Starhill Global REIT - CIMB Research 2016-10-31: 1QFY17 Uplift from Toshin master lease; redevelopment of Arcade Plaza

STARHILL GLOBAL REIT P40U.SI

Starhill Global REIT - 1QFY17 Uplift from Toshin master lease; redevelopment of Arcade Plaza

SGREIT’s 1QFY17 results were a mixed bag. At 23% of our FY17 forecast, 1QFY17 DPU of 1.30 Scts was slightly below our expectations but within consensus.
Singapore retail NPI improved 7% yoy, driven by full-quarter contribution of higher rent from the Toshin master lease. Singapore office dragged by lower occupancies.
Malaysia NPI increased 8.1% yoy thanks to full-quarter contribution of rental uplift.

Australia NPI dropped 13.3% yoy due to lower occupancies. Near-term impact from redevelopment of Arcade Plaza, although this should be earnings accretive in FY18.
Cut our FY17-19F DPU by 5.4-7.1% due to continued challenging retail outlook.

1QFY17 DPU of 1.30 Scts (-0.8% yoy) was stable yoy SGREIT delivered mixed earnings performance in 1QFY17.
Higher contributions from Singapore (NPI up 4.4% yoy) and Malaysia (+8.1% yoy) offset the lower contributions from Australia (-13.2% yoy), China and Japan properties. As a result, the REIT achieved flat yoy distributable income and DPU.
The REIT issued a 10-year 3.14% S$70m medium-term note in Oct to repay a S$50m term loan and S$9m revolving loan; and there is no refinancing due until May 2018.
Gearing was stable yoy at 35.1%.

SGP retail NPI improved 7% yoy thanks to full-quarter contribution of higher rent from the Toshin master lease at Ngee Ann City (NAC) and the recognition of S$1.9m pretermination rental compensation for a lease at Wisma Atria (WA).
With the progressive reopening of Isetan’s strata-owned space, shopper traffic at WA rose 6.6% yoy, although tenant sales declined 5.4% yoy.
Committed occupancy at WA improved 1.8% pts qoq to 99.5%, as a number of tenants commenced operations.

SGP office NPI declined 5.9% yoy due to lower occupancy of 94.7% in 1QFY17 (1QFY16: estimated 99.3%). During the quarter, SGREIT reduced expiring leases in FY17F from 24.8% of GRI to 20.2%. Rental reversion for SGP office was flat but circa -5% for retail. Meanwhile, Malaysia benefited from full-quarter contribution of the c.6.7% rental uplift from the extension of the master leases with Katagreen Development.

Australia NPI dropped 13.3% yoy due to decline in occupancies at Myer Centre Adelaide office and Plaza Arcade (PA), owing to redevelopment works. A new anchor tenant for PA has been secured, while redevelopment of the mall has been approved.
The redevelopment will increase the total retail area by c.33% to 32,000 sq ft. It is expected to cost c.S$10m and will be funded by borrowings. Yield on cost is expected to be c.6%.
Construction is expected to start in mid-CY17 and be completed in 1QCY18.

On the back of the continued challenging retail environment, with consumers trading down, we further temper our SGP retail and office assumptions. We also erase AP contribution at the NPI level, as the mall would be disrupted by AEI in the near term.
That said, the redevelopment is expected to be earnings accretive when completed.
These led to cuts of 5.4-7.1% in our FY17-19F DPU and lowers our DDM-based TP (S$0.81).
We reiterate Hold.
Upside/downside risks hinge on SGP retail performance, in our view.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-10-31

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