SINGAPORE (Jan 30): Analysts are keeping their less-than-bullish stance on Starhill Global REIT (SGREIT) following its weak set of results – as expected – for 2Q18.
For the 2Q ended December, distribution per unit (DPU) fell 7.1% to 1.17 cents, from 1.26 cents a year ago.
Group revenue slipped by 3% to $52.5 million in 2Q18, from $54.1 million a year ago.
This was mainly due to weaker contributions from offices, disruption of income from ongoing asset redevelopment works at Plaza Arcade in Perth and lower revenue at Myer Centre Adelaide.
Consequently, group net property income (NPI) was 2.2% lower at $40.5 million, from $41.4 million a year ago.
See: Starhill Global REIT posts 7.1% fall in 2Q DPU to 1.17 cents on lower revenue
In Singapore, RHB Research analyst Vijay Natarajan says notes that the retail and office markets remain soft along Orchard Road, where SGREIT’s Wisma Atria (WA) and Ngee Ann City (NAC) are located.
“Shopper traffic and tenant sales declined 6.2% and 6.3% y-o-y respectively, largely due to the renovation of the food court at WA, which was completed in Nov 2017,” says Natarajan in a Tuesday report. “About 10.4% of retail leases in WA are due for renewal in 2H18, for which we expect slight negative rent reversions (of between -1% and -5%).”
“On the office front, management noted some q-o-q pick-up in demand but rental reversions remain negative due to the high rate of expiring leases,” he adds. “About 9.4% of office leases are up for renewal in 2H18, for which we expect negative 5-10% rental reversions.”
RHB is keeping its “neutral” rating on SGREIT with an unchanged target price of 81 cents.
“SGREIT’s valuations are now at the historical average but the stock lacks catalysts,” says Maybank Kim Eng Research analyst Chua Su Tye in a Tuesday report. “Also, its balance sheet is weaker than its retail peers.”
Maybank is keeping its “sell” call on SGREIT with an unchanged target price of 70 cents.
However, OCBC Investment Research lead analyst Andy Wong Teck Ching opines that SGREIT could see sequential operational improvement ahead, in the second half of 2018.
According to Wong, 2H18 is expected to be better for SGREIT as committed leases at its Singapore office portfolio, which saw occupancy rates increase 5.9 percentage points to 89.4% as at end December, will commence in 3Q18.
In addition, SGREIT will receive contribution from its property in China after expected completion of renovation works by its tenant Markor by March 2018.
“Another positive development was the announcement that global apparel retailer UNIQLO would be opening its first Perth flagship store in mid-2018 at SGREIT’s Plaza Arcade property,” Wong says.
OCBC is maintaining its “hold” call on SGREIT with an unchanged fair value estimate of 77 cents.
As at 12.51pm, units of SGREIT are trading half a cent lower at 77.5 cents. According to OCBC’s forecasts, this implies an estimated price-to-earnings ratio of 15.5 times and a distribution yield of 6.2% for FY18.
