Fitch gives Starhill Global Reit a 'BBB' long-term default rating

FITCH Ratings has assigned Starhill Global Real Estate Investment Trust (SGReit) a "BBB" long-term issuer default rating with a stable outlook.

The credit ratings agency has also assigned a "BBB" long-term rating to SGReit's S$2 billion multi-currency medium-term notes programme and the S$295 million outstanding notes issued off the programme. The notes were issued by the Starhill Global Reit MTN Pte Ltd, the Reit's wholly-owned subsidiary.

The ratings assigned to the debt programme are for the programmes in general, Fitch emphasised.

The ratings are underpinned by SGReit's cash flow visibility driven by around 50 per cent of gross rent derived from long-term master leases or anchor leases. These leases have built-in periodic rent escalations which provide downside protection.

SGReit's properties in Singapore and Malaysia - which account for 80 per cent of the Reit's net property income (NPI) - are also located in the prime retail precincts of Orchard Road in Singapore and Bukit Bintang in Kuala Lumpur. These command a premium among retail properties in each market.

The portfolio's asset quality, however, is somewhat moderated by the lower quality of SGReit's Australian assets in Perth and Adelaide, which account for 18 per cent of NPI, Fitch said.

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SGReit's risk of exposing cash flows to a sharp fall over a 12- to 18-month period due to its high asset and tenant concentration is also a key rating constraint for Fitch. The Reit's top 10 largest tenants account for 55 per cent of rental income, with the largest accounting for 23 per cent.

However, the risk is counterbalanced by long-term cash flow stability from the Reit's master leases with Toshin Development Singapore and the YTL Group.

Fitch's rating has also factored in a gradual moderation of the Covid-19 situation over the next few quarters, especially in Singapore. It added that SGReit may need to consider further concessions if the situation does not improve over the next one to two quarters in line with market norms.

That said, the ratings agency believes the trust's credit metrics should allow it to withstand even a prolonged moderation in tenant sales "well into" the 2021 financial year.

Overall, Fitch said SGReit compares well against Singapore-listed peers such as Ascott Real Estate Investment Trust (Ascott Reit) and Mapletree Industrial Trust (MIT).

Ascott Reit has the same "BBB" rating with a stable outlook as SGReit, while MIT has a "BBB+" rating with a stable outlook.

SGReit units closed down 6.1 per cent or S$0.04 to S$0.62 on Monday.