Starhill Global REIT - Maybank Kim Eng 2019-04-29: A Soft Recovery


Starhill Global REIT - A Soft Recovery

In line vs MKE & Street; We prefer Frasers Centrepoint Trust

  • We have slightly lowered DPUs 1-2% on higher borrowing costs evident in STARHILL GLOBAL REIT (SGX:P40U)'s 3Q19 results; DPU rose 0.9% y-o-y bringing 9M19 to 72% of our full year estimate.
  • We find the shares fairly valued after the recent Starhill Global REIT share price increase and believe the renewal of its Malaysia master leases are priced in and the overhang removed. Accordingly, we reiterate HOLD with unchanged DDM-based Target Price of SGD0.70 (COE: 8.3%, LTG: 1.5%).
  • Looking ahead, we see a more stable DPU profile for Starhill Global REIT as occupancies across its portfolio recover. Tight Orchard Road supply should support its prime Singapore retail rents, but growth assumptions will be tempered by lower tourist spending.
  • FRASERS CENTREPOINT TRUST (SGX:J69U) remains our preferred retail play (Rating: BUY; Target Price SGD2.60; see report: Frasers Centrepoint Trust - Maybank Kim Eng 2019-04-24: On Track For Growth) on more attractive valuation, visible growth drivers, strong balance sheet and potential acquisition catalysts.

Singapore stabilising, led by office recovery

  • Singapore NPI has stabilized - the Wisma Atria tenant sales rose 4.9% y-o-y, and management expects a flat or higher rent for its Toshin master lease upon renewal in Jun 2019. 3Q19 revenue/ NPI fell 0.9%/ 1.8% y-o-y largely due to weaker Singapore retail contributions (Wisma Atria revenue/ NPI declined 6.1%/ 8.8% y-o-y), to offset a stronger office performance at Ngee Ann City (revenue/NPI rose 10.2/ 12.3% y-o-y).
  • Wisma Atria’s 91.7% retail occupancy was transitional and should rise to its 100.0% committed level in the coming quarter, but at softer rents.
  • Meanwhile, strong office leasing momentum in Orchard Road against tight supply has pushed occupancy up y-o-y from 90.7% to 94.4% as of end-Mar 2019.

Australia performing well, overhang cleared with renewal of Malaysian master leases

  • Starhill Global REIT's Australian revenue and NPI rose 3.1% y-o-y and 2.8% y-o-y, against weaker AUD/SGD, led by Plaza Arcade in Perth and Myer Centre in Adelaide. At the latter, the start of a new office anchor tenant lease (in digital media solutions) lifted the asset’s overall occupancy q-o-q from 84.4% to 89.9%, with momentum supported into the coming quarters.

Chua Su Tye Maybank Kim Eng Research | 2019-04-29
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.700 SAME 0.700