• 6QFY14/15 DPU rose 3.2% YoY
• Maiden contribution from MCA
• BUY with same FV

6QFY14/15 results within our expectations

Starhill Global REIT (SGREIT) reported its 6QFY14/15 results (financial year end changed from 31 Dec to 30 Jun such that financial year 2014/15 comprises six quarters) which met our expectations. Gross revenue rose 3.7% YoY to S$51.8m, aided by the maiden contribution from Myer Centre Adelaide (MCA) which was acquired in May 2015 and better performance from its Singapore properties, but partially offset by a weaker showing from its other overseas assets (partly due to FX). DPU grew 3.2% YoY to 1.29 S cents, and formed 25% of our initial CY15 forecast.

Still largely resilient

SGREIT’s overall occupancy rate remained healthy at 98.2%, albeit being slightly lower than the 99.1% recorded as at 31 Mar 2015. This was due to higher vacancies at David Jones Building in Australia. Wisma Atria (retail) achieved positive rental reversions of 3.9%, while SGREIT’s Singapore office portfolio saw rental uplifts of 4.5% for leases committed in 6QFY14/15.

Nevertheless, the still challenging operating environment was reflected in the 6.6% and 6.7% YoY fall in shopper traffic and tenant sales at Wisma Atria, respectively. This was also partly due to tenant renovations which accounted for 7.9% of the mall’s prime floor NLA. We understand that most of the renovation works has been completed. One of the new tenants, Emperor Watch and Jewellery, commenced its operations in May and clocked in encouraging sales figures on a psf basis.

Maintain BUY

Although there are concerns over SGREIT’s FX exposure to the AUD and MYR, we note that based on management’s estimates, a 10% depreciation in all the foreign currencies is not expected to impact SGREIT’s distributions for FY14/15 by more than 5%. We fine-tune our assumptions and lower our FY16 and FY17 DPU forecasts by 1.9% and 1.4%, respectively, as we trim our revenue projections, but this is partially mitigated by lower finance cost assumptions.

Rolling forward our valuations, our DDM-derived fair value remains unchanged at S$0.93. Maintain BUY, as total potential returns equates to ~13%.

Source: OCBC Research - 3 Aug 2015