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What Investors Need to Know About Starhill Global REIT’s Latest Earnings

Starhill Global Real Estate Invmt Trust (SGX: P40U) released its third-quarter earnings report yesterday. The reporting period was from 1 July 2014 to 30 September 2014. Starhill Global is primarily a mid to high-end retail real estate investment trust (REIT), with 12 properties in Singapore, Malaysia, Australia, China, and Japan. At the local front, it owns stakes in Wisma Atria and Ngee Ann City which makes up the core of its property portfolio.

Financial Highlights

Gross revenue was relatively flat at $48.6 million in the latest quarter compared to the same quarter a year ago. Net property income (NPI), though, climbed by 4.1%. It benefited from lower expenses on a year on year comparison. For the third quarter of 2014, Starhill Global will distribute 1.27 cents per unit, up 5% from last year’s quarter. This amount will be distributed to unitholders on 28 November 2014.

As of the end of 2013, its portfolio of properties was valued at $2.85 billion.

Foolish investors might want to keep up an eye with the REIT’s debt profile. The debt profile may provide clues on how the REIT is funded, and its sensitivity to the interest rate environment. This is summarised below.

Gearing Ratio 29.1%
Interest Cover* 5.1
Weighted Average Debt Maturity 3.6 years
Fixed/hedged debt ratio 100%
All-in Interest Rate 3.15%
Unencumbered assets ratio 80%
Total Borrowings $859 million

Source: REIT earnings presentation

With a gearing of 29.1%, and 100% of its loans fixed or hedged, Starhill Global might be relatively protected from any increases in interest rates in the near future. Furthermore, the next refinancing requirement will be in July 2015. Nevertheless, Foolish investors should keep an eye out for its refinancing activities in 2015 and 2016 when 36.3% of its borrowings comes due.

Operational Highlights

Starhill Global’s revenue decline for the period was due to weaker revenue contribution from Renhe Spring Zongbei Property (located in Chengdu, China) and its properties in Japan. This was partially offset by revenue increases in the other properties.

For the quarter, the REIT was also able to maintain an occupancy rate of more than 99% for its all properties except for the properties in Japan. It is interesting to note that for Wisma Atria, shopper traffic increased by 6.3% on a year on year comparison but tenant sales fell by 8.7% due to weaker tourist spending and ongoing renovations. This goes to show that there might be a higher sensitivity towards tourist contributions for malls along Orchard Road. Furthermore, the rise of online shopping would be another challenge for the REIT.

Another noteworthy point is that there is a high tenant concentration of its gross rentals where 38.5% of its gross rental comes from two tenants, namely Toshin Development Singapore Pte. Ltd. and YTL Group. Ngee Ann City and Wisma Atria also make up 67.1% of gross revenue for the REIT.

On refinancing side, Starhill Global was able to refinance RM 330 million in medium term notes (MTN) at a lower interest rate of 4.75% (matures in 2019) during the quarter. This compares with the 5.35% interest rate it had previously. The refinancing action had the effect of extending its overall average maturity debt profile from 3.2 years to 3.6 years.

To sum up the quarter, Chief Executive Officer of YTL Starhill Global (the REIT manager), Mr. Ho Shing gave the statement below:

“SGREIT’s portfolio continued to perform, underpinned by a high portfolio occupancy rate of 99.1% as at 30 September 2014. Wisma Atria continued to see strong shopper traffic growth of 6.3% y-o-y to 6.8 million in 3Q 2014 [note: third quarter of 2014] and its retail tenant demand is demonstrated by a 6.7% rental reversion for leases committed in 3Q 2014. Our Australia portfolio has also benefited from the increased rental rate from key tenant David Jones, following its lease review in August 2014. We have been working with the City of Perth for the redevelopment of Plaza Arcade, in line with its plan to rejuvenate the CBD shopping precinct.”  

Looking ahead, Starhill Global is planning for an asset enhancement initiative for its Plaza Arcade property in Australia. The Phase 1 of activities expected to begin in 2015, and the AEI is estimated to cost A$10 million. It is also looking to reposition tenants in Wisma Atria to drive more rentable space, and to improve the tenant mix.

Foolish Summary

Starhill Global REIT last traded at S$0.805 yesterday. That translates to a distribution yield of around 6.2%, and a historical price-to-book ratio of about 0.87.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.