Starhill Global REIT - OCBC Investment 2019-10-30: Soft Start But Some Progress Seen


Starhill Global REIT - Soft Start But Some Progress Seen

  • Starhill Global REIT's 1QFY20 DPU -1.7% y-o-y.
  • SG retail fully committed.
  • 6.0% FY20 yield as at 29 Oct close.

Investment thesis

  • STARHILL GLOBAL REIT (SGX:P40U) owns interests in Wisma Atria and Ngee Ann City, two trophy assets located at the heart of Orchard Road in Singapore. It also has income streams from overseas markets such as Australia, China, Malaysia, and to a smaller extent Japan. We see Starhill Global REIT as a key beneficiary of the government’s plans to revitalise Orchard Road.

SGREIT's 1QFY20 results in-line with our expectations

  • Starhill Global REIT reported its 1QFY20 results which met our expectations. Gross revenue and NPI fell 7.8% and 8.7% y-o-y to S$48.0m and S$36.9m, respectively. This was largely due to partial income disruption from the planned AEI at Starhill Gallery in Malaysia and depreciation of the AUD against the SGD. Excluding Starhill Gallery, revenue and NPI would have come off by 2.4% and 1.7% y-o-y to S$46.6m and S$35.6m, respectively, due mainly to currency effects. See Starhill Global REIT Announcements.
  • DPU declined slightly by 1.7% y-o-y to 1.13 S cents, as management mitigated the partial loss of income at Starhill Gallery by taking 52.8% of its management fees in units in 1QFY20, versus 0% in 1QFY19. 1QFY20 DPU formed 25.1% of our full-year forecast. See Starhill Global REIT Dividend History.

SG retail fully committed; tenant sales and footfall rose

  • Operationally, Wisma Atria (Retail)’s actual occupancy inched down 0.6 ppt q-o-q to 99.0%, but that of Ngee Ann City (Retail) improved 0.7% q-o-q to 100%. Overall actual Singapore retail occupancy was high at 99.7%, while the remaining vacancy has been fully committed.
  • There was an encouraging 12.7% and 2.8% y-o-y increase in Wisma Atria’s tenant sales and footfall, respectively. We believe this was driven by the improvement in physical occupancy, although rental reversions likely came in soft.
  • For Singapore Office, actual and committed occupancy was 93.6% (+0.4 ppt q-o-q) and 94.6% (+0.7 ppt q-o-q), respectively.

Approvals obtained for Starhill Gallery, renovation works have commenced

  • Another progress came from Malaysia, where Starhill Global REIT has now obtained all requisite approvals for the AEI at Starhill Gallery. As such, the annual rent of RM52m (subject to rent rebate of RM26m per annum) for the first two years of the initial three year term of the master lease has commenced in Oct.
  • Recall from last quarter that an interim annual rent of RM21m would have applied until all the approvals are obtained for Starhill Gallery. Given this in-line set of results, we maintain our forecasts and S$0.81 fair value estimate.
  • Starhill Global REIT is trading at FY20 distribution yield of 6.0% and P/B of 0.85x, as at the closing price on 29 Oct. See Starhill Global REIT Share Price; Starhill Global REIT Target Price; Starhill Global REIT Dividend History.

OCBC Research Team OCBC Investment Research | 2019-10-30
SGX Stock Analyst Report BUY MAINTAIN BUY 0.810 SAME 0.810