Starhill Global REIT - Maybank Kim Eng 2016-01-28: Decent DPU growth ahead, but risks at Orchard rise

Starhill Global REIT - Maybank Kim Eng 2016-01-28: Decent DPU growth ahead, but risks at Orchard rise STARHILL GLOBAL REIT P40.SI 

Starhill Global REIT (SGREIT SP) - Decent DPU growth ahead, but risks at Orchard rise 

Results in line, but risks at Orchard. Maintain HOLD 

  • SGREIT’s results were in line. 
  • Myer Centre Adelaide made up for the weak growth in Singapore and FX woes. 
  • While we expect growth ahead from a full-year contribution from Myer, as well as positive rent reviews at major assets, occupancy risk has risen at Orchard, which cuts our FY16-17 DPUs by 2.3%/1.3%. 
  • Rolling forward our 7.5% yield target sees TP revised to SGD0.75 from SGD0.74. Maintain HOLD. 

Myer acquisition offsets weak SG growth, FX woes 

  • 4Q15 revenue, NPI, and DPU grew 13.8%/10.4%/2.3% YoY. 
  • Full year, growth was 8.7%/6.4%/2.6% and met expectations 100.9%/100%/97.3%. 
  • Growth mainly came from Myer Centre Adelaide’s half-year contribution, as well as minor contributions from Wisma Atria and the office portfolio, as positive rent reversions achieved earlier in the year kicked in. 
  • Drags were from Malaysia due to MYR depreciation (10% YoY, year average); China, where retail conditions continued to be tough from the austerity drive; and Australia’s contribution would have been better if not for the AUD’s deprecation as well (11% YoY, year average). 

Challenging retail at Orchard 

  • Although Wisma contributed positively, Orchard retail remains a challenging place as Wisma actually ended the year with a sharp drop in occupancy to 94.9% from 100% a quarter before. 
  • Rent reversions there have also weakened in the last four quarters: 13.3%/3.9%/-7.1%/0%. 
  • Management is however, relatively confident it can fill the space with new F&B concepts. 
  • On the bright side, tourist arrivals, which have been a key dampener, have actually stabilised and shown mild growth. 
  • Nonetheless, we temper our expectations, cutting our FY16-17 DPU forecasts by 2.3% and 1.3%. 

Decent growth expected 

  • Despite that, we still expect DPU growth of 5.6%/2.9% in FY16-17 as Myer contributes fully, and three Master Leases contributing 38% of NPI are up for rent review in Jun 2016: Ngee Ann, Starhill Gallery, and Lot10. 
  • Ngee Ann’s rent review is an upwards-only while Starhill Gallery and Lot 10 master leases are with the YTL parent which have fixed step-ups of 7.2%.

Joshua Tan Maybank Kim Eng | 2016-01-28
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.75 Up 0.74