• 60% of Starhill Global REIT revenue from relatively stable retail master leases and office leases; portfolio WALE of 5.7 years to provide income stability.
• Turning focus to actively managed Singapore retail leases as malls prepare for reopening.
• The recently announced Fortitude Budget to provide yet another tier of support as businesses gradually reopen.

Slowly But Surely

• We maintain our HOLD call on Starhill Global REIT (SGX:P40U) but increased our Target Price to S$0.50. While a majority of tenanted outlets in Starhill Global REIT’s Singapore malls remain closed for at least another month, its overseas assets which contribute 35-40% of revenues have resumed operations.

Reopening of businesses in phases from 2 June 2020.

• With the end of Circuit Breaker measures in sight, businesses will be allowed to resume operations in phases.
• Various essential services will be able to resume operations from 2 June 2020, but most retail outlets and personal services will only be allowed to reopen during the second phase.
• The gradual reopening of businesses will provide some clarity for landlords and enable Starhill Global REIT to resume rent collections at its Singapore malls.

Revenue contributions from overseas assets provide some earnings buffer amid the closure of malls in Singapore.

• Overseas assets contribute 35-40% of Starhill Global REIT’s revenues and most have resumed operations.
• Unlike the other landlords that have a pure-play Singapore portfolio, Starhill Global REIT’s overseas assets continue to generate revenue that would help offset some costs.

Strong occupancy rates and master leases to provide stability to earnings

• Full occupancy for Japan, China and Malaysia portfolio; close to 95% occupancy for Singapore and Australia.
• With the retail sector expected to face challenges in the near term, Starhill Global REIT’s high occupancy rates help ensure income stability.
• Master leases by branded retailers to provide stability amidst economic downturn.

Malls in Singapore and Australian expected to face continued challenges in the near term

• In Australia, Myer and UNIQLO have chosen to remain closed in response to heightened social distancing measures.
• In Singapore, most tenants will only be able to resume operations during the second phase of the lifting of Circuit Breaker measures; likely to happen in July 2020.

The proposed Rental Waiver Bill poses a risk to Starhill Global REIT.

• The new Bill, which will be tabled in June 2020, will mandate landlords to grant rental waivers to qualifying SME tenants which have suffered significant revenue declines as a result of COVID-19.
• If passed in Parliament, retail landlords will have to provide two months of rental relief in addition to the two months that the government has given. We understand that Starhill Global REIT had already previously provided tenants with rental relief amounting to 0.4 month of rent.
• As such, Starhill Global REIT could be liable to provide another 1.6 months of rent rebates to its SME tenants. However, we do not have a breakdown of the proportion of these qualifying SME tenants in Starhill Global REIT’s portfolio.

Lack of tourist spending at Wisma Atria and Ngee Ann City

• Despite the reopening on the horizon, tourist spending will be limited as travel restrictions still remain heightened.
• Traditionally, malls along the Orchard Road belt have a higher reliance on tourist spending, thus being a drag on Starhill Global REIT’s earnings.
• However, we expect a gradual recovery at Starhill Global REIT’s regional malls in the overseas markets, and it will provide some buffer to the weakness in the Singapore portfolio.

Robust capital management metrics

• Starhill Global REIT’s relatively low leverage of 36.7% provides it with flexibility to manage near-term operation needs.
• Minimal refinancing risk in the next 12 months with only S$150m in revolving credit facilities and MTNs due.
• Available undrawn committed revolving credit facilities will be more than sufficient to meet refinancing needs.

Maintain HOLD, With a Revised Target Price of S$0.50

• We maintain our HOLD recommendation amidst the uncertainties in the retail sector caused by the COVID-19 pandemic. Moreover, Starhill Global REIT’s Singapore malls in the Orchard Road precinct relies heavily on tourist spending which is unlikely to recover in the near term.
• However, with the Circuit Breaker measures being lifted gradually in phases, we gain comfort in knowing that malls will reopen in the coming weeks and thus the resumption of rental collections. As such, we lowered our beta estimates by 10bps for Starhill Global REIT in deriving a marginally higher Target Price of S$0.50.

Singapore Retail REITs

• Frasers Centrepoint Trust - DBS Research 2020-05-29: Suburban Giants To Lead Retail Recovery.
• Lendlease Global Commercial REIT - DBS Research 2020-05-06: Steering Steady Amidst The COVID Storm.
• Mapletree Commercial Trust - DBS Research 2020-05-29: The Flower That Blooms In Adversity.
• SPH REIT - DBS Research 2020-05-29: It Pays To Be Prudent
• Starhill Global REIT - DBS Research 2020-05-29: Slowly But Surely.

Source: DBS Research - 29 May 2020