StarHill Global – CIMB

Steady quarter

Rental step-ups for David Jones and AEI contributions from Starhill Gallery buffered AEI disruptions and negative office reversions. We anticipate a stable 2012, with earnings anchored by master leases,upside from AEI at Wisma Atria and a potential uplift from Toshin.

4Q/FY11 DPU broadly meets our estimates and consensus at 25%/97% of our numbers. The slight miss was due to higher borrowing costs. We slightly lower our DPU estimates but keep our DDM target price (disc. rate: 8.8%). We also introduce FY14 forecasts. Maintain Outperform.

Stable quarter

4Q11 NPI was flat yoy as AEI disruptions and negative office rental reversions were buffered by a full-quarter of rental step-up for David Jones and AEI contributions from Starhill Gallery. Positives were rising office occupancy, although negative office rental reversions slightly disappointed. Mitigation could come from slightly tightening occupancy and low office leases expiring in 2012. Enquiries and asking rents thus far are healthy.

Wisma Atria AEI

Disruptions have been moderate with retail occupancy at 94.8% in 4Q11. While pre-commitments are unchanged at 75%, we do not anticipate major problems in leasing out the remaining space given limited upcoming retail supply along Orchard Road and still-strong tourist arrivals. We expect pre-commitments to climb as AEI progresses.

Seeking appeal for Toshin

Starhill plans to appeal again for a review of the Toshin rental review mechanism after the Court’s recent unfavourable ruling. While failure to obtain any rental uplift could affect our DPU by 3% (we had factored in 10% rental uplift on renewal), downside should be capped by the upward-only rental-review clause and should be compensated by other sources such as rental improvements at a refurbished Wisma Atria.