Starhill Global REIT - UOB Kay Hian 2017-04-28: 1Q17 Results Of SGREIT Below Expectations

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STARHILL GLOBAL REIT P40U.SI

REITs − Singapore - 1Q17: Results Of SGREIT (Below Expectations)

• SGREIT’s results were below expectations, due to higher-than-anticipated retained income. 
• Maintain BUY on SGREIT with an unchanged target price of S$0.90.
• Maintain OVERWEIGHT on the sector.

WHAT’S NEW

• Starhill Global REIT (SGREIT) reported quarterly results.

ACTION 

Starhill Global REIT (SGREIT SP/BUY/S$0.775/Target: S$0.90)

• Results below expectations; maintain BUY with unchanged target price of S$0.90, based on DDM (required rate of return: 6.7%, terminal growth: 1.2%). 
• SGREIT reported 3QFY17 DPU of 1.30 S cents, down 6.3% yoy. The quarter saw gross revenue and NPI decline 2.7% yoy and 1.7% yoy respectively due to lower contributions from Wisma Atria, Ngee Ann City Office, Myer Centre Adelaide and its China asset. 
• Results were below expectations, coming in at 71.2% of our full-year estimate, due to higher-than-anticipated retained income for working capital. 
• Stripping out the impact of retained income, 9MFY17 distributable income would have been in line (73.3% of our full-year estimates).
• Singapore properties contributed 62.5% of total revenue, up 0.6% yoy (NPI up 0.5% yoy) mainly due to increase in base rent from the Toshin master lease at Ngee Ann City Property (Retail) from Jun 16, which was partially offset by lower occupancies for Singapore offices and lower average rents at Wisma Atria Property (Retail).

Singapore retail update. 

• Tenant sales decreased 2.0% yoy during the quarter, despite the 7% yoy decline in shopper traffic. Singapore retail occupancy also declined due to termination of short-term leases (1 year). However, we understand from management that expansionary demand from tenants like Omasake Burger and new leasing demand should bolster retail occupancy next quarter.

Better positioned in a challenging retail environment. 

• Starhill Global is likely to display more resilience in an otherwise lacklustre sector, with its diversification across geographies and asset classes (overseas assets comprised 35.7% of 3QFY17 NPI).
• Increased retail space, rising labour costs and threats from alternative retail channels have in part prompted retail landlords CapitaLand Mall Trust (CMT) and Frasers Centrepoint Trust (FCT) to guide for a moderation in rental reversions.

Derek Chang UOB Kay Hian | Vikrant Pandey UOB Kay Hian | http://research.uobkayhian.com/ 2017-04-28

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.900 Same 0.900