Starhill Global REIT - DBS Research 2020-12-09: Bright Spots In Australia

STARHILL GLOBAL REIT (SGX:P40U)

Starhill Global REIT - Bright Spots In Australia

An additional S$7.3m in rebates extended in the quarter; relief negotiations with Australian tenants mostly concluded.
Wisma Atria tenant sales and shopper traffic at 67% and 46% of pre-pandemic levels respectively.
Australia retail data trended above pre-COVID levels in August 2020.
Maintain HOLD on Starhill Global REIT with higher target price of S$0.55.

Starhill Global REIT (SGX:P40U)'s Revenue and NPI for 1QFY20/21 declined 10.3% and 19.2% y-o-y to S$43.1m and S$29.8m respectively.
This was mainly due to additional rental assistance extended to affected tenants, mainly for the Australia properties, and was partially offset by higher contributions from The Starhill and a stronger AUD.
An additional rental rebate of S$7.3m was extended to tenants in 1QFY20/21, on top of the total relief of S$32.2m provided in FY19/20.
Most of the additional rebates were likely extended to Australian tenants in the past quarter.
We recap that Starhill Global REIT retained S$4.9m of income in 4QFY19/20 and deferred S$7.7m of distributable income to this financial year.

Starhill Global REIT’s portfolio occupancy increased 4ppts q-o-q to 96.6%, primarily led by leasing momentum within the Singapore retail (+0.6ppt q-o-q) and Singapore office (+2.7ppts q-o-q) segments.
Wisma Atria’s tenant sales and shopper traffic recovered to about two-thirds (66.5%) and half (45.6%) of pre-pandemic levels on a y-o-y basis.
Australia tenant sales (Perth assets) matched pre-COVID levels in 1QFY20/21, and the manager has concluded most of the rental assistance negotiations with the Australian tenants.
Retail sales for South Australia and Western Australia grew by 4.8% and 7.5% y-o-y respectively in August 2020.
In Malaysia, retail trade figures trended closer towards pre-COVID levels at just a 1.5% y-o-y decline in August 2020 (3.8% y-o-y decline in July 2020).

The completion of The Starhill has been delayed due to Malaysia’s movement control order.
Initial completion scheduled for October 2021 will now be deferred to December 2021.
Rental rebate extended by sponsor which approximates to 50% of annual rents of RM52m during the first two years of construction will also continue for a corresponding two months.
Post completion end of next year, the master lease arrangement will build in greater income visibility, with rents estimated to be 1.5% higher and periodic rental escalations of 4.75-6.0% at every three-yearly views.

Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-12-09

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.55 UP 0.500