Singapore | REITs

Asia Pacific Equity Research

STARHILL GLOBAL REIT | BUY

MARKET CAP: USD 1.3B AVG DAILY TURNOVER: USD 2M 12 Jun 2013 Company Update

ANOTHER POSITIVE DEVELOPMENT

6.7% increase in Toshin base rent Poised for continued growth Valuation looks attractive

BUY (maintain)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast S$1.00 S$0.051 S$0.88 20%

Favourable outcome from Toshin rent review Starhill Global REIT (SGREIT) announced that the rent review for the Toshin master lease has been concluded, and that a renewal rent at 6.7% higher than the prevailing rate has been secured. This is consistent with our 29 Apr report that SGREIT may again benefit from rental upside following the completion of the review process. Recall that SGREIT had on 14 Feb secured a 10% increase in base rent, which was retrospectively applied for the term starting 8 Jun 2011. The revised rent will serve as the base rent for this Jun renewal. Further rent review every three years We understand that the increase in rent was determined based on the average of three market valuations, undertaken by independent licensed valuers in accordance with the terms of the Toshin lease. While the renewed lease is for a period of another 12 years commencing 8 Jun, it provides for a review of the rental rate every three years. All existing provisions of the Toshin lease, we note, will continue to apply. For Mar, the Toshin lease contributed 86.3% of SGREITs stake in Ngee Ann City gross rent and 20.0% of SGREITs portfolio gross rent. Hence, we believe the rent increase may possibly boost SGREITs topline by 1.3% on an annualised basis. Maintain BUY We now factor in the increased rents in our forecasts but lower our fair value marginally to S$1.00 on higher risk-free rate (S$1.05 previously). However, we continue to like SGREIT for its growth potential, strong financial position and compelling valuations. For FY13, SGREIT looks set to gain from continued strength from its Singapore portfolio, incremental income from its newly acquired Plaza Arcade and a 7.2% rental escalation from its Malaysia master leases in Jun. SGREIT also has a healthy aggregate leverage of 30.5%, with limited interest rate risks (rates fixed for 81% of borrowings) and no refinancing needs until 2015. In addition, SGREIT looks attractive on the valuation front, given that it is trading at 1.0x P/B vs. 1.2x P/B for its local retail peers. Maintain BUY. Key risks include weaker JPY/AUD and negative impact from a potential CPU conversion.
Key financial highlights Year Ended 31 Dec (S$ 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 (%) FY11 180.1 -36.5 143.6 80.1 4.1 na 4.7 1.0 6.3 30.5 FY12 186.0 -37.6 148.4 85.3 4.4 na 5.0 1.0 6.6 30.1 FY13F 201.0 -40.3 160.7 98.9 5.1 5.0 5.8 1.0 6.9 31.3 FY14F 210.9 -42.4 168.5 101.9 5.2 5.0 6.0 1.0 7.2 31.0

Analysts Kevin Tan (Lead) +65 6531 9810 kevintan@ocbc-research.com Sarah Ong +65 6531 9678 sarahong@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$1,700 / USD1,349 S$2 / USD2 2.5 0.615 - 0.99 70.5 1,943.0 SGX SGREIT SP STHL.SI P4OU Financials REITs YTL Corp - 28.7% 1m -7 1 3m -1 1 12m 49 32

Relative total return Company (%) STI-adjusted (%) Price performance chart
Shar e P r i ce (S$ )

I ndex Lev el

1.20 1.08 0.97 0.86 0.74 0.63 Jun-12 Sep-12 Fair Val ue Dec-12 SGREIT SP Mar -13
`

5400 4880 4360 3840 3320 2800 Jun-13 FSSTI

Sources: Bloomberg, OIR estimates

Industry-relative metrics
P er c ent i l e 0t h 25t h 50t h 75t h 100t h

M k t Cap B et a ROE PE PB Company I ndus t r y A v er age

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

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

FY11 180.1 -36.5 143.6 -33.6 -13.9 -3.5 92.6 104.4 -24.4 80.1

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

FY13F 201.0 -40.3 160.7 -33.6 -14.5 -3.4 109.2 118.9 -20.0 98.9

FY14F 210.9 -42.4 168.5 -34.6 -14.7 -3.6 115.6 125.5 -23.5 101.9

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

FY11 2,709.7 0.0 108.0 110.8 2,839.1 73.6 866.1 988.1 1,677.5 2,839.1

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

FY13F 2,788.5 0.0 72.4 78.0 2,885.5 44.0 901.8 989.1 1,722.9 2,885.5

FY14F 2,802.4 0.0 79.3 85.2 2,907.0 45.7 901.8 992.5 1,741.0 2,907.0

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

FY11 109.6 17.0 126.6 5.2 131.8 -17.1 -121.2 -6.5 113.0 108.0

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

FY13F 122.6 20.3 142.9 -1.3 141.6 -61.7 -86.9 -7.0 79.4 72.4

FY14F 129.3 20.9 150.2 -0.5 149.7 0.2 -143.0 6.9 72.4 79.3

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: Company, OIR forecasts

FY11 4.1 86.3 17.9 1.0 79.7 51.4 30.5 4.7 6.3 3.7

FY12 4.4 87.9 13.9 1.0 79.8 54.1 30.1 5.0 6.6 3.9

FY13F 5.1 88.7 14.3 1.0 79.9 54.3 31.3 5.8 6.9 4.2

FY14F 5.2 89.6 13.6 1.0 79.9 54.8 31.0 6.0 7.2 4.3

Company financial highlights

OCBC Investment Research Singapore Equities

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