A liking for Starhill Global REIT (SGREIT) has pushed analysts at OCBC Investment Research to post a “buy” call on the counter at a fair value of 52 cents.

This is down a cent from their previous 53 cent prediction and is believed to give the counter a 10 cent upside from its 42 cent price on Oct 29.

“We believe negatives are in the price with SGREIT trading a significant discount to book value, the analysts explain.

SGREIT recorded a net property income (NPI) of $29.8 million in 1QFY21 ended Sep 30, down 19.2% from the previous year.

The manager of the REIT attributes this to a 10.3% year-on-year plunge in gross revenue to $43.1 million that resulted from the $7.3 million rental assistance granted to eligible tenants affected by the Covid-19 pandemic. 

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See: Starhill Global REIT reports 19.2% lower NPI in 1QFY2020/2021 due to rental assistance

The amount distributed includes allowance for rental arrears and rebates given mainly to tenants in its Australia properties.

The latest numbers are “in line with expectations” say OCBC’s analysts, adding that SGREIT’s 1QFY21 NPI constitutes 23.6% of their FY2021 forecast.

Interestingly, the quarter saw the REIT’s occupancy levels inching up 0.4 percentage points from the previous quarter to reach 96.4%. 

This follows a higher take up rate, mainly from its properties in Singapore which registered a 0.6 percentage point increase in retail tenants (to 99.5%) and 2.7 percentage point increase in office occupants (to 90.3%). 

SGREIT’s portfolio comprises 10 properties in Singapore, Malaysia, China, Japan and Australia. Its properties in Singapore include the prominent Wisma Atria and Ngee Ann City, located along the Orchard Road retail belt.

A cause for concern is that 25.8% and 37.2% of leases (by gross rent) are slated to expire at Wisma Atria’s retail and office component in the remaining three quarters of FY21, OCBC’s analysts say.

“No rental reversion figures were provided, but this would likely be negative as management prioritises defending its occupancy,” they observe.

Still they flag that tenant sales and footfall traffic at the mall’s retail arm had plunged by 33.5% and 54.4% respectively year-on-year in 1QFY21. This, according to the analysts, is a “marked improvement” from the declines of 80.0% (tenant sales) and 86.9% (footfall) seen during the circuit breaker in SGREIT’s 4QFY20.

“Although some of SGREIT’s properties are under master leases, the severe and widespread impact of Covid-19 has resulted in management extending, or having the intention to extend some form of rental rebate to its master lessees to share the pain and build a stronger longer-term relationship,” the analysts note.

To this end, they have cut their FY22 distribution per unit (DPU) forecast by 4.4% to factor in further rental rebates at The Starhill property – formerly known as Starhill Gallery – that have been imposed due to a two month delay in the completion of the asset enhancement works there.

Units in SG REIT closed flat at 41 cents on Nov 3.