Towards Financial Freedom
Starhill Global REIT - Prime Retail Landlord Remains Resilient
SGREIT has 67.2%/65.0% of revenue/net property income (NPI)exposure to Orchard Road via Wisma Atria and Ngee Ann City. Reiterate BUY with a DDM-derived TP of SGD0.91 (CoE: 7.1%, TG: 2.0%), implying a total return of 15.1%. Tight retail supply and the entry of new international retailers should increase its bargaining power inleasing negotiations. It has 42.2% of leases (gross rents) up for renewal over the next two years.
Results in line. Starhill Global REIT's (SGREIT) 4Q14/FY14 DPU rose 4.9%/1.0% YoY to 1.29/5.05 cents, which accounted for 25.3%/99.4% of our full-year estimate. Balance sheet remained strong with a low gearing of 28.6% (3Q14: 29.1%), with 14.6% of total borrowings due for refinancing in 2015 and 21.7% in 2016. Wisma Atria Retail achieved positive rental reversions of 17% for leases committed in 4Q14. Shopper traffic decreased by 3.1% YoY to 7.2m in 4Q14. For the whole of 2014, shopper traffic was 2.0% higher than in 2013. Tenant sales at Wisma Atria decreased 5.6% YoY in 4Q14, reflecting a decline in tourist arrivals and subdued retail sentiment. Renhe Spring Zongbei Mall in Chengdu, China, continued to languish, as the Central Government's official austerity drive impacted the high-end luxury retail segment, coupled with intensified competition from new and upcoming retail supply in the city.
Future growth drivers. In Malaysia, management 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 Australia, the AUD10m redevelopment plan to optimise upper-storey space at Plaza Arcade has received approvals from the City of Perth in January and SGREIT is currently in negotiations with prospective tenants. In Singapore, there is potential for leasable area expansion (~100k sq ft)when Wisma Atria is linked up with the new Thomson Line Orchard MRT in 2021.
Reiterate BUY. In our view, inorganic acquisitions have a higher chance of "moving the needle", and management said previously that it was considering the Singapore, Malaysian and Australian markets. We also look forward to further divestments of its non-core assets in China and Japan (~6% of total assets) in FY15F. Reiterate BUY with an unchanged DDM-derived TP of SGD0.91.
Interest rate/forex sensitivity. Management stated that a 100/200/300bps rise in borrowing costs could shave 1.8%/2.8%/2.9% off its DPU. The relationship is nonlinear because of the cap on borrowing rates. 76% of SGREIT's borrowings are hedged by a combination of fixed rate debt and interest rate swaps, while the remaining 24% are hedged via interest rate caps. Moreover, SGREIT has no refinancing requirement until Jul 2015 at the earliest, and its weighted average debt
maturity stands at 3.3 years (3Q14: 3.6 years) with an average interest rate of 3.16% (3Q14: 3.15%). In addition, a 10% drop in foreign currencies (JPY, AUD, CNY, MYR)to which SGREIT is exposed could see its DPU slide by no more than 5%, according to our estimates.
Source: OSK-DMG
Results in line. Starhill Global REIT's (SGREIT) 4Q14/FY14 DPU rose 4.9%/1.0% YoY to 1.29/5.05 cents, which accounted for 25.3%/99.4% of our full-year estimate. Balance sheet remained strong with a low gearing of 28.6% (3Q14: 29.1%), with 14.6% of total borrowings due for refinancing in 2015 and 21.7% in 2016. Wisma Atria Retail achieved positive rental reversions of 17% for leases committed in 4Q14. Shopper traffic decreased by 3.1% YoY to 7.2m in 4Q14. For the whole of 2014, shopper traffic was 2.0% higher than in 2013. Tenant sales at Wisma Atria decreased 5.6% YoY in 4Q14, reflecting a decline in tourist arrivals and subdued retail sentiment. Renhe Spring Zongbei Mall in Chengdu, China, continued to languish, as the Central Government's official austerity drive impacted the high-end luxury retail segment, coupled with intensified competition from new and upcoming retail supply in the city.
Future growth drivers. In Malaysia, management 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 Australia, the AUD10m redevelopment plan to optimise upper-storey space at Plaza Arcade has received approvals from the City of Perth in January and SGREIT is currently in negotiations with prospective tenants. In Singapore, there is potential for leasable area expansion (~100k sq ft)when Wisma Atria is linked up with the new Thomson Line Orchard MRT in 2021.
Reiterate BUY. In our view, inorganic acquisitions have a higher chance of "moving the needle", and management said previously that it was considering the Singapore, Malaysian and Australian markets. We also look forward to further divestments of its non-core assets in China and Japan (~6% of total assets) in FY15F. Reiterate BUY with an unchanged DDM-derived TP of SGD0.91.
Interest rate/forex sensitivity. Management stated that a 100/200/300bps rise in borrowing costs could shave 1.8%/2.8%/2.9% off its DPU. The relationship is nonlinear because of the cap on borrowing rates. 76% of SGREIT's borrowings are hedged by a combination of fixed rate debt and interest rate swaps, while the remaining 24% are hedged via interest rate caps. Moreover, SGREIT has no refinancing requirement until Jul 2015 at the earliest, and its weighted average debt
maturity stands at 3.3 years (3Q14: 3.6 years) with an average interest rate of 3.16% (3Q14: 3.15%). In addition, a 10% drop in foreign currencies (JPY, AUD, CNY, MYR)to which SGREIT is exposed could see its DPU slide by no more than 5%, according to our estimates.
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
