Starhill Global Reit

[Blackjack]

Starting a thread for discussion.

From OCBC's recent research report - "Further growth plans for 2011. We recently caught up with the manager to find out about the trust's plan for 2011. We understand that its initial plans for asset enhancement works at Wisma Atria, which would add another 40k sq ft of retail space in 2011, is likely to be put on hold for the time being. Instead, Starhill Global is actively scouting for investment opportunities, both within and beyond the shores of Singapore. Australia, Japan, Malaysia are also other countries that may be of interest to Starhill Global. Starhill remains committed to acquiring assets in high-income prime districts with good location and prominent frontage."

Sign of perception that global assets are still relatively attractive?

I'm guessing the intention's to beef up its assets and leave all asset enhancement initiatives till later on when possible acquisition avenue slows.

Possibly the main overhang at the moment is on the possible equity raising to increase its size... any views?

[mikh]

Investment in Malaysia would sound logical since major shareholder YTL is strong there. However, I still cannot understand why REITS invest in Japanese property while I do not recall any positive results reported later. Wonder if it is a case of each thinking they will catch Japan's re-bound and keep getting it wrong when it does not happen. "For stable returns" in a non-growth economy is not overly appealing.

I think one key element in global property investment is the direction and sustainability of the strong SG dollar.

vested

[Nick]

At 6+% yield, dilution with conversion of CPPU unit in the future and gearing exceeding 30% is this REIT still attractive ?

[lonewolf]

I have always been disappointed by Starhill's performance. It part owes 2 of Orchard Road's premier shopping malls in Wisma and Ngee Ann City but yet for some reasons, it fails to really sparkles and even lag behinds FCT. Why?

I think the previous manager of the REIT - Macquire did not do much in terms of asset enhancement or new acquisitions. Granted that maybe being part owner hinders its mandate, but IMO I just think the previous REIT manager is not very good. I'm not so sure who initiates the asset enhancement for Wisma but it was my impression that it was YTL who did it. As with the acquisitions in Japan, Australia and Malaysia.

The Malaysia acquisitions is problematic since it was acquired from the sponsor (am surprised those esteem members who views REIT assets as dumping ground did not cite this as an example) at a high cost to the REIT.

I nearly sold out my stake but the allure of Ngee Ann and Wisma is too strong for me to resist and I remain vested in Starhill Gbl.

[mikh]

At 6+% yield, dilution with conversion of CPPU unit in the future and gearing exceeding 30% is this REIT still attractive ?

Comment left me wondering if this REIT should be simply dismissed, and prompted me to do some homework (which is good).

KE's 25th Nov report is BUY: Trading at a discount at NAV 0.89. CPU not convertible in first 3 years. Nevertheless if fully converted now, estimated dilution is 10% - ie. still trading below NAV. Gearing at 31% does not seem too abnormal compared to other REITS. Am not advocating any buy or sell, but this simply puts it at not much different from others.

Haha lonewolf, I bought into it in 2007 for the same Wisma / Ngee Ann allure too, anticipating Ion. Can't say I have lost money today.

[Nick]

At 6+% yield, dilution with conversion of CPPU unit in the future and gearing exceeding 30% is this REIT still attractive ?

Comment left me wondering if this REIT should be simply dismissed, and prompted me to do some homework (which is good).

KE's 25th Nov report is BUY: Trading at a discount at NAV 0.89. CPU not convertible in first 3 years. Nevertheless if fully converted now, estimated dilution is 10% - ie. still trading below NAV. Gearing at 31% does not seem too abnormal compared to other REITS. Am not advocating any buy or sell, but this simply puts it at not much different from others.

Haha lonewolf, I bought into it in 2007 for the same Wisma / Ngee Ann allure too, anticipating Ion. Can't say I have lost money today.

This is why I say most REITs are unattractive now.

[lonewolf]

Haha lonewolf, I bought into it in 2007 for the same Wisma / Ngee Ann allure too, anticipating Ion. Can't say I have lost money today.

What do you mean by anticipating ION?? Do you mean that you think Starhill will take a stake in ION?? But ION is developed by Capmallasia. So its more likely that it will be injected to Capmalltrust.

But if some of our esteemed members are to be believed and we agree that ION is a quality assets, then we can surmise that ION will not be 'dumped' into CapMallTrust. Cos we all know that the evil trust manager will not be so 'kind' to unitholders are let us enjoy the fruits of their labour.

But speaking of ION reminds me of something. Has the newer malls in Orchard took some of the shine off Wisma and Ngee Ann?? I dun frequent the Orchard malls but human traffic still looks decent. But of cos its the festive times so that may need to be discounted?

[Blackjack]

The Japanese properties were acquired by the previous management before YTL took over. If I recall correctly the intention was to gradually divest these assets and move out into higher yielding ones. Currently the Japan portfolio is causing a drag on the DPU with its inconsistent occupancy. Another pain spot would be the office space under Wisma.

Conversion of CPU would lead to dilution as more ordinary units are created, but this same conversion would require the holders to pay approximately 74 cents/share, so it is not without merit.

[mikh]

Haha lonewolf, I bought into it in 2007 for the same Wisma / Ngee Ann allure too, anticipating Ion. Can't say I have lost money today.

What do you mean by anticipating ION?? Do you mean that you think Starhill will take a stake in ION??

sorry was less than clear. I anticipated ION to have a positive rub-on effect for Wisma. Yup, interesting to know if it has happened one way or other.

[Nick]

Haha lonewolf, I bought into it in 2007 for the same Wisma / Ngee Ann allure too, anticipating Ion. Can't say I have lost money today.

What do you mean by anticipating ION?? Do you mean that you think Starhill will take a stake in ION?? But ION is developed by Capmallasia. So its more likely that it will be injected to Capmalltrust.

But if some of our esteemed members are to be believed and we agree that ION is a quality assets, then we can surmise that ION will not be 'dumped' into CapMallTrust. Cos we all know that the evil trust manager will not be so 'kind' to unitholders are let us enjoy the fruits of their labour.

ION is definitely a quality mall but is it a quality investment to keep ? Does it make sense for CMA to hold on to Ion for its rental income when it can under-take development projects which yield even higher returns ? This is why it created REITs long ago - to divest its matured assets (at a profit) and under-take development projects (which it already have a willing buyer through its REITs).

I must point out that this isn't a zero sum game. CMA (and its shareholders) would prefer a better return of capital through development projects followed by selling it at a premium while CMT (and its unit-holders) prefers stable cash generating assets as opposed to the potential loss making development projects. It is all a matter of perception.

If we examined First REIT latest acquisitions, the Lippo Group divested its stake significantly below market valuation hence allowing First REIT to recognize a one-off $46 million profit next year in fair value gains. This illustrates a deeper issue beneath the whole discord about 'asset dumping' -> the sponsor relationship with its REITs. Ultimately, a prudent REIT investor must ask himself whether does that particular sponsor treat its REITs as a partner or as an ATM machine ?

Disclosure: Not vested in any REITs. This represents my own point of view. This is how I study potential REIT investments - it may work well or it may flunk. I am not saying REITs are poor or excellent investments either.