StarHill – AmFraser

AEI Completion To Provide Buffer Against Headwinds

Investment Highlights

Singapore property portfolio propping up growth. Starhill Global REIT (SGREIT) recorded growth of 4.4% YoY in its net property income (NPI) for 2QFY2012, which was mainly buoyed by an improving performance of its Singapore property portfolio. Gross revenue, meanwhile, witnessed an increase of 4.8% YoY in the same quarter. As at the end of 2QFY2012, SGREIT has a portfolio occupancy rate of 99.5%.

Comfortable debt headroom. SGREIT’s gearing stands at around 30.5%, which is a healthy level. The company has a weighted average debt maturity of 1.8 years. SGREIT has S$576mil worth of debt maturing in FY2013. According to the company’s management, SGREIT is in the midst of discussions with banks to refinance the AUD$63mn term loan, which is maturing in January 2013, with an expected maturity beyond 2016.

An increasingly challenging macro environment. SGREIT generates 62.8% of its gross revenue from Singapore, leaving it heavily exposed to the underlying macroeconomic trends in the market. SGREIT’s retail

assets, namely Wisma Atria and Ngee Ann City, are positioned in the mid‐to high‐end segment, which means that its clientele comprises largely of discretionary spenders. The company’s portfolio does not consist of

Takashimaya department stores. Therefore, we do not believe the company is likely to escape unscathed from a broad‐based retail spending slowdown. Retail sales growth in Singapore (excluding automobile sales), in YoY terms, is showing waning signs of momentum, signalling more cautious discretionary spending in the near future.

Asset enhancement initiatives completion at Wisma Atria to partly cushion against economic slowdown. The majority of asset redevelopment works at Wisma Atria has already been completed in 2QFY2012, generating a return on investment (ROI) of around 12.8%, which exceeded the company’s initial projected ROI of 8%. Thanks to its AEI at Wisma Atria, SGREIT recognised positive rental reversions and higher occupancy rates. While the near‐term operating environment is likely to serve up greater challenges, the completion of its AEI at Wisma Atria should leave SGREIT better positioned in the current macroeconomic climate.

Trading at a forward dividend yield of 6.3%, according to Bloomberg consensus estimate, SGREIT continues to offer a decent yield, particularly amid the current low interest rate climate. The company has a price‐to‐book ratio of 0.85.