SINGAPORE (Apr 29): Starhill Global REIT (SGREIT) posted 3Q19 DPU of 1.10 cents, 0.9% higher y-o-y.

But gross revenue was 0.9% lower y-o-y at $51.3 million, bringing net property income (NPI) to $39.6 million, 1.8% lower than $40.3 million last year.

See: Starhill Global REIT declares 0.9% increase in 3Q DPU to 1.10 cents

Despite the REIT’s mixed performance, CGS-CIMB continues to rate SGREIT an “add” with a slightly higher target price of 77 cents from 76 cents previously.

Although the REIT saw an improvement in tenant sales and shopper traffic, Wisma Atria’s (WA) performance was dragged by lower occupancy and negative rental reversions. Office contribution was also impacted by lower occupancy of 88.5% with the pre-termination of a lease.

Ngee Ann City (NAC) saw office revenue increase by 10.2% y-o-y on higher office occupancy.

In a Friday report, lead analyst Eing Kar Mei says, “Meanwhile, the Toshin rent review, due in June 19, could provide further earnings upside.”

In Malaysia, SGREIT has announced it is entering into a new conditional master lease agreement for Starhill Gallery and Lot 10, with Katagreen, contigent upon an asset enhancement exercise at Starhill Gallery. The latter is expected to undergo an AEI over the next two years, but would continue to receive rent of RM26 million. In addition, any DPU shortfall would be mitigated with the REIT Manager planning to receive part of its management fees in units.

“We see this exercise as positive for the medium term given that the new master lease agreement would likely lengthen SGREIT’s weighted average lease expiry from the present 4.1 years to 6.4 years,” says Eing.

Similarly, RHB Group Research is also keeping its “buy” call on SGREIT with a target price of 78 cents

In a Monday report, analyst Vijay Natarajan says, “We maintain that the worst is likely over, with its Singapore retail portfolio bottoming out and a turnaround expected in the overseas and office assets. Valuations are still attractive – it is trading at 0.8 times FY19F price-to-book, ie the cheapest among retail/office S-REITs.”

The REIT’s Singapore retail portfolio has shown some positive signs, with overall committed occupancy rates increasing 0.5 percentage point (ppt) q-o-q to 99.7%.

Notably, Wisma retail committed occupancy rate rose 1.4ppt to 99%, albeit at slightly lower rates. Also, WA’s tenant sales increased by 5% and shopper traffic grew by 2%.

Looking ahead, management plans to tap into an additional GFA of about 115,000sqf, which is available. It is currently in discussions over this with various authorities. With occupancy rates stabilising, the REIT manager also plans to slowly improve the effective rental rates of the mall by about 10% over next few years, with the Thomson East line (opening in 2021) being an added catalyst.

For Ngee Ann City (NAC), the Toshin master leases (about 21.6% of gross rental rates) are due for review in June. The review has a rental downside protection clause, with scope for rate increases based on current market rates.

“We believe there is room for a mid-single digit rental increase from rental reviews, with Orchard Road rental rates trending upwards over the last one year,” says Natarajan.

On the other hand, Maybank Kim Eng has a “hold” call on SGREIT with a target price of 70 cents. But Frasers Centrepoint Trust remains to be the research house’s preferred retail play on more attractive valuation, visible growth drivers, strong balance sheet and potential acquisition catalysts.

In a Monday report, analyst Chua Su Tye says, “Looking ahead, we see a more stable DPU profile as occupancies across its portfolio recover. Tight Orchard Road supply should support its prime Singapore retail rents, but growth assumptions will be tempered by lower tourist spending.”

Meanwhile, revenue and NPI from the REIT’s Australian properties have increased by 3.1% and 2.8% y-o-y, respectively, against weaker AUD/SGD. This increase was led by Plaza Arcade and Myer Centre.

At Myer Centre, the REIT has found a new office anchor tenant, which lifted the asset’s overall occupancy q-o-q to 89.9% from 84.4%, with momentum supported into the coming quarters.

As at 3.30pm, units in SGREIT are trading at 76 cents or 0.83 times FY19 book with a dividend yield of 6.18%.