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Starhill Global Real Estate Invmt Trust’s Latest Earnings: Headwinds Continue

Starhill Global Real Estate Invmt Trust (SGX: P40U) released its quarterly earnings report yesterday. The reporting period was from 1 Jan 2015 to 31 March 2014.

As a note, Starhill Global is in the process of changing its financial year end from 31 December to 30 June – hence, this reporting quarter was considered the fifth quarter.

The real estate investment trust (REIT) owns marquee malls along Orchard road such as Wisma Atria and the iconic Ngee Ann City. In all, the REIT has ownership stakes in 12 prime retail properties in Singapore, Malaysia, Australia, China, and Japan.

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

Financial Highlights

Here’s a rundown on the financial figures:

  1. Gross revenue fell to $47.9 million in the fifth quarter, down roughly 2.7% compared to a similar period a year ago.
  2. For the reporting quarter, net property income (NPI) was roughly flat. NPI for the fifth quarter came in at $38.9 million.
  3. Distribution per unit (DPU) for the reporting quarter will be 1.26 cents, a slight 1.6% bump up from 1.24 cents in the same period last year.
  4. The property value for the REIT stood at $2.8 billion as of 31 March 2015. It had an adjusted net asset value per unit of $0.93.

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 summarized below.

Gearing 28.70%
Interest Cover 5.4 times
Weighted Average Debt Maturity 3.1 years
Average interest rate per annum 3.13%
Unencumbered Assets Ratio 80%
Fixed/Hedged Debt Ratio 100%
Total Borrowings $847 million

Starhill Global has another $124 million to refinance for the period July 2015 to June 2016 (2015/2016). On the financial year 2016/2017, there is a further $186 million to refinance. Currently, the gearing for Starhill Global is fairly low at 28.7% — giving it room to expand in the future.

Operational Highlights

While the overall gross revenue remained relatively unchanged, it was a different picture for the underlying properties.

Revenue from its China and Japan properties fell by 36% and 17% respectively 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 market suffered from depreciation of the Japanese Yen and the loss of contribution from divested property.

Its Singaporean properties, Ngee Ann City and Wisma Atria picked up the slack by contributing a 1.4% year on year increase in gross revenue. That said, shopper traffic and tenant sales for Wisma Atria dipped 2% and 9% respectively over the previous corresponding period.

In this case, the threat of online shopping is also a trend worth watching.

Starhill Global ended the quarter with overall committed occupancy rate of 99.1%. The REIT also had a weighted average lease term to expiry of 5.5 and 4.5 years by net leasable area and gross rent respectively.

Ho Sing, the CEO of YTL Starhill Global summarized the quarter and outlook in the two paragraphs below:

“SGREIT’s portfolio continued to perform, with the Singapore portfolio continuing to be the key driver, turning in a 3.6% increase in NPI over the previous corresponding period despite headwinds faced by the industry. We have also received commitment for the refinancing of the JPY6.3 billion unsecured term loan facility ahead of its maturity in September 2016 and at a lower all-in interest margin.

We have entered into a sale and purchase agreement to acquire Myer Centre Adelaide, a freehold asset and the city’s largest shopping centre of 602,000 sq ft of net lettable area of largely retail space, at a purchase price of A$288.0 million, which is below replacement cost and equal to its latest valuation. This asset complements our quality portfolio of properties in prime locations. The property provides an attractive yield of 6.6%4 , is 2.8%5 accretive to our DPU on a pro forma historical basis. Its premier location in Adelaide is likely to be one of the preferred locations for international retailers who are just beginning to look at expanding into Adelaide. There is also good potential upside from asset enhancement opportunities for the mall.”

Foolish summary

Starhill Global last traded at $0.865 yesterday. This translates to a historical price-to-book ratio of 0.93. With the projected DPU payout of 5.07 Singapore cents on a trailing twelve months basis, this would yield 5.9% on Wednesday’s share price.

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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.