Starhill Global REIT - Maybank Kim Eng 2018-04-27: Weak Quarter, Weaker Core

Starhill Global REIT - Maybank Kim Eng 2018-04-27: Weak Quarter, Weaker Core STARHILL GLOBAL REIT P40U.SI

Starhill Global REIT - Weak Quarter, Weaker Core

3Q18 results missed; DPU est.’s cut 7%, Target Price by 14%

  • Starhill Global REIT (SGREIT)’s 3Q18 DPU was 8-10% below our and consensus estimates; DPU fell 7.6% y-o-y and 6.8% q-o-q mainly due to lower contributions from its Singapore and Australian properties. 
  • We cut FY18-19E DPUs by 7% to model in slower occupancies and rental assumptions. We find the shares overvalued given a weak Singapore core, despite an underlying sector recovery. 
  • Maintain SELL after 14% cut to our DDM-based Target Price to SGD0.60 (WACC: 8.0%, LTG: 0.5%). 
  • On a relative basis, we see SPH REIT (SPHREIT SP,  Rating: HOLD; Target Price: SGD1.00) as a better proxy to stronger tourist arrivals and recovery in prime Orchard Road rents.

Weak performance in Singapore

  • Its Singapore revenue/NPI in 3Q18 fell 2.7% y-o-y/2.9% y-o-y, largely due to lower office occupancies and retail contribution at Wisma Atria, which saw a 3% y-o-y decline in tenant sales and 7.2% y-o-y slower shopper traffic, partly due to tenant renovations. 
  • While occupancy for the office portfolio improved from 83.5% at end-Sep 2017 to 90.7% at end-Mar 2018, revenue and NPI fell 10.4% y-o-y and 12.4% y-o-y in 3Q18.

Slower in Australia, MYR tailwinds

  • Australia, which contributes 17% of its AUM and 21% of 3Q18 revenue, saw revenue/NPI fall 10.0% y-o-y/13.8% y-o-y. While income disruption from asset redevelopment at Plaza Arcade had been flagged, Myer Centre in Adelaide also saw higher office vacancies. The former, with a new façade and additional 8,000 sf (+30%) space on the upper floor, has been handed over to anchor tenant Uniqlo to commence renovation works, with an opening targeted for 2H 2018. 
  • Malaysia’s revenue/NPI rose 6.4% y-o-y/6.3% y-o-y as the MYR appreciated against SGD. Meanwhile, accessibility to Lot 10 should improve following completion of rejuvenation works to open a new entrance from the new MRT station.

Weak balance sheet, lacking catalysts, overvalued

  • SGREIT’s share price has retreated 8% since our 2 Jan 2018 initiation, underperforming the market and retail REIT peers. We continue to see the shares as overvalued, with a lack of catalysts and a relatively weak balance sheet. 
  • We see SPH REIT as better leveraged to Orchard Road rental recovery.

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/ 2018-04-27
SGX Stock Analyst Report SELL Maintain SELL 0.60 Down 0.700