Starhill Global Real Estate Investment Trust’s Latest Earnings: What Investors Should Know

Last Friday, Starhill Global Real Estate Investment Trust (SGX: P40U) released its first quarter earnings report for its financial year ending 30 June 2017 (FY16/17). The reporting period was from 1 July 2016 to 30 September 2016.

As a quick background, the real estate investment trust (REIT) has interests in 12 properties in total across Singapore, Australia, Malaysia, China, and Japan. In Singapore, Starhill Global REIT has interests in two iconic buildings along Orchard Road, namely, Wisma Atria and Ngee Ann City.

You can catch the results from Starhill Global REIT’s previous quarter here.

Financial highlights

The following’s a rundown on some of the latest financial figures from Starhill Global REIT :

  1. Gross revenue was $55.3 million in the reporting quarter, down 2.7% compared to the same period a year ago.
  2. For the reporting quarter, net property income (NPI) slipped 1.7% year-on-year. NPI for the first quarter of FY16/17 came in at $42.9 million.
  3. The distribution per unit (DPU) was down 0.8% from 1.31 cents in the corresponding quarter a year ago to 1.30 cents per unit in the reporting quarter.
  4. As of 30 September 2016, Starhill Global REIT’s portfolio was valued at around $3.1 billion. It reported an adjusted net asset value per unit of $0.91 for the end of the quarter, up slightly from the $0.90 seen a year ago.

Beyond these, Foolish investors might want to keep an eye on 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. These are summarized for Starhill Global REIT below:

Source: Starhill Global REIT’s earnings report

As the table above shows, Starhill Global REIT’s debt profile hasn’t shifted much over the past year. Its interest cover had decreased slightly to 4.4 times but the average interest rate was marginally lower at 3.06%.

There is minimal debt coming due (only S$9 million) for the REIT in FY16/17. But, 35% of its total borrowings are set to mature in FY17/18. Investors may want to watch the REIT’s progress in refinancing its borrowings.

Operational highlights and a future outlook

Revenue from Starhill Global REIT’s Singapore properties was up 2.6% year-on-year. Revenue from Malaysia was also up by 7.7% year-on-year. However, the work was undone by revenue from Australia and Others (China and Japan), which fell 10% and over 51%, respectively.

During the quarter, Wisma Atria’s shopper traffic increased by 6.6%, but tenant sales fell by 5.4%. The REIT pointed towards the progressive reopening of Isetan’s strata-owned retail space as one of the main reasons. Investors may want to watch this trend carefully.

Starhill Global REIT ended the reporting quarter with an overall committed occupancy rate of 93.8%. This is a decline from the 95.1% recorded a quarter ago and the 98.3% seen a year ago. The REIT also reported a weighted average lease term to expiry (by gross rent) of 5.0 years as of 30 September 2016.

Ho Sing, the CEO of Starhill Global REIT’s manager, summarized the REIT’s quarter and outlook in the earnings release:

“Amidst challenging market conditions, the rental uplift from our master leases in Singapore and Malaysia contributed positively to the performance this quarter.

For the coming quarters, the focus will be on the redevelopment of Plaza Arcade in Perth. With the anchor tenancy secured and approval from the local authorities received, we target to commence work in the middle of next year for completion by the first quarter of 2018. At an estimated construction cost of under S$10 million, the redevelopment is expected to be accretive to Unitholders.

As part of our efforts to mitigate the challenges of the high-end retail market in China, we have secured a new long-term tenant, Markor International Home Furnishings, which is one of the largest furniture retailers in China. The new fixed lease structure will stabilise income for the REIT upon commencement of its lease in early 2017.”

Starhill Global REIT’s units closed at a price of $0.81 each last Friday. This translates to a trailing price-to-book ratio of 0.89 and a trailing distribution yield 6.5%.

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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.