Riding the REIT Recovery: Why Starhill Global Looks Like an Attractive Purchase

Not Yet Vested (going to buy soon)

I believe it is time to re-examine S-REIT companies, as they have been under pressure for an extended period due to the high interest rate environment.

I have outlined some criteria for what I am focusing on, such as excluding industrial and office REITs, concentrating on local REITs, and selecting one offering over 6% yield.

However, I kept returning to the same S-REIT in which I had invested and written previously. The REIT is Starhill Global REIT (Starhill).

Starhill Global REIT

I perceive a generally negative view of this REIT exists, though I feel differently.

In my opinion, there are some compelling reasons why it presents such an enticing buying opportunity currently.

1. Interest Rates Expected To Decrease In The Near And Longer Term.

I believe the elevated interest rate environment will soon end, and rates will start to drop in the second half of the year overall. This will allow floating debt interest payments to reduce as fixed debt comprises only 78%. Furthermore, refinancing of 2024/2025 debt will likely occur at lower interest amounts. This probable will enable distributable dividend income to rise.

Starhill Presentation for 1H FY24

2. More Than 7% Yield

Contrarily, if rates decline, REITs will become comparatively more attractive investments, in my view and possibly for other investors. Furthermore, based on my experience, the market generally works to ensure Starhill pays a 6-7% yield - so if dividends increase, more Investors will FOMO and try to purchase Starhill shares, also lifting the price.

3. Wisma Atria Renovation Completion And REIT Has Near 100% Occupancy

The Wisma Atria renovation concluded and new tenants have commenced operations. This suggests revenue will improve and distributable dividend income increase. Additionally, Starhill exhibits almost 100% occupancy, an impressive feat in the current environment, especially holding offices.

Starhill Presentation for 1H FY24

Starhill Presentation for 1H FY24

However, not all is positive - one major risk is litigation Myers has initiated against Starhill regarding the Adelaide Center lease. If Myers prevails, there could be significant lost revenue and reduced distributable dividends. This would cause the share price to fall.

Conclusion

The environment right now seems ripe for purchasing some REITs, and Starhill will be my top choice. With a supportive macro backdrop and its strengths, Starhill appears poised to reward patient investors in the coming year.

Stay Tuned.