Starhill Global REIT - OCBC Investment 2016-04-25: Flat Performance

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STARHILL GLOBAL REIT P40.SI 

Starhill Global REIT - FLAT PERFORMANCE 

• 3QFY16 DPU flat YoY at 1.26 S cents 
• 8.5% rental reversion for Singapore Office 
• Lower occupancy due largely to Australia 

3QFY16 results in-line with expectations 

• Starhill Global REIT’s (SGREIT) 3QFY16 gross revenue jumped 12.0% YoY to S$53.6m, with growth underpinned by Myer Centre Adelaide (MCA), which was acquired in May 2015, but partially offset by softer revenue from Wisma Atria (Retail) and other overseas assets. 
• NPI rose 7.0% YoY to S$41.6m but DPU was flat at 1.26 S cents due largely to higher finance costs. 
• For 9MFY16, SGREIT’s gross revenue grew 14.2% to S$166.0m and this accounted for 74.3% of our FY16 forecast. 
• DPU of 3.89 S cents represented an increase of 1.8% and formed 74.0% of our full-year projection. 

Mixed operational metrics 

• During the quarter, SGREIT recorded a portfolio occupancy of 95.6%, which was a decline of 3.5 ppt YoY and 2.4 ppt QoQ. 
• The sequential decline was mainly attributed to a lease expiry of one office tenant at MCA and leases termination in relation to planned enhancement work for Plaza Arcade. Hence, SGREIT’s Australia occupancy dipped from 95.8% (as at 31 Dec 2015) to 89.5%. 
• Wisma Atria’s (Retail) occupancy fell from 98.1% to 96.8% YoY, but was an improvement from the 94.9% registered in the previous quarter. 
• Encouragingly, shopper traffic at Wisma Atria (Retail) inched up 0.3% YoY, following five consecutive quarters of YoY decline. The mall’s tenant sales also grew 1.7% YoY. 
• SGREIT’s Singapore office portfolio remained resilient, with positive rental reversions of 8.5% achieved and both properties are fully occupied. 
• Looking ahead, we believe a key focus for management would be its rent review negotiation for the Toshin master lease at Ngee Ann City which is due in June this year. 
• We have factored in a rent increase of 5% in our assumptions. 

Reiterate BUY 

• In terms of financial position, SGREIT’s balance sheet remains healthy, with a gearing ratio of 35.4%, as at 31 Mar 2016. 
• 100% of its borrowings are fully hedged, with no major refinancing requirements until FY18. 
• We maintain our forecasts, BUY rating and S$0.84 fair value estimate on SGREIT. 
• The stock offers a distribution yield of 6.7% for FY16, culminating in total potential returns of 13%.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-04-25

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 0.84 Same 0.84