Starhill Global REIT - CIMB Research 2017-07-31: Mixed Performance

STARHILL GLOBAL REIT P40U.SI

Starhill Global REIT - Mixed Performance

SGREIT's 4QFY6/17 DPU was at the lower end of our expectations, at 22.4% of FY17F forecast
Results were dragged down largely by weaker Singapore and Australia performance
No refinancing needs till Jun 2019, gearing healthy at 35.3%

Maintain Hold with a higher Target Price of S$0.83 as we roll our numbers forward.

SGREIT’s 4Q and FY17 DPU of 1.18 Scts/4.92 Scts came in at the lower end of our expectations, making up 22.4/93.3% of our FY17F forecast.
Whilst revenue and NPI was stable yoy, the effects of straight-lining rent adjustments, higher withholding taxes in Malaysia and lower payout ratio (97.5% vs 98.9% in 4Q16) resulted in distributed income and DPU declining 8.5% yoy.
There was a 40bp compression in cap rates for Singapore assets, but this was partly offset by the weaker performance of the office component.

4QFY17 Singapore NPI dipped 0.5% yoy to c.S$26m led by lower contributions from Wisma Atria (WA) and Ngee Ann City (NAC) office.
Average rents for WA retail fell, while the WA and NAC offices saw yoy dips in occupancies from 95.6% to 92.9%. There is c.19.5% of retail rental income expiring in FY18 and 29.8%/20.4% of office rental due for renewal in FY18 at WA/NAC.
As the CBD fringe office market remains competitive, SGREIT intends to adopt a “tenant retention” strategy to maintain occupancies.

Australia revenue slipped 1.9% yoy with the ongoing development works at Plaza Arcade partly offset by a stronger A$ and higher occupancy at David Jones Building. The AEI is scheduled to complete by 1QCY18. In the meantime, with long-term leases accounting for c.52% of income, we anticipate Australia contributions to remain relatively flat.
After taking into account the lower RM, Malaysia NPI grew 5.2% thanks to extension of master lease at higher rent.

The trust has secured commitments to early refinance c.S$603m of loans ahead of maturities in 2018, thus extending its debt maturity profile to 4.5 years. Debt cost remains at 3.16% and is 99% hedged. Hence, there are no refinancing needs till Jun 2019.
Gearing stood at 35.3% as at Jun 17 and provides good debt headroom to explore inorganic opportunities. This is not factored into our existing forecasts.

We tweak our FY18-19F DPU estimates post results and introduce our FY20F numbers.
Our DDM-based TP is lifted to S$0.83 as we roll our numbers forward.
We believe SGREIT’s near-term earnings growth would likely remain modest while awaiting the completion of AEI at Plaza Arcade.
Upside risk include faster-than-expected recovery of the Singapore CBD fringe office market and uptick in occupancy at Myer Adelaide Centre, while downside risk could come from forex volatility.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-07-31

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.83 Up 0.770