StarHill Gbl – DBSV

Stable performance, refinancing done

At a Glance

• 2Q10 DPU of 0.91 Scts in line, down 4% yoy

• Re-financing of near term debt done

• Maintain BUY and TP S$0.73

Comment on Results

2Q10 DPU of 0.91 Scts. Gross revenues and net property income were higher by 11.4% yoy and 7% yoy to S$37.2m and S$28.8m respectively. The better performance was mainly attributed to a full quarter’s contribution from David Jones asset (DJA) slightly offset by lower office revenues and weaker RMB/S$ exchange rate. Interest costs were 22% higher yoy due to the loan taken for DJA acquisition. As such, distributable income came in at S$18.0m (-4% yoy), translating to a DPU of 0.91 Scts.

Stable earnings profile in 2Q10 but overseas portfolio performance hit by strengthening S$. Stable 2Q performance reflected the resilient retail portfolio in Singapore +4% yoy. However, this was offset by lower office occupancies (-3%yoy) and overseas properties’ earnings were down 2%, excluding DJA, due to weaker RMB/S$. In RMB terms, Chengdu reported 8% higher gross sales.

Bullet loan expiring in 2010 settled. Apart from S$124m MTN issuance recently, SGREIT has also completed its refinancing of near term expiring debt with a new 3-year facility of S$496m, secured over SGREIT’s interest in Ngee Ann City, with a consortium of 5 banks. Interest costs is expected to inch up to 3.5-3.6% post refinancing.

Recommendation

Maintain BUY, TP S$0.73 with prospective yields of 6.7-7.5%. At a P/BV of 0.7x, SGREIT is trading below its Sreit peers average of 1.0x. Forward yields of 6.7-7.5% are attractive.