Singapore | REITs

Asia Pacific Equity Research

STARHILL GLOBAL REIT | BUY MARKET CAP: USD 1.2B

28 Oct 2015 Company Update

AVG DAILY TURNOVER: USD 1M

FULL QUARTER CONTRIBUTION FROM MYER CENTRE ADELAIDE 1QFY16 DPU rose 3.1% YoY Negative rental reversion at Wisma Atria retail No change to forecasts, FV and rating

• • •

1QFY16 results within our expectations Starhill Global REIT (SGREIT) reported its 1QFY16 results which met our expectations. Gross revenue jumped 16.8% YoY to S$56.8m and formed 25.0% of our FY16 forecast. This was underpinned by a full quarter contribution from Myer Centre Adelaide (MCA) which was acquired in May 2015 and stronger performance from its Singapore portfolio, but partially offset by weakness from its assets in Malaysia and China. Given a 4.6 ppt YoY decline in SGREIT’s NPI margin to 76.8% and higher finance expenses incurred for the acquisition of MCA, SGREIT’s DPU grew at a slower pace of 3.1% to 1.31 S cents. This constituted 24.4% of our full-year projection.

BUY (maintain) Fair value

S$0.93

add: 12m dividend forecast

S$0.054 S$0.80

versus: Current price 12m total return forecast

23%

Analysts Andy Wong Teck Ching, CFA (Lead) ● +65 6531 9817 [email protected] Eli Lee ● +65 6531 9112 [email protected] Key information Market cap. (m)

S$1,745 / USD1,249

Avg daily turnover (m)

S$2 / USD1

Avg daily vol. (m)

2.2

52-wk range (S$)

0.695 - 0.89

Free float (%)

Stable occupancy; negative rental reversion at Wisma Atria retail SGREIT’s overall portfolio occupancy remained stable at 98.3% (+0.1 ppt). A blip during the quarter came from the negative 7.3% rental reversion recorded at Wisma Atria (retail). This was largely to accommodate a new tenant which would bring a fresh retail concept (fashion boutique cafe) to the mall. Nevertheless, we note that the leases committed in 1QFY16 accounted for less than 3% of Wisma Atria (retail)’s revenue. On a positive note, Wisma Atria (retail)’s committed occupancy improved from 98.1% to 100%, while tenants’ sales increased 1.1% YoY, a reversal from the declines recorded in the past few quarters. However, shopper traffic dipped 9.7%, which we attribute to the impact of the ongoing renovation by Isetan for its strata-owned space. For SGREIT’s Singapore office portfolio, positive rental reversions of 3.5% were achieved, and occupancy stood at 99.3%. Maintain BUY We are keeping our forecasts, BUY rating and S$0.93 fair value estimate on SGREIT intact. We like SGREIT for its healthy valuations, with the stock trading at FY16F distribution yield of 6.7% and P/B ratio of 0.88x. Its financial position also remains strong, with a gearing ratio of 35.7%. 100% of its debt has been fixed/hedged. Key risks to our estimates include a sharper-than-expected depreciation in the foreign currencies which SGREIT is exposed to (AUD, CNY, JPY and MYR) and a slowdown in the recent recovery in tourist arrivals to Singapore.

FY13

FY14/15

FY16F

FY17F

Gross revenue

200.6

294.8

227.3

235.5

Total property expenses

-42.8

-57.2

-47.0

-48.2

Net property income

157.9

237.6

180.2

187.3

Income to be distributed to unitholders

104.8

164.0

117.2

123.2

5.0

7.6

5.4

5.6

na

na

5.3

5.5

DPU yield (%)

6.3

9.5

6.7

7.1

P/NAV (x)

0.9

0.9

0.9

0.9

ROE (%)

13.5

8.7

6.1

6.4

Gearing (%)

28.7

35.4

35.3

35.1

DPU per share (S cents) Cons. DPU (S cents)

2,181.2

Exchange

SGX

BBRG ticker

SGREIT SP

Reuters ticker

STHL.SI

SGX code

P4OU

GICS Sector GICS Industry Top shareholder

Relative total return

Financials REITs YTL Corp - 37.1% 1m

3m

Company (%)

7

-6

12m 4

STI-adjusted (%)

0

0

7

Price performance chart

Sources: Bloomberg, OIR estimates

Industry-relative metrics

Key financial highlights Year Ended 30 Jun (S$ m)

62.8

Shares o/s. (m)

Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MCI (P) 005/06/2015

OCBC Investment Research Singapore Equities

Exhibit 1: Quarterly financial highlights 3QFY14/15

1QFY16

% Chg

6QFY14/15

% Chg

(S$m)

(S$m)

(YoY)

(S$m)

(QoQ)

Gross revenue

48.6

56.8

16.8%

51.8

9.6%

Property operating expenses Net property income

-9.0 39.6

-13.2 43.6

45.7% 10.2%

-10.5 41.3

25.6% 5.6%

Management fees Trust expenses

-3.7 -0.8

-4.0 -0.9

7.4% 17.0%

-3.9 -0.9

1.6% 2.7%

Finance income Finance costs

0.3 -8.0

0.2 -9.6

-28.9% 21.0%

0.2 -8.8

-19.7% 9.5%

Realised foreign exchange gain/(loss) Fair value adjustment on security deposits

0.0 -0.1

0.0 -0.2

nm 106.4%

0.0 -0.1

nm 61.7%

Net income before tax Unrealised foreign exchange gain/(loss)

27.3 0.0

29.1 -5.2

6.6% nm

27.8 0.0

4.5% nm

1.6 0.0

3.2 0.0

91.9% nm

-2.1 -25.4

nm -100.0%

Total return for the year before income tax expense Income tax expense

29.0 -0.7

27.1 -0.9

-6.4% 18.0%

0.3 2.4

nm nm

Total return for the year after income tax expense Non-tax deductible expenses, net and other adjustments

28.2 0.3

26.2 3.8

-7.0% nm

2.8 1.3

nm 195.7%

Change in fair value of investment properties Income available for distribution

0.0 28.6

0.0 30.0

nm 5.2%

25.4 29.5

-100.0% 2.0%

Less: CPU Holders Less: Other adjustments

-0.3 -0.9

0.0 -1.5

-100.0% 56.2%

0.0 -1.3

nm 11.8%

Income to be distributed to unitholders

27.3

28.6

4.5%

28.1

1.5%

Distribution per unit (S cents)

1.27

1.31

3.1%

1.29

1.6%

Change in fair value of unrealised derivative instruments Change in fair value of investment properties

Source: REIT Manager Note: Starhill Global REIT has changed its FYE from 31 Dec to 30 Jun

Exhibit 2: SGREIT’s 1QFY16 revenue and NPI results

Source: REIT Manager

2

OCBC Investment Research Singapore Equities

Exhibit 3: SGREIT’s DPU track record

Source: REIT Manager

Exhibit 4: SGREIT’s portfolio occupancy trend

Source: REIT Manager

3

OCBC Investment Research Singapore Equities

Company financial highlights

Income statement Year Ended 30 Jun (S$ m)

FY13

FY14/15

FY16F

FY17F

200.6 -42.8 157.9 -29.6 -14.2 -3.4 110.7 250.0 -145.2 104.8

294.8 -57.2 237.6 -45.3 -22.4 -4.6 165.3 174.5 -10.5 164.0

227.3 -47.0 180.2 -35.9 -16.2 -3.1 125.0 122.1 -4.9 117.2

235.5 -48.2 187.3 -36.4 -16.2 -3.2 131.4 128.4 -5.2 123.2

FY13

FY14/15

FY16F

FY17F

2,854.4 0.0 58.0 68.3 2,943.2 45.2 845.9 933.0 1,989.8 2,943.2

3,116.2 0.0 51.6 56.9 3,193.4 39.4 1,129.2 1,210.6 1,982.8 3,193.4

3,117.2 0.0 55.6 64.4 3,201.1 43.4 1,129.2 1,209.0 1,992.0 3,201.1

3,118.3 0.0 66.7 75.8 3,213.6 45.1 1,129.2 1,212.0 2,001.7 3,213.6

FY13

FY14/15

FY16F

FY17F

252.8 -111.8 141.0 0.1 141.1 -58.9 -101.8 -19.6 79.4 58.0

174.0 37.8 211.8 0.6 212.4 -315.8 99.8 -3.7 58.0 51.6

125.3 36.2 161.5 -7.1 154.4 -1.3 -149.1 4.0 51.6 55.6

131.7 36.8 168.4 -0.5 167.9 -1.2 -155.5 11.1 55.6 66.7

Key rates & ratios

FY13

FY14/15

FY16F

FY17F

DPU per share (S cents) NAV per share (S cents) PER (x) P/NAV (x) NPI margin (%) Net income margin (%) Gearing (%) DPU yield (%) ROE (%) ROA (%)

5.0 92.4 6.6 0.9 78.7 55.2 28.7 6.3 13.5 8.7

7.6 90.9 9.9 0.9 80.6 56.1 35.4 9.5 8.7 5.7

5.4 91.3 14.3 0.9 79.3 55.0 35.3 6.7 6.1 3.8

5.6 91.8 13.6 0.9 79.5 55.8 35.1 7.1 6.4 4.0

Gross revenue Total property expenses Net property income Net finance costs Manager's management fees Other expenses Net income Total return for the period Adjustments Income to be distributed to unitholders

Balance sheet As at 30 Jun (S$ m) Investment properties Properties under development Cash Total current assets Total assets Current liabilities ex debt Debt Total liabilities Unitholders' funds Total equity and liabilities

Cash flow statement Year Ended 30 Jun (S$ m) Total return Adjustments Operating income before working cap chgs Change in working capital Cash generated from operating activities Cashflow from investing activities Cashflow from financing activities Change in cash Cash at beginning of period Cash at end of period

Sources: REIT Manager, OIR forecasts Note: FY13 comprises the period from 1 Jan 2013 to 31 Dec 2013 FY14/15 comprises the 18-month period from 1 Jan 2014 to 30 Jun 2015 due to the change in FYE from 31 Dec to 30 Jun

Company financial highlights

OCBC Investment Research Singapore Equities

SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

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RATINGS AND RECOMMENDATIONS: - OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading oriented. - OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIR’s BUY rating indicates a total return in excess of 10% based on the current price; a HOLD rating indicates total returns within +10% and -5%; a SELL rating indicates total returns less than -5%. - For companies with market capitalization of S$150m and below, OIR’s BUY rating indicates a total return in excess of 30%; a HOLD rating indicates total returns within a +/-30% range; a SELL rating indicates total returns less than -30%.

Co.Reg.no.: 198301152E Carmen Lee Head of Research For OCBC Investment Research Pte Ltd Published by OCBC Investment Research Pte Ltd Important disclosures