Analysts are mixed over Starhill Global REIT ’s outlook after the REIT reported a distribution per unit (DPU) of 1.8 cents for the 1HFY2025, 1.1% higher y-o-y. Gross revenue for the period increased by 1.7% y-o-y to $96.3 million thanks to higher contributions from the REIT’s properties in Singapore and Perth as well as the appreciation of the Malaysian ringgit against the Singapore dollar (SGD). However, the increases were partly offset by weaker contributions from Myer Centre Adelaide and higher operating expenses for the REIT’s properties in Australia.
In their Jan 27 report, DBS Group Research analysts Geraldine Wong and Derek Tan say they continue to like the REIT as it is one of the higher yielding REITs within the Singapore REITs (S-REITs) sector, as well as its conservative leverage ratio of 36%. The analysts have kept a “buy” call on Starhill Global REIT with an unchanged target price of 68 cents. Their target price implies a forward FY2025 yield of 7.4% based on the REIT’s last-traded price of 50 cents as at their report.
Wong and Tan also like the REIT for several reasons such as its Singapore-focused portfolio with its high exposure to master and anchor leases. These leases help shield the REIT’s higher operating expenses including utility costs, the analysts note.
From its 1HFY2025 results, Starhill Global REIT’s DPU stood in line with the analysts’ estimates. They also note the REIT’s stable portfolio occupancy and high single-digit positive reversions for its Singapore leases.
In addition, Wong and Tan see higher rental upside for Wisma Atria, one of the REIT’s properties, for several reasons including the mall’s asset enhancement initiatives (AEIs), which is scheduled to begin in the middle of this year. This time, the AEI will centre on the conversion of its level 7 carpark space into an office space, which is likely to free up another 3,250 sq ft of office net lettable area (NLA). Including the revamp of the mall’s drop-off point, the conversion AEI has been budgeted at $4 million with a target return on investment of over 8%.
Noting that the plans for conversion came shortly after the REIT’s divestment of its strata office units on level 12 in October 2024, the analysts believe that the additional office post-conversion could reap close to $7 million if sold, based on the REIT’s divestment price of $2,100 per sq ft back then.
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To this end, the analysts believe any gains from the REIT’s divestment in October could be used to fund further AEIs at the mall or distributed to unitholders as a special dividend.
The analysts also note that Wisma Atria’s location in Orchard Road puts it in a good position to capture the return of tourists, especially with the Singapore Tourism Board’s (STB) forecast of a 30% to 60% recovery in Chinse arrivals this year.
Finally, the analysts see strong organic growth prospects for Starhill Global REIT with high single-digit reversions in Singapore as well as rental uplift of 6% for its Lot 10 asset in Malaysia. The master tenant at the Malaysian property as exercised the option to renew its lease. Per the analysts’ estimates, the higher rents of 6% will likely take effect from July 2025 onwards.
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Meanwhile, OCBC Investment Research (OIR) analyst Ada Lim is less upbeat on the REIT with an unchanged “hold” call.
The REIT’s 1HFY2025 results were “steady” with “no surprises”, with its half-year DPU making up 49.2% of her initial full-year forecast. The analyst notes the REIT’s broad-based revenue growth while flagging foreign exchange (forex) headwinds and higher operating expenses from Australia.
The extension of the master tenancy at Lot 10 was already a base case assumption, which Lim incorporated into her model previously.
With about 85% of its FY2024 gross revenue derived from its retail space, Lim sees Starhill Global REIT as a potential beneficiary of the robust tourism trends in Singapore; ongoing revitalisation plans for the Orchard Road belt; as well as increasing private wealth in the city state which may attract new or existing luxury brands to establish or expand their presence in Orchard malls, hence supporting occupier demand.
“Although the overhang of Starhill Global REIT’s renewal of its master lease with Toshin was lifted in November 2023, there remains some medium-term uncertainty, in our view, surrounding the viability of Starhill Global REIT’s relatively large exposure to departmental store tenants. This is underscored by its ongoing arbitration with Myer Pty Ltd for its lease at Myer Centre Adelaide,” she writes in her Jan 24 report.
Including the REIT’s latest credit metrics, Lim has increased her FY2025 and FY2026 DPU estimates by 0.4% and 0.6% respectively, although her fair value estimate has dipped to 50 cents from 55 cents as she increases her risk-free rate assumption by 25 basis points to 2.75%. The increased risk-free rate assumption reflects expectations of fewer rate cuts by the US Federal Reserve this year.
As at 11.19am, units in Starhill Global REIT are trading 2.5 cents lower or 4.9% down at 48.5 cents.
