• 3QFY16 DPU flat YoY at 1.26 S cents
• 8.5% rental reversion for Singapore Office
• Lower occupancy due largely to Australia

3QFY16 results in-line with expectations

Starhill Global REIT’s (SGREIT) 3QFY16 gross revenue jumped 12.0% YoY to S$53.6m, with growth underpinned by Myer Centre Adelaide (MCA), which was acquired in May 2015, but partially offset by softer revenue from Wisma Atria (Retail) and other overseas assets.

NPI rose 7.0% YoY to S$41.6m but DPU was flat at 1.26 S cents due largely to higher finance costs. For 9MFY16, SGREIT’s gross revenue grew 14.2% to S$166.0m and this accounted for 74.3% of our FY16 forecast. DPU of 3.89 S cents represented an increase of 1.8% and formed 74.0% of our full-year projection.

Mixed operational metrics

During the quarter, SGREIT recorded a portfolio occupancy of 95.6%, which was a decline of 3.5 ppt YoY and 2.4 ppt QoQ. The sequential decline was mainly attributed to a lease expiry of one office tenant at MCA and leases termination in relation to planned enhancement work for Plaza Arcade. Hence, SGREIT’s Australia occupancy dipped from 95.8% (as at 31 Dec 2015) to 89.5%.

Wisma Atria’s (Retail) occupancy fell from 98.1% to 96.8% YoY, but was an improvement from the 94.9% registered in the previous quarter. Encouragingly, shopper traffic at Wisma Atria (Retail) inched up 0.3% YoY, following five consecutive quarters of YoY decline. The mall’s tenant sales also grew 1.7% YoY.

SGREIT’s Singapore office portfolio remained resilient, with positive rental reversions of 8.5% achieved and both properties are fully occupied. Looking ahead, we believe a key focus for management would be its rent review negotiation for the Toshin master lease at Ngee Ann City which is due in June this year. We have factored in a rent increase of 5% in our assumptions.

Reiterate BUY

In terms of financial position, SGREIT’s balance sheet remains healthy, with a gearing ratio of 35.4%, as at 31 Mar 2016. 100% of its borrowings are fully hedged, with no major refinancing requirements until FY18. We maintain our forecasts, BUY rating and S$0.84 fair value estimate on SGREIT. The stock offers a distribution yield of 6.7% for FY16, culminating in total potential returns of 13%.

Source: OCBC Research - 25 Apr 2016