Starhill Global REIT - CIMB Research 2015-10-28: Lift from Adelaide acquisition

Starhill Global REIT - CIMB Research 2015-10-28: Lift from Adelaide acquisition STARHILL GLOBAL REIT P40.SI 

Starhill Global REIT - Lift from Adelaide acquisition 

  • SGREIT's 1QFY6/16 results were in-line, lifted by Myer Centre Adelaide and Singapore properties. 
  • Overall Singapore contributions boosted by higher office renewal rents and higher occupancy at Wisma Atria, offsetting negative retail rental reversion at Wisma Atria. 
  • Australia contributions helped by Myer Centre Adelaide, offsetting the weaker A$. 
  • Master lease renewal in Malaysia, lease expiry in Singapore and Adelaide and rent review at Ngee Ann City to aid forward income growth. 
  • Maintain Hold with slightly lower DDM-based target price of S$0.87. 

Earnings lifted by Australia and Singapore 

  • SGREIT’s 1QFY6/16 DPU of 1.31 Scts was in line with expectations, making up 26% of our full-year estimate. The 17% growth in topline was due to a full quarter’s contributions from Myer Centre Adelaide (MCA) and higher income from Singapore properties. This more than offset the depreciation of the RM and A$, and lower contributions from China. 
  • Singapore-centric income accounted for 60% of revenue and the balance 40% from overseas. Its balance sheet is strong with gearing at a healthy 35.7%. 

Singapore income growing, slight negative rental reversion at WA 

  • Singapore revenue and NPI grew 4.5% and 3.6% respectively. Although there was a 7.3% negative rental reversion for Wisma Atria (WA) retail, to accommodate new retail concepts, this was more than offset by a 1% point increase in occupancy to 100% and higher office income – thanks to a 3.5% rental uplift on reversion. WA also saw tenant sales rising 1.1% yoy despite a 9.7% drop in shopper traffic. 
  • Ngee Ann City (NAC) continued to enjoy rental improvements amid a fully leased office and retail space. 

Myer Centre driver for Australian income expansion 

  • Contributions from Australia jumped significantly on a full quarter’s income from MCA (bought in May 15), overcoming the impact of a weaker A$ and slightly lower occupancy at David Jones Bldg. 
  • Malaysia performance was dragged down by a weaker RM, while China income was adversely affected by the challenging high-end retail market. 

Lease renewals should drive near-term earnings growth 

  • SGREIT has 24.5% and 22.9% of retail and office rental income to be renewed over FY16. This includes renewal of the master lease in Malaysia in June 16, rent review of NAC in June 16, expiry of office and retail leases in Singapore and MCA. 
  • We anticipate SGREIT to continue benefiting from the slight positive rental office reversion in Singapore due to limited new supply in Orchard Rd, while better renewal rents and boosting occupancy at MCA should also lift its bottomline. 

Maintain Hold rating 

  • Other mid-term earnings driver would come from the P1 redevelopment of Plaza Arcade in Perth, scheduled to completed in end 16/early 17, which is already factored into our current forecast. 
  • With limited upside to our revised DDM-based target price of S$0.87 and an FY6/16 DPU yield of 6.4% (in line with its peers), we retain our Hold rating.


LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-10-28
CIMB Securities SGX Stock Analyst Report HOLD Downgrade HOLD 0.87 Down 0.90


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