Monday, December 24, 2018

An Undervalued Stock Closely Related To Christmas

Christmas is here and the year 2018 is coming to an end. Many people are buying gifts as its the season for giving. While everyone is busy shopping, have you noticed one stock that is undervalued and closely related to Christmas?

This stock is a REIT and most of its properties are located right at the heart of central Singapore. If you've been to Orchard road to see the Disney lights or to do some Christmas shopping there, chances are you might have passed by the properties owned by the REIT. This REIT is non other than Starhill Global REIT.

An Undervalued Stock Closely Related To Christmas - Starhill Global REIT

Starhill Global REIT has 2 properties in Singapore, 3 in Australia, 2 in Malaysia, 2 in Japan and 1 in China. 62% of its revenue comes from Singapore which is why the Singapore market is especially important for this REIT. Due to lower business sentiments and poor retail and office outlook environment in Orchard, the stock price took a beating and fell to a 5 year low as seen in the chart below.

With the stock price trading at this low, it offers investors like you and me to invest in this REIT at a much greater discount. Before we get into the valuation of this REIT, let us first look at its portfolio of properties to familiarise ourselves before we make any investment decisions.

Properties owned by Starhill Global REIT

The first property owned by Starhill Global is Wisma Atria. This shopping mall should be familiar to most Singaporeans. From Orchard MRT, if you take the underpass and walk towards Takashimaya, you will definitely have to pass by Wisma Atria. When I was there about 2 weeks ago, there were so many people that it became difficult to walk. At the link-way of Wisma Atria, crowds have to be stopped by security in order for the mall to control the human traffic flow.

The next property it owns is Ngee Ann City. This property is also located near to the MRT with direct underground links. The largest tenant inside Ngee Ann City is by Toshin Development Singapore Pte. Ltd. They own Takashimaya in Singapore which most of us should know that they take up quite a huge area of retail space. Toshin development Singapore has a master lease with Ngee Ann City till 2025 so this will keep the rent they receive steady for the next few years.

Occupancy rate for retail in Singapore is 97% as at 30 Sep 2018 and committed occupancy will rise to 99.7%. For its office portfolio, occupancy rate is 92.9% with committed occupancy at 95.3%. Its top 10 tenants contribute to 58% of portfolio gross rent as seen below.

For Australia, which is Starhill's second largest portfolio contribution to its revenue, its occupancy is not that good at 88.6%. It owns properties in Perth and Adelaide.

Singapore office recovery for Starhill Global REIT

Besides retail, Starhill Global has an office portfolio too. Occupancy for office portfolio was at a low of 83.5% in Sepember 2017 and recovered to 95.3% in 2018. NPI jumped 9.7% year on year which is quite impressive.

Attractive Dividend Yield and Valuations

Investors of Starhill Global REIT get quite an attractive dividend yield on their investment. Dividend yield is about 6.67% at current price of $0.675. It is trading at a price to book ratio of 0.75x which represents a 25% discount to net asset value. Its NAV is at $0.91.

Of course when investing, we can't just look at dividend yield and book value. Although at current valuations, this stock is definitely attractive, there lies risks in this investment. It is largely dependent on the retail outlook in Singapore as this makes up most of its rental income stream. Not just retail outlook in Singapore but retail outlook in Orchard in particularly.

Orchard is a tourist area and the retail environment is very much dependant on the number of tourists arrival and visits to Orchard in Singapore. Tourists arrival and spending is still on an uptrend which I believe will benefit Starhill Global REIT. Moreover, the Singapore government has said there are plans to reinvent Orchard road to attract more locals, visitors and tourists to come.

The bottom may be near for this REIT as its stock price has fell significantly over the past few years. At current valuations, I think this is a REIT to watch out for any potential recovery and catalyst to propel it upwards. One of the catalyst is the proposed development at Wisma Atria where there is unutilised GFA of up to 100,000sqft. This is pending approval from the relevant authorities and partners.

I have initiated a position in Starhill Global REIT as the dividend yield is decent and it is trading at a discount to book value. At this level, I believe the risk reward ratio is within my tolerance level and I will look to see for future recovery and developments around the Orchard area. Rental from its Singapore properties should also remain steady as the master lease from Takashimaya continues and the occupancy for both retail and office remains high. Will also have to take note of its Australia properties which are not doing that well. That will be a drag to its performance moving forward if it doesn't improves.

Lastly, Merry Christmas and Happy New Year to everyone! Thank you for supporting my blog for another amazing year. I will be writing on my investment performance and also my review of the year in the next few post. Have an awesome last week of 2018!

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  1. hi, do you know how do i get this REITS?

    1. Hi,

      You'll need to have a brokerage account that lets you trade in Singapore stock market.

  2. Considered this Reit. But the quality of its assets puts me off after visiting.

    Wisma, is not crowded at all during weekdays except perhaps lunch time. You have walked past the basement, main walkway. Do visit the upper floors. Quite empty.

    Perth asset, my impression after visiting is its an old building that looks run down.

    Office occupancy of 92.5% is hardly considered high.

    Plus. Too much competition in orchard in forms of newer malls.

    Orchard rejuvenation? If i am not wrong latest effort is not the first. Mich talk past few years but nothing much has changed. I think shifting of shoppong activies to sub urban area is a major trend we cant reverse.

    So decided to look elsewhere.

    1. Hi Csjacky,

      Yes you are right in the points you brought out. Investing in this reit is not with little risk. Really have to keep a close watch on its developments. If DPU is not stable, i will have to exit the investment as the value will decrease. It will not be good any more if they can't keep up with the dividends they distribute by generating good value.