The Motley Fool

3 Things to Know About Starhill Global Real Estate Investment Trust’s Latest Earnings

Starhill Global Real Estate Investment Trust (SGX: P40U) is a retail real estate investment trust (REIT) that owns 11 properties in Singapore, Australia, Malaysia, China, and Japan. These comprise of interests in Wisma Atria and Ngee Ann City in Singapore, Myer Centre Adelaide, David Jones Building and Plaza Arcade in Australia, Starhill Gallery and Lot 10 in Malaysia, a retail property in China, and three properties in Japan. Its sponsor is YTL Corporation Berhad (KLSE:4677.KL), a conglomerate listed in Malaysia.

Last week, the retail REIT released its financial results for the year ended 30 June 2017 (FY16/17). Let’s take a look at three aspects of the results that may interest investors.

How much did the REIT bring in?

Source: Starhill Global REIT Earnings Presentation

Gross revenue for the year came in at around S$216 million, a 1.5% year-on-year decline. Net property income (NPI) was at approximately S$167 million, which was a decrease of 2.0% over the corresponding period. The REIT attributed the poor showing largely to “lower contributions from Wisma Atria Property and Ngee Ann City Property (Office), as well as Myer Centre Adelaide, Plaza Arcade, China and Japan Properties, partially offset by stronger performance of Ngee Ann City Property (Retail), Malaysia Properties and David Jones Building”.

Properties in Singapore contributed to 62.2% of total revenue. For FY16/17, NPI for Singapore properties increased slightly to around S$107 million mainly due to higher base rent from Toshin master lease at Ngee Ann City Property (Retail) since June 2016 and recognition pre-termination rental compensation for a lease at Wisma Atria Property. However, this was partially offset by lower occupancies for Singapore offices as well as lower average rents at Wisma Atria Property (Retail).

In June 2016, Starhill Global REIT secured a 5.5% increase in base rent, as compared to the previous rate, for the Toshin master lease. The next rent review will be in June 2019. The master lease at Ngee Ann City Retail accounted for approximately 20.8% of the REIT’s portfolio gross rent as at 30 June 2017.

What will investors get?

Investors will receive a distribution per unit (DPU) of 1.18 Singapore cents for the fourth quarter, a decrease of 8.5% year-on-year. For the full year, DPU came in at 4.92 cents, a fall of 5%. The DPU of 1.18 translates to an annualised distribution yield of 6.06%, based on Starhill Global REIT’s closing price of $0.78 per unit as at 30 June 2017.

The yield of the REIT is some 4% higher than the yield of a 10-Year Singapore Government Bond. However, investors should discern if the yield is sustainable going forward, given the challenging environment retail malls are operating in.

Source: Starhill Global REIT Earnings Presentation

What’s next for the REIT?

Mr Ho Sing, Chief Executive Officer of the manager of Starhill Global REIT, gave us a peek into the future, saying:

“To lay the foundation for the REIT’s next phase of growth, we have been investing in our assets. Construction works for the asset redevelopment at Plaza Arcade and renovation for the China Property have commenced and handover to the new tenants are as scheduled. The rejuvenation project at Lot 10 in Malaysia is making good progress and has seen positive momentum with the opening of the new MRT station in front of the mall since 17 July 2017.”

The REIT also added that a new anchor tenant at Plaza Arcade will be brought in to complement Perth city centre’s revitalised retail offerings. Construction work is expected to be completed in the first quarter of 2018. Meanwhile, for the property in China, a new long-term fixed lease tenancy should provide income stability and the new tenant is expected to start business at the end of the year.

Learn more about REITs through a free subscription to Take Stock Singapore. Sign up here to The Motley Fool’s investing newsletter that will teach you how to grow your wealth in the years ahead.

Like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.