• 1QFY17 DPU -0.8% YoY
• Improved Singapore retail performance
• Some weakness seen in Singapore office

1QFY17 results in-line with expectations

Starhill Global REIT (SGREIT) reported an in-line set of 1QFY17 results. Gross revenue declined by 2.7% YoY to S$55.3m and accounted for 24.1% of our full-year forecast. This was due largely to weaker contribution from its Singapore Office portfolio (-4.7%) and Australia (-10.0%), but partially offset by higher revenue from its Singapore Retail portfolio and Malaysia. NPI fell 1.7% YoY to S$42.9m, implying a slightly higher NPI margin of 77.6% (+0.8 ppt). DPU decreased by 0.8% YoY to 1.30 S cents and formed 24.3% of our FY17 forecasts.

Mixed operational performance

SGREIT’s improved performance for its Singapore Retail portfolio can be largely attributed to a full-quarter of contribution from the 5.5% increase in base rent from its master tenant Toshin at its Ngee Ann City property with effect from 8 Jun this year. Committed occupancy for its Singapore Retail portfolio stood at 99.7%. For Wisma Atria (Retail), shopper traffic rose 6.6% YoY, but tenant sales were down 5.4% given the challenging retail climate in Singapore.

From our understanding, rental reversions at Wisma Atria (Retail) were lower by mid-single digit. The softer showing for its Singapore Office portfolio was due to lower occupancy rates (1QFY17: Wisma Atria: 97.9% and Ngee Ann City: 92.5%; 1QFY16: Wisma Atria: 98.3% and Ngee Ann City: 100%). Rental reversions were flat.

Despite the limited new supply in Orchard Road, we are cautious on this space as SGREIT has 20.2% and 30.4% of its Singapore office leases expiring (by gross rent) at Wisma Atria and Ngee Ann City, respectively, for the remainder of FY17. In Australia, management secured a new anchor tenant at its Plaza Arcade property and redevelopment plans to increase the total retail area at the mall by over 33% to 32k sq ft have been approved by local authorities.

Maintain BUY

In terms of financial position, SGREIT’s gearing ratio remains healthy at 35.1%, as at 30 Sep 2016 (+0.1 ppt QoQ). 96% of its borrowings are fixed/hedged. We reiterate our BUY rating on SGREIT with an unchanged fair value estimate of S$0.86. The stock is currently trading at FY17F distribution yield of 6.6% and P/B ratio of 0.87x.

Source: OCBC Research - 31 Oct 2016