20% Discount on This Singapore REIT?

Here's what you exactly need to know about whether Starhill Global REIT (SGX:P40U) can rebound from this COVID pandemic.

One big dynamic is at play today.

Singapore REIT shares sold off heavily last year because many of them had cut their dividends. Retail malls were shut. People were forced to work from home. Companies were pulling out of commercial spaces.

Even though share prices didn’t stay low for too long, it still caused headaches for income investors.

But since last year, this has changed.

Despite the new Omnicron variant, borders are opening up through VTLs. Singapore is slowly but surely moving into an endemic phase.

And Singapore REITs are now met with fresh optimism — huge activities of new acquisitions and REIT mergers.

But what’s more is interesting is Singapore REIT shares have not fully recovered.

In other words, some of…

Singapore’s Quality Properties Are Still At a Bargain

Enter Starhill Global REIT (SGX:P40U). At S$1.4 billion market cap, this retail Singapore REIT is still trading at a discount to its net assets.

Net assets is the REIT’s total assets minus all liabilities.

Starhill Global REIT is a major prime retail landlord. 

Its most iconic properties are Ngee Ann City and Wisma Atria. Since IPO in 2005, both properties have helped this luxury retail REIT to reward shareholders with dividends averaging between 4.50 cents to 5 cents per unit.

During its latest 1QFY21/22 results, Starhill Global REIT’s total rent grew 4% more to S$44.8 million compared to last year. While its net property income (NPI) grew 15% to S$34 million over the same period. The REIT gave lower rental rebates and reduced expenses during its latest quarter.

Net property income (NPI) is a quick way to see how profitable a property is. NPI is gross rental income minus property related expenses like building maintenance.

Are things picking up already?

In its latest financial results, Wisma Atria’s tenant’s sales grew by 7.4% as compared to last quarter. 

And foot traffic was 16% higher as compared to last quarter.

Source: Starhill Global REIT 1QFY21/22 Presentation

What I’m worried is the concentration risk. 

Both Ngee Ann City and Wisma Atria contributes at least 60% of the REIT’s total rent last year.

And 22.6% of its total rent is contributed by Toshin Development, which owns the Takashimaya Department Store. This master lease will expire in 2025. 

Given the enormous competition from online retail, at first glance, it’s hard to say whether Toshin will continue its lease beyond 2025.

Source: Starhill Global REIT 1QFY21/22 Presentation 

But if Toshin Development really does decide to pull out, my bet is Ngee Ann City will still attract quality tenants.

You see, these properties are landmark assets at prime location. They are close to key transport nodes and attract visitors from all over the world. What’s more, despite the COVID pandemic, Starhill Global REIT’s tenant occupancy maintained at 98% with a long average lease of 8 years.

This Singapore REIT is Selling for 20% Discount

Starhill Global REIT has properties worth close to S$3 billion. 

Of which, both Wisma Atria and Ngee Ann City accounts for S$2 billion property value. If I remove all liabilities from Starhill Global REIT’s property assets, 

I’m left with a net asset (or book value) of S$1.9 billion. That’s a net asset value (NAV) of S$0.81 per unit (based on 2.2 million shares outstanding).

And Starhill Global REIT shares are currently trading at a 20% discount to its property value.

The big downside to this is that, dividend rate has dropped since COVID started. 

During the pandemic, Starhill Global REIT paid a lower distribution of 2.96 cents per unit.

Distribution estimates how much dividends shareholder will collect. A REIT has to pay out at least 90% of its distribution as dividends to qualify for corporate tax relief.

But over the last 12 months, its distribution quickly grew back to 3.95 cents per unit. In the past, Starhill Global REIT has paid out distribution of 4.50 cents to 5 cents per unit. 

Today its latest distribution shows a distribution yield of at least 6%.

Well, it’s still not too bad.

What I’m seeing is the stock market is discounting the potential foot traffic that could return once foreign visitors are back in full force. And if you’re confident that Singapore’s retail will pick up again, Starhill Global REIT’s properties will be a big beneficiary.

And this Singapore REIT could actually be worth a buy.

Sometimes investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan

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2 years ago

But DPU is already trending down even before COVID, share price is also trending down too. It’s sponsor doesn’t seems to be very strong too.. like to hear what you think about these. Regards.

Ah Tan
Ah Tan
2 years ago
Reply to  Willie Keng

When buying a REIT, book value isn’t a major factor to look at unless its at risk of entering liquidation. If 20% discount from book value is great to you, then did you buy ALOT of starhill in late November last year when it was 50% discount from book value? If not, y not?

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