Starhill Global REIT - CGS-CIMB Research 2020-04-14: Market May Have Priced In Downside


Starhill Global REIT - Market May Have Priced In Downside

  • Starhill Global REIT (SGX:P40U) is trading at 0.52x P/BV, down 42% from its peak in mid-2019, not too far from the 58% peak-to-trough decline during GFC.
  • Our Target Price implies 0.8x P/BV which may have priced in potential asset value devaluation.
  • Upgrade from Hold to ADD.

Providing relief package, management taking pay cuts

  • In Singapore, Starhill Global REIT announced that will pass on the rental rebates to its tenants in Apr 2020. It will also provide additional rental relief to eligible retail tenants affected by Covid-19. In Feb, it had in fact provided rental relief in excess of the property tax rebate announced. Its office tenants will also receive 30% property tax rebate in full.
  • Overseas, Starhill Global REIT has provided assistance to its tenant in Chengdu, China and its master tenant in Malaysia. As for Australia, it is still evaluating the support package to its tenants in Adelaide and Perth.
  • So far, Starhill Global REIT has earmarked S$13.6m of rental rebates, of which S$10.8m relates to property tax rebates. About S$0.4m has been dished out to its master lessee in Malaysia.
  • Starhill Global REIT's board of directors and management will be taking a pay cut for 3 months, for now, and the savings will be passed on to unitholders as part of a 10% reduction in management fees.
  • We have factored in 3 months of rental rebates across all its retail properties in our FY20 forecasts. We have also imputed -3 to -5% rental growth and 3-5% pts reduction in occupancy into our FY21F DPU forecast.

No refinancing and cash shortfall concerns in the near term

  • We understand that Starhill Global REIT has substantial committed revolving credit lines in place. Some 74% of its S$3.1bn assets are unencumbered. Hence, refinancing should not be an issue.
  • As at Dec 2019, Starhill Global REIT has only 2.5% and 8.8% of its total debt (S$1,142m) due in FY20 and FY21 respectively. In an unlikely event the REIT could not refinance its borrowings, it could draw down another S$86m to pay down its debts, assuming debt headroom at 40% gearing.
  • Based on our analysis, Starhill Global REIT’s cash and cash equivalent alone could fund 3.3 months of its FY20F operating expenses. Its debt headroom at 40% gearing would also be sufficient to cover another 1.4x of its FY20F operating expenses.

Upgrade Starhill Global REIT from Hold to ADD

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EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-14
SGX Stock Analyst Report ADD UPGRADE HOLD 0.710 DOWN 0.79