• Myer Centre Adelaide acquisition completed
• Mall has strong upside potential
• Maintain BUY with unchanged FV

Site visit to recently acquired Myer Centre Adelaide

On 18 May 2015, Starhill Global REIT (SGREIT) completed the acquisition of Myer Centre Adelaide (MCA), a freehold property in South Australia, for A$288m (~S$302.4m). Last week, OIR went on a site visit to the property. MCA is well-located in the Rundle Mall precinct in the Adelaide CBD area. We noticed that the mall started bustling with crowds during the lunchtime period, with a good mix of office workers and students.

MCA has a net lettable area (NLA) of 602,000 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 was purchased at an initial NPI yield of 6.6% and will be funded via a combination of internal working capital and external borrowings. We believe there is ample upside potential for rental income to be increased in the future, as management intends to carry out a tenant repositioning exercise, while there is also ~114,000 sq ft NLA of vacant space on levels 4 and 5 which has not been utilised (pending AEI).

Firm prospects for Adelaide’s retail market

Looking ahead, we are positive on Adelaide’s retail market, and believe there is room for further cap rate compression. The retail sales outlook appears buoyant, given the low interest rate environment and fuel prices, robust housing market and weak A$ which would stifle overseas travel by locals. CBRE expects retail sales growth in Australia to come in between 4%-5% this year, with South Australia growing above average.

Another growth driver may come from the expansion of international retailers into Adelaide, although we believe this is still at a nascent stage. For example, Tiffany & Co. opened its first flagship store in the Adelaide CBD area in late 2014. Colliers International highlighted that Rundle Street Mall remains the prime location in the Adelaide CBD and demand from tenants continues to be robust.

Reiterate BUY

SGREIT remains as one of our preferred picks within the S-REITs sector. We like its attractive valuations (FY15F P/B ratio of 0.94x and distribution yield of 5.9%) and strong management team. Reiterate BUY and S$0.93 fair value estimate on SGREIT.

Source: OCBC Research - 4 Jun 2015