• 4QFY17 DPU fell 8.5% YoY
• Cap rate compression for Singapore assets
• Strong rental reversions at Wisma Atria Retail

4QFY17 Results Met Our Expectations

Starhill Global REIT (SGREIT) reported its 4QFY17 results which came in within our expectations. Gross revenue and NPI were flat YoY at S$53.7m and S$41.4m, respectively. Positive contributions from master leases were offset by weaker performance from Wisma Atria Retail and its Singapore office portfolio, while there was also disruption from asset redevelopment works. DPU fell 8.5% YoY to 1.18 S cents, attributed to straight-lining rent adjustments, higher withholding taxes in Malaysia and a lower payout ratio of 97.5% (4QFY16: 98.9%). For FY17, SGREIT’s gross revenue fell slightly by 1.5% to S$216.4m. DPU of 4.92 S cents represented a dip of 5.0% and constituted 99.3% of our FY17 projection.

Firm Cap Rate Compression for Singapore Assets

Similar to what we saw for CapitaLand Mall Trust’s revaluation exercise (as at 30 Jun 2017), SGREIT's Singapore properties recorded a firm cap rate compression of 40 bps for both its retail and office segments. However, Wisma Atria Property and Ngee Ann City Property only recorded a marginal increase in valuation by 0.1% and 0.4% to S$997m and S$1,150m, respectively, as the higher retail component was partially offset by a decline in the office segment.

Operationally, SGREIT’s portfolio occupancy improved 0.4 ppt QoQ to 95.5%. Wisma Atria Retail saw stable tenant sales in 4QFY17, although shopper traffic fell 3.8% YoY. Encouragingly though, the mall achieved a strong positive rental reversion of 7.8% for leases committed during the quarter, and this accounted for a significant 30% of its NLA. This was driven largely by the renewal of leases for some of the mall’s prime frontage façade space.

Maintain BUY

We incorporate SGREIT’s latest full-year results in our model, and also lower our occupancy assumptions for its Singapore offices. Consequently, our FY18 and FY19 DPU forecasts are trimmed by 1.6% and 1.1%, respectively.

However, as we also roll forward our valuations, our DDM-derived fair value estimate increases slightly from S$0.81 to S$0.82. Maintain BUY given SGREIT’s attractive FY18F distribution yield of 6.4% and P/B ratio of 0.8x.

Source: OCBC Research - 1 Aug 2017