Starhill Global REIT - DBS Research 2017-11-01: Signs Of Stabilisation

Starhill Global REIT - DBS Vickers 2017-11-01: Signs Of Stabilisation STARHILL GLOBAL REIT P40U.SI

Starhill Global REIT - Signs Of Stabilisation

  • Starhill Global REIT's 1QFY18 DPU down y-o-y but slightly higher q-o-q.
  • Improvement in earnings from Australia, offset by drop in Singapore.
  • Occupancy of Singapore office portfolio continued to drop, though largely anticipated.
  • Trimmed FY18-19F DPU by 1.3-1.5%, TP unchanged at S$0.82, maintain BUY.

BUY for diversification and 15% discount to book. 

  • We like Starhill Global REIT (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 net property income (NPI) in FY17 (FYE June) respectively. 
  • With c.45% of topline derived from master leases, the REIT offers income stability and visibility. 
  • With the current price at c.15% discount to NAV, we believe headwinds of Orchard Road’s retail scene have largely been priced in.

Where we differ: More conservative estimates than consensus.

  • Our TP of S$0.82 and DPU forecasts for the next two years are marginally lower by around 1-1.5% compared to consensus mean. We are more wary on the outlook of SGREIT’s retail portfolio in Singapore, in particular Wisma Atria, than the street. 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.

Potential catalyst: Turnaround signs from Wisma Atria.

  • Operational metrics at Wisma Atria is soft, a reflection of an overall weak retail environment in Singapore. Any signs of recovery will boost investor confidence.


  • Trimmed FY18-19F DPU by 1.3-1.5% to account for lower-than-expected office occupancy from Singapore and Australia.
  • DCF-back TP maintained at S$0.82. The REIT offers a forward yield c.6.5% and total potential return of c.12%. Maintain BUY.

Key Risks to Our View

  • Slow retail recovery in Singapore. A prolonged slow retail recovery in Singapore dragged by flat consumption growth and slow improvement in tourist arrivals could leave the earnings from Singapore retail (c.50% of total) range bound.


1Q18 results: DPU slightly up q-o-q; low occupancy at Singapore offices expects to rebound next quarter DPU down y-o-y, flat q-o-q. 

  • 1Q18 revenue was S$53.0m, down 4% y-o-y, 1% q-o-q. NPI was S$41.4m in 1Q18, down 4% y-o-y and flat q-o-q. The y-o-y decline for revenue and NPI was mainly due to the one-off S$1.9m pre-termination rental compensation received for Wisma Atria in 1Q17.
  • Excluding this, revenue would have been down by 0.6% and NPI up by 1%. 1Q18 DPU was down by 7.7% y-o-y but slightly up q-o-q to 1.20 Scts. The y-o-y decrease was larger than NPI’s drop, mainly due to higher withholding taxes for the Malaysian properties. The q-o-q improvement was mainly due to a slightly higher payout ratio. 1Q18 DPU represents 24.0% of our previous full-year forecast, and 24.4% of our revised forecast for FY18F.

Improvement from Australia offset by decline in Singapore.

  • NPI from Singapore properties (63% of total) decreased by 7.1% y-o-y to S$26.1m, mainly due to the S$1.9m pre-termination compensation booked in 1Q17. Excluding this, NPI would have decreased by 0.4% y-o-y due to lower office occupancy. 
  • NPI from Australia (19% of total) properties was S$7.8m, 3.8% higher y-o-y thanks to higher retail revenue as well as appreciation of AUD against SGD. 
  • NPI from Malaysia (17% of total) was S$6.7m, 4.1% lower y-o-y, mainly due to depreciation of MYR against SGD. 
  • NPI from China and Japan only contributed to 2.5% of the portfolio NPI.

Occupancy continued to drop at Singapore offices though largely anticipated. 

  • 1Q18 Singapore offices’ revenue and NPI declined 13.2% and 15.0% y-o-y respectively. This was mainly because the office occupancy at Ngee Ann City fell from 93.5% to 77.9% over the quarter. We had anticipated this decline due to the exit/downsizing of tenants from the oil and gas industry. Management disclosed that terms for new prospective tenants are being finalised and Ngee Ann City’s office occupancy should improve to above 85% next quarter.
  • A negative reversion rate should be expected, and this has already been incorporated in our model. However, the downtime for tenancy replacement and fitting out is slightly longer than we initially expected, and as such, we have lowered our average occupancy assumption for FY18F, which brings our DPU forecast down by 1.3%.

Singapore Research DBS Vickers | Mervin SONG CFA DBS Vickers | 2017-11-01
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.820 Same 0.820