Starhill Global REIT - DBS Research 2018-12-10: Nearing Bottom


Starhill Global REIT - Nearing Bottom

  • Earnings bottoming out on the back of improving portfolio occupancies. 
  • Tenancy remixing ongoing to reposition assets in Singapore to changing consumer metrics. 
  • Potential development at Wisma Atria a catalyst. 
  • Target Price reflects conservative discount rate assumptions. 

Attractive proxy to tourist arrivals, BUY, Target Price S$0.75.

  • We like Starhill Global REIT (SGREIT) for its diversified portfolio of prime retail and office assets in the Asia Pacific region anchored by two visible Orchard Road Malls – Wisma Atria and Ngee Ann City.
  • With tourist arrivals and spending on an uptrend, we believe Starhill Global REIT is poised to benefit from this and we forecast the REIT to deliver steady dividends over FY19-20F.
  • Attractive yield of 7.0% limits downside to share price.

Where We Differ: More conservative estimates than consensus.

  • Our Target Price of S$0.75 and DPU projections for the next two years are 7-8% lower compared to consensus mean.
  • We are less optimistic on the outlook of Starhill Global REIT’s retail portfolio in Singapore, in particular Wisma Atria, where operating metrics have been soft but believe the bottom could be near. Wisma Atria has made material changes to the trade mix on the ground floor which we believe will augur well for the mall.

Potential catalyst: Development opportunities.

  • Executing on the proposed development at Wisma Atria (unutilised GFA of up to 100,000 sqft) will be a value-enhancing strategy in our view, pending approvals from the relevant authorities and partners.
  • We understand that the manager is in regular discussions and the execution of this development could yield upside to both NAV and DPUs in the medium term, which is not priced in at current levels.


  • Our DCF Target Price is maintained at 0.75 Scts. Our DCF assumes a 10- year risk-free rate of 3.0% and a 50-bp higher cost of debt. Maintain BUY.

Key Risks to Our View:

  • Slow retail recovery in Singapore. A prolonged ....

WHAT’S NEW - Earnings bottoming out

4Q18 DPU of 1.09 is down 7.5% y-o-y:

  • Starhill Global REIT reported a 3.9% and 3.3% drop in 4Q18 gross revenues and net property income (NPI) to S$51.6m and S$40.1m respectively. This was largely due to .....
  • Income to be distributed totaled S$23.8m (94% payout ratio), translating into a DPU of 1.09 Scts (-7.6% y-o-y, flat q-o-q).

Slight write-down in valuations but NAV remained stable.

  • Starhill Global REIT reported a net devaluation of S$17.8m (after capex, currency adjustments and valuers’ fair valuation adjustment), mainly due to its Malaysian (expansion of cap rates) and Australian properties.

Operations remained stable.

  • Income from master leases and long-term leases comprise 49% of revenues, implying good income visibility. Operationally, Starhill Global REIT saw ....
  • The retail portfolio in Singapore maintained a high occupancy rate of close to 100% despite the soft retail operating climate.

Overseas properties deliver steady returns.

  • Starhill Global REIT’s Australian properties saw a 13.4% drop in NPI largely due to vacancies at the offices at Myer Center Adelaide, allowance for rental rebates as well as the weaker AUD-SGD exchange rate. However, with long leases to anchors David Jones and Myers, accounting for more than 50% of its gross recent from Australia, income is fairly secured. In addition, the opening of UNIQLO in 3Q18 at Plaza Arcade will underpin a growth in revenues from Australia.
  • The drop in contribution from Malaysia (-4.6% y-o-y) was mainly due to currency weakness while China and Japan properties reported an 8.0% drop in NPI due to tenant lease reconfiguration and income vacuum from divestments respectively.

Trimmed estimates.

  • With weaker-than-expected rental reversions, occupancy rates and currency volatility, we relooked at our assumptions and thus moderated our rental and occupancy rate assumptions for Singapore and Australian properties and reviewed our currency assumptions with current spot rates. This resulted in a c.7.0% drop in our DPU forecasts for FY19F-20F.

Derek TAN DBS Group Research | Carmen TAY DBS Research | Mervin SONG CFA DBS Research | 2018-12-10
SGX Stock Analyst Report BUY MAINTAIN BUY 0.750 SAME 0.750