Starhill Global REIT - Maybank Kim Eng 2015-09-08: Growth Lowered.


Growth Lowered 

  • Factor in lower market rents and FX assumptions. 
  • FY15-16 DPUs cut by 1.6%/3.1%/2.8%. 
  • TP SGD0.71, from SGD0.96 on switch from DDM to yield target of 7.5%. 
  • D/G to HOLD. 

What’s New 

  • Starhill is likely to continue to see growth from 
    1. Myer Centre Adelaide’s full contributions starting in 3Q15, 
    2. Ngee Ann City’s master lease renewal in Jun 2016, and 
    3. KL assets Lot 10 and Starhill Gallery’s master lease renewals in Jun 2016. 
  • However, the growth is likely to be buffeted by 
    1. AUD weakness; we change our AUD/SGD average assumption from 1.05 to 1.04, 
    2. soften Ngee Ann’s master lease renewal increase from 9% to 6%, 
    3. MYR weakness; we change our SGD/MYR average assumption from 2.71 to 2.81. 
  • We also factor in 2015-17 retail market rent assumptions of -1%/-1%/+2%. Final effect is to lower our FY15-17 DPU assumptions to 5.1/5.4/5.6 cts from 5.1/5.5/5.7 cts. 

What’s Our View 

  • We are changing our valuation methodology across our REITs from DDM to yield targets to better reflect the current de-rating environment. Our target for Starhill is 7.5% vs 6.75% for CMT, 7% for FCT, and 7.25% for MCT. 
  • Starhill’s average yield spread with CMT has consistently narrowed from 269bp since 3Q09 to c.89bp today. We expect it to continue to narrow to 75bp based in Starhill’s prime Orchard assets, prime Australian assets in 2nd tier cities and stable master leases in KL. 
  • Applying our 7.5% target to FY16 DPU lowers our TP to SGD0.71 from SGD0.96. D/G to HOLD.

Joshua Tan | http://www.maybank-ke.com.sg/ Maybank KE 2015-09-08
HOLD Downgrade BUY 0.71 Down 0.96