• 1Q14 DPU at 1.24 S cents
• 8.9%-11.7% reversions achieved
• Expect AEIs and capital recycling

1Q14 growth distorted by Toshin arrears

Starhill Global REIT (SGREIT) released its 1Q14 results last evening. Gross revenue came in at S$49.2m, down 8.3% YoY, while NPI tallied S$39.1m, down 6.7%. The headline growth figures, we note, were distorted by one-off receipt of net rental arrears from Toshin master lease in 1Q13. Excluding this, revenue and NPI would have climbed 1.8% and 2.5%, respectively. Similarly, DPU of 1.24 S cents was 9.5% lower. However, after stripping out the Toshin payout, DPU would have registered a 5.1% increase. We deem the results to be in line with expectations, as the quarterly distribution met 24.1%/24.8% of our/consensus full-year projections.

Robust underlying performance

The Singapore portfolio again hit a high note in 1Q, clocking a 7.6% growth in NPI (excluding Toshin arrears) as a result of improved occupancies and high secured rentals from both the retail and office segments. While Wisma Atria retail sales efficiency of S$130 psf was a tad lower than the S$138 seen in 2013 due to ongoing tenant relocations/renovations, a strong 8.9% rental reversion was achieved. For the Singapore offices, rents for leases committed during the quarter were also 11.7% higher than preceding contracted rates. In Australia, we note that SGREIT continued to benefit from incremental income from Plaza Arcade, thereby pushing the Australia assets’ NPI up 9.9% YoY. This helped to offset lower contribution from its Malaysia and China assets, which were impacted by weaker Malaysian Ringgit and intense competition respectively.

Maintain BUY with unchanged fair value

Looking ahead, SGREIT disclosed that it will continue to refine its portfolio and explore potential asset enhancement initiatives (AEIs). The redevelopment plans to tap unutilised space between David Jones building and Plaza Arcade are now in planning stage, and may be executed in 2H14 in our view. We are also positive on SGREIT’s recent move to divest Holon L in Japan. We do not rule out more divestments going forward, which would not only turn SGREIT into a more Singapore-centric landlord but also provide it with resources to implement its AEIs. Maintain BUY and unchanged S$0.90 fair value on SGREIT.

Source: OCBC Research - 30 Apr 2014