Starhill Global REIT - OCBC Investment 2016-08-01: Stable DPU but some softness in occupancy

STARHILL GLOBAL REIT P40.SI

Starhill Global REIT: Stable DPU but some softness in occupancy

Starhill Global REIT’s (SGREIT) 4QFY16 gross revenue rose 3.6% YoY to S$53.6m, driven by a full quarter contribution from Myer Centre Adelaide (MCA) which was acquired in May 2015, but partially offset by weaker performance from its Wisma Atria Property and remaining overseas properties.
DPU of 1.29 S cents was similar to the same period last year.
Results were in-line with our expectations.
On a full-year basis, SGREIT’s gross revenue and DPU grew 11.4% and 1.4% to S$219.7m and 5.18 S cents as compared to the 12 months period ended 30 Jun 2015, and formed 98.2% and 98.6% of our FY16 forecasts, respectively.

During the quarter, SGREIT registered a 0.5 ppt QoQ dip in its portfolio occupancy to 95.1%. This was largely attributed to higher vacancies for its Singapore office portfolio and China.
Nevertheless, management secured positive rental reversions of 3.5% for its Singapore office leases committed in 4QFY16. On its retail front, Wisma Atria’s committed occupancy increased from 96.8% (as at 31 Mar 2016) to 97.7% as new tenants and concepts were introduced. The mall is currently still undergoing tenant mix reconfiguration. Shopper traffic grew 2.3% YoY, although tenant sales fell 2.5% YoY in 4QFY16.
We expect the situation at Wisma Atria (Retail) to improve ahead, as Isetan’s strata-owned space at the property has progressively reopened for operations after its renovation works since Apr last year. Isetan recently launched Japan Food Town at the mall, a collection of 16 casual dining establishments handpicked from Japan.

In terms of financial position, SGREIT’s balance sheet remains healthy, with a comfortable gearing ratio of 35.0%, as at 30 Jun 2016 (-0.4 ppt QoQ). 99.6% of its borrowings are fixed/hedged.
We reiterate our BUY rating on SGREIT, but with a higher fair value estimate of S$0.86 (previously S$0.84) as we lower our risk- free assumption from 3.0% to 2.4% and also roll forward our valuations.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-08-01

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 0.86 Up 0.84