Starhill Global REIT - CIMB Research 2017-10-30: Dragged By Weaker Singapore Office

Starhill Global REIT - CIMB Research 2017-10-30: Dragged By Weaker Singapore Office STARHILL GLOBAL REIT P40U.SI

Starhill Global REIT - Dragged By Weaker Singapore Office

  • Starhill Global REIT (SGREIT)'s 1QFY18 DPU of 1.2 Scts was within expectations at 23.6% of our FY18 forecast.
  • Singapore retail improved with an uptick in tenant sales.
  • Singapore office dragged by weaker occupancy at NAC.
  • Slight recovery in Australia retail income.
  • Retain Hold on lack of near-term catalysts, with an unchanged target price of S$0.83.

1QFY18 in line at 23.6% of our FY18 forecast 

  • 1QFY6/18 gross revenue fell 4.1% yoy due to the absence of one-off pre-termination compensation at Wisma Atria (WA) and lower contributions from Singapore office, partly offset by better performance at David Jones Building and Myer Centre Adelaide.
  • Excluding the one-time pre-termination compensation item, the topline dipped a smaller 0.6% yoy. DPU of 1.2 Scts was 7.7% lower yoy and made up 23.6% of our FY18 forecast. Overseas contributions made up 39% of 1QFY18 revenue.

Retail income up, excluding one-offs 

  • Stripping off the one-off time item, WA retail revenue was up 1.4% while NPI increased by a higher 6.4% on better cost management. Tenant sales expanded 1.3% yoy despite a 3.1% dip in shopper traffic while retail occupancy at WA was relatively unchanged at 97.4%. 
  • There are a remaining 17.9% and 3.2% of retail gross rents to be renewed in WA and NAC, respectively, for FY18F.

Singapore office dragged by lower occupancy at NAC 

  • Meanwhile, Singapore office income fell, impacted by lower average occupancy of 83.5%, largely due to lower take-up at NAC of 77.9%. 
  • Final negotiations are ongoing to re-let one-third of the vacant space. Going forward, the trust’s strategy for its office portfolio would be to maintain occupancy.

Australia income up on better retail income 

  • Australia performed better, with revenue and NPI up 6.9% and 3.8%, respectively, due to higher retail revenue at Myer Centre Adelaide and positive rental reversions from longterm leases at David Jones Building as well as appreciation of the A$ vs. S$. This more than offset income disruption from the asset redevelopment works at Plaza Arcade and lower office occupancy at Myer Adelaide Centre. 
  • Post the long-term lease renewal, only 8-9% of rental is due to expire in FY18F/FY19F for the Perth properties.

Maintain Hold rating 

  • We leave our FY18-20F DPU estimates and DDM-based target price of S$0.83 unchanged. SGREIT has no refinancing needs till June 19 after drawing down its new S$460m unsecured term loan facility in Sep 17. 
  • Gearing stood at a healthy 35.4% as at end-1QFY18. However, near-term earnings growth is likely to remain sluggish as it works through the drag from its Singapore office portfolio and ongoing AEI at Plaza Arcade. 
  • A key upside risk to our earnings is faster-than-expected office take-up at better rates.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | 2017-10-30
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.830 Same 0.830