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RHB raises target price for Starhill Global REIT following master lease renewal with anchor tenant

The Edge Singapore
·2-min read

Natarajan has raised his FY2026 DPU by 3% and FY2027 DPU by 5%

RHB Bank Singapore's Vijay Natarajan has kept his "buy" call on Starhill Global REIT P40u, along with a raised target price, after it renewed a long-term lease with its anchor tenant on what has been seen as favourable terms.

Toshin, which operates the Takashimaya department store within Ngee Ann City, a key asset of the REIT, has signed a new 12-year master lease starting from June 2025.

Upon expiry on June 2037, there is an option for either party to renew for six years and thereafter, at the option of Toshin, extend for another three years.

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Toshin contributes 24% of the gross rent to the REIT.

Under the terms of the new leasing agreement, the base rent for the first three years will be higher of either 1% above existing base rents and the prevailing annual rental value at the start of the lease as agreed by both parties.

Failing which, the base rent shall be based on average market rental values determined by three valuers but not exceeding 125% of the first option.

The annual fixed rent will be subject to review every three years during the lease term and comes with downside protection, similar to the existing agreement.

In addition, Toshin has agreed to a profit-sharing agreement based on an annual turnover if revenue and profit margin thresholds are met.

On the other hand, as part of the master lease agreement, the REIT will contribute up to $5.2 million to Toshin for asset enhancements, which, in Natarajan's view, is "reasonable."

"Based on our discussions and anecdotal evidence, the favourable new lease comes amid a strong rebound in tenant sales across the Toshin space in Ngee Ann City on the back of revamped concepts and the return of tourists. We also expect the deal to provide a valuation uplift for the largest asset in Starhill Global REIT's portfolio," he says.

That aside, the REIT's portfolio occupancy rose to 98.4%, up 0.7ppt q-o-q as at 1QFY2024 ended Sept, aided by occupancy uplift for its Australian assets.

Natarajan also notes that tenant sales at Wisma Atria, another mall owned by the REIT, is up 15% y-o-y in the latest quarter.

Coupled with the next phase of asset enhancements expected to be completed by Mar 2024, the REIT should be able to eke out more positive rent reversions.

Natarajan has raised his FY2026 DPU by 3% and FY2027 DPU by 5% to factor in the new master lease structure and to also lower his interest cost estimates.

Starhill Global REIT closed Dec 4 at 50 cents, up 1.01%, down 7.41% year to date.

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