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

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. 

4QFY6/17 results highlights 

  • 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.

Weaker Singapore office performance 

  • 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.

Dragged by ongoing AEI works in Australia 

  • 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.

No refinancing needs till Jun 19 

  • 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.

Maintain Hold 

  • 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