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Starhill Global Real Estate Investment Trust’s Unit Price Is Down By 7% In The Last 3 Months: Here’s Why

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.

Over the past three months, Starhill Global REIT’s unit price is down by 7%. What’s behind this?

Reasons for a decline

There can be many reasons behind a REIT’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, some of the really important numbers would be the REIT’s revenue, net property income, and distribution per unit.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up prices.

The case with Starhil Global REIT

In Starhill Global REIT’s case, it appears to be the former at work.

Here’s a table showing changes in the REIT’s gross revenue, net property income, income available for distribution, and distribution per unit for the quarter ended 30 September 2016 (1Q FY16/17) as compared to a year ago:

Starhill Global REIT revenue and income table
Source: Starhill Global REIT earnings release

We can see that the business performance for the REIT in 1Q FY16/17 is weaker than in 1Q FY15/16.

This is mainly due to low occupancy rates of less than 90% for the REIT’s properties in Australia, China, and Japan.

In Australia, the main reason for the low 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, but this temporary pain could be beneficial for the REIT over the long run.

Investors may also want to note that the REIT has managed to sustain high occupancy rates in its most important market, Singapore.

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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.