CIMB maintains “hold” rating for Starhill Global REIT (SGREIT) and raises its price target to 82 cents after the REIT delivered a mixed performance in 3QFY16.
The REIT’s 3QFY16 results were in line with CIMB’s expectations and made up roughly 25% of its and consensus full-year estimates. Nine-month distribution income formed 76% of its full-year forecast. 3Q topline grew by 12% to $53.6 million, thanks to contributions from Myer Centre Adelaide. This offset lower income from Wisma Atria, China, Malaysia and Japan assets as well as adverse forex impact from the Malaysian ringgit and Australian dollar.
Net property income (NPI) in Singapore fell 1.5% to $26.4 million, dragged down by the Wisma Atria retail space where occupancy dipped to 96.8% as the leasing environment remained challenging. This is despite higher tenant sales and a slight pick-up in shopper traffic, CIMB notes.
Australia revenue and NPI surged 170% and million respectively, and made up 22.5% of total portfolio revenue due to contributions from Myer Centre Adelaide.
However, Australia portfolio occupancy dipped to 89.5% from 96.5% last quarter due to the expiry of one tenant in the Adelaide property and lease termination in the Perth properties due to the planned AEI at Plaza Arcade, the broker says.
SGREIT has a remaining 3.8% and 14.5% of gross rental income to be renewed in FY16 and FY17. In Malaysia, the master lease has been renewed by a further three years from June 16 at 6.67% rental uplift. Rent negotiations for the Toshin master lease at Ngee Ann City have commenced. In the medium term, the David Jones rent review in Aug 17 and redevelopment works at Plaza Arcade, scheduled to be completed at end-16/early-17, should drive longer-term growth prospects, CIMB reckons.
“With a gearing of35.4%, SGREIT’s balance sheet has the capacity to fund its AEI activities. SGREIT offer investors an FY17 DPU yield with limited near-term upside of 3.3%,” CIMB says.
This article first appeared in The Edge Singapore Market Report.
(Photo: Terence Ong)