Starhill Global REIT (SGREIT SP/BUY/S$0.85/Target: S$0.96)
• Results in line:
- Starhill Global REIT (Starhill) reported a 6QFY14/15 DPU of 1.29 S cents, up 3.2% yoy, in line with our expectations.
- NPI expanded 5.5% yoy on the back of maiden contributions from its May acquisition of Myer Adelaide and continued positive performance in Singapore.
• Operational highlights.
- Wisma Atria Retail and Singapore offices saw rental reversions of 4.3% and 4.5% for leases committed respectively during the quarter.
- Retail rent reversions showed signs of slowing, with previous quarter reversions at 13.3%.
- Overall occupancy declined 0.9ppt qoq, hitting 98.2% in the quarter.
- Gearing rose 6.8 ppt to reach 35.5% in the quarter after the Myer acquisition, as borrowing costs inched up 6bp to reach 3.19%.
- Across the portfolio, about 5.2% of leases by NLA are due in 2015.
• Uphill climb in domestic retail scene despite positive rental reversions,
- Retail sentiment remains soft with Wisma Atria seeing a 6.7% yoy and 6.6% yoy dip in tenant sales and shopper traffic respectively.
- This was mainly due to ongoing tenant renovations and transitions, in addition to the 4.1% decline in tourist arrivals during Jan-May 15.
• Extending overseas footprint, while Singapore presence shrinks.
- Following the acquisition of the Myer Centre Adelaide in May, SGREIT now derives 16% of its revenue from Australia (9.9% preceding quarter), which makes up 16.1% of portfolio value.
- Singapore saw its share of portfolio value shrink to 66.5% from 72.6% previously.
- Portfolio value expanded 9.2% post acquisition to reach its current S$3.12b.
- With an estimated debt headroom of S$237.3m (40% gearing assumed), we reckon there could be more in the way of foreign acquisition-led growth.
• Maintain BUY
- Maintain BUY and target price of S$0.96, based on the dividend discount model (required rate of return: 7.0%, terminal growth: 1.8%).
Source: http://research.uobkayhian.com/
