StarHill Global – DBSV

Well-positioned for growth

• 4Q10 results in line with expectations

• Positive master lease rental reversion and improving office sector fundamentals to underpin growth

• Maintain Buy with S$0.78 TP

In line with expectations. 4Q10 distribution income rose 7% y-o-y to S$20.2m on the back of a 33% jump in gross revenue to S$45.6m and a 37% increase in NPI to S$36.7m. The increase was mainly attributed to contributions from Starhill Gallery and Lot 10 in Malaysia, and David Jones Building in Australia, which were acquired in 2010. On a q-o-q basis, gross revenue and NPI rose by 0.9% and 2.7% respectively, thanks to the continued improvement in Wisma Atria and Ngee Ann City’s office occupancies and higher rental income for its Chengdu property. There was a revaluation surplus of S$76.4m in 4Q10 from its Singapore and newly acquired properties, lifting its fully diluted book NAV to S$0.84.

SG properties revenue continues to grow. Annual footfalls to Wisma Atria increased 22% yoy to 27m in 2010. Our forecast of about 13m tourist arrivals this year is expected to have a favorable impact on retail rents. Meanwhile, revenue from the office portion of Wisma Atria also saw a smaller contraction this quarter (-12.0% in 3Q10 vs -6.2% 4Q10). We expect this trend to continue as office occupancies improve further on the back of demand from new tenants such as new-to-market retailers and uptick in rental rates. Toshin and David Jones master leases are up for renewal in June and Aug 2011, respectively. Toshin’s lease reversions are capped at 25% above preceding levels and we have factored in a conservative 10% upside reversion vs the 20% adjustment in the last cycle. For David Jones, we expect rental hikes of 6%-8%.

Maintain Buy and S$0.78 TP. The stock offers FY11/12F yields of 6.7-6.9%, translating to a total return of 23%. Gearing remains healthy at 30.2%. Potential AEI works to increase NLA at Wisma Atria and possible new acquisitions could provide future catalysts. These have not been factored into our forecast.