• Starhill Global REIT's 1HFY6/19 DPU of 2.28 Scts was in line at 49% of our full-year forecast.
• Singapore office segment saw recovery while retail segment remained weak.
• Maintain ADD, with a slightly higher Target Price of S$0.75.

1HFY6/19 DPU in Line With Expectations

• STARHILL GLOBAL REIT (SGX:P40U) posted 1HFY19 DPU of 2.28 Scts (-3.4% y-o-y), in line with our full-year forecast of 4.66 Scts (49% of our full-year forecast).
• 1HFY19 group revenue declined 2.3% y-o-y to S$103.1m, impacted by the decline in retail revenue from Wisma Atria and weaker A$ against S$. In tandem with the weaker revenue, NPI declined at the same rate.

Wisma Atria in Singapore: Retail Still Weak But Office Saw Recovery

• Wisma Atria reported a revenue decline of 9.5% y-o-y in 1HFY19F on the back of lower occupancy and average rental rate. We understand that its rental rate remained higher vs. other malls at Orchard Road.
• Meanwhile, the retail performance of Ngee Ann City was largely stable with Toshin as its master lessee. In line with the office recovery in Singapore, Starhill Global REIT's overall Singapore office revenue increased 10% y-o-y in 1HFY19.

Australian Operation Impacted by Weaker A$ Vs. S$

• Starhill Global REIT's Australian operation saw weakness in 1HFY19 revenue (-3.2% y-o-y), mainly due to the depreciation of A$ against the S$.
• Occupancy rate for its retail segment remained relatively high at 95.8% during the quarter. Myer Adelaide's office occupancy rate increased from 31% at end-Jun 2018 to 75% at end-Dec 2018. David Jones’s and Myer’s long-term leases accounted for 22.7% and 33.6% of Starhill Global REIT's Australian gross rent in 1HFY19, respectively. This, coupled with the opening of Uniqlo in Plaza Arcade in 2018, should support Starhill Global REIT's income from Australia.

Starhill Gallery (SG) to Undergo AEI?

• Starhill Global REIT's Malaysian revenue rose 1.8% y-o-y in 1HFY19. The Malaysia master lease agreement will be up for renewal in June 2019.
• We understand that negotiations are ongoing and Starhill Global REIT indicated that the current renewal proposal includes an AEI at Starhill Gallery to enhance the income of the mall. Should Starhill Gallery indeed undergo a major AEI and if there is an income vacuum during the AEI period, it will pose downside risk to our DPU forecasts. Starhill Gallery contributed ~10% of the total NPI in FY18.

Maintain Add

• Given the in-line results, we maintain our FY19-21 DPU estimates. However, our DDM-based Target Price rises to S$0.75 as we roll our valuation a year forward. We maintain ADD on Starhill Global REIT given the attractive dividend yields of ~7%.
• Upside risk could come from higher-than-expected rental reversions, while downside risk could come from larger-than-expected negative rental reversion from Wisma Atria and SG undergoing major AEI.

Source: CGS-CIMB Research - 30 Jan 2019