We attended the Starhill Global REIT ("SGREIT") 4Q2014 Results Briefing held on 28 th January. Key Takeaways:

Little impact from closure of Isetan at Wisma Atria - Isetan will cease operations at Wisma Atria from 2Q 2015, and thereafter seek to lease out all floors of its premises. (Isetan Wisma Atria is not part of SGREIT’s property portfolio). Management does not see much competition from this additional supply of retail space as there are rules within the MCST that forbids Isetan from poaching existing tenants at Wisma Atria. The upcoming new shops and premium retail outlets could even draw in fresh crowds and benefit existing tenants.

Negligible threat of e-commerce – Management does not see online shopping as a big threat to the content that the malls currently offer. Catering to premium concepts remain the key strategy of management, including premium F&B outlets, such as the new Ben’s Cookies in Wisma Atria.

Occupancy costs not a fair gauge for comparison with suburban malls – Occupancy cost for 4Q14 (27%) is around the same level as that for 3Q14. This rate has hovered around 24-28% for the past 10 years. Despite higher occupancy costs compared to suburban malls (which tend to hover in the teens), in absolute dollar terms, tenants actually make higher returns due to greater sales efficiency (Sales/psf) and operating leverage that can be achieved in urban upmarket malls.

Addressing footfall and tenant sales issues – Key drop in tenant sales was mainly in watch and jewellery segment, which could get worse after the recent appreciation of the Swiss franc. Management will continue to organise events to increase shopper traffic, such as the invitation of Michael Owen last June to Wisma Atria for a brunch and meet-and-greet session with shoppers.

Fewer Chinese tourists due to visa relaxation – Management stated that the relaxation of visa rules for Chinese visitors (biggest tourist group in Singapore by nationality) in many countries, including Japan, Korea and Malaysia was one of the contributing causes, amongst others, for the decline in China tourist numbers, as Chinese tourists now have more holiday destination options.

Investment Action

No stock rating or price target provided, as we do not have coverage on SGREIT.

Source: Phillip Securities Research - 31 Jan 2015