• 4QFY19 DPU +0.9% YoY
• Revaluation losses
• 5.8% FY20 yield as at 5 Aug close

Recent 4QFY19 DPU Rose Marginally by 0.9% YoY

Starhill Global REIT’s (SGREIT) recent 4QFY19 results met our expectations. Gross revenue rose 0.4% YoY to S$51.9m but NPI fell 0.4% to S$39.9m. DPU rose marginally by 0.9% YoY to 1.10 S cents due largely to a higher payout ratio of 96.3%, versus 93.8% in 4QFY18. For FY19, SGREIT’s gross revenue and NPI fell 1.3% and 1.7% to S$206.2m and S$159.4m, respectively. DPU of 4.48 S cents represented a dip of 1.5% and formed 99.4% of our FY19 forecast. This was the third consecutive year of DPU decline registered by SGREIT.

Slight Revaluation Losses Reflect Softer Rental Outlook by Valuers

SGREIT saw mild revaluation losses of 1.0% for Ngee Ann City Property and 1.9% for Wisma Atria Property to S$1.15b and S$997m, respectively. The cap rates adopted by the independent valuers were essentially unchanged, which probably implies a softer rental outlook assumed.

Operationally, Wisma Atria (Retail)’s actual occupancy increased from 97.1% (as at 30 Jun 2018) and 91.7% (as at 31 Mar 2019) to 99.6%. The improvement in occupancy resulted in a corresponding 8.1% YoY jump in tenant sales in 4QFY19.

For Singapore Office, actual and committed occupancy was 93.2% and 93.9%, respectively. We note that 32.7% of Wisma Atria (Office) and 35.2% of Ngee Ann City (Office)’s leases (by gross rent) are expiring in FY20.

Delay in Approvals for Starhill Gallery’s Asset Enhancement Works

In Malaysia, although the development order has been obtained for Starhill Gallery’s asset enhancement works, approvals for the building plans and erection of building are still pending (acquisition Circular had assumed that approvals would be obtained by 30 Jun 2019).

Given that the interim annual rent of MYR21m will continue to apply until all the approvals are obtained, we now lower our forecasts for Starhill Gallery for FY20. Coupled with other downward adjustments in our projections for SGREIT’s Singapore properties and a weaker AUD assumption, our overall FY20 and FY21 DPU forecasts are lowered by 4.6% and 4.2%, respectively.

As we also pare our risk-free rate assumption from 2.3% to 2.0%, our fair value for SGREIT inches up from S$0.80 to S$0.81. SGREIT is trading at a decent FY20F distribution yield of 5.8% and P/B ratio of 0.88x as at the closing price on 5 Aug.

Source: OCBC Research - 6 Aug 2019