Category: StarHill
Starhill – BT
* Holders offered 1 share for every share held at S$0.35 each
* Malaysia’s YTL to take up to 75% of rights issue
SINGAPORE – Singapore’s Starhill Global Real Estate Investment Trust on Monday proposed a rights issue to raise S$337.3 million (US$231.7 million) to reduce debt and get new funds for possible acquisitions.
The property trust, which is controlled by Malaysia’s YTL Corp, will offer shareholders one new unit for every existing share held at S$0.35 per rights unit – a discount of about 45 per cent to the last closing price of S$0.64.
YTL, whose units own about 26.6 per cent of Starhill, will take up its entire allotment of rights shares and will subscribe for up to 75 per cent of the rights unit, the property trust said in a stock market filing.
DBS is the sole financial adviser to the deal and the rights issue will be fully underwritten by DBS, Merrill Lynch and Credit Suisse.
Starhill’s assets include stakes in Orchard Road malls Wisma Atria and Ngee Ann City.
SREITs – DBS
Catching up
• Results in line with expectations
• Bulk of 2009 refinancing needs addressed, cashflow is still key
• Lagged developers in recent performance, room to catch up
• Preference for suburban retail over office segment
Results generally in line. Slower pace of topline growth, +14% yoy and –0.3% qoq, was affected by the weaker hospitality reits performance. NPI improved a better 14% yoy and 4% qoq due to cost containment measures by the Sreits. Distribution income was up a smaller 9% yoy and 0.1% qoq as higher interest cost and more prudent payout policy eroded bottomline growth.
Refinancing concerns abating, cashflow preservation still key. With 75% of the Sreit debt due in 2009 already locked in 1Q09, concerns over credit availability is abating. Nevertheless, cashflow preservation is still key given that higher average cost of funding and downward pressure on rents from weaker economic prospects are likely to result in negative DPU growth over the next 2 years. In this regard, Sreits are exploring other avenues of cashflow retention, including lowering dividend payout and dividend reinvestment scheme.
Be selective. Sreits have lagged developers in the recent price run up and we see room for catching up. In terms of valuation, Sreits are trading on an average 0.5x P/bk NAV and offer average FY09 yield of 10%. We continue to like the Sreits for its attractive valuations, however, in view of the recent run-up we would be more selective at this point. Our top buys remain FCT, Suntec, Parkway Life and Starhill Global. FCT offers dividend yield of 8.2-8.6%, higher than its comparable peers and its pure suburban retail exposure appears more resilient. Suntec is yielding 11.8-10.3% over FY09-10. Recent debt renewal exercise has removed refinancing needs till 2011. We continue to like Parkway Life for its ‘base plus’ revenue model, low gearing and minimal refinancing risk. We have upgraded Starhill Global to Buy with TP of $0.70. Starhill is yielding c12% FY09-10. Newsflow of increased competition from soon-to-open malls have been factored into current share price. The upside risk at this point is the potential of spillover effect of increased pedestrian traffic once these malls open. We have downgraded AiT to Hold purely on valuation grounds after the recent surge in share price. The risk for the Sreit sector at this point remains the possibility of further fund raising if share prices continue to power up.
Link – Tables
StarHill Gbl – DBS
Results in line
At a glance
• Results were in line with our estimates
• 39% of space up for renewal in 2009-2010
• Inexpensive but catalyst appear lacking in near term
• Maintain HOLD, TP S$0.60
Comment on Results
Stable performance. Starhill Global REIT (SGREIT) reported 1Q09 results in line with our expectations. Gross revenues and NPI grew by 13% and 17% to S$34.3m and S$27.1m respectively. NPI margins improved to 80% from 76% due to (i) higher revenues post its Toshin rent review in July’08, (ii) positive rental reversions for certain office space (+110% from preceding rents), (iii) aided by savings from property rebates enjoyed during the quarter. Distributable income came in at 7% higher yoy, translating to a DPU of 1.87 Scts. For 1Q09, SGREIT is retaining c.5% of income available for distribution for working capital purposes.
Strong financial metrics. Gearing remained relatively low at 30%, interest cover at 4.9x. while NAV stands at S$1.43.
39% of space up for renewal in FY09-10. Looking ahead, SGREIT has c. 15%(FY09) and 24%(FY10) of its income up for renewal in an increasingly tough operating climate. We estimate asking rents for its office and retail space to decline by 10-50% over the next 2 years. Vacancy levels is also estimated to increase by 5 -10%.
Recommendation
Maintain HOLD, TP maintained at S$0.60. SGREIT currently trades at 0.3x P/BV, below peers average of 0.4x P/BV. Newsflow from discretionary shopping is expected to continue remain lackluster, capping re-rating opportunities. As such, maintain HOLD, TP $0.60. Currently, SGREIT offers a FY09-10 yield of 14-15%.
StarHill – Macquarie Research Equities
Event
Post the change in shareholding of Starhill Global REIT (SGREIT) and its management early this year, we revise our estimates in light of the weaker economic outlook in 2009. Our DCF valuation and target price is now S$0.58 (from S$1.56 pre the strategic review) and we maintain our Outperform recommendation.
Impact
Given the significant increase in new Orchard Road supply of 1.2m sq ft within this year (660k sq ft from ION Orchard, 250k sq ft from Orchard Central, and 294k sq ft from 313 sq ft at Orchard), we expect prime retail rents to fall ~10−13% this year. We have assumed that SGREIT’s retail occupancy falls to 88−90% from 96−99% by 2010.
As the bulk of the revenue from Ngee Ann City is secured under the Toshin master lease, the focus will be on maintaining performance of Wisma Atria basement retailers. The potential uplift in basement traffic once ION Orchard opens by June 2009 could boost sales and may provide some support for renewal rents.
Gearing is one of the lowest in the sector at 31% and the company has healthy interest cover of 4.3x. The majority of borrowings of S$671m is to be refinanced only in September 2010. As its S$380m CMBS was collateralised against its Orchard Road assets, which were valued at S$1.8bn as of December 2008, we see little refinancing risk given the low 20% LTV. Management is looking to refinance this at the end of 2009/early 2010.
The 2009 budget provided for 40% commercial property tax rebates, which SGREIT will pass through to tenants, though possibly not across the board. The group is considering rebating loyal tenants but details are still being deliberated at the board level.
Earnings revision
FY09−11 DPU estimates were lowered by 22−30% on lower retail rents and occupancy, as well as higher interest rates upon refinancing.
Price catalyst
12-month price target: S$0.58 based on a DCF methodology.
Catalyst: Potential uplift in basement traffic once ION Orchard opens in June 2009. Better than expected renewal rents.
Action and recommendation
Maintain Outperform. The stock has no refinancing requirements this year, is trading at a 70% discount to NAV/unit of S$1.44 and offers an attractive 14.6% FY09 yield. In the retail space, our preference is for CapitaMall Trust (CT SP, S$1.07, OP, TP: S$1.45) as we believe suburban retail rents will be more resilient than prime in a downturn.
StarHill Gbl – DBS
Not Shining yet
Starhill Global Reit (Starhill) reported FY08 results in line with expectations. Unitholders will receive DPU of 7.17 cts , translating to a 14% yield. Looking ahead, while we view that the trust should be able to deliver relatively stable DPU, headwinds from weaker consumer discretionary and tourism spending could limit re-rating opportunities in the near term. As such, maintain HOLD, TP$0.60
Results in line. Starhill Global Reit (Starhill)’s FY08 distributional income of S$69.4m, DPU of 7.17 Scts were in line with expectations. Gross revenues and gross profits increased 24% and 25% to S$127.0m and S$95.9m respectively, driven by (i) higher rentals achieved through FY08, (ii) 19.75% Toshin kicker from Jun’08.
NAV of S$1.44. The trust recorded a revaluation loss of S$160.9m on its properties, resulting in a NAV of S$1.44, compared with S$1.61 a year ago. Gearing inches up slightly to 31%, which remains relatively low amongst the SREIT space.
FY09-10 DPU yield of c.14%. Moving ahead, we estimate DPU yields to remain relatively stable, as the reit enjoys the full year contribution from the positive Toshin rent review which offsets our estimated 5% drop in portfolio occupancies and a 20%-10% fall in asking rents its office space and retail space respectively.
HOLD, TP S$0.60. Re-rating catalyst appears lacking in the near term, due to anticipated worsening newsflow of a further tightening of consumer and tourist spending. Our DCF-based TP is adjusted slightly upwards to S$0.60 as we roll forward our numbers.