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What Investors Need to Know About Starhill Global Real Estate Investment Trust’s Latest Earnings

Credit: Calvin Teo

Starhill Global Real Estate Investment Trust (SGX: P40U), or SGREIT, is a retail real estate investment trust (REIT) that owns 11 properties in Singapore, Australia, Malaysia, China, and Japan. These comprise of interests in Singapore’s Wisma Atria and Ngee Ann City, Australia’s Myer Centre Adelaide, David Jones Building and Plaza Arcade, Malaysia’s Starhill Gallery and Lot 10, a retail property in Chengdu, China, and three properties in Japan.

Yesterday, the retail REIT released its financial results for the second quarter ended 31 December 2017 (2Q FY17/18). Let’s take a look at what transpired.

How much did the REIT bring in?

Source: Starhill Global Real Estate Investment Trust Earnings Presentation

Revenue for the quarter fell 3% year-on-year to S$52.5 million. The decline in revenue was largely due to “weaker contributions from offices, disruption of income from ongoing asset redevelopment works at Plaza Arcade in Perth and lower revenue at Myer Centre Adelaide”.

Net property income (NPI) slipped 2.2% to S$40.5 million on the back of lower revenue, partially offset by lower expenses mainly at the property in China.

The asset redevelopment at Plaza Arcade is scheduled to be completed in the first quarter of this year, with global retailer, UNIQLO, opening its first Perth flagship store in the mall in the middle of the year.

Properties in Singapore contributed to 62.5% of total revenue. Quarterly NPI for the Singapore properties decreased by 2.6% to S$25.7 million, largely on the back of lower occupancies in Singapore offices and higher expenses.

Overall occupancy at the REIT was 94.1%, as at 31 December 2017. This marked a fall as compared to 95.5% seen at the end of June 2017.

What will investors get?

For the quarter, income to be distributed to unitholders tumbled 7.1% year-on-year to S$25.2 million while distribution per unit (DPU) declined by the same percentage to 1.17 Singapore cents.

The DPU of 1.17 Singapore cents translates to a distribution yield of 5.99%, based on the closing price of S$0.775 per unit as at 31 December 2017, and an annualised second-quarter DPU.

The yield of the REIT is some 4% higher than the yield of a 10-year Singapore Government Bond.

Source: Starhill Global Real Estate Investment Trust Earnings Presentation

What’s next for the REIT?

Tan Sri Dato’ (Dr) Francis Yeoh, chairman of the REIT’s manager, gave the following outlook:

“The global economy has staged a stronger than expected growth in 2017, prompting the World Bank to upgrade its forecast of global economic growth to 3.1 per cent for 2018. The synchronised and broad-based growth is expected to trickle down positively into the Singapore retail scene in the foreseeable future. Earlier initiatives to rejuvenate the portfolio have been timely, setting SGREIT in a good position to ride on any retail sector upturn. Notwithstanding the improved economic outlook, we remain cautious on the sustainability of the economic growth and the structural changes to consumer preferences. We will continue to recalibrate our portfolio and sieve out opportunities, with the aim of creating long-term value for our Unitholders.”

Based on the closing price of S$0.775 per unit on 31 December 2017, the REIT is selling at 0.84 times its latest book value.

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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 Sudhan P doesn’t own shares in any companies mentioned.