Daiwa cut its estimates for Starhill Global REIT on expectations its payouts will decline as capex requirements at its properties are set to increase. But it added that the REIT remained a preferred pick in the segment.
It cut its distribution per unit (DPU) forecasts for fiscal 2018-20 by 3-5 percent as it assumed lower payouts of income available for distribution of 96.5 percent for this year and 96 percent for 2019-20, down from 98.5 percent and 97 percent respectively, previously. That spurred its target price cut to S$0.78 from S$0.82, Daiwa said in a note on Monday.
Daiwa also said it expected short-term weakness in the Wisma Artria mall on Orchard Road amid soft retail trading conditions and negative rental reversions.
But it still stuck with an Outperform call on the REIT, even as it kept the broader Singapore REIT sector at Neutral.
Daiwa said that it remained positive on the Orchard Road shopping area, despite recent softness, noting that the shopping belt would see no new supply of retail space from 2018-22, while data from JLL in the first quarter indicated the vacancy rate there was only 2 percent.
“Starhill Global remains one of our preferred stocks in the Singapore REIT sector for its valuation and potential DPU recovery from FY19E (financial year-end 30 June),” it said.
It added that the REIT’s valuation was attractive at fiscal 2019-20 DPU yields of 7-7.1 percent, compared with around 6 percent for the broader S-REIT sector and 5.4-5.8 percent for Singapore-centric retail REITS.
The REIT ended Tuesday at S$0.685.