Starhill Global REIT Analysis: Net Profit Growth & Investment Insights
Business Description
Starhill Global Real Estate Investment Trust (SGREIT) is a Singapore-domiciled unit trust focusing on investing in retail and office properties. Its portfolio spans key markets such as Singapore, Australia, Malaysia, Japan, and China. The REIT is strategically positioned with high-quality properties, including iconic locations like Ngee Ann City and Wisma Atria in Singapore. The Trust generates revenue primarily through property rental income, turnover rental income, and other income streams. SGREIT aims to deliver stable distributions to unitholders and long-term net asset value growth.
Industry Position
SGREIT operates in the real estate investment trust (REIT) industry, which is highly competitive. Its competitors include other REITs such as CapitaLand Integrated Commercial Trust and Frasers Centrepoint Trust. SGREIT’s market share is bolstered by its strategic properties in prime locations, a diversified portfolio, and a stable tenant base. Its geographic footprint across Asia-Pacific strengthens its defensive position in the industry.
Revenue Streams and Customer Base
The Trust generates revenue through rental income from retail and office properties. Its customer base includes retail tenants, multinational corporations, and local businesses. SGREIT’s competitive advantage lies in its prime property locations, diversified portfolio, and a strong pipeline of lease renewals and asset enhancement initiatives.
Financial Statement Analysis
Income Statement
- Gross Revenue: Increased by 1.7% year-on-year to \$96.3 million for the first half of FY2024/25.
- Net Property Income (NPI): Increased by 1.6% year-on-year to \$75.6 million.
- Total Return After Tax: Grew by 8.9% year-on-year to \$45.3 million.
- Earnings Per Unit (EPU): Increased to 1.90 cents from 1.76 cents year-on-year.
Balance Sheet
- Net Assets: Increased to \$1,731.1 million as of 31 December 2024, up from \$1,719.1 million as of 30 June 2024.
- Investment Properties: Valued at \$2,753.8 million, slightly lower than \$2,762.2 million as of 30 June 2024 due to divestments.
- Aggregate Leverage Ratio: Improved to 36.2%, down from 36.8% as of 30 June 2024.
Cash Flow Statement
- Net Cash from Operating Activities: \$62.1 million, supported by stable rental collections.
- Net Cash from Investing Activities: \$16.8 million, reflecting divestment proceeds from Wisma Atria strata units.
- Net Cash Used in Financing Activities: \$69.3 million, mainly for debt repayments and distributions to unitholders.
Dividend Details
SGREIT declared a distribution of 1.80 cents per unit for the period from 1 July 2024 to 31 December 2024. This includes a taxable income component of 1.59 cents and a tax-exempt income component of 0.21 cents. The distribution is payable on 25 March 2025, with the record date set for 4 February 2025.
Key Strengths
- Portfolio Diversification: Geographically diversified across Singapore, Australia, Malaysia, Japan, and China.
- Strong NPI Growth: 1.6% year-on-year increase driven by higher contributions from Singapore and Perth properties.
- Improved Leverage: Aggregate leverage ratio reduced to 36.2%.
- Dividend Stability: Consistent distributions supported by stable rental income.
Key Risks
- Arbitration Case: Ongoing legal dispute regarding the Myer Lease in Australia, which contributes 7.1% of portfolio revenue.
- Weaker Contributions: Declines from Myer Centre Adelaide and higher operating expenses in Australia.
- Currency Risks: Depreciation of JPY and RMB negatively impacts revenue from Japan and China properties.
Special Actions to Improve Profitability
The Trust is implementing asset enhancement initiatives and divesting non-core assets, such as Wisma Atria strata units, to enhance portfolio quality and free up capital for growth opportunities.
Recommendations
For Current Investors
Hold the stock. SGREIT offers stable distributions and a defensive portfolio. However, monitor the arbitration case and its potential impact on revenue.
For Potential Investors
Consider investing in SGREIT for its strong dividend yield, geographic diversification, and relatively low leverage. However, weigh the ongoing arbitration risk and exposure to currency fluctuations before investing.
Disclaimer
This analysis is for informational purposes only and should not be taken as financial advice. Investors should conduct their own due diligence or consult a financial advisor before making investment decisions.
