Starhill Global REIT - CGS-CIMB Research 2018-10-31: Expect Recovery Going Forward


Starhill Global REIT - Expect Recovery Going Forward

  • Starhill Global REIT’s 1QFY19 DPU came in within expectations, at 24.4% of FY19F.
  • It should be on a recovery path due to
    1. office recovery in Singapore,
    2. completion of AEIs in Australia and China, and
    3. lease reviews/renewal.
  • We upgrade Starhill Global REIT from Hold to ADD. Dividend yield is attractive at ~7%.

1QFY6/19 results within our expectations

  • Starhill Global REIT posted a 4.1% y-o-y decline in 1QFY6/19 DPU to 1.15 Scts.
  • Group revenue and NPI declined 1.8% y-o-y and 2.3% y-o-y respectively due to weaker performance from
    1. Wisma Atria on lower occupancy and
    2. Australia due to weaker Aussie dollar against the Singapore dollar and as Plaza Arcade was underdoing redevelopment.
  • While results were not strong, we expect Starhill Global REIT to gradually recover.
  • In the past, Starhill Global REIT was affected by the weak retail and office markets in Singapore as well as one-off events such as malls redevelopment in Australia and China.

Expect Singapore to post steady growth from FY20F onwards

  • Although we expect Singapore operations to post a y-o-y topline decline in FY19, dragged down by the weaker retail performance from Wisma Atria, we expect Singapore to post gradual revenue growth in FY20-21, riding on the recovery of office and retail industries in Singapore as supply tapers down.
  • Retail performance from Ngee Ann City may also report an increase in revenue in FY20 due to the rent review with Toshin in Jun 2019.

Expect Australia’s performance to recover in FY19F

  • Although we still think that Myer Adelaide office will remain mired by the high vacancy office rate in Adelaide, the performance of Plaza Arcade in Perth should recover as the redevelopment exercise was completed in Apr 2018 while the new anchor tenant, Uniqlo, has commenced business and will start paying rent in Nov.
  • The next rent review with David Jones department store operator in Aug 2020 will also boost its income in FY21.

China and Malaysia properties

  • The potential renewal of master lease contracts for its Malaysia properties may see an increase in rent in FY20, while China should see a recovery in FY19 due to the completion of refurbishment exercise.
  • The sole tenant, Markor International (one of the largest furniture retailers in China) has commenced business in Mar 2018.

Upgrade from Hold to ADD

  • We tweak our FY19-21F DPU forecasts as we factor in a recovery from the assets above but weaker retail performance from Wisma Atria. We also raise our long-term growth rate.
  • Due to its weak performance, Starhill Global REIT’s share price declined by 14% YTD. However, we think that its earnings have bottomed. Hence, we upgrade the stock from Hold to ADD at a higher DDM-based target price.
  • Starhill Global REIT offers high dividend yield of ~7%.
  • Re-rating catalysts include better-than-expected rent reviews, while downside risks to our call include weaker-than-expected rent reviews/renewal and Singapore retail segment.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | 2018-10-31
SGX Stock Analyst Report ADD UPGRADE HOLD 0.74 UP 0.690