10 things I learned from Starhill Global REIT’s 2015 AGM

If you’ve been following the news, you would probably be aware that the property market in Australia is heating up as foreign buyers enter the country. As a matter of fact, Starhill Global REIT has three assets in Australia. Two of them are located in Perth — David Jones Building and Plaza Arcade and the newly acquired property, Myer Centre, located in Adelaide. At its most recent AGM in October 2015, Starhill Global pointed out that the trust is looking at further opportunities in the Australian market.

A shareholder expressed his concern when questions were open to the floor: “People say the Australian property market will come down and if you go in now, you are going in at the peak. I’m sure that this is not the time to invest.”

But Starhill Global CEO Ho Sing begged to differ. He thinks that the falling Australian dollar against the Singapore dollar offers a good opportunity for the REIT to in the Australian property market.

He added: “The good assets in Sydney and Melbourne are trading at 4-5% yield. They are very expensive! It’s like asking me to buy ION Orchard but the asset is not for sale and not at the right price. We will only buy assets in a prime location that are already yield-accretive or where we can improve the yield.”

Not contented with the explanation, the shareholder continued to press his point to pull back their investments in Australia: “If you buy in Melbourne and Sydney, at least the chances of property appreciation are much better than other cities. But right now may not be the right time to invest; even Australians are also staying away. What I am saying is that you failed to achieve the other objective as a REIT and that’s capital appreciation.”

The debate lasted for quite a while in the meeting and whether the shareholder or the CEO is right about the property cycle in Australia, only time will tell.

As the annual general meeting was held in Singapore, Dato Francis Yeo, Chairman of Starhill Global, joined the meeting from New York via conference call. According to him, Australia is enjoying a growth in population that is likely to continue for the next ten years. The demographics have changed quite a bit with the increasing influx of Asians to Australia — shopping hours have been extended by a few hours from the usual 5pm closing time!

He quipped, “It’s good to take a bite of cherry before it turns into a mature market.”

While the chairman thinks that the REIT is in a very good position in the Australian market, there were also some other points discussed during the AGM:

  1. According to the CEO, distribution per unit for Starhill Global has grown at a compounded annual growth rate of 7.2%. In fact, unitholders who subscribed to Starhill Global REIT (formerly known as Prime REIT) during its IPO at $0.98 and who took up their entitled 1-for-1 rights issued at $0.35 (an average price of $0.665 per share) have received an average dividend yield of 6% since 2006.
    starhill global dpu
  1. The REIT changed its financial year ended from 31 December to 30 June. The reason for the change is to align its financial year with its sponsor, YTL Corp Berhad. It’s important for investors to note that Starhill Global’s FY2014/15 is over 18 months.
    starhill global property income
  1. Starhill Global’s portfolio of properties is primarily located in Singapore which makes up 66% of total assets while Australia and Malaysia make up 29% of total assets. You’re probably very familiar with some of these properties — Ngee Ann City & Wisma Atria located along Orchard Road in Singapore and Starhill Gallery & Lot 10 located in Bukit Bintang in Malaysia. Do note that Starhill Global doesn’t always own an asset fully. For example, Isetan owns the some of the gross floor area in Wisma Atria.
  1. The occupancy rate for its Singapore assets, primarily Wista Atria and Ngee Ann City, has consistently been above 95% since the REIT’s listing in 2005. The table below shows that prime assets tend to be well tenanted regardless of market conditions.
    starhill global occupancy
  1. 42% of gross rental income is from master and long-term leases. These leases were agreed with anchor tenants like David Jones (4.2% gross rent) whose lease expires in 2032 and Toshin Development (19.2% gross rent) whose Ngee Ann City lease expires in June 2025. There is a rent review every three years to provide stability and growth for the REIT. The next rent review for Toshin and David Jones is June 2016 and August 2017 respectively.
  1. With properties located overseas, Starhill Global is mindful of the foreign exchange risk and thus hedges its loans for its foreign assets. For example, its Japanese properties are fully hedged using yen-denominated loans. It is not in the business of the REIT to speculate on foreign exchange movement; it makes more sense to safely manage any foreign exchange volatility that may affect net property income and dividends. According to the CEO, a 10% depreciation in foreign currencies is not expected to affect dividends by more than 5%.
  1. By improving tenant mix, Starhill Global can create a better shopping experience for shoppers to increase consumer spending for its new and existing tenants. For example, there was a change in tenant mix when renovations in Wisma Atria were completed in 2012. The mall used to have a Nike store that generated $100 per square foot in sales. When the luxury fashion label, Coach, took over, sales per square foot jumped to a few hundred dollars. As a result, Starhill Global is able to earn additional income for unitholders by increasing rent when tenants are doing well. CEO Ho Sing pointed out there is a common misconception among investors and analysts who look at occupancy costs alone. According to him, it’s also important to look at sales efficiency on a per square foot basis. The typical suburban mall’s sales per square foot is usually $60-70 which translates to 15-17% in occupancy costs. If it exceeds 20%, it is not sustainable. However, that is not entirely true for city malls because the REIT can find ways to increase tenant sales per square foot up to the range of hundreds of dollars.
  1. The manager estimates that 30-40% of sales come from tourist spending. However, it’s difficult to track as some Indonesians and Malaysians use local credit cards when shopping.
  1. CEO Ho Sing believes that e-commerce is complementary to brick-and-mortar shops because it helps educates consumers. A member of Amazon Prime himself, the CEO buys books online from Amazon but realized that the appreciation of the U.S. dollar and cost of shipping has removed the price savings. He acknowledged there is a growing trend in buying things online but as he pointed out, these are not the REIT’s tenants’ target market. Their target market is high-end (e.g. watch and jewelry retailers that offer a more exclusive shopping experience and personalized customer service). A number of retailers in Ngee Ann City include high-end brands like Louis Vuitton, Chanel, Hugo Boss, Piaget, etc. In fact, Ho believes that some shoppers may buy expensive watches or jewelry online but most people still prefer to visit a tangible, brick-and-mortar shop to buy these items. He said, “It’s the reverse when it comes to buying a watch. You check the prices online, then come and bargain with watch retailers offline.”
  1. The chairman said the ‘worst is over’ for the Singapore property market after a shareholder asked his opinion about the local property market outlook. The government didn’t expect the cooling measures to have such a huge impact on the property market. The high-end market especially has taken a hit and remains challenging today. He believes that it is not in the government’s interests to create a situation where there is low demand (like we see today) as that would cause the economy to slow down. As a result, he feels that it is highly like that the government will review the cooling measures.

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Photo credit: Calvin Teo

Rusmin Ang

Rusmin Ang is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times and Business Insider. Rusmin has appeared on Channel NewsAsia and on national radio on Money FM 89.3 for his views and opinions on how to invest successfully in the stock market. He believes that anyone, even with a regular job, can achieve more financial peace-of-mind by investing intelligently and safely for the long term.


  1. I have been reading your fifth person articles and find ong kai kiat’s research full of effort but rusmin’s AGM summaries more useful.

    I seldom see a direct opinion commentary on the AGM itself by fifth person.

    would like to know what you think of the last point 10. singapore property market outlook. do you agree or disagree that the worst is over?

    1. I do agree with the chairman that current property market cycle is bad. With higher interest rates and an oversupply of residential units, the prices for both rental and sales units are falling and I doubt the cycle will turn anytime soon.

      Unless the government decides to lift the cooling measures, I think it will be difficult for buyers and investors in the property market to get moving.

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