StarHill Global – CIMB

Strong Singapore portfolio

Singapore was the star in 4Q12, with positive rental reversions for office and a full quarter of contributions from Wisma Atria retail AEI, bringing 4Q12 DPU growth to 12% yoy. Performance for overseas assets was muted, with Chengdu still impacted by soft luxury demand.

4Q/FY12 DPU was largely in line at 26%/99% of our full-year estimates and 26%/102% of consensus. We adjust FY13-14 DPUs upwards to factor in the recent acquisition of Plaza Arcade in Perth, and introduce FY15 estimates. Our DDM-based target price inches up (discount rate: 7.9%). Maintain Neutral. Stronger Toshin rental valuation and sizeable acquisitions are rerating catalysts.

Singapore strength

4Q12/FY12 NPI was up 2.9%/3.4% yoy, while DPU grew 11.9% and 6.6% respectively. DPU growth was led by Wisma Atria retail which saw stronger centre sales post-AEI. NPI was up 23.5% yoy, albeit in part due to small disruptions in rental in 4Q11. Wisma Atria and Ngee Ann City office also saw positive rental reversion on 46%/55% of leases expiring in 2013 renewed. Portfolio occupancy inched up from 98.7% in 3Q12 to 99.4% in 4Q12. Chengdu asset saw FY12 NPI fall 8.7% yoy as demand for luxury retail remained soft.

More to look forward to

We continue to expect more positive reversions on the remaining office leases expiring this year. Independent valuers have been appointed for the Toshin master lease, and a stronger-than-expected rental valuation (to be finalised 1Q13) could be a rerating catalyst. S$24.7m of revaluation gains were booked, largely from Malaysia and Ngee Ann City assets, with the latter revalued up by 1.9%. We expect weakness at Chengdu to persist.

Australia acquisition

Acquisition of Plaza Arcade in Perth at 7.8% yield is a positive, but it is relatively small at 2% of portfolio value. Management estimates DPU accretion of 1.9%. Proforma gearing on completion of acquisition this quarter is c.31%. Synergistic benefits through 13k sf of unutilised space potentially converted to retail, connecting to David Jones, could kick in by 2014/15.