Riding on positive reversions: DBS maintains ''BUY'' call on YTL's Starhill Global REIT with Target Price of S$0.89
DBS Group Research, January 31, 2013
Analyst Lock Mun Yee
Highlights
4Q12 results in line. 4Q12 gross revenues and net property income grew c.2-3% q-o-q and y-o-y. Higher income from its SG properties helps more than offset forex losses (Yen and AUD weakened by 10% and 3% respectively) and weaknesses in Chengdu performance (-13.9% y-o-y). The trust retained S$0.6m for working capital this quarter, putting YTD amount at S$1.4m. Taking that into account and netting off CPPU distribution, 4Q12 DPU rose by 12% y-o-y to 1.13cts. Full-year DPU came in at 4.39ct, which is on line with our forecast. NAV rose marginally by 2% to S$0.96 as the revaluation gains for its SG and Malaysia property were eroded by forex losses. Cap rates used for SG portfolio remained steady at 5.25% and 4.25% for retail and office assets, respectively.
Our View
Continue to be lifted by positive rental reversion. Wisma Atria’s retail sales growth was +23% q-o-q, 33% y-o-y, with a healthy footfall (+15% q-o-q, -2% y-o-y) post AEI work. On a full-year basis, retail sales and shopper traffic hit S$176m translating to S$115 psf of retail sales and occupancy cost of 28%. Going forward, earnings will be driven by (i) positive rental reversions for its SG properties as the gap between expiring and recent transactions narrowed. About 26% of its office leases in terms of NLA is due for renewal in 2013, and passing rent of S$8.20 psf pm is still below current signing rent of S$9.50. Meanwhile, the average monthly rent for Wisma’s retail is at S$32 psf, still below the asking rent of S$35 - $70 psf. (ii) 7% upward reversion of rent in June 2013 for its Malaysia Property (iii) an additional c.$3.8m p.a. of net income its recent Perth (Plaza Arcade) acquisition from 2Q onwards.
Interest savings and inorganic growth possible. While, 57% of its debt was up for refinancing, we understand talk is underway to refinance and break it into with smaller tranches with differing maturities. SGREIT is looking to replace them with unsecured loans which could increase the current unencumbered ratio to 78%, from 41% currently. This may potentially trigger a rerating of its MTN notes (current triple B-). Gearing remains healthy at 32%, providing the trust ample ammunition for acquisitions. We have not assumed any acquisitions but have prudently assumed 100% conversion of its CPPU as these are now trading in-the-money.
Recommendation
Maintain BUY at a higher S$0.89 TP. Our TP is raised to $0.89 as we factor in the acquisition of Perth Arcade, higher reversionary rents for SG portfolio and assume conversion of CPU. Upside could come from one-off accumulated arrears in rents from Toshin’s lease and upwards rent review due in Jun13 (not factored in yet) or new acquisitions.
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