Starhill Global REIT - CIMB Research 2015-12-09: Moving along

Starhill Global REIT - CIMB Research 2015-12-09: Moving along STARHILL GLOBAL REIT P40.SI 

Starhill Global REIT - Moving along 

  • Well located portfolio; overseas exposure account for 33-40% of asset value and revenue. 
  • Singapore income expanding, offsetting weaker China and Malaysia. 
  • Lease renewals at numerous properties drive near-term growth. 
  • Phase 1 of Plaza Arcade redevelopment pending finalisation. 
  • Maintain Hold with DDM-based target price of S$0.87. 

■ Well located portfolio 

  • SGREIT offers investors a diversified portfolio that spans across Singapore, Australia, Malaysia and Japan. These assets are well located within prime shopping areas. Overseas assets account for estimated 32.5% of asset value and 39.9% of gross revenue. 

■ Singapore income expanding 

  • Singapore revenue and NPI grew 4.5% and 3.6%, respectively, in 1QFY6/16. Although there was a 7.3% negative rental reversion for Wisma Atria 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. 
  • Wisma Atria 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 fully-leased office spaces. 

■ Lease renewals to drive near-term growth 

  • SGREIT has 24.5% of its retail and 22.9% of its office rental income up for renewal towards late-FY16. This includes renewal of the master lease of Starhill Gallery in Malaysia and rent review of NAC, both in Jun 16, and expiry of office and retail leases in Singapore and Myer Centre Adelaide (MAC). 
  • We anticipate SGREIT to continue benefiting from the slightly positive office rental reversion in Singapore due to limited supply in the vicinity of its assets. Better renewal rents and occupancy at MCA should also lift earnings. 

■ Phase 1 Plaza Arcade redevelopment pending finalisation 

  • Phase 1 of the redevelopment of Plaza Arcade in Perth is pending and talks are ongoing to secure and accommodate anchor tenants and optimise its upper storey space. 
  • With a gearing of 35.7%, the REIT has significant debt headroom to undertake any capex to enhance the returns of its properties. 

■ Retain Hold call 

  • SGREIT’s medium-term outlook remains positive with numerous earnings drivers from its existing assets. 
  • However, in the near term, given its FY16 DPU yield of 6.8%, in line with peers) and forex risks, we retain our Hold call and DDM-based target price of S$0.87.

LOCK Mun Yee CIMB Securities | 2015-12-09
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.87 Same 0.87