StarHill Global – DBSV

Starhill Global Reit enhancing Wisma Atria, no surprise

Starhill Global Reit has proposed to embark on some asset enhancement plans for Wisma Atria. The exercise will involve enhancing the mall facade, featuring double-storey storefronts on the second and third storey to showcase the latest flagship stores of international retailers. Pedestrian footpath spanning the facade of Wisma Atria will be widened. Strategically located ramps and walkways leading to the new shop fronts will also be included to improve accessibility from the surrounding malls and the Orchard Road MRT station. To minimize disruption to Wisma’s operation, the AEI will be carried in phases over 1Q/2011 to 3Q/2012. Estimated capex of $31m will be funded internally and yield a ROI of 8.0% or $2.5m additional NPI. Minimal impact on gearing of c. 31% post AEI works.

While the impact is yield accretive, it is likely to be felt in the medium term when the enhancement works are completed. We see this move to tap low hanging fruits from its existing portfolio as positive as it allows them to boost the mall’s visibility along Orchard Road and intensify shoppers’ experience. We have previously assumed a larger scaled AEI plan in our numbers and have now adjusted our estimates to reflect the updated AEI plans unveiled by the manager. FY11 and FY12 DPU estimates of 4.28cts and 4.46cts respectively have been lowered marginally to account for the vacancy of 3% during the AEI period. We expect the impact of additional income to be felt post FY13, upon completion and stabilization of the AEI.

Maintain buy with a slightly lower TP of $0.73