Starhill Global REIT’s Latest Earnings: Running to Stand Still?

Starhill Global Real Estate Invmt Trust (SGX: P40U) released its fiscal fourth quarter earnings report yesterday and it was more of the same. The reporting period was from 1 October 2014 to 31 December 2014.

Starhill Global is a real estate investment trust (REIT) with ownership stakes in 12 prime retail properties in Singapore, Malaysia, Australia, China, and Japan. Within the shores of Singapore, it owns the iconic Ngee Ann City and Wisma Atria on Orchard road.

You can read more about the REIT here, and catch the previous earnings report here.

Financial Highlights

Here’s a rundown on the financial figures for Starhill Global’s latest earnings release:

  1. Gross revenue rose to $48.9 million in the fourth quarter, roughly flat compared to the same quarter a year ago. For the financial year ended 31 December 2014 (FY2014), Starhill Global earned $195.1 million in gross revenue which is relatively unchanged from 2013.
  2. For the quarter, net property income (NPI) rose by 2%. NPI for the fourth quarter came in at $39.6 million, compared to $38.8 million a year ago. NPI for FY2014 was $157.4 million, up slightly at 2.2% on a year on year comparison.
  3. Distribution per unit (DPU) for the quarter will be 1.29 cents, a steady 4.9% bump up from 1.23 cents in the fourth quarter last year. The REIT will distribute 5.05 cents per unit for the entire FY2014.
  4. The property value for the REIT stood at $2.85 billion as of 31 December 2014. It had an adjusted net asset value per unit of $0.93, up slightly from $0.93 a year ago.

Foolish investors might want to keep an eye on a REIT’s debt profile. The debt profile may provide clues on how a REIT is funded, and its sensitivity to the interest rate environment. These are summarised below for Starhill Global:

Gearing Ratio 28.6%
Interest Cover Ratio 5.4 times
Weighted Average Debt to Maturity 3.3 years
Fixed / Hedged debt ratio 100%
Average interest rate (per annum) 3.16%
Unencumbered Assets Ratio 80%
Total debt $849 million

Source: Starhill Global’s earnings presentation

For the quarter, there was not much to report on debt refinancing. Management commented that the debt due in FY2015 can be refinanced using its undrawn financial facilities.

Beyond that, the next test in flexibility of funding will come in FY2016 when about 21% of its loans become due. The REIT does not have any debt obligations in 2017. The progress in refinancing of debt is where Foolish investors should keep a watchful eye on.

Operational Highlights

Although Starhill Global’s overall gross revenue remained relatively unchanged compared to 2013, it was a different picture for its underlying properties.

For the quarter, revenue from its China and Japan properties fell by more than 24% each compared to a year ago. For China, the REIT cited a softening retail market from austerity measures put in place by the Chinese government. The Japan revenue suffered from depreciation of the Japanese Yen and the loss of contribution from divested properties.

Meanwhile, Starhill Global’s Singapore properties, Ngee Ann City and Wisma Atria, picked up the slack by contributing a 3.2% year on year increase in gross revenue, driven by positive rental reversions.

Starhill Global ended the quarter with an overall 99.6% portfolio occupancy. The REIT also had a weighted average lease term to expiry of 5.7 years and 4.7 years by net leasable area and gross rent, respectively.

Given the REIT’s heavy slant toward retail properties, overall shopper traffic is also one metric worth watchingWisma Atria saw its quarterly shopper traffic dip by 3.1% compared to the same quarter last year. The REIT’s management chalked it up to weaker tourist spending and a softer retail sentiment.

Looking forward, Tan Sri Dato’ Francis Yeoh, Executive Chairman of the manager for Starhill Global, had this to add:

“The subdued global economic outlook has continued to affect consumer sentiments. However, despite ongoing market uncertainties, SGREIT’s [Starhill Global] portfolio continues to enjoy high occupancy rates, a testament to the quality of our assets as well as the manager’s execution capabilities. We remain positive on the longterm growth potential of Asia’s growing middle class and will leverage on our balance sheet strength to seize opportunities that might arise from this current environment.”

Foolish summary

Starhill Global last traded at S$0.835 yesterday. This translates to a historical price-to-book ratio of 0.90 and a trailing distribution yield of around 6%.

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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.