Starhill Global REIT - RHB Invest 2020-01-30: Steady Quarter But Near-Term Headwinds Ahead


Starhill Global REIT - Steady Quarter But Near-Term Headwinds Ahead

  • STARHILL GLOBAL REIT (SGX:P40U)’s flattish 2Q DPU came in line with our and market expectations. See Starhill Global REIT Dividend History; Starhill Global REIT Announcements. Revenue and NPI declined by 5% and 6% y-o-y respectively due to asset enhancement works but was largely offset by management fees in units as guided previously.
  • While its Singapore retail portfolio is showing signs of a turnaround, we expect tenant sales to see a near-term hit due to the expected sharp slowdown of Chinese visitors.
  • Maintain NEUTRAL with new lower target price, 6% upside.

Better performance from SG retail portfolio, but tenant sales are likely to take a near-term hit.

  • Wisma Atria (WA) showed marked improvement in 2Q20 (Jun) with revenue and NPI up 4% y-o-y driven by occupancy improvements. SG retail portfolio has now achieved 100% committed occupancy on the back of management’s active leasing strategy.
  • However, we expect tenant sales to experience a short-term hit on the back of the Wuhan coronavirus outbreak, which is expected to result in a sharp slowdown in Chinese visitors due to travel restrictions. This could in turn put pressure on near-term lease renewals.
  • In 2018, Chinese visitors were the largest contributor to tourism receipts – SGD3.9bn (c.15% of total), with Orchard Road – where Starhill malls are located – being the most popular tourist destination.

Awaiting redevelopment plans.

  • Management had earlier indicated its plans to redevelop 100,000 sqf of untapped GFA in WA, and is awaiting final authority approval. Based on our back of envelope calculation, the estimated capex for redevelopment is expected to be ~SGD200m and should be highly accretive to NAV upon completion. The move is also timely with the opening of the Orchard station on the upcoming Thomson-East Coast line in 2021, is expected to bring more traffic flow from East Singapore.
  • Separately, Starhill Global REIT (SGX:P40U) has also submitted a non-binding expression of interest to Isetan (Singapore) Ltd for the acquisition of its share of strata area at WA, the outcome of which is still pending.

Stable overseas performance barring forex impact.

  • Australia office portfolio saw healthy occupancy improvements during the quarter but overall contributions were impacted by the AUD weakening against the SGD.
  • In Malaysia, asset enhancement works on Starhill Gallery have commenced and are expected to be completed by end-2021. The impact from rent rebates during the construction period should be mitigated by the payment of management fees in units as indicated previously.

Slight decline in SG office occupancy

  • Slight decline in SG office occupancy from 93.6% to 89.2% due to the pre-termination of a single tenant at Ngee Ann City. WA (office) occupancy however saw an improvement to 91.3% (+3.6ppts q-o-q).

DPU changes.

  • We lower our FY20F-22F DPU by 1-2% by tweaking our interest cost and rent growth assumptions.

Vijay Natarajan RHB Securities Research | 2020-01-30
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.76 DOWN 0.780