S-REITs as a sector are perceived to be more defensive given their locked-in leases. Starhill Global REIT, for one, has a relatively long weighted average lease expiry of 7.8 years by gross rent.
"Nonetheless, the remaining actively managed leases are not immune to a recessionary environment and macroeconomic uncertainties," she says.
"If corporates consolidate their office space and a reduction in consumer spending hurts retailers, occupancy may dip, and this will weigh on distributions," she adds.
In Singapore, the REIT has renewed its master lease with key tenant Toshin Development Singapore for another 12 years starting from June 8. The operator of the Takashimaya department store contributes some 23.1% to its gross rent on Dec 31 2024.
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Under terms of the new lease, the REIT will receive a base rent that is either 1% above the existing base rent or the prevailing market annual rental value as at the commencement date.
"This will provide a certain level of income visibility and downside protection, though Starhill could potentially enjoy lower rental upside from the annual turnover component of rent, which comprises a portion of Toshin’s operating income over and above agreed revenue and profit margin thresholds," says Lim.
Meanwhile, in Malaysia, the master lease with Lot 10 Property has been extended for a third three-year term commencing July 1 2025 with a 6% rental step-up.
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Lim is leaving her forecasts but has increased her cost of equity assumption by 1.2 percentage point (ppt) to 8.5% to take into account heightened volatility, especially given the REIT's exposure to high-end retail, leading to her lowered fair value of 46 cents.
"We see the REIT’s risk-reward profile being fairly balanced at the time of writing, with the forecasted distribution yield of 7.9% in FY2025 offsetting what we think are limited growth opportunities for the counter," says Lim.
Starhill Global REIT units changed hands at 47 units as at 2.10 pm, unchanged for the day.
