Analysts at OCBC Investment Research (OIR) and DBS Group Research are maintaining their “buy” calls on Starhill Global REIT (SGREIT) on the back of China’s reopening and return of tourists.
The OIR analysts have raised their fair value estimate to 63 cents from 55 cents previously. They highlight that SGREIT saw robust increase in its shopper traffic and tenant sales, which went up by 30% and 32.6% respectively in its 1HFY2023 ended Dec 2022.
Citing Singapore Tourism Board (STB), international visitor arrivals and tourism receipts are expected to rebound to 14 million and $21 billion respectively in 2023, underpinned by increasing flight connectivity and capacity as well as China’s gradual reopening. This would account for approximately two-thirds to three quarters of 2019 levels, the OIR analysts point out.
DBS analysts Geraldine Wong and Derek Tan say Wisma Atria is well-positioned to capture the return of tourist footfall and spending in Orchard Road, with STB guiding for 20%-60% recovery in Chinese arrivals this year. They also add that asset enhancement initiatives at the mall are currently in the final phases of completion.
“We think SGREIT is well positioned to capture higher reversionary rents in the coming year while concurrently refreshing its tenant mix, killing two birds with one stone, with chunky renewals up for renewal in FY2023 and FY2024 at about 10% and 43% of gross rental income respectively,” they add.
The analysts further point out that SGREIT’s higher operating expenses have been partially shielded by master and anchor leases. These account for approximately half of its leases and contribute about 53% to gross rents for the quarter.
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At the end of last year, SGREIT had entered into a sale and purchase agreement to divest Daikanyama, its non-core asset in Japan for about $18.9 million. This translates to a 39.1% and 2.9% premium over its latest valuation and acquisition price respectively, say CGS-CIMB Research analysts Lock Mun Yee and Natalie Ong.
Expected to be completed in early-2023, the transacted price translates to a yield of 2.77%. Daikanyama accounted for 0.5% of SGREIT’s assets under management as at June 30, 2022. The net proceeds will be used to repay its yen borrowings and for working capital purposes.
Wong and Tan estimate that SGREIT’s gearing would fall to about 35% if the full quantum of divestment proceeds be used to pare down debt. The analysts maintain their target price at 68 cents.
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Lock and Ong has raised their target price to 62 cents from 58 cents previously on better retail and Singapore office outlook, but downgrade the stock to “hold” on strong price performance capping the upside. They cite stronger-than-forecast reversions and accretive acquisitions as potential re-rating catalysts.
As at 4.42pm, units in SGREIT are trading 1 cent higher or 1.7% up at 57.5 cents.
