Starhill Real Estate Investment Trust (the Trust) is a real estate investment trust. The Trust's principal investment strategy is to invest in a diversified portfolio of income producing real estate, used primarily for retail, office and hospitality purposes, with particular focus on retail and hotel properties. As of June 30, 2011, it had two prime properties situated in Kuala Lumpur's Golden Triangle, namely, the JW Marriott Hotel Kuala Lumpur and 60 units of serviced apartments, four levels of commercial podium and two levels of car parks located within The Residences at The Ritz-Carlton, Kuala Lumpur (The Residences Properties) (collectively referred to as the Properties). The Trust's manager is Pintar Projek Sdn Bhd. In November 2011, the Trust announced that Mayban Trustee Berhad had subscribed for Starhill REIT Niseko G.K., which in turn became a wholly owned subsidiary of the Trust. In November 2011, it acquired hospitality related assets.
I accumulated YTLREIT since year 2009 and currently my holding is about 1,500,000 shares.
I would like to take this opportunity to share my analysis on this stock for your reference.
Few areas that we can look into
1. What is the impact of the private placement and why investors react negative to it ?
YTLREIT distribute at least 90% of the cash to shareholder as dividend at quarterly basis. For the past , the distribution was 100% but for the last few quarter , was fluctuate between 90% to 97% , why ?
YTLREIT cash income ( included depreciation as depreciation are non cash item ) at about 8.8 sen per share. If fully distributed , will yield 9.56% per share based on stock price of RM0.92 , which is one of the highest as compare to other REIT.
With the private placement of RM800MM , YTLREIT will save interest of ~ RM38,000,000 ( at 4.75% interest ) but due to the number of share significantly diluted , the DPU will reduce.
which is 17% lower as compare to before private placement
Investors with DCF method will adjust the stock price accordingly based on the reduction of DPU by ~ 17% and the stock price retreat from a fair value of about RM1.10 to ~ RM0.94.
The management of YTLREIT track record is to maintain the DPU in upward trend , therefore , the dividend payout ratio has been adjusted monthly to maintain the dividend payout at ~ 7.5 sen ( DY = ~ 8% at RM0.92 stock price ) , which factor in the private placement effects.
Therefore , barring any unforseen circumstances , the dividend will not be lower than 7.5 sen ( before witholding tax ) per year.
2. Why YTLREIT go for private placement ?
One of the plan shared by the management to the public was the ambitious to increase asset under management to RM10B in mid to long term , taking opportunity of bargain asset price when US QE ended and rising of interest rate and most likely asset will be selling at bargain price. Therefore , the private placement and increased of borrowing limit to 60% is to prepare for this objective.
There are few possible scenarios that might happen in the future..
With current NAV at RM1.26 and YTL committed for RM320,000,000 of the private placement , the management will able to raise RM1,400,000,000 in debt to purchase hotel asset and this will raise the DPU back to RM0.088 assuming the assets with fixed return of 7% and borrowing cost of 4.75%
My thought is that the asset purchase under this phase will be hospitality asset under YTL which is not included in YTLREIT like Majestic KL , Majestic Melaka , hotel in Hokkaido , Shanghai etc..which total to about RM1.4B
at 2nd phase , when the private placement was fully place out up to RM800,000,000 , YTLREIT will able to raise another RM700,000,000 to purchase new hospitality asset , DPU will go up to RM0.095 per share ( assume 7% return , debt cost at 4.75% )
To achieve 10B in asset , NAV need to go up to RM1.78, which I believe will able to achieve in 5 years or less due to leverage effects
example , assume 50% asset and 50% debt , when the asset value up by ~10% , the total NAV will up by 20%.
When the asset up to RM10B without further equity dilution , the DPU will go up to RM0.12 per share ( assume 7% return and 4.75% borrowing cost )
Based on above assumption , YTLREIT stock price with potential to achieve RM1.50 in 5 years time based on DPU increase from current 7.5 sen to the future of 12 sen per share. This represent a potential of compounded return of 18% through dividend reinvestment.
3. What is the risk with YTLREIT
Interest rate risk - if interest going up , will strongly effect the borrowing cost and reduce DPU
Foreign exchange risk - fluctuation of foreign currency will affect YTLREIT income. or example , AUD fluctuate to as low as 1AUD to 2.89MYR and back to 1AUD to 3.03MYR last quarter ( therefore , last quarter distribution was slightly better even at 90% distribution ) If foreign currency depreciate significantly against MYR , YTLREIT return will be strongly affected.
As my target return is minimum 10% compounded return per year , YTLREIT meet my investment mandate for Core in my portfolio.
my101homeThere are certain parts I could not get it. However, I agree to most part of your analysis. Great input, hope to read your view again.
WaveSamT many thanks for the elaboration and it has enlighten me. I will continue to accumulate this stock.
samTThanks for the compliment. YTLREIT is quite a straight forward stock with less corporate activities. I will add my input whenever any announcement furnish to the bursa.
For those retire and looking for passive income , YTLREIT might be a good alternative and can practice 50 : 50 strategy. 50% reinvest for more shares and 50% for spending.
sheepWHY GOING UP BITS BY BITS? INCREASED DIV COMING?
samTHi Sheep , I believe most likely market anticipate some announcement coming on new asset purchase and earning per share ( excluding depreciation as non cash item ) back to the previously level of ~ RM0.088 per share. This will restore the confident and revaluation of stock price back to previous level.
samTYTLREIT is low beta stock and the stock will be quite stable and will adjust according to corporate proposal . Positive proposal such as asset purchase to enhance DPU to move the stock price up while negative proposal like private placement that dilute the DPU will adjust the stock price down. If a proposal to purchase more assets that drive the DPU back to previous level of RM0.088 , we should expect the stock price to go back to ~ RM1.10 level when the corporate proposal completed.