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NRA Capital Pte Ltd

Written by: Jacky Lee

Thursday 29 Jan 2015

Starhill Global REIT – 4Q14 results announcement

Q4 DPU up 4.9% to 1.29 Singapore cents

Yield appears comparable to overall Singapore REITs’ yield but looks attractive compared to CCT, CMT, SPH Reit and Suntec Reit with assets along the Orchard Road

Starhill Global REIT announced that its 4Q14 net property income increased 2% yoy to $39.6m. Revenue dropped 0.4% yoy to $48.9m due to weaker contribution from China and Japan but these were offset by a steady performance from its Singapore properties (positive rental reversion from new and renewed leases).

Starhill Global REIT is primarily in real estate used for retail and office purposes, both in Singapore and overseas. Since its listing on the Mainboard of the SGX-ST on 20 September 2005, Starhill Global REIT has grown its initial portfolio from interests in two landmark properties on Orchard Road in Singapore, Wisma Atria (74.23%) and Ngee Ann City (27.23%) to currently 12 properties in Singapore, Malaysia, Australia, China and Japan, valued at about S$2.8bn.

Key takeaways from 4Q14 results briefing:

  • Singapore and Australia net property income (NPI) up about 4%, partially offset by China’s NPI that declined 28.5% yoy in 4Q14.
  • Malaysia’s NPI declined marginally by 1.7% yoy due to depreciation of MRY and higher property tax.
  • Overall NPI up by 2% yoy due to lowering overall operating expense by 9.4% yoy.
  •  Net revaluation gain of S$34.5m mainly due to Singapore properties. However, these are offset by the divestment of Holon L in Tokyo and currency depreciation for Malaysia, Australia and Japan assets.
  • The group will focus on Australia this year.
  • Changing its financial year end to Jun to corresponding with its parent, YTL Corporation.
  • Borrowing cost is going up but remains stable, 76% of borrowings are hedged via interest rate swap and the remaining hedged via interest rate cap.
  • Assume 1% - 3% increase p.a. on floating rate, there will be a reduction of 1.8% - 2.9% in 2014 annualized DPU.
  • Currently, the group’s 3.16% average interest rate cost and 3.3 years average debt maturity are in line with other reits, according to management.
  • Currency risk is low as 67% of the group revenue is from Singapore… assuming a 10% depreciation in all the foreign currencies, its distributions are not expected to be impacted by more than 5%.
  • Management is positive on long term view in Asia given the continued growth in the group of middle income earners.
  • Japan giving visa exemption for Chinese visitors could benefit the Japanese assets.
  • Currently, its 28.6% gearing ratio is comfortable to allow company to seek opportunities. 

Our View:

At S$0.835, Starhill Global REIT trades at 6.1% consensus yield in 2015, 6.2% in 2016 and 5.99% in 2017, we believe this is comparable to overall Singapore REITS with an average 6-7%. However, Starhill Global Reit looks more attractive amongst REITs with quality assets along Orchard Road, such as CMT, CCT, SPH Reit and Suntec Reit with an average 5% yield.

Singapore REITS are currently exempted from paying tax on foreign income, but this rule is set to expire on March 31, 2015. However, management believes that a change, if any, will not affect its existing overseas properties but could potentially affect acquisitions after this date.

On another tax issue, the Singapore Government announced in the 2005 Budget a reduction in the withholding tax rate on REITs distributions to Foreign Non-individual Unit holders from 20% to 10% for distributions made during the period from 18 February 2005 to 17 February 2010. The deadline of 17 February 2010 has expired and the Budget Statement 2010 proposed that the reduced rate of 10% will be renewed for the period from 18 February 2010 to 31 March 2015. So far, the market believes the new Budget to be unveiled next month, will continue to extend the reduction rate of 10% for Foreign Non-individual Unit holders.

 


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