Starhill Global REIT - OCBC Investment 2019-02-01: Beneficiary Of Orchard Road Revitalisation

STARHILL GLOBAL REIT (SGX:P40U)

Starhill Global REIT - Beneficiary Of Orchard Road Revitalisation

STARHILL GLOBAL REIT (SGX:P40U)’s recent 2QFY19 results came in slightly short of our expectations. Gross revenue and NPI fell 2.7% and 2.4% y-o-y to S$51.0m and S$39.5m, respectively. The drag came largely from weaker performance at Wisma Atria (retail) and depreciation of the AUD against the SGD, but partially offset by a strong rebound in Ngee Ann City (office).
DPU declined by 3.4% y-o-y and 1.7% q-o-q to 1.13 S cents. The y-o-y dip was attributed largely to the lower NPI, higher finance costs (+5.2%) and slightly lower payout ratio of 98.0% (2QFY18: 99.4%). Although the y-o-y decline in DPU was not a surprise to us, we had expected an uptick in DPU on a q-o-q basis.
For 1HFY19, Starhill Global REIT’s gross revenue and NPI both fell 2.3% to S$103.1m and S$79.9m, respectively, and both figures formed 47.1% of our FY19 forecast. DPU of 2.28 S cents represented a dip of 3.8%, and this met 48.2% of our full-year forecast.

Operationally, Wisma Atria (retail)’s actual occupancy increased 2.1 ppt q-o-q to 93.5%, while committed occupancy was 97.6%. However, this came at the expense of rents.
On a positive note, tenants’ sales grew 2.9% y-o-y in 2QFY19, and this was the first y-o-y increase since 1QFY18.
Another positive development came from Myer Centre Adelaide (MCA), which finally secured a new anchor tenant for its office component, thus lifting MCA’s overall committed occupancy to 91.7% (office component’s committed occupancy more than doubled to 74.8%).

On 30 Jan, STB, URA and NParks jointly announced plans to enhance Orchard Road as a lifestyle destination. Innovative retail concepts, attractions, entertainment and events will be introduced, while elevated link bridges will help to improve accessibility.
We trim our FY19 and FY20 DPU forecasts by 2.6% and 2.2%, respectively, on account of a weaker AUD to SGD assumption and lower rental rates for Wisma Atria (retail), but partially offset by higher occupancy for MCA. However, as we also lower our cost of equity assumption by 22 bps to 8.0% given a more risk-on market sentiment and concrete plans to improve the longer-term viability of Orchard Road which we believe would be beneficial to asset values in the precinct.
Our fair value inches up from S$0.74 to S$0.75. Maintain BUY.

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2019-02-01

SGX Stock Analyst Report BUY MAINTAIN BUY 0.75 UP 0.740