SINGAPORE (June 18): OCBC Investment Research is keeping its “buy” recommendation on Starhill Global REIT (SGREIT) with a fair value estimate of 80 cents.

This follows SGREIT's June 8 announcement that the new base rent under the Toshin master lease, which is for a period of three years from June 8, 2019, remains unchanged from the existing rent.

In a Monday report, analyst Andy Wong Teck Ching says, “This is below our expectations, as we had pencilled in a 5% increase in our assumptions.”

When the last Toshin lease rent concluded in June 2016, the base rent saw a 5.5% increase.

Toshin, owned by Tokyo-listed Takashimaya Company, is an important tenant of SGREIT, as it currently occupies all retail areas in Ngee Ann City, except Level 5 whose strata lots are owned by SGREIT.

As at March 31, Toshin accounted for 86% of the gross rent of Ngee Ann City’s retail.

“Given this development, we lower our FY20 DPU forecast by 1.8% to 4.73 cents. This translates to a distribution yield of 6.3%, based on its closing price of $0.755 on June 14,” says Wong.

Separately, Singapore’s retail sales (excluding motor vehicles) dropped by 2.0% y-o-y in April, according to data from the Department of Statistics. This follows a 1.5% y-o-y decline in March.

The main drag came from the Computer & Telecommunications Equipment (–6.7%) and Furniture & Household Equipment segments (–6.5%). The only bright spot was the Wearing Apparel & Footwear category, which saw a 3.4% y-o-y increase.

“We note that Fashion and Shoes & Accessories formed 33.5% and 13.6% of Wisma Atria Retail’s trade mix by gross rent, as at Mar 31, 2019. Looking ahead, we are cognisant that the ongoing Sino-US trade tensions may dampen consumer sentiment, but note that gross turnover rents form only about 2%- 4% of SGREIT’s overall rentals,” says Wong.

As at 11.55am, units in SGREIT are trading at 77 cents or 16.2 times FY19 earnings with a DPU yield of 6.0%.