Starhill Global REIT - A brightening star (DBSVickers)

BUY S$0.655 STI : 3,171.55

Price Target : 12-Month S$ 0.73

Reason for Report : 2Q11 Results

Potential Catalyst: Potential acquistions

DBSV vs Consensus: In line factoring similar rental revsersion expectation as peers

• In line with expectation; 1H DPU accounts for 49% of our forecast

• Rental reversion and stronger portfolio performance are expected to offset the vacuum for Wisma Atria AEI

• Maintain BUY, S$0.73

In line with expectation. Gross revenues and NPI were higher by 18.9% yoy and 23.4% yoy to S$44.2m and S$35.6m respectively. This was mainly attributed to new contribution from its enlarged portfolio offsetting lower earnings from negative rental reversions and weaker Japanese assets’ performances. On a q-o-q basis, gross revenue and NPI dipped marginal by 3.5% and 4.0% respectively. Distributable income (net CPPU holders) was S$20.2m (+14.3% yoy, -2.8% qoq), which translated to a DPU of 1.04 Scts. 1H forms c.49% of our full year estimates.

Operations on track. Pre-commitment of the additional prime space at the 2nd and 3rd level at Wisma Atria is well ahead of the 2Q12 completion date, with almost 75% taken up by existing tenants and new-to-market retailers at higher rents (in excess of 50%) and the remaining 25% currently under negotiation. Meanwhile, office demand remained healthy with office occupancy at Wisma Atria and Ngee Ann City strengthening to 92% and 96.6% respectively, and monthly signing rents at S$9.0 - S$10.0 psf per mth, up from S$8.5 – 9.0 psf a quarter. New tenants in the 1H include Chanel, H&M & Sea Folly. Going forward, additional rental revenue from the completed AEI works at Starhill Gallery, improving office occupancies and the upward rental reversion of David Jones lease in August should offset the expected erosion in retail revenue of Wisma Atria as the AEI works intensify towards 4Q11/1Q12.

Maintain BUY, TP S$0.73. The stock offers FY11/12F yields of 6.6-6.9%, translating to a total return of 19%. Gearing remains healthy at 30.9% with no major refinancing needs till 2013. DPU for FY11/12 was nudged down marginally to account for the lower occupancies at Wisma Atria retail space. Re-rating catalyst will come from potential new acquisitions that are currently not factored in our numbers.