Starhill Global REIT - CGS-CIMB Research 2020-10-28: Valuation Likely Priced In COVID-19 Impact

STARHILL GLOBAL REIT (SGX:P40U)

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

Starhill Global REIT’s 1QFY6/21 NPI of S$29.8m (-19.2% y-o-y, dragged down by rental assistance) came in at 21% of our full-year forecast.
Portfolio occupancy remained high at 96.6%, while malls have seen encouraging recovery. Still, we expect near-term rental pressure to persist.
Reiterate ADD as we think that market has priced in the COVID-19 impact. Starhill Global REIT is trading at 0.52x FY20 P/BV and a c.10% dividend yield.

Starhill Global REIT (SGX:P40U)'s 1QFY6/21 revenue fell by 10.3% to S$43.1m (23% of our full-year forecast), while NPI declined 19.2% y-o-y to S$29.8m (21% of our full-year forecast), mainly due to rental assistance to eligible tenants affected by COVID-19, including allowance for rental arrears and rebates, primarily for the Australia properties. This was partially offset by higher contributions from The Starhill and the appreciation of the A$ against the S$.

Starhill Global REIT's portfolio occupancy remained high at 96.6%, up from 96.2% in 4QFY20. Higher occupancies were seen across all countries except Australia, where occupancy stayed flat q-o-q at 94.3%.
Most tenants had opened for business in 1QFY6/21 following earlier lockdowns due to COVID-19. Wisma Atria’s recovery was especially encouraging, with tenant sales and shopper traffic recovering to about two-thirds and almost 50% of last year’s levels, respectively, in 1QFY21.
In Australia, tenant sales in Perth assets achieved pre-COVID-19 levels, while Myer Centre Adelaide saw improving tenant sales since the lockdown. The majority of rental assistance negotiations with its Australian tenants have been concluded.
Starhill Global REIT has 13.8% of gross rental income leases up for renewal in FY21F. We expect its retail assets to see rental pressure in the near term, in line with the weak operating environment. The Starhill rental increment will also be postponed as completion of asset enhancement works have been extended by two months from Oct 2021 to Dec 2021 due to delays caused by Malaysia’s movement control order.

Starhill Global REIT’s gearing improved slightly from 39.7% as at Jun 20 to 39.1% as at Sep 20. It has secured new committed revolving credit facility of up to S$90m. Its undrawn and committed revolving credit facility is more than sufficient to cover the S$250m in term borrowings maturing in the next 12 months.

We tweak our FY21-23F DPU lower as we update our numbers based on its FY20 annual report. We reiterate ADD on Starhill Global REIT with an unchanged target price as we believe the market has already priced in the COVID-19 impact.
See Starhill Global REIT Share Price; Starhill Global REIT Target Price; Starhill Global REIT Analyst Reports; Starhill Global REIT Dividend History; Starhill Global REIT Announcements; Starhill Global REIT Latest News.
Starhill Global REIT is trading at 0.52x FY20 P/BV and c.10% dividend yield even before factoring in the distribution of the deferred distribution of S$7.7m in FY21F.
Upside/downside risks include stronger/weaker-than-expected rental reversion.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-28

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