Starhill Global

Starhill Global: 4Q14 results were largely in line, with DPU rising 4.9% y/y to 1.29¢ and taking FY14 DPU to 5.05¢ (+5.0%). Gross revenue slipped 0.4% to $48.9m, dampened by the softer retail market in China and Japan properties, but was partially offset by stronger performance from Singapore and Australia. NPI however improved 2.0% to $39.6m, supported by positive rental reversions for the Singapore portfolio and David Jones Building in Perth, Australia. In addition, lower operating expenses incurred by the overseas properties except for the Malaysia portfolio, and reversal of provision for rental arrears in Japan contributed to the higher NPI. Operationally, Starhill's Singapore portfolio (68% of gross revenue), which comprises stakes in Wisma Atria and Ngee Ann City, enjoyed higher NPI of $26.5m (+3.9%), thanks to positive rental reversions for both the retail and office units. NPI for its Malaysian properties (15% of gross revenue) declined 1.7% to $7.1m, largely due to higher property tax expense and depreciation of the Malaysian ringgit against the Singapore dollar Meanwhile, NPI for its Australian properties (10% of gross revenue) climbed 6.8% to S3.9m, benefitting from the 6.1% rental uplift at the David Jones Building following a lease review on 1 Aug ‘14. But NPI for its China assets fell 28.5% 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 remained steady at 99.6%, with average lease expiry of 5.7 years, while leverage ratio dipped 0.5ppt to 28.6%, with average interest cost of 3.16% and debt tenor of 3.3 years. Going forward, Starhill guides that the retail landscape in Singapore remains tepid, amidst softer retail sentiment and visitor arrivals, while 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 FY14 yield of 6.0% and 0.9x P/B versus peer average of 5.9% yield and 1.03x P/B. Latest broker ratings: Daiwa maintains Outperform with TP of $0.92.