Starhill Global REIT - CIMB Research 2018-01-30: Mixed Performance

Starhill Global REIT - CIMB Research 2018-01-30: Mixed Performance STARHILL GLOBAL REIT P40U.SI

Starhill Global REIT - Mixed Performance

  • Starhill Global REIT 2Q/1HFY6/18 DPU of 1.17 Scts/2.37 Scts made up 23%/47% of our FY18 forecast.
  • Weaker Singapore performance due to drag from office, partly offset by slight improvement in retail.
  • Australia performance impacted by ongoing AEI at Plaza Arcade and MAC office.
  • Maintain HOLD with unchanged Target Price of S$0.83.

2QFY6/18 results highlights 

  • Starhill Global REIT (SGREIT) posted a 7.1% y-o-y decline in 2QFY6/18 distribution income to S$25.5m (DPU: 1.17 Scts) due to weaker office rentals at Wisma Atria (WA) and Ngee Ann City (NAC) Singapore, and lower income from Australia due to the ongoing Plaza Arcade AEI and weak Myer Centre Adelaide (MAC) performance. 
  • Overall portfolio occupancy inched up 0.7% pt q-o-q to 94.1% but is still lower than 6 months ago. 
  • For 1HFY6/18, distribution income fell 7.4% y-o-y to S$51.7m (DPU: 2.37 Scts), representing a 98.6% payout.

Office drag on Singapore contributions 

  • 2QFY6/18 Singapore-based revenue/NPI fell 1.1%/2.6% y-o-y to S$32.8m/S$25.7m, due to negative office rental reversions. 
  • In addition, although committed office occupancy climbed 5.9% pts q-o-q to 89.4% at end-Dec 17, contributions will be felt only from 3QFY6/18 onwards. 
  • An estimated 13.3%/30.2% of WA’s and 7.2%/40.9% of NAC’s leases are expiring in 2HFY18/FY19.

Better retail rents from Wisma Atria 

  • The weaker 2Q office performance was partly offset by a 1.9% y-o-y improvement in Singapore retail rents, led by WA while NAC held steady. Although tenant sales and shopper traffic decreased 6.3% and 6.2% y-o-y in 2Q, respectively, due to renovation of the food court, they remained higher on a q-o-q basis. The food court recommenced operations in Nov 17. 
  • About 10.4% of retail leases at WA are due to be re-contracted in 2HFY18 and another 27.8% in FY19.

Australia income still impacted by AEI and weak office occupancy 

  • Australia 2Q revenue and NPI fell 8.7% and 12.4%, respectively, on the back of ongoing income disruption from the Plaza Arcade AEI, weaker MAC performance from lower office occupancy (84.2% at end-2QFY18) and allowance for rental rebates. 
  • Construction works at Plaza Arcade are due for completion in 1QCY18. It has secured UNIQLO as anchor tenant for the property and is expected to handover the façade unit by June 18.

Maintain HOLD rating 

  • We leave our FY18-20 DPU estimates unchanged and maintain our DDM-based Target Price at S$0.83. 
  • SGREIT’s capital management continues to be robust with gearing at 35.3% and no refinancing needs till FY19. An estimated 99% of its debt costs are hedged with a debt maturity of 4 years. However, near-term earnings growth remains sluggish as it works through the office vacancies in Singapore and MAC. Hence, we maintain our HOLD call.
  • Upside risk could come from faster-than-expected office take-up at better rates.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | 2018-01-30
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.830 Same 0.830