Accumulating Starhill Global Reit @ 73.5 c & Below

Contributed by: Warriortan, #investforyourself, #starhillglobal

Please note that I am vested in Starhill Global REIT .

SGROne reader asked if I can share my views on Starhill Global Reit in a dedicated post. He made this request after I commented that I am considering to accumulate it at the current price level.

Over last weekend, I updated my analysis and came to the conclusion that I will do so when the price drops to 73.5 cents and below. This post is about the considerations I had taken to reach this conclusion.

(If you need an introduction to Starhill Global Reit, please scroll to the bottom of this post)

NgeeAnnCity
A major property of Starhill Global – Ngee Ann City on Orchard Road, Singapore

While there are many reasons for us to invest in a company, the 5 main reasons that attracted me to Starhill Global Reit are:

(1) Excellent Properties

They own 12 properties in 5 countries with some located in the best locations with great transportation connection. Ngee Ann City and Wilma Atria in Singapore, Starhill Gallery and Lot 1 Property in KL are great examples that we are all familiar with. As a result, these properties can command rental premium whilst being relatively resilient in a downturn. Their average occupancy for the last few years have been consistently high at 98.2%.

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(2) A stable and experienced management

Tan Sri Dato (Dr) Francis Yeoh and Mr Ho Sing have been the executive Chairman and CEO of the manager while YTL (owned by Dato Yeoh) remains a sponsor and a major shareholder (with 37% share of the company) since 2010. The stability of the leadership is also apparent at the management roles. Looking through the past annual reports, it is not difficult to realize that many senior managers have remained in the same role for many years. This stability translates to consistency in strategy development and implementation. Furthermore, the presence of YTL as a major shareholder provides greater assurance that the interest of the shareholders will be well taken care of. 

(3) No rights issue & consistent dividend payment

It has not requested for any rights issue from the shareholders for the last 6 years while within that same period, it has returned $ 613 millions back to shareholders as dividends.  Furthermore, it has never missed a single dividend payment. Isn’t all these just GREAT?

(4) They are financially strong

Their Dividend Distribution per unit has been rising every year since 2010. They must be doing something right.

2016 2015 2013 2012 2011 2010
5.15 c 5.05 c 5.00 c 4.39 c 4.12 c 3.90 c

Their gearing ratio has been kept at the level between 30-35% and the interest coverage ratio has been above 4.0 consistently. It shows that Starhill is generally conservative in using leverage to fund their business. In other words, the risk of it running into financial and cash flow problems is LOW – you can sleep 😴 well with this investment.

2016 2015 2013 2012 2011 2010
Gearing Ratio 35.0% 35.5% 29.0% 30.3% 30.8% 30.2%
Interest Coverage ratio 4.4 5.2 5.4 4.9 4.4 4.3

(5) There is room for the DPU to grow further

The re-development work in Australia assets are ongoing now. Once they are completed, they should provide a new boost to their earning and dividend distribution.

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The above analysis reveal to me that Starhill Global Reit is a company that I would like to invest but … 

Do I buy its shares now?

Last week, I blogged about using the reversion to mean method to determine entry and exit price. 

Using this method, I first looked back at their last 3 years dividend yield and determined the range of dividend yield that it was operating within. The highest yield was 7.3% while lowest yield was 5.1%. Assuming the same dividend, the highest yield is when the share price is at the lowest while the opposite holds for the lowest yield.

At the current share price of 75 cents and assuming a conservative dividend distribution of 5.0 cents in 2017, the dividend yield will be 6.6%. 

When compared to the historical dividend yields, 6.6% is located at the 69th percentile with 7.3% as 100th percentile.

Personally I think it is ok to start accumulating at this level although I generally want to have a bigger safety margin. So for prudence, I will  wait until the price drops to 73.5 cents or below.

0727_investWhy 73.5 cents you may ask?

73.5 cents is at the 75th percentile of historical yield performance – the typical entry point for me.

The likelihood is that assuming no major change in the market and the company management and strategy, we can reasonably expect that the share price will rise at a certain point in time to deliver the mean yield again, i.e the 50th percentile. 

And at 50th percentile, its share price will be 80 cents, a handsome profit. However, this method does not predict when it will return to the mean.

But anyway, it is not bad if they pay you 6.6% yield to wait in the time being 😊

I hope this post on Starhill Global Reit and the demonstration of the potential entry price has been useful for you.

Each of us will have different investment objectives so what I have mentioned here applies to me given my objectives and risk appetite. It may not be suitable to you so please exercise your personal judgement.

Any comments from you are most welcome.

Have a great week ahead.

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Introduction to Starhill Global Reit

Starhill Global REIT invest primarily in real estate used for retail and office purposes. Since its listing on the Mainboard of the Singapore Exchange Securities Trading Limited on 20 September 2005, Starhill Global REIT has grown its initial portfolio from interests in two landmark properties (i.e Ngee Ann City and Wisma Atria) on Orchard Road in Singapore to 12 properties in Singapore, Australia, Malaysia (Starhill Gallery and Lot 10 Property in KL), China and Japan, valued at about S$3,136.6 million as at 30 June 2016.

Starhill Global REIT is managed by an external manager, YTL Starhill Global REIT Management Limited. The Manager is a wholly owned subsidiary of YTL Starhill Global REIT Management Holdings Pte. Ltd. which is in turn an indirect subsidiary of YTL Corporation Berhad.

Below is a good video that introduces the company:

Other useful references related to Starhill Global Reit

  1. Online shopping, retail S-REITs and Starhill Global REIT – A Singaporean Stocks Investor (ASSI)
  2. 15 things I learned from Starhill Global REIT’s 2016 AGM – The Fifth Person
  3. CIMB Latest Report on StarhillGlobal_CIMB
  4. Starhill Global Reit Corporate Website
  5. My Blog Post: Revision to Mean method
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9 thoughts on “Accumulating Starhill Global Reit @ 73.5 c & Below

    1. Hi Shellshock, thanks for your comments. It is a very valid concern. E-commerce is here to stay and it will have an impact on retail Reits like Starhill. Personally, I think the debate is how big is this impact. Personally, I think retail malls still have a place in our society so it won’t go away. In my opinion, the impact depends on the type and composition of retail malls and how well the management adapt its strategy and operations to embrace it or not – the more they do so, the more relevant they will make their malls useful in the new world.

      Liked by 1 person

  1. Very good write up. Other few good points I like about starhill is its close to 100% fixed interest and also long WALE, though long WALE mean less positive rental revision. Starhill divested 1 Japan property in 4q 2015, so now own 12 properties.
    I can’t wait for your next post on stock selection, please continue to blog nice stuff to everyone. Btw I am a He, not She.

    Liked by 1 person

    1. Hi Vince, it is great to receive your comments again. Thank you for your support and encouragement. Obviously you know more about Starhill Global than I do :-). Do you mind sharing your view too? Would you invest? and would you do so now?

      Liked by 1 person

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