Tuesday, 13 March 2018

SGR's Analysis (FA, TA) - Buying some dustbins in Wisma

I was just talking about increasing dividend income in my portfolio update earlier for February.
Screenshot taken from "Portfolio - February 2018"

Many would also be aware that I've been trying to add onto my holdings whenever I see some value or that Mr Market like what Benjamin Graham stated in his book 'The Intelligent Investor' is being moody or irrationale.

And in a blink of eye, only days into March.
It happened.

Mr Market seem to be a little pessimistic about Starhill Global REIT and it's shareholder is being punished for this.

I took this opportunity presented by Mr Market to buy somemore dustbins from Ngee Ann City and Wisma.

See. I told you, I'm buying dustbin.

Back to SGR. I've entered an extremely small position with them a year ago at 73.5 cents.
Fast forward to a year later, this opportunity comes back once again and I made use of this opportunity to accumulate another 1,200 shares of Starhill Global REIT at 0.71. In this case, I'm buying more dustbin.

Why would a teenage fella look to buy some dustbin? Strange.

So what do they own?
SGR owns commercial properties (offices and shopping centers) across 5 countries - Singapore, Malaysia, Australia, China and Japan, for which most of their revenues are derived from shopping center rental income.

Singapore properties: Wisma Atria, Ngee Ann City
Malaysia properties: Lot 10, Starhill Gallery
Australia properties: David Jones Building, Plaza Arcade (Perth), Myer Center (Adelaide)
China properties: Renhe Spring Zongbei (Chengdu)
Japan properties: Daikanyama, Nakameguro Place, Ebisu Fort (Tokyo)

Source: SPH - Wisma Atria
Source: SGR's 2Q FY2017/18 Investor Presentation - Slide 15
A big chunk (62.5%) of SGR's earning is derived from Singapore while the rest is derived from Australia (22.1%), Malaysia (13.2%) and 2.2% from it's property in Tokyo and Chengdu.

A fairly big part is contributed by Toshin's master lease which took up 21.1% of SGR's gross rental. Toshin's lease will be expiring in 2025. Having Toshin's share, it's both dangerous and beneficial for SGR.

With Toshin's master lease, SGR can rest a little on aggressively finding active leases. But this will also mean that if Toshin decide not to renew this master lease on 2025, they will be having some headache. But it's pretty much like FCOT's case which I've talked about previously. It will be good if they diversify themself a little and not over rely on one tenant. But guess, we will leave it for 7 years later.

Taking a look at SGR's latest financial statement, we can see that it's NAV stands at 92 cents/share. In this case, with the price at 71 cents. We're actually buying a 500k HDB for a price of 386k!

Source: Page 17 - SGR 2Q FY2017/18 Financial Statement

Ok.. Sorry. We're buying SGR at a discount of 22.8% off it's book value.
But is this the end? No!! More to go!!

It's important to know the gearing for a REIT. Gearing refers to the level of a company’s debt related to its capital, usually expressed in percentage form. In this aspect, we're looking at how much they "owe".

It's never good to buy a company that has a lot of debt. But eventually debt is one thing that will fuel it's growth and espeically for counters like REIT, where they will need to borrow money in order to acquire properties as they do not have much retained earnings. REITs will have to pay out 90% of their income to it's shareholder which will result in them having little retained earnings.

It's not desirable to have a high gearing for REIT. Coupling with the fact that they have little retained earnings, REIT will look for rights issue when they want to acquire properties. This is when the REIT will come to you asking for money. In this event, if you do not subscribe to the REIT, your shares will be diluted and you're faced with a lesser value.

SGR has gearing of 35.3%

According to MAS ceiling of 45%, SGR does have some room for them to take up debt if they were to acquire properties without a rights issue.

Lease Expiry/WALE
Source: Q2 FY2017/18 Investor Presentation - Slide 20
Seems like most of their leases are expiring in FY18/19 and beyond FY2020/21. 
Looking at the earlier one, we see 35.7% of their leases based on NLA that will expire in 2018/19.
This 35.7% we see consist of Malaysia's master lease. This is one thing investors of SGR would like Should the renewual falls through, DPU will continue to fall and so do price as investor's proceed to sell their shares of SGR.

At a WALE of 6.4 years. It might seem a little more comforting.

Debt Maturity
Source: Q2 FY2017/18 Investor Presentation - Slide 14
Weighted average debt maturity comes at 4 year with most of it's repayment taking place after FY2020. The scary part should come in between FY2021-23 where most of their payments are due.

This is something that every investor of REIT is looking out for. 
However, we see some headwind in it's Orchard properties and DPU had decreased in 2017. With properties like Plaza Arcade and Lot 10 due by 1Q2018, we should be able to see some positivity out of this where SGR's rental income will increase. This will brings DPU higher than what we see now.

Taking 4.8 cents DPU in 2017 into account, we're looking at a yield of 6.7%, which look relatively delicious. However we must also bear in mind that this higher yield offered by SGR is in compensation for the greater risk we are participating in as compared to other REITs like MCT.

Technical Analysis
Taking a look at the chart. Seems like there's a big bear that ambushed SGR from behind. Price had fallen sharply below 50D, 100D MA and EMA. Price had also fallen below lower band of Bollinger Band with MACD crossing signal line southwards. RSI on the other hand suggest that SGR is over-sold today with a relatively healthy amount of seller we're seeing here today.

Some level of resistance can be identified at 72.5 cents, 75 and 77 cents while support can be seen at 69 cents and 67 cents upon breaching 70 cents support.
While it certainly does not look very beautiful for SGR, it seems like some opportunities might be presenting itself. I might be wrong. I don't know.

The closest match I could get would probably be MCT. However, as MCT is trading at a premium with a relatively lower yield, the offer does not seem as compelling as what I see in SGR today. On a side note, MCT does have a really impressive management which is really proactive and ensuring their unit holders get the most out of it, however for that case, it's compensated by the premium we see over it's book. 

It's nothing wrong to pay a slightly bigger price tag for a lesser risk and wonderful management. Good things usually comes with a premium. However, sadly, my wish to buy a dustbin in Vivo City has yet to materialize and I've failed to accumulate them when the boat comes. I do love Vivo City.

Nonetheless, should things turn out worser than expectations for SGR, I do have some margin of safety from the discount I receive from it's book price. A futher drop in price will just make SGR looks more attractive to me. Definietly one would say that the NAV might drop, but I'm comfortable with this risk I'm taking. Another important thing to remember is that the initiation of position with SGR is for income and not growth.

There might be some surprise element of capital appreciation when price move closer to it's book value but I'm in for the income SGR is able to offer me for the time being. To be more conservative, I will look at SGR with a yield of 6% which represents with a target of 4.3 cents DPU. Am I over-expecting too much from SGR? I don't think so.

Please remember the disclaimer!

Disclaimer: All information published on this site is only meant for general information purpose. No warranties should be carried out on the action that is taken based on information found in this blog and no liabilities will be undertaken by the owner for any losses/damages incurred from the use of this information.

SGR's 2Q FY2017/18 Investor's Presentation Slide can be found here.
SGR's 2Q FY2017/18 Financial Statement can be found here.


  1. Hey SleepyDevil,

    Another counter that we have in common! Just curious, how much percentage do you keep in cash? Recently been hesitate to enter the market in fear of depleting my war chest :(


    1. Hi Cupcake,

      Welcome to my blog once again. For now, it's roughly around 16%. I'm trying to build up a more sizable war chest. However, as there's some discount going around in the market recently, my fingers got ahead of me :(

  2. Woah. The price went up after your post! Now I want to buy dustbin also cannot. Hahaha

    1. Hi KPO,

      My purchase is insufficient for the market to even move hahaha! I believe the price is still bouncing around for awhile. Even today, SGR still is still attractively priced to me.

      I'm buying dustbins.. KPO must be buying something like the escalator. Else too much dustbin in Wisma. Flooded with dustbin LOL!

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