Starhill Global REIT - CGS-CIMB Research 2020-04-29: Bearing The Impact Of COVID-19


Starhill Global REIT - Bearing The Impact Of COVID-19

  • Starhill Global REIT's 3QFY20 performance was impacted by rental assistance.
  • Expect much weaker income in 4QFY20F due to country lockdowns.
  • Reiterate ADD. Potential impact of COVID-19 may have been priced in.

Starhill Global REIT's 9MFY20 performance weaker y-o-y

  • Starhill Global REIT (SGX:P40U)'s 9MFY20 revenue/NPI declined 7.1%/8.6% y-o-y to S$154.3m/S$109.2m, largely due to planned asset enhancement works (AEW) at Starhill Gallery; rental assistance to tenants affected by COVID-19 in Singapore, Malaysia and China; lower income from offices at Ngee Ann City; and the depreciation of A$. Excluding AEW at Starhill Gallery, revenue/NPI declined 2.7%/2.9% y-o-y.
  • While 9MFY20 distributable income accounted for 87% of our full-year forecast, 9MFY20 DPU of 2.26 Scts came in at 59% as SG REIT has switched to half-yearly distribution.
  • In 3QFY20, revenue/NPI declined a larger 8.9%/11.1% y-o-y, mainly due to rental rebate extended to tenants. Rental rebates totalling ~S$2.1m were disbursed to tenants in 3QFY20. The remaining S$11.6m rental assistance will be funded largely by the S$10.8m property tax rebate.

All countries weaker in 3Q due to tenant rental assistance

  • While portfolio occupancy remained high at 96.3% (flat q-o-q), all countries saw a decline in revenue in 3QFY20.
  • Revenue from Singapore properties (64.3% of 3QFY20 revenue) declined 5.6% y-o-y, mainly due to rental assistance extended to tenants.
  • In Australia (23.3% of 3QFY20 revenue), revenue declined 8.5% y-o-y, mainly due to the weaker A$ and allowance for rental arrears to retail tenants.
  • Malaysia properties’ revenue declined 34% y-o-y due to AEW and rental assistance extended to a master lessee.

Expect much weaker income in 4QFY20F

  • We expect a much weaker rental income in 4QFY20F as Singapore had on 3 Apr entered into its “circuit breaker” period, slated to last till 1 Jun.
  • In Australia, while David Jones remains open, most of its tenants including Myer and Uniqlo have chosen to temporarily close their stores. Myer has been closed since 29 Mar and will remain closed till at least 11 May.
  • In Malaysia, Starhill Gallery and Lot 10 Property have largely been closed since the nation's Movement Control Order (MCO) kicked in on 18 Mar.
  • Starhill Global REIT should have enough liquidity to meet its operating obligations given its healthy gearing of 36.7% as at end-Mar, which gives it substantial debt headroom. The REIT has available undrawn committed revolving credit facilities which exceed its maturing debts.

Maintain ADD at an unchanged DDM-based Target Price of S$0.71

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-29
SGX Stock Analyst Report ADD MAINTAIN ADD 0.710 SAME 0.710