As briefly mentioned in the post on my portfolio review in June, I have recently accumulated my position in Starhill Global REIT ("SGR") at $0.64 in June, bringing down my average price to $0.684. This translates to a distribution yield of 6.46% based on the annualised 3Q FY17/18 DPU of 4.42 cents.
At the recent closing price of $0.655, this price level is probably last seen back in 2012 and it could have been driven down by a myriad of internal and external factors.
3Q FY17/18 Financial Results
Based on the 3Q FY17/18 Financial Results, SGR has reported a discouraging quarter with a DPU of 1.09 cents, a decline of 7.6% year-on-year("y-o-y") and a reduction of 2.3% y-o-y in the NPI. This is likely to be the dominant factor leading to the weakness in its share price.
Source: 3Q FY17/18 Presentation Slide
Based on the chart of the historical DPU performance, the annualised 3Q FY17/18 DPU of 4.42 cents closely resembled that of FY2012 which produces a DPU of 4.39 cents. It could probably be of little surprise that the share price has fallen back to the 2012 price level with investors demanding for a corresponding distribution yield.
The 3 largest segments which have caused a decline in the 3Q FY17/18 NPI y-o-y are as follows:
- Ngee Ann City Office (-14.0%)
- Australia Properties (-13.8%)
- Wisma Atria Office (-9.9%)
Notably, even though the committed office occupancy rate for both Wisma Atria and Ngee Ann City have improved approximately 1.4% from the previous quarter, it is still considerably lower than that of 3Q FY16/17. If we were to extrapolate the increment trend, it might be able to match up with the office occupancy rate y-o-y in the following quarter.
Source: 3Q FY17/18 Presentation Slide
As for the Australia properties, it appears that the renovation works for the anchor tenant, Uniqlo at Plaza Arcade is still ongoing. On the other hand, the occupancy rate for Myer Centre Adelaide hovers around the low 80% range with sluggish growth.
Divestment of Nakameguro Place
SGR has recently divested one of its Japan commercial properties, Nakameguro Place on 8 May, bringing down the number of properties in its portfolio to a total of 10. The Nakameguri Place forms part of the seven Japan properties which was acquired back in 2007. The four-storey freehold property is mainly used for retail purposes and has 3 tenants.
The property was sold at approximately S$6.4 million which represents a 25% premium to its latest valuation. The sale proceeds will be used to repay Yen loans and for working capital purposes.
By asset value, the property is reported to account for only 0.2% of SGR portfolio. Therefore, the sales probably would not have a material impact to SGR financial position.
The property was sold at approximately S$6.4 million which represents a 25% premium to its latest valuation. The sale proceeds will be used to repay Yen loans and for working capital purposes.
By asset value, the property is reported to account for only 0.2% of SGR portfolio. Therefore, the sales probably would not have a material impact to SGR financial position.
Reversion to Mean
If you are a follower of the mean reversion theory that a stock's price will tend to return to the long-run average price over time, let's have a go at studying the historical mean for the share price of SGR.
Based on the historical data from Nov 2007, the average share price is at 0.714 as represented by the blue line in the chart. At the closing price of $0.655, it is currently trading at 8.26% below the mean price.
Having IPO in 2005 at an adjusted price of 0.767, the performance of the stock has been nothing spectacular and the price has remained bounded within one standard deviation above the mean in recent years.
Conclusion
Personally, I would consider the recent performance of SGR to be relatively disheartening. Nevertheless, I think the decline in the current share price would have compensated for the deteriorating DPU correspondingly. In addition to that, the discount to its NAV also provides some safety net in the worst case scenario that SGR has to liquidate all of its assets. Hence, I have accumulated my position in SGR which now makes up the second largest holding in my portfolio.
It will probably be for the long term before we can observe an improvement in the revenue contribution by Plaza Arcade. I look forward to positive update with regard to the redevelopment work in Perth to be included in the 4Q FY17/18 Financial Results at the end of July.
Disclaimer: All information in this post is published in good faith and for general information purpose only. The ideas and opinions expressed in this post are purely that of the author's and should not be used or construed as an offer to sell, a solicitation of an offer to buy, a recommendation for any security or as professional financial investment advice.
