Starhill Global REIT - DPU Declines 6.3%YoY Amid Soft Market Conditions
- We currently have a BUY rating, forecast and DDM-derived TP (CoE: 7.4%, Tg: 1%) of SGD0.81.
- The stock offers FY17F dividend yield of 6.6%
- Starhill Global REIT (Starhill) 3QFY17 DPU dipped 6.3% YoY to 1.18 cents, bringing 9MFY17 DPU to 3.74 cents (-3.9%YoY). The results were tad below our expectations accounting for 23%/73% of full year forecasts.
- The lower DPU was mainly due to lower contributions from mall repositioning in China, lower contributions from Wisma Atria retail, Singapore offices and Myer Centre Adelaide. In 3QFY17, Starhill also retained a higher SGD1.4m (3QFY16:SGD0.5m) of income for working capital purposes.
- Occupancy at Singapore offices (94.7%) and retail (94.9%) portfolio dipped 0.9ppt/0.3ppt (YTDFY17) mainly due to challenging retail and office market. Overall portfolio occupancy remained steady at 95.1%.
- Gearing remains unchanged at 35.3% with average borrowing costs of 3.2%. About 88% of borrowings are fixed. Adjusted NAV/unit stands at SGD0.91.
- In Singapore, Ngee Ann City maintained a stable performance with 100% retail occupancy and office occupancy of 95.8% (+0.5ppt QoQ). Starhill also benefitted from the higher master lease rents (5.5% base rent increase) from its master tenant for the mall.
- However, Wisma Atria was slightly impacted from the challenging market conditions with retail occupancy dipping to 96.6% (2QFY17:98.9%) and office occupancy of 93.1% (2QFY17: 96.6%). About 4.2%/15.2% of Singapore retail and office leases are due for renewal in the coming quarter.
- Construction works at Plaza Arcade, Perth will commence in the coming quarter and is expected to be completed by 1Q18. In Malaysia, Lot 10’s rejuvenation is expected to be completed by the end of 2017.
- The Renhe Spring Zongbei Property (RSZP) in Chengdu has been handed over to new tenant Markor International Home Furnishings Co Ltd. The transition will impact the earning till end 2017 but the new tenant has signed a long-term fixed-lease, which should provide earning stability.
Maintain BUY with an unchanged TP of SGD0.81.
- The stock currently trades at 0.85x P/B and offers yield of 6.6% which we deem as attractive.
- Near-term DPU is likely to be impacted by the asset repositioning and soft market conditions. However, its resilient master leases, high portfolio occupancy should help it to sail through the current challenges.