Starhill REIT buying Aussie Marriotts for A$415m

PETALING JAYA (June 14): YTL Corp Bhd’s Starhill REIT is expanding its international footprint with the acquisition of three Marriott hotels in Australia for A$415 million (RM1.31 billion).

The purchase of the Marriott hotels in Sydney, Brisbane and Melbourne will give Starhill REIT the largest portfolio of overseas property assets of any Malaysian REIT.

"This acquisition will enlarge the trust's portfolio to approximately RM3 billion from RM1.58 billion," said Tan Sri Francis Yeoh, chief executive of Projek Pintar Sdn Bhd, the manager of Starhill REIT. Yeoh is also the largest shareholder of Starhill REIT through YTL Corp, which owns 56.4% of the trust.

"The acquisition represents a yield accretive opportunity for the trust, generating two income streams, firstly stable fixed lease rentals arising from its existing portfolio and, secondly variable income from the three Marriot hotels, increasing the potential for distribution per unit growth and variations," he said, adding that the acquisition will also allow the company to participate in the vibrant real estate market in Australia.

Under the transaction, which must receive regulatory approval, Starhill REIT will pay RM786.34 million for the Sydney Harbour Marriott and RM356.85 million and RM167.37 million for the Brisbane and Melbourne properties respectively.

Investment analysts said Starhill REIT isn't expected to face any problem funding the acquisition because of its relatively low net gearing of around 11%.

But the trust continues to suffer from the lack of interest from the retail and institutional investing communities. Apart from the fact that the YTL group owns more than half of the company's share base, several analysts gripe about the lack of transparency in its affairs. The concentration of its portfolio in the luxury hospitality segment also makes it vulnerable to any economic downturn, analysts said.

Currently, almost all of Starhill REIT's assets are hotels and resorts, except for Starhill Gallery, an upmarket shopping mall which boasts niche brands such as Fendi, Dior and Alexander McQueen. The trust also houses several resorts in Pangkor Laut, Tanjong Jara and Cameron Highlands, as well as The Vistana Hotels in Kuala Lumpur, Kuantan and Penang.

Aberdeen Islamic Asset Management Sdn Bhd CEO Abdul Jalil Rasheed said the trust should diversify its asset base to include other more stable types of assets such as office, commercial and industrial buildings.

"These are all luxury hospitality assets. In good times, of course they will be doing well. But when the economy slumps, the hotels and malls will be the first and the most badly affected after the airlines," said the asset manager.

Jalil cited Axis REIT as an example of a good REIT which has a diversified asset base that is more resilient to an economic downturn. Axis REIT houses commercial buildings such as Menara Axis and Crystal Plaza, as well as office, industrial, warehousing and logistics buildings.

At yesterday's close of 95 sen, Starhill REIT's shares have risen by 6.15% since the beginning of the year. Over the past year, the stock has risen 8.5% compared to the 16.3% increase posted by Axis REIT and a much higher 39% rise by CapitaMalls Malaysia Trust.

This story appeared in The Edge Financial Daily on June 14, 2012.