Category: StarHill
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.
StarHill Gbl – OCBC
2Q10 in line; valuations still compelling
2Q10 in line. Starhill Global REIT reported 2Q10 revenue of S$37.2m, up 11.4% YoY but down a marginal 1.1% QoQ. Revenue was boosted by the acquisition of David Jones Building in Perth, Australia on 20 Jan 2010. This was partially offset by lower revenue from the office component of Starhill’s Singapore assets. Net property income of S$28.8m was up 6.9% YoY but down 1% QoQ. Starhill declared a 2Q10 DPU of 0.91 S cents, down 52.1% YoY (because of an enlarged unit base post-rights issue) and down 4.2% QoQ. Starhill acquired Malaysian assets Starhill Gallery and Lot 10, on 28 Jun, and made its first distribution payment on the convertible preferred units issued in relation to the acquisitions. The results were in line, with revenue and NPI within 3% of our estimates. DPU was just 3% higher than our 0.88 S cents estimate.
Portfolio performance steady. Office and retail occupancy at Ngee Ann City (NAC) was steady at 95.6% and 100% respectively, flat compared to 31 Mar. Wisma Atria (WA)’s retail occupancy declined 80 basis points from 31 Mar and 150 bps from 31 Dec to 98.5%. WA’s office occupancy also declined to 81.4%, down 60 bps from three months ago but up 390 bps compared to six months ago. Elsewhere, occupancies were stable at 100% for Starhill’s China and Australia assets. The Japan assets, meanwhile, achieved an impressive 700 bps increase in occupancy from 31 Mar to 95.6%; this as Starhill brought in three new tenants over 2Q10. Starhill is leveraged at 30.8% debt-to-assets as of 30 Jun; it has already secured sufficient financing to address the S$570m in debt maturing later this year.
Valuation. We have adjusted our expense assumptions marginally with FY10-11 DPU up 0.5% and 1.1% respectively to 3.84 S cents and 3.96 S cents. Starhill is up 8.3% since our initiation on 02 Jul. Nevertheless, we continue to find valuations compelling at a significant 35% discount to book value. We believe this discount is unjustified when considering Starhill’s high-quality assets, healthy balance sheet and its strong sponsor. 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 16.7%, we maintain our BUY rating on Starhill. Key risks to our view include macroeconomic headwinds, increasing competition in the retail space, foreign exchange risk and changing regulatory and taxation regimes.
StarHill Gbl – BT
Starhill gets $496m facility
STARHILL Global Reit secured a three-year, $496 million facility from a five-bank syndicate. DBS, OCBC Bank, Commonwealth Bank of Australia, Societe Generale and ING Bank took part. OCBC was facility and security agent.
The facility includes a $50 million revolving credit facility and will be secured over Starhill Global REIT Trustee’s interest in shopping and office complex Ngee Ann City.
The Reit manager said the facilities will be used to refinance $447 million of secured debts comprising a $220 million two-year facility of which $67 million is outstanding and a $380 million five-year term loan, both maturing in September 2010. The rest of the money raised will be used for working capital and general corporate funding.
SREITs – OCBC
Guidance could diverge at 2Q10 results
Strong economic numbers at home. Singapore is likely to become Asia’s fastest-growing economy this year
on the back of increasing tourism numbers, rising employment, and strong manufacturing numbers. Economists are increasingly turning positive on Singapore, with their GDP estimates now trending on the upper end of, or even higher than, the official Ministry of Trade & Industry estimate of 7-9% growth for 2010. The median forecast, according to Bloomberg, for real GDP growth this year is 10.65% with estimates ranging from 9.7% to 13%.
Guidance could diverge at 2Q10 results. Singapore’s strong growth numbers are being achieved against a backdrop of moderating global growth. Mixed economic data in the US and the threat of fiscal austerity measures being employed to address sovereign debt worries in Europe could portend sluggish global economic growth in 2H10. While Singapore is also vulnerable, dynamics at home are still going strong. As such, we believe we may see a divergence in guidance given by REIT managers as Singapore-listed REITs begin reporting 2QCY10 earnings from this week onwards. This divergence could be driven by the degree of the REIT’s exposure to Singapore versus other economies. Multi-geography REITs, in our view, could be quicker to adopt a cautious tone on the outlook for earnings performance this year. In contrast, Singapore-skewed retail or industrial REITs may report stronger guidance and/or more aggressive growth plans.
Focusing on value. We remind investors that while market attention has been on a correction, the FTSE REIT index is, in fact, up 2.3% year-to-date at 632.16 points – a gain of 126% against its March 2009 low. Valuations for several REITs, especially the larger cap plays that are trading at a significant premium to book value, are increasingly looking fairly priced, in our opinion. As such, we are maintaining our NEUTRAL view on the S-REIT sector. We prefer mid-to-large cap REITs that have a stable-to-positive earnings outlook, strong balance sheets, and that are still trading at attractive yields and discounts to book value. Under these criteria, we like Starhill Global REIT, which trades at a 30% discount-to-book and derives some 60% of its gross revenue from Singapore where it holds stakes in Wisma Atria and Ngee Ann City. We also like Frasers Centrepoint Trust (FCT), which focuses exclusively on suburban retail in Singapore. At 2Q10 results, FCT is likely to disclose details on the proposed asset enhancement of Causeway Point, which could potentially lift passing rents and income at its largest asset, unlocking value for unitholders.
Shopping Malls – BT
Rents at suburban malls catching up with Orchard Rd
Upper levels in such malls already drawing higher rents than equivalent space in Orchard and Scotts area, says DTZ
Rents at suburban malls in Singapore are fast catching up with those for prime Orchard Road retail space as neighbourhood malls draw increasing shopper numbers and more interest from tenants.
The difference between prime Orchard Road rents and suburban rents narrowed to just 9 per cent in Q2 2010 – from as much as 24 per cent at the start of 2009 and 21 per cent in Q1 2005 – according to CB Richard Ellis (CBRE).
In fact, upper-storey space at these suburban malls is already more expensive than upper-storey space in the Orchard Road and Scotts Road area, according to data from DTZ.
The rental gap tightened as Orchard Road rents fell for the seventh consecutive quarter while suburban rents continued to edge up in the second quarter of 2010, CBRE’s data shows.
Prime Orchard Road rents fell to $31.10 per square foot per month (psf pm), reflecting a 3.4 per cent decrease from $32.20 psf pm in Q1 2010.
Suburban malls, on the other hand, saw a 1.4 per cent quarter-on-quarter increase in prime rentals to $28.50 psf pm.
And when it comes to retail space on the upper floors, suburban malls are in fact fetching more than their Orchard Road and Scotts Road counterparts.
According to DTZ, upper-storey rents at suburban malls inched up 0.4 per cent quarter-on-quarter to $22.90 psf pm in Q2 2010, while upper-storey rents in the Orchard Road/Scotts Road area stayed flat at $20.50 psf pm.
Analysts said that rents in the Orchard Road area are depressed after a large amount of new supply – from malls such as Ion Orchard, 313@somerset and Orchard Central – came onstream over the past year.
‘Competition in the Orchard Road and Scotts Road and other city areas has intensified and the increased range of retail choices has rendered consumers to be more selective in their purchases,’ said Anna Lee, DTZ’s associate director for retail.
‘Retailers, particularly in the newer malls, are adjusting to the vagaries of consumer preferences and resulting in early termination of leases in some cases,’ she added.
In contrast, rents in the suburban areas continued to edge up in the second quarter of 2010. Suburban malls, with their built-in catchment of shoppers and mass market offerings, largely performed better than malls in the city during the financial crisis.
These malls, which draw more and more shoppers every year, are now able to command higher rents from tenants.
‘Generally, 2009 shopper traffic at our suburban malls is higher than that in 2008,’ said a spokesman for CapitaMall Trust (CMT). CMT has eight suburban malls in its portfolio.
Frasers Centrepoint Trust (FCT), which owns four suburban malls, also said that footfall across its portfolio rose 6 per cent from the 2008 financial year (October 2007 to September 2008) to the 2009 financial year (October 2008 to September 2009). The figures exclude Anchorpoint, where traffic counters were removed for asset enhancement works.
The increased visitor numbers have translated into higher rents for both retail trusts.
FCT said that in the first six months of its 2010 financial year (October 2009 to March 2010), its portfolio achieved average rental reversions of 4.5 per cent. And for the suburban malls in CMT’s portfolio, the rate of average rental growth per year ranged from 1.1 per cent to 2.3 per cent in Q1 2010.
Developers are extremely bullish on the potential of suburban retail space here.
Australian developer Lend Lease, which paid $749 million for a mixed-use land parcel in the Jurong Lake district, intends to build a suburban shopping mall on most of the site.
Lend Lease, which owns the 313@somerset and Parkway Parade shopping malls here, is required to set aside a mandatory 30 per cent of the gross floor area for office use. But the remaining 70 per cent will be used solely for retail space, said Ooi Eng Peng, executive officer for retail and investment management in Asia for Lend Lease.
‘The mall will be the Parkway Parade of the west,’ Mr Ooi said. Suburban malls offer good prospects for developers who can come up with the right tenant and product mix for the surrounding catchment population, he added.
Looking ahead, the gap between prime Orchard Road rents and prime suburban rents will narrow even more over the rest of this year as Orchard Road rents dip further.
‘We expect prime Orchard Road rents to dip 5 per cent to 10 per cent in 2010 due to the settling of business and trading patterns,’ said Letty Lee, CBRE’s director for retail services. ‘But prime suburban rents are likely to see a 3-5 per cent upside in the same period, underpinned by catchment demand.’
But it is not all doom and gloom for malls on Singapore’s best-known street; analysts expect that over the next two to three years, rents in the Orchard Road will rebound.