Will Starhill Global Real Estate Investment Trust Heading for a Rebound?

As I write, on 14 December 2018, Starhill Global Real Estate Investment Trust (SG REIT) is trading at S$ 0.68 per unit, the lowest over the last 5 years.

Source: SG REIT’s Annual Reports

Perhaps, you may ask:

– What happened? What are the causes of its decline in stock prices?

– Is SG REIT’s stock price a bargain today? or,

– Should we dismiss SG REIT as an investment?

In this article, I’ll revisit its fundamentals, provide an update on its latest results and introduce a handful of valuation metrics to evaluate SG REIT as a candidate for investment. Here are 7 things to know about SG REIT before you invest.

#1: Singapore Portfolio

SG REIT has derived 63.5% of its net property income (NPI) in 2018 from 2 main properties namely, Wisma Atria and Ngee Ann City. Both of them are located in Orchard Road, the shopping belt of Singapore. Combined, they had contributed a steady rise in NPI, up from S$ 85.8 million in 2011 to S$ 107.0 million in 2017 till 2018 when NPI dipped to S$ 103.0 million in 2018.

The dip in NPI was due to:

– One-off pre-termination rental compensation for retail spaces at Wisma Atria.

– Lower Occupancy Rate in office spaces for Wisma Atria and Ngee Ann City.

Source: Annual Reports & Quarterly Reports of SG REIT


In the financial year (FY) 2015, SG REIT has reported 18 months of financial results as it changed its FY end from 31 December to 30 June. Here, I had adjusted SG REIT’s financial results for FY 2009 to 2014 to reflect its financial results for the period from 1 July to 30 June.

#2: Australia Portfolio

SG REIT has derived 17.7% of its NPI from its Australia Portfolio which consists of 3 properties namely, David Jones Building & Plaza Arcade in Perth and Myer Centre Adelaide in Adelaide. Its Austalia portfolio has made higher NPI in 2016 as it acquired Myer Centre Adelaide in that financial year. In 2018, SG REIT had recorded a back-to-back fall in its NPI from its Australia Portfolio because:

– lower occupancy rate for office space at Myer Centre Adelaide.

– asset redevelopment activities on Plaza Arcade.

Source: Annual Reports & Quarterly Reports of SG REIT

#3: Malaysia Portfolio

SG REIT has derived 16.6% of NPI from its Malaysia Portfolio which consists of 2 properties namely, Starhill Gallery and Lot 10. Both malls are situated at the Bukit Bintang Shopping District of Kuala Lumpur. NPI from both properties has been falling gradually due to the depreciation of Malaysian Ringgit against the Singapore Dollar.

Source: Annual Reports & Quarterly Reports of SG REIT

#4: Group Financial Results

Overall, SG REIT has started to report a back-to-back decline in revenue, NPI and distributable income after a period of growth from 2009 to 2016. Revenue had dropped from S$ 219.7 million in 2016 to S$ 208.8 million in 2018. Meanwhile, its distributable income fell from S$ 116.5 million in 2016 to S$ 103.1 million in 2018. As a result, its distribution per unit (DPU) has dropped from 5.18 cents in 2016 to 4.55 cents in 2018.

Source: Annual Reports & Quarterly Reports of SG REIT

#5: Balance Sheet Strength

As at 30 September 2018, SG REIT has total borrowings of S$ 1.12 billion, thus, its gearing ratio is 35.4%. Its average interest rate is 3.28% a year and has fixed and hedged debt ratio of 92%. It means, it is less impacted by adverse changes in interest rates in the future. Presently, SG REIT was given a BBB+ credit rating by Standard & Poor’s.

Source: Q1 2019 Financial Results of SG REIT

#6: Future Prospects

Here are the key highlights of SG REIT which could impact its future results:

Recovery in Singapore Office Portfolio

In Q1 2019, SG REIT has recorded 92.9% in occupancy rate for its office spaces, up from 90.3% in Q4 2018. If we include its committed leases, the office spaces would record an occupancy rate of 95.3%. This is due to securing tenants for its office spaces at Ngee Ann City in Q1 2019, thus, offsetting the decline in its NPI for Q1 2019.

Lease Expiry of Malaysia Portfolio

The current leases for Starhill Gallery & Lot 10 would expire in June 2019. Thus, the management is re-evaluating its master lease arrangements currently with a view of undertaking asset enhancement initiatives if opportunities arise. The outcome from this re-evaluation would impact its results in the future.

Completion of the Redevelopment of Plaza Arcade

On 30 August 2018, UNIQLO has opened its first store in Perth at Plaza Arcade after the building has been redeveloped. UNIQLO is its anchor tenant and thus, would contribute its first full financial quarter in Q2 2019.

Stable Long-Term Master Leases

Evidently, SG REIT would continue to derive long-term recurring income from a handful of master leases such as:

– Toshin Development Singapore Pte Ltd (Expires in 2025)

– YTL Group (Expires in 2019, Now in Review)

– Myer Centre (Expires in 2032)

– David Jones (Expires in 2032)

The 4 tenants would contribute 48.5% of portfolio gross rents to SG REIT.

Source: Q1 2019 Financial Results of SG REIT

#7: Valuation

Based on its stock price of S$ 0.68 per unit,

Gross Dividend Yield

SG REIT has paid out 4.50 cents in DPU over the past 12 months. Thus, its gross dividend yield is 6.62% per annum, above its 5-Year Average of 6.32%.

Key Statistics (13 December 2018):

5-Year Net Dividend Yield Range: 5.74% – 7.00%

5-Year Net Dividend Yield Average: 6.32%

Current Net Dividend Yield: 6.62%

P/B Ratio

In Q1 2019, SG REIT has a net asset value of S$ 0.91 per unit. Thus, its current P/B Ratio is 0.747, below its 5-Year Average of 0.856.

Key Statistics (14 December 2018):

5-Year P/B Ratio Range: 0.714 – 0.978

5-Year P/B Ratio Average: 0.856

Current P/B Ratio: 0.747

VIA’s Verdict

The fall in SG REIT’s stock price has reflected upon its decline in revenues, NPI, distributable income, DPU, and net assets value per unit from 2016 to 2018.

The question is: ‘Will SG REIT be able to recover its DPU and net asset value in the near future?’ The answers depend on:

– Resilience in its Singapore Portfolio, particularly its office spaces.

– Recovery in Occupancy Rates in Australia Portfolio.

– Currency Strength of Malaysian Ringgit against the Singapore Dollar.

Should I invest in SG REIT? Well, the answer is: Are you willing to accept 6.61% in gross dividend yields in exchange for some of the risks stated above?

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