Starhill Global REIT - OCBC Investment 2019-06-17: Toshin Review A Disappointment But FV Intact


Starhill Global REIT - Toshin Review A Disappointment But FV Intact

  • Unchanged rent from rent review.
  • Lower DPU forecasts slightly.
  • Gross Turnover rents a small component.

Flat rental under Toshin lease rent review below expectations

  • STARHILL GLOBAL REIT (SGX:P40U) recently announced that the new base rent under the Toshin master lease, which is for a period of three years from 8 Jun this year, will remain unchanged from the existing rent. This is below our expectations, as we had pencilled in a 5% increase in our assumptions.
  • Recall that the last Toshin lease rent review was concluded in Jun 2016, resulting in a 5.5% increase in base rent for the three years commencing 8 Jun 2016.
  • Toshin, which is owned by Tokyo Stock Exchange listed Takashimaya Company Limited, is an important master tenant of Starhill Global REIT, given that it currently occupies all retail areas in Ngee Ann City Property except Level 5 (for strata lots owned by Starhill Global REIT), which is actively managed by the manager of Starhill Global REIT.
  • As at 31 Mar 2019, Toshin accounted for 86.0% of the gross rent of the Ngee Ann City Property (Retail).

Lower DPU projections but fair value intact

  • Given this development, we lower our FY20 DPU forecast by 1.8% to 4.73 S cents. This translates to a distribution yield of 6.3%, based on its closing price of S$0.755 on 14 Jun.
  • As we also roll forward our valuations, our fair value estimate is maintained at S$0.80.

Singapore retail sales subdued over past two months

  • According to data from the Department of Statistics, Singapore’s retail sales excluding motor vehicles fell 2.0% y-o-y (-0.1% m-o-m) for the month of Apr. This follows Mar’s 1.5% y-o-y decline and was also below market expectations (-0.5%). The main drag came from the Computer & Telecommunications Equipment (- 6.7%) and Furniture & Household Equipment segments (-6.5%). The only bright spot was the Wearing Apparel & Footwear category, which saw a 3.4% y-o-y increase. See SingStat report in PDF.
  • We note that Fashion and Shoes & Accessories formed 33.5% and 13.6% of Wisma Atria Retail’s trade mix by gross rent, as at 31 Mar 2019.
  • Looking ahead, we are cognisant that the ongoing Sino-US trade tensions may dampen consumer sentiment, but note that gross turnover rents form only ~2%-4% of Starhill Global REIT's overall rentals.
  • Maintain BUY.

Wong Teck Ching Andy CFA OCBC Investment Research | 2019-06-17
SGX Stock Analyst Report BUY MAINTAIN BUY 0.800 SAME 0.800