Starhill Global

Starhill Global: 1Q14 results were in-line with expectations, with distributable income at $27.0m (-6.7%) and DPU at 1.24¢ (-9.5%). Excluding the 1Q13 one-time payment of $5.3m in accumulated rental arrears from master tenant Toshin at Ngee Ann City, core DPU would have been up 5.1%. Net property income (NPI) fell 6.7% to $39.1m, in tandem with a 8.3% decline in gross revenue of $49.2m. Excluding the Toshin Payout, 1Q14 revenue and NPI would be 1.8% and 2.5% higher respectively, driven mainly by the strong S’pore portfolio performance and full-quarter contribution from Plaza Arcade in Australia which was acquired in 1Q13. NPI was weighed further by lower contributions from properties in Japan (-10.5%), Malaysia (-6%), and especially China (-34.4%), whose Renhe Spring Zongbei Mall in Chengdu, continues to languish amid stiff competition and the slowdown in the high-end luxury retail segment. Overall, the REIT’s portfolio occupancy stood was robust at 99.4% with a weighted lease to expiry of 6.2 years, while aggregate leverage was a comfortable 29.6% with an average financing cost of 3.24%. Going forward, Starhill is eyeing a ~7.2% increase in rent when the master tenancy with Katagreen Development for Starhill Gallery and Lot 10 is up for review in 2016 in Malaysia. For Australia, it expects rent for the David Jones Building to go up by ~6% in Aug ’14, while in Singapore, there is potential for leasable area expansion when Wisma Atria is linked up with the new Thomson Line Orchard MRT in 2021. Heading into 2014, Starhill guides that the Asian economies should continue its growth as they leverage on the progressive recovery in most advanced economies. Against this backdrop, the REIT will continue to create value for Unitholders through active asset management efforts and source for yield accretive acquisitions of prime assets in its core markets. At current price, Starhill trades at an FY14 yield of 6.2% and 0.87x P/B versus peer’s average of 6.5% yield and 0.98x P/B. Latest broker ratings as follows: Maybank-KE maintains Hold with TP $0.84 OCBC maintains Buy with TP $0.90 UOB Kay Hian maintains Buy with TP $0.93