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.
Risk
Master Leases
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.
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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
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Raffles Medical Group(RMG) with an average price of S$1.12, I have sold it at $1, yep and bought back some at S$1.05. I realized I must have some holdings of it. So what did I do after selling RMG? I bought Valuetronic which finally ease its drop at S$0.70 and $0.635, together an average price of $0.67. And I also bought Hong Kong listed Beijing Capital International Airport at HK$6.70 and Broadcom at US$209.68 after fees.
The new buys are doing well. I have bought Valuetronic which is undervalued, Beijing Capital International Airport which has huge growth for tourism and aerospace in china, Broadcom sudden sell down, discounting the whole net worth of its recent acquisition of CA Inc vs the stagnant performance of RMG and its china growth still a question mark.
Hence, RMG has recovered to S$1.10. Yes, regret selling as price recovered. That is the first thing that come across my mind. However, I find the switched stocks are better than RMG in my opinion especially for the long term.
Riverstone, yes yes ROE of >20%, good growth expected with new factories, PE is low compare to the peers. Considered as a healthcare stock as gloves is selling to both semicon and hospitals. Price has been going sideways for a long time and I had ran out of patient considering this is a growth, not an income stock. Then came July 6th, the property stock GSS 2018. Not willing to deploy existing cash, I decided to switch to UOL. Selling Riverstone at minor losses of S$24, I bought UOL at S$6.58 and S$6.77 with an average price of S$6.71.
Roxy-pacific, following Heartland boy's detail write up , I bought and received bonus shares, average price at S$0.51. Price had fallen till S$0.415 and hence recovered to S$0.44. I find that Roxy landbank is good, a lot of freeholds. I will holding on to it for now. I have a thing for hotels in Japan, so i would to keep Roxy. If you have notice, there are Japan hotels with UOL as well and of course Ascendas Hopitality Trust.
If not for the tech and property crash, I may not had made the switch, It pays to be patients and wait for the target price with higher Margin of safety. It is hard to do nothing until the right time.
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Most of the milestones for Ascendas Hospitality Trust(AHT) during the presentation had been addressed in my previous posts.Some notable tidbits from the presentations by the CEO:
- Financial cost effective interest rate drop to 2.7%, interesting since interest rate is increasing.
- DPU increase 3.2% (from that one time look fee)
- Retained earnings is 7% in FY16/17 vs 5% in FY 15/16
- 156 Million Debt paid from the divestment of
- China Properties at >100% gain which has a short lease while Japan & Seoul properties are freehold.
- To diversify portfolio to near 20% geographically
- Interested to diversify into Seoul (I think More M&A Still Possible)
- Seoul hotel operator to be replace by Sunroute ( The one operating in Japan)
I was wondering how AHT will manage the debt with so many M&A. Since they are buying up Osaka properties in a stagger method, they are able pay up their 156 Million debt expiring this year and pick up more loan when the time to take over the property is near.
AGM Q&A by unitholders and the board:
Q: Whether the newly acquired Osaka hotels were earthquake proof buildings and whether they were insured against earthquakes.
A: I heard the CEO answered 'yes', not sure if it is in regard to the insurance bit. The hotel is earthquake compliance.It is not customary in Japan to buy an earthquake insurance.
Q: Digital DNA/Strategy. Get rid of the CDs, but do something but not emails/downloads.... (My internal OS: "the!?", asking the impossible? or spend more $?)
A: Management states that depend on the hotel operators. As a property manager, the trust leases
out the property for the operator to manage the hotel, is up to the operator to
carry out its functions to what they think is best. They cannot influence them. It will be better for them to leverage on the sponsor's on this rather than find their own digital strategy.
Q: On data protection
A: The trust understands the concerns on personal data protection,
especially the recent strict regulation set by the EU. It will strive to
remind the hotel operator on the seriousness every now and then.
Q: Whether any of the divestment gain from the sale of the China hotels has been disbursed.
A: No. The proceeds will be used to cover the absents of the China properties until the Osaka properties are ready.
Q: Given the compressed yields, how will the trust source out good
properties for acquisition and whether they will be funded by rights
issue. (I'm lumping some questions together)
A: It is hard to source for good properties and they are not readily
available. It is because of the rich experience of the board and
management that they were able to gain access to some information that
normal property agent won't be able to get. The divestment of the China
hotels and the subsequent acquisitions are examples of those. The sale
of the China hotels was described as opportunistic and it is unlikely to
happen again.
As to the method of funding future acquisitions, it will be made
known to unitholders if there ever is one that requires an EGM to
approve any rights issuance.
Q: What is the board view of Airbnb?
A: Airbnb is here to stay but they are for different segment, leisure. Whereas hotels are targeting the business segments. Hotels have the facilities to hold meetings and conferences. However, countries have show sign of tighten the regulation for Airbnb such as japan.
Q: What is the difference between Master Lease(ML) and Management Contract(MC) ? What is the 7% retained earnings used for?
A: ML take on all the risk of their operations, AHT just rent to them the properties. While a MC is the opposite of ML, AHT take on the operation risk of the hotels, hence they need retained earnings to manage them. AHT try to balance a 50-50 between ML & MC. ML brings stability as they get fix rent from the ML but MC can have a both upside and downside depending on the Hotel's performance.
Some of the info on the Q&A was provided by @inspirez, user of InvestingNote..
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The Govt suddenly increased the stamp duty for properties buyers on the 6th of July 2018. My first black swan event as I hold Roxy Pacific, it when down as low as 11%. I expect property stock to be down but it still shock me as the fall is huge. Still I thought it is a chance of grabbing cheap stocks.
The market opened, my mind was in shock at the terrible double digit fall. For a few minutes, my mind froze. I can't decide on the amount to buy and entry price. As one can't time for the bottom, I nibble on UOL (Price to book 0.6) and Capitaland (Price to book 0.7) at $6.71 and $3.05 respectively.
'A sledgehammer to kill a fly', an analyst puts it. It is also killing the worm trying to survive, the construction sector. Chip Eng Seng (bought 0.79 sold 0.97) falls 7% to 0.79 back to my buy price and a 5% yield. However debt has increase since. Will keep this on my wish list for now.
