StarHill Global – DBSV

Growth from Wisma Atria

• 3Q12 result in line; 9M DPU is 76% of our full year forecast
  
• Rising contribution from Wisma Atria, more upside after adjusting tenancy mix and upgrading works
  
• Maintain BUY rating; raised TP to S$0.84
  

3Q12 result in line; 9M DPU is 76% of our full year forecast

Highlights

Results in line. Gross revenues and net property income grew c.5.0% to S$46.3m and S$36.4m, respectively, again driven by Wisma Atria. Y-o-y, mall revenue grew 24%, while contribution from offices jumped 15%. This helped to offset weakness in Chengdu, where revenue fell 14% due to softening demand for mid-to-high end luxury goods. In the reviewed quarter, the trust retained S$0.8m for working capital this quarter. Despite that, 3Q12 DPU still rose by 11% y-o-y to 1.11 cts (net CPPU holders). 9M12 DPU is 76% of our forecast.

Our View

Better offering, higher retail sales. Footfall at Wisma Atria fell 10% y-o-y (+6.8% q-o-q) in 3Q12, but retail sales grew 6.5%. This might be due to the improved offering after AEI was completed in July. Footfall fell y-o-y due to reconfiguration works at some level 1 shops to accommodate new tenants; work started in July and is expected to be completed by year end. This should drive positive rental reversions ahead.

Office: continued positive rental reversion. Its office portfolio remains resilient with high 98.4% occupancy rate. Although a chunky c.36% of its leases (in terms of gross rents) is due for renewal in 2013, passing rents of S$8.0–S$8.5 psf pm, which is 5-10% below current signing rents, will mitigate downside risks and at the same time drive positive rental reversion going forward.

Healthy financial metrics. Gearing remains comfortable at 31%. The REIT has secured refinancing for a A$63m term loan that will mature in Jan 2013 and will not need refinancing until Sep 2013.

Recommendation

Maintain BUY; lifted TP to $0.84. We lifted our DCF-backed TP by 3.7% and FY13/14F DPU by 1-2% after accounting for higher rental income following the shop reconfiguration, as well as adjustments to Wisma Atria’s lease profile. There is further upside from new acquisitions that we have not factored into our numbers. Our new TP offers investors a total return of >10%.