Starhill Global REIT (SGREIT) reported its 2QFY17 results which fell short of our expectations. Gross revenue fell 2.8% YoY to S$54.1m, while NPI dipped 5.4% to S$41.4m. This was attributed to weaker contributions from Wisma Atria (both retail and office), Ngee Ann City (office) and its China and Japan portfolio. Consequently, DPU for the quarter came in at 1.26 S cents, which represented a decline of 4.5% YoY.

On a 1HFY17 basis, SGREIT’s gross revenue and NPI decreased by 2.7% and 3.5% to S$109.3m and S$84.3m, respectively, with the latter forming 46.3% of our full-year forecast. DPU slipped 2.7% to 2.56 S cents and made up 47.8% of our FY17 projection. Operationally, SGREIT’s Singapore retail portfolio registered positive rental reversions of 2.5% for leases committed in 2QFY17.

Wisma Atria (retail) saw higher shopper traffic of 2.1% but tenant sales was down 2.0% YoY. Its Singapore office portfolio suffered a 7.7% YoY drop in NPI in 2QFY17 due to lower occupancy (95.9%, -4.1 ppt YoY) and negative rental reversions of 1.6%.

We will provide more details after the analyst briefing. While we maintain our BUY rating on SGREIT, we are likely to pare down our S$0.86 fair value estimate.

Source: OCBC Research - 27 Jan 2017