Analysts upbeat over Starhill Global REIT’s 2016 prospects

Profits will likely benefit from an upcoming rent review.

Starhill Global REIT (SGREIT) is poised to see a flood of upside catalysts, according to a report by DBS.

The upcoming rent review for Toshin lease at Ngee Ann City is a near-term catalyst which will have a significant impact on distributions as Toshin accounts for about 19% of top line in end-FY16. Toshin renewed the lease for another twelve years beginning June 2013.

The rent review mechanism only allows for upward adjustment in rents, capped at 25%. This implies that SGREIT’s earnings growth profile is projected to growing at a steady 2-3% rate in the next two years.

Meanwhile, DBS estimates that rents in June 2016 to come in from $15psf/mth, to close to $16psf/mth.

Meanwhile, upside might potentially come from, firstly, revised rents being pegged close to a recent media report of a Ngee Ann market study that a fair “market rent” of about $19.83psf for the property. Another possible upside may stem from nearby shopping malls where average retail rents range from $20psf/mth onwards.

“With the strong uplift in S-REIT prices in recent times, driven by the large caps S-REITs, we believe second liners like SGREIT (0.9x P/NAV, FY16-17% yield of 6.8%-7.0% should play catch up,” reports DBS.

Uncertainties from the group’s exposures in Malaysia and Australia are unfounded, says DBS, given the recent renewal of its master lease for Lot 10 and Starhill Gallery in Malaysia mean limited downside risk. Additionally, the planned asset enhancement initiatives at Plaza arcade from end-FY17 onwards implies further upside to medium-term distributions.