CIMB Research 2015-07-30: Starhill Global REIT - Forex woes. Downgrade to HOLD.

Forex woes 


  • 18MFY14 DPU rose 3.2% yoy, driven by the acquisition of Myer Centre Adelaide (MCA) in May 2015 and strong Singapore performance, partially offset by lower contributions from China and net foreign currency movements. 
  • Singapore assets are holding up in terms of rents and occupancies, but the overseas operations are hit by negative foreign exchange movements. 
  • SGREIT has performed well, with its yield spread against the retail S-REITs average narrowing from 80bp in Feb 2015 to 30bp. 
  • As such, we downgrade the stock from Add to Hold as we believe near-term outlook could be clouded by FX woes. 
  • We lower our DPU estimates and DDM-based target price to S$0.90 (prev S$0.92) as we revise our FX forecasts. 


DPU up 3.2% yoy, in line with expectations


  • 18MFY14 DPU rose 3.2% yoy, driven by the acquisition of Myer Centre Adelaide (MCA) in May 2015 and strong Singapore performance, partially offset by lower contributions from China and net foreign currency movements. 
  • This was in line with our expectation, at 99% of our 12-month rolling forecast (SGREIT changed its financial year end from 31 Dec to 30 June). 


Singapore holding up, but overseas hit by foreign exchange 


  • Singapore (65% of revenue) NPI was up 4.3% yoy on positive rental reversions and high occupancy of ~99%. 
  • Wisma Atria recorded 3.9% positive rental reversion for the retail leases committed in the quarter, which we understand are on less prime floors of the mall. 
  • Shopper traffic and tenant sales dipped 6.6-6.7% yoy, and we expect this to improve in 2H as there were temporary contributors such as tenant renovations and closure of Isetan. 
  • Office leases renewed registered rental reversions of 4.5% and high occupancy of 99.3%. 
  • Australia (16% of revenue) NPI was up 53% mainly due to a 1.5 month maiden contribution from MCA, offset by depreciation of A$ and lower occupancy of 96.2% as at Jun 2015 (99.3% as at Dec 2014). 
  • Malaysia (13.5% of revenue) NPI was down 4.4% yoy on weaker MYR. 
  • China remains weak operationally, while Japan was also hit by weaker foreign exchange rates. 


Downgrade to Hold on FX concerns 


  • We downgrade the stock from Add to Hold. 
  • With foreign assets making up 35% of its portfolio, we believe foreign exchange concerns could hamper stock performance in the near term despite its effort to hedge ~50% of A$ and MYR.


(TAN Xuan, CFA; PANG Ti Wee; LOCK Mun Yee)

Source: http://research.itradecimb.com/



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