• Starhill Global REIT's 3Q/9MFY6/19 DPU of 1.1/3.38 Scts broadly in line, accounting for 23.5%/72.3% of our FY19 forecast.
• Weaker Singapore and Malaysia operations, partly offset by improvement in Australia.
• Maintain ADD with a slightly higher Target Price of S$0.77.

Starhill Global REIT’s 3QFY6/19 Results Highlights

• STARHILL GLOBAL REIT (SGX:P40U) posted 3QFY6/19 DPU of 1.10 Scts (+0.9% y-o-y), broadly in line with our projections. While 3Q gross revenue, net property income and distributable income eased 0.9%/1.8%/1.4% y-o-y to S$51.3m/S$39.6m/S$25m respectively, DPU rose on a higher payout ratio of 95.8% (vs 93.7% in 3QFY18).
• The weaker 3Q topline performance was due to lower office and retail contributions from Wisma Atria (WA) and weaker A$, partly offset by better performance from Myer Centre Adelaide (MAC), Plaza Arcade and Ngee Ann City (NAC) office.
• Starhill Global REIT’s 9MFY19 DPU of 3.38 Scts was 2.3% lower y-o-y and made up 72.3% of our FY19 forecast.

Wisma Atria’s Performance Impacted by Lower Occupancy

• Although tenant sales and shopper traffic improved, Wisma Atria’s performance was dragged by lower retail occupancy (91.7% at end-3Q) and negative rental reversions. Office contribution was also impacted by lower occupancy of 88.5% with the pre-termination of a lease.
• At Ngee Ann City, office revenue saw a 10.2% y-o-y jump on higher office occupancy. Meanwhile, the Toshin rent review, due in June 19, could provide further earnings upside.

Australia Operations Benefited From Higher Office Take-up

• Australia saw a 2.8% y-o-y improvement in 3Q NPI. This was due to higher contributions from Myer Centre Adelaide and Plaza Arcade, partly moderated by a weaker A$.
• Occupancy at Myer Centre Adelaide rose to 89.9% with a new office anchor tenant commencing its lease. This, coupled with Uniqlo’s opening in Plaza Arcade in Aug 18, helped boost y-o-y performance.

Malaysia Portfolio to Benefit From Planned AEI

• For its Malaysia portfolio, Starhill Global REIT has announced it is entering into a new conditional master lease agreement for Starhill Gallery and Lot 10, with Katagreen, contigent upon an asset enhancement exercise at Starhill Gallery. The latter is expected to undergo a RM175m makeover over the next 2 years.
• During the AEI period, the property would continue to receive a rent of RM26m. In addition, any DPU shortfall would be mitigated with the REIT Manager planning to receive part of its management fees in units. We see this exercise as positive for the medium term given that the new master lease agreement would likely lengthen Starhill Global REIT’s weighted average lease expiry from the present 4.1 years to 6.4 years.

Maintain ADD

• We leave our FY19-21 DPU estimates unchanged. DDM-based Target Price is raised slightly to S$0.77 as we adopt a lower cost of equity assumption of 7.6% (vs 7.9% previously).
• Re-rating catalysts include better rent reviews; downside risks include weaker Singapore retail segment.

Source: CGS-CIMB Research - 26 Apr 2019