Starhill Global REIT: Stable Investment Grade Bonds

Phillip Bonds  |   03 Sep 2021  |    228 views

Starhill Global REIT is positioned for retail recovery as Singapore reopens. While the outlook remains uncertain, Starhill’s anchor and master leases, comprising 52% of its portfolio, provides the company a long weighted average lease expiry of 5 years and high occupancy of 99% to ride through the recovery. Investors can consider the SGREIT 3.85% perpetual (SGD) bond with a yield to worst of 4.2% callable on 15 December 2025, or the senior unsecured SGREIT 3.4% 26May2023 Corp (SGD) bond with a yield to maturity of 1.0%.

Operations to recover as Singapore reopens

Starhill’s rental assistance to tenants is expected to taper off as Singapore eases social distancing measures. Starhill’s retail properties Wisma Atria and Ngee Ann City are poised to be key beneficiaries of Singapore’s reopening. We expect shopper footfall to recover gradually and retail sales to pick up. While Singapore’s retail REIT rental reversion rates are expected to continue seeing downward pressure over the coming months, the number of shoppers and foreign travellers may surprise to the upside in the medium term, a potential positive catalyst.

Stable outlook by Fitch, BBB investment grade rating

Sighting the strong push for vaccination in the region, especially in Singapore, Fitch sees improved cash flows and easing of lockdown restrictions as key reasons for its stable investment grade rating of Starhill Global REIT. Starhill’s balance sheet is healthy, with debt including perpetual securities to total assets at 39%, well below the MAS ceiling of 50%. Its debt maturity profile is 3.3 years and there are no debt maturing for the next 12 months.

Half of Starhill’s portfolio is secured by anchor tenants or master leases

Anchor and master leases make up 52% of Starhill’s portfolio. This has allowed the REIT to maintain stability amidst the downturn. The company’s weighted average lease expiry stands at 5.3 years as at 30 June 2021 and its portfolio maintains a high occupancy rate of 98.6%, among the highest in Singapore’s retail REIT sector. We believe these strong metrics will allow Starhill to ride through the uncertainty of the soft retail market towards recovery.

Summary

For investors looking for exposure in Singapore’s retail recovery, they may consider the SGREIT 3.85% perpetual (SGD) bond with a yield to worst of 4.2% and callable on 15 December 2025, or the senior unsecured SGREIT 3.4% 26May2023 Corp (SGD) bond with a yield to maturity of 1.0%.

 

 

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