Starhill Global REIT: David Jones Building

Finally, I have gotten in contact with a friend who is now staying in Australia on the recent purchase of David Jones building by Starhill Global Reit. The following is my friend's reply and analysis:

1. I must admit that I am no expert in properties, less so in Australia. but I will give you my personal view. You decide.

2. David Jones (or DJ as it is popularly known here) is a department store behemoth in Australia. They are like the Takashimaya in Japan. DJ stores are all in the heart of the city, or CBD in its major location. So, DJ the business and its associated entities are all quite well regarded in Australia for now.

3. That said, the David Jones building that Starhill Global Reit acquired is in Perth, so it is no where near the big 2, Sydney or Melbourne. Retail property development in Perth, as you would imagine, lags the big 2.

3a. If you have a short term view, it may not be as attractive as I think it will take a while before the commercial/retail property development takes flight in Perth.

3b. It will be attractive if you plan to hold your stock for a while. For instance, I have a longer term view on stocks ( e.g. I bought Apple stocks @ US$20 and sold at $90+ after split 2 years ago, but I held it for more than 8 years. Of course, on hindsight, I should have kept it as Apple is now about $200 ;-). Nevermind, tt's another story). Reason why it may be worth the thought if you have a long term view on stocks:

3b-i) Perth is one of the fastest growing cities in Australia. the property price median in Perth is amongst the highest, if not highest of all of Australia, even tops Sydney. it has taken a beating last year but it has recovered nicely recently). I think this will apply for commercial properties as well.

3b-ii) Western Australia is resource rich. It has all kinds of minerals imaginable, and also lots of gas and oil field not opened. Hearsays are the government will tender some of these out gradually over the next 20 years, so sustained growth is a given according to many in western Australia. This partly explain 3b-i. Also, because of China's insatiable appetite for resources to fuel its own growth, Australia remains a key partner to China, especially western Australia.

3b-iii) There have been lobbies by businesses in western Australia to get the state government to approve longer retail hours and also store openings on Sundays. The law still forbid this on certain trades to do so. This seems an oxymoron elsewhere. Even if it didn't happen this year or next, it will happen sooner than later. I think this is a forgone conclusion. So, the retail scene in Perth can only get better, imo. Here in Melbourne, there are already 24 hrs shopping like Kmart and Macdonalds. My fave roast pork noodle shop open for supper till 3am. http://www.watoday.com.au/wa-news/last-chance-push-for-extended-shopping-hours-20090929

4. At the macro level, property investors in Australia can do no wrong of late. The population explosion & strong economic outlook contributed to the continuous performance growth here. I think it is what prompted Starhill Global to take the plunge in the DJ building in Perth. DJ the department store will not go away. A quick research tells me that DJ has the tenure at the DJ building in Perth signed till 2032. So, it is quite solid in that respect.

5. So, that's all my 2 aussie cents , or 2.6 SGP cents worth. Hope it helps. As I said, if you plan to hold on to Starhill Global for a while, it may be worth the investment. If you are looking for a quick gain, it may not work to your advantage.

This is a friend I can trust.

So now, with my FA on the Malaysian and Australian properties settled, I think I will still go ahead with my purchase. My target entry price will be 51 cents now as it appears that Starhill is unwilling to break the double support to reach the previous low and 200 MA at 50 cents.

However, I might have to weigh my options between this and Cambridge REIT as well as Cambridge is currently offering a higher yield of around 12%.

Let's see how it goes...

Starting on Goal 2010

Back from reservist.

I have started on writing notes for my tuition students according to Goal 2010 as mentioned earlier in my 4th goal. Hence, will be rather busy from today onwards.

The rat's race is starting all over again. Back to the real world :(



I will do an analysis of the market when I have the time this weekend.

Going for 1-week reservist

I will be off from market for 1-week of reservist. Will still be getting my girlfriend to help me queue for these 2 stocks for dividend investments.

1) 3 lots of Starhub
Tgt Price: $1.83 (changed to reflect 5 cents dividend after it was at $1.88)

2) 10 lots of Starhill Global REIT
Tgt Price: $0.500

Total price: $10640 excluding brokerage.

The technicals of Starhub does not look favourable. However, I believe in the long term management. So I would queue to buy at the support price.

Starhill has 2 supports. Depending on the price actions, I might enter at a later date of $0.520....


If these two trades went through, they would sort of finish up my spare cash and my salary + 2 months of annual wage supplement, with only my coming dividends left for me to spend. However, it would increase my monthly dividend amount to about $540 from my dividend and investing basket, bringing me one step closer to my first target of $1000 per month.

Tuition is starting soon, so I will be able to build up more funds again to do more things.

Starhill Global Reit -- selldown unwarranted?

Starhill REIT recently made some acquisitions.

Starhill Global REIT proposes to acquire David Jones Building in Perth for S$148.0 million; And enters into heads of agreement to acquire Starhill Gallery and Lot 10 in Malaysia for S$423.3 million


Simply put, this acquisition will result in increased dividends per unit (DPU). Why not?
Without adding the three new properties, at current price of 53 cents, it's about 7~8% dividend yield. Adding the acquisitions, we could possibly be looking at nearly 9% dividend yield per annum at the current price.

Yet... why the selldown? Some reasons I could think of:

1) Rights issue was supposed to reduce debt, but instead, with these purchases, the amount of debt increased.

But.... If all the rights proceeds are used to pay debt, it would be very silly, because loan interest is much lower than net property yield. In so doing, there will be very little upside on DPU on saved interest.

Acquiring assets which you're familiar with and possess potential for enhancement will generate higher yield than loan interest. Question is, when you have cash on hand, and asset prices to the low side, with bank lending interest at a low too, do you use the cash plus loan to buy cash generating assets or do you use up your cash to pay existing loan? The answer should be obvious.


2) The two Malaysian REITs are bought too expensively. Suck thumbs to retail investors for you have no control.

The key thing is, other than because they buy from their own sister REIT, what are the other reasons? Who determines whether they bought it too high? What and who determines the "too high"...? From the other REIT's investor point of view, it might have been sold too cheaply?

Taking a leaf from MIIF... They sold MEIF... There were also rumours here that claimed that they sold too cheaply to their own people... But the share price has been rising since then...


3) The two Malaysian malls they bought are not good.

Huh?

I asked my Malaysian colleague about the two Malaysian malls... Without knowing anything about Starhill, he told me it's almost like Ngee Ann City and Wisma at Orchard... Is it a coincidence that Ngee Ann City and Wisma are owned by Starhill as well?

Starhill seems to have succeeded in their quest of acquiring assets in prime locations.



Why the selldown? Perhaps some big institution is rebalancing their portfolio. As to whether I can get it at 50 cents.... only Mr. Market knows. Depending on the price actions, I might just buy in more at the 51.5 cents to 52 cents region.

Random Thoughts: Stars stars stars

Recently, I shared that I will still be waiting for Starhub at $1.88 and Starhill at $0.50... Why?

I combined a little FA with a little TA to derive these values.

My FA is purely (and simply) dividend investing... I believe in the long term dividend sustainability of these two companies...

Starhub is a telco, which is defensive in nature. It is in their culture to lead the market (they are the first to have pay TV, free incoming calls, free dial up internet in SG). Hence I believe they have the capability to sustain dividends via their innovativeness. 10.5% yield is attractive.

$1.88 is chosen not only on 10.5% dividend yield, but also, by TA, it is near the previous low. The lowest so far is $1.76... It's only 12 cents lower than my target entry price. The probability of a profit given a 12 months horizon at $1.88 is near 100% in my opinion. This is why I will wait at $1.88 only.

However, there are concerns of a giant H&S formation, which might lead Starhub to achieve $1.15. We shall see... I believe in its sustainability of dividends, so I will buy at every support if it does move down like this.

Disclaimer: Already vested 6 lots at $1.895



As for Starhill, it owns a part of Ngee Ann and Wisma. The REIT also own buildings in prime areas in Japan as well. Recently, they bought buildings in Malaysia and Aussie as well. I checked with my colleague that the two buildings they bought from their sister REIT is almost like Ngee Ann and Wisma (and he don't know about this REIT till I told him). There were rumours that they bought too expensive, but I don't think so.

Starhill has a strong backer in YTL Corporation in Malaysia. They also own properties which are in prime location. Their rents are longer term leases with some soon-to-expire leases charging at below market rate. The potential to increase dividends is very high. The previous dividends was an annualised 7% p.a. amount at 54 cents. There's potential to raise to 9% p.a. at current price with the acquisition of the two new properties.

50 cents is targetted because it is at the 200 MA. 51.5 cents is double support according to hahalol, but it is not worth for me to average down my 54 cents at that level.

Disclaimer: Already vested 10 lots at 54 cents.


This is how I combine FA plus TA for short term entry... So far, it has been my most successful method of all the methods I tried. I did it before for Macquarie International Infrastructure Fund at 30+ cents.... I'm trying to see if I can replicate the same method on these two stars.