Starhill Global REIT - RHB Invest 2016-04-25: A set of resilient earnings

STARHILL GLOBAL REIT P40.SI

Starhill Global REIT - 3QFY16: A set of resilient earnings

We make no change to our BUY rating, forecast and DDM-derived TP (CoE: 7.0%, Tg: 1.0%) of SGD0.93, FY16 dividend yield of 6.9%.

3QFY16 DPU remained flat at 1.26 cents, meeting c.23% of our full year forecasts.
Net property income was up 7.0% YoY mainly due to an additional contribution from Myer Centre Adelaide.
Its SG office portfolio achieved positive rental reversion of 8.5%.
Master leases with Katagreen Development have been extended at c.6.7% above the annual rent in the previous three-year term.
Upcoming catalyst includes its ongoing rent review discussion with Toshin (master lease) at Ngee Ann City Property in Jun 16.

Despite the muted economic outlook, Management expects its portfolio to provide income stability as its leases are well Supported by several long-term leases.
Tenants' sales at Wisma Atria was up +1.7% YoY for the quarter, outperforming the retail sales index (Jan: +1.5%, Feb: -9.6%).
Shoppers' traffic at Wisma Atria grew 0.3% YoY as Isetan's strata-owned space progressively reopens.
New tenants opened at Isetan's retail space includes Mango, World of Watches and Franck Muller.
A mere 3.8% of its gross rental income (GRI) is up for renewal for the remaining FY, with 14.5% of its GRI expiring in FY17.
Both its Australia and Malaysia portfolio performance were affected by the weakening of its respective currencies.
Gearing ratio remains healthy at 35.4%, with a interest coverage of 4.3x.

We expect its portfolio to remain defensive as we note that it has one of the longest weighted average lease expiry (WALE) of 7.3years among its peers. This was attributable to its management's strategy to ink long term leases with periodic rent reviews, such as the upcoming Toshin rent review at Ngee Ann City.
We also note that its AUD and MYR are at least 50% hedged, therefore mitigating volatility in its income distributions.
We continue to like this counter as
1. we think the upcoming Toshin rent review could potentially boost its DPU,
2. and its SG office portfolio is expected to register positive rental reversion due to the limited new office supply in Orchard road. Lastly,
3. the REIT will be a beneficiary to the recovery of the tourism sector.

Ivan Looi RHB Invest | http://www.rhbinvest.com.sg/ 2016-04-25

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.93 Up 0.84