BUY S$0.58 STI : 2,766.23
Price Target : 12-Month S$ 0.76
Reason for Report : Company Update (site visit)
Potential Catalyst: AEI and acquisitions
DBSV vs Consensus: Slightly higher due to stronger rental reversion
• Malls in prime KL locations, with distinct tenant mix
• Opportunity to increase Lot 10 revenue through AEI
• Maintain BUY and S$0.76 TP
Strong foothold in KL shopping scene. SGREIT’s two retail malls - Starhill Gallery and Lot 10 - have a strong foothold in KL’s prominent Bukit Bintang shopping district. After completing Starhill Gallery’s AEI, its modern iconic facade will cement its crème de la crème position. It has signed on exciting new retailers to refresh and enhance its tenancy mix. Currently, both malls and the new space created at Starhill Gallery are master-tenanted to Katagreen Development, a subsidiary of YTL Corp. until 2016, with option to renew for another three years. Occupancy rates at both malls are >95%.
Lot 10 might be next for AEI, we see only upside. Lot 10 now houses several beauty/spa tenants on the 3rd and 4th floors. But the master tenant could bring in more fashion retailers, including new-to-market brands, which are usually higher yielding tenants. We also see opportunities for the REIT to expand the mall's NLA by converting carpark space and building new annex blocks.
Making KL a shopping destination. The government's efforts to rejuvenate Bukit Bintang will have positive impact on the malls. Construction of a new MRT station located adjacent to Lot 10 will start next year, and is expected to be ready in 4-5 years. Plans for covered walkways to link KLCC to Bukit Bintang district will also create >10m sf of retail space to attract more tourists. Completion of this public infrastructure could boost the malls’ accessibility.
Wisma Atria will see similar transformation. AEI works at Wisma Atria will be completed in 3Q12, and underpin FY12 earnings growth. SGREIT is now trading at attractive 0.6x P/BV, and offers 7.4%-7.7% DPU yields for FY11/12.
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