Brokers' take: DBS upgrades Starhill Global Reit to 'buy', raises target price to S$0.75

STARHILL Global Reit P40U : P40U 0% 's operational results will likely improve as the economy and borders open, boosted by its Wisma Atria property, DBS said in a research note on Tuesday.

The research team upgraded its call on the real estate investment trust (Reit) to "buy" from "hold" and raised its target price on the counter to S$0.75 from S$0.55, as it expects distribution per unit (DPU) for the Reit will return to pre-pandemic levels earlier than anticipated.

Units of Starhill Global Reit closed at S$0.62 on Tuesday, up 2.5 Singapore cents or 4.2 per cent.

DBS noted that the Reit posted Q3 FY2021 results that were ahead of expectations, likely since its Wisma Atria property in central Orchard reported a rebound in tenant sales and traffic. Tenant sales at the mall had increased to 83.4 per cent of pre-Covid-19 levels in Q3 even when borders have yet to reopen, which is "a positive surprise".

It expects the mall will see bigger crowds as dine-in restrictions are relaxed, and benefit from consumers that will likely continue to spend locally prior to borders reopening towards the end of 2021.

A possible reopening of borders at the end of the year should also support the positive momentum for the Reit into the new financial year, since tourists historically account for around 20 to 30 per cent of Wisma Atria's traffic and sales.

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DBS said the Reit is resilient on Wisma Atria's high occupancy rate of 97 per cent, adding that it expects a high retention rate for the mall with 5.1 per cent of retail leases due to expire in Q4.

Furthermore, the Reit's plans to reposition Wisma Atria as a premier lifestyle mall, with the introduction of new anchor tenants like popular hotpot chain Haidilao, can likely capture crowds, the research team said.

Starhill Global Reit is also a prime candidate to be included in the EPRA NAREIT Developed Asia Index in September 2021 amid recent changes in the indexation rules, DBS said. It expects this will lead to an inflow of funds, driving a re-rating, and may result in the Reit trading at a premium to historical valuations.

Additionally, the research team noted bright spots at its overseas properties in Australia, as rental collections have remained high while rental relief negotiations conclude.

DBS raised its DPU estimates for the Reit by 15 per cent in FY2021 which implies a forward yield of around 7 per cent, due to higher topline earnings from Australia amid a strong Australian dollar, and higher rental potential at Wisma Atria.