UNIVERSITY OF WALES AND MDIS

INTRODUCTION TO ACCOUNTING (HK004)

Financial Analysis for

Done By: Roselina Binte Rosman (BBIE1 1106A)

Starhill Global Reit Overview

Starhill Global REIT is a Singapore-based real estate investment trust. It does investments mainly in real estate used for commercial and office purposes. Starhill Global Reit had acquired and has been acquiring real estate in Singapore and also neighbouring countries. Starhill Global Reit became a public listed company since 20 September 2005 and has grown its properties ever since. From just 2 landmark properties in Orchard Road in Singapore , currently it owns 13 properties in Singapore, Malaysia, China, Australia and Japan. These are valued at about $2.7 billion. The first 2 shopping malls acquired in Singapore would be Wisma Atria and Ngee Ann City in Orchard Road. Followed by Starhill Gallery and Lot 10 in Kuala Lumpur, Malaysia a premier retail property in Chengdu, China, the David Jones Building in Perth, Australia and seven other properties in the prime areas of Tokyo, Japan. Starhill Global REIT focuses on sourcing attractive property assets in Singapore and overseas. At the same time, ensuring growth for acquired assets through proactive leasing efforts and effective asset enhancements. Starhill Global REIT is managed by an external manager, YTL Starhill Global REIT Management Limited. The Manager is a wholly owned subsidiary of YTL Starhill Global REIT Management Holdings Pte. Ltd. which is in turn an indirect subsidiary of YTL Corporation Berhad. Here are some financial highlights for the year 2010: 1)Increase in growth revenue of 23.1% 2)Increase in net property income by 22% 3)Distribution per unit increase from $3.80 in 2009 to $3.90 in 2010 4)Total assets increased from $2312.30 million in 2009 to $2786.60 million in 2010 , a significant increase of 20.5%

BALANCE SHEETS As at 31 December 2010

Group 2010 $'000 2009 $'000 1,981,786 638 11,678 448 16,448 2,011,038 3,370 297,937 301,307 2,312,345 16,411 41,685 18,440 50,133 126,669 29,161 573 569,414 599,148 725,817 1,586,528 1,586,528 1,586,528 1,935,335 0.82 0.82

Trust 2010 $'000 1,812,600 186 595,130 666 1,459 2,410,041 4,418 67,886 72,304 2,482,345 15,472 25,033 563,201 603,706 17,882 24,436 42,318 646,024 1,836,321 1,662,876 173,445 1,836,321 1,943,023 0.95 0.84 2009 $'000 1,714,230 390 226,341 448 16,488 1,957,897 3,212 270,319 273,531 2,231,428 15,293 41,696 56,889 16,782 568,239 585,021 642,010 1,589,418 1,589,418 1,589,418 1,935,335 0.82 0.82

Non-Current Assets Investment properties Plant and Equipment Interests in subsidiaries Intangible Assets Derviative financial instruments Trade and other receivables Current Assets Trade and other receivables Cash and Cash Equivalents Total Assets Non Current Liabilities Trade and other payables Derivative financial instruments Deferred Tax Liabilities Borrowings Current Liabilities Trade and other payables Derivative financial instruments Income Tax Payable Borrowings Total Liabilities Net Assets Represented by: Unitholders' Funds Convertible preferred Units (CPU) Units in Issue ('000) Net Asset Value per unit ($) based on: -Units issued at the end of the year - Units issued at the end of the year, assuming full conversion of CPU 0.84 0.94 1,656,711 173,445 1,830,156 1,943,023 33,530 24,436 1,138 1,114 60,218 956,458 1,830,156 20,997 25,033 17,739 832,471 896,240 4,703 113,040 117,743 2,786,614 2,654,465 563 10,662 1,176 2,005 5,668,871

INCOME STATEMENT Year Ended 31 December 2010 Gross Revenue Property Operating Expenses Net Property Income Finance Income Realised foreign exchange gain/loss Dividend income from subsidiaries Fair value adjustment on security deposits Management Fees Performance Fees Trust Expenses Finance Expense Change in fair value of unrealised derivative instruments Unrealised foreign exchange gain/loss Change in fair value of investment properties Impairment loss on interests in subsidiaries Total Return for the yr before tax and distribution Income tax expense Income Tax Expense Total Return for the yr after tax, before distribution Non-tax deductible/chargaeble items Income available for distribution Earnings per unit (cents) Basic Diluted

Group 2010 $'000 165,667 -35,209 130,458 827 483 1283 12,973 -3,459 -32,258 84,361 -7,440 76,432 153,353 -3,326 150,027 -67,562 82,465

2009 $'000 134,621 -27,672 106,949 431 -52 -666 10,961 -4,855 -23,690 67,156 -8 -108,757 -41,609 -4,622 -46,231 121,713 74,482

Trust 2010 $'000 111,221 -24,088 87,133 471 483 7,274 -67 12,260 -1,845 -17007 64,182 -7,128 5,522 97,765 -14,500 145,841 145,841 -63,376 82,465

2009 $'000 109,213 -20,292 88,921 422 -52 6,112 -346 10,787 -3,578 -18096 62,596 -102 -8,190 -83,006 -16,000 -44,702 -44,702 120,184 75,482

7.48 7.28

(3.06) (3.06)

7.27 7.08

(2.96) (2.96)

CONSOLIDATED CASH FLOW STATEMENT YR ENDED 31 DEC 2010 2010 $'000 Cash flow from operating activities Total return for the year before tax and distribution Adjustments for: Finance Income Fair value adjustment on security deposits Depreciation Management fees paid/ payable in units Finance expense Change in fair value of unrealised derivative instruments Change in fair value of investment properties Operating income before working capital changes Trade and other receivables Trade and other payables Cash generated from operating activities Income tax paid Net cash from operating activities Cash flows from investing activities Deposit paid for the acquisition of property Net cash outflows on acquisition of subsidiary Net cash outflows on purchase of investment properties Purchase of plant and equipment Capital expenditure on investment properties Interest received on deposits Net cash used in investing activities Cash flows from financing activities Rights issue proceeds Rights issue expenses Borrowing costs paid Proceeds from borrowings Repayment of borrowings Distributions paid to CPU holders Distributions paid to unitholders Net cash from financing activities Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at 1 January Effects of exchange rate differences on cash Cash and cash equivalents at 31 December 153,353 2009 $'000 -41,609

-827 -1,283 326 32,258 7,440 -76,432 114,835 -621 6,696 120,910 -1,808 119,102 -410,065 -269 -605 917 -410,022

-431 666 220 5,579 23,690 8 108,757 96,880 428 -2,224 95,084 -2,076 93,008 -14,805 -9 -201 -536 342 -15,209

-37,469 793,495 -572,124 -2,559 -74,267 107,076 -183,844 297,937 -1,053 113,040

337,303 -9,267 -20,230 56,199 -103,435 -72,516 188,054 265,853 32,704 -620 297,937

A) Profitability Analysis Profitability analysis shows how well the company had performed in the year. Profit is measured by Revenue less Cost of Sales. Hence, this is an analysis of the cost and revenue to determine if the company is making a profit or a loss. Investors will be looking into profitability of the company above anything else to decide if the company is worth to invest in. Gross revenue for Starhill Global Reit year ended 2010 was $165.7 million, an increase of $31.1 million from year 2009. The source of revenue is mainly rental income from the leasing of the properties. There was an increase of about 25.1% from $11 million to $14 million in rental income. The significant increase was also due to the revenue contributed by newly acquired properties namely, David Jones Building,in Australia and Malaysia Properties .They are both acquired in 2010. Whereas, for existing properties, business are equally as thriving - Wisma Atria property contributed 33.7% of the revenue and Ngee Ann City property contributed 33.5%. The rest of the properties in Australia, China, Japan and Malaysia contributed from 5.5% to 9.8%. There is also an increase in the net cash used in the investing activities. The company had spent more funds in investments from $1.5 million in 2009 to $410 million in 2010. This indicates that the company is making a profit good enough to invest for future expansions and maximizing their capital. This might mean lesser distributions to unitholders, however the rewards will be in better yield in the future with more assets resulting from a higher net profit.

B) Liquidity Analysis Liquidity position of the company refers to a companys ability to pay for its current obligations in a timely manner with minimal costs. Liquidity is important for a company as it is a measure to ensure that the company is in a sound condition. Liquidity Ratios are ratios that come off the figures from the balance sheet and hence measure the liquidity of the company as on a particular day i.e the day that the balance sheet was prepared. These ratios are important in measuring the ability of a company to meet both its short term and long term obligations Current Ratio This ratio is obtained by dividing the Total Current Assets by its Total Current Liabilities. The ratio is regarded as a test of liquidity for a company. Current Ratio= Total Current Assets/ Total Current Liabilities

Current Ratio for Starhill Global Reit (2010 )117,743/60,218 =$1.955 vs (2009) 301,307/599,148 = $0.502 Starhill Global Reit has $1.955 of current assets to meet $1 of its current liabilities in 2010 but only $ 0.50 assets to meet $1 liabilities in 2009. This is a drastic improvement. Mainly due to lesser current liabilities, a drop from $599 million to only $60 million in 2010. Ratio is about 2:1. This means that the companys current assets( assets that can sell in the next 12 months are twice as large as its short term liabilities. If current liabilities exceed current assets (if ratio is < 1) then the company may not be able to meet its short-term debt obligations. This was the case in 2009.

Debt to Equity Ratio This ratio is obtained by dividing the Total Liability by its Owners Equity or also known as net worth. The ratio measures how the company is leveraging its debt against the capital employed by its owners. If the liabilities exceed the net worth then the creditors have more stake than the shareholders. FY 2010 -$ 956458000/$1632139320 = $0.58 This means that Starhill Global Reit has $0.58 of debt is to $1 of equity in 2010. FY 2009 - $ 725817000/ $1586974700 = $0.45 This means that Starhill Global Reit has $0.45 of debt to $1 of equity in 2009. The low current ratio also shows that the company is more efficient about using its capital. A slight increase in debt in 2010 as Starhill Global Reit had acquired 2 costly properties, David Jones and Malaysia Properties.
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C) FUNDINGS Starhill Global Reit are funded through several channels. They are classified under nonderivative financial liabilities and derivative financial liabilities. Non derivative financial liabilities such as term loan facility, Singapore MTN, Japan bond, China loan, Australia loan, Malaysia MTN and trade. There is a huge increase in non- current borrowings ie. secured borrowings and unsecured borrowings from $50.1 million in 2009 to $839.4 million in 2010. On the other hand, the current ( short term ) borrowings have reduced from $569 million in 2009 to $1.1 million in 2010. This shows that the company has cleared almost all short term loans. Loans taken up in 2010: 1) A $496 million secured loan facilities from a syndicate of five banks were take up in September 2010 to refinance the companys maturing term loans. This loan is a 3 year term loan maturing in September 2013 that also includes an overdraft facility of $50 million. Interest rate is at 1.5% per annum. 2) A $124 million Singapore medium term notes (MTN) were issued. This is a 5 year notes issued in July 2010, maturing in July 2015. The Series 001 notes have a fixed interest rate of 3.405% per annum and payable semi-annually. 3) A $82.4 million term loan was taken up to fund part of the acquisition of David Jones Building in January 2010. This is a 3 years term loan and the interest rate has been hedged via an interest rate cap. The capital structure of a company is the particular combination of debt, equity and other sources of finance that the company uses to fund its long term financing. Managing capital also means to optimise unitholders return through a mix of available sources. This is measured by the gearing ratio. As at 31 December 2010, the gearing for Starhill Global Reit Group is 30.2% compared to 26.9% in 2009. A company with gearing of less than 50% is said to have low gearing since its monthly debt repayments do not form a significant proportion of its monthly outgoings.

D) Investors Ratios Following are the information available for 2009 and 2010

2010 1) Return on Owner's Equity Profit after tax/ (Share capital + Reserves) 2) Return on Capital Employed PBIT/ Capital Employed( Total Assets less Current Liab) 3) Price Earnings Ratio Market Price per share/ Earnings per share 4) Dividend Yield= Dividend per share/ market price per share 8%

2009 -2.50%

5.62%

-1.84%

12.56%

-26.79%

101%

212%

1) ROE indicates what return a company is generating on the owners / shareholders investments. It tells the rate that shareholders are earning on their shares. For 2009, there is a loss in the gross revenue after tax, hence there is a negative ratio of -2.5%. This subsequently improved in 2010 as the revenue had increased. ROE ratio for 2010 is 8%, this means that 8 cents of assets are created for each dollar that was originally invested. 2) ROCE indicates the efficiency and profitability of a company's capital investments. Return on capital employed establishes the relationship between the profit and the capital employed. There is an increase in ROCE from 2009 to 2010, mainly due to increase in profit. 3) A High price earning ratio suggests that investors can expect higher earnings growth in the future. There is an increase in Starhill Global Reit P/E ratio from 2009 to 2010. From a negative ratio to a positive one. This is due to the fact that there is an increase in the net profit after tax in 2010. 4) Dividend yield indicates that Starhill Global Reit gives out lower dividend yield in 2010, however this only mean that they are putting more funds aside for their future investments and expansions. Being a real estate company, there will be future acquisition of properties in Singapore or other countries. This also shows that Starhill Global is prudent in its management. Higher dividend shield can also mean more borrowings for future expansions.

E) Comparison for Starhill Global Reit to competitor, K Reit Asia In 2010, the price earning ratio for K Reit Asia is generally lower than Starhill Global Reit. This is because the total return for the year after tax is slightly higher by $50 million for Starhill Global Reit. The income available for distribution is also higher by about 50% for Starhill Global Reit as of 31 December 2010, $82 million compared to K Reit Asia which only declares $45 million. This shows that the dividend yield is higher and investors who invest in Starhill Global Reit will get a higher dividend payout. Furthermore, the cost of price per share for the period from 01 Jan 2010 to 30 June 2010 is $2.97 for K Reit Asia, compared to only $1 at the most for Starhill Global Reit during the same period. As an investor, it would be more wise to invest in Starhill Global Reit who has more assets , cash flow and higher net profit which ensures higher pecentage of dividend yield.
"The only thing that gives me pleasure is to see my dividend coming in." --John D. Rockefeller.

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References: http://www.wikinvest.com/metric/Current_Ratio http://www.investopedia.com/articles/fundamental/03/102903.asp http://www.investopedia.com/terms/o/operating_profit.asp Business Accounting Eleventh Edition, Frank Wood Starhill Global Reit Annual Report 2009 and 2010 K Reit Asia Annual Report 2009 and 2010

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