Starhill Global REIT - CIMB Research 2017-02-01: Redevelopment and RSZ to affect FY17 distribution

STARHILL GLOBAL REIT P40U.SI

Starhill Global REIT - Redevelopment and RSZ to affect FY17 distribution

1HFY17 DPU of 2.56 Scts (-2.7% yoy) was in line with our expectation, at 49% of our full-year forecast. 2QFY17 DPU of 1.26 Scts (-4.5% yoy) made up 24%.
Portfolio occupancy ticked up 0.3% pts qoq to 95.4%.
Shopper traffic at Wisma Atria rose 2.1% yoy but tenant sales slipped 2% yoy. Singapore office was affected by lower occupancies and passing rents.
Ongoing redevelopment at Plaza Arcade (PA) and tenant transition for Renhe Spring Zongbei Property (RSZ) will impact FY17 distribution. We reduce our FY17-19 DPU by 2.9-5.9%.

2QFY17 revenue/NPI decreased 2.8%/5.4% yoy as
1. lower contributions from the Singapore properties,
2. ongoing AEI at Plaza Arcade (PA),
3. mall repositioning in China, and
4. divestment of Roppongi Terzo in Jan 17
more than offset higher rental from the master leases at Ngee Ann City and the Malaysian properties.
Interest costs rose 7.8% yoy, partly due to the issuance of S$70m 3.14% 10-year notes in Sep 16.
The REIT also recorded S$12.9m revaluation loss on Renhe Spring Zongbei property (RSZ).

Portfolio occupancy ticked up 0.3% pts qoq to 95.4%, with improvement in Singapore (SGP), China and Australia, albeit partially offset by Japan.
By GRI, 8.5% is due for the second half of FY17 and the trust has a WALE of 4.8 years.
Gearing remained stable at 35.2%.
Following the issuance of the 10-year note, SGREIT’s debt maturity is spread out at 3.1 years. There is no refinancing until May 18.

NPI for SGP retail eased 2.2% yoy as lower rents at Wisma Atria (due to a change in tenant trade mix) more than offset higher rent from the master lease at Ngee Ann City.
During the quarter, new F&B concepts, such as Picnic, were introduced at Wisma. These tenant transitions accounted for 13% of the mall’s NLA.
Meanwhile, shopper traffic at Wisma rose 2.1% yoy but tenant sales slipped 2% yoy. The mall achieved 2.5% positive rental reversion in the quarter.

SGP office NPI fell 7.7% yoy due to lower occupancy (2QFY17: 95.9% vs. 2QFY16: 100%) due to the departures of oil & gas tenants.
Rental reversions for leases committed in 2QFY17 were lower by 1.6%.

Australia NPI declined 3.7% yoy due to unfilled vacancies at Myer Centre and lease terminations at PA (owing to redevelopment works). The asset redevelopment is expected to impact Australia contributions until scheduled completion in 1Q18.
Meanwhile, Lot 10 in Malaysia will undergo AEI, which is targeted to be completed by end-17.
Lastly, RSZ is also undergoing repositioning. In preparation for the handover to a new tenant (Markor International Home Furnishings), operations in RSZ have ceased.

Maintain Hold on SGREIT with lower DDM-based target price (S$0.72) as ongoing redevelopment at PA and tenant transition at RSZ will affect FY17 distributions.
We also reduce FY17- 19F DPU to buffer against above effects and higher financing costs.
Occupancy for PA was c.76% in 2QFY17 and we expect it to trough at 60% as redevelopment works progress.
RSZ is likely to be in the red next quarter as it prepares for handover to Makor in Mar 17.
Upside/downside risks hinge on Singapore retail landscape and GDP growth.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-02-01

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.720 Down 0.760