Brokers’ take: RHB upgrades Starhill Global Reit to ‘buy’ on improving operating metrics

RHB Research has upgraded its call on Starhill Global Real Estate Investment Trust (Starhill Global Reit) to “buy” from “neutral”, with a slightly higher target price of S$0.56 versus S$0.55 previously.

This comes after the Reit’s FY2023 results exceeded the brokerage’s expectations.

In a report on Thursday (Aug 10), analyst Vijay Natarajan said Starhill Global Reit’s operating metrics now show a “much stronger resilience”, given its fully committed occupancy and positive outlook for rents.

RHB has raised its distribution per unit forecasts for FY2024 by 4 per cent and FY2025 by 3 per cent, to factor in higher occupancy assumptions and tweaks to interest cost projections.

In particular, Natarajan expects the Reit’s positive rent reversions for Wisma Atria to continue.

The Reit’s recent divestment of its Daikanyama asset in Japan at a healthy premium to valuation, along with its modest gearing, puts it in a better position against rising interest rates, said the analyst.

He also believes discussions on the renewal of master leases for the Reit’s largest tenant Toshin Development are progressing well, with the resultant extension and rental terms likely to be better than the existing terms.

“A likely positive outcome (on Toshin’s master leases) could remove uncertainties and act as a positive near-term rerating catalyst, in our view.”

As for the arbitration proceedings by Myer – the anchor tenant of the Reit’s mall in South Australia – to claim unspecified damages and seek entitlement to terminate its lease, he noted that the Reit’s management sees limited financial downside from it.

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Units of the Reit were trading up 1 per cent or S$0.005 to S$0.50 as at 1.07 pm on Thursday.