STARHILL GLOBAL REIT
P40U.SI
YTL Starhill Global REIT - The Magic of Payout Ratio
- 1Q17 DPU of 1.30Scts (-0.8%), in line; impact of lower earnings mitigated by higher payout ratio.
- AEI planned for Australian property; Converting China property from fashion to furniture mall.
- DPU trimmed by 0.5-0.8%; TP maintained at S$0.87.
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 in the Asia Pacific region.
- Singapore, Australia, and Malaysia which accounted for 62.6%, 19.5%, and 14.6% of net property income (NPI) in FY16 (FYE June) respectively, limiting exposure and thereby 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 rental reversions embedded in the master leases.
Wisma Atria turning positive as occupancy edged back up.
- Wisma Atria (Retail)’s occupancy improved to 99.5% from 94.9% over the last three quarters and footfall has increased by 6.6% y-o-y, thanks to the tenant mix reconfiguration and the reopening of Isetan department store in the same mall.
- We understand that the decline in revenue was a result of converting level 1 from Fashion into F&B, which consists of stickier tenants but yields lower rents. This is expected to drive higher footfall for the floor going forward.
- The gradual re-opening of Isetan should drive more footfall into the mall and eventually translate to higher rents on other floors.
Tasting the sweetness of prudent payout.
- SGREIT has been retaining 3-5% of distributable income to fund working capital, and it therefore has certain flexibility to manage future distributions without touching its capital.
- 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.
- We have trimmed down our DPU forecasts by 0.5-0.8% to account for the conversion of the China property.
- The REIT offers an attractive yield of 6.0%, with a total potential return of c.13%.
- Maintain BUY.
Key Risks to Our View
- Upside risk from AUD and MYR currency appreciation. As c.34% of net property income is derived from assets in Malaysia and Australia, an appreciation of any of these currencies versus SGD would present upside to our estimates.
Derek Tan
DBS Vickers
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Singapore Research
DBS Vickers
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http://www.dbsvickers.com/
2016-10-31
DBS Vickers
SGX Stock
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0.870
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0.870
