Starhill Global – DBSV

Boost from acquisitions

At a Glance

• DPU of 1.07cts in line with expectations.

• Positive master lease rental reversion and asset enhancement works to underpin growth

• Maintain Buy with S$0.73 TP

Comment on Results

No surprises, although DPU highest since listing. Starhill Global REIT (SGREIT) reported a strong 21.9% y-o-y growth in topline to S$45.8m and 27.2% y-o-y growth in NPI to S$37.1m boosted by the higher revenue from Chengdu property and expansion of its portfolio – full quarter contributions from David Jones Building and Malaysia properties acquired last year. However, gross revenue and NPI improved by a marginal 0.5% and 0.9% respectively on sequential basis, as the SG office portfolio continued to experience negative rental reversion coupled with poorer performance from its Japanese portfolio (-13.0% qoq). After retaining S$0.8m, distributable income of S$20.8m (net of S$2.4m to CPU holders) translates to a DPU of 1.07 Scts.

Moving occupancy up. Chengdu property and David Jones Building are fully occupied. Take-up at Wisma Atria rose 1.7 ppt qoq to 94.5%, while Ngee Ann stabilised at 98.4% (-0.3 ppt qoq). Meanwhile, retail sales at Wisma Atria increased by 0.4% YTD backed by 6% higher footfalls to 6.8m. Going forward, we expect stronger performance in 2H11 from the completion of asset enhancements at Starhill Gallery in 2Q and the positive rental renewals from Toshin and David Jones master leases that are up for renewal in June and Aug 2011.

Healthy financials. Gearing remains healthy at 30.2%, well below the optimum level of 45%. With no major refinancing needs till 2013, the group is in good financial position to make further acquisitions.

Recommendation

We maintain our BUY call, TP of $0.73. The improving office outlook and stabilised retail market should lead to further improvement in its SG portfolio that represents 60% of its total revenue. We see relative value in SGREIT with the stock trading at 0.7x P/BV and offering forward FY11-12 yields of c6.9-7.3%.