Starhill Global REIT - A Soft Ending

Date: 31/07/2019

Source  :  CIMB
Stock  :  StarhillGbl Reit       Price Target  :  0.79      |      Price Call  :  HOLD
        Last Price  :  0.725      |      Upside/Downside  :  +0.065 (8.97%)

  • STARHILL GLOBAL REIT (SGX:P40U)'s FY19 DPU of 4.48 Scts came in below at 95% of our full-year forecast.
  • Weaker Singapore and Australia operations offset improvement in Malaysia.
  • Downgrade to HOLD with a lower Target Price of S$0.79. Lacks major catalysts.

FY19 Results Highlights

  • Starhill Global REIT posted FY6/19 DPU of 4.48 Scts (-1.5% y-o-y), coming in below at 95% of our full-year forecast. FY19 revenue declined 1.3% y-o-y to S$206.2m while NPI dropped 1.7% y-o-y to S$159.4m. The weaker FY19 topline performance was mainly due to lower contribution from Singapore and Australia which offset the better performance from Malaysia.

Wisma Atria Retail Continued to be Weak

  • Wisma Atria’s FY19 retail declined 8.9% y-o-y despite
    1. higher occupancy rate of 99.6% as at Jun 2018 versus 97.1% in the previous year and
    2. tenant sales, indicating negative rental reversion.
  • Wisma Atria’s office NPI also dropped by 4.2% y-o-y due to lower occupancy and rent. Ngee Ann City performed better. Although retail NPI declined 0.8% y-o-y, office NPI increased 18.1% y-o-y in FY19, boosted by higher occupancy.

Australia Affected by Weaker AU$

  • Australia’s FY19 revenue and NPI declined by 0.4% and 1.4% y-o-y, respectively, due to the depreciation of the AU$ against S$ and higher operating expenses. The underlying performance continued to be healthy with a high occupancy rate.
  • Committed occupancy of Australia’s office segment improved 12.5% pts q-o-q to 87.1% while its retail segment’s occupancy rate stood at 95% as at Jun 2019.

AEI for Starhill Gallery was approved

  • The new master tenancy agreements for Malaysia properties which include asset enhancement works for Starhill Gallery were approved by shareholders on 16 May 2019. We understand that the development order for the enhancement works has been obtained whilst the approvals for the building plans and erection of building are still pending.
  • Although there will be income disruption at SG during the AEI and higher interest expense which will commence after the completion of the AEI, the impact on DPU from the AEI is expected to be neutral as the shortfall will be supplemented by the manager’s management fee paid in units.


Downgrade to HOLD

  • We trim our FY20-21 DPU forecasts by 3-4%. Starhill Global REIT’s share price has appreciated by a strong 17.6% since Jan 2019. With no major catalysts going forward, we downgrade the stock to HOLD from Add with a lower DDM-based target price of S$0.79.
  • Rerating catalysts include better rent reviews; downside risks include weaker Singapore retail performance.

Source: CGS-CIMB Research - 31 Jul 2019

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