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Brokers' take: OCBC cuts Starhill Global Reit to 'hold' on Singapore office weakness

OCBC Investment Research has downgraded Starhill Global Reit to a "hold" after occupancy in its Singapore office portfolio fell sharply in the latest quarter.

The broker cut its target price for the counter to 77 Singapore cents from 82 cents previously. As at 9.32am on Wednesday, Starhill Global units were trading at 77 Singapore cents, unchanged on the day.

Starhill Global, an office and retail real estate investment trust (Reit) whose assets include the Ngee Ann City and Wisma Atria malls, said on Oct 27 that net property income slipped 3.5 per cent year on year to S$41.4 million. Singapore office occupancy fell 11.2 percentage points to 83.5 per cent, largely from Ngee Ann City.

The Reit has "highlighted that it is currently in the process of finalising terms with prospective tenants for approximately one-third of the vacant spaces". "Notwithstanding this development, downtime is expected given the fit-out period for new tenants, while rental pressures are also likely to persist," OCBC wrote in a research report.

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OCBC has cut its distribution per unit forecast for the Reit by 3.1 per cent for FY2018 and by 3.8 per cent for FY2019.

OCBC's new recommendation matches a "hold" call by CIMB on Oct 30. CIMB said that it expects near-term earnings growth "to remain sluggish as it works through the drag from its Singapore office portfolio" and ongoing renovations at Plaza Arcade.