Starhill Global REIT
Earlier than expected DPU recovery
A brightening outlook is on the horizon for Starhill Global REIT (SGREIT), which has stakes in Orchard Road malls Wisma Atria and Ngee Ann City, with a possible index inclusion in September lifting prospects for the REIT.
In a July 13 note, DBS Group Research analysts are upgrading SGREIT to “buy” with a target price of 75 cents.
“SGREIT portfolio operational metrics should improve as the economy re-opens. We see DPU hitting close to pre-pandemic levels earlier than anticipated, with the return of tourist-led spending as a catalyst for the REIT,” write DBS Group Research analysts Geraldine Wong, Derek Tan, Dale Lai and Rachel Tan.
SGREIT invests in income-producing upscale retail or office assets in the Asia Pacific region. In Singapore, SGREIT owns portions of Ngee Ann City and Wisma Atria. It also owns assets in China, Japan, Malaysia and Australia.
Central Orchard malls will enjoy upside when borders reopen.
Tenant sales at SGREIT’s Wisma Atria increased to about 84% of pre-Covid-19 levels in 3QFY2021 ended December 2021, which is a positive surprise, note the analysts, even when the borders have yet to open. “We anticipate strategic upgrades at selected malls in Wisma Atria and Malaysia to drive tenant sales.”
Retail master leases and office leases make up approximately 46% and 15% of SGREIT’s annual revenue, allowing SGREIT to channel its focus to actively managed retail leases within Wisma Atria and Ngee Ann City.
“As businesses gradually reopen, SGREIT’s healthy portfolio occupancy of 99.5% (SG retail) with minimal lease expiries of 4.5% in 2Q2020 allows the REIT to focus on ramping up operations and resume rental collections. Government cash grants and other sources of support from the enhanced Jobs Support Scheme and bonus payouts for digitalisation will further fortify food and retail businesses to help them cope in these uncertain times,” write the analysts.
SGREIT also faces a possible index inclusion in September. “The recent changes in indexation rules for the EPRA NAREIT Developed Asia Index puts SGREIT in the front seat for possible inclusion in the upcoming September review,” write the analysts.
DBS Group Research’s discounted cash flow valuation factors in 6% weighted average cost of capital (WACC) to derive a target price of 75 cents with no acquisitions assumed. “Our target price assumes a 0.56x P/B and a forward 8.0% dividend yield, with a DPU growth of 8% from FY2020 and FY2021.”