Starhill Global Reit

Starhill Global Reit | Buy

Target price: S$0.75

July 30 close: S$0.69

DBS Group Research, July 30

We like Starhill Global Reit (SGReit) 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 SGReit will be poised to benefit from this trend and we forecast the Reit to deliver steady dividends from fiscal 2019 to fiscal 2020. We lowered our target price (TP) to S$0.75 to reflect more conservative margins and rental estimates. Our TP of S$0.75 and distribution per unit projections for the next two years are 7-8 per cent lower compared to consensus mean. We are less optimistic about the outlook of SGReits retail portfolio in Singapore, in particular Wisma Atria, than the street but the bottom could be near. Wisma Atria has made material changes in the trade mix on the ground floor over the last couple of years which could prove to be a turning point for the mall.

Operational metrics at Wisma Atria are soft – a reflection of an overall weak retail environment but any signs of recovery will boost investor confidence. Its Australian portfolio is growing from strength to strength post the completion of the asset enhancement initiative at Plaza Arcade and a rebound in performance will add to investor confidence.

A prolonged slow retail recovery in Singapore, dragged by a fall in tourist arrivals, could be detrimental to SGReit's distribution prospects.

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