Starhill Global REIT - CIMB Research 2016-08-01: Mixed performance

Starhill Global REIT - CIMB Research 2016-08-01: Mixed performance STARHILL GLOBAL REIT P40.SI 

Starhill Global REIT - Mixed performance

  • 4QFY16 DPU of 1.29 Scts was flat yoy and makes up 25.2% of our FY6/16 forecast.
  • Singapore office and retail environment remains challenging but bright sparks include higher shopper traffic and tenant remixing to boost forward performance.
  • MCA drove Australian performance, partly offset by weaker A$.
  • Malaysia to enjoy higher income from renewal of master lease.
  • Maintain Hold with slightly higher DDM-based target price of S$0.86.

Boosted by MCA

  • SGREIT reported a 3.6% yoy increase in 4QFY16 revenue to S$53.6m (US$39.7m), lifted by Myer Centre Adelaide (MCA), partly offset by lower China, Perth and Japan contributions. However, distribution income fell 3.4% yoy to S$28.1m (US$20.8m), dragged by slightly higher expense ratio (22.8% vs. 20.3% in pcp), greater interest expense, other costs and retention of S$0.3m of income. 
  • 4Q16 DPU of 1.29 Scts comprised 25.2% of our full-year forecast. FY16 DPU of 5.18 Scts was slightly above our forecast of 5.12 Scts.

Challenging Singapore retail environment

  • Singapore contributions made up 62% of revenue in 4QFY16. Performance was dragged by Wisma Atria (WA) retail and Singapore offices. 
  • WA retail occupancy dipped to 97.7% as a result of weaker tenant sales, which fell 2.5% yoy despite shopper traffic rising by 2.3% and ongoing tenant remixing. Meanwhile, Ngee Ann City (NAC)’s performance improved on the back of a 5.5% upward adjustment in Toshin master lease in Jun.

Singapore office dragged by lower occupancy

  • Singapore office occupancy fell to 95.6% in 4QFY16 as certain leases expired and were not renewed, and tenants consolidated their operations. Nonetheless, SGREIT managed to achieve a 3.5% positive rental uplift for its 4QFY16 renewals and forward renewed 15% of its FY17 office leases. 
  • Going forward, we expect this segment’s earnings to remain relatively flat as the office operating environment continues to be challenging.

Australia lifted by acquisition growth

  • Australia revenue/NPI surged 46%/33% yoy in 4QFY16, thanks to additional income from MCA, bought in May 15. Although occupancy at MCA declined to 87% due to expiry of one major office tenant, the office component makes up only a small 5.6% of MCA’s revenue. 
  • Going forward, we expect Australia contributions to be underpinned by the 6.2% uplift from David Jones rent review in Aug 17 and annual rent review of anchor tenant Myers at MCA.

Malaysia to benefit from master lease renewal

  • Contributions from Malaysia were negatively affected by the depreciation of the RM, partly offset by the renewal of Katagreen Development master lease in Jun. This would provide some income uplift going forward. 
  • Revenue from the Renhe Spring Zongbei in Chengdu was adversely affected by the challenging retail environment. SGREIT intends to reposition the mall and evaluate options for the property in the near term. Ultimately, it intends to divest the asset in the long run.

Maintain Hold

  • We have tweaked our FY17-18 DPU estimates by 3.2-5.8% and retain our Hold recommendation. 
  • Share price performance is likely to be underpinned by the attractive 7.1-7.2% DPU yield in FY17-18, which is on the higher end of its retail peer comparison range. 
  • Key downside risks include further depreciation of the A$ and RM.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | 2016-08-01
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.86 Up 0.82