I'm back after close to a year hiatus in blogging. I've actually been away trying to create another stream of income which has failed rather miserably.
Oh well, that's a storey for another day. All I can say is that entrepreneurship is not an easy path to tread..
And so here I am! Back to blogging and being a corporate drone just like how you are :)
Today's blogpost is all about Starhill Global REIT, a holding I have held since... okay I've forgotten.
Anyway, I am looking into it again because it's current market price of $0.715 represents a loss of 11.18% from my initial buy price of $0.805.
Ouch!
REIT Analysis Checklist
Financial Analysis
1) Is the Purchase price lower or equal to Net Asset Value Per Share (NAVPS)?
Remarks: Purchase Price=$0.720, NAVPS=$0.91, Discount=27.27%
50% lower than NAVPS
|
40%-50% lower than NAVPS
|
30%-40% lower than NAVPS
|
20%-30% lower than NAVPS
|
10%-20% lower than NAVPS
|
<10% lower than NAVPS
|
Score Awarded
| |
Score
|
12
|
10
|
8
|
6
|
4
|
2
|
6
|
2) Is the Gearing below 36%?
Remarks: Gearing ratio = 35.3%
Gearing Ratio more than 40%
|
Gearing Ratio 36%-40%
|
Gearing Ratio 31%-35%
|
Gearing Ratio 26%-30%
|
Gearing Ratio 20%-25%
|
Gearing Ratio less than 20%
|
Score Awarded
| |
Score
|
6
|
8
|
10
|
4
|
2
|
0
|
8
|
3) Loan profile. (No. and types of lenders, loan maturity, interest cover ratio, loan denominated in which currency, etc)
Remarks: A$63mil of loan due within FY18/19. At current gearing level, Starhill REIT will be able to take on an additional debt of approximately $312mil.
Currently, loans are obtained from two different sources, namely the banks and Medium Term Notes.
The average interest cost currently sits at 3.14% p.a., with a interest cover ratio of 4.1x and overall average debt maturity of 3.8years. 87% of borrowings are on a fixed rate. Moreover, 73% of their property value are unencumbered which therefore provide Starhill REIT with a lifeline should they require to take on further loans.
Current cash and equivalent stands at $70.37mil (based on 3Q FY17/18 slides) in comparison to next refinancing of A$63mil due in FY18/19. It appears that Starhill REIT will be able to payoff the upcoming repayment of the A$63mil loan with their existing current assets.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
5
|
2.5
|
0
|
5
|
4) Yield Per Year?
Remarks: Yield = 6.44%
Yield more than 8%
|
Yield between
6% - 7.9% |
Yield between
5% - 5.9% |
Yield between
4% - 4.9% |
Yield between
3% - 3.9% |
Yield less than 3%
|
Score Awarded
| |
Score
|
12
|
9
|
6
|
4
|
2
|
0
|
9
|
5) Any financial engineering involved to boost income?
Remarks: Starhill REIT properties in Malaysia are under a master lease scheme with one of their sponsor's subsidiary (Katagreen Development) and these properties generate 12.6% of the revenue based on FY17/18 AR.
Yes
|
No
|
Score Awarded
| |
Score
|
0
|
3
|
0
|
6)Are the foreign currency risk sufficiently hedged?
Remarks: About 37% of earning are derive out of Singapore, which does not form the bulk of earning. Moreover, these foreign denominated earnings are hedge by short term FX contract (derivatives) and similar FX denominated borrowings
Yes
|
Not Applicable
|
No
|
Score Awarded
| |
Score
|
5
|
5
|
0
|
5
|
7) Did the DPU improve for the last 5 years?
Remarks: FY2016-$0.0492 FY2015-$0.0518 FY2014-$0.076
FY2013-$0.05 FY2012-$0.0439 FY2011-$0.0412
Remarks: FY2016-$0.0492 FY2015-$0.0518 FY2014-$0.076
FY2013-$0.05 FY2012-$0.0439 FY2011-$0.0412
DPU improve for 5 out of 5 years
|
DPU improve for 4 out of 5 years
|
DPU improve for 3 out of 5 years
|
DPU improve for 2 out of 5 years
|
DPU improve for 1 out of 5 years
|
DPU improve for 0 out of 5 years
|
Score Awarded
| |
Score
|
12
|
9
|
6
|
4
|
2
|
0
|
6
|
8) Is the receivables too excessive compared to ' Cashflow from Operations'?
Remarks: As of 3Q FY17/18, Trade receivables are at $7,793,000 while based on FY16/17 Annual report, Cashflow from Operations are at $141,144,000. Hence, receivables are 5.52% of cashflow.
Fundamental Analysis
9) Quality of Management
9a) Any directors with political connection?
Remarks: None.
9b) Any directors with banking background?
Remarks: Dr Francis Yeoh (HSBC), Mr Ching Yew Chye (HSBC).
9c) Any directors with outstanding relevant experiences with respect to the industry in which the Company is involved in?
Remarks: Mr Ho Sing (Real Estate), Dato Yeoh Seok Kian (Building)
9d) If the Company has operations overseas, does the Company have any directors well-acquainted with the oveaseas' culture?
Remarks: Dr Francis and Dato Yeoh appears to be well acquitted with the Malaysia market but otherwise, Starhill REIT does not appear to have any other Directors who are well acquainted with the Japanese, Chinese or Australian markets.
10) Quality and diversity of tenants
Remarks: I wouldn't think that the diversity of Starhill REIT tenants are particularly strong given that Toshin Development and subsidiaries of Starhill REIT sponsors occupy 36.5% of the total revenue. Other than this factor, there's nothing else to fault Starhill REIT on; the mix of retail stores and office space seems adequate.
11) Quality of lease (WALE, rental escalation, etc)
Remarks: I will only touch on the retail lease as the retails revenue occupy close to 90% of the total revenue.
Starting from FY18/19, there will be a further tenants' lease expiry of 28.4%, with a further 8.1% in FY18/19. This will be occurring during a period of oversupply in retail space.
In view of the current economic climate as well as the excess of retail space, I would not be expecting positive rental reversion for the next 1 year.
However, there is a bright spot in the sense that the master leases are all signed with a rather attractive upward only rental escalation clause.
12) Occupancy level (in comparison to industry average)
Remarks: Once again, I will only cover the retail portion as the revenue from the retails lease generate close to 90% of total revenue.
Overall portfolio occupancy stands at 98.1% as at 3Q 2017.
I will not be benchmarking against the industry occupancy given the number of countries (Singapore, Malaysia, Australia, China) that Starhill REIT operates in.
However, I believe that the current occupancy level at 98.1% is a very respectable figure.
13) Type and duration of property lease.
Remarks: I am unable to collect the information on the overall land lease expiry but generally, the Singapore and Malaysia properties have more than 40years of lease left, while it's Australia properties are all freehold.
14) Is the market sector in which the Company is involved in, currently on a uptrend, stagnant or on a downtrend?
Remarks: With the exception of Malaysia which is encountering negative retail sales growth, the rest of the market in which Starhill REIT operates are encountering positive low single digit retail sales growth (veryyyyyy low).
15) Are the economies of the countries in which the Company has operations in, currently on a uptrend, stagnant or on a downtrend?
Remark: The economies of the major market that Starhill REIT operates in are facing economic growth in the low single digit (less than 5%) with the exception of Malaysia which grew at 5.8%
Looks like I will be holding onto Starhill REIT for a little while longer since its score of 73.75 is still within my threshold.
Remarks: As of 3Q FY17/18, Trade receivables are at $7,793,000 while based on FY16/17 Annual report, Cashflow from Operations are at $141,144,000. Hence, receivables are 5.52% of cashflow.
Receivables <11% of Cashflow from Operations
|
Receivables 11% to 20% of Cashflow from Operations
|
Receivables 21% to 30% of Cashflow from Operations
|
Receivables >30% of Cashflow from Operations
|
Score Awarded
| |
Score
|
6
|
4
|
2
|
0
|
6
|
Fundamental Analysis
9) Quality of Management
9a) Any directors with political connection?
Remarks: None.
Yes
|
No
|
Score Awarded
| |
Score
|
2.5
|
0
|
0
|
9b) Any directors with banking background?
Remarks: Dr Francis Yeoh (HSBC), Mr Ching Yew Chye (HSBC).
Yes
|
No
|
Score Awarded
| |
Score
|
5
|
0
|
5
|
9c) Any directors with outstanding relevant experiences with respect to the industry in which the Company is involved in?
Remarks: Mr Ho Sing (Real Estate), Dato Yeoh Seok Kian (Building)
Yes
|
No
|
Score Awarded
| |
Score
|
5
|
0
|
5
|
9d) If the Company has operations overseas, does the Company have any directors well-acquainted with the oveaseas' culture?
Remarks: Dr Francis and Dato Yeoh appears to be well acquitted with the Malaysia market but otherwise, Starhill REIT does not appear to have any other Directors who are well acquainted with the Japanese, Chinese or Australian markets.
Yes
|
Not Applicable
|
No
|
Score Awarded
| |
Score
|
2.5
|
2.5
|
0
|
2.5
|
10) Quality and diversity of tenants
Remarks: I wouldn't think that the diversity of Starhill REIT tenants are particularly strong given that Toshin Development and subsidiaries of Starhill REIT sponsors occupy 36.5% of the total revenue. Other than this factor, there's nothing else to fault Starhill REIT on; the mix of retail stores and office space seems adequate.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
2.5
|
1.25
|
0
|
1.25
|
11) Quality of lease (WALE, rental escalation, etc)
Remarks: I will only touch on the retail lease as the retails revenue occupy close to 90% of the total revenue.
Starting from FY18/19, there will be a further tenants' lease expiry of 28.4%, with a further 8.1% in FY18/19. This will be occurring during a period of oversupply in retail space.
In view of the current economic climate as well as the excess of retail space, I would not be expecting positive rental reversion for the next 1 year.
However, there is a bright spot in the sense that the master leases are all signed with a rather attractive upward only rental escalation clause.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
2.5
|
1.25
|
0
|
1.25
|
12) Occupancy level (in comparison to industry average)
Remarks: Once again, I will only cover the retail portion as the revenue from the retails lease generate close to 90% of total revenue.
Overall portfolio occupancy stands at 98.1% as at 3Q 2017.
I will not be benchmarking against the industry occupancy given the number of countries (Singapore, Malaysia, Australia, China) that Starhill REIT operates in.
However, I believe that the current occupancy level at 98.1% is a very respectable figure.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
5
|
2.5
|
0
|
5
|
13) Type and duration of property lease.
Remarks: I am unable to collect the information on the overall land lease expiry but generally, the Singapore and Malaysia properties have more than 40years of lease left, while it's Australia properties are all freehold.
Strong
|
Neutral
|
Weak
|
Score Awarded
| |
Score
|
5
|
2.5
|
0
|
5
|
14) Is the market sector in which the Company is involved in, currently on a uptrend, stagnant or on a downtrend?
Remarks: With the exception of Malaysia which is encountering negative retail sales growth, the rest of the market in which Starhill REIT operates are encountering positive low single digit retail sales growth (veryyyyyy low).
Uptrend
|
Stagnant
|
Downtrend
|
Score Awarded
| |
Score
|
2.5
|
1.25
|
0
|
1.25
|
15) Are the economies of the countries in which the Company has operations in, currently on a uptrend, stagnant or on a downtrend?
Remark: The economies of the major market that Starhill REIT operates in are facing economic growth in the low single digit (less than 5%) with the exception of Malaysia which grew at 5.8%
Uptrend
|
Stagnant
|
Downtrend
|
Score Awarded
| |
Score
|
2.5
|
1.25
|
0
|
2.5
|
Total Score Awarded = 73.75 out of 100 Points
Looks like I will be holding onto Starhill REIT for a little while longer since its score of 73.75 is still within my threshold.
