YTL Starhill Global REIT - DBS Research 2016-08-02: Sweetness of prudent fee structure

YTL Starhill Global REIT - DBS Research 2016-08-02: Sweetness of prudent fee structure STARHILL GLOBAL REIT P40.SI 

YTL Starhill Global REIT - Sweetness of prudent fee structure

  • FY16 DPU up 1.3% (in line); additional contribution from Australia partially offset by weakness in Singapore.
  • Uplift of 5.5% at Toshin in 4Q16 help to achieve an otherwise negative reversion at Wisma Atria.
  • Trimmed FY17 DPU by 1.8%; raised TP to S$0.87; maintain BUY.



BUY for asset diversification and high income visibility from master leases. 

  • We like YTL Starhill Global REIT (SGREIT) for its diversified portfolio of prime retail and office assets located in the Asia Pacific region. Singapore, Australia, and Malaysia accounted for 62.6%,19.5%, and 14.6% of net property income (NPI) in FY16 (FYE June) respectively, limiting risk to any single country. 
  • With c.45% of top line derived from master leases or long leases, the REIT offers investors income stability and visibility, as well as upside potential from positive rental reversions embedded in the master leases.


Negative reversions at Wisma, but income impact is minimal. 

  • Wisma Atria (Singapore)’s occupancy dropped to 97.7% from 100% a year ago, but has improved from 96.8% in March 2016. This is largely due to tenant mix reconfiguration and the renovation at Isetan since April 2015. We understand that the Manager is looking to convert level 1 from Fashion into F&B, which would consist of stickier tenants but may yield lower rents. This is expected to drive higher footfall for the floor going forward. We estimate that the overall impact will be minimal as level 1 of Wisma is estimated to only account for 0.9% of total portfolio revenue. Plus, the gradual re-opening of Isetan should drive more footfall into the mall.


Tasting the sweetness of prudent payout. 

  • SGREIT has been retaining 3-5% of distributable income to fund working capital, and it therefore has the flexibility to manage future distributions. In addition, it has been paying management fees in cash, not units, hence there is no pressure from any dilution in its equity base.


Valuation:

  • Our DCF-derived TP is S$0.87. The REIT offers yields of 6.5- 6.8% for FY17-18, and a total return >15%. Maintain BUY.


Key Risks to Our View:

  • Upside risk from AUD and MYR currency appreciation. As c.34% of NPI is derived from assets in Malaysia and Australia, an appreciation of any of these currencies against the SGD would present upside to our estimates.




Derek Tan DBS Vickers | Singapore Research DBS Vickers | http://www.dbsvickers.com/ 2016-08-02
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.87 Up 0.84


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