S&P downgrades Starhill Global REIT rating to BBB as rents face pressure

Ngee Ann City and Wisma Atria malls in Singapore’s Orchard Road shopping beltNgee Ann City and Wisma Atria malls in Singapore’s Orchard Road shopping belt

S&P Global Ratings downgraded Starhill Global REIT to BBB from BBB-plus on Thursday as the REIT faces pressure from rent reversions in its key Singapore assets as the economy weakens.

“Rental pressure will persist amid gloomier economic conditions. Particularly, SGREIT’s key retail assets in Singapore’s prime Orchard Road shopping belt cater to the higher-end market,” the ratings agency said in a statement.

“We expect more downside pressure to discretionary spending in these urban malls given subdued consumer sentiment. This is likely to be unfavorable when rentals come up for renewal (referred to as rental reversions),” S&P said.

Starhill Global REIT said in a separate filing to SGX Thursday that the credit rating was based only on S&P’s views.

S&P noted Starhill Global REIT’s Singapore assets account for 50 percent of the REIT’s gross rent and 51 percent of net property income for fiscal 2019.

The Ngee An City property’s rent review for the master tenant, Toshin Development Singapore, in June resulted in rents remaining flat, compared with the low-to-mid-single digit increase S&P had projected, the statement said. The master lease accounted for 22.9 percent of the REIT’s gross portfolio rent as of end-June, S&P said.

“Toshin’s flat rental reversion will also limit rent reversion upside for other malls in the Orchard Road shopping belt, including Wisma Atria,” which is also held by the REIT, S&P said.

The ratings agency now projects earnings before interest, tax, depreciation and amortization (EBITDA) to average around S$133 million for fiscal 2020 and 2021, compared with around S$140 million previously.

The outlook is stable, S&P said, adding that was on expectations the cash flow adequacy ratios would remain steady for the next 24 months based on the good quality and location of the REIT’s assets.

S&P’s BBB rating indicates “adequate protection parameters,” but that adverse economic conditions were more likely to weaken the ability to meet financial commitments. The plus shows relative standing within the category.

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