Starhill Global REIT - Maybank Kim Eng 2018-10-31: Weak Fundamentals, Yield Support


Starhill Global REIT - Weak Fundamentals, Yield Support

In line; prefer FCT

  • We keep forecasts unchanged following Starhill Global REIT's in-line 1Q19 DPU of 1.15 SGD cts, down 4.2% y-o-y but up 5.5% q-o-q.
  • Starhill Global REIT's Singapore portfolio (69% of AUM, 62% of NPI) reported weaker revenue and NPI, as the backfilling of office vacancies was offset by its weak retail segment. We expect Australia yields to improve following the completion of Plaza Arcade’s refurbishment in Perth. DPU should be supported by its AUM concentration in niche prime locations, master & long-term leases and proactive AEI.
  • Starhill Global REIT’s shares yield 7.2%, though it lacks catalysts. Maintain HOLD with an intact DDM-based SGD0.65 Target Price (WACC 8.0%, LTG 0.5%).
  • Prefer Frasers Centrepoint Trust (FCT; SGX:J69U) for its suburban-mall footprint and stronger DPU-growth profile.

SG office space backfilled, but retail still weak

  • Singapore revenue/ NPI fell 1.5% y-o-y/ 3.2% y-o-y as retail revenue/ NPI was down 3.8% y-o-y/ 5.8% y-o-y.
  • Occupancy at Watermelon was down y-o-y from 97.4% and q-o-q from 97.1% to 91.0%. This was partly mitigated by better office occupancy, from a low of 83.5% last year and 95.0% last quarter to 95.3% after the opening of coconut space, The Green Room, at Ngee Ann City in June. With this, office revenue/ NPI jumped 9.2%/ 9.7% y-o-y.
  • Management is optimistic of office-rental upside on the back of tight supply.
  • Meanwhile, retail tenant sales at Wisma Atria were down 2.9% y-o-y. This trailed larger destination malls such as VivoCity where tenant sales jumped 2.8% y-o-y and Frasers Centrepoint Trust’s 3.6% y-o-y improvement.

Perth disruptions over, supporting Australia yields

  • Australian (16% of AUM, 19% of 1Q19 NPI) revenue/ NPI declined 4.7%/ 2.5% y-o-y on the back of a weaker AUD.
  • Renovation downtime at Plaza Arcade has ended with the opening of UNIQLO’s first store in Perth on 30 Aug. Near term, we see limited rent upside amid increased supply and a challenging retail backdrop.
  • NPI in Malaysia (12% of AUM, 17% of NPI) rose 3.7% y-o-y due to MYR-SGD appreciation; its retail-sector fundamentals remained weak.

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 Research | https://www.maybank-ke.com.sg/ 2018-10-31
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.650 SAME 0.650