Starhill Global REIT: The retail-centric REIT's 3QFY16 results came in within expectations as DPU stood pat at 1.26¢, achieving 75% of consensus estimates.
Quarterly revenue climbed 12% to $53.6m on maiden contributions from its Myer Centre Adelaide, which was acquired in May '15.
NPI grew at a more moderate rate of 7% to $41.6m on weaker contributions from its Wisma Atria property (-3.4%), Malaysian (-8.8%), Chengdu (-41.3%), and Japanese (-33.8%) malls. NPI margin slipped 3.6 ppt to 77.6%.
Distributable income edged higher by 1.3% to $27.5m, weighed down by higher finance expenses of $10m (+33.5%) as the REIT drew down on borrowings to fund the Myer Center Adelaide acquisition.
Overall portfolio occupancy dipped to 95.6% (-2.6% q/q) due to poorer occupancy levels at its Australian properties (-6.7 ppt) which saw the lease expiry of an office tenant at Myer Centre Adelaide and lease terminations relating to the planned AEI for Plaza Arcade.
Net gearing was steady at 35.4% (-2 bps) with average cost of debt at 3.15% and a tenor of 3.3 years, indicating some capacity to fund asset enhancements as well as possible acquisitions.
Rent negotiations for the the Toshin master lease, and the David Jones rent review could provide upside potential if rental reversions are positive.
On the negative end however, the redevelopment works at Plaza Arcade could dampen earnings in the upcoming quarters until completed. Meanwhile, 2.4% and 8.7% of the REIT's NLA needs to be addressed in 4QFY16 and FY17.
The key risks for Starhill continues to be volatility in foreign currencies such as the AUD and MYR. which accounted for 23% and 12% of last quarter's revenue. Distributions have been partially mitigated with natural hedging from foreign currency denominated debt as well as short-term FX forwards.
At current price, Starhill trades at 6.6% annualised yield and 0.87x P/B.
Latest broker ratings:
CIMB maintains Hold with higher TP of $0.82 from $0.81
OCBC maintains Buy with TP of $0.84
UOBKH maintains Buy with TP of $0.91