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Fitch Ratings has affirmed the ‘BBB’ long-term ratings on Starhill Global Real Estate Investment Trust’s (Starhill Global REIT) medium-term notes and debt issuance programmes, as stable.
The affirmation reflects Fitch’s expectations that leverage will stay “below the agency’s negative rating sensitivity of 9.0x in the next 12-18 months”.
“This is underpinned by our view of a moderation in the effects of the coronavirus pandemic in Starhill Global REIT’s key markets. We believe vaccinations will gain traction over the next few quarters and that Starhill Global REIT’s cash flow will improve while the risk of prolonged lockdowns will dissipate,” said Fitch.
It noted that the REIT has a strong cash flow visibility, with 51% of gross rent coming from long-term master leases and anchor leases with built-in rent escalations.
As of end-2020 (1H FY2021), the REIT posted a weighted lease expiry of 5.4 years on gross rent and 8.3 years on net lettable area.
“Lease expiries are consequently manageable, with no more than 9%-15% of gross rent coming up for renewal each year through to FY2024. This limits the trust’s exposure to our weak outlook on retail rents in its key markets of Singapore, Malaysia and Australia,” said Fitch.
The credit rating and research agency also expects to see a moderation in rent rebates and provisions in FY2021 and FY2022 as tenant sales and footfall within the key properties of the REIT gradually improve.
In FY2020, Starhill Global REIT paid out $32.2 million in rebates and provisions, including $15.2 million rebates passed to eligible tenants from the Singapore government.
“Nevertheless, we believe rent reversions will remain negative for at least two years in Starhill Global REIT’s city-centre prime retail malls, given their high exposure to tourism-driven retail demand.”
Fitch does not expect international visitor arrivals “to gain meaningful traction at least until 2H 2022”.
Meanwhile, it noted that the REIT’s $100 million perpetual securities issued in December 2020 “provide strong going-concern and gone-concern loss absorption, such as no maturity date, deep subordination and the ability to cancel coupons on a non-cumulative basis”.
And with the recently issued perpetual securities cushioning the impact of the pandemic on the REIT’s leverage, Fitch forecast Starhill Globall REIT’s net debt/EBITDA to “improve to 8.3x in FY2021 and 8.2x in FY2022, from 9.0x in the trailing 12 months to end-2020”.
This story was edited by Victor Kang, Digital Content Specialist at PropertyGuru. To contact him about this story, email: victorkang@propertyguru.com.sg.
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