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3 Things Investors Should Know About Starhill Global Real Estate Investment Trust’s Occupancy Rates

Starhill Global Real Estate Investment Trust (SGX: P40U) is a REIT that focuses on investing in retail and commercial properties in the Asia Pacific region.

Its current portfolio comprises 12 properties in five countries, namely, Australia, China, Japan, Malaysia, and Singapore. The bulk of Starhill Global REIT’s assets (68%) reside in Singapore while Australia and Malaysia collectively account for another 29% of the REIT’s assets.

Starhill Global REIT caught my attention as its current unit price is just 5.5% higher than a 52-week low. After some research, here are three important things about the REIT’s portfolio occupancy rates that investors should know:

1. Declining occupancy rates

The chart below shows Starhill Global REIT’s portfolio occupancy rates going back to 2005:

Starhill global reit occupancy rate 1
Source: Starhill Global REIT earnings presentation

As you can see, the REIT’s portfolio occupancy rate has been declining since 2013, falling by more than 5.6 percentage points from 99.4% to to 93.8%.

Given that the occupancy rate is a strong signal for the demand of a REIT’s properties, the profile seen above does not look very positive for Starhill Global REIT.

2. The good news

Despite the fall in the REIT’s overall occupancy rates, there is still a positive takeaway. Here’s a table that breaks down the occupancy rates for Starhill Global REIT’s portfolio by country:

Starhill global reit occupancy rate
Source: Starhill Global REIT earnings presentation

So far, two of Starhill Global REIT’s biggest markets – that would be Singapore and Malaysia, which collectively account for over three quarters of the REIT’s gross revenue – have relatively stable occupancy rates.

3. Challenges in Australia and China

If we refer to the same table seen in Point 2, we can see that Australia and China are the geographies in which Starhill Global REIT has been struggling with in terms of falling occupancy.

In Australia, the main reason for the lower occupancy rate is the lease expiry of one office tenant at Myer Centre Adelaide and lease terminations in relation to planned enhancement works for Plaza Arcade.

As for China, the REIT is converting Renhe Spring Zongbei from its existing high-end luxury department store model with a gross turnover rent structure. After conversion, the property will have a long-term tenant model with a fixed rent lease that comes with a periodic step-up over a lease period of 10 years. The REIT’s occupancy rate in China is affected by this transition period.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.