Category: StarHill
Starhill Global – OCBC
Healthy rental reversions at Wisma Atria
- 4Q14 DPU up 4.9% YoY to 1.29 S cents
- 17% rental reversion at Wisma Atria (retail)
- Reiterate BUY with higher FV
4Q14 DPU came in within expectations
Starhill Global REIT (SGREIT) reported its 4Q14 results which met our expectations. Revenue slipped slightly by 0.4% YoY to S$48.9 due to weaker contribution from its China and Japan assets (partly due to FX impact), but this was partially mitigated by stronger performance from its Singapore properties. Despite the lower revenue, NPI rose 2.0% YoY to S$39.6m, resulting in an improvement in NPI margin by 1.9 ppt to 81.0%. 4Q14 DPU was up 4.9% to 1.29 S cents. For FY14, revenue fell 2.7% to S$195.1m, forming 98.2% of our full year forecast. DPU of 5.05 S cents represented an increase of 5.0% (excluding a one-off 0.19 S cents Toshin payout in 1Q13) and constituted 99.3% of our FY14 projection.
Robust rental uplift attained at Wisma Atria (retail)
The brightest development during 4Q14 came from the 17% positive rental reversions accomplished for leases committed at Wisma Atria (retail). This was underpinned by the renewals and new leases signed for the prime façade units. Management remains positive on the outlook of rental reversions at Wisma Atria (retail) over the next 3-6 months. Although shopper traffic and tenants’ sales at this mall fell 3.1% and 5.6% YoY to 7.2m and S$139 psf in 4Q14, respectively, which reflects headwinds in the retail sector, we believe assets which are strategically located in prime areas will continue to be a draw for international retailers. SGREIT’s overall portfolio occupancy improved from 99.1% to 99.6% due to recovery in its Japan occupancy rates.
Maintain BUY
SGREIT’s financial position remains healthy, with a comfortable gearing ratio of 28.6%, as at 31 Dec 2014. Its borrowings are 100% hedged via a combination of fixed rate debt and interest rate erivatives. We fine-tune our assumptions marginally and roll forward our valuations, thus deriving a higher fair value estimate of S$0.93 (previously S$0.90). We continue to like SGREIT for its attractive valuations and distribution yields vis-à-vis its peers. The stock is trading at FY15F P/B and yield of 0.88x and 6.3%, respectively. Maintain BUY.
Starhill Global – DBSV
Further savings from MTN issue
- Refinancing RM330m senior bonds results in interest savings of S$0.7m p.a.
- Diversified income stream and large proportion of master leased income offers resilience amid uncertainty in Singapore’s retail outlook
- Upgrade to BUY, TP raised to S$0.90
Prudent capital management amid interest rate uncertainty. SGREIT announced that it has refinanced its outstanding MYR debt that was previously used to fund the acquisitions of Lot 10 and Starhill Gallery. A five year senior MTN was issued at a lower effective interest rate of 4.75% p.a. (vs. 5.35% previously), thereby extending the REIT’s debt expiry profile to 3.8 years from 3.2 years. We estimate that this will generate interest savings of c.S$0.7m p.a., or 0.4Scts per unit. As it stands, 100% of SGREIT’s total borrowings have been hedged into fixed rate debt, thereby providing investors with visibility and certainty about interest expense during a period of interest rate uncertainty.
Income resilience despite headwinds in Singapore’s retail sector. In our earlier report titled “Diving deep into the nuances of the retail sector” (17 Sep 14), we highlighted SGREIT as having one of the most resilient income streams among the Singapore-based retail and commercial SREITs, due to its geographic and asset class diversification, as well as sizeable base of income derived from master leases. We estimate that only c.30% of the REIT’s total revenue is directly exposed to Singapore’s retail sector, through Wisma Atria and level 5 of Ngee Ann City. As both assets are located in the prime Orchard Road area, we believe that they will be beneficiaries of the improvement in visitor arrivals in 2H14 and hence remain resilient.
Upgrade to BUY, TP raised to S$0.90. We like SGREIT for its resilience amid concerns about interest rate volatility and retail sector headwinds. At current prices, the stock offers dividend yields of 6.3-6.5% for FY14/15F, which is attractive, in our view. We upgrade the stock to BUY, with a higher TP of S$0.90.