StarHill Global – CIMB

Another stable quarter

Stronger Japan and Australia contributions offset negative office rental reversions and weaker Chengdu rentals. Valuations remain undemanding against sector peers given stability with potential catalysts from a Toshin rent review and Wisma Atria's AEI.

1Q12 DPU matches our estimate and consensus at 25% of FY12. We keep our numbers but raise our DDM-based target price on a lower discount rate of 8.4% (from 8.8%). Maintain Outperform.

Stable quarter

1Q12 NPI was up 0.8% yoy as stronger Wisma, Australian and Japanese contributions offset negative office rental reversions at Ngee Ann City and weaker Chengdu rentals. Office occupancy at Wisma Atria and Ngee Ann City improved, though rental reversions at the latter were negative on high expiring rents. Signing rents were stable at S$9-10psf. Rental softening at its Chengdu mall from competition with new malls was unexpected. Repositioning work is underway, with Armani expected to open in 2Q12.

Wisma Atria's AEI on track

Wisma Atria's AEI is on track for completion by 3Q12. Disruptions have been moderate with retail occupancy up to 95.3% from 4Q11's 94.8%. While pre-commitments were unchanged at 75%, we understand that enquiries have been strong and management is holding out for better rentals as AEI nears completion. Separately, Food Republic is being renovated to unveil a new-concept food outlet in 3Q12.

Still waiting for Toshin

Starhill is still awaiting a response to its appeal on the Toshin rental review mechanism. Meanwhile, Toshin has signalled its intention to renew its lease term, commencing 8 Jun 13. While this could negate any upside from a complete lease overhaul (and direct management by Starhill), other upside could come from a downside-protected rent review then.