• Starhill Global REIT’s FY21 DPU of S$0.0395 (+33.4% y-o-y) came in line with our full-year forecast, helped by stable master leases, lower rental rebates and forex.
• Starhill Global REIT is looking to grow its office portfolio in Singapore, Australia and Japan and is focused on seeking technology and healthcare sectors for its tenant mix.
• Reiterate ADD rating on Starhill Global REIT but raise DDM-based target price to S$0.71.

Lower Rental Rebates and Stronger Forex Support Starhill Global REIT's FY21 DPU & NPI

• Starhill Global REIT (SGX:P40U)’s FY21 DPU of S$0.0395 (+33.4% y-o-y), which includes 0.35 cents of deferred income, was in line at 100% of our full-year forecast. Despite operating against a backdrop of uncertainty, gross revenue/NPI came in flat at S$181m/S$135m (+0.3%/+2% y-o-y), forming 98%/101% of our full-year forecasts, respectively, helped by
  1. ~52% of its gross rents from master leases providing income resilience,
  2. lower rental rebates and
  3. stronger A$ against the S$.
• Starhill Global REIT will distribute the remainder of S$7.7m of deferred income (DI) from FY20, but will retain S$3.6m from FY21 to build up its cash reserve due to the uncertain outlook and for Wisma Atria’s upgrading works.

Occupancy Remained Stable But Near-term Pressures Persist

• Starhill Global REIT’s overall portfolio occupancy remained rebates in FY22F, especially if mandated by the Singapore government.

Looking to Build Its Office Assets in Key Gateway Cities

• Starhill Global REIT has indicated that it is interested in acquiring more office assets across gateway cities in Singapore, Australia and Japan. It will focus on front office tenants in the technology and healthcare sectors and are also open to divestments.

Reiterate ADD

• We introduce FY24F forecasts but raise our DDM-based target price as we ascribe a premium to Starhill Global REIT due to potential inclusion into the FTSE EPRA Nareit Index.
• We expect a gradual relaxation of restrictions and border reopenings to help drive sales and shopper traffic towards recovery to stabilise rental reversions.
• Starhill Global REIT is trading at 6.8-7% dividend yield (-0.5 standard deviation below its 5-year mean). More than 50% of its revenue is from long lease structures, providing income stability.
• Re-rating catalyst: inclusion into Nareit index.
• Downside risk: Weaker rental reversions.

Source: CGS-CIMB Research - 30 Jul 2021