Category: StarHill
StarHill Global – DBSV
Stable performer
At a Glance
• DPU of 1.0 Scts in line
• Recovering office occupancy at Wisma Atria positive sign
• BUY, TP revised to S$0.76 offers 31% total return
Comment on Results
DPU of 1.0 Scts in line. Starhill Global REIT (SGREIT) reported a strong growth in topline and net property income to S$45.2m (+38.7% yoy, 22% qoq) and S$35.8m (37% yoy, 24%qoq), boosted by an expanded portfolio – from recently completed acquisitions: (i) David Jones in Australia and (ii) Lot 10 and Starhill Gallery in Malaysia. NPI was also slightly eroded from higher A&P, leasing commissions expensed by SGREIT. Distributable income to unitholders of S$19.4 (net of S$2.5m to CPU holders) translates to a DPU of 1.0 Scts.
Wisma Atria office occupancy levels rebounds – positive sign. While its retail portfolio continue to remain stable, SGREIT’s office revenues continue to remain weak at S$5.7m (-5%yoy, -4% qoq). However, we notice a pick-up in occupancy levels to 85.7% as of Sept 2010 (vs 81.4% in 2Q10) at Wisma Atria as positive sign and we understand that the manager is in negotiations with a couple more prospective tenants to take up further space, which should filter through to earnings in the coming quarter. The expected improved office leasing environment (projecting office occupancy to head up to 95% in FY11) should somewhat offset the projected negative rental renewals come 2011, mitigating downside earnings risk from its office portfolio in the coming quarters.
Recommendation
Valuations attractive, BUY, TP S$0.76. Trading at 0.7x P/BV, and offering forward FY11-12 yields of c7.3%, we see relative value in SGREIT compared to other SREIT peers who trade at 1.05x P/BV, and offer a weighted average yield of 6.0%. Our TP is raised to S$0.76 as we roll forward our valuation to FY11.
StarHill Global – BT
Starhill Global Reit Q3 DPU up 5%
STARHILL Global Real Estate Investment Trust (Reit) yesterday released stellar results buoyed by recent overseas acquisitions.
The trust announced a 5.8 per cent rise in distributable income to $19.4 million for its third quarter ended Sept 30, 2010, up from $18.4 million a year ago.
Distribution per unit (DPU) was one cent – 5 per cent higher than for the previous corresponding period, when it was 0.95 of a cent.
YTL Starhill Global Reit, the manager of the trust, said the latest distribution represents a yield of 6.84 per cent on an annualised basis.
Net property income leapt 37 per cent year-on-year to $35.8 million from $26.1 million, and gross revenue followed suit with a jump of 38.7 per cent to $45.5 million from $32.6 million, which the manager attributed to the ‘contributions from the recently acquired Starhill Gallery and Lot 10 in Malaysia, and the David Jones Building in Australia’.
Francis Yeoh, executive chairman of YTL Starhill Global, said: ‘Our endeavours to grow Starhill Global Reit and create value for our stakeholders have led us to complete three quality acquisitions in 1H 2010 and diversify geographically into the best one-third retail stretch in two key cities – Perth, Australia and Kuala Lumpur, Malaysia.’
Starhill Global Reit’s portfolio includes 13 prime properties across five countries, valued around $2.6 billion.
YTL Starhill Global’s chief executive officer Ho Sing said: ‘With the inclusion of the Malaysian properties, retail contributed 87 per cent of our portfolio’s 3Q 2010 revenue, up from 84 per cent in the previous quarter. This increase provides our portfolio with a stronger revenue mix supported by the relatively robust retail sector.’
Starhill Global Reit’s local portfolio, which consists of stakes in Wisma Atria and Ngee Ann City on Orchard Road, contributed 60.8 per cent of total revenue, or $27.5 million in Q3 2010.
In all, the portfolio’s net property income for Singapore in the third quarter of this year was $21.1 million, 5.6 per cent lower than in Q3 2009 – mostly due to the office sector.
The counter ended trading yesterday at 61 cents, up half a cent.
SREITs – OCBC
Yield premiums are a short-term game
A yield premium story. The FTSE REIT Index is up 11.3% year-to-date and 145.8% from its Mar 2009 low. Market attention is on low base rates and the high liquidity environment. As a result, S-REIT distribution yields have tightened to about 6.6% on average (on consensus estimates) and to sub-5% in some cases. At the same time, price-to-book ratios have trended up to 0.97x book on average, and up to 1.50x book in some cases.
But will the benchmark hold out in the L/T? We typically pit S-REIT yields against long-term government bond yields to understand the risk premium awarded to REIT investors. Bond yields are currently at historical lows – making REITs look very attractive. But this benchmark may not hold out in the long run, in our opinion. First, long-term investors have to keep in mind that base rates will go up eventually. Second, if base rates are low for a sustained period (a weak economic environment, for instance) – this may actually be a signal that the distribution yields currently being offered are not sustainable and yield premiums will trend downwards eventually. In both scenarios, our argument is that artificially-low yield premiums are a short-term play, not a long-term fundamental reason to invest in REITs.
Don't ignore price-to-book. The market seems to be focusing on relative yields, to the point of ignoring what price-to-book valuations are saying. The case for a significant premium-tobook is questionable, in our opinion. A premium-to-book value signals either: 1) existing assets are undervalued and will rerate (a 50% re-rating looks aggressive to us, though); 2) there is potential to enhance values through asset works (true in specific cases); and 3) there is potential for inorganic growth through acquisitions. But we note that REITs that are already at their medium-term leverage targets are typically able to offer yield accretion of less than 10% given strong capital values and the need to finance acquisitions via both debt and equity.
Focus on the forgotten. Our preference, from the perspective of long-term investors, is to avoid the first-tier, large-cap REITs that are natural liquidity plays (and thus, a magnet for those playing the yield-premium game). Instead, we advocate investing in the so-called "forgotten", but still credible, REITs that are offering high absolute yields and are trading at decent discounts to book value compared to their peers. Reflecting this strategy, our top picks are Ascott Residence Trust [BUY, FV: S$1.33] and Starhill Global REIT [BUY, FV: S$0.65]. Maintain NEUTRAL on the broader sector.
StarHill Global – OCBC
Compelling from both yield & P/NAV perspective
Shoppes cannibalization fears overdone. New retail space at The Shoppes at Marina Bay Sands has begun to open. We believe cannibalization concerns for retail landlords such as Starhill Global REIT may be exaggerated as 1) Orchard Road is likely to remain a key shopping destination in its own right; 2) the product range / price tiers available in, for instance, a Chanel store in The Shoppes and one in Takashimaya are expected to be fairly different. In fact, the increased tourist arrivals led by the re-making of Singapore should more than offset such concerns, in our view. Driven by new attractions such as the Integrated Resorts, visitor numbers have jumped 23% YoY to 6.6m arrivals in the seven months to Jul.
Singapore retail still a key component. We are positive on the retail property sector not only as tourism and increasing consumer confidence drive spending, but also relative to the residential sector, which has significant policy overhang. We note that while Starhill is classified as a diversified REIT, about 66.4% of its asset value stems from Singapore. In addition, we estimate that Singapore retail contributes roughly 51.9% of Starhill’s FY10F gross revenue and 47.6% of FY11F gross revenue (the slight dip reflects the full-year contributions from the recent Malaysia and Australia acquisitions).
Compelling from both yield and NAV perspective. Market chatter on S-REITs has been primarily focused on the high yields relative to benchmarks including the 10-year government bond yield. Starhill certainly delivers on this front with estimated FY10F and FY11F yields of 6.6% and 6.8%. This is just a tad shy of the S-REIT sector average of 6.8% (FY10F) and 7.0% (FY11F). But what makes Starhill particularly compelling to us is that it trades at a significant 35% discount to book value vis-à-vis the meager 4% discount-to-book offered on average by the broader S-REIT sector. We believe this discount is unjustified considering Starhill’s high-quality assets, healthy balance sheet and its strong sponsor.
Valuation. Our DDM-derived fair value estimate of S$0.65 (6.7% discount rate, 0.5% terminal growth rate) is intact; this is equivalent to a fairly reasonable (in our opinion) 0.72x priceto-book. With an estimated total return of 17.7%, we maintain our BUY rating on Starhill. Starhill is also one of our top picks for the S-REIT sector. Key risks to our view include macroeconomic headwinds, foreign exchange risk and changing regulatory and taxation regimes.
SREIT – UBS
SREIT valuation guide
Overview
This report summarises key statistics on valuations, performance and the capital structure of REITs listed on the SGX. There are now 22 REITs, with a total market cap of US$23.3bn. Year-to-date, SREITs have outperformed developers by 7.7%.
Key statistics
We estimate SREITs are trading at 6.2% 2010 yield (+424bp to 10Y government bonds). We expect SREIT distribution per unit (DPU) growth of 2.9% p.a. (2010- 14E), with hospitality and retail REITs leading growth at 6.0% and 4.0%, respectively. Our price target for the sector implies 10% upside from the current share price.
Corporate news: hospitality, MLT acquisition, Q2 reporting season
Singapore's tourism sector set a new record with inbound visitors crossing the one million mark in a single month. The July milestone marks eight consecutive months of record arrivals. Elsewhere in logistics, Mapletree Logistics Trust deepened its presence in Japan through a S$200m acquisition of three distribution centres in the Kanto region of Greater Tokyo. The acquisition raises its Japan contribution from 17.8% of gross revenue to 23.7%. Meanwhile, Savills Singapore expects serviced apartment rental rates for the high- and mid-tier segments to increase by 5-10% this year after sliding 22% in 2009. The Q2 reporting season has been strong so far, with around 80% of SREITs under coverage reporting earnings that are either in line with forecasts or higher than expected.
Buy retail REITs FCT, Starhill and Suntec, and CDL Hospitality REIT
We like CDL Hospitality Trusts (CDLH) as it is the most liquid proxy of the tourism recovery and Starhill Global REIT, Frasers Centrepoint Trust (FCT) and Suntec REIT as they are beneficiaries of improved retail consumer spending.