Following Starhill Global REIT P40U ’s (SGREIT) results for 1HFY2023/2024 ended Dec 31, 2023, OCBC Investment Research analyst Ada Lim has maintained her “hold” call at an unchanged fair value estimate of 52 cents.
For the period, the REIT had a lower y-o-y distribution per unit (DPU) of 1.78 cents, a decrease of 2.2% from 1.82 cents the year before. This constitutes 46.8% of OCBC’s initial forecast, which the analyst deems to have slightly missed expectations.
Additionally, SGREIT experienced a slight 0.1% y-o-y decrease in gross revenue to $94.6 million, but net property income (NPI) conversely saw a 0.3% y-o-y growth to $74.5 million.
Read more here: Starhill Global REIT's 1HFY2023/2024 DPU down 2.2% y-o-y to 1.78 cents
Master leases and anchor leases represent “more than 50%” of SGREIT’s gross rent, which could provide “some income visibility” to its unitholders, says Lim. “Given that around 85% of 1HFY2024’s gross revenue was derived from its retail space, we view SGREIT as a potential beneficiary of robust tourism trends in Singapore,” she adds.
Meanwhile, the analyst highlights the successful renewal of the REIT’s master lease with Takashimaya manager Toshin for 12 years, commencing from June 8, 2025 onwards. This also includes an annual turnover rent component, which will allow the trust to share in the upside of Toshin’s performance.
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As part of the renewed lease, SGREIT will contribute up to $5.2 million for renovation and upgrading works, the analyst points out.
The REIT’s gearing improved from 37.4% as at Sept 30, 2023, to 36.8% as at Dec 31, 2023, while the average interest rate declined by 3 basis points (bps) q-o-q to 3.78%.
Its proportion of debt hedged improved 1 percentage point (ppts) to 78%, while a 100 bps increase in all floating benchmark rates is expected to have a DPU impact of -0.10 cents per annum, notes Lim.
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Although the analyst has tweaked her assumptions as well as lowered her FY2024 and FY2025 DPU forecasts by 3.9% and 4.4% respectively, she has also lowered her risk-free rate to 2.75% as compared to the previous 3.15%, resulting in an unchanged fair value.
Potential catalysts include the stronger-than-expected ramp up in occupancy for SGREIT’s Singapore office portfolio, accretive acquisitions and a better-than-expected momentum in footfall and tenants’ sales for Wisma Atria.
On the other hand, risks include the slowdown in macroeconomic conditions which may stifle consumer and business sentiment, a rising interest rate environment and the depreciation of foreign currencies against the Singapore dollar, impacting distributions to unitholders.
As at 3.50 pm, units in Starhill Global REIT are trading 0.5 cents lower or 0.97% down at 51 cents.
