SINGAPORE (Aug 1): RHB Research is downgrading Starhill Global Real Estate Investment Trust (SG REIT) to “neutral”, from “buy”, with an unchanged target price of 81 cents on the back of limited upside ahead.
Starhill Global REIT “lacks a strong catalyst,” say RHB analyst Vijay Natarajan in a Tuesday report.
The REIT posted a 5.0% decline in full-year distribution per unit (DPU) to 4.92 cents for the FY16/17 ended June, from 5.18 cents a year ago.
On a quarterly basis, gross revenue rose marginally in 4Q to $53.7 million, from $53.6 million a year ago. Net property income in 4Q was flat at $41.4 million.
See: Starhill Global REIT 4Q DPU falls 8.5% to 1.18 cents
“Results were dragged down largely by weaker Singapore and Australia performance,” says CIMB Research lead analyst Lock Mun Yee in a report on Monday.
CIMB is keeping Starhill Global REIT on “hold” but raising its target price to 83 cents, from 77 cents.
“We believe SG REIT’s near-term earnings growth would likely remain modest while awaiting the completion of the asset enhancement initiative (AEI) at Plaza Arcade (in Perth),” Lock says.
Indeed, it is in the markets outside Singapore that Starhill Global is looking more positive going forward.
“Overseas performance is expected to improve with occupancy and rent improvement in Australia, rejuvenation of Lot 10 (in Malaysia), and the moving in of an anchor tenant in China,” says Natarajan.
In addition, Natarajan says SG REIT is on the lookout to divest its remaining China and Japan malls at the right opportunity.
“Management noted that yield accretive options in the Singapore market are limited and is looking at Australia and Japan for acquisitions, he adds.
Meanwhile, in Singapore, Starhill Global finds itself dragged by weaker office performance.
Singapore office occupancy retreated by 2.7 percentage points q-o-q to 92.9% in 4Q, with slight negative rent reversions recorded during the quarter.
Led by lower office contributions from Wisma Atria and Ngee Ann City, net property income slipped 0.5% y-o-y to close to $26 million.
“As the CBD fringe office market remains competitive, SG REIT intends to adopt a ‘tenant retention’ strategy to maintain occupancies,” says Lock.
However, Lock notes that Starhill Global REIT has no refinancing needs till June 2019.
She says the trust has secured commitments to early refinance close to $603 million of loans ahead of maturities in 2018, which extends its debt maturity profile to 4.5 years.
“Gearing stood at 35.3% as at June 17 and provides good debt headroom to explore inorganic opportunities,” Lock says.
As at 1.07pm, units of Starhill Global REIT are trading half a cent lower at 77.5 cents.
