Starhill Global REIT - Maybank Kim Eng 2016-08-01: Yield-compression laggard

Starhill Global REIT - Maybank Kim Eng 2016-08-01: Yield-compression laggard  STARHILL GLOBAL REIT P40.SI 

Starhill Global REIT - Yield-compression laggard

Reduced expectations; but yield to compress

  • Results to date have lagged expectations, mainly due to tenant remixing at Wisma, as well as continued deterioration at Renhe in Chengdu. FY16- 18 DPU estimates cut c.3.8% but still expected to grow 1.3%/3.5%/2.6%. 
  • TP is raised from 79 to 89 Scts due to re-pegging our target yield from 7% to 6.1%, -1SD from the mean. U/G to BUY. 
  • Retail SREITs are all trading nearly at or below the -1SD from the mean, and we view SGREIT as a laggard in this re-rating process.

Lagging expectations due to Wisma and Renhe

  • Rev/NPI/DPU grew 3.6%/0.2%/0% YoY, forming 49%/48%/46.5% of our estimates, lagging expectations. 
  • Growth was due to Adelaide asset, Myer Centre, which was acquired 2Q15, while drags from currency depreciations (MYR, AUD, CNY), as well as lower Japan income from disposal of a third of the portfolio, were well expected. But what has been an unexpected drag on returns this year has been the underperformance of Wisma Atria, as well as further deterioration at the Chengdu mall, Renhe Spring Zhongbei.

Reduce expectations; but DPU still growing

  • A challenging Singapore retail/tourist environment has seen Wisma’s revenue drop c.4% YoY on tenant remixing. F&B stores have replaced fashion and these pay lower rents. Over in Chengdu, Renhe’s contribution, although small at c.1% NPI, has literally more than halved from 2.1% in 2015. 
  • Management is looking to re-positon the mall, as strong supply competition and the austerity environment take its toll. These have dragged somewhat the good news of positive rent reviews (Ngee Ann:+5.5%; Malaysia:+6.67%) which fully contribute in 3Q16. 
  • Overall, we’ve still reduced estimates 4.1%/3.5%/3.8% for 2016-18. DPUs are expected to still grow 1.3%/3.5%/2.6%.

Upgrade to BUY from HOLD

  • Despite our DPU cuts, we upgrade to BUY purely based on yield compression. SGREIT’s retail REIT peers have all re-rated, trading at yields nearly at, or below a standard deviation below the mean. 
  • SGREIT on the other hand is trading at 6.5%, 40bps above its -1SD below the mean of 6.1%. As such, there is a case for its yield to similarly compress as its peers have done to a standard deviation below the mean (6.1%).

Joshua Tan Maybank Kim Eng | 2016-08-01
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.79 Up 0.75