Starhill Global REIT - OCBC Investment Research 2016-01-28: Steady DPU growth

STARHILL GLOBAL REIT P40.SI

Starhill Global REIT: Steady DPU growth

 2QFY16 DPU rose 2.3% YoY

 Flat rental reversion at Wisma Atria retail

 Lower FV but keeping our BUY

Starhill Global REIT (SGREIT) reported 2QFY16 results which met our expectations.

Gross revenue jumped 13.8% YoY to S$55.6m. This was underpinned by contribution from Myer Centre Adelaide which was acquired in May 2015 and better performance from its Singapore portfolio, but partially offset by weakness from Malaysia and China.
DPU grew 2.3% to 1.32 S cents.
On a 1HFY16 basis, SGREIT’s gross revenue rose 15.3% to S$112.4m, making up 49.5% of our full-year estimate.
DPU of 2.63 S cents translated into a steady growth of 2.7% and formed 48.9% of our FY16 forecast.

SGREIT’s overall portfolio occupancy declined slightly by 0.3 ppt QoQ to 98.0%, as at 31 Dec 2015, due largely to a dip in committed occupancy at Wisma Atria (retail) from 100% to 94.9%. This was in turn attributed to a large unit lease expiry in Dec.
Management intends to retrofit the area and split the space into smaller leasable units targeting new F&B tenants with higher price points.
Flat rental reversions were recorded at Wisma Atria (retail), while tenant sales and shopper traffic declined 1.0% and 2.5% YoY, respectively. This was partly caused by the continued closure of the majority of Isetan’s strata-owned space for renovation since Apr 2015.
Meanwhile, SGREIT’s Singapore office portfolio performance remained firm, having achieved 100% committed occupancy and mild rental uplift of 1.7% for leases committed in 2QFY16.

We lower our FY16 and FY17 DPU projections by 2.2% and 3.7%, respectively, as we trim our gross revenue forecasts for SGREIT’s Australia assets.
We also raise our cost of equity assumption from 7.8% to 8.1% to take into account the recent heightened volatility in the financial markets.
Correspondingly, our DDM-derived fair value estimate is cut from S$0.93 to S$0.84.
Notwithstanding our lower fair value, we are maintaining our BUY rating on SGREIT given its undemanding FY16F P/B ratio of 0.79x and distribution yield of 7.2%.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-01-28

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 0.84 Down 0.93