Starhill Global REIT

Starhill Global REIT: Starhill Global's 3Q14 results were in line as it reported 5% y/y increases for both its distributable income and DPU to $27.3m and 1.27¢ respectively. This takes its 9M14 DPU to 3.76¢, also up 5%. Gross revenue dipped 0.4% to $48.6m, due to weaker contribution from China and Japan, but was partially offset by stronger performance of the remaining properties. NPI however rose 4.1% to $39.6m, supported by lower operating expenses, positive rental reversions for the Singapore portfolio and David Jones Building in Perth, Australia. This was dampened by lower revenue from Renhe Spring Zongbei in Chengdu, China, loss of income contribution from Japan divestment in Mar ‘14 and net foreign currency movements. Operationally, Starhill's Singapore portfolio, which comprises stakes in Wisma Atria and Ngee Ann City (67.1% of gross revenue), enjoyed higher NPI of $26m (+3.8%), thanks to positive rental reversions for both the retail and office units. NPI for its Malaysian properties (15.4% of gross revenue) was up 3.7% to $7.5m, largely due to lower expenses as a result of a one-time property tax rebate and reversal of property tax provision made in 1H14. Meanwhile, NPI for its Australian properties (10.4% of gross revenue) climbed 8.7% to S4.0m, benefitting from the 6.1% rental uplift at the David Jones Building following a lease review in 1 Aug ‘14. But NPI for its China assets fell 20.4% to $1.3m, which was blamed on the contraction of the high-end and luxury retail segment, resulting from the central government’s austerity drive and intensified competition from new and upcoming retail developments in Chengdu. Overall, the REIT’s portfolio occupancy was robust at 99.7% with a weighted lease to expiry of 5.9 years, while aggregate leverage was a comfortable 29.1% with an average financing cost of 3.15%. Going forward, Starhill guides that softer retail sentiment and visitor arrivals will continue to impact on the retail businesses in Singapore, although this could be partly mitigated by strong interest amongst retailers for prime Orchard Road retail spaces. Over in China, the high-end luxury retail segments will continue to be dampened by the slowdown in spending, with competition in Chengdu’s retail market expected to intensify, as a number of high-end retail malls are expected to enter the market in 2014. At the current price, SGREIT trades at an annualized 3Q14 yield of 6.4% and 0.87x P/B versus peer average of 6.3% yield and 0.99x P/B. Latest broker ratings as follows: CIMB maintains Hold with TP of $0.82 Daiwa maintains O/p with TP of $0.90 OCBC maintains Buy with TP of $0.90