SINGAPORE (Dec 11): DBS Group Research is maintaining its “buy” on Starhill Global REIT (SG REIT) with an unchanged target price of 75 cents, which reflects more conservative discount rate assumptions due to a less-optimistic outlook of the trust’s retail portfolio in Singapore.

This is especially so for Wisma Atria, where DBS believes operating metrics have been soft although the bottom could be near, as recent material changes made to its trade mix on the ground floor could augur well for the mall.

In a Monday report, analyst Carmen Tay highlights SG REIT as a proxy to an anticipated uptrend in tourist arrivals and spending, as she forecasts steady dividends over FY19-20F with an attractive yield of 7%.

“We like SG REIT for its diversified portfolio of prime retail and office assets in the Asia Pacific region anchored by two visible Orchard Road Malls – Wisma Atria and Ngee Ann City. With tourist arrivals and spending on an uptrend, we believe SG REIT is poised to benefit from this,” says Tay.  

“Historical operational performance has shown that performance for malls along Orchard road have more volatility and are more sensitive to non-discretionary spending which can be boosted by higher tourist arrivals and spending. This is in contrast to suburban malls which cater largely to locals and less non-discretionary shopping,” she adds.

Tay also likes SG REIT for its key anchor tenants Myer and David Jones, whose leases together comprise 49% of the REIT’s revenues. With a number of its portfolio’s master leases due for review in 2019-2020, she also believes this implies potential upside to earnings in the medium term.

Further, Tay highlights the REIT’s proposed development at Wisma – which involves an unutilised gross floor area (GFA) of about 100,000 sf – as a value-enhancing strategy and therefore potential catalyst, in her view.

“We understand that the manager is in regular discussions and the execution of this development could yield upside to both NAV and DPUs in the medium term, which is not priced in at current levels,” notes the analyst.

As at 2.47pm, shares in SG REIT are trading flat at 67 cents or 14 times FY19F earnings.