Starhill Global REIT - OCBC Investment 2017-08-01: Muted Results But Within Expectations

Starhill Global REIT - OCBC Investment 2017-08-01: Muted Results But Within Expectations STARHILL GLOBAL REIT P40U.SI

Starhill Global REIT - Muted Results But Within Expectations

  • SGREIT's 4QFY17 DPU fell 8.5% YoY.
  • Cap rate compression for Singapore assets.
  • Strong rental reversions at Wisma Atria Retail.

4QFY17 results met our expectations 

  • Starhill Global REIT (SGREIT) reported its 4QFY17 results which came in within our expectations. 
  • Gross revenue and NPI were flat YoY at S$53.7m and S$41.4m, respectively.
  • Positive contributions from master leases were offset by weaker performance from Wisma Atria Retail and its Singapore office portfolio, while there was also disruption from asset redevelopment works. 
  • DPU fell 8.5% YoY to 1.18 S cents, attributed to straight-lining rent adjustments, higher withholding taxes in Malaysia and a lower payout ratio of 97.5% (4QFY16: 98.9%). 
  • For FY17, SGREIT’s gross revenue fell slightly by 1.5% to S$216.4m. DPU of 4.92 S cents represented a dip of 5.0% and constituted 99.3% of our FY17 projection.

Firm cap rate compression for Singapore assets 

  • Similar to what we saw for CapitaLand Mall Trust’s revaluation exercise (as at 30 Jun 2017), SGREIT's Singapore properties recorded a firm cap rate compression of 40 bps for both its retail and office segments. However, Wisma Atria Property and Ngee Ann City Property only recorded a marginal increase in valuation by 0.1% and 0.4% to S$997m and S$1,150m, respectively, as the higher retail component was partially offset by a decline in the office segment.
  • Operationally, SGREIT’s portfolio occupancy improved 0.4 ppt QoQ to 95.5%. Wisma Atria Retail saw stable tenant sales in 4QFY17, although shopper traffic fell 3.8% YoY.
  • Encouragingly though, the mall achieved a strong positive rental reversion of 7.8% for leases committed during the quarter, and this accounted for a significant 30% of its NLA. This was driven largely by the renewal of leases for some of the mall’s prime frontage façade space.

Maintain BUY 

  • We incorporate SGREIT’s latest full-year results in our model, and also lower our occupancy assumptions for its Singapore offices.
  • Consequently, our FY18 and FY19 DPU forecasts are trimmed by 1.6% and 1.1%, respectively.
  • However, as we also roll forward our valuations, our DDM-derived fair value estimate increases slightly from S$0.81 to S$0.82. 
  • Maintain BUY given SGREIT’s attractive FY18F distribution yield of 6.4% and P/B ratio of 0.8x.

Wong Teck Ching Andy CFA OCBC Investment | 2017-08-01
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.82 Up 0.810