With interests in Wisma Atria and Ngee Ann City, Starhill Global REIT’s valuation is likely priced in with the fallout from Covid-19, says CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee in an Oct 28 note. Eing and Lock are maintaining their ‘add’ call on the REIT, with an unchanged target price of 70.6 cents.
Starhill Global REIT is a Singapore-based real estate investment trust investing primarily in real estate used for retail and office purposes, both in Singapore and overseas.
“1QFY6/21 revenue fell by 10.3% to $43.1 million (23% of our full-year forecast), while net property income (NPI) declined 19.2% y-o-y to $29.8 million (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,” note Eing and Lock.
This was partially offset by higher contributions from The Starhill (formely known as Starhill Gallery) in Kuala Lumpur and the appreciation of the Australian dollar against the Singapore dollar, they add.
That said, malls are seeing encouraging recovery, note Eing and Lock.
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, say the analysts, with tenant sales and shopper traffic recovering to about two-thirds and almost 50% of last year’s levels, respectively, in 1QFY21.
In addition to its Singapore malls, the REIT has interests in Myer Centre Adelaide, David Jones Building and Plaza Arcade in Adelaide and Perth, Australia; The Starhill (formely known as Starhill Gallery) and Lot 10 Property in Kuala Lumpur, Malaysia; a retail property in Chengdu, China, and two properties in Tokyo, Japan.
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 October 2021 to December 2021 due to delays caused by Malaysia’s movement control order,” they note.
See: Starhill Global REIT 2H19/20 DPU falls 68.2% to 0.70 cents
Although Starhill Global REIT’s 2H19/20 distribution per unit (DPU) fell 68.2% to 0.70 cents, as reported in July, their balance sheet remains healthy, say Eing and Lock.
Starhill Global REIT’s gearing improved slightly from 39.7% as at June to 39.1% as at September. “It has secured new committed revolving credit facility of up to $90 million. Its undrawn and committed revolving credit facility is more than sufficient to cover the $250 million in term borrowings maturing in the next 12 months,” say the analysts.
“We tweak our FY21-23F DPU lower as we update our numbers based on its FY20 annual report… The REIT is trading at 0.52x FY20 P/BV and approximately 10% dividend yield even before factoring in the distribution of the deferred distribution of $7.7 million in FY21F,” say Eing and Lock.
As at 11.08am, units in Starhill Global REIT are training flat at 42 cents.
