• Completion of asset redevelopment works at Lot 10 and tenant renovations at China Property
• Handover of Plaza Arcade unit to anchor tenant UNIQLO
Revenue for SGREIT group in 3Q FY17/18 was S$51.7 million, a decrease of 3.0% over the previous corresponding period of three months ended 31 March 2017 (3Q FY16/17).
Net Property Income (NPI) was S$40.3 million, a decrease of 2.3% over 3Q FY16/17. The decrease in gross revenue was mainly due to weaker contributions from the office portfolio, disruption of income from asset redevelopment works at Plaza Arcade in Perth and lower revenue at Myer Centre Adelaide.
The external works to create a new entry point to Lot 10 in Kuala Lumpur has been completed, providing improved accessibility to the mall from the new MRT station exit on the ground floor.
Renovations by tenant Markor International Home Furnishings Co. Ltd. at the China Property have also been completed and the tenant has officiated its opening in March 2018. Income to be distributed to Unitholders for 3Q FY17/18 decreased by 7.6% over the previous corresponding period to S$23.8 million, mainly due to lower NPI and higher withholding taxes.
Distribution Per Unit (DPU) for 3Q FY17/18 was 1.09 cents, representing an annualised distribution yield of 6.05%1. Unitholders can expect to receive their 3Q FY17/18 DPU on 30 May 2018. Book closure date is on 7 May 2018 at 5.00 pm
Review of portfolio performance
SGREIT’s Singapore portfolio, comprising interests in Wisma Atria and Ngee Ann City on Orchard Road, contributed 62.6% of total revenue, or S$32.4 million in 3Q FY17/18. NPI for 3Q FY17/18 decreased by 2.9% y-o-y to S$25.7 million, mainly due to lower occupancies in Singapore offices and weaker contributions from Wisma Atria Property (Retail). The Singapore office portfolio revenue and NPI declined 10.4% and 12.4% y-o-y respectively in 3Q FY17/18. However, committed office occupancies rose to 90.7% as at 31 March 2018 from 89.4% as at 31 December 2017 and 83.5% as at 30 September 2017.
Singapore retail portfolio continued to sustain high occupancy of 99.1% as at 31 March 2018. Ngee Ann City Property (Retail) maintained full occupancy while Wisma Atria Property (Retail) maintained high committed occupancy of 97.2%. Ngee Ann City Retail revenue and NPI were largely stable on the back of the Toshin master lease.
SGREIT’s Australia portfolio, comprising Myer Centre Adelaide in Adelaide, South Australia, the David Jones Building and adjoining Plaza Arcade in Perth, Western Australia, contributed 21.3% of total revenue, or S$11.0 million in 3Q FY17/18. SGREIT has long-term leases with Myer Pty Ltd and David Jones Limited, contributing approximately 6.9% and 4.7% of its portfolio gross rents respectively as at 31 March 2018. NPI for 3Q FY17/18 was S$6.8 million, 13.8% lower than in 3Q FY16/17 mainly due to Plaza Arcade’s redevelopment works, lower revenue at Myer Centre Adelaide largely due to office vacancies and allowance for rent rebates, as well as the depreciation of the Australian dollar against the Singapore dollar. The redevelopment at Plaza Arcade includes a new façade and the addition of approximately 8,000 square feet or 33% more retail space on the upper floor to cater to anchor tenant UNIQLO. The premise has been handed over to the tenant, who has commenced renovation works with expected completion targeted in 2H 2018. With the completion of the asset redevelopment, Plaza Arcade’s revenue contribution is expected to improve.
The balance of SGREIT’s portfolio, which comprises a property in Chengdu, China and three properties located in central Tokyo, Japan, contributed 2.3% of total revenue, or S$1.2 million in 3Q FY17/18. NPI for 3Q FY17/18 was S$0.9 million, up 144.1% over 3Q FY16/17, mainly due to lower expenses for the China Property, following the conversion of the departmental store model to a single tenancy model. The renovation works by the tenant has been completed and the tenant has officiated its opening in March 2018.
9th Month DPU of 3.46 cent is slightly lowered than 3.74 cent last year.
I think with the Singapore occupancy rate staying at 99.1% looks healthy.
Australia Plaza Arcade’s revenue contribution is expected to improve.
I think 4th Qtr DPU may slightly increase.
Hopefully , Whole year DPU may likely maintain around 4.92 cetns same as last year.
Yield is about 6.8% base on share price of 72 cents.
These are my findings for Starhill Global REIT. Starhill Global REIT as they described themselves on their website is a REIT which currently has a portfolio of 11 properties used primarily for retail and office uses. Their flagship properties are Wisma Atria and Ngee Ann City located in Orchard Road of Singapore. They have grown in their portfolio from their two flagship properties to now total of 11 properties located across KL Malaysia, Chengdu China, Tokyo Japan, Perth and also Adelaide Australia. Thus, they are now diversified into different geographical regions.
For this sharing, I will do a comparison of Starhill Global REIT versus CapitaMall Trust, a very familiar Singapore large retail REIT which is also the first listed REIT in Singapore. Since Starhill Global REIT derives majority of their revenue from retail tenants and less so from office tenants, it is still a reasonable comparison against CapitaMall Trust. I will compare their compounded annual growth rates (CAGRs) in three different important metrics over the past 11 years since 2006 to 2017. These three important metrics are net property income, distributable income and value of investment properties. The exact period of comparison may differ slightly due to different reporting timings of their full year results. Nevertheless, it is still kept to not more than half a year difference in both their period of comparison.
First, we look at the net property income growth. For CapitaMall Trust, it's net property income has grown at a CAGR of 7.42% over the past 11 years from 2006 to 2017. For Starhill Global, it's net property income has grown at a CAGR of 9.2% over a similar period.
Next, we look at the distributable income growth. For CapitaMall Trust, it's distributable income has grown at a CAGR of 8.02% over the past 11 years. For Starhill Global, it's distributable income has grown at a CAGR of 7.2% over a similar period.
We look now to the value of investment properties growth. For CapitaMall Trust, it's value of investment properties has grown at a CAGR of 6.1% over the past 11 years. For Starhill Global, it's value of investment properties has grown at a CAGR of 7.29% over a similar period.
Just to have some perspective on the size of these two retail REITs currently. The value of investment properties held by CapitalMall Trust as of Dec 17 is around $8.77 billion while the value of investment properties held by Starhill Global REIT is around $3.15 billion. We can see that the latter is less than half the size of the former in terms of the value investment properties held in it's portfolio. Thus, we are comparing a much bigger retail REIT player CapitaMall Trust which is focused on a Singapore retail mall market to a smaller global retail REIT player Starhill Global which is diversified across retail mall markets in different geographical regions.
In terms of net property income growth, Starhill Global has delivered close to 2% higher CAGR than CapitaMall Trust over the past 11 years which is significant. In terms of distributable income growth, Starhill Global loses marginally in less than 1% point to CapitaMall Trust in the CAGR of distributable income. Perhaps CapitaMall Trust is slightly more efficient in growing and managing it's cash available for the purpose of distributions despite producing a slightly lower growth in it's profitability as a retail landlord as compared to Starhill Global.
If we look at the growth in value of investment properties, Starhill Global REIT has been growing at a higher compounded annual rate at about 1% higher than CapitaMall Trust. This is not surprising due to the former which is a smaller retail player as compared to the latter with room to grow faster. The larger the investment property asset size a REIT owns, the slower growth it will likely experience as it needs to look to acquire more properties and also properties of larger value quantum as it grows larger in order to match it's previous growth rates. Also, the value of investment properties may fluctuate at times and properties in different geographical regions may be subjected to different valuations depending on the property market conditions affecting property valuations in the different regions and subsequently the growth in value of investment properties. A possible question to ask here is how do the valuations and the growth in valuations of retail mall properties in Singapore compare against that in KL Malaysia, Chengdu China, Tokyo Japan and the two places of Australia that Starhill Global REIT has properties in? Is a diversified strategy in this sense better than a Singapore focused strategy?
Other metrics of comparison such as overall occupancy rate and gearing are about similar for both retail REITs at more than 90% and about 30 plus % respectively. Thus on an overall basis, Starhill Global REIT a geographically diversified retail REIT player compares favourably to CapitaMall Trust a large established retail REIT based in Singapore.
Starhill Global REIT is currently trading at $0.72 and has a $0.91 NAV per unit and a distribution yield of about 5.99%. CapitaMall Trust is currently trading at $1.98 and has NAV per unit of $1.92 and distribution yield of about 5.64%. It seems that Starhill Global REIT is currently trading at a cheaper valuation versus CapitaMall Trust even though both are comparable in terms of their growth performance on net property income, distributable income and value of investment properties over the past 11 years.
Hi Sporeshare, I attached below a link to the Straits Times article which summarises what are the current developments in Starhill Global REIT which caused their overall drop in gross revenue, net property income and DPU for most recent performance.
The reasons given were due to:
1. the effects of straight-line rental adjustments.
2. higher withholding taxes for Malaysia and Australia properties.
3. weaker contributions from offices.
4. disruption of income from ongoing asset redevelopment works at Plaza Arcade in Perth.
5. lower revenue at Myer Centre Adelaide Australia.
1. the effects of straight-line rental adjustments.
2. higher withholding taxes for Malaysia and Australia properties.
3. weaker contributions from offices.
4. disruption of income from ongoing asset redevelopment works at Plaza Arcade in Perth.
5. lower revenue at Myer Centre Adelaide Australia.
The CEO of Starhill Global REIT commented that their Singapore retail portfolio has remained stable while new take-ups for office space were encouraging.
Also, the asset redevelopment works on Plaza Arcade and Lot 10 will likely be completed this first quarter meaning for the rest of this year, these two properties can start to contribute to revenue and net property income etc. again.
The chairman of Starhill Global REIT also made similar comment that earlier initiatives to rejuvenate the portfolio has been timely and the REIT will be in a good position to ride any retail sector upturn.
If we look at the reasons given for the recent few quarters weaker results and the replies by the CEO and Chairman, we should ask a question. Do these guys know what they are doing and are what the various actions they are carrying out currently for this REIT and unitholders make sense to grow the distributions for the long term?
As far as I can observe, some factors were not within their control to be fair to the management. Things like straight line rental adjustments and higher withholding taxes on Malaysia and Australia properties. This maybe one of the thing to look out for when investing in overseas properties. If Singapore has a comparatively lower tax on retail properties, then perhaps a Singapore focused retail property portfolio maybe better. But then again, there maybe certain tailwinds found in overseas retail mall markets which may not be present in Singapore especially if the growth element in retail mall market in our saturated tiny red dot is going to be limited going forward.
The CEO commented recent new office take ups were encouraging. Also, both CEO and Chairman thinks that sacrificing a few quarters of lower net property income and DPU to redevelop their Australian assets at this timely moment will ensure the assets there can capture the ride in retail sector upturn. Thus, I think it is only fair to give the REIT another few more quarters to see whether there is any improvement in their metrics such as gross revenue, net property income, distributable income and DPU. This will tell us whether what the management is doing currently really is of good foresight in terms of future benefits for the unitholders. Next few quarters, there are no more excuses such as asset redevelopment works affecting their performance. Let's see whether their performance picks up from here going forward in order to make a fair opinion on them. As of now, the various reasons given are reasonable in my opinion to explain why their various metrics are performing weaker.
Straits Times article Business section: Starhill Global Reit's DPU down in Q2
http://www.straitstimes.com/business/starhill-global-reits-dpu-down-in-q2
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