Starhill Global Reit Released it's latest 4th Quarter and Full Year Results ending FY2017/2018. DPU Q-on-Q remain flat. Full year DPU at 4.55cents versus my earlier estimate of 4.56cents.
Positve
- Office at 95% occupancy rate, up from 91% in 3rd Quarter. - AEI at Plaza Arcade is completed. From my estimate, it should provide a increase of 0.17cents of DPU for FY2018/2019. UNIQLO to open its store in 3rd Quarter 2018. - DPU drop may have bottomed as Q-on-Q is flat. The drop in Y-on-Y should not be as drastic for next FY. AEI upside of 0.17cents should provide some support.
Negative
- DPU performance remains challenging.
Conclusion
DPU may have bottom as the higher withholding tax in Malaysia has been priced into the DPU. Going forward in comparison Y-on-Y between FY2017/2018 and FY2018/2019, if any fall in DPU should no be as drastic. Estimated 0.17cents upside from AEI of Plaza Arcade could provide some support.
Below are some estimates of 3 possible rate of decline of 5%, 2.5% and 1%. Judging from the table above, I would look at 5% as the max possible decline as a MOS, to have 7% yield, TP of 0.64.
Has short master leases expiring in 2020. This give an uncertainly to the Reits as it affects about 20% of DPU. However, impacted properties are leased to subsidiaries of the sponsor, so does that means that master lease can be renew. But still a positive or negative rental revision is unknow. Without master leases, current yield will drop from 8.6% to 7.1%
Short lease hold
Average leasehold of 39 years. Most reports pointed this out. 39 years is longer than most SG industrial Reit of 30 years. 39 years, I may already divested or dead.
InOrganic Growth
2 ROFR properties and properties from YCH to be acquired in phases via debt & equity. Expects rights issues. Risk is that it is uncertain if acquisition is accretive as the management purse growth.
Positive
Partnership with YCH/Expansion to South East Asia(SEA) & India
Currently, there is no Reits listed at SGX with properties in SEA other than First Reits in Indonesia. Expansion to SEA in related Belt and Road Initiative to ride on the growth of E-commence of the region.
Conclusion
A currently yield of 8.6% looks yummy but there are a lot of uncertainties. And of the 7 properties, only 3 are for E-commerce use. For a piece of mind, better not be getting ECW unless one wants to bet on the SEA/India expansion and ride on China's E-commerce growth.
With an EPS 14.1cents and a historical payout ratio of 90%. dividend
should be cut to 12.7cents. with a 6.5% yield, market price should be at
S$1.95
Do be even more conservative, if we stick to Singtel's payout of 75%. dividend should be at 10.6cents. with a 6.5%
yield, market price should be at S$1.65. If the earnings maintain which by itself is a challenge. With their debt level and profitability. I don't see how
12 cents can be sustained. Maybe for 1 or 2 years like currently by taking on
more debts?Assuming a dividend of 11cents and a 7% yield, TP should be S$1.57. On hindsight, Starhub rebounded from S$1.58
