Starhill Global REIT - CGS-CIMB Research 2020-07-29: Impact From COVID-19 Likely Priced In


Starhill Global REIT - Impact From COVID-19 Likely Priced In

  • FY20 DPU of 2.96 Scts (-33.9% y-o-y) came in below expectations due to income retention and deferment.
  • Starhill Global REIT offers 6% yield even on FY20 depressed DPU.
  • Reiterate ADD.

Starhill Global REIT's FY20 DPU came in below due to income retention and deferment

  • Starhill Global REIT (SGX:P40U)’s FY6/20 DPU of 2.96 Scts came in below at 80% of our FY20 forecast, mainly due to retention and deferred income.
  • Starhill Global REIT retained S$4.9m of income for distribution and deferred S$7.7m income in FY20 to FY21 to maintain financial flexibility. Hence, the payout ratio in FY20 was only ~84%.
  • FY20 revenue declined 12.3% y-o-y to S$180m while NPI was down 17% y-o-y to S$132m. While the full-year performance was also impacted by the income disruption from AEI at Starhill Gallery, the decline was mainly due to rental assistance given to its tenants in 4QFY20.
  • In 4QFY20, Starhill Global REIT's revenue and NPI declined by 27.9% and 42.7% y-o-y, respectively, largely due to rental assistance of S$14.9m for eligible tenants including allowance for rental arrears.

Portfolio occupancy remained high

  • Portfolio actual occupancy, however, remained high at 96.2% while retail occupancy was 97.4%. Singapore retail portfolio registered an actual occupancy of 98.8% as at Jun 2020 with Ngee Ann City being fully occupied. On a committed basis, Singapore retail portfolio occupancy is high at 99.5%.
  • Starhill Global REIT’s assets in Singapore and Malaysia have resumed operations while retail tenants in Australia and China have also reopened their stores.

Portfolio valuation declined 4% due to impact from COVID-19

  • Portfolio valuation declined ~4% y-o-y mainly due to downward revaluation of its Australian properties (-19.4%) and Wisma Atria (-4.6%). The decline in valuation was largely due to lower passing rent and market rents in view of the softer retail outlook which was impacted by COVID-19.
  • Largely no change in cap rate for retail properties in Singapore and Australia although some compression was seen for its office assets. The lower valuation, coupled with the increased borrowings to part finance the AEI at Starhill Gallery and build cash balance to enhance liquidity in view of COVID-19, led to gearing increasing from 36.7% in the last quarter to 39.7%.
  • Starhill Global REIT has available undrawn committed revolving credit facilities which is in excess of the maturing debts.

Reiterate ADD on a slightly higher DDM-based Target Price of S$0.706

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-29
SGX Stock Analyst Report ADD MAINTAIN ADD 0.706 UP 0.705