Starhill Global – DBSV
A brightening star
• In line with expectation; 1H DPU accounts for 49% of our forecast
• Rental reversion and stronger portfolio performance are expected to offset the vacuum for Wisma Atria AEI
• Maintain BUY, S$0.73
In line with expectation. Gross revenues and NPI were higher by 18.9% yoy and 23.4% yoy to S$44.2m and S$35.6m respectively. This was mainly attributed to new contribution from its enlarged portfolio offsetting lower earnings from negative rental reversions and weaker Japanese assets’ performances. On a q-o-q basis, gross revenue and NPI dipped marginal by 3.5% and 4.0% respectively. Distributable income (net CPPU holders) was S$20.2m (+14.3% yoy, -2.8% qoq), which translated to a DPU of 1.04 Scts. 1H forms c.49% of our full year estimates.
Operations on track. Pre-commitment of the additional prime space at the 2nd and 3rd level at Wisma Atria is well ahead of the 2Q12 completion date, with almost 75% taken up by existing tenants and new-to-market retailers at higher rents (in excess of 50%) and the remaining 25% currently under negotiation. Meanwhile, office demand remained healthy with office occupancy at Wisma Atria and Ngee Ann City strengthening to 92% and 96.6% respectively, and monthly signing rents at S$9.0 – S$10.0 psf per mth, up from S$8.5 – 9.0 psf a quarter. New tenants in the 1H include Chanel, H&M & Sea Folly. Going forward, additional rental revenue from the completed AEI works at Starhill Gallery, improving office occupancies and the upward rental reversion of David Jones lease in August should offset the expected erosion in retail revenue of Wisma Atria as the AEI works intensify towards 4Q11/1Q12.
Maintain BUY, TP S$0.73. The stock offers FY11/12F yields of 6.6-6.9%, translating to a total return of 19%. Gearing remains healthy at 30.9% with no major refinancing needs till 2013. DPU for FY11/12 was nudged down marginally to account for the lower occupancies at Wisma Atria retail space. Re-rating catalyst will come from potential new acquisitions that are currently not factored in our numbers.
Starhill Global – CIMB
Meeting the mark
• In line; maintain Outperform. 2Q11 DPU of 1.04cts (+14% yoy) meets our estimate and consensus, at 25% of our full-year number. 1H11 DPU forms 50% of our forecast, Positives were improving occupancy and achieved rents for its office portfolio though rental reversions were expectedly negative. Starhill has secured 75% pre-commitments with good reversions for space under AEI in Wisma Atria and could beat its ROI target of 8%. Legal proceedings against Toshin are still ongoing. We continue to like the stability afforded by its master and long leases, low asset leverage and well-located assets. Downside should be limited by current valuations
of 0.7x P/BV and forward yields of 6.5%, the highest for retail REITs while re-rating catalysts could come from improving office occupancy, positive rental reviews for Toshin leases, higher-than-expected returns from AEI and accretive acquisitions. No change to our DPU estimates or DDM target price of S$0.74 (discount rate 8.4%).
• Improving occupancy. Continued negative rental reversions for offices were mitigated by improving occupancy at both Wisma Atria and Ngee Ann City, where occupancy improved qoq by 1.7% pts and 1.2% pts respectively. Demand for office space by fashion and other retailers remained healthy, with leases signed at S$9-10.50psf. With rents picking up, management expects negative rental reversions to stabilise by 3Q-4Q12.
• AEI at Wisma Atria well-received. Starhill has secured 75% pre-commitments, with good reversions for space under AEI in Wisma and appears on track to beat its ROI target of 8%. Its AEI has been well-received and aided in rental negotiations and reversions for nearby leases. The worst-hit quarters should be 4Q11 and 1Q12, though work disruptions could be minimised by a 2-phase TOP and the relocation of tenants to temporary holding units. With the bottoming out of prime retail rentals, Starhill appears poised to capture rental upside on completion of the AEI in 3Q12.
• Rent reviews for 2011 underway. Legal proceedings between Starhill and Toshin over a rental review mechanism for the Toshin lease are ongoing. Rental step-up of about 6.1% on its David Jones long lease will kick in in Aug 11.
FCT – DBSV
Waiting for year-end bonus
At a Glance
• In line with expectation and on track to meet our full year estimates.
• 51% of completed CWP AEI works at prime levels to underpin earning growth; DPU accretive Bedok Point acquisition likely within next quarter.
• Maintain BUY, TP $1.73 for 17% total return
Comment on Results
FCT 3Q results is in line with expectations. The 11.1% and 13.4% yoy decline in gross revenue and net property income to S$27.3 m and S$18.7 m respectively were expected. Lower contribution from Causeway Point (CWP), currently under
renovation, was the key factor but performance was partially offset by the stable occupancies at its other retail malls as well as healthy rental reversions (+3.8%) enjoyed in 3Q. On a q-o-q basis, gross revenue and NPI dipped marginally by 3.5% and 4.0% respectively. Distributable income was S$15.08m (-5.8% yoy, -5.7% qoq) including the S$0.3m retained from the previous quarter, translating to a DPU of 1.95 Scts. DPU achieved in the first 3 quarters form c.72% of our full year estimates and we believe that the group is on track to meet our estimates.
Improving occupancies at CWP to underpin earning growth. Portfolio occupancy increased from 83% a quarter ago to 88% in 3Q with the completion of 51% of the AEI works at CWP. They are mostly at B1 and Level 1, the most prime space of the mall. CWP’s occupancy rate rebounded from 69% to 78% and should hover above 90% from 4Q11 onwards. About 95% of the AEI works has been pre-committed and is expected to see at least a 20% increase in average rent from the current S$10.2 psf pm post AEI works. Meanwhile, the group has refinanced S$260m with a 5-year loan facility at a more attractive rate, lowering all-in interest rate from 3.83% to about c.3.68% and should enjoy some interest savings going forward. Gearing is at a healthy 31.7%.
Recommendation
We believe that the group is on track to meet our estimates on the back of strong portfolio performance. Our forecasts exclude acquisition of Bedok Point, which will likely materialise within the next quarter. The stock offers FY11/12F yields of 5.4%-5.7%, translating to a total return of 17%.
ART – DBSV
Singapore/London power ahead
• 2Q11 DPU of 2.33 Scts above street and our estimates
• Singapore and London continue to perform, lower than expected interest costs lifts net margin
• BUY, TP revised to S$1.42 and offers 24% total return
2Q11 DPU of 2.33 Scts above estimates. Revenues and gross profits were higher by 65% and 98% respectively to S$73.1m and S$41.2m. This was largely due to the contribution from its acquisition of 28 serviced residences in Oct’10, which more than offset the divestment of Ascott Beijing and Country Woods Jakarta. Singapore operations came in stronger than expected with portfolio wide RevPAU increased 7% y-o-y to S$147/night. Distributable income was 127% higher at S$26.3m due to interest savings from refinancing activities (3.2% vs 3.5% forecast), translating to a DPU of 2.33 Scts. The group also wrote up its book value by S$82.8m, resulting in a 4% hike in NAV /share to S$1.33.
Singapore and London power on while Japan was weak from Earthquake aftermath effects. The group’s refurbishment works is bearing fruit- judging by the performance of its Singapore properties, which saw RevPAU
hikes in excess of 30% for its refurbished units in Cairnhill and Liang Court. Its London operations also posted a 15% increase in RevPAU benefiting from renovation works and should continue to perform well after the completion of its refurbishment of Trafalgar Square property. Looking ahead, Japan is expected to remain weak post the Earthquake but their rental-housing portfolio, which has proven to remain resilient, should limit the impact.
BUY, TP upped to S$1.42/share. Our forward DPU estimates are raised c6.0% from (i) higher RevPAU assumptions in London and Singapore; and (ii) lower than expected interest costs achieved. Trading at an attractive forward yield of 7.2-7.3%, >100bps above the S-REIT sector peers. Re-rating catalysts will hinge on higher than expected operational performance and/or acquisitions.
MLT – DBSV
Acquisitions remain in focus
At a Glance
• 2Q11 DPU of 1.6 Scts (+7%y-o-y) was in line • Operationally stable; further acquisitions to underpin earnings upside
• Maintain BUY and S$1.07 TP based on DCF
Comment on Results
In Line 2Q11 results. Gross revenue and NPI for the quarter rose 26% y-o-y (+6% q-o-q) and 25% y-o-y (4% q-o-q) to S$65.8m and S$57.1m respectively, lifting distributable income to about S$38.8m (+26% yoy, +3% qoq). The robust performance was largely due to an enlarged portfolio size as well as strong organic growth of 5%, backed by positive rental renewals and high occupancies. As a result, DPU rose by about 7% to 1.6 Scts. Separately, the group has also announced a 0.09ct bonus payout from the divestment gain of 2 properties to the unit holders over the next 3 quarters.
The group has successfully renewed 52,000 sqm of space at higher average rentals. Average portfolio occupancy remains robust at 98.9%. While the group has another 169,000 sqm of space to be renewed for the remaining year, management guided that about 50% is currently under negotiation and is on track to lease out the remainder. The manager also intends to continue to reconfigure some of their portfolio single-tenanted space to multi-tenanted building to further optimize property yields.
Further acquisitions a possibility. While Singapore remains its core business area, the group is also actively looking to grow its overseas portfolio in markets like China and Korea. The group recently signed MOUs to develop 2 distribution centres in Zhengzhou with total GFA of 144,000 sqm recently, which should contribute positively in the medium term.
Recommendation
BUY, TP S$1.07 maintained. Backed by strong economic fundamentals and a robust balance sheet, MLT remains on a growth track. Forward yields of 7.1-7.3% remain attractive, given its large cap and strong sponsor status.