.
YTL Starhill Global’s chief executive officer Ho Sing said: ‘With the inclusion of the Malaysian properties, retail contributed 87 per cent of our portfolio’s 3Q 2010 revenue, up from 84 per cent in the previous quarter. This increase provides our portfolio with a stronger revenue mix supported by the relatively robust retail sector.’
Starhill Global Reit’s local portfolio, which consists of stakes in Wisma Atria and Ngee Ann City on Orchard Road, contributed 60.8 per cent of total revenue, or $27.5 million in Q3 2010.
In all, the portfolio’s net property income for Singapore in the third quarter of this year was $21.1 million, 5.6 per cent lower than in Q3 2009 – mostly due to the office sector.
The counter ended trading yesterday at 61 cents, up half a cent.