YTL Starhill Global REIT - Prime Assets with Development Potential

BUY for attractive acquisition/development angle
Starhill Global REIT (SGREIT) owns a portfolio of prime retail and office assets located in Singapore, Australia, Malaysia, China, and Japan. With c.45% of topline derived from master leases or long leases, the REIT offers investors income stability and visibility, as well as upside potential from positive rental reversions and redevelopment of existing assets in Singapore and Australia.

2-year DPU CAGR year of 3.7% driven by Adelaide acquisition
We are anticipating 2-year DPU CAGR of 3.7% from FY15-17, driven primarily by contribution from Myer Centre Adelaide, which was acquired for A$288m (S$303m) in May 2015. This acquisition will boost income contribution from Australia to 24% from 10%, further diversifying its earnings profile, which is still concentrated in Ngee Ann City and Wisma Atria in Singapore.

Negative reversions at Wisma, but income impact is minimal
The REIT recorded negative reversions of 7.3% this quarter, due to the replacement of one F&B tenant with a new fashion/F&B concept tenant, whose lease had a lower base rent but higher turnover component. As this lease accounts for <3% of the REIT’s Singapore retail income, impact on earnings is minimal.

Technical Analysis
Daily Chart
Valuation:
We have a DCF-derived TP of S$0.84, after factoring in the acquisition of Myer Centre Adelaide. At its current price, Starhill Global REIT offers investors dividend yields of 6.5-6.7% for FY16-17, and a total return of 12%. We maintain our BUY call.

Key Risks to Our View:
Upside risk from AUD and MYR currency appreciation. We estimate that c.32% 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. (Read Report)

Read Related Reports
1) Starhill Global REIT - Aussie Rules by Maybank Kim Eng Research, published on 28 October 2015

2) Starhill Global REIT - Full quarter contribution from Myer Centre Adelaide‏ by OCBC Investment Research, published on 28 October 2015

3) Starhill Global REIT - Well-Supported By Its Australian Asset by RHB Research, published on 28 October 2015

4) Starhill Global REIT - Lift from Adelaide acquisition by CIMB Research, published on 27 October 2015

5) Starhill Global REIT - Operating performance tracking above our forecast by Daiwa Capital Markets, published on 27 October 2015

Source : DBS Group Research

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