SINGAPORE (Feb 2): CIMB Research is reiterating its “hold” call on Starhill Global REIT while lowering its target price to 72 cents from 76 cents after the release of the REIT’s 2Q17 results, on expectations of ongoing redevelopment at Plaza Arcade in Perth as well as tenant transition at Renhe Spring Zongbei (RSZ) in China to affect FY17 distributions negatively.
In a Wednesday report, analysts Lock Mun Yee and Yeo Zhi Bin also reduce their estimates for the stock’s FY17 distribution per unit (DPU) to buffer against above effects and higher financing costs.
Noting that occupancy for PA was about 76% in 2Q17, the analysts expect it to trough at 60% as redevelopment works progress. They also project that RSZ is likely to be in the red next quarter as it prepares for handover to Makor in Mar 2017.
While RHB does not deny SG REIT will be seeing negatively impacted DPU in the short term, it thinks the REIT’s portfolio will remain resilient despite headwinds due to positive uplift from its master leases.
More importantly, the research house expects unit holders to benefit from the REIT’s portfolio’s asset enhancement initiatives (AEIs) in the long run.
RHB has therefore maintained its “buy” recommendation on SG REIT with a lower target price of 81 cents from 84 cents previously.
“While near-term DPU is likely to be impacted by asset repositioning, its resilient master leases and high portfolio occupancy should help Starhill sail through current challenges, in our view,” explains RHB analyst Vijay Natarajan in a report on Thursday.
“Key DPU drivers ahead are positive contributions from 5.5% base rent increase from Toshin master leases in Singapore (beginning Jun 2016) and 6.7% rental uplift from master leases at its Malaysian malls. The new lease-term extends for three years, with next rent review due in Jun 2019.”
As at 3.52pm, units of SG REIT are trading 0.9% lower at 75 cents.
