Singapore | REITs

Asia Pacific Equity Research

STARHILL GLOBAL REIT | BUY

MARKET CAP: USD 1.4B AVG DAILY TURNOVER: USD 1M 30 Apr 2014 Company Update

ENDING 1Q14 ON HIGH NOTE

1Q14 DPU at 1.24 S cents 8.9%-11.7% reversions achieved Expect AEIs and capital recycling

BUY (maintain)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast S$0.90 S$0.051 S$0.82 17%

1Q14 growth distorted by Toshin arrears Starhill Global REIT (SGREIT) released its 1Q14 results last evening. Gross revenue came in at S$49.2m, down 8.3% YoY, while NPI tallied S$39.1m, down 6.7%. The headline growth figures, we note, were distorted by one-off receipt of net rental arrears from Toshin master lease in 1Q13. Excluding this, revenue and NPI would have climbed 1.8% and 2.5%, respectively. Similarly, DPU of 1.24 S cents was 9.5% lower. However, after stripping out the Toshin payout, DPU would have registered a 5.1% increase. We deem the results to be in line with expectations, as the quarterly distribution met 24.1%/24.8% of our/consensus full-year projections. Robust underlying performance The Singapore portfolio again hit a high note in 1Q, clocking a 7.6% growth in NPI (excluding Toshin arrears) as a result of improved occupancies and high secured rentals from both the retail and office segments. While Wisma Atria retail sales efficiency of S$130 psf was a tad lower than the S$138 seen in 2013 due to ongoing tenant relocations/renovations, a strong 8.9% rental reversion was achieved. For the Singapore offices, rents for leases committed during the quarter were also 11.7% higher than preceding contracted rates. In Australia, we note that SGREIT continued to benefit from incremental income from Plaza Arcade, thereby pushing the Australia assets NPI up 9.9% YoY. This helped to offset lower contribution from its Malaysia and China assets, which were impacted by weaker Malaysian Ringgit and intense competition respectively. Maintain BUY with unchanged fair value Looking ahead, SGREIT disclosed that it will continue to refine its portfolio and explore potential asset enhancement initiatives (AEIs). The redevelopment plans to tap unutilised space between David Jones building and Plaza Arcade are now in planning stage, and may be executed in 2H14 in our view. We are also positive on SGREITs recent move to divest Holon L in Japan. We do not rule out more divestments going forward, which would not only turn SGREIT into a more Singapore-centric landlord but also provide it with resources to implement its AEIs. Maintain BUY with unchanged S$0.90 fair value.
Key financial highlights Year Ended 31 Dec (S$ m) Gross revenue Total property expenses Net property income Amount available for distribution DPU per share (S cents) Cons. DPU (S cents) DPU yield (%) P/NAV (x) ROE (%) Gearing (%) FY12 186.0 -37.6 148.4 85.3 4.4 na 5.4 0.9 6.6 30.1 FY13 200.6 -42.8 157.9 107.8 5.0 na 6.1 0.9 13.5 28.7 FY14F 210.9 -42.4 168.5 110.6 5.1 5.0 6.3 0.9 6.6 28.6 FY15F 220.0 -44.4 175.6 117.2 5.4 5.1 6.7 0.9 6.9 28.3

Analysts Kevin Tan (Lead) +65 6531 9810 kevintan@ocbc-research.com Eli Lee +65 6531 9112 elilee@ocbc-research.com Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$1,755 / USD1,397 S$2 / USD1 1.9 0.75 - 0.99 63.0 2,153.2 SGX SGREIT SP STHL.SI P4OU Financials REITs YTL Corp - 36.3% 1m 4 1 3m 7 0 12m -12 -12

Relative total return Company (%) STI-adjusted (%) Price performance chart

Sources: Bloomberg, OIR estimates

Industry-relative metrics

Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MCI (P) 004/06/2013

OCBC Investment Research Singapore Equities

Exhibit 1: Segmental performance

Source: REIT Manager

Exhibit 2: Occupancy rate breakdown by country

Source: REIT Manager

OCBC Investment Research Singapore Equities

Exhibit 3: Lease expiry profile

Source: REIT Manager

Exhibit 4: Debt maturity profile

Source: REIT Manager

OCBC Investment Research Singapore Equities

Exhibit 5: Quarterly financial highlights 1Q13 (S$m) 53.6 -11.7 41.9 -3.5 -0.7 0.1 -7.6 0.0 0.1 30.1 0.9 31.0 -1.1 29.9 -0.1 29.8 -2.3 -0.9 26.6 1Q14 (S$m) 49.2 -10.1 39.1 -3.7 -0.7 0.2 -7.4 0.0 0.3 27.9 0.0 27.9 -0.7 27.2 0.7 27.9 -0.3 -0.9 26.7 % Chg (YoY) -8.3% -13.7% -6.7% 4.4% 6.5% 62.8% -3.0% nm 253.7% -7.3% nm -9.9% -30.9% -9.1% nm -6.4% -88.7% 1.8% 0.3% 4Q13 (S$m) 49.1 -10.3 38.8 -3.6 -0.8 0.2 -7.4 0.0 0.0 27.1 0.7 165.4 0.1 165.4 -0.7 27.2 -0.3 -0.5 26.5 % Chg (QoQ) 0.3% -1.5% 0.8% 1.6% -13.6% 28.8% -0.6% nm nm 2.8% nm -83.1% nm -83.6% nm 2.3% -2.3% 85.1% 0.8%

Gross revenue Property operating expenses Net property income Management fees Trust expenses Finance income Finance costs Realised foreign exchange gain/(loss) Fair value adjustment on security deposits Net income Change in fair value of unrealised derivative instruments Total return for the year before income tax Income tax expense Total return for the year after income tax expense Non-tax deductible expenses, net and other adjustments Income available for distribution Less: CPU Holders Less: Other adjustments Amount available for distribution to unitholders
Source: REIT Manager

Exhibit 6: Valuation methodology Dividend Discount Model (DDM) Valuation Period Amount for distribution (S$ '000) DPU (S cents) Terminal value (S cents) Present value of DPU (S cents) Fair value (S$) Current price (S$) Potential upside (%) DPU yield (%) Total expected return (%)
Sources: OIR estimates

FY14F 110,594 5.14 4.75 0.90 0.82 10.4% 6.3% 16.7%

FY15F 117,231 5.44 4.66

FY16F 124,022 5.76 4.57

FY17F 130,807 6.07 4.46

FY18F 137,727 6.40 99.37 71.87

OCBC Investment Research Singapore Equities

Company financial highlights

Income statement Year Ended 31 Dec (S$ m) Gross revenue Total property expenses Net property income Net finance costs Manager's management fees Other expenses Net income Total return for the period Adjustments Amount available for distribution

FY12 186.0 -37.6 148.4 -32.1 -14.1 -1.7 100.6 111.1 -25.8 85.3

FY13 200.6 -42.8 157.9 -29.6 -14.2 -3.4 110.7 250.0 -142.1 107.8

FY14F 210.9 -42.4 168.5 -29.4 -14.9 -3.4 120.8 131.9 -21.3 110.6

FY15F 220.0 -44.4 175.6 -29.3 -15.0 -3.5 127.7 138.7 -21.5 117.2

Balance sheet As at 31 Dec (S$ m) Investment properties Properties under development Cash Total current assets Total assets Current liabilities ex debt Debt Total liabilities Unitholders' funds Total equity and liabilities

FY12 2,713.0 0.0 79.4 88.7 2,820.2 47.6 849.4 938.1 1,708.6 2,820.2

FY13 2,854.4 0.0 58.0 68.3 2,943.2 45.2 845.9 933.0 1,989.8 2,943.2

FY14F 2,868.7 0.0 64.5 73.0 2,962.5 44.5 845.9 934.0 2,008.1 2,962.5

FY15F 2,883.1 0.0 71.8 80.6 2,984.7 46.6 845.9 937.5 2,026.8 2,984.7

Cash flow statement Year Ended 31 Dec (S$ m) Total return Adjustments Operating income before working cap chgs Change in working capital Cash generated from operating activities Cashflow from investing activities Cashflow from financing activities Change in cash Cash at beginning of period Cash at end of period

FY12 135.6 -4.0 131.6 -15.7 115.8 -20.4 -121.0 -25.6 108.0 79.4

FY13 252.8 -111.8 141.0 0.1 141.1 -58.9 -101.8 -19.6 79.4 58.0

FY14F 135.3 14.9 150.2 -0.8 149.5 0.2 -143.2 6.5 58.0 64.5

FY15F 142.3 14.8 157.1 -0.4 156.7 0.3 -149.7 7.2 64.5 71.8

Key rates & ratios DPU per share (S cents) NAV per share (S cents) PER (x) P/NAV (x) NPI margin (%) Net income margin (%) Gearing (%) DPU yield (%) ROE (%) ROA (%) Sources: REIT Manager, OIR forecasts

FY12 4.4 87.9 12.9 0.9 79.8 54.1 30.1 5.4 6.6 3.9

FY13 5.0 92.4 6.8 0.9 78.7 55.2 28.7 6.1 13.5 8.7

FY14F 5.1 93.3 13.3 0.9 79.9 57.3 28.6 6.3 6.6 4.5

FY15F 5.4 94.1 12.6 0.9 79.8 58.1 28.3 6.7 6.9 4.7

Company financial highlights

OCBC Investment Research Singapore Equities

SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

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Important disclosures