• 5QFY15 DPU up 1.6% YoY to 1.26 S cents
• 13.3% rental reversion at Wisma Atria (retail)
• Proposed Adelaide acquisition

5QFY15 results within expectations

Starhill Global REIT (SGREIT) reported its 5QFY15 result (financial year end changed to 30 Jun such that financial year 2014/15 will comprise six quarters) which met our expectations. Gross revenue fell 2.7% YoY to S$47.9m, as growth from Singapore was offset by weaker performance from its overseas assets. This was partly attributed to the depreciation of the MYR, AUD and JPY against the SGD during the quarter. However, DPU grew 1.6% YoY to 1.26 S cents, driven by a higher NPI margin of 81.2% (+1.7 ppt) and hedges put in place. This formed 23.9% of our initial CY15 forecast.

Rental reversions still healthy

Overall occupancy rate was healthy at 99.1% (versus 99.6% as at 31 Dec 2014), while other bright spots came from the 13.3% rental reversion achieved at Wisma Atria (retail). However, the still-challenging operating environment was reflected in the 2% and 9% YoY fall in shopper traffic and tenant sales at Wisma Atria, respectively, although this was also partially contributed by ongoing renovation works. For its Singapore office portfolio, committed occupancy was 99.3%, while positive rental uplift of 6% was secured during the quarter.

Adelaide acquisition to provide inorganic growth

SGREIT also recently announced its proposal to acquire Myer Centre Adelaide, a freehold property in South Australia, for a purchase consideration of A$288m (~S$302.4m). Myer Centre Adelaide has a total area of 716k sq ft and comprises a retail centre (95% occupancy rate), three office buildings (93% occupancy rate) and four basement levels with 467 carpark lots. This asset will be purchased at an initial NPU yield of 6.6% and is expected to be completed in 2QCY15.

SGREIT intends to fund this acquisition via a combination of internal working capital and external borrowings. This would raise its gearing from 28.6% to 35.3%. We maintain our BUY rating and S$0.93 fair value on SGREIT. We have not changed the presentation format of our financial forecasts, pending SGREIT’s next results release which would be its full-year results.

Source: OCBC Research - 4 May 2015