18 / 152
LETTER TO
UNITHOLDERS
TAN SRI DATO’ (DR)
FRANCIS YEOH SOCK PING
PSM, CBE, FICE, SIMP, DPMS, DPMP, JMN, JP
CHAIRMAN
HO SING
CHIEF EXECUTIVE OFFICER AND
EXECUTIVE DIRECTOR
29 August 2017
NPI for the remaining portfolio (which
contributed 2.5% of SGREIT’s revenue
in FY 2016/17) was lower in FY 2016/17,
mainly due to the mall repositioning
exercise in Chengdu, China and the
loss of income due to the divestment
of properties in Tokyo, Japan.
REJUVENATING AND EVOLVING
The retail operating environment
has rapidly evolved over the past
decade. During this period, an
influx of new mega malls and
the emergence of e-commerce
have inadvertently disrupted
traditional retail businesses.
Despite these challenges, new
opportunities have emerged.
Changing shopper behaviour and
the entry of more international
brands will likely alter the global retail
scene. SGREIT has taken bold steps
to rejuvenate some of our assets so
as to be ready to take advantage of
this evolving environment.
Lot 10 Property in Bukit Bintang,
Kuala Lumpur, is currently undergoing
a RM20 million transformation and
is expected to be completed by
end-2017. The rejuvenation project
will upgrade the mall’s hardware
and software to better engage
Generation Y and Millennial
consumers. The opening of the new
Sungai Buloh-Kajang MRT line in July
2017, with an estimated commuter
base of 400,000 per day, is also
expected to uplift the vibrancy at
Lot 10. A new entrance to the mall is
currently being built, directly linking
the mall to the new MRT station.
In Perth, Plaza Arcade is also
undergoing redevelopment of
approximately A$10 million to
accommodate a new international
anchor tenant. When completed,
the retail floor space of the mall will
increase by one-third. The renovation
will enhance the appearance
and positioning of Plaza Arcade,
and improve shopper experience.
The new international tenant will
complement the city’s retail offerings,
and together with other ongoing
redevelopments within the precinct,
bolster the location’s reputation as
a premier shopping destination.
The China Property has recently
been repositioned to accommodate
a new long-term tenant, Markor
International Home Furnishings Co.
Ltd, one of China’s largest furniture
retailers. It is listed on the Shanghai
Stock Exchange and has a market
capitalisation of approximately
RMB8.5 billion (S$1.7 billion) as at
30 June 2017. The conversion from a
high-end luxury department store
model to a long-term tenant model
will stabilise the property’s rental
income and provide upside through
periodic rental step-up over the tenure
of the lease.
RECYCLING CAPITAL
Harajuku Secondo was divested in
May 2017 for JPY410.2 million, at a
22.4% premium to its latest valuation
and translated to a yield of 2.5%. The
sale marked the fourth divestment in
Tokyo, Japan since 2013 and is part of
our ongoing strategy to refine the
REIT’s portfolio.
Going forward, SGREIT will continue to
recycle its capital through the divestment
of non-core assets and reinvest through
opportunistic acquisitions.
PRUDENT CAPITAL MANAGEMENT
Standard & Poor’s Rating Services
affirmed SGREIT’s “BBB+” rating in
March 2017. SGREIT’s financial
position remains strong. Gearing is
stable at 35.3% as at 30 June 2017
while average debt maturity is
healthy at 2.6 years. In June and
July 2017, as part of our proactive
capital management strategy, we
secured commitments from banks
to early refinance approximately
S$603.0 million, or 53% of SGREIT’s
borrowings ahead of their maturities
in 2018. Post refinancing, the average
debt maturity will be extended to
approximately 4.5 years with no
significant refinancing requirements
until June 2019. The quantum of
the loan, attractive pricing and
the extended tenor of the facilities
demonstrate strong support from our
enlarged pool of existing and new
lenders and further illustrate their
confidence in SGREIT and the quality
of our portfolio.
With approximately 38% of revenue
for FY 2016/17 in foreign currencies, we
actively hedge our exposure by foreign
currency denominated borrowings
(natural hedge) and short-term foreign
exchange forward contracts. Interest
rate exposures are hedged by fixed
rate debt, interest rates swaps as well
as interest rate caps. As at 30 June
2017, approximately 99% of our interest
rate exposure has been hedged.
LOOKING AHEAD
Whilst the retail environment
continues to be challenging, the
global economy is showing positive
signs of a turnaround. To lay the
foundation and deliver sustainable
returns for our Unitholders, the REIT
has been reinvesting and rejuvenating
its assets while continuing to seek out
new opportunities.
ACKNOWLEDGEMENTS
The Board and Management would
like to thank our Directors for their
invaluable contributions and guidance,
our colleagues for their hard work
and dedication, and our tenants,
business partners and investors for
their continued trust and support.
We would also like to thank you, our
Unitholders, for your support and
confidence in SGREIT since listing.
We would like to express our gratitude
to Mr Keith Tay Ah Kee, Dr Hong Hai and
Dr Michael Hwang who have stepped
down from the Board with effect from
November 2016, February 2017 and
August 2017 respectively. We would
also like to welcome our new Directors,
Mr Lim Kok Hoong, Mr Ching Yew Chye
and Mr Tan Woon Hum to the Board.
16
STARHILL GLOBAL REIT ANNUAL REPORT FY 2016/17