Natarajan sees some positive developments.
Myer, the REIT's anchor tenant at one of the properties, Myer Centre Adelaide, had previously filed claims pertaining to landlord breaches and wants to terminate its lease, which was supposed to end in 2032.
Myer is the REIT's third largest tenant, contributing some 7% of the income.
In January, Australian courts dismissed the claims.
Natarajan notes that the REIT has incurred some A$5 million in legal and professional fees and expects to recover 60% of this amount.
"If successful, Starhill Global REIT could distribute these as special dividends, presenting a +3% DPU upside potential," he estimates.
The REIT has also managed to find a replacement tenant for its property in China.
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Markor International Home Furnishings, the previous tenant, had chalked up some $2.4 million in rental arrears before its lease was terminated last December.
The new tenant, a Chengdu interior design and renovation firm, is paying a rental rate that is 20% lower. Even so, from the perspective of Natarajan, the commencement of this new long lease this month onwards will be "incrementally positive".
Also, overall occupancy of its properties in Australia has improved, with Uniqlo expanding at its premises as well as the signing of a new educational tenant, says Natarajan.
Meanwhile, Starhill Global REIT's Singapore portfolio, which consists of prime assets such as parts of Ngee Ann City and Wisma Atria, has been maintaining near-full occupancy.
"We expect rent reversion to be slightly positive for Singapore office lease renewals while flattish to slightly negative for retail spaces," says Natarajan.
He observes that the REIT is focusing on asset repositioning and enhancement opportunities, given the recent completion of Wisma Atria’s upgradation works and conversion of car parks into office spaces.
Asset enhancements are also underway at Myer Centre Adelaide, with management studying potential conversion opportunities into student accommodations or rental apartments across the portfolio in Australia.
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So far, the REIT has divested eight strata office units at Wisma Atria at a 20-30% premium over valuation and is open to selling a few more strata units at the right prices.
Last October, the REIT issued $100 million worth of perpetual securities at 3.25% to refinance an earlier tranche at 3.85%. Natarajan estimates this will lower the financing costs by 10 to 20 bps to 3.5 to 3.6% with a modest gearing of 35.5%.
Natarajan believes that possible catalysts include higher overseas occupancy, lower financing costs, asset repositioning, partial litigation cost recoveries, and potential forex upside.
The REIT trades at an attractive 0.74x P/BV while offering a sustainable 7% yield.
Starhill Global REIT as at 10 am trades at 55 cents, up 0.93%. It is down 7.63% year to date.
