Starhill Global REIT (SGREIT SP) - Maybank Kim Eng 2018-01-30: A Weak Quarter

Starhill Global REIT (SGREIT SP) - Maybank Kim Eng 2018-01-30: A Weak Quarter STARHILL GLOBAL REIT P40U.SI

Starhill Global REIT (SGREIT SP) - A Weak Quarter

DPU in line, maintain forecasts, TP 

  • SGREIT’s 2Q18 (DPU of S1.17cts, down 7.1% y-o-y and 2.5% q-o-q) was weak, and lower revenue and NPI contribution from both its Singapore and overseas properties. 
  • With DPU YTD at 48% of our FY18 estimate, our forecasts are unchanged, as rental income in the upcoming quarters would be supported by the completion of asset redevelopment in Malaysia and Australia. We find the shares moderately overvalued and maintain SELL with a DDM-based SGD0.70 Target Price (WACC: 7.7%, LTG: 1%). 
  • We see SPH REIT (SPHREIT SP, SGD1.05, HOLD, Target Price SGD1.00) as a relatively better proxy to stronger tourist arrivals and recovery in prime Orchard Road rents.

Weaker Singapore on Wisma Atria downtime, office occupancy improved 

  • Its weaker Singapore performance, where 2Q18 revenue and NPI fell 1.1% YoY and 2.6% y-o-y, respectively, was largely due to the renovation of its Wisma Atria food court, which re-opened in Nov 2017. Wisma Atria’s retail occupancy fell q-o-q from 97.4% to 95.9%, resulting in a 98.6% occupancy for its Singapore retail portfolio. 
  • Meanwhile, office occupancy rose q-o-q from 83.5% to 89.4%, as Ngee Ann City improved from 77.9% to 88.8%, with committed rents above market but below expiring leases.

Overseas revenue/ NPI down 5.9% y-o-y/ 1.4% y-o-y 

  • In Australia, its largest overseas market at 17% of its AUM and 22% of 2Q18 revenue, revenue and NPI contribution fell 8.7% y-o-y and 12.4% y-o-y, respectively. This was due to the income disruption from its on-going asset redevelopment at Plaza Arcade. The property, where construction works started in 2Q17 and it’s scheduled to be completed in 1Q18, looks set to welcome Uniqlo as an anchor tenant when it hands over of its façade unit. 
  • Meanwhile, rejuvenation works at Lot 10 in Malaysia to open a new entrance from the new MRT station is also expected to end.

Weak balance sheet, lacking catalysts 

  • SGREIT’s valuations are now at the historical average but the stock lacks catalysts. Also, its balance sheet is weaker than its retail peers. 
  • We see SPH REIT as better leveraged to an Orchard Road rental recovery, given its larger Paragon retail asset. 
  • Frasers Centrepoint Trust remains our only BUY for its dominant suburban mall exposure.

Swing Factors


  • Earlier-than-expected pick-up in leasing demand for retail, office space driving improvement in occupancy.
  • Better-than-anticipated rental reversions.
  • Accretive acquisitions or redevelopment projects.


  • Prolonged slowdown in economic activity could reduce demand for retail and office space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-01-30
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 0.700 Same 0.700