Sunday, November 29, 2009

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.


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.

No comments:

Post a Comment

Please Comment >>