Starhill Global REIT - CIMB Research 2016-04-22: A mixed performance

STARHILL GLOBAL REIT P40.SI

Starhill Global REIT - A mixed performance

Organic growth prospects from master lease renewals in Malaysia and Singapore factored into our current forecast.
Maintain Hold on limited upside to our target price of S$0.82.

SGREIT’s 3QFY16 results were in line with expectations and made up c.25% of our and consensus full-year estimates. 9M distribution income formed 76% of our full-year forecast.
3Q topline grew by 12% yoy to S$53.6m, thanks to contributions from Myer Centre Adelaide. This offset lower income from Wisma Atria, China, Malaysia and Japan assets as well as adverse forex impact from the RM and A$.
DPU of 1.26 Scts was unchanged yoy, after a 1.7% retention of distribution income.

Singapore NPI deteriorated by 1.5% to S$26.4m on drag from the Wisma Atria retail space where occupancy dipped from 98.1% a year ago to 96.8% as the leasing environment remained challenging. This is despite higher tenant sales (+1.7% yoy) and a slight 0.3% pick-up in shopper traffic. Ngee Ann retail maintained full occupancy.
Meanwhile, the office portfolio remained fully occupied with rental reversions at 8.5% higher than previous period but still unable to fill the slack from retail rental income.

Australia revenue and NPI surged 170% and 121% yoy to S$12m/S$7.9m, respectively, and made up 22.5% of total portfolio revenue due to contributions from Myer Centre Adelaide.
However, Australia portfolio occupancy dipped to 89.5% from 96.5% last quarter due to the expiry of one tenant in the Adelaide property (current take-up: 86.6%) and lease termination in the Perth properties due to the planned AEI at Plaza Arcade.

Looking ahead, SGREIT has a remaining 3.8% and 14.5% of gross rental income to be renewed in FY16 and FY17.
In Malaysia, the master lease has been renewed by a further three years from Jun 16 at 6.67% rental uplift.
Rent negotiations for the Toshin master lease at Ngee Ann City has commenced.
In the medium term, the David Jones rent review in Aug 17 and redevelopment works at Plaza Arcade, scheduled to be completed at end-16/early-17, should drive longer-term growth prospects.

We maintain our Hold rating and raise our DDM-based target price to S$0.82 as we roll forward our estimates to FY17.
Organic growth prospects from Singapore and Australia have been factored into our current forecast.
With a gearing of 35.4%, SGREIT’s balance sheet has the capacity to fund its AEI activities. SGREIT offer investors an FY17 DPU yield of 6.8% with limited near-term upside of 3.3%.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-22

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.82 Up 0.81