• 3Q14 DPU rose 5.0% YoY to 1.27 S cents
• Singapore portfolio remains solid
• Strong balance sheet

3Q14 DPU came in within expectations

Starhill Global REIT (SGREIT) reported a decent 5.0% YoY growth in its 3Q14 DPU to 1.27 S cents despite a marginal 0.4% dip in gross revenue to S$48.6m. This was aided by a solid 3.5 ppt YoY increase in its NPI margin to 81.4%. 9M14 DPU of 3.76 S cents represented an uplift of 5.0% if we exclude a one-time payout of 0.19 S cents/unit for the receipt of accumulated rental arrears (net of expenses) from the Toshin master lease in 1Q13. This was within our expectations, forming 73.2% of our FY14 projection.

Growth supported largely by Singapore and Australia assets

SGREIT’s Singapore portfolio continued to gain good traction, as NPI in 3Q14 rose 3.8% YoY to S$26.0m. Although revenue at Wisma Atria (retail) was relatively flat (+0.1% YoY) and tenants’ sales slipped 8.7% YoY, management highlighted to us that 8% of the mall’s NLA was undergoing renovation (~1.5 months of impact), while there was also one unit (~1% of NLA) which was vacant but has since been committed. The weaker tourism expenditure also had a negative impact. Nevertheless, positive rental reversions of 6.7% were still achieved at Wisma Atria (retail). Office leasing demand continues to be healthy, and we expect this momentum to remain robust. There was also good growth emanating from Australia, and this was underpinned by a 6.12% rental uplift from its key tenant David Jones in Aug this year. China, however, remained a drag to SGREIT (NPI -20.4% YoY), given intense competition and the austerity drive by the government. Overall portfolio occupancy was 99.1% (-0.3 ppt QoQ).

Maintain BUY

SGREIT’s financial position remains strong, with a gearing ratio of 29.1% and interest coverage ratio of 5.1x. 100% of its debt has been fixed/hedged, thus mitigating the impact of interest rate fluctuations on its distribution. We tweak our assumptions following a change in analyst coverage, but our DDM-derived fair value estimate remains unchanged at S$0.90. Maintain BUY on SGREIT, as valuations remain attractive, with the stock trading at FY15F P/NAV of 0.86x and distribution yield of 6.6%.

Source: OCBC Research - 31 Oct 2014