SINGAPORE (Apr 15): CGS-CIMB Research is upgrading its call on Starhill Global REIT (SGREIT) to “add” from “hold” previously, but with a lower target price of 71 cents from 79 cents, as the research house prices in potential asset devaluation.
Year-to-date, SGREIT’s unit price has declined some 43% to trade at 46 cents yesterday. This indicates that the REIT is underperforming its peers which saw their share prices decline 31-34% over the same period.
Currently, the stock is trading at a price-to-book ratio of 0.52 times, which represents a decline of 42% from its peak in mid-2019, not too far from 58% decline during GFC when it dropped from 0.8 times book value in Mar 2008 to 0.34 time book value in Feb 2009.
In Singapore, the REIT announced that will pass on the rental rebates to its tenants this month. It will also provide additional rental relief to eligible retail tenants affected by Covid-19. In February, the REIT also provided rental relief in excess of the property tax rebate announced. Its office tenants will also receive 30% property tax rebate in full.
Meanwhile, for its overseas assets, SREIT has provided assistance to its tenant in Chengdu, China and its master tenant in Malaysia. As for Australia, it is still evaluating the support package to its tenants in Adelaide and Perth.
So far, SGREIT has earmarked $13.6 million of rental rebates, of which $10.8 million relates to property tax rebates. About $0.4 million has been dished out to its master lessee in Malaysia.
Furthermore, the REIT’s board of directors and management will be taking a pay cut for three months, for now, and the savings will be passed on to unitholders as part of a 10% reduction in management fees.
In a Tuesday report, lead analyst Eing Kar Mei says, “We have factored in three months of rental rebates across all its retail properties in our FY20 forecasts. We have also imputed -3 to -5% rental growth and 3-5% pts reduction in occupancy into our FY21F DPU forecast.”
Fortunately, there are no refinancing and cash shortfall concerns in the near term.
“We understand that SG REIT has substantial committed revolving credit lines in place. Some 74% of its $3.1 billion assets are unencumbered. Hence, refinancing should not be an issue,” says Eing.
As at Dec 2019, the REIT has only 2.5% and 8.8% of its total debt ($1.1 billion) due in FY20 and FY21 respectively. In an unlikely event the REIT could not refinance its borrowings, it could draw down another $86 million to pay down its debts, assuming debt headroom at 40% gearing.
Based on the research house’s analysis, SGREIT’s cash and cash equivalent alone could fund 3.3 months of its FY20 operating expenses. Its debt headroom at 40% gearing would also be sufficient to cover another 1.4 times of its FY20F operating expenses.
As at 11.00am, units in SGREIT are trading at 48 cents or 0.5 times FY20 book with a dividend yield of 8.4%.
