Starhill Global Reit sells Japan property for $5.1m

It only formed 0.1% of the company's portfolio by asset value.

According to OCBC investment research, Starhill Global REIT (SGREIT) recently divested its entire beneficial interests in the Harajuku Secondo Property for a cash consideration of JPY410.2m ($5.1m). This transaction comes in at an attractive premium of 22.4% to the property’s latest independent valuation of JPY335.0m ($4.17m), and translates into an exit yield of 2.5%, based on its FY16 NPI figure. The Harajuku Secondo Property is a 3-storey building for retail use which is located in the Harajuku district in Tokyo, Japan. It formed only 0.1% of SGREIT’s portfolio by asset value.

“SGREIT’s decision to divest does not come as a surprise to us, as management had been seeking opportunities to streamline its portfolio and pare down its non-core assets. Prior to this, SGREIT had divested the Roppongi Terzo property, also located in Tokyo, Japan, in Jan last year at a price of JPY2.5b ($31.1m). This came in at 2.5% higher than its last valuation and translated into an exit yield of 4.4%,” said OCBC.

SGREIT reported a muted set of 3QFY17 results recently, with NPI and DPU declining by 0.9% and 6.3% YoY to $41.2m and 1.18 S cents. The weaker performance was attributed largely to lower contributions from Wisma Atria (both retail and office), Ngee Ann City (office), Myer Centre Adelaide and its China property and a larger $1.4m of income available for distribution which was retained for working capital purposes (3QFY16: $475k). However, there were also bright spots, as SGREIT’s Malaysia properties, Ngee Ann City (retail) and David Jones Building turned in better performances

Here’s more from OCBC:

Looking ahead, we expect operational challenges to persist in the near-term, although we believe this would be mitigated by a higher rental uplift of 6.12% from Aug 2017 as a result of the next lease review with David Jones.

We pare our FY17 and FY18 DPU forecasts by 2.4% and 1.5%, respectively, as we factor in lower rental assumptions in our model. Correspondingly, our fair value estimate is trimmed from S$0.82 to S$0.81. However, we maintain our BUY rating on SGREIT as we believe its softer growth prospects has been priced in by the market. SGREIT is trading at blended FY17/FY18F distribution yield of 6.6% and P/B ratio of 0.8x.

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