Starhill Global REIT - OCBC Investment 2018-01-30: Improvement Expected

Starhill Global REIT - OCBC Investment 2018-01-30: Improvement Expected STARHILL GLOBAL REIT P40U.SI

Starhill Global REIT - Improvement Expected

  • 2QFY18 DPU dipped 7.1% y-o-y.
  • Recovery in SG office committed occupancies.
  • Expect sequential improvement in 2HFY18.

2QFY18 results within our expectations 

  • Starhill Global REIT (SGREIT) reported another challenging set of results although this was inline with our expectations. 
  • 2QFY18 gross revenue fell 3.0% y-o-y to S$52.5m while NPI dipped 2.2% to S$40.5m. The latter was attributed largely to a 20.0% fall in NPI for its Singapore office assets, while there was also weakness in Australia (-12.4%). 
  • DPU came in lower by 7.1% y-o-y to 1.17 S cents as there were also higher withholding taxes for SGREIT’s Malaysia and Australia properties. 
  • On a 1HFY18 basis, SGREIT’s gross revenue slipped 3.6% to S$105.4m. NPI was down 2.9% to S$81.9m and this formed 48.1% of our FY18 forecast. DPU of 2.37 S cents represented a decline of 7.4% and constituted 48.7% of our full-year forecast.

Operational improvement likely ahead 

  • Challenges were apparent during the quarter, as Wisma Atria (retail) saw a 6.3% and 6.2% y-o-y drop in tenant sales and shopper traffic due to the renovation of the food court, which has since commenced operations in Nov 2017. 
  • Its Singapore office portfolio also recorded negative rental reversions. However, we expect 2HFY18 to be better for SGREIT as compared to 1HFY18 for the following reasons:
    1. committed occupancy at its Singapore office portfolio ramped up 5.9 ppt QoQ to 89.4% (as at 31 Dec 2017) but the committed leases will only commence in 3QFY18; 
    2. contribution from its property in China after expected completion of renovation works in 1QCY18 by its tenant Markor. 
  • Another positive development was the announcement that global apparel retailer UNIQLO would be opening its first Perth flagship store in mid-2018 at SGREIT’s Plaza Arcade property.

Trading at 6.2% FY18F distribution yield as of 29 Jan closing price 

  • In terms of balance sheet, SGREIT’s gearing stood at 35.3%, as at 31 Dec 2017, which is stable compared to end-1QFY18 (35.4%). This leaves management with a debt headroom of ~S$259m before reaching a gearing level of 40%. 
  • We are keeping our forecasts and S$0.77 fair value estimate unchanged given this in-line set of results. Based on our projections and SGREIT’s closing price on 29 Jan, it offers investors a distribution yield of 6.2% for FY18F.

Wong Teck Ching Andy CFA OCBC Investment | 2018-01-30
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