Is Starhill Global REIT still as bright?

SINGAPORE (Nov 1): DBS Vickers Securities is maintaining its “buy” call on Starhill Global REIT (SGREIT) with an unchanged target price of 87 Singaporean cents, while CIMB Securities is reiterating its “hold” call on the REIT, lowering its target price from 86 cents previously to 81 cents.

This comes after the release of the retail REIT’s 1Q17 results last Friday where SGREIT reported flat 1Q17 DPU of 1.30 cents, 0.8% lower than the year before, with higher contributions from Singapore and Malaysia offset by the lower contributions from its properties in Australia, China and Japan.

In a Monday report, DBS analyst Derek Tan notes the improved occupancy in the REIT’s Wisma Atria retail property over the last three quarters, and expects the re-opening of Isetan to drive more footfalls into the mall and eventually translate to higher rents on other floors.

He also believes investors get to enjoy a “prudent payout” from the REIT due to its retention of 3%-5% of its distributable income to fund working capital, and its payment of management fees in cash instead of units.

“We like SGREIT for its diversified portfolio of prime retail and office assets in the Asia Pacific region,” says Tan.

“With c.45% of top line derived from master leases or long leases, the REIT offers investors income stability and visibility, as well as upside potential from rental reversions embedded in the master leases,” he adds.

However, CIMB analysts Yeo Zhi Bin and Lock Mun Yee opt to take a more cautious stance on SGREIT’s outlook.

Although they expect redevelopment of the Australian portfolio’s Plaza Arcade to be earnings accretive when completed, the analysts think the mall will be disrupted by asset and enhancement initiatives (AEI) in the near-term.  

“On the back of the continued challenging retail environment, with consumers trading down, we further temper our SGP retail and office assumptions,” say Lock and Yeo.

Units of SGREIT are trading 0.61% lower at 81 Singaporean cents.