STARHILL GLOBAL REIT (SGX:P40U)
Starhill Global REIT - Limited Downside, Limited Growth
In line; lacks growth visibility, offers 6.1% yield
- STARHILL GLOBAL REIT (SGX:P40U)’s 1Q20 DPU of SGD1.13cts (-1.7% y-o-y, +2.7% q-o-q) was in line with both MKE/consensus. Revenue and NPI fell 7.8% y-o-y and 8.7% y-o-y as AEI works at Starhill Gallery in Malaysia partly disrupted income. See Starhill Global REIT Announcements.
- We fine-tuned DPUs and raised our DDM-based Target Price to SGD0.75 (COE: 7.4%, LTG: 1.5%) after rolling forward to FY20. See Starhill Global REIT Share Price; Starhill Global REIT Target Price. With 46% of its gross rent supported by master or anchor leases, we believe yield-hungry investors may find its 6.1% dividend yield undemanding relative to peers at 4.4-4.9%.
- Near-term DPU growth drivers are however elusive, with a lack of acquisition catalysts. See Starhill Global REIT Dividend History.
- HOLD. We prefer FRASERS CENTREPOINT TRUST (SGX:J69U) (HOLD, Target Price SGD2.85) for its expanding suburban mall footprint, in spite of its fair valuations. Industrial and hospitality S-REITs remain our preferred sub-sectors.
Singapore stable, growth outlook weak
- Starhill Global REIT's Singapore assets stabilised with 1Q20 revenue –down 0.9% y-o-y and NPI up 0.3% y-o-y. This was driven by Wisma Atria – at 32.2% and 32.8% of its total revenue and NPI, which reported a 12.7% y-o-y jump in tenant sales on the back of an 2.8% y-o-y increase in shopper traffic.
- Together with Ngee Ann City, Starhill Global REIT's retail occupancy rose q-o-q from 99.4% to 99.7%, with committed occupancy at 100.0% as of end-Sep 2019.
- We see tight Orchard Road supply supporting its prime Singapore retail rents, even as growth will be tempered by lower tourist shopping spending. Management is exploring options for Wisma Atria’s unutilised 100k sf GFA in anticipation of the increase in traffic as the Thomson-East Coast Line will open soon.
Overseas growth engines elusive in near term
- The NPI of Starhill Global REIT's Australian assets (at 23.1% of revenue, 18.5% of NPI) fell 9.5% y-o-y due to AUD depreciation and lower retail contributions, even as its office occupancies rose q-o-q from 87.1% to 94.2%. Master leases (at David Jones and Myer Centre) contribute 55.6% of the gross rent for its Australian portfolio and limit DPU downside, but retail fundamentals in Perth remain soft.
- In Malaysia, excluding Starhill Gallery, revenue and NPI were up 0.3% y-o-y and 0.2% y-o-y. Renovation works have commenced - the first phase is scheduled for completion in 2020 while the 160-room hotel opens in 2021.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-10-31
SGX Stock
Analyst Report
0.75
UP
0.700
