SINGAPORE (Nov 1): Starhill Global REIT (SGREIT) announced its 1Q18 results and posted that DPU dropped 7.7% y-o-y to 1.2 cents from 1.3 cents last year.
Gross revenue also decreased 4.1% to $53.0 million from $55.3 million the previous year.
The decline was mainly due to a one-off pre-termination rental compensation for a retail lease at Wisma Atria Property of $1.9 million, lower contributions from offices and overseas properties except David Jones building and Myer Centre Adelaide as well as the depreciation of MYR against SGD.
As a result, net property income (NPI) dropped 3.5% to $41.4 million from $42.9 million in 1Q17.
See: Starhill Global REIT 1Q DPU drops 7.7% to 1.2 cents
Following the announcement of the results, OCBC has downgraded its recommendation on SGREIT to “hold” from “buy” previously with a lowered target price of 77 cents.
SGREIT’s office portfolio occupancy saw an 11.2 ppt dip y-o-y to 83.5%, mainly due to Ngee Ann City, which saw a drop of 14.6 ppt y-o-y to 77.9%.
The REIT says that it is currently in the process of finalising terms with prospective tenants for approximately one-third of the vacant spaces.
In a Wednesday report, analyst Andy Wong Teck Ching says, “Notwithstanding this development, downtime is expected given the fit-out period for new tenants, while rental pressures are also likely to persist.”
Overall portfolio occupancy for the REIT also decreased 2.1 ppt to 93.4% from the previous quarter.
The analyst believes that consumer sentiment appears to be more upbeat as Wisma Atria saw higher tenant sales despite a drop in shopper traffic, while enquiries have also seen an improvement, although the overall landscape still has pockets of uncertainties.
“We lower our FY18 and FY19 DPU forecasts by 3.1% and 3.8%, respectively, as we cut our occupancy projections for SGREIT’s Singapore office assets and Myer Centre Adelaide. We also raise our cost of equity assumption from 8.0% to 8.2% as we expect SGREIT’s outlook to remain challenging in the near future,” says Wong.
On the other hand, DBS is maintaining its “buy” call on SGREIT with a target price of 82 cents.
In a Tuesday report, analyst Mervin Song says, “We like SGREIT for its diversified portfolio of prime retail and office assets in the Asia Pacific region, with Singapore, Australia, and Malaysia, accounting for c.65%, c.20%, and c.15% of NPI in FY17 (FYE June) respectively.”
According to the analyst, the REIT offers income stability and visibility as about 45% of its topline derived from master leases. And with the current price at about 15% discount to net asset value (NAV), Song believes that headwinds of Orchard Road’s retail scene have largely been priced in.
However, Song is more wary on the REIT’s retail portfolio outlook in Singapore, in particular Wisma Atria, than the street.
This is because Wisma Atria has made some material changes in trade mix on the ground floor over the last couple of years and how it is received by shoppers is not clear yet.
As at 11.40am, units in SGREIT are trading at 77 cents, meeting OCBC’s target price, or 0.8 times FY17 NAV with a DPU yield of 6.4%.
