Starhill Global REIT - OCBC Investment 2020-07-29: Tough & Winding Road Ahead


Starhill Global REIT - Tough & Winding Road Ahead

  • Starhill Global REIT's FY20 DPU slumped 33.9%.
  • Impact from rental relief, income retention and distribution deferment.
  • Asset devaluation largely driven by Australia and Wisma Atria Property.

Starhill Global REIT's 2HFY20 results missed our expectations

  • Starhill Global REIT (SGX:P40U) reported its 2HFY20 (Jan 2020 to June 2020) results which fell short of our expectations. Gross revenue and NPI fell 18.5% and 27.0% y-o-y to S$84.1m and S$58.0m, respectively. DPU dipped 68.2% to 0.70 S cents.
  • For FY20, Starhill Global REIT’s NPI slipped 17.1% to S$132.1m as Starhill Global REIT provided S$17m of rental assistance from its own pocket to eligible tenants to cushion the impact from Covid-19. This also includes allowance for rental arrears.
  • Approximately one-third of the rental rebates were for tenants in Australia and the remainder in Singapore. From our understanding, ~55% of Starhill Global REIT’s Singapore retail tenants (including sub-tenants at Ngee Ann City) are SMEs, while the figure is 60-65% for its Singapore Office tenants.
  • Starhill Global REIT's FY20 DPU came in at 2.96 S cents, representing a decline of 33.9% and formed 80.3% of our forecast. Besides impact from a lower NPI, the dip in DPU was also due to the retention of S$4.9m of income available for distribution and S$7.7m of distributable income which has been deferred. The amount deferred (S$7.7m) needs to be distributed to unitholders by 31 Dec 2021.

Operational outlook still challenging

  • Starhill Global REIT managed to keep its occupancy rate healthy at 96.2% (-0.1 ppt q-o-q) despite the challenging environment. However, we are cautious on occupancy rates ahead, as Wisma Atria (retail) has 29.6% of its gross rent expiring in FY21.
  • Rental reversions are likely to come in negative as management seeks to defend its occupancy.
  • Tenant sales and footfall traffic at Wisma Atria (retail) fell 80.0% and 86.9% y-o-y in 4QFY20, respectively. Shopper traffic recovered to close to 50% of last year’s level in Jul, with sales at a slightly better level.
  • In terms of portfolio valuation, Starhill Global REIT recorded a fair value loss of S$160.7m in FY20, with the main drag coming from its Australian properties (-13.4% to -24.7% in AUD terms) and Wisma Atria property (-4.7%). Cap rates applied were largely stable, with a 5 bps compression in Singapore Office and slight compression in Japan, while China saw an expansion by 50 bps to 5.0%.

Factoring in more rental support for tenants

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-07-29
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