THE JOURNEY BEGINS
THE JOURNEY Starhill Global REIT Annual Report 2008 BEGINS Starhill Global Reit Annual Report 2008
YTL Pacific Star REIT Management Limited Company Registration No.: 200502123C www.starhillglobalreit.com Starhill Global REIT (formerly known as Macquarie Prime REIT) is a Singapore-based real estate investment trust investing primarily in real estate used for retail and office purposes, both in Singapore and overseas. Listed on the Mainboard of the Singapore Exchange Securities Trading Limited (“SGX-ST”) since 20 September 2005, Starhill Global REIT owns two landmark properties on Orchard Road, Singapore’s premier shopping and tourist street. Its initial portfolio included a 74.23% strata title interest in Wisma Atria and a 27.23% strata title interest in Ngee Ann City.
In 2007, Starhill Global REIT enlarged its asset base and geographical footprint with the acquisition of seven properties in the prime areas of Aoyama, Roppongi, Harajyuku, Meguro and Ebisu in Tokyo, Japan and a premier retail property in Chengdu, China. Starhill Global REIT’s portfolio now comprises 10 properties in the three countries, valued at about $2.1 billion. Starhill Global REIT remains focused on sourcing attractive property assets in Singapore and overseas, while driving organic growth from its existing portfolio, through proactive leasing efforts and creative asset enhancements.
Starhill Global REIT is managed by an external manager, YTL Pacific Star REIT Management Limited. The Manager is a wholly owned subsidiary of YTL Pacific Star REIT Management Holdings Pte Ltd, a 50:50 joint venture between Starhill Global REIT Management Limited (an indirect wholly owned subsidiary of YTL Corporation Berhad) and Pacific Star REIT Management Holdings Limited.
CONTENTS
01 Vision / Mission / Corporate Values / 36 Singapore Properties Portfolio Overview 42 China Property 02 Shape a Better Future 43 Japan Properties 04 Create New Experiences 44 Market Overview 06 Plan for Change 45 Capital Management 08 Message from the Executive Chairman 47 Risk Management Framework 11 Message from the Chief Executive Officer 48 Our People 13 Financial Highlights 49 Investor Relations & Communications 14 Significant Events 50 Corporate Social Responsibility 15 Awards & Accolades 2008 51 Financial Review 16 Board of Directors 53 Financial Statements 18 Management 98 Statistics of Unitholders 22 Organisation Chart 100 Additional Information 23 Corporate Governance 101 Corporate Directory 31 Property Portfolio Summary 102 Glossary 34 Property Profile
Concept and Design by Equus STARHILL GLOBAL REIT 1 ANNUAL REPORT 2008
VISION To be the most valued real estate investment trust in Singapore which is committed to delivering long-term superior returns to our unitholders
MISSION To create and deliver superior returns to our investors through growth and value creation in our assets, products and services, unconstrained by boundary and reach
To be the landlord of choice for our tenants and shoppers and be committed in our delivery of quality products and services
To be a forward-thinking real estate company with strong management expertise and provide fulfilment for our people
CORPORATE VALUES The values to which we aspire can be summarised under six principles:
Integrity Client commitment Strive for profitability Fulfilment for our people Teamwork Highest standards portfolio overview
Tokyo Chengdu
Singapore SHAPE A BETTER FUTURE
The high quality assets and strong fundamentals of Starhill Global REIT’s portfolio, coupled with the long-term vision and investment track record of our new sponsor YTL Corporation Berhad, provide a plethora of synergies and opportunities for future growth. CREATE NEW EXPERIENCES
Our proactive and creative tenancy and asset management initiatives have resulted in our properties attracting new concept and flagship stores which refresh and bolster the gamut of exciting retail offerings at our malls. PLAN FOR CHANGE
Amid increased competition and an ever challenging global economic climate, we have set in place forward-thinking strategies such as a first-for-S-REITs unit buyback mandate and a Medium Term Note (MTN) programme. With our prudent capital management, we have maintained a low gearing and a strong balance sheet. 8 STARHILL GLOBAL REIT 9 ANNUAL REPORT 2008
Message from the Executive Chairman
Dear Unitholders,
It has been an eventful year for Starhill Global REIT. Following its maiden acquisitions in Japan and China in 2007, the Manager has, in the past year, continued to focus on unlocking potential value for unitholders and, in early 2008, embarked on two initiatives never before undertaken by a Singapore REIT. The fi rst of these initiatives was to obtain unitholders’ approval for a unit buyback mandate and the second, to carry out a strategic review of the REIT to consider corporate and asset level proposals.
OVERVIEW As the year progressed, the ongoing global fi nancial crisis saw the collapse or near failure of several international investment banks and fi nancial institutions. We are now in a ‘perfect storm’ of the worst global economic crisis since the Great Depression, characterised by highly volatile fi nancial markets, a credit crunch and widespread recessionary conditions. In the face of these increasingly challenging market conditions, the strategic review of the REIT did not yield a fi rm offer to acquire 100% of the REIT units or its investments, although Starhill Global REIT continued to turn in a strong performance in 2008.
YTL Corporation Berhad (YTL) assumed sponsorship of Starhill Global REIT on 31 December 2008, following its successful acquisition of a stake of approximately 26% in the REIT through its indirect wholly owned subsidiary, Starhill Global REIT Investments Limited.
A NEW JOURNEY BEGINS As the newly appointed Executive Chairman of the Manager of Starhill Global REIT, I am keen to leverage on the strengths of both YTL and the Manager to realise greater synergies and create further value for unitholders.
We initiated the rebranding of the REIT through the introduction of the distinguished ‘Starhill’ brand, and as a long-term growth strategy, we will intensify our efforts to source and identify potential viable acquisitions in Singapore and overseas. Our broader investment strategy is to continue to focus on prime assets in well-established markets that will enable us to 10
MESSAGE FROM THE EXECUTIVE CHAIRMAN
Acknowledgements We remain committed to The Board and Management would like to thank reinforcing the strength the directors and the management team for their commitment, contributions and guidance in the past of Starhill Global REIT’s year. We would also like to record our appreciation to Dr Hong Hai for chairing the Manager’s Audit portfolio and creating Committee since the REIT’s listing, and to extend our value for unitholders in gratitude to him for agreeing to assume the additional position of Lead Independent Director, to assist us terms of higher earnings, in maintaining our standards of good corporate governance. We also thank Mr Stephen Girdis and better branding and Mr Andrew Taylor for their guidance and contributions sustainable distributions. during their tenure as non-executive chairman and director, respectively. In addition, we wish to thank our investors, tenants and business partners for their employ our branding to enhance the value and retail ongoing support, confidence and trust in us. positioning of these properties.
In a wider context, Starhill Global REIT is well- aligned with YTL’s group-wide focus on inculcating world-class standards at its properties. In Singapore, Ngee Ann City was named by Forbes magazine in Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping 2008 as among the Top 10 Malls in the World. PSM, CBE, FICE, SIMP, DPMS, DPMP, JMN, JP Wisma Atria was the People’s Choice for Best Executive Chairman Shopping Experience and was a top-three finalist for the Best Shopping Experience (Shopping Malls) 27 February 2009 in the Tourism Awards 2008. Wisma Atria was also the winner for Outstanding Tenant Relationship in the Singapore Retailers Association Awards 2008. In Japan, Roppongi Terzo won an award in green urban development, while in China, Renhe Spring Zongbei Department Store was lauded by several municipal government agencies for its best practices in business and financial reporting.
We remain committed to reinforcing the strength of Starhill Global REIT’s portfolio and creating value for unitholders in terms of higher earnings, better branding and sustainable distributions. STARHILL GLOBAL REIT 11 ANNUAL REPORT 2008
Message from the Chief Executive Officer
after taking into account foreign exchange effects in the valuation of Starhill Global REIT’s portfolio, underscores the prime locations, quality and sustained appeal of Starhill Global REIT’s assets.
Prudent capital management We continued to exercise prudence in managing Starhill Global REIT’s debt profile. In 2008, we refinanced $220 million of short-term loans through a club deal, amidst a highly volatile market, with three foreign banks at competitive market rates. As at 31 December 2008, gearing remained low at 31.0%, with a weighted average interest rate of 3.0% per annum and interest cover of 4.6 times for the year ended 31 December 2008. Starhill Global REIT is also shielded from interest rate volatility as 89.4% of the Group’s debt is fixed until September 2010. In February 2009, a $35 million revolving credit facility was rolled over till March 2010. With this refinancing, Starhill Global REIT will have no refinancing requirements until 2010.
Dear Unitholders, Assets retain appeal Organic growth at our Singapore assets in 2008 was On behalf of the Board of YTL Pacific Star REIT driven by new leases signed for 8,288 square feet (sq Management Limited, as Manager of Starhill Global ft) of space now occupied by Nike in Wisma Atria and REIT, I am pleased to present the report and audited for about 15,300 sq ft on Level 5 in Ngee Ann City, financial statements of Starhill Global REIT for the now transformed into a beauty and wellness area. A financial year ended 31 December 2008. 19.75% increase in rent was also secured for 226,000 sq ft of retail space under a master lease in Ngee Ann Continued strong performance City. This will underpin and continue to contribute In spite of the deterioration of market conditions to the stability of our revenue stream for the next towards the end of last year, Starhill Global REIT still three years. In 2008, approximately 80,000 sq ft of managed to turn in a strong performance in 2008, office renewals and new leases were contracted at an achieving higher gross revenue, net property income, average increase of 116.0% over previous rents. distributable income and Distribution Per Unit (DPU) than 2007. This good performance is underpinned On a combined basis, both assets enjoyed 98.3% by a quality portfolio that has been boosted by committed occupancy for retail space and 92.4% revenue from overseas assets acquired in the previous committed occupancy for office space as at 31 year, and increased contribution from the Singapore December 2008. Shopper traffic at Wisma Atria Properties. In 2008, it delivered a total DPU of stood at 15.76 million for the year and is expected 7.17 cents to unitholders, which is 15.8% higher to increase with the re-opening of the MRT linkway in than that in 2007. mid 2009.
Starhill Global REIT’s portfolio of 10 properties In 2008, we carried out several asset enhancements in Singapore, Japan and China were valued at at Wisma Atria. These include the creation of a new $2.1 billion as at 31 December 2008, equivalent side entrance on Level 2 to capture the Orchard MRT to a Net Asset Value (NAV) per unit of $1.44. The commuter traffic from a new ground-level entrance/ relatively small decrease of $105.3 million or 4.8%, exit point, enhancements to the taxi stand to create 12
MESSAGE FROM THE CHIEF EXECUTIVE OFFICER
more visible shop fronts, and the replacement of average achieved rents of $13.22 psf pm for renewals the aquarium with rent-yielding retail space in the and new leases in 2008, it is expected that there will common area. We also bolstered Wisma Atria’s retail still be some upside in rents. offering with new tenants, including first-in-Southeast- Asia flagship stores by Nike and Longines. Similarly, in the retail sector in Singapore, we expect reduced retail sales as a result of falling tourist arrivals In Chengdu, the Renhe Spring Zongbei Department and the economic recession, as well as the expected Store enjoyed 100% occupancy as at 31 December introduction of some 1.33 million sq ft of retail space 2008. The department store achieved full year sales to Orchard Road this year to lead to lower retail rents. that were 15.3% higher than in 2007, in spite of However, it is expected that the opening of ION some disruption in operations caused by the Sichuan Orchard will add to the vibrancy and dynamism of earthquake in May 2008. the Ngee Ann City-Wisma Atria block, located in the highly popular shopping stretch of Orchard Road. In In Tokyo, our Japan Properties contributed 7.2% addition, the re-opening of the widened basement or $9.2 million in gross revenue of the Group in linkway between Wisma Atria and the Orchard MRT 2008. As at 31 December 2008, five of the seven station is also expected to boost traffic and sales at properties in the portfolio enjoyed 100% occupancy, the mall. except for Roppongi Primo (86% occupied; rent for vacant unit is under rental guarantee by the vendor, OUTLOOK FOR 2009 Fund Creation until May 2009) and Daikanyama Despite the challenging economic outlook, (88% occupied; rent for vacant unit is under rental Starhill Global REIT is expected to be well positioned guarantee by the master lessee, Future Revolution to weather the economic crisis, given its low gearing, until June 2010). On 16 January 2009, the parent strong underlying fundamentals of its prime asset company of Future Revolution transferred its entire portfolio and highly defensible cashflows underpinned interest in Future Revolution to a non-related party, by its long-term master leases. Going forward, we will Hexagon Capital Partners, pursuant to an ongoing also be working closely with the new sponsor, YTL, civil rehabilitation process. We will continue to to assess and implement new strategic initiatives monitor the situation and will take necessary actions with a view to improving the performance of to mitigate any risk exposure to Starhill Global REIT. Starhill Global REIT. We are in the process of replacing the asset managers in Japan to improve the performance of the assets in 2009.
Resilience and long-term growth The expected glut of office space supply in the Franklin Heng central business district, the consolidation of Chief Executive Officer banking and financial institutions and worsening economic conditions have led to downward pressure 27 February 2009 on office rents.
However, the even distribution of lease expiry will mitigate to a some extent any potential downward revision in office rents. In 2009, 72,969 sq ft or 30.4% of the Trust’s total office NLA, at an average passing rent of $7.80 psf pm, will be up for renewal. Against STARHILL GLOBAL REIT 13 ANNUAL REPORT 2008
Financial Highlights
FY 2008 FY 2007 CHANGE (%)
Gross Revenue (millions) $127.0 $103.0 23.4
Net Property Income (millions) $95.9 $76.8 24.8
Distributable Income (millions) $69.4 $59.0 17.6
Distribution Per Unit 7.17 cents 6.19 cents 15.8
Distribution Yield 13.79% 5.63% @ 31 Dec 08 ($0.52) @ 31 Dec 07 ($1.10)
Total Return (48.8%) (1.2%)
Net Asset Value Per Unit $1.44 $1.61 (10.6)
Total Assets (millions) $2,163 $2,278 (5.0)
Investment Properties – Number of Properties 10 10 – Value (millions) $2,103 $2,209 (4.8)
Gearing 31.0% 29.0%
Starhill Global REIT 1 January to 31 December 2008 Unit Price and Volume since IPO Opening price (2 Jan 08) $1.10 (20 Sep 2005 – 31 Dec 2008) Closing price (31 Dec 08) $0.52 High (11 Apr 08) $1.27 Low (24 Nov 08) $0.45 Volume traded (in million units) 481.5
$ ‘000
1.3 80,000
70,000
1.0
60,000
50,000 0.8
40,000
0.5 30,000
20,000 0.3
10,000
0 0 Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec 05 05 06 06 06 07 07 07 08 08 08
Daily Volume (units) Last Price 14
Significant Events
31 December Macquarie Prime REIT* is 28 October Strategic review is concluded renamed Starhill Global REIT and as no firm offer was received Tan Sri Dato’ (Dr) Francis Yeoh is for 100% of Starhill Global REIT appointed Executive Chairman units due to the increasingly of the Manager challenging market environment 4 December Official launch of first Longines and execution risks encountered, flagship store in Southeast and in view of the principal-to- Asia in Wisma Atria with principal deal between YTL and brand ambassador Aaron Macquarie Group for its 26% Kwok gracing the occasion stake in Starhill Global REIT
28 November Nike opens its first duplex 8 September Moody’s Investor Services concept flagship store in reassigns corporate family and Southeast Asia in Wisma Atria unsecured ratings of Starhill Global REIT to Baa2 and Baa3 26 November Fitch Ratings reaffirms ‘AAA’ respectively with a stable outlook rating for Orion Prime Ltd’s EUR 186.2 million senior notes 25 August Starhill Global REIT refinances with a stable outlook, supported loans of $220 million at by the strong quality of the two competitive market rates with underlying Singapore properties, expiry in 2010 Wisma Atria and Ngee Ann City, 25 August Fitch Ratings and Moody’s which are given as security for Investors Services affirm the notes respectively, the “AAA” and 29 October Moody’s Investors Service affirms “Aaa” ratings for EUR 186.2 Starhill Global REIT’s Baa2 million floating rate senior notes corporate family rating and Baa3 issued by Orion Prime Ltd senior unsecured rating with 1 August Launch of branding of Level 5 stable outlook in Ngee Ann City as “The Fifth – 28 October YTL announces its acquisition A Level Above Shopping” of 26% of Starhill Global 8 June A 19.75% rent increase is REIT and 50% of the holding secured for about 226,000 sq ft company of the Manager from of retail space in Ngee Ann City Macquarie Group for a period of three years
Left to right: Launch of Longines’ first flagship store in Southeast Asia; Wisma Atria’s dancing ‘traffic cops’
* Macquarie MEAG Prime REIT was renamed Macquarie Prime REIT on 12 June 2008 ** Macquarie Pacific Star Property Management Pte. Ltd. was renamed YTL Pacific Star Property Management Pte. Ltd. on 1 January 2009 STARHILL GLOBAL REIT 15 ANNUAL REPORT 2008
Awards & Accolades 2008
Singapore Wisma Atria Tourism Awards 2008 Best Shopping Experience (Shopping Mall) People’s Choice – Winner
Wisma Atria Tourism Awards 2008 1 June The new beauty and wellness Best Shopping Experience (Shopping Mall) – area opens on Level 5 of Top Three Finalist Ngee Ann City Wisma Atria 4 April Starhill Global REIT announces Singapore Retailers Association Awards 2008 receipt and review of a number Outstanding Tenant Relationship – Winner of indicative proposals from third parties in relation to Starhill Ngee Ann City Global REIT Forbes Magazine (August 2008) Top 10 Malls in the World 13 March Starhill Global REIT refinances $220 million of short-term loans, YTL Pacific Star Property Management ** extending the maturity of the The Singapore H.E.A.L.T.H facilities until end September (Helping Employees Achieve Life-time Health) Award 2008, to allow the strategic Company Category – Bronze Award review to proceed with flexibility
19 February Starhill Global REIT commences Japan strategic review to consider Roppongi Terzo both corporate and asset Tokyo Minato-ku Ward Green Urban Development level strategies Awards 2008 Winner 16 January Moody’s assigns Baa2 to Starhill Global REIT’s multi- China currency Medium Term Note Renhe Spring Zongbei Department Store (MTN) Programme Wuhou District Government, Chengdu 8 January Starhill Global REIT unitholders Best Tax Contributor 2008 endorse first S-Reit Unit Buy-back Scheme at EGM Renhe Spring Zongbei Department Store Tiao San Ta Neighborhood Office, 8 January Starhill Global REIT Wuhou District Government, Chengdu establishes $2,000,000,000 Excellence in Statistical Reporting 2008 multicurrency Medium Term Note (MTN) Programme Renhe Spring Zongbei Department Store Wuhou District Government, Chengdu Premium Corporation 2008 16
Board of Directors
Tan Sri Dato' (Dr) Francis Yeoh Sock Ping Mr Franklin Heng Executive Chairman Executive Director Tan Sri Dato’ (Dr) Francis Yeoh was appointed as an Mr Heng is the Chief Executive Officer of the Executive Director of YTL in 1984 and has been the Manager. He assists the Executive Chairman and the Managing Director of YTL Group since 1988. Under Board in formulating strategies for Starhill Global his stewardship, YTL has grown from a single listed REIT and is responsible for the implementation of entity into a force comprising six listed entities, ie YTL, these strategies and the day-to-day operations of YTL Power International Berhad, YTL Cement Berhad, Starhill Global REIT. He was previously engaged in real YTL Land & Development Berhad, YTL e-Solutions estate investments for the ERGO Group companies Berhad and Starhill Real Estate Investment Trust. and property funds management for the Pacific Star He is presently Managing Director of YTL Power Group. With more than 15 years of real estate and International Berhad, YTL Cement Berhad and YTL investment banking experience (including eight years Land & Development Berhad, all listed on the Main in JP Morgan), Mr Heng is well-versed in regional Board of Bursa Malaysia Securities Berhad. mergers and acquisitions, project finance advisory, equity and debt capital markets transactions. Tan Sri Francis is also the Executive Chairman of YTL e-Solutions Berhad which is listed on the MESDAQ Dato' Yeoh Seok Kian Market of Bursa Malaysia Securities Berhad. Besides Non-Executive Director the listed entities in YTL Group, Tan Sri Francis also sits Dato’ Yeoh Seok Kian has been an Executive on the board of several public companies such as YTL Director of YTL since 1984. He is currently the Industries Berhad, YTL Foundation and the prominent Deputy Managing Director of YTL and YTL Power private utilities companies in United Kingdom, Wessex International Berhad, and the Executive Director of Water Limited and Wessex Water Services Limited. YTL Cement Berhad and YTL Land & Development He is also a director and Chief Executive Officer of Berhad, all listed on the Main Board of Bursa Malaysia Pintar Projek Sdn Bhd, the Manager of Starhill Real Securities Berhad. Dato’ Yeoh Seok Kian also serves on Estate Investment Trust. In 2006, he was awarded the the board of several other public companies such as Commander of the Most Excellent Order of the British YTL Industries Berhad, The Kuala Lumpur Performing Empire (CBE) by Her Majesty Queen Elizabeth II. He Arts Centre, YTL Vacation Club Berhad and private also received a prestigious professional accolade when utilities company, Wessex Water Limited. He is also made a Fellow of the Institute of Civil Engineers in an Executive Director of Pintar Projek Sdn Bhd, the London in 2008. Manager of Starhill Real Estate Investment Trust. STARHILL GLOBAL REIT 17 ANNUAL REPORT 2008
Left to right: Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping, Mr Franklin Heng, Dato’ Yeoh Seok Kian, Dr Hong Hai, Mr Michael Hwang, Mr Keith Tay Ah Kee
Dato’ Yeoh Seok Kian is a Fellow of the Faculty of the Permanent Court of Arbitration at the Hague and Building, UK as well as a Member of the Chartered Singapore’s Non Resident Ambassador to Switzerland. Institute of Building (UK). He advised the Real Estate Development Association of Singapore (REDAS) for many years, preparing for Dr Hong Hai the establishment of REITs in Singapore. Formerly a Lead Independent Director director of PSA Corporation Ltd (the Port of Singapore Dr Hong Hai is the Chairman of the Audit Committee Authority), Mr Hwang is currently also a director of the Manager. He is a Professor at Nanyang of The Straits Trading Company Limited and the Business School, Nanyang Technological University President of the Law Society of Singapore. in Singapore. He is a director of Poh Tiong Choon Logistics Ltd, Asiapharm Group Ltd, China Merchants Mr keith Tay Ah Kee Holdings (Pacific) Ltd, and is a member of the board Independent Director of Singapore Deposit Insurance Corporation. He Mr Tay is the Chairman of Stirling Coleman Capital was previously President and Chief Executive Officer Ltd and Aviva Ltd, Vice-Chairman of the Singapore of Haw Par Corporation Limited (1990-2003), and Institute of Directors and a Board Member of the has taught at the Kellogg School of Management in Singapore International Chamber of Commerce. Chicago and the National University of Singapore. In addition to the Manager, Mr Tay is also a director He is Honorary Council Member of the Singapore of Singapore Post Limited, FJ Benjamin Holdings Ltd, Chinese Chamber of Commerce & Industry and a Allgreen Properties Ltd, Rotary Engineering Ltd and member of Network China Steering Committee. Singapore Airport Terminal Services Limited. He was the Chairman and Managing Partner of KPMG Peat Mr Michael Hwang Marwick Singapore from 1984 to 1993 and President Independent Director of the Institute of Certified Public Accountants of Mr Hwang was one of the first 12 Senior Counsel Singapore from 1982 to 1992. He was conferred the appointed in Singapore and now practices as an BBM – Public Service Star in 1990 by the President of independent barrister and international arbitrator. the Republic of Singapore. His international appointments (past and present) include Commissioner of UN Compensation Commission, Deputy Chief Justice of the Dubai International Finance Centre, Vice President of the ICC International Court of Arbitration, Member of 18
Left to right: Mr Kevin Chee, Senior Vice President (Asset Management); Ms Patricia Ong, Senior Vice President Management (Legal); Ms Mok Lai Siong, Senior Vice President (Investor Relations and Corporate Communications); Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping, Executive Chairman; Ms Alice Cheong, Chief Operating EXECUTIVE OFFICERS OF THE MANAGER Officer; Mr Stephen Yeo, Vice President (Finance and Accounting)
Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping Tan Sri Francis holds a Bachelor of Science (Honours) Executive Chairman in Civil Engineering from Kingston University, UK, and Tan Sri Dato’ (Dr) Francis Yeoh was appointed was conferred an Honorary Doctorate of Engineering the Executive Chairman of the Manager on 31 by the university in 2004. December 2008. He is responsible for charting the strategic direction and growth of Starhill Global Mr Franklin Heng REIT in consultation with the Board and monitoring Chief Executive Officer the translation of Board decisions into executive Mr Heng assists the Executive Chairman and the actions and the management of the REIT’s business Board in formulating strategies for Starhill Global and operations. REIT. He works closely with other members of the Manager and the Property Manager to ensure these A Founder Member of the Malaysian Business Council strategies are implemented. He is also responsible for and The Capital Markets Advisory Council, Tan Sri the day-to-day operations of Starhill Global REIT. Francis is also a member of The Nature Conservancy Asia Pacific Council, the Asia Business Council and He obtained a Masters in Telecommuncations Trustee of the Asia Society. He is also a member of the Management from Institut National des Advisory Council of London Business School, Wharton Telecommunications, Evry, France in 1993 through School and INSEAD. a France Telecom Scholarship and an Honours (Second Upper) Degree in Business Administration Tan Sri Francis was ranked by both Fortune Magazine from the National University of Singapore in 1990. and Business Week Magazine as Asia’s 25 Most Powerful and Influential Business Personalities. He won Ms Alice Cheong the inaugural Ernst & Young’s Master Entrepreneur in Chief Operating Officer Malaysia in 2002 and CNBC Asia Pacific named him Ms Cheong oversees the Legal and Compliance, Malaysia CEO of the Year in 2005. Finance and Accounting, as well as the Investor Relations and Corporate Communications functions. He was appointed as member of Barclays Asia- Ms Cheong has more than 14 years of working Pacific Advisory Committee in 2005 and in 2008, he experience in financial advisory, mergers and was appointed Chairman for Southeast Asia of the acquisitions and fundraising, including five years in International Friends of the Louvre. the real estate sector. Prior to joining the Manager, STARHILL GLOBAL REIT 19 ANNUAL REPORT 2008
Left to right: Ms Clare Koh, Vice President (Investments); Mr Cedric Cheah, Analyst; Mr Franklin Heng, Chief Executive Officer; Ms Ong Mei-Lynn, Vice President (Asset Management); Mr David Mason, Senior Vice President (Finance and Accounting)
Not in picture: Mr Jeffrey Jin, Vice President (Investments)
she was a vice president in meag Pacific Star Asia Mr Chee graduated with a Bachelor of Business Pte Ltd from May 2003 to June 2005 involved in the (Honours) Degree in Banking from Nanyang evaluation, structuring, funding and execution of real Technological University, Singapore in 1992. estate acquisitions in Asia. Ms Cheong has had nine years of investment banking and corporate finance Mr David Mason experience with HSBC, NM Rothschild & Sons Senior Vice President (Finance and Accounting) and Hong Leong Bank in Singapore. Mr Mason is responsible for the finance function of Starhill Global REIT including financial reporting, Ms Cheong graduated with First Class Honours taxation, treasury and capital management. He from Warwick University in the UK with a Bachelor of has more than 20 years of experience in audit, Science in Management Science in 1994. She is also a accounting, statutory reporting, compliance and Chartered Financial Analyst (CFA Institute). tax in England, Bermuda, Australia and Singapore. Following audit stints in Cooper & Parry in Mr Kevin Chee Nottingham, England, and in Ernst & Young and the Senior Vice President (Asset Management) National Audit Office in Bermuda, Mr Mason was Mr Chee is responsible for delivering asset Financial Controller of Lend Lease US Office Trust in enhancement and organic growth for Starhill Sydney for three years. In 2003, he joined Macquarie Global REIT’s properties. Prior to joining the Manager, Bank Limited, Sydney where he was Associate Mr Chee was the President of the Property Manager Director, Financial Operations Division. and before that, a vice president in the Pacific Star Group involved in asset and investment management Mr Mason holds a Bachelor of Arts (Honours) of local and cross-border real estate transactions. He Degree in Accounting & Finance from the University has 16 years of working experience, six in regional of Central England Birmingham, England. mergers and acquisitions and project finance advisory He is a member of the Institute of Chartered at JP Morgan and Barclays Capital and four as a Accountants in England & Wales and the Institute financial analyst at Shell Eastern Petroleum. of Chartered Accountants of Australia. 20
EXECUTIVE OFFICERS EXECUTIVE OFFICERS OF THE MANAGER OF THE property MANAGER
Ms Patricia Ong Senior Vice President (Legal & Compliance) Joint Company Secretary Ms Ong is responsible for legal, compliance and company secretarial matters of the Manager and Starhill Global REIT. She was in legal practice as a real estate lawyer with a major law firm in Singapore for more than five years before moving on to various in-house legal roles, including five years with a Singapore-based property development group advising on real estate acquisitions & divestment, property development and hotel management matters. Prior to joining the Manager, Ms Ong was the Regional Corporate Counsel for a UK-based MNC, responsible for regional projects covering Asia Pacific, Africa and the Middle East.
Ms Ong holds a Bachelor of Law (Honours) Degree from the National University of Singapore, Ms Amy Lim and a Certified Diploma in Financial Management, General Manager accredited by the Association of Chartered Certified Ms Lim is responsible for the overall property Accountants (ACCA). management of Wisma Atria (WA) and Ngee Ann City (NAC), including Leasing, Marketing, Property Ms Mok Lai Siong Operations, Finance and Human Resources. Before Senior Vice President (Investor Relations this, Ms Lim was the Assistant General Manager for and Corporate Communications) Leasing and Marketing. She has more than 15 years’ Ms Mok is responsible for strategic communications experience in the real estate business. She was the with unitholders, potential investors, analysts and Corporate Director (Leasing) at Tincel Properties the media. She has over 15 years of experience Private Limited from 2001 to 2006 where she was in communications, including 12 years in the real responsible for the leasing of the retail and office estate sector. Prior to joining the Manager, she was spaces at Raffles City. Between 1994 and 2001, Corporate Communications Manager at CapitaLand Ms Lim was with OCBC Property Services Pte Ltd, Limited, responsible for results briefings, media overseeing the leasing functions for the group’s relations, branding, publications, community relations portfolio of commercial properties. She holds an and event management. Ms Mok has also held Honours Degree in Estate Management from the positions in Oversea-Chinese Banking Corporation, National University of Singapore. Overseas Union Bank, Pidemco Land and the National
University of Singapore. Ms Kulanthaivelu Parameshvari Finance Manager Ms Mok holds a Master in Business (International Ms Parameshvari, with more than 20 years’ Marketing) from the Curtin University of Technology, experience in the audit and finance industry, is Australia, and a Bachelor of Arts Degree in English & responsible for finance, accounting and tax functions. Philosophy from the National University of Singapore. Prior to joining the Property Manager, she was with Wisma Development Pte Ltd (WDPL) from 1986 to 2002 where she was responsible for its finance, accounting and tax functions and served as the STARHILL GLOBAL REIT 21 ANNUAL REPORT 2008
Left to right: Ms Chan Shuk Ling, Marketing Manager; Ms Amy Lim, General Manager; Mr Tan How Song, Property Operations Manager; Ms Jesse Wu, Leasing Manager; Ms Kulanthaivelu Parameshvari, Finance Manager; Ms Sandra Lee, Human Resources Manager
chairman, treasurer, secretary and a council member Ms Chan Shuk Ling (representing WDPL) of the Wisma Atria Management Marketing Manager Corporation. She was with Ernst and Young from Ms Chan is responsible for conceptualising and 1979 to 1986. implementing marketing programmes to attract shoppers and increase tenants’ sales turnover at WA Ms Parameshvari graduated with a Bachelor of and NAC Level 5. Ms Chan has 12 years of marketing Science from the University of Madras in 1972. She experience. From 2001, she was with WDPL where is also a graduate of the Association of Chartered she was responsible for advertising and promotion Certified Accountants (UK) as well as a member of the activities for WA. Prior to that, Ms Chan worked with Association of Chartered Certified Accountants and Seiyu Department Store where she was in charge of the Certified Public Accountants of Singapore. implementing marketing programmes for all the chain outlets. Ms Chan graduated with a degree in Arts Ms Jesse Wu from the National University of Singapore in 1996. Leasing Manager Ms Wu is in charge of all leasing operations Mr Tan How Song and tenant relationships for WA and NAC, Level 5. Property Operations Manager Prior to joining the Property Manager, Ms Wu was Mr Tan is responsible for the building operations Senior Manager (Retail Department) at Knight Frank of the Properties. Mr Tan has more than 10 years Pte Ltd from 2004 to 2007 where she provided of experience in the property management industry. marketing consultancy services for several retail He was a project manager at Orchard Square developments in Singapore and Vietnam. She Development Corporation (OSDC), a joint developer has more than 14 years of marketing experience of NAC, from 1997 to 2003, before joining the and has held various positions at Singapore Property Manager. Prior to OSDC, he was the project Telecommunications, Raffles City, Sime Singapore manager involved in managing construction activities, and United Overseas Land. Ms Wu holds a Master upgrading, maintenance programmes and addition of Science (Real Estate) from the National University and alteration works at Metrobilt Construction, of Singapore and a Bachelor of Business (Marketing) Kmart-Singapore and Omni Marco Polo Hotel from the Nanyang Technological University. Singapore. Mr Tan obtained an Advanced Diploma in Building Services Engineering from Ngee Ann Polytechnic in 1991. 22
Organisation Chart
Distributions UNITHOLDERS Hold Units
Management Fees REIT MANAGER Starhill Management Services Global Trustee Fees REIT TRUSTEE Acts on behalf of Unitholders
Ownership of Assets THE PROPERTIES Net Property Income
Property Management Fees PROPERTY MANAGER Property Management Services STARHILL GLOBAL REIT 23 ANNUAL REPORT 2008
Corporate Governance
Committed to upholding the highest standards of corporate governance
The Manager believes that strong and effective (1) using its best endeavours to ensure that the corporate governance is essential in protecting the business of Starhill Global REIT is carried out and interests of the unitholders of Starhill Global REIT conducted in a proper and efficient manner and (“Unitholders”) and is critical to the success of its to conduct all transactions with, or for Starhill performance as the Manager. Global REIT, at arm’s length;
The following sections describe the Manager’s (2) preparing property business plans on a regular primary corporate governance policies and basis, which may contain proposals and forecasts practices, which incorporate measures for avoiding on net income, capital expenditure, sales and conflicts of interest, including prioritising the valuations, explanations of major variances to interests of Unitholders over those of the Manager. previous forecasts, written commentary on They also ensure that applicable laws and regulations, key issues and underlying assumptions on including the listing manual of the SGX-ST, the Code rental rates, occupancy costs and any other of Collective Investment Schemes (“CIS Code”) relevant assumptions. The purpose of these plans (including the Property Funds Guidelines) issued by is to manage the performance of Starhill Global the MAS, the Securities and Futures Act Chapter 289 REIT’s assets; of Singapore (“SFA”) and the tax ruling dated 20 May 2005 issued by the Inland Revenue Authority (3) ensuring compliance with applicable laws and of Singapore (“Tax Ruling”) are complied with, regulations, and the Trust Deed; and that the Manager’s obligations in the Starhill Global REIT Trust Deed dated 8 August 2005 (last (4) attending to all communications with amended and restated on 10 December 2007, and Unitholders; and as supplemented, amended or restated from time to time) (“Trust Deed”) are honoured. (5) supervising the property managers in performing the day-to-day property Manager of Starhill Global REIT management functions (such as leasing, YTL Pacific Star REIT Management Limited was marketing, maintenance, promotion and appointed the Manager of Starhill Global REIT in accounting) for the properties, pursuant to the accordance with the terms of the Trust Deed. property management agreements.
The Manager of Starhill Global REIT has general power Starhill Global REIT, which is constituted as a trust, of management over the assets of Starhill Global has no direct staff of its own (other than the staff REIT. The primary role of the Manager is to set the of its China subsidiary). It is externally managed by strategic direction of Starhill Global REIT and to make the Manager, who appoints experienced and well- recommendations to HSBC Institutional Trust Services qualified management staff to run its operations. (Singapore) Limited, as trustee of Starhill Global All directors and employees of the Manager are REIT (“Trustee”) on acquisitions, divestments and remunerated by the Manager, and not by Starhill enhancement of the assets of Starhill Global REIT, in Global REIT. accordance with its stated business strategy and the terms of the Trust Deed. Other important functions The Trust Deed provides inter alia for the removal and responsibilities of the Manager include: of the Manager in certain situations, including by way of resolution passed by a simple majority of 24
corporate governance
Unitholders present and voting at a general review matters which impact on the business risks and meeting duly convened, with no Unitholder management of liability of Starhill Global REIT, and being disenfranchised. acts on comments and recommendations from the auditors of Starhill Global REIT. Board matters The Role of the Board Board Composition The Board of Directors of the Manager (“Board’’) The Board presently comprises six members, three of is responsible for the overall management and whom are independent directors. As such, there is a corporate governance of the Manager and Starhill strong and independent element on the Board. The Global REIT, including establishing performance Executive Chairman of the Board is Tan Sri Dato’ (Dr) objectives for the management team of the Manager Francis Yeoh Sock Ping (appointed on 31 December and monitoring the achievement of these objectives. 2008) and the Chief Executive Officer (“CEO”) of the All Board members participate in matters relating Manager is Mr Franklin Heng. The other members to corporate governance, business operations of the Board include Dato’ Yeoh Seok Kian (a non- and risk management, and financial performance. executive director appointed on 31 December 2008) Management benefits from the Board’s varied and and the three independent directors, namely, Dr Hong objective perspectives on issues brought before it. Hai, Mr Michael Hwang and Mr Keith Tay Ah Kee. The composition of the Board has been determined in The Board has established a framework for the accordance with the following principles: management of the Manager and Starhill Global REIT, including a system of internal controls and (1) The Board should comprise directors with a an enterprise risk management framework. The broad range of commercial experience including application of the policies and protocol under the expertise in funds management and experience in framework is further described in the section “Risk all facets of the property or real estate industry; Management” on Page 47. The Board has adopted a set of internal controls which sets out approval limits (2) At least one-third of the Board should comprise for capital expenditure, investments and divestments, independent directors. bank borrowings and cheque signatories, amongst others. Financial risk management is exercised As the Manager is not itself a listed entity, the in accordance with a robust policy. Appropriate Manager does not consider it necessary for the delegations of authority have been provided to the Board to establish a nominating committee as it Management to facilitate operational efficiency. believes that the performance of the Manager, and Changes to regulations, policies and accounting its Board, is reflected in the long term success of standards are monitored closely. Where the changes Starhill Global REIT. The Board performs the functions have significant impact on Starhill Global REIT and its that such a committee would otherwise perform. obligations of continuing disclosure, the directors will The composition will be reviewed regularly to ensure be briefed during Board meetings or by circulation of that the Board has the appropriate mix of expertise Board papers. Board meetings are scheduled and held and experience. Reviews of Board performance as at least once every quarter. Directors meet to discuss appropriate, are conducted once a year. and review the strategies and policies of Starhill Global REIT, including any significant matters pertaining to There is a clear separation of the roles and acquisitions and disposals, the annual budget, the responsibilities between the Executive Chairman financial performance of Starhill Global REIT measured and the CEO. The Executive Chairman and the against a previously approved budget. The Board also CEO are not related. The Executive Chairman will be reviews and approves the release of the quarterly, instrumental in charting the strategic direction and half-yearly and annual results. The Board will generally growth of Starhill Global REIT in consultation with the STARHILL GLOBAL REIT 25 ANNUAL REPORT 2008
Board and monitoring the translation of the Board’s When necessary, senior management participates decisions into executive actions. He will also facilitate in Board meetings to provide additional insights. active Board discussions on matters concerning The Board has unfettered access to members of the business of Starhill Global REIT, and ensure that senior management and the Company Secretary at the Board satisfactorily oversees and evaluates the all times. The Board also has access to independent implementation of Starhill Global REIT’s strategy, professional advice (legal, financial or otherwise) policies, business plans and Board decisions. The where appropriate or necessary. CEO assists the Executive Chairman and the Board in formulating strategies for Starhill Global REIT and Audit Committee is responsible for implementing Starhill Global REIT’s The Audit Committee is appointed by the Board strategies, and its day-to-day operations. from amongst the directors of the Manager and currently comprises three members, all of whom are With his extensive experience, background and independent directors. The members of the Audit business network, including his position as Managing Committee are Dr Hong Hai (Chairman), Mr Michael Director of YTL Corporation Berhad (listed on the Hwang and Mr Keith Tay Ah Kee. Bursa Malaysia) for more than 20 years, as director of various other entities listed on the Bursa Malaysia The Audit Committee assists the Board in overseeing and as Chief Executive Officer of Pintar Projek Sdn the risk management framework and any matters of Bhd, the manager of Starhill REIT (listed on the Bursa significance affecting financial reporting and internal Malaysia), the Manager believes that Tan Sri Dato’ controls of Starhill Global REIT. The terms of reference (Dr) Francis Yeoh Sock Ping is well qualified for the for the Audit Committee include: position of Executive Chairman. (1) reviewing audit reports to ensure that where To enhance the independence of the Board, deficiencies in internal controls have been Dr Hong Hai has been appointed as the Lead identified, appropriate and prompt remedial Independent Director on 31 December 2008, to action is taken by Management; lead and co-ordinate the activities of the independent directors and act as the principal liaison between the (2) monitoring the procedures in place to ensure Independent Directors and the Executive Chairman compliance with applicable legislation, the listing on sensitive issues. Dr Hong Hai is independent from manual of the SGX-ST and the Property Funds Management and business relationships as defined Guidelines; under the Code of Corporate Governance. He has the discretion to hold meetings with the independent (3) reviewing and making recommendations to the directors (without the presence of management) as he Board in relation to the financial statements; deems appropriate or necessary. (4) monitoring the procedures established to regulate Newly appointed directors are briefed on their roles Related Party Transactions (as defined below), and responsibilities as directors of the Manager, and including ensuring compliance with the provisions of the business activities and strategic directions of of the relevant regulations; Starhill Global REIT. (5) making recommendations to the Board on the Access to Information appointment, reappointment and removal of the Management provides the Board with regular external auditor, and approving the remuneration updates on financial results, market and business and terms of engagement of such auditor; and developments, and business and operational information. Board papers and agenda are provided (6) ensuring that the internal audit function is to each director in advance of Board meetings so that adequately resourced through outsourcing directors can review the matters arising beforehand. the appointment to a reputable accounting firm where appropriate. 26
corporate governance
The role of the Audit Committee is to monitor The Audit Committee meets generally every and evaluate the effectiveness of the Manager’s calendar quarter. internal controls. The Audit Committee also reviews the quality and veracity of information prepared for Internal Audit inclusion in financial reports. The Audit Committee The Manager has put in place a system of internal is responsible for the nomination of external auditors controls, compliance procedures and processes to and internal auditors, and reviewing the adequacy safeguard Starhill Global REIT’s assets, Unitholders’ of existing audits in respect of cost, scope and interests, manage risks and ensure compliance with performance. The Audit Committee meets with the high standards of corporate governance. The Audit internal and external auditors without the presence Committee has appointed BDO Raffles Consultants of Management, at least once a year to discuss any Pte Ltd, a member firm of BDO International, to matters which the Audit Committee or these auditors perform the internal audit functions. The internal believe should be discussed privately without the auditor provides risk assessment services and presence of management. In the year under review, compliance audits in order to ensure internal controls the Audit Committee did not meet with the internal are aligned to business objectives and address related auditor without the presence of management, as risks, and reports directly to the Audit Committee. the internal auditor did not raise any significant Management is responsible for addressing issues issues that would warrant such a meeting with the identified by the internal auditor. The internal auditor Audit Committee. will also audit and report on the appropriateness and effectiveness of processes for the management The Audit Committee is authorised to investigate of Related Party Transactions at least once a year. In any matters within its terms of reference. It is addition, the Trustee will also have a right to review entitled to unfettered access to and cooperation the internal audit reports so to ascertain that the from Management and may invite any director or Property Funds Guidelines have been complied with. executive officer to attend its meetings. It has access to reasonable resources to enable it to discharge Attendance at Board and Audit Committee Meetings its functions properly. The Audit Committee has The Manager believes that contributions from each reviewed all non-audit services provided by the director go beyond his/her attendance at Board and external auditors and is satisfied that the nature committee meetings. A director of the Manager and extent of such services will not prejudice the would have been appointed on the principles outlined independence and objectivity of the external auditors. earlier in this statement, and on his/her ability to contribute to the proper guidance of the Manager The Board has established a “whistle-blowing” policy, in its management of Starhill Global REIT. In the pursuant to which employees may, in confidence, year under review, the number of Board and Audit raise concerns about potential or actual improprieties Committee meetings held and attended by each in matters of financial reporting or otherwise, so as to Board member is as follows: facilitate independent investigations of such matters and ensure that appropriate remedial and follow-up action is taken. STARHILL GLOBAL REIT 27 ANNUAL REPORT 2008
Dealing with related party transactions board audit Review Procedures for Related Party Transactions committee The Manager has established internal control No. of No. of procedures to ensure that transactions involving meetings meetings the Trustee, as trustee for Starhill Global REIT, and held in held in any related party of the Manager (“Related Party 2008: 8 2008: 4 Transactions’’) are undertaken on normal commercial Attended Attended terms and will not be prejudicial to the interests of Starhill Global REIT or the Unitholders. As a general Mr Stephen Girdis* 8 n.a. rule, the Manager would have to demonstrate to the Mr Franklin Heng 8 n.a. Audit Committee that such transactions satisfy the foregoing criteria, which may entail obtaining (where Mr James Hodgkinson+ 5 n.a. practicable) quotations from parties unrelated to the Mr Andrew Taylor* 3 n.a. Manager, or obtaining valuations from independent professional valuers (in accordance with the Property Mr Wolfgang Wente@ 3 n.a. Funds Guidelines). In addition, the following Dr Hong Hai 8 4 procedures are followed:
Mr Michael Hwang 7 3 (1) Transactions (either individually or as part of a series or if aggregated with other Mr Keith Tay Ah Kee 8 4 transactions involving the same related Whenever a director may have been absent from a meeting, his party during the same financial year) equal views on matters arising have been canvassed beforehand and/or his alternate director has attended in his place. to or exceeding $100,000 in value but below 3.0% of Starhill Global REIT’s net * On 31 December 2008, Mr Stephen Girdis and Mr Andrew tangible assets will be subject to review by Taylor resigned from the Board. On the same day, Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping was appointed the Executive the Audit Committee at regular intervals; Chairman of the Board and Dato’ Yeoh Seok Kian was appointed as a non-executive director. (2) Transactions (either individually or as part of a
+ On 29 July 2008, Mr James Hodgkinson resigned from the Board series or if aggregated with other transactions and Mr Andrew Taylor was appointed to the Board in his place. involving the same related party during the same financial year) equal to or exceeding 3.0% but @ Mr Wolfgang Wente resigned from the Board on 12 June 2008. below 5.0% of Starhill Global REIT’s net tangible assets will be subject to the review and prior Remuneration Matters approval of the Audit Committee. Such approval As Starhill Global REIT does not bear the remuneration shall only be given if the transactions are on of the Manager’s Board and staff, the Manager does normal commercial terms and consistent with not consider it necessary to include a report on similar types of transactions made by the Trustee, remuneration of its Directors and key executives. as trustee for Starhill Global REIT, with third parties which are unrelated to the Manager; and 28
corporate governance
(3) Transactions (either individually or as part of a Internal Control Procedures series or if aggregated with other transactions The Manager’s internal control procedures are involving the same related party during the same intended to ensure that Related Party Transactions are financial year) equal to or exceeding 5.0% of conducted at arm’s length and on normal commercial Starhill Global REIT’s net tangible assets will be terms and are not prejudicial to Unitholders. The subject to review and prior approval of the Audit Manager maintains a register to record all Related Committee which may, as it deems fit, request Party Transactions (and the basis, including, where advice on the transaction from independent practicable, the quotations obtained to support such sources or advisers, including obtaining valuations basis, on which they are entered into) which are from professional valuers. Further, under the entered into by Starhill Global REIT. The Manager listing manual of the SGX-ST and Property Funds has incorporated into its internal audit plan a review Guidelines, such transactions would have to be of all Related Party Transactions entered into by approved by Unitholders at a meeting Starhill Global REIT. The Audit Committee reviews of Unitholders. the internal audit reports to ascertain that the guidelines and procedures established to monitor Where matters concerning Starhill Global REIT Related Party Transactions have been complied with. relate to transactions entered into or to be The Audit Committee periodically reviews all Related entered into by the Trustee for and on behalf of Party Transactions to ensure compliance with the Starhill Global REIT with a related party of the internal control procedures and with the relevant Manager or Starhill Global REIT, the Trustee is provisions of the listing manual of the SGX-ST and required to satisfy itself that such transactions are the Property Funds Guidelines. The review includes conducted on normal commercial terms and are the examination of the nature of the transaction and not prejudicial to the interests of Starhill Global its supporting documents or such other data deemed REIT or Unitholders and are in accordance with necessary by the Audit Committee. If a member of all applicable requirements of the Property Funds the Audit Committee or any director has an interest Guidelines and/or the listing manual of the SGX- in a transaction, he is to abstain from participating ST relating to the transaction in question. Further, in the review and approval process in relation to that the Trustee has the ultimate discretion under the transaction. The Manager discloses in Starhill Global Trust Deed to decide whether or not to enter REIT’s annual report the aggregate value of Related into a transaction involving a related party of the Party Transactions entered into during the relevant Manager or Starhill Global REIT. If the Trustee is financial year. to sign any contract with a related party of the Manager or Starhill Global REIT, the Trustee will In relation to the Manager’s internal controls, nothing review the contract to ensure that it complies has come to the attention of the Board to suggest that with the requirements relating to interested party such internal controls are not adequate. transactions in the Property Funds Guidelines and the provisions of the listing manual of the SGX-ST Dealing with conflicts of interest relating to interested person transactions as well The Manager has instituted the following procedures as such other guidelines as may from time to time to deal with conflicts of interest issues: be prescribed by the MAS and the SGX-ST to apply to real estate investment trusts. (1) The Manager will not manage any other real estate investment trust which invests in the same type of properties as Starhill Global REIT;
(2) All executive officers will be employed by the Manager; STARHILL GLOBAL REIT 29 ANNUAL REPORT 2008
(3) All resolutions in writing of the directors of its independent directors) have a duty to ensure the Manager in relation to matters concerning that the Manager so complies. Notwithstanding Starhill Global REIT must be approved by a the foregoing, the Manager shall inform the Trustee majority of the directors, including at least one as soon as it becomes aware of any breach of any independent director; agreement entered into by the Trustee for and on behalf of Starhill Global REIT with a related party of (4) At least one-third of the Board shall the Manager and the Trustee may take such action as be independent; it deems necessary to protect the rights of Unitholders and/or which is in the interests of Unitholders. Any (5) All Related Party Transactions must be reviewed decision by the Manager not to take action against by the Audit Committee and approved by a a related party of the Manager shall not constitute a majority of the Audit Committee in accordance waiver of the Trustee’s right to take such action as it with the materiality thresholds and procedures deems fit against such related party. outlined above. If a member of the Audit Committee has an interest in a transaction, he or Risk assessment and management she will abstain from voting; Effective risk management is a fundamental part of Starhill Global REIT’s business strategy. Recognising (6) In respect of matters in which a director of and managing risk is central to the business and the Manager or his Associates (as defined in to protecting Unitholders’ interests and value. The the listing manual of the SGX-ST) have an Manager has in place an enterprise risk management interest, direct or indirect, such interested framework and policies that provide a structured director will abstain from voting. In such approach to identifying and managing the risks that matters, the quorum must comprise a majority could arise in the course of managing Starhill Global of the directors of the Manager and must REIT. The framework and policies are monitored and exclude such interested directors; and reviewed by the Board as and when appropriate, and major developments and significant revisions to the (7) The Manager and its Associates are prohibited framework or policies will be submitted to the Board from being counted in a quorum for or voting at for approval. Risks at both the Manager and Starhill any meeting of Unitholders convened to approve Global REIT levels are managed through this risk any matter in which the Manager or any of its management framework, which include: Associates have a material interest. (1) Regulatory and reporting risks; It is also provided in the Trust Deed that if the (2) Financial risks (such as liquidity, interest rate, Manager is required to decide whether or not to currency, investment, credit); take any action against any person in relation to any (3) Legal risks (such as contract enforceability, breach of any agreement entered into by the Trustee covenants, litigation); for and on behalf of Starhill Global REIT with a related (4) Operation risks (such as people, processes, party of the Manager, the Manager shall be obliged infrastructure, technology, systems); to consult with a reputable law firm (acceptable (5) Environmental, health and safety risks; to the Trustee) which shall provide legal advice on (6) Project risks; the matter. If the said law firm is of the opinion (7) Asset performance risks; and that the Trustee, on behalf of Starhill Global REIT, (8) Reputation risks (such as investor relations, has a prima facie case against the party allegedly in media management). breach under such agreement, the Manager shall be obliged to take appropriate action in relation to such The Audit Committee has also been tasked by the agreement. The directors of the Manager (including Board to include risk management within its oversight 30
corporate Governance
role. This includes the review, assessment and analysis period commencing one month before the public of risks which could arise with respect to the business announcement of Starhill Global REIT’s annual operations of the Manager, Starhill Global REIT and and semi-annual results and (where applicable) the assets of Starhill Global REIT. Guidelines and property valuations and two weeks before the parameters within which such risks are recognised, public announcement of Starhill Global REIT’s identified, managed and mitigated are set by the quarterly results, and ending on the date of Board. The primary objective is to protect the interests announcement of the relevant results or, as the of Unitholders. Application of the policies and case may be, property valuations. protocol under the framework in respect of Starhill Global REIT assets and operations is further described Communication with Unitholders in the section “Risk Management” on Page 47. The Manager upholds a strong culture of continuous disclosure and transparent communication with Dealing in Starhill Global REIT units Unitholders and the investing community. The The Trust Deed requires each director of the Manager Manager has developed a communications policy, to give notice to the Manager of his acquisition of the cornerstone of which is delivery of timely and units or of changes in the number of units which full disclosure of all material information relating to he holds or in which he has an interest, within two Starhill Global REIT by way of announcements to business days after such acquisition or changes in the SGX-ST via SGXNET at first instance and then interest. All dealings in units by directors of the including the announcements on Starhill Global REIT’s Manager will be announced to SGX-ST via SGXNET. website at www.starhillglobalreit.com. Starhill Global The directors and employees of the Manager are REIT’s website contains recent announcements, press encouraged, as a matter of internal policy, to hold releases, presentations, past and current reports units but are prohibited from dealing in the units: to Unitholders. The website also provides visitors with the option of signing up for a free email alert (1) in the period commencing one month before service on public materials released by the Manager the public announcement of Starhill Global in relation to Starhill Global REIT. In the spirit of REIT’s annual and semi-annual results and (where upholding active and open communication, the applicable) property valuations and two weeks Manager conducts briefings for analysts and media before the public announcement of Starhill Global representatives, which generally coincide with the REIT’s quarterly results, and ending on the date release of Starhill Global REIT’s results. During these of announcement of the relevant results or, as the briefings, the Manager will review Starhill Global case may be, property valuations; and REIT’s most recent performance as well as discuss the business outlook for Starhill Global REIT. In (2) at any time while in possession of price sensitive line with the Manager’s objective of transparent information. The directors and employees of communication, briefing materials are released to the Manager are advised not to deal in the the SGX-ST via SGXNET and also made available units on short-term considerations. In addition, on Starhill Global REIT’s website. The Manager also the Manager has given an undertaking to the participates in real estate focused conferences locally MAS that it will announce to the SGX-ST the and in the region as part of its efforts to cultivate and particulars of its holdings in the units and any maintain regular contact with investors and analysts changes thereto within two business days after and to build interest in and strengthen the branding the date on which it acquires or disposes of any of Starhill Global REIT. units, as the case may be. The Manager has also undertaken that it will not deal in the units in the STARHILL GLOBAL REIT 31 ANNUAL REPORT 2008
Property Portfolio Summary
Starhill Global REIT’s portfolio comprises 10 properties (the “Portfolio”) - two landmark properties located on Singapore’s premier shopping street Orchard Road, an up-market retail property in the prime Wuhou district of Chengdu, China, and seven properties located in the prime Tokyo areas of Aoyama, Roppongi, Harajyuku, Meguro and Ebisu.
Diversified retail and office portfolio Gross Revenue by property (2008) By gross revenue for the year ended 31 December 2008, the Portfolio is diversified across Singapore
(82%), China (11%) and Japan (7%). The retail 40% and office assets contribute to 83% and 17% of the NAC
Portfolio’s revenue respectively. 11% Renhe Spring Zongbei Property As at 31 December 2008, the Portfolio had 191* tenants. The top 10 tenants accounted for 47.9% of 7% Japan Properties the Portfolio gross rent for the month of December 2008. Except for Toshin and Future Revolution which 42% WA accounted for 28.5% and 5.7% of the Portfolio gross rent respectively, no other tenant accounted for more than 5.0% of the Portfolio gross rent for the month of December 2008.
Gross Revenue by Retail and Office (2008) Gross Revenue by country (2008)
82% Singapore
83% 7% Retail Japan
11% 17% China Office
* Excludes the tenants of the Renhe Spring Zongbei Property as it operates as a department store with mostly short-term concessionaire leases running 3–12 months. 32
Property portfolio summary
LEASED % OF % OF AREA PORTFOLIO PORTFOLIO TENANT NAME PROPERTY (SQ FT) Lease Expiry GROSS RENT1 NLA Toshin Development Co Ltd NAC 225,969 Jun 2013 28.5% 29.9% Future Revolution K.K.2 Ebisu Fort 39,469 Sep 2012, 5.7% 5.2% Nakameguro Dec 2015, Harajyuku Dec 2015, Secondo Jan 2016 Roppongi Terzo Bread Talk Group WA 27,104 Sep 2009, Oct 2009, Sep 2011 2.6% 3.6% Nike Singapore Pte Ltd WA 8,288 Nov 2011 2.4% 1.1% Wing Tai Retail Pte Ltd WA 6,146 Feb 2001, May 2010, Jun 2010, 1.6% 0.8% Oct 2010, Nov 2010 Aspial-Lee Hwa (S) Pte Ltd WA 3,778 May 2009, Aug 2010, 1.6% 0.5% Sep 2011, Oct 2011 RSH (Singapore) Pte Ltd WA 4,061 Mar 2010, Jun 2010, Oct 2010 1.5% 0.5% Zegna Trading (Shanghai) Renhe Spring 1,550 Mar 2009 1.5% 0.2% Co. Ltd.3 Zongbei Property FJ Benjamin Lifestyle Pte Ltd WA 7,847 Nov 2011 1.4% 1.0%
Fashion Retail Pte Ltd WA 3,832 Sep 2009 1.2% 0.5%
1. For the month of December 2008 2. Future Revolution K.K. is the fixed rent master tenant for these four properties. For the other three properties, Future Revolution K.K. is the pass-through master tenant where end tenants pay rent directly to Starhill Global REIT’s trustee account 3. Zegna Trading (Shanghai) Co. Ltd. operates as a concessionaire at the Renhe Spring Zongbei Property and pays a percentage of GTO
portfolio lease expiry (as at 31 dec 08) Resilient lease profile The Portfolio has medium and long-term leases that % 34.5% provide income certainty and stability over the next 35 few years, especially given the current economic 29.7% 30 climate. In Singapore, earnings are derived from both retail and office leases which are generally contracted 25 24.0% 23.9% 22.3% for a period of two to three years, in line with the 20.0% prevailing market rental practice. The exception is the 20 17.0% Toshin master lease in the Ngee Ann City Property, 16.0% 15 which expires in June 2013 with an option to renew for a further term of 12 years. The Japan Properties 10 have a mix of fixed-rent master leases and pass- through master leases expiring in 2010, 2012, 2015 5 3.4% 2.9% and 2016. The Renhe Spring Zongbei Property in
0 China is operated as a department store with mostly FY2009 FY2010 FY2011 FY2012 FY2013 short term concessions. NLA Gross Rent The weighted average lease term expiry (by NLA) Note: of the Portfolio is 2.76 years as at 31 December 2008. The Portfolio lease expiry profile does not include the Renhe Spring Zongbei Property as it operates as a department store with mostly short-term concessionaire leases running 3–12 months STARHILL GLOBAL REIT 33 ANNUAL REPORT 2008
Some office rent reversions still expected Valuation growth The Wisma Atria Property and the Ngee Ann City Compared to December 2007, the combined value Property in Singapore capitalised on the upswing in of the Wisma Atria Property and the Ngee Ann City the office rental market especially during the first half Property decreased by $136 million, driven primarily of 2008, and achieved an average increase of 116% by the office component (reduction of $85 million) over 2008 average gross passing rents for expiring in anticipation of the softening of office rents and the leases. While office rents in Singapore are expected upcoming new supply. The valuation of the Japan to soften in light of the anticipated new office stock Properties declined by JPY1.33 billion ($21.3 million). in the central business district, the average passing However, this was positively offset by the appreciation rent for leases expiring in 2009 of $7.80 psf pm is still of the Japanese Yen, resulting in the increase of below current market rents. As such, some positive 13.5% or $26.9 million in the valuation. The value office rent reversions are still expected in 2009. of the Renhe Spring Zongbei Property was relatively unchanged from the previous valuation. portfolio office new/renewal leases and average monthly gross rent* $ Million Sq ft $ psf pm 2,500 25000 15 2,209 2,103 13.9 13.9 13.3 12.2 2,000 $800 1,718 20000 million uplift 12 1,498 since IPO 1,500 1,303 15000
9 1,000
10000 7.1 6.6 500 5.6 6 4.9 5000 0 Sep 05 Dec 06 Jun 07 Dec 07 Dec 08 19,580 22,691 11,300 5,888 0 3 1Q08 2Q08 3Q08 4Q08 WA NAC Japan Properties China Property Total Office Expiry (by NLA) Expiring Leases Avg Gross Passing Rent ($ psf pm) Avg Gross Rent for Renewal & New Office Leases ($ psf pm)
* 3Q08 Avg Gross Rent and lease area excludes a renewed lease which had a rental cap $’ million 31 31 variance variance portfolio office lease expiry Dec 08 Dec 07 (%) and average gross passing rents Singapore Wisma 849.8 901.4 (51.6) (5.7%)
Sq ft $ psf pm Atria 100000 12 Property Ngee 946.9 1,030.9 (84.0) (8.1%) 80000 10.3 Ann City
9.6 10 Property 60000 China Renhe 80.2** 76.8 3.4 4.4% Spring 40000 Zongbei 7.8 8 Property
20000 Japan Japan 226.4** 199.5 26.9 13.5% Properties 72,969 83,852 64,830 0 6 2009 2010 2011 Total 2,103.3 2,208.6 (105.3) (4.8%)
Expiring Office Leases (by NLA) ** Taking into account foreign exchange effects Gross Passing Rents of Expiring Leases ($ psf pm) 34
Property Profile
THE RENHE THE NGEE ANN SPRING WISMA ATRIA CITY PROPERTY ZONGBEI ROPPONGI PROPERTY (WA) (NAC) property1 EBISU FORT2 PRIMO2 Address 435 Orchard 391/391B No. 19, 24-1 Ebisu- 212-16 Road Singapore Orchard Road Renminnan Minami, Roppongi, 238877 Singapore Road, Chengdu, 1 Chome, 7 Chome, 238874 China Shibuya-ku, Minato-ku, Tokyo, Japan Tokyo, Japan Description 257 strata lots 4 strata lots in A four-storey Seven-storey Eight-storey in Wisma Atria Ngee Ann City plus mezzanine building for building for representing representing level retail retail use office and 74.23% of the 27.23% of total podium forming retail use total share value share value of part of a mixed of strata lots in strata lots in used commercial Wisma Atria Ngee Ann City development NLA (sq ft) Retail: 126,114 Retail: 255,021 101,000 19,212 5,069 (as at 31 Dec 2008) Office: 98,889 Office: 141,018 Number 127 46 90 1 7 of Tenants (as at 31 Dec 2008) Title Remaining Remaining Remaining Freehold Freehold leasehold estate leasehold estate leasehold estate of 52.25 years of 63.25 years of 27 years expiring on expiring on expiring on 27 31 March 2061 31 March 2072 December 2035 Purchase Price 663.0 640.0 70.63 71.34 13.84 ($ million) Market Valuation 849.8 946.9 80.26 94.95 17.05 ($ million) (as at 31 Dec 2008) Committed Retail: 95.6% Retail: 99.6% 100% 100% 86%7 Occupancy Rate Office: 83.2% Office: 98.8% (as at 31 Dec 2008) Major Tenants Nike, Forever Toshin, EDS Prada, Dunhill, Future Fine Cube Co 21, GAP, Food International, Bally, Hugo Boss, Revolution Ltd, Fine Art Republic, Lanvin, ABN Amro, Zegna, Chopard, K.K. Investment Tag Heuer, DBS Treasures Longines, Rolex Co Ltd Longines 2008 Gross Revenue 53.3 50.7 13.8 3.5 0.8 ($ million) 2008 Net 38.5 40.4 9.2 3.2 0.6 Property Income ($ million) STARHILL GLOBAL REIT 35 ANNUAL REPORT 2008
Bottom left to right: Ngee Ann City and Wisma Atria, Singapore; Renhe Spring Zongbei Department Store, Chengdu
ROPPONGI HARAJYUKU TERZO2 HOLON L2 SECONDO2 DAIKANYAMA2 NAKAMEGURO2 Address 101-1 Roppongi, 46-7 Kita 19-1 Jingumae, 31-11, Ebisu- 152-7 Aobadai, 7 Chome, Aoyama, 1 Chome, Nishi, 1 Chome, 1-Chome, Minato-ku, 3 Chome Shibuya-ku, Shibuya-ku, Meguro-ku, Tokyo, Japan Minato-ku, Tokyo, Japan Tokyo, Japan Tokyo, Japan Tokyo, Japan Description Five-storey Three-storey Three-storey Three-storey Four-storey building for building for building for building for retail building for F&B and retail use retail use and F&B use retail use entertainment use NLA (sq ft) 14,518 4,865 2,249 8,087 3,490 (as at 31 Dec 2008) Number 1 2 1 5 1 of Tenants (as at 31 Dec 2008) Title Freehold Freehold Freehold Freehold Freehold Purchase Price 38.94 20.44 6.14 22.84 7.14 ($ million) Market Valuation 48.65 24.55 7.45 25.55 8.45 ($ million) (as at 31 Dec 2008) Committed 100% 100% 100% 88%7 100% Occupancy Rate (as at 31 Dec 2008)
Major Tenants Future Dashing Diva Future Zwisel Japan Future Revolution International Revolution Co Ltd, Revolution K.K. Co Ltd K.K. Good Design K.K. Company Co Ltd 2008 Gross Revenue 2.0 1.0 0.3 1.2 0.4 ($ million) 2008 Net 1.7 0.8 0.2 0.9 0.3 Property Income ($ million)
Notes: 1. The Renhe Spring Zongbei Property was acquired on 28 August 2007 2. Roppongi Primo, Roppongi Terzo, Holon L, Harajyuku Secondo, Daikanyama and Nakameguro were acquired on 30 May 2007 while the seventh Japan Property, Ebisu Fort, was acquired on 26 September 2007 3. Based on exchange rate of RMB4.96 : $1 at acquisition 4. Based on exchange rate of JPY79.97 : $1 at acquisition 5. Based on the exchange rate of JPY62.77 : $1 at 31 Dec 2008 6. Based on the exchange rate of RMB4.74 : $1 at 31 Dec 2008 7. The rent for the vacant units in Roppongi Primo and Daikanyama properties are guaranteed by Fund Creation (until May 2009) and Future Revolution K. K. (until June 2010) respectively 36
Singapore Properties
THE WISMA ATRIA PROPERTY Bottom: Nike, Wisma Atria
A fashionista’s mall offering the best of international high-street brands with a sprinkling of unique fashion labels
Starhill Global REIT’s stake in Wisma Atria Leading positioning as fashionista mall (the Wisma Atria Property) comprises 257 strata The Wisma Atria Property enjoys a strong positioning lots representing 74.23% of the total share value as a fashionista’s mall with the best of high-street of strata lots in Wisma Atria. fashion wear and unique fashion brands under one roof. The strong tenant mix and product offering Landmark property in prime location present a comprehensive selection of fashion labels Wisma Atria, with its all-glass blue façade, is for fashion-conscious female shoppers. The mall’s key a renowned landmark along Orchard Road. It fashion retailers include Nike, Forever21, GAP, FCUK, comprises a retail podium block with four levels and Warehouse, Bebe, Ms Selfridge, Karen Millen, Bread one basement, three levels of carpark space and an & Butter and Ninewest. The fashion offering is well office tower with 13 levels of office space. Located complemented by lifestyle dining options such as next to the Orchard MRT station and between two IndoChine, Din Tai Fung, Starbucks, Whisk Café and of the largest and most iconic shopping attractions the all-time favourite, Food Republic. on Orchard Road – the upcoming ION Orchard and the perennial favourite, Ngee Ann City, Wisma Diversified tenant mix Atria stands to benefit as part of this formidable As at 31 December 2008, the Wisma Atria Property shopping destination block, seamlessly connected had a well-diversified base of 93 retail tenants and 34 via comfortable, air-conditioned pedestrian linkways. office tenants. These tenants cover a wide variety of With the Orchard MRT basement linkway expected business sectors, providing earnings diversification. to re-open in June 2009, shopper traffic is expected Fashion and F&B are the two key contributors to the to spike upwards. Apart from locals, the shopping Wisma Atria property’s retail gross rent. centre also enjoys a strong catchment of tourists and business travellers staying in the many hotels located Retail Trade Mix (by gross rental on and within walking distance of Orchard Road. contribution) for dec 08
3.3% Health & Beauty 10.4% F&B 2.5% General Trade 10.6% Jewellery & Watches 4.1% Services 12.9% Shoes & Accessories 56.2% Fashion STARHILL GLOBAL REIT 37 ANNUAL REPORT 2008
Retail and Office Mix Asset enhancements (by Gross Revenue 2008) The aquarium in the basement, installed since Wisma Atria’s opening in 1986, was replaced with a retail shop. The move resulted in savings in costly upgrading and maintenance, new revenue from the 83% Retail shop space created and a more suitable home for the marine life at Underwater World on Sentosa Island.
As part of the ongoing process of upgrading and 17% Office rejuvenation, Nike opened its first and largest self- owned concept store in Southeast Asia in Wisma Atria at the end of November 2008, replacing Topshop/ Topman as a mini-anchor. The new store covers about Strong draw for new retail concepts 8,300 sq ft over Level 2 and Level 3. The remaining Wisma Atria continues to be the location of choice space was reconfigured and leased to a new for retailers who want a presence in Orchard Road restaurant, Whisk Café, and soon-to-be-opened new for their new concept stores and brands. In 2008, concept stores. two first-in-Southeast Asia flagship stores - Nike and Longines – opened at the mall. Other new fashion and A new side entrance was opened at Wisma Atria Level accessories labels which set up shop in Wisma Atria 2, to facilitate access for shoppers emerging from a in 2008 include Levis® Lady’s, Jayson Brunsdon, Veil, new Orchard MRT entrance/exit that will be opened Hypnosis, Burgundy, Trios+Inch, Skagen, Aptimos and when the neighbouring development is completed. Sembonia. To complement the fashion offering, a new food concept Whisk Café, serving Western cuisine, The upgrading of Wisma Atria’s Level 3 entrance was also introduced. and taxi stand was completed in December 2008 to accommodate anticipated heavier usage when the To stay relevant in an increasingly competitive neighbouring development is completed by June environment, the Wisma Atria Property will continue 2009. The number of taxi bays was increased, the to renew and refine its retail offerings. waiting area expanded to include a new convenience store and a new canopy that is in sync with Wisma Occupancy Rates (%) Atria’s unique architectural features was installed to provide better coverage and improve prominence of % 100% 99% 100 95.6% the mall.
83.2%* Centre Traffic and Sales 80 Wisma Atria continued to implement targeted promotional activities to drive shopper traffic 60 and spending at the centre to mitigate the continued closure of the basement linkway to the Orchard MRT 40 station, a detoured exit point from the MRT station in January 2008 and a fall in tourist arrivals. Overall mall 20 shopper traffic and centre sales in 2008 was 15.76 million and $181.8 million respectively. It is expected 0 Retail Office that shopper traffic will pick up significantly from the second half of 2009 when the basement MRT linkway As at 31 Dec 07 As at 31 Dec 08 is widened and reopened in June 2009.
* Committed occupancy for Office as at 29 January 2009 is 90.9% following take-up by YTL Singapore of an office lease 38
THE WISMA ATRIA PROPERTY
wisma atria traffic LEASE STRUCTURE (BY % OF RETAIL NLA) count at primary entrances
% 80% Visitors (’000) 80 2500 70 66%
2000 60
1500 50
40 1000 33% 30
500 19% 20
0 10 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
0 Higher of Base Base Rent 2007 2008 Rent or % GTO plus % GTO
Dec 05 Dec 08 retail sales turnover
$ Million Advertising and promotion 25 To reinforce the mall’s positioning as a fashionista’s mall and to encourage repeated visits and increase 22 spending, an integrated marketing programme was implemented throughout the year. 19
16 W = What Women Want @ Wisma As part of reinforcing the mall’s positioning, a series
13 of advertising and events targeting the fashionable woman shopper and focusing on the “W” was 10 rolled out during the year. The “W”, a Wisma Atria Jan Feb Apr Jun Jul Sep Oct Dec Mar May Aug Nov signature, was carried through in the advertising
2007 2008 visuals and events were centred around women and fashion. The events included a fashion makeover event with leading fashion magazine STYLE, registration Increase variable rental component roadshows for women sporting events and a tie-up Starhill Global REIT continued with its strategy to with local fashion magazine CLEO for their annual convert the rental structure of all retail leases at the CLEO Cover Girl Search. Wisma Atria Property to a base rent plus a percentage of the retailers’ gross sale turnover, and where “Dancing Traffic Cops” possible, include step-up base rents over lease terms. The Orchard MRT street level entrance/exit was This rental structure will enable the centre to derive relocated to the junction of Paterson Road on 15 rental contributions from retailers in tandem with their January 2008. sales performance while maintaining a steady growth in baseline rents. In 2008, turnover rent contributed To redirect shopper traffic to Wisma Atria, two to about 3.9% of total gross rent derived from the “Dancing Traffic Cops” were stationed outside the Wisma Atria Property. new MRT entrance/exit. The two “Dancing Traffic STARHILL GLOBAL REIT 39 ANNUAL REPORT 2008
Wisma Atria continues to be the location of choice for retailers who want a presence in Orchard Road
Cops”, accompanied by girls holding directional signs, entertained the commuter crowd with their break-dancing performances and flamboyant traffic marshalling antics. The stunt was well-received by the public.
Late Night Shopping The Wisma Atria Property is a pioneer and continued to be one of the key Orchard Road malls that have supported Singapore Tourism Board’s (STB) initiative of regular late night shopping since it started in July 2006. From September 2007, Late Night Shopping Fridays was converted to every Saturday from 9 pm to 11 pm instead. The Wisma Atria Property continued to support this initiative throughout 2008 with close to 50% participation from tenants. Outdoor entertainment events were also organised on late night Saturdays to create night buzz on Orchard Road. Shopper traffic on Late Night Shopping Saturdays is typically 25% higher than a non-late night day.
Special Promotion for Basement Shops Since December 2006, shoppers have been able to access the basement directly from the street level via the escalators installed. Tactical promotions have been organised to further drive traffic and spending to the basement during the low shopping periods and this included an instant voucher rebate programme from August to October 2008.
of excellence and encourages them to keep outdoing Tourist Marketing themselves in offering a truly ‘Uniquely Singapore’ The Wisma Atria Property continued to collaborate experience to visitors. with Singapore Airlines on the SIA Boarding Pass Privileges programme. The programme rewarded all Outstanding Tenant Relationship overseas visitors flying on SIA flights with a three-day The Wisma Atria Property received the award tourist card packed with discounts and shopping for “Outstanding Tenant Relationship” by the privileges at the Wisma Atria Property. Singapore Retailer’s Association (SRA). The SRA Shopping Centre Scorecard is an annual national Awards & Accolades industry project designed to demonstrate the retail People’s Choice for Tourism Awards industry’s recognition of leading shopping centres The Wisma Atria Property won the online poll and and their management. Retail tenants of all malls clinched the People’s Choice for the Tourism Awards are asked to score their malls in terms of Advertising 2008 in the Best Shopping Experience category. and Promotions, Maintenance as well as Tenant Organised by the STB, the event recognises individuals Relations. A total of 60 malls were ranked against and organisations that provide services and products one another in 2008. 40
the NGEE ANN CITY property
The shopping mall of choice amongst retailers and shoppers, with a depth of offerings across the spectrum of trade sectors and price range
Starhill Global REIT’s stake in Ngee Ann City Diversified tenant mix (the Ngee Ann City Property) comprises four strata The Ngee Ann City Property has a well diversified lots representing 27.23% of the total share value of portfolio of tenants. As at 31 December 2008, the strata lots in Ngee Ann City. property had 15 retail tenants and 31 office tenants.
Distinctive landmark property retail trade mix (by gross Ngee Ann City comprises a podium block with rental contribution) for dec 08 five levels and two basement levels of retail space and three levels of car parking space. Its twin
office towers have 18 levels of office space each. 86.9% Its distinctive architecture and wide Orchard Road Toshin frontage makes it a prominent landmark along 0.5% General Trade Orchard Road. Its retail outlets and restaurants are a 2.8% magnet to tourists and business travellers from the Services
many hotels located in the Orchard Road vicinity. 9.8% Easily accessible by a network of major roads and Beauty & Wellness boasting ample parking lots, Ngee Ann City is also popular with shoppers who drive. An underground pedestrian walkway linking Basement 1 of Ngee Retail and Office Mix Ann City to Wisma Atria and an underpass from the (by Gross Revenue 2008) opposite side of Orchard Road to Ngee Ann City sustain a constant pedestrian flow to the property.
74% Strong retail positioning Retail Ngee Ann City is the shopping centre of choice 26% amongst retailers and shoppers. With its depth of Office offerings across all retail trade sectors, Ngee Ann City appeals to the affluent shopper with its wide range of luxury retailers such as Louis Vuitton, Chanel, Cartier, Hugo Boss and Burberry; the young and upwardly mobile with trendy retail stores such as Guess, Zara, Shanghai Tang and Christian Louboutin; and the family crowd with tenants such Takashimaya Master tenant Toshin Department Store and Books Kinokuniya. Toshin accounts for 64% of gross revenue (based on the month of December 2008) and 57% Events held at Ngee Ann City’s large event hall, of the Net Lettable Area (NLA) of the Ngee Ann City Takashimaya Square and its outdoor semi-circular Property. Toshin is a wholly-owned subsidiary of Civic Plaza, which has a capacity of over 3,000 Takashimaya Company Limited, which is listed on people, draw strong crowds. the Tokyo Stock Exchange. STARHILL GLOBAL REIT 41 ANNUAL REPORT 2008
The new beauty and wellness area on Level 5 covers 30,000 sq ft
Starhill Global REIT’s long-term master lease with Toshin expires in June 2013, with an option to renew for 12 years. The master lease also provides for a rent review every three years. In June 2008, Starhill Global REIT negotiated a rent increase of 19.75% over preceding rent, the first rent increase since the lease commenced in 1993. The long-term income stability provided by the lease together with its potential for rental upside is especially valuable under current market conditions.
Toshin is a strong and credible operator with over 40 years of experience in the development, operation and management of shopping malls. As a master tenant, Toshin leases retail space from Basement 2 to Level 4 of the Ngee Ann City Property and sublets the space to a host of retailers in the various trade High occupancy rates maintained sectors. Toshin also manages all the other specialty occupancy rates (%) areas in Ngee Ann City, ensuring consistency of branding and positioning of the entire mall. In % 2008, Toshin continued to reinforce the high-end 100% 99.6% 98.8% 100 98.5% fashion positioning of the mall. Hugo Boss’s 2,600 sq ft men’s boutique on Level 1 and its 4,600 sq ft 80 leisure wear store on Level 3 was consolidated into a 7,000 sq ft flagship store on the ground floor. Tiffany & Co renovated its 6,000 sq ft duplex to its latest 60 international design standard. High-end men’s shoe retailer Berluti opened its first store in Singapore. The 40 second floor of Ngee Ann City was revamped and repositioned to feature more top international brands 20 such as Van Cleef & Arpels, La Perla, Marc by Marc 0 Jacobs and Chloé. The mall is poised to solidify its Retail Office positioning further when Louis Vuitton and Chanel double the size of their flagship stores to create brand As at 31 Dec 07 As at 31 Dec 08 new concept two-storey duplexes of close to 10,500 sq ft and 7,000 sq ft respectively. Advertising and promotion Level 5 In 2008, events held in Ngee Ann City’s Civic Plaza Starhill Global REIT actively manages the retail space included the Singapore Fashion Festival, the Jewel on Level 5, covering an area of approximately 30,000 Festival and the Subaru Challenge. sq ft. To complement the overall shopping experience in the mall, the premises previously occupied by the In August 2008, a branding campaign themed National Library Board was reconfigured into a new “The Fifth - A Level Above Shopping” was launched to retail concept branded as “The Fifth” comprising create awareness of the newly configured beauty and new beauty & wellness retailers and a DBS Treasures wellness hub on Level 5. The branding campaign was banking branch. The average of rents achieved is carried through on-site advertising. Media tours were nearly 2.5 times higher over previous rent. also conducted to drive publicity. 42
China Property
Bottom: The Renhe Spring Zongbei Property houses luxury The Renhe Spring Zongbei Property and popular international brands
The Renhe Spring Zongbei Property (Zongbei), weekly sales year-on-year comparison acquired in August 2007, is located in Chengdu, Sales (RMB’000) Sichuan, one of the most populous provinces in including VAT 1 20000 China. Chengdu’s yoy GDP for 2008 was 12.1% . Sep 2008 Renhe Spring Chengdu is an important economic centre in China Anniversary Sales Oct 2008 serving as a transport and communications hub for National Day Sales southwest China. 15000
Located close to consulates in Chengdu and in a 10000 high-end commercial and high income area, Zongbei is positioned as a mid-to-high end department store operating under the Renhe Spring brand name. 5000 Tenants2 include luxury brands such as Prada, Hugo
Boss, Montblanc, Vertu, Givenchy, Dunhill, Bally, as 12 May 2008 Sichuan Earthquake well as popular international brands such as 0 Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Miss Sixty and Ecco. Zongbei has a gross floor area 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51
of about 101,000 sq ft and comprises four levels of 2007 2008 retail premises plus a mezzanine floor, and is served by basement and road level open carparking. retail trade mix (by rental contribution) A new metro line is being constructed in Chengdu, for the month of dec 08 and the Ni Jia Qian station will be located directly in front of the property with an expected completion 75.1% Fashion date of 2010. 7.2% Leather Goods 3.9% The property has enjoyed full occupancy since Watches & Jewellery
its opening in 2005, with sales revenue hitting 12.5% yoy growth of 15.3% in 2008 despite some slight Accessories 0.6% disruption in operation due to the Sichuan earthquake Cosmetics in May 2008. 0.7% Café
Sources: 1 Chengdu Statistics Bureau 2 As at 31 December 2008 STARHILL GLOBAL REIT 43 ANNUAL REPORT 2008
Japan Properties
Clockwise: Roppongi Terzo; Photo Studio in Ebisu Fort; Holon L
Starhill Global REIT’s portfolio of seven properties in Tokyo, acquired in 2007, are all contemporarily designed commercial buildings located in the prime Tokyo areas of Aoyama, Roppongi, Harajyuku, Meguro and Ebisu and within five minutes’ walk from the nearest subway station. As at 31 December 2008, all seven properties were fully occupied except for Roppongi Primo and Daikanyama. lease structure (by Gross revenue) as at 31 dec 08
32.2% Pass-through Master Leases
38.4% Medium Term Master Lease
29.4% Long Term Master Lease
occupancy rates as at 31 dec 08
% 100% 100% 100% 100% 100% 100
86%* 88%*
80
60
40
20
0 Future Revolution K.K. is the master tenant of the Holon L Harajyuku Ebisu Fort NakameguroDaikanyama seven Japan Properties and with its related entities, Roppongi TerzoRoppongi Primo occupy 33% of the NLA directly. On 16 January * The rent for the vacant units in Roppongi Primo and Daikanyama properties are guaranteed by Fund Creation (until May 2009) 2009, the parent company of Future Revolution K.K. and Future Revolution K. K. (until June 2010) respectively transferred its entire interest in Future Revolution K.K. to a non-related party, Hexagon Capital Partners, pursuant to an ongoing civil rehabilitation process. The Manager is monitoring the situation and will take necessary actions to mitigate any risk exposure to Starhill Global REIT. 44
Market
Overview Left to right: Ebisu Fort; Nike, Wisma Atria
Singapore Retail Property Market The Singapore economy grew by 1.5% for full year 2008, with the strongest contraction in GDP being in 4Q2008. Retail sales was affected by consumer sentiment in 2H2008, and retail sales growth was down 1.6% for December 2008 yoy. Tourist arrivals were down 1.6% yoy to 10.1 million, although tourism receipts were up 4.8% yoy to $14.8 million.
In 2009, major shopping malls expected to open in Orchard Road will add 1.3 million sq ft of retail space. Prime Orchard Road rents in 4Q2008 fell 0.8% yoy to average $36.10. Downward pressure on rents is expected to continue throughout 2009 in view of the large retail supply and particularly due to Chengdu retail sales for 2008 was up 19.5% yoy. the economic downturn which will affect consumer New international retailers have indicated plans to demand and retailers’ expansion plans. open in Chengdu, while some existing market brands have expansion plans. Singapore Office Property Market Following the acceleration in Singapore office It is expected that there will be an additional rental rates from 2005 to early 2008, office rental 300,000 sq m of retail space coming on-stream rates stabilised in mid 2008 in view of the huge up- in 2009. Prime retail rents are expected to remain coming office supply from 2010 onwards. Vacancy stable up to 1H2009 and the Chunxi Road area is still rate for Grade A office was 0.9% in 4Q2008, versus expected to command up to RMB 2,000 psm pm. 0.2% in 4Q2007. Grade A office rents fell 12.5% yoy Downward pressure on retail rents and sales in 4Q2008 to $15.00 psf pm. is expected in 2H2009 should the financial crisis deepen. In 4Q2008, market sentiment took a sharp turn for the worse due to the global economic downturn. Japan Property Market Market sentiment is expected to remain weak Japan experienced three consecutive quarters of throughout 2009, and rents and occupancy rates are negative growth with annualised GDP declining expected to fall further. sharply by 12.7% in 4Q2008. Retail sales posted their biggest fall in almost four years in the month of Tenant retention will be a top priority for most office December 2008. A global economic slump since late landlords in 2009 amid thinner prospective tenant 2008 has hit Japan’s car and electronics exports badly, demand as existing office occupiers are unlikely to be and the world’s second-biggest economy is seen to be willing to incur relocation and fitting-out costs unless headed for the worst recession in decades. it is to much cheaper office premises. Retail rents are expected to continue on a downward Chengdu Property Market trend in light of the weak economic climate. GDP growth for Chengdu was 12.1% for 2008. The global economic recession appears to have hit retail sales in tier-one Chinese cities such as Shanghai and Beijing, more than inland cities such as Chengdu which are less dependent on foreign exports, or providing goods and services to the Sources: CBRE, MarketView Singapore Fourth Quarter 2008 international market. Reuters, “Singapore cuts 2009 GDP outlook”, 2 Jan 2009 Cushman & Wakefield, MarketBeat Chengdu Retail Report 4Q08 Thomson Reuters, “Japan’s economy slumps as global gloom spreads”, 16 Feb 2009 STARHILL GLOBAL REIT 45 ANNUAL REPORT 2008
Capital Management
Prudent capital management The $380 million term loan (CMBS equivalent), to optimise returns to investors representing 57% of total borrowings, has a fixed rate Starhill Global REIT’s objectives when managing interest of 3.18% per annum up to its maturity capital is to optimise unitholders’ return through a in September 2010. mix of available capital sources. The Group monitors capital on the basis of both the gearing ratio and The $190 million term loan, used to refinance interest service coverage ratios and maintains them the bridging loans that were used to finance the within the approved limits. The Group assesses its acquisition of the Japan Properties and Renhe Spring capital management approach as a key part of the Zongbei Property, is repayable in September 2010. Group’s overall strategy, and this is continuously The interest rate has been fixed at an average rate of reviewed by the Manager. Starhill Global REIT had a 2.95% on $162 million of the term loan using interest relatively low gearing of 31.0% as at 31 December rate swaps and cross currency swaps. 2008 and the Manager intends to continue with its prudent capital management and maintains a The $46 million due under the RCF represents 7% of long-term optimal gearing level of below 40% for total borrowings and comprises a $30 million facility the Group. fully drawn used to part finance the acquisition of the Renhe Spring Zongbei Property and $16 million Starhill Global REIT’s current financial risk drawn from a $35 million facility used for working management policy is described in greater capital. The $30 million facility is repayable in detail below. September 2010. The $35 million facility matures in March 2009 and subsequent to the year end, it has Interest Rate Risk Management been rolled over until March 2010. In order to protect the Group’s earnings from the volatility in interest rates and provide stability to The JPY 3.1 billion ($49 million) five-year Japan bond unitholders’ returns, Starhill Global REIT may hedge was used to part finance the acquisition of the Japan a portion of its interest rate exposure in the short to Properties and has been hedged via an interest rate medium term by using fixed rate debt and interest cap (capped at 1.2% per annum) until May 2012. rate derivatives. The carrying amount of RMB 28 million ($6 million) represents the discounted value of the RMB 34 million Starhill Global REIT has fixed approximately 89.4% of loan payable to Rendong Company and was assumed its debt up to September 2010 using a combination as part of the acquisition of the Renhe Spring Zongbei of derivative financial instruments and fixed rate debt. Property in China. The amount is interest-free and The weighted average interest rate was 3.0% per repayable in equal and annual instalments, with the annum for the year ended 31 December 2008. The final instalment being due in August 2014. interest service coverage ratio was a healthy 4.6 times for the year, indicating that Starhill Global REIT can Foreign Exchange Risk Management comfortably pay interest on its outstanding debt. Starhill Global REIT is exposed to foreign exchange risk arising from its investments in Japan and China. The As at 31 December 2008, Starhill Global REIT’s income generated from these investments and net borrowings comprised a $380 million term loan assets are denominated in foreign currencies, mainly (CMBS equivalent), a $190 million term loan, Japanese Yen (“JPY”) and Chinese Renminbi (“RMB”). $46 million in revolving credit facilities, a JPY 3.1 billion Japan bond (equivalent to $49 million) and a RMB 28 million (equivalent to $6 million) loan payable to Rendong Company in China. 46
Capital Management
Income Hedging Debt gearing and highlights In order to reduce the impact of exchange rate as at 31 December 2008 fluctuations on the distributions to unitholders, Starhill Global REIT has hedged a portion of its Term loan (CMBS equivalent) $380m forecast foreign currency net income receivable from Term loan (secured) $190m its overseas investments back into Singapore dollars. Revolving credit facilities $ 46m As at 31 December 2008, Starhill Global REIT has Japan bond $ 49m entered into a combination of foreign exchange Chinese loan $ 6m forwards and cross currency swaps such that Total Debt $671m approximately 96% and 83% of the Group’s net Gearing ratio(1) 31.0% income is fixed in Singapore dollars in the next Fixed rate debt (up to Sep 2010)(2) 89.4% 12 months and the following 12 months respectively. Interest cover for the year 4.6x Weighted average interest rate for Capital Hedging the year 3.0% pa Starhill Global REIT intends to maximise the use of Starhill Global REIT corporate rating local currency denominated borrowings, whenever (Moody’s)(3) Baa2 possible, to match the currency of the asset Note: investment as a natural currency hedge. Starhill Global (1) Based on deposited property REIT may use other suitable financial derivatives, (2) Including financial derivatives to hedge a portion of its capital invested in foreign (3) Reaffirmed by Moody’s Investors Service in October 2008 currency assets to reduce the impact of exchange rate fluctuations on the net asset value of the Group, Debt maturity profile as at where appropriate. 31 December 2008
As at 31 December 2008, Starhill Global REIT has Debt $m 1 600 entered into a combination of foreign currency 30 denominated loans, cross currency swaps and foreign
currency option such that substantially all of the 500 190 Group’s net assets is fixed in Singapore dollars.
400
300
200 380
100 1 1 1 49 1 1 16* 0 2009 2010 2011 2012 2013 2014
Japan bond Term loan (secured) Chinese loan Term loan (CMBS equivalent) RCF (unsecured) RCF (secured) * Subsequent to the year-end, the $35 million unsecured RCF, drawn to $16 million at 31 December 2008, was rolled over to March 2010. STARHILL GLOBAL REIT 47 ANNUAL REPORT 2008
Risk Management Framework
The Manager has put in place an enterprise risk Together with the Manager’s asset management management framework (“RMF”) for Starhill team, the EHS manager is responsible for ensuring Global REIT, comprising procedures and protocol that assets not located in Singapore are also to identify and initiate mitigation of enterprise risks appropriately managed from an EHS perspective. which may arise in the management and operations of Starhill Global REIT, particularly in the areas of Implementation of a robust asset acquisitions, asset integration, financial risk Financial Risk Management policy management, and environmental, health and safety Starhill Global REIT’s returns are primarily from net (“EHS”). To address each of these areas, the Manager operating income and capital appreciation of its has either adopted policies, hired or designated staff assets. However, these returns are exposed to financial with specific expertise in that area, and continues to risks including credit, liquidity, interest rate and assess the potential impact of risks which may arise foreign currency risks. Where appropriate, and the necessary response or process to effectively the Manager may hedge against volatility of interest mitigate those risks. costs, foreign currency net income and foreign currency investments. Asset Acquisition Process Prior to any new acquisition, each of the key risks Starhill Global REIT has a system of controls in place attributable to the acquisition or the subsequent to create an acceptable balance between the cost of management of the asset is assessed. Functional the financial risks occurring and the cost of managing heads in the Manager or the Property Manager are these risks. The Manager continually monitors the responsible for this process. Checklists and/or sign- Group’s financial risk management process to ensure offs are provided to the Board to confirm that all that an appropriate balance between risk and control key risks have been considered and addressed or is achieved. Financial risk management policies and mitigated successfully. systems are reviewed regularly to reflect changes in market conditions and Starhill Global REIT’s activities. Asset Integration Process Following every successful acquisition, it is The policy contains the parameters and processes imperative that each asset is quickly integrated for managing these risks, and defines the roles and into the existing Starhill Global REIT portfolio, from responsibilities of those who manage the process. financial, operational and compliance perspectives. This process will be activated before the closing Business Continuity Planning of each acquisition, and completed as soon as The Manager has developed a plan to address the practicable thereafter. impact of any major disruption to its business and operations. Key areas such as IT, finance, regulatory Environmental, Health and Safety (“EHS”) compliance, vital record storage and recovery are The Manager has developed and commenced addressed, to ensure smooth continuation of the implementation of a robust EHS protocol since Manager’s and the Property Manager’s essential 2007. This protocol complies with local legislative business operations, in the event of major disruption requirements and has been put in place for the or contingency. Singapore assets of Starhill Global REIT. A qualified EHS manager oversees the process, to ensure that risks associated with EHS aspects of the assets are appropriately minimised and/or mitigated. 48
Risk MANAGEMENT
Our People
Operational Risk Self Assessments (“ORSA”) As the Manager of Starhill Global REIT, we value The Manager has an ORSA protocol to ensure the contributions of each of our team members, and a regular review and assessment of the internal have in place programmes to help them achieve processes which have been implemented under higher work effectiveness and efficiency, as well as the RMF. The Manager periodically conducts ORSA work-life balance. to assess the key risks and controls identified. This process also ensures that adequate resources are To hone their professional, technical and people allocated to mitigate these risks. management skills, employees are given opportunities to attend learning and development programmes, Risk Reporting seminars and conferences. Off-site management The Manager actively assesses and manages legal meetings were also organised to review and and compliance risks for Starhill Global REIT. Such brainstorm business strategies. Several key risks may arise in each of the various jurisdictions managers also went on overseas study trips to Starhill Global REIT has assets located in, with update themselves on new retailing trends and the application of different laws and regulatory developments. To foster teamwork and camaraderie, requirements, the enforceability of counterparty several social and recreational events were held obligations and/or in the process of appropriately during the year, including a staff incentive trip to documenting all contractual agreements. Quarterly Ho Chi Minh City, Vietnam. reports are made to the Manager’s Audit Committee (on an exceptions basis), and the Board is regularly Besides providing a conducive workplace, we also updated on all such matters. actively promoted a healthy lifestyle for our people. To this end, regular health-related activities and talks were organised. We were awarded the Workplace Health Award (Bronze category) by the Health Promotion Board for our concerted efforts in 2008. STARHILL GLOBAL REIT 49 ANNUAL REPORT 2008
Investor Relations & Communications
Starhill Global REIT is committed to communicating equity forums, conferences and investor roadshows in to all stakeholders in a regular, transparent and timely Singapore, Hong Kong and Japan in 2008. Property fashion. Among the communication channels that visits to our Singapore assets were also conducted for the Manager has employed to share information on visiting overseas institutional investors upon request. its financial and operational performance, business Another communication platform was the 2007 full plans and latest news are announcements, press year results media and analyst briefing, which was releases, investor presentations, annual reports and audio-cast and made available on the website. the corporate website. An email alert system which sends out the latest announcements and news releases As at 31 December 2008, Starhill Global REIT is ensures that registered users receive up-to-date covered by close to a dozen research houses. information on Starhill Global REIT’s business activities. Going forward, we will continue to be proactive in our investor relations and communications efforts to About 75% of Starhill Global REIT’s units are held by disseminate accurate and timely information, with the institutional investors. Besides regular one-on-one objective of addressing concerns and strengthening meetings and conference calls with local and foreign relationships with unitholders, potential investors investors or analysts, the Manager also participated in and analysts.
Financial Calendar 2009 – 2010 (Tentative)
April 2009 2009 First Quarter Results Announcement
May 2009 2009 First Quarter Distribution to Unitholders
July 2009 2009 Second Quarter Results Announcement
August 2009 2009 Second Quarter Distribution to Unitholders
October 2009 2009 Third Quarter Results Announcement
November 2009 2009 Third Quarter Distribution to Unitholders
January 2010 2009 Full Year Results Announcement
February 2010 2009 Fourth Quarter Distribution to Unitholders
Contact Us If you have any enquiries or would like to find out more about Starhill Global REIT, please contact:
Unitholder Enquiries Unitholder Depository The Manager The Unit Registrar The Central Depository YTL Pacific Star REIT Boardroom Corporate & (Pte) Limited Management Limited Advisory Services Pte. Ltd. 4 Shenton Way 391B Orchard Road 3 Church Street #02-01 SGX Centre 2 #21-08 Ngee Ann City Tower B #08-01 Samsung Hub Singapore 068807 Singapore 238874 Singapore 049483 Phone: +65 6535 7511 Phone: +65 6835 8633 Phone: +65 6536 5355 Fax: +65 6535 0775 Fax: +65 6835 8644 Fax: +65 6536 1360 Email: [email protected] Email: [email protected] Website: Website: www.cdp.com.sg Website: www.boardroomlimited.com www.starhillglobalreit.com or www.ytlpacificstar.com 50
Corporate Bottom left to right: The Fashion Minds 2008: Shineon! Through Time event; An outing on the Singapore Flyer with Social Responsibility the underprivileged elderly
community outreach Breast Cancer Awareness – Over the past year, we continued to be proactive 27 September – 5 October 2008 in the area of community outreach. In 2008, staff In support of the Breast Cancer Foundation, Wisma worked with The Salvation Army and organised Atria was the official venue for an exhibition and an outing and distributed food rations to the for the collection of the Reebok Pink Ribbon Run underprivileged elderly and disadvantaged families. race pack and the sale of Pink Ribbons. In addition, funds were raised in-house to aid victims of the cyclone disaster in Myanmar and the Starbucks Christmas Open House – earthquake in Sichuan, China. 4 December 2008 To launch the event, representatives from Starbucks Community outreach programmes to engage and The Salvation Army rang handheld bells at shoppers at Wisma Atria included: Wisma Atria for one minute, simultaneously with all other Starbucks outlets. Customers were also offered Fresh Air for Women – 28 – 30 March 2008 complimentary beverages in exchange for a donation. Health Promotion Board’s anti-smoking awareness campaign “Fresh Air for Women” – which included GREEN AND TECHNOLOGICAL INITIATIVES a static display and giveaways of fresh flowers - was Several green initiatives were implemented at targeted at young female smokers. Wisma Atria in 2008:
Red Dress Exhibition – • NEWater was introduced as an alternative source 28 March – 3 April 2008 of high quality water supply at a lower cost for Organised by fashion magazine L’Officiel in air-conditioning cooling towers and fire fighting/ conjunction with the Singapore Fashion Festival, the protection system; exhibition showcased red designer pieces to raise awareness of heart disease among women. Funds • Lighting for general areas such as car park levels, were raised for the Singapore Heart Foundation. were replaced with energy saving compact fluorescent light tubes; Fashion Minds 2008 : Shineon! Through Time – 13 September 2008 • Water-saving waterless urinals cleaned by This first-of-its-kind fashion parade by children biotechnology pellets impregnated with friendly from the Movement for the Intellectually Disabled of bacteria were introduced as a pilot project; Singapore (MINDS) and Shineon! School on Stage challenged conventional views of children’s beauty & • Smoking zones were redesignated, in line fashion, and empowered children with special needs with new National Environment Agency to stand tall. (NEA) regulations; and
• A new floodgate was successfully tested and commissioned by the Land Transport Authority, NEA and the SMRT.
On the technological front, Wisma Atria was one of a few select malls in Singapore to have its wireless capability enabled with the Wireless@SG Virtual Private Network (VPN) security encryption. Wisma Atria and Ngee Ann City also have installed at various levels of the malls, automated external defibrillators (AEDs), meant for public use to help heart-attack victims. STARHILL GLOBAL REIT 51 ANNUAL REPORT 2008
Financial Review
Revenue Management fees were $11.4 million for the Gross revenue for the financial year ended 31 financial year ended 31 December 2008, an increase December 2008 was $127.0 million, an increase of of $2.6 million or 29.0% over the previous financial $24.1 million or 23.4% over the previous financial year. This was mainly in line with the higher average year. This was due primarily to higher rental rates value of Trust property during the year ended achieved for renewals and new leases in Singapore 31 December 2008. and a full year of contribution from its overseas properties (acquired between May to September The change in fair value of derivative financial 2007), which accounted for approximately 18.0% instruments of $34.4 million for the financial year (2007: 8.0%) of total gross revenue for 2008. ended 31 December 2008 represents mainly an unrealised loss on the cross currency swaps which Property expenses were entered into in relation to the acquisition of Property operating expenses for the financial year the Japan Properties. The unrealised loss is offset ended 31 December 2008 were $31.1 million, an by an increase in value of the Japan Properties due increase of $5.0 million or 19.2% over the previous to an improvement in foreign exchange rates. As financial year. This was mainly due to higher lease the amount is unrealised it has been added back in commissions and property management fees paid determining net income available for distribution. for renewal and new leases, which were transacted at higher rentals and also a full year of property expenses Distributable income and distributions incurred on its overseas properties in China and Japan. Distributable income was $69.4 million for the financial year ended 31 December 2008, Net Property Income (NPI) an increase of $10.4 million or 17.6% over the As a result of the higher gross revenue, NPI of previous financial year. $95.9 million for the financial year ended 31 December 2008 was $19.1 million or 24.8% Total distributions for 2008 were 7.17 cents per higher than $76.8 million for the previous unit which represents an increase of 15.8% over financial year. The Wisma Atria Property contributed the previous financial year distributions of 6.19 approximately 40.1% (2007: 47.2%) to NPI, the Ngee cents per unit. Ann City Property contributed 42.2% (2007: 44.2%), the Renhe Spring Zongbei Property contributed 9.6% Assets (2007: 4.1%) and the Japan Properties contributed The Group’s total assets as at 31 December 2008 8.1% (2007: 4.5%). were $2,163.4 million compared to $2,277.6 million as at 31 December 2007. The decrease of Other expenses $114.2 million or 5.0%, after taking into account Borrowing costs for the financial year ended foreign exchange effects, was mainly due to the 31 December 2008 were $22.1 million, an increase revaluation losses of the Group’s properties as at of $5.7 million or 34.6% over the previous financial 31 December 2008. The Wisma Atria Property was year. This was mainly due to a full year of debt costs independently valued at $849.8 million, the Ngee relating to the financing of the overseas properties Ann City Property at $946.9 million, the Renhe Spring acquisitions as well as higher refinancing costs during Zongbei Property at $80.2 million, and the Japan the year ended 31 December 2008. Properties at $226.4 million as at 31 December 2008. 52
financial review
gross revenue gross revenue 2008 2007
42% WA 50% WA 11% Renhe Spring 4% Zongbei Property Renhe Spring Zongbei Property 4% 7% Japan Properties Japan Properties 42% 40% NAC NAC
net property income (npi) net property income (npi) 2008 2007
47% 40% WA WA 4% 10% Renhe Spring Renhe Spring Zongbei Property Zongbei Property 5% 8% Japan Properties Japan Properties 42% 44% NAC NAC
distribution per unit (dpu)
Cents 8 7.17 cents 7 6.19 cents 1.85 6
1.68 5 1.78 4 1.54
3 1.78 1.50 2
1 1.76 1.47
0 2008 2007
Q4 Q3 Q2 Q1 STARHILL GLOBAL REIT 53 ANNUAL REPORT 2008 Financial Statements
CONTENTS
54 Report of the Trustee 55 Statement by the Manager 56 Independent Auditor’s Report 57 Balance Sheets 58 Statements of Total Return 59 Distribution Statements 60 Statements of Movements in Net Assets Attributable to Unitholders 61 Investment Properties Portfolio Statement 62 Consolidated Cash Flow Statement 64 Notes to the Financial Statements 54 Report of the Trustee
HSBC Institutional Trust Services (Singapore) Limited (the “Trustee”) is under a duty to take into custody and hold the assets of Starhill Global Real Estate Investment Trust (formerly known as Macquarie Prime Real Estate Investment Trust) (the “Trust”) and its subsidiaries (collectively, the “Group”) in trust for the unitholders. In accordance with the Securities and Futures Act (Cap. 289), its subsidiary legislation and the Code on Collective Investment Schemes (collectively referred to as the “laws and regulations”), the Trustee shall monitor the activities of YTL Pacific Star REIT Management Limited (formerly known as Macquarie Pacific Star Prime REIT Management Limited) (the “Manager”) for compliance with the limitations imposed on the investment and borrowing powers as set out in the trust deed dated 8 August 2005 (last amended and restated on 10 December 2007) between the Trustee and the Manager (the “Trust Deed”) in each annual accounting period and report thereon to unitholders in an annual report which shall contain the matters prescribed by the laws and regulations as well as the recommendations of Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Certified Public Accountants of Singapore and the provisions of the Trust Deed.
To the best knowledge of the Trustee, the Manager has, in all material respects, managed the Group during the year covered by these financial statements, set out on pages 57 to 97, comprising the balance sheets of the Group and the Trust, the investment properties portfolio statement of the Group, the statements of total return, distribution statements and statements of movements in net assets attributable to unitholders of the Group and the Trust and the cash flow statement of the Group, and the notes to the financial statements, in accordance with the limitations imposed on the investment and borrowing powers set out in the Trust Deed, laws and regulations, and otherwise in accordance with the provisions of the Trust Deed.
For and on behalf of the Trustee, HSBC Institutional Trust Services (Singapore) Limited
Johannes van Verre Director
Singapore 27 February 2009 STARHILL GLOBAL REIT 55 ANNUAL REPORT 2008 Statement by the Manager
In the opinion of the directors of YTL Pacific Star REIT Management Limited (formerly known as Macquarie Pacific Star Prime REIT Management Limited) (the “Manager”), the accompanying financial statements set out on pages 57 to 97, comprising the balance sheets of the Group and the Trust, the investment properties portfolio statement of the Group, the statements of total return, distribution statements and statements of movements in net assets attributable to unitholders of the Group and the Trust and the cash flow statement of the Group, and the notes to the financial statements, are drawn up so as to present fairly, in all material respects, the financial position of Starhill Global Real Estate Investment Trust (formerly known as Macquarie Prime Real Estate Investment Trust) (the “Trust”) and its subsidiaries (collectively, the “Group”) as at 31 December 2008, the total return, distributable income and movements in net assets attributable to unitholders of the Group and the Trust, and the cash flows of the Group for the year then ended in accordance with the recommendations of Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Certified Public Accountants of Singapore and the provisions of the Trust Deed. At the date of this statement, there are reasonable grounds to believe that the Group and the Trust will be able to meet its financial obligations as and when they materialise.
For and on behalf of the Manager, YTL Pacific Star REIT Management Limited
Franklin Heng Director
Singapore 27 February 2009 56 Independent Auditor’s Report To the Unitholders of Starhill Global Real Estate Investment Trust (a trust constituted on 8 August 2005 under the laws of the Republic of Singapore)
We have audited the accompanying financial statements of Starhill Global Real Estate Investment Trust (formerly known as Macquarie Prime Real Estate Investment Trust) (the “Trust”) and its subsidiaries (collectively, the “Group”), which comprise the balance sheets of the Group and the Trust, the investment properties portfolio statement of the Group as at 31 December 2008, the statements of total return, distribution statements and statements of movements in net assets attributable to unitholders of the Group and the Trust and the cash flow statement of the Group for the year then ended, summary of significant accounting policies and the notes to the financial statements, as set out on pages 57 to 97.
The Manager’s and the Trustee’s responsibilities for the financial statements The Manager and the Trustee of the Trust are responsible for the preparation and fair presentation of these financial statements in accordance with the Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Certified Public Accountants of Singapore. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance on whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager and the Trustee, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group and the Trust as at 31 December 2008, the total return, distributable income and movements in net assets attributable to unitholders of the Group and the Trust, and the cash flows of the Group for the year then ended in accordance with the Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Certified Public Accountants of Singapore.
Public Accountants and Certified Public Accountants
Singapore 27 February 2009 STARHILL GLOBAL REIT 57 ANNUAL REPORT 2008 Balance Sheets As at 31 December 2008
Group Trust
Note 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Assets Investment properties 3 2,103,278 2,208,574 1,796,700 1,932,350 Plant and equipment 4 670 2,259 593 2,155 Interests in subsidiaries 5 – – 252,223 226,399 Intangible asset 6 12,613 12,613 – – Derivative financial instruments 7 8,714 1,920 8,714 1,447 Trade and other receivables 8 5,391 9,499 4,927 5,281 Cash and cash equivalents 9 32,704 42,686 4,131 19,057
2,163,370 2,277,551 2,067,288 2,186,689
Liabilities Trade and other payables 10 (47,133) (57,563) (32,827) (44,590) Derivative financial instruments 7 (49,467) (8,036) (49,595) (8,036) Income tax payable (656) (656) – – Deferred tax liabilities 11 (16,585) (16,598) – – Borrowings 12 (665,991) (657,531) (611,845) (612,741)
(779,832) (740,384) (694,267) (665,367)
Net assets 1,383,538 1,537,167 1,373,021 1,521,322
Represented by:
Net assets attributable to unitholders 1,383,538 1,537,167 1,373,021 1,521,322
Units in issue (’000) 13 960,680 952,517 960,680 952,517
Net asset value per unit ($) 1.44 1.61 1.43 1.60
The accompanying notes form an integral part of these financial statements. 58 Statements of Total Return Year ended 31 December 2008
Group Trust
Note 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Gross revenue 14 127,042 102,959 104,052 94,314 Property operating expenses 15 (31,158) (26,145) (25,124) (24,147)
Net property income 95,884 76,814 78,928 70,167
Finance income 19 87 222 60 222 Dividend income from subsidiary 16 – – 2,068 – Fair value adjustment on security deposit and retention sum (28) 42 83 (387) Tenancy relief – (917) – (917) Management fees 17 (11,404) (8,843) (11,201) (8,751) Performance fees 17 – – – – Trust expenses 18 (3,421) (1,460) (3,004) (1,236) Finance expense 19 (22,146) (16,448) (16,958) (14,036)
Net income before tax 58,972 49,410 49,976 45,062 Change in fair value of unrealised derivative instruments (34,431) (7,983) (34,191) (7,698) Unrealised foreign exchange gain – – 34,373 3,730 Change in fair value of investment properties 3 (160,884) 448,870 (137,457) 433,652
Total return for the year before tax and distribution (136,343) 490,297 (87,299) 474,746 Income tax expense 20 (935) (3,188) – –
Total return for the year after tax, before distribution (137,278) 487,109 (87,299) 474,746 Non-tax deductible/ (chargeable) items 206,705 (428,071) 156,726 (415,708)
Income available for distribution 69,427 59,038 69,427 59,038
Earnings per unit (cents) 21 (14.38) 51.30 (9.15) 50.00
The accompanying notes form an integral part of these financial statements. STARHILL GLOBAL REIT 59 ANNUAL REPORT 2008 Distribution Statements Year ended 31 December 2008
Group Trust
2008 2007 2008 2007 $’000 $’000 $’000 $’000
Income available for distribution to unitholders at the beginning of the year 16,245 14,006 16,245 14,006
Total return after tax, before distribution (137,278) 487,109 (87,299) 474,746 Net tax adjustments (Note A below) 206,705 (428,071) 156,726 (415,708)
Income available for distribution 85,672 73,044 85,672 73,044
Distributions to unitholders: Distribution of 1.68 cents (2006: 1.47 cents) per unit for the period 1 October to 31 December (16,004) (13,941) (16,004) (13,941) Distribution of 1.76 cents (2007: 1.47 cents) per unit for the period 1 January to 31 March (16,787) (13,954) (16,787) (13,954) Distribution of 1.78 cents (2007: 1.50 cents) per unit for the period 1 April to 30 June (17,003) (14,254) (17,003) (14,254) Distribution of 1.78 cents (2007: 1.54 cents) per unit for the period 1 July to 30 September (17,051) (14,650) (17,051) (14,650) (66,845) (56,799) (66,845) (56,799)
Income available for distribution to unitholders at the end of the year 18,827 16,245 18,827 16,245
Note A – Net tax adjustments Non-tax deductible/(chargeable) items: – Management fees paid/payable in units 5,843 4,914 5,843 4,914 – Finance costs 2,289 910 3,116 910 – Sinking fund contribution 1,165 1,167 1,165 1,167 – Tenancy relief – 917 – 917 – Depreciation 1,562 1,700 1,562 1,700 – Change in fair value of unrealised derivative instruments 34,431 7,983 34,191 7,698 – Unrealised foreign exchange gain – – (34,373) (3,730) – Change in fair value of investment properties 160,884 (448,870) 137,457 (433,652) – Deferred tax (1,261) 2,415 – – – Other items 1,792 793 2,695 1,503 – Net overseas income not distributed to the Trust – – 5,070 2,865
Net tax adjustments 206,705 (428,071) 156,726 (415,708)
The accompanying notes form an integral part of these financial statements. 60 Statements of Movements in Net Assets Attributable to Unitholders Year ended 31 December 2008
GROUP TRUST
2008 2007 2008 2007 $’000 $’000 $’000 $’000
Net assets attributable to unitholders at the beginning of the year 1,537,167 1,098,461 1,521,322 1,098,461
Operations Change in net assets attributable to unitholders resulting from operations, before distributions (137,278) 487,109 (87,299) 474,746 (Decrease)/increase in net assets resulting from operations (137,278) 487,109 (87,299) 474,746
Foreign currency translation reserve Translation differences from financial statements of foreign entities 10,278 (248) – – Exchange differences on monetary items forming part of net investment in foreign operations 34,373 3,730 – – Net gain recognised directly in net assets attributable to unitholders 44,651 3,482 – –
Unitholders’ transactions Creation of units: – Management fees paid in units 4,397 3,600 4,397 3,600 – Management fees payable in units 1,446 1,314 1,446 1,314 Distributions to unitholders (66,845) (56,799) (66,845) (56,799) Decrease in net assets resulting from unitholders’ transactions (61,002) (51,885) (61,002) (51,885)
Net assets attributable to unitholders at the end of the year 1,383,538 1,537,167 1,373,021 1,521,322
The accompanying notes form an integral part of these financial statements. STARHILL GLOBAL REIT 61 ANNUAL REPORT 2008 Investment Properties Portfolio Statement As at 31 December 2008
GROUP
Description of Tenure Term Location Existing Occupancy At Percentage of total net property of lease Use rate valuation assets attributable to unitholders 31/12/2008 31/12/2008 31/12/2007 31/12/2008 31/12/2007 % $’000 $’000 % %
Wisma Atria Leasehold Leasehold estate 435 Orchard Road, Retail / Office 95.6 / 849,800(3) 901,450 61.4 58.6 Property of 99 years Singapore 238877 83.2 expiring on 31 March 2061
Ngee Ann City Leasehold Leasehold estate 391/391B Orchard Retail / Office 99.6 / 946,900(3) 1,030,900 68.5 67.1 Property of 69 years, Road, Singapore 98.8 4 months 238874 expiring on 31 March 2072
Ebisu Fort Freehold Not applicable 24–1 Ebisu-Minami, Retail 100.0 94,949(4) 79,595 6.9 5.2 Property(1) 1 Chome, Shibuya–ku, Tokyo, Japan
Roppongi Freehold Not applicable 212–16 Roppongi, Retail / Office 86.0 17,046(4) 16,946 1.2 1.1 Primo 7 Chome, Minato–ku, Property(1) Tokyo, Japan
Roppongi Freehold Not applicable 101–1 Roppongi, F&B / 100.0 48,590(4) 42,109 3.5 2.7 Terzo 7 Chome, Minato– Entertainment Property(1) ku, Tokyo, Japan
Holon L Freehold Not applicable 46–7 Kita Retail 100.0 24,534(4) 21,825 1.8 1.4 Property(1) Aoyama, 3 Chome, Minato–ku, Tokyo, Japan
Harajyuku Freehold Not applicable 19–1 Jingumae, Retail 100.0 7,360(4) 6,303 0.5 0.4 Secondo 1 Chome, Shibuya– Property(1) ku, Tokyo, Japan
Daikanyama Freehold Not applicable 31–11, Ebisu–Nishi, Retail / F&B 88.0 25,490(4) 25,291 1.8 1.7 Property(1) 1 Chome, Shibuya– ku, Tokyo, Japan
Nakameguro Freehold Not applicable 152–7 Aobadai, Retail 100.0 8,443(4) 7,395 0.6 0.5 Property(1) 1 Chome, Meguro–ku, Tokyo, Japan
Renhe Spring Leasehold Leasehold estate No 19, Renminnan Retail 100.0 80,166(5) 76,760 5.8 5.0 Zongbei of 40 years Road, Chengdu, Property(2) expiring on 27 China December 2035
Investment properties, at valuation 2,103,278 2,208,574 152.0 143.7
Net liabilities (excluding net assets attributable to unitholders) (719,740) (671,407) (52.0) (43.7)
Net assets attributable to unitholders 1,383,538 1,537,167 100.0 100.0
Notes: (1) The Japan Properties comprise seven properties. Six of these properties (Roppongi Primo Property, Roppongi Terzo Property, Holon L Property, Harajyuku Secondo Property, Daikanyama Property and Nakameguro Property) were acquired on 30 May 2007, whilst the seventh property, Ebisu Fort Property, was acquired on 26 September 2007. (2) The Renhe Spring Zongbei Property was acquired on 28 August 2007. (3) Based on the valuation performed by CB Richard Ellis (Pte) Ltd as at 31 December 2008. (4) Based on the valuation performed by Tokyo Asset Research Co Ltd as at 31 December 2008 and translated at the exchange rate of JPY62.77:$1.00 (2007: JPY77.89:$1.00). (5) Based on the valuation performed by CB Richard Ellis Limited as at 31 December 2008 and translated at the exchange rate of RMB4.74:$1.00 (2007: RMB5.08:$1.00).
The Manager believes that the above independent valuers have appropriate professional qualifications and recent experience in the location and category of the Group’s investment properties being valued. The accompanying notes form an integral part of these financial statements. 62 Consolidated Cash Flow Statement Year ended 31 December 2008
Group
2008 2007 $’000 $’000
Operating activities Total return for the year before tax and distribution (136,343) 490,297
Adjustments for: Finance income (87) (222) Fair value adjustment on security deposits and retention sum 28 (42) Depreciation 1,606 1,708 Management fees paid/payable in units 5,843 4,914 Finance expense 22,146 16,448 Change in fair value of unrealised derivative instruments 34,431 7,983 Change in fair value of investment properties 160,884 (448,870)
Operating income before working capital changes 88,508 72,216
Changes in working capital: Trade and other receivables 4,087 (2,462) Trade and other payables 2,332 6,030 Income tax paid (1,956) (226)
Cash generated from operating activities 92,971 75,558
Investing activities Net cash outflows on purchase of investment properties (Note A) – (180,305) Net cash outflows on acquisition of subsidiary (Note B) – (59,859) Retention sum paid (Note C) (13,700) – Purchase of plant and equipment (11) (478) Capital expenditure on investment properties (1,977) (698) Interest received on deposits 108 220
Cash flows from investing activities (15,580) (241,120)
Financing activities Borrowing costs paid (22,776) (18,161) Proceeds from borrowings 289,286 314,560 Repayment of borrowings (289,416) (51,500) Distributions paid to unitholders (66,845) (56,799)
Cash flows from financing activities (89,751) 188,100
Net (decrease)/increase in cash and cash equivalents (12,360) 22,538
Cash and cash equivalents at the beginning of the year 42,686 20,122 Effects of exchange rate differences on cash 2,378 26
Cash and cash equivalents at the end of the year 32,704 42,686
The accompanying notes form an integral part of these financial statements. STARHILL GLOBAL REIT 63 ANNUAL REPORT 2008
Notes: (A) Net cash outflows on purchase of investment properties
Net cash outflows on purchase of investment properties (including acquisition costs) are set out below:
Group
2008 2007 $’000 $’000 Investment properties – 181,256 Cash and cash equivalents – 1,629 Trade and other payables – (1,629) Purchase consideration paid – 181,256 Acquisition costs paid – 678 Cash acquired – (1,629) Net cash outflows on purchase of investment properties (net of cash and cash equivalents acquired) – 180,305
(B) Net cash outflows on acquisition of subsidiary
Net cash outflows on acquisition of subsidiary are set out below: Group
2008 2007 $’000 $’000 Investment properties – 70,636 Plant and equipment – 56 Trade and other receivables – 2,874 Cash and cash equivalents – 4,184 Trade and other payables – (5,681) Borrowings – (6,096) Deferred tax liabilities – (14,543) Net identifiable assets acquired – 51,430 Goodwill on consolidation – 12,613 Purchase consideration paid, satisfied in cash – 64,043 Cash acquired – (4,184) Net cash outflows on acquisition of subsidiary (net of cash and cash equivalents acquired) – 59,859
(C) Retention sum paid
Represents the settlement of retention sum payable, which forms part of the consideration for the investment properties retained under the sale and purchase agreement in respect of the Wisma Atria Property during the year ended 31 December 2008.
The accompanying notes form an integral part of these financial statements. 64 Notes to the Financial Statements
These notes form an integral part of the financial statements.
The financial statements were authorised for issue by the Manager and the Trustee on 27 February 2009.
1 General
Starhill Global Real Estate Investment Trust (formerly known as Macquarie Prime Real Estate Investment Trust) (the “Trust”) is a Singapore-domiciled unit trust constituted pursuant to the trust deed dated 8 August 2005 and any amendments or modifications thereof between YTL Pacific Star REIT Management Limited (formerly known as Macquarie Pacific Star Prime REIT Management Limited) (the “Manager”) and HSBC Institutional Trust Services (Singapore) Limited (the “Trustee”), governed by the laws of the Republic of Singapore (“Trust Deed”). On 8 August 2005, the Trust was declared an authorised unit trust scheme under the Trustees Act, Chapter 337.
The Trust was formally admitted to the Official List of the Singapore Exchange Securities Trading Limited (“SGX-ST”) on 20 September 2005 and was included under the Central Provident Fund (“CPF”) Investment Scheme on 14 June 2005.
The principal activity of the Trust and its subsidiaries (the “Group”) is to invest primarily in prime real estate used mainly for retail and/or office purposes, with the objective of delivering regular and stable distributions to unitholders and to achieve long-term growth in the net asset value per unit.
The Trust has entered into several service agreements in relation to the management of the Group and its operations. The fee structure of these services is as follows:
(a) Property Manager’s Fee and Leasing Commission YTL Pacific Star Property Management Pte Ltd (formerly known as Macquarie Pacific Star Property Management Pte Ltd) (the “Property Manager”) is entitled to receive a fee of 3.0% per annum of gross revenue of the Singapore Properties (excluding GST) for the provision of property management, lease management as well as marketing and marketing co-ordination services. The Property Manager’s fee is to be paid on a monthly basis in arrears.
The Property Manager is also entitled to receive leasing commission at the rates set out below when it secures a tenant or a tenancy renewal:
(a) one month’s base rental for securing a tenancy of three years or more;
(b) two thirds of one month’s base rental for securing a tenancy of two years or more but less than three years;
(c) one third of one month’s base rental for securing a tenancy of one year or more but less than two years;
(d) one quarter of one month’s base rental for securing a renewal of tenancy of three years or more;
(e) one eighth of one month’s base rental for securing a renewal of tenancy of two years or more but less than three years; and
(f) one twelfth of one month’s base rental for securing a renewal of tenancy of one year or more but less than two years.
Property management fees of 5.0% per annum of gross revenue of the Japan Properties and 0.8% per annum of turnover rent of the Renhe Spring Zongbei Property in China, are paid to third parties on a monthly basis in arrears. STARHILL GLOBAL REIT 65 ANNUAL REPORT 2008
(b) Management Fees Under the Trust Deed, the Manager is entitled to receive a base fee and a performance fee as follows:
i. Base Fee The Manager is entitled to receive a base fee of 0.5% per annum of the Value of Trust Property (excluding GST) (“Base Fee”) or such higher percentage as may be fixed by an Extraordinary Resolution of a meeting of unitholders.
The Value of Trust Property means:
(a) the value of all authorised investments of the Group other than real estate related assets;
(b) the value of real estate related assets of any entity held by the Group if such holding is less than 30.0% of the equity of such entity; and
(c) where the Group invests in 30.0% or more of a real estate related asset of any entity, including any class of equity, equity-linked securities and/or securities issued in real estate securitisation, the Group’s proportionate interest in the value of the underlying real estate of the entity issuing the equity which comprises the real estate related asset.
The Manager has opted to receive, for the years ended 31 December 2008 and 31 December 2007, 60.0% of the Base Fee in respect of the Singapore Properties in the form of units with the balance in cash. For the overseas properties, the Manager has opted to receive, for the years ended 31 December 2008 and 31 December 2007, 100.0% of the Base Fee in cash.
The Manager may opt to receive the Base Fee in respect of its properties in cash or units or a combination of cash and units (as it may determine).
The portion of the Base Fee payable in cash shall be payable monthly in arrears and the portion of the Base Fee payable in the form of units shall be payable quarterly in arrears. If a trigger event occurs, resulting in the Manager being removed, the Manager is entitled to be paid the Base Fee up to the day on which the trigger event occurs.
ii. Performance Fee The Manager is entitled to a performance fee (“Performance Fee”) where the accumulated return (comprising capital gains and accumulated distributions and assuming all distributions are re-invested in the Trust ) of the units (expressed as the “Trust Index”) in any six-month period ending 30 June or 31 December (“Half-Year”) exceeds the accumulated return (comprising capital gains and accumulated distributions and assuming re-investment of all distributions) of a benchmark index.
The Performance Fee is calculated in two tiers as follows: • a Tier 1 Performance Fee equal to 5.0% of the amount by which the accumulated return of the Trust Index exceeds the accumulated return of the benchmark index, multiplied by the equity market capitalisation of the Trust; and
• a Tier 2 Performance Fee which is applicable only where the accumulated return of the Trust Index is in excess of 2.0% per annum (1.0% for each Half-Year) above the accumulated return of the benchmark index. This tier of the fee is calculated at 15.0% of the amount by which the accumulated return of the Trust Index is in excess of 2.0% per annum above the accumulated return of the benchmark index, multiplied by the equity market capitalisation of the Trust.
For the purposes of the Tier 1 Performance Fee and the Tier 2 Performance Fee, the amount by which the accumulated return of the Trust Index exceeds the accumulated return of the benchmark index shall be referred to as outperformance. 66
1 General (cont’d)
The outperformance of the Trust Index is assessed on a cumulative basis and any prior underperformance will need to be recovered before the Manager is entitled to any Performance Fee.
The Performance Fee, whether payable in any combination of cash and units or solely in cash or units will be payable six monthly in arrears. If a trigger event occurs in any Half-Year, resulting in the Manager being removed, the Manager is entitled to payment of any Performance Fee (whether structured in cash or in the form of units) to which it might otherwise have been entitled for that Half-Year in cash, which shall be calculated, as if the end of the Half-Year was the date of occurrence of the trigger event, in accordance with Clause 15.1.4 of the Trust Deed. If a trigger event occurs at a time when any accrued Performance Fee has not been paid, resulting in the Manager being removed, the Manager is entitled to payment of such accrued Performance Fee in cash.
The management fees (Base Fee and Performance Fee, including any accrued Performance Fee which has been carried forward from previous financial years but excluding any acquisition fee or divestment fee) to be paid to the Manager in respect of a financial year, whether in cash or in units or a combination of cash and units, is capped at an amount equivalent to 0.8% per annum of the Value of the Trust Property as at the end of the financial year (referred to as the “annual fee cap”).
If the amount of such fees for a financial year exceeds the annual fee cap, the Base Fee of the financial year shall be paid to the Manager and only that portion of the Performance Fee equal to the balance of an amount up to the annual fee cap will be paid to the Manager. The remaining portion of the Performance Fee, which will not be paid, shall be accrued and carried forward for payment to the Manager in future Half-Years. If, at the end of a Half-Year, there is any accrued Performance Fee which has been accrued for a period of at least three years prior to the end of that Half-Year, such accrued Performance Fee shall be paid to the Manager if the accumulated return of the Trust Index in that three- year period exceeds the accumulated return of the benchmark index over the same period. The payment of such accrued Performance Fee shall not be subject to the annual fee cap.
(c) Acquisition and Divestment Fees The Manager is entitled to receive an acquisition fee of 1.0% of the value of the real estate acquired. For any acquisition made by the Group in Singapore, any payment to third party agents or brokers in connection with the acquisition shall be borne by the Manager, and not additionally out of the Group. For any acquisition made by the Group outside Singapore, any payment to third party agents or brokers shall be borne by the Group, provided that the Manager shall charge an acquisition fee of 0.6% instead of 1.0%.
The Manager is entitled to receive a divestment fee of 0.5% of the value of the real estate divested. For any divestment made by the Group in Singapore, any payment to third party agents or brokers in connection with the divestment shall be borne by the Manager, and not additionally out of the Group. For any divestment made outside Singapore, the Manager shall charge a divestment fee of 0.5% of the sale price. The Manager also receives acquisition fees and divestment fees in instances other than an acquisition and divestment of real estate.
(d) Trustee’s Fee Under the Trust Deed, the Trustee’s fee shall not exceed 0.1% per annum of the value of the deposited property (subject to a minimum of $8,000 per month excluding out of pocket expenses and GST) or such higher percentage as may be fixed by an Extraordinary Resolution of a meeting of unitholders. The Trustee’s fee is payable out of the deposited property of the Group on a monthly basis, in arrears. The Trustee is also entitled to reimbursement of expenses incurred in the performance of its duties under the Trust Deed. STARHILL GLOBAL REIT 67 ANNUAL REPORT 2008
Based on the current agreement between the Manager and the Trustee, the Trustee’s fee is charged on a scaled basis of up to 0.03% per annum of the value of the deposited property (subject to a minimum of $8,000 per month excluding out of pocket expenses and GST).
The Trustee’s fee is subject to annual review between the Trustee and the Manager.
2 Significant accounting policies
(a) Basis of preparation The financial statements have been prepared in accordance with the Statement of Recommended Accounting Practice (“RAP”) 7 “Reporting Framework for Unit Trusts” issued by the Institute of Certified Public Accountants of Singapore and the applicable requirements of the Code on Collective Investment Schemes (“CIS Code”) issued by the Monetary Authority of Singapore (“MAS”) and the provisions of the Trust Deed. RAP 7 requires that accounting policies adopted should generally comply with the principles relating to recognition and measurement of the Singapore Financial Reporting Standards (“FRS”) including related interpretations promulgated by the Accounting Standards Council.
The financial statements are presented in Singapore dollars and rounded to the nearest thousand, unless otherwise stated; and is prepared on the historical cost basis, except as set out in the accounting policies below.
The preparation of financial statements in conformity with RAP 7 requires the Manager to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and any future periods affected.
Significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes to the financial statements:
• Note 3 – Valuation of investment properties • Note 6 – Assumptions of recoverable amount relating to goodwill impairment • Note 7 and 24 – Valuation of financial instruments
The accounting policies set out below have been applied consistently by the Group and the Trust to all periods presented in these financial statements.
(b) Consolidation Business combinations Business combinations are accounted for under the purchase method. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
The excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is credited to the statement of total return in the period of the acquisition. 68
2 Significant accounting policies (cont’d)
Subsidiaries Subsidiaries are entities controlled by the Group and include entities that are created to accomplish a narrow and well defined objective such as the execution of a specific transaction where the substance of the relationship is that the Group controls the entity. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights presently exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group.
Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income or expenses arising from intra-group transactions, are eliminated in preparing the financial statements of the Group.
Accounting for subsidiaries by the Trust Interests in subsidiaries are stated in the Trust’s balance sheet at cost less accumulated impairment losses.
(c) Foreign currencies Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date on which the fair value was determined.
Foreign currency differences arising on retranslation are recognised in the statement of total return, except for differences arising on the retranslation of monetary items that in substance form part of the Group’s net investment in a foreign operation (see below).
Foreign operations The assets and liabilities of foreign operations are translated to Singapore dollars at exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated to Singapore dollars at exchange rates prevailing at the dates of the transactions. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
Foreign currency differences are recognised in net assets attributable to unitholders. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserve is transferred to the statement of total return.
Net investment in a foreign operation Exchange differences arising from monetary items that in substance form part of the Trust’s net investment in a foreign operation are recognised in the Trust’s statement of total returns. Such exchange differences are reclassified to the foreign currency translation reserve in the consolidated financial statements. When the foreign operation is disposed of, the cumulative amount in foreign currency translation reserve is transferred to the statement of total return as an adjustment to the profit or loss arising on disposal. STARHILL GLOBAL REIT 69 ANNUAL REPORT 2008
(d) Plant and equipment Plant and equipment are stated at cost less accumulated depreciation and impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of an asset. The cost of self- constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the cost of dismantling and removing the items and restoring the site on which they are located.
When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components) of plant and equipment. The cost of replacing part of an item of plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of plant and equipment are recognised in the statement of total return as incurred.
Depreciation on plant and equipment is recognised in the statement of total return on a straight-line basis over their estimated useful lives of 2 to 8 years.
Depreciation methods, useful lives and residual values are reviewed, and adjusted as appropriate, at each reporting date.
(e) Investment properties Investment properties are stated at initial cost on acquisition, and at valuation thereafter. Valuation is determined in accordance with the Trust Deed, which requires investment properties to be valued by independent registered valuers in the following events:
• in such manner and frequency required under the Property Fund Guidelines issued by MAS; and • at least once every 12 months.
Any increase or decrease on revaluation is credited or charged to the statement of total return as a net revaluation surplus or deficit in the value of the investment properties.
Subsequent expenditure relating to investment properties that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of originally assessed standard of performance of the existing asset, will flow to the Group. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.
When an investment property is disposed of, the resulting gain or loss recognised in the statement of total return is the difference between net disposal proceeds and the carrying amount of the property.
Investment properties are not depreciated. The investment properties are subject to continued maintenance and regularly revalued on the basis set out above.
(f) Intangible asset Goodwill Goodwill and negative goodwill arise on the acquisition of subsidiaries.
Goodwill represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree.
Goodwill arising on the acquisition of subsidiaries is presented in intangible asset. Goodwill is measured at cost less accumulated impairment losses. Goodwill is tested for impairment as described in Note 2(i). Negative goodwill is recognised immediately in the statement of total return. 70
2 Significant accounting policies (cont’d)
(g) Financial instruments Derivative financial instruments and hedging activities The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures arising from financing and investing activities. Derivative financial instruments are not used for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in the statement of total return when incurred.
Subsequent to initial recognition, derivatives are measured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the statement of total return. However, if derivatives qualify for hedge accounting, subsequent to initial recognition, changes in fair value therein are accounted for as described below.
Cash flow hedges Changes in the fair value of a derivative hedging instrument designated as a cash flow hedge are recognised directly in net assets attributable to unitholders to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in the statement of total return.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in net assets attributable to unitholders remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in net assets attributable to unitholders is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in net assets attributable to unitholders is transferred to the statement of total return in the same period that the hedged item affects total return.
Fair value hedges Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognised in the statement of total return. The hedged item also is stated at fair value in respect of the risk being hedged; the gain or loss attributable to the hedged risk is recognised in the statement of total return and the carrying amount of the hedged item is adjusted.
Non-derivative financial instruments Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, borrowings, and trade and other payables. Cash and cash equivalents comprise cash balances and bank deposits.
Non-derivative financial instruments are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or transfers substantially all the risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, ie, the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire, are discharged or cancelled. STARHILL GLOBAL REIT 71 ANNUAL REPORT 2008
(h) Impairment of financial assets A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the statement of total return.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the statement of total return.
(i) Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets, other than investment properties, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated at each balance sheet date. For goodwill, the recoverable amount is estimated at each reporting date, and, as and when indicators of impairment are identified.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in the statement of total return whenever the carrying amount of an asset or its cash- generating unit exceeds its recoverable amount. Impairment losses recognised in respect of cash- generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised.
(j) Employee benefits Short-term employee benefit obligations, including contributions to defined contribution pension plans, if any, are measured on an undiscounted basis and are expensed to the statement of total returns as the related service is provided.
A provision is recognised for the amount expected to be paid under short-term cash bonuses if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
72
2 Significant accounting policies (cont’d)
(k) Revenue recognition Rental income from operating leases Rental income receivable under operating leases is recognised in the statement of total return on a straight-line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Lease incentives granted are recognised as an integral part of the total rental to be received. Contingent rentals, which include gross turnover rental, are recognised as income in the accounting period on a receipt basis. No contingent rentals are recognised if there are uncertainties due to the possible return of amounts received.
(l) Finance income and expense Finance income comprises interest income on funds invested and derivative financial instruments. Interest income is recognised as it accrues, using the effective interest method.
Finance expenses comprise interest expense on borrowings and derivative financial instruments. All borrowing costs are recognised in the statement of total return using the effective interest method.
(m) Expenses (i) Property operating expenses Property operating expenses are recognised on an accrual basis. Included in property operating expenses are property tax, maintenance and sinking fund contributions, leasing and upkeep expenses, and the property management fees and leasing commission which is based on the applicable formula stipulated in Note 1(a).
(ii) Management fees Management fees are recognised on an accrual basis based on the applicable formula stipulated in Note 1(b).
(iii) Trust expenses Trust expenses are recognised on an accrual basis. Included in trust expenses is the Trustee’s fee which is based on the applicable formula stipulated in Note 1(d).
(n) Taxation Income tax expenses on the total return for the period comprises current and deferred tax. Income tax is recognised in the statement of total return except to the extent that it relates to items directly related to net assets attributable to unitholders, in which case it is recognised in net assets attributable to unitholders.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The temporary differences on initial recognition of assets or liabilities that affect neither accounting nor taxable profit are not provided for. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. STARHILL GLOBAL REIT 73 ANNUAL REPORT 2008
The Inland Revenue Authority of Singapore (“IRAS”) has issued a Tax Ruling on the taxation of the Trust for income earned and expenditure incurred after its listing on the SGX-ST. Subject to meeting the terms and conditions of the Tax Ruling, the Trustee will not be assessed to tax on the taxable income of the Trust. Instead, the Trustee and the Manager will deduct income tax at the prevailing corporate tax rate from the distributions made to unitholders that are made out of the taxable income of the Trust. However, where the beneficial owners are individuals or qualifying unitholders, the Trustee and the Manager will make the distributions to such unitholders without deducting any income tax. Also, where the beneficial owners are foreign non-individual unitholders, the Trustee and the Manager will deduct Singapore income tax at the reduced rate of 10% for distributions made during the period from the date of constitution to 17 February 2010.
A qualifying unitholder is a unitholder who is:
(a) a Singapore-incorporated company which is a tax resident in Singapore; (b) a body of persons, other than a company or a partnership, registered or constituted in Singapore (for example, a town council, a statutory board, a registered charity, a registered co-operative society, a registered trade union, a management corporation, a club and a trade and industry association); and (c) a Singapore branch of a foreign company which has presented a letter of approval from the IRAS granting a waiver from tax deduction at source in respect of distributions from the Trust.
A foreign non-individual unitholder is one who is not a resident of Singapore for income tax purposes and
(a) which does not have a permanent establishment in Singapore; or (b) which carries on any operation in Singapore through a permanent establishment in Singapore where the funds used to acquire the units are not obtained from that operation in Singapore.
The Trust is exempt from Singapore income tax under Section 13(12) of the Income Tax Act on the following income:
(a) dividends; and (b) interest on shareholder’s loans payable by its subsidiaries out of underlying rental income derived from the investment properties in Japan and China. This exemption is granted subject to certain conditions, including the condition that the Trustee is a tax resident of Singapore.
The Trust’s distribution policy is to at least distribute 90% of its taxable income for the year ended 31 December 2008 (2007: 90%). For any remaining amount of taxable income not distributed, tax will be assessed on, and collected from, the Trustee on such remaining amount (referred to as retained taxable income). In the event where a distribution is subsequently made out of such retained taxable income, the Trustee and the Manager will not have to make a further deduction of income tax from the distribution.
The above Tax Ruling does not apply to gains from sale of real properties, if considered to be trading gains derived from a trade or business carried on by the Trust. Tax on such gains or profits will be assessed, in accordance with Section 10(1)(a) of the Income Tax Act, Chapter 134 and collected from the Trustee. Where the gains are capital gains, it will not be assessed to tax and the Trustee and the Manager may distribute the capital gains without tax being deducted at source. 74
3 Investment properties Group Trust
$’000 $’000
At 1 January 2007 1,498,000 1,498,000 Additions and acquisition of investment properties 182,632 698 Arising from acquisition of subsidiary (Note 26) 70,636 – Change in fair value of investment properties 448,870 433,652 Translation differences 8,436 –
At 31 December 2007 2,208,574 1,932,350 Additions 1,977 1,807 Change in fair value of investment properties (160,884) (137,457) Translation differences 53,611 –
At 31 December 2008 2,103,278 1,796,700
Investment properties are stated at fair value based on valuations performed by independent professional valuers. In determining the fair value, the valuers have used valuation techniques which involves certain estimates. In relying on the valuation reports, the Manager has exercised its judgement and is satisfied that the valuation methods and estimates are reflective of current market conditions. The valuation reports are prepared in accordance with recognised appraisal and valuation standards. The estimates underlying the valuation techniques in the next financial year may differ from current estimates, which may result in valuations that may be materially different from the valuations as at balance sheet date.
The valuers have considered the capitalisation approach and discounted cash flows in arriving at the open market value as at the balance sheet date. The capitalisation approach capitalises an income stream into a present value using single-year capitalisation rates, the income stream used is adjusted to market rentals currently being achieved within comparable investment properties and recent leasing transactions achieved within the investment property. The discounted cash flow method involves the estimation and projection of an income stream over a period and discounting the income stream with an internal rate of return to arrive at the market value. The discounted cash flow method requires the valuer to assume a rental growth rate indicative of market and the selection of a target internal rate of return consistent with current market requirements.
(a) The Singapore Properties with carrying value totalling approximately $1,796.7 million (2007: $1,932.4 million) are mortgaged to secure credit facilities for the Trust (Note 12).
(b) Under the Japan bond covenants, the Group is not permitted to sell or dispose its interest in the Japan Properties until after 20 August 2009, unless with the written approval from the bondholders (Note 12). After such date, the Group may sell one or more of the Japan Properties, and redeem an agreed portion of the bonds, provided certain conditions are fulfilled. STARHILL GLOBAL REIT 75 ANNUAL REPORT 2008
4 Plant and equipment Group Trust
$’000 $’000
Cost: At 1 January 2007 3,556 3,556 Additions 478 424 Arising from acquisition of subsidiary (Note 26) 56 – Translation differences 2 –
At 31 December 2007 4,092 3,980 Additions 11 – Disposals (10) – Translation differences 10 –
At 31 December 2008 4,103 3,980 Accumulated depreciation: At 1 January 2007 (125) (125) Depreciation charge (1,708) (1,700)
At 31 December 2007 (1,833) (1,825) Depreciation charge (1,606) (1,562) Disposals 10 – Translation differences (4) –
At 31 December 2008 (3,433) (3,387) Carrying amount: At 31 December 2007 2,259 2,155 At 31 December 2008 670 593
5 Interests in subsidiaries TRUST
2008 2007 $’000 $’000
Equity investments at cost 54,656 54,656 Advances to subsidiaries (1) 197,567 171,743
252,223 226,399 (1) Advances to subsidiaries are unsecured and stated at cost. The advances form part of the Trust’s interests in subsidiaries as settlement of these amounts are neither planned nor likely to occur in the foreseeable future. 76
5 Interests in subsidiaries (cont’d)
Details of the subsidiaries are as follows:
Name of Effective equity subsidiary Country of incorporation held by the Group 2008 2007 % %
Starhill Global REIT Japan SPC One Pte Ltd (2) (formerly known as MMP REIT Japan SPC One Pte Ltd) Singapore 100 100 Starhill Global REIT Japan SPC Two Pte Ltd (2) (formerly known as MMP REIT Japan SPC Two Pte Ltd) Singapore 100 100 Starhill Global REIT MTN Pte Ltd (2) (formerly known as MMP REIT MTN Pte Ltd) Singapore 100 100 MMP REIT One TMK (3) (to be renamed Starhill Global REIT One TMK) Japan 100 100 Starhill Global REIT Spring Ltd (4) (formerly known as MMP REIT Spring Ltd) British Virgin Islands 100 100 Top Sure Investment Limited (5) Hong Kong 100 100 Renhe Spring Department Store Co., Ltd (3) China 100 100 (2) Audited by KPMG Singapore (3) Audited by other member firms of KPMG International (4) Not required to be audited by the laws of the country of incorporation (5) Audited by other auditors
6 Intangible asset
The intangible asset represents goodwill on acquisition of Top Sure Investment Limited (“Top Sure”) in August 2007. Top Sure owns, through its wholly owned subsidiary, a retail property in Chengdu, China.
For the purpose of impairment testing, goodwill is allocated to the Group’s operations in China which represent the lowest level within the Group at which the goodwill is monitored for internal management purposes. The recoverable amount of the China cash-generating unit was based on its fair value less costs to sell. In determining the fair value, the Manager had used the valuation of the investment property (Note 3) determined by independent professional valuers.
7 Derivative financial instruments
2008 2007 Contract Contract notional Fair notional Fair amount value amount value Group $’000 $’000 $’000 $’000 Assets: Foreign exchange forwards and option 68,271 8,714 71,393 480 Interest rate swaps and cap – – 284,798 1,440 68,271 8,714 356,191 1,920
Liabilities: Cross currency swaps and foreign exchange forwards 169,034 (46,662) 162,679 (8,036) Interest rate swaps and cap 294,386 (2,805) – – 463,420 (49,467) 162,679 (8,036) STARHILL GLOBAL REIT 77 ANNUAL REPORT 2008
2008 2007 Contract Contract notional Fair notional Fair amount value amount value Trust $’000 $’000 $’000 $’000 Assets: Foreign exchange forwards and option 68,271 8,714 71,393 480 Interest rate swaps and cap – – 245,000 967 68,271 8,714 316,393 1,447
Liabilities: Cross currency swaps and foreign exchange forwards 169,034 (46,662) 162,679 (8,036) Interest rate swaps and cap 245,000 (2,933) – – 414,034 (49,595) 162,679 (8,036)
The net fair value of the derivative financial instruments represent 2.9% (2007: 0.4%) of the Group’s net assets attributable to unitholders as at 31 December 2008.
The following are the expected contractual undiscounted cash inflows (outflows) of derivative financial liabilities including interest payments:
Cash flows Carrying Contractual Within Within amount cash flows 1 year 1 to 5 years 2008 $’000 $’000 $’000 $’000
Group and Trust Derivative financial liabilities Cross currency swaps and foreign exchange forwards – inflow – 179,512 87,114 92,398 – outflow (46,662) (223,345) (111,615) (111,730) Interest rate swaps and cap – inflow – 6,550 1,387 5,163 – outflow (2,805) (12,140) (2,489) (9,651)
(49,467) (49,423) (25,603) (23,820)
2007
Group and Trust Derivative financial liabilities Cross currency swaps – inflow – 177,953 4,728 173,225 – outflow (8,036) (177,125) (3,417) (173,708)
(8,036) 828 1,311 (483) 78
8 Trade and other receivables Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Trade receivables 1,164 5,212 1,095 684 Deposits 221 45 221 45 Prepayments 343 378 279 283 Lease incentives 2,476 2,525 2,476 2,525 Other receivables 1,187 1,339 856 1,744
5,391 9,499 4,927 5,281
Concentration of credit risk relating to trade receivables is limited due to the Group’s varied mix of tenants and credit policy of obtaining security deposits from tenants for leasing the Group’s investment properties. As at 31 December 2008, the Group has security deposits of approximately $25.9 million (2007: $22.7 million) (Note 10).
The tenant profile of the Group is generally well-diversified, except for one major tenant in the Ngee Ann City Property, which accounted for 26.1% (2007: 29.1%) of the Group’s revenue for the year ended 31 December 2008.
Due to these factors and based on the Group’s historical experience in the collection of trade receivables, the Manager believes that no additional credit risk beyond amount provided for collection losses is inherent in the Group’s trade receivables.
Impairment losses The ageing of trade receivables at the reporting date is:
Impairment Impairment Gross losses Gross losses 2008 2008 2007 2007 $’000 $’000 $’000 $’000
Group Not past due (1) – – 4,528 – Past due 0 – 30 days 818 – 488 – Past due 31 – 120 days 332 (13) 194 – More than one year 27 – 2 –
1,177 (13) 5,212 – Trust Not past due – – – – Past due 0 – 30 days 749 – 488 – Past due 31 – 120 days 332 (13) 194 – More than one year 27 – 2 –
1,108 (13) 684 –
Security deposits of approximately $11.5 million (2007: $8.3 million) are held as collateral against the Group’s and the Trust’s past due receivables as at 31 December 2008. Based on historical default rates, the Group believes that no additional impairment allowance is necessary.
(1) Balance as at 31 December 2007 includes approximately $4.5 million trade receivable from a third party prepaid card centre, arising from turnover rental which was fully recovered in January 2008. STARHILL GLOBAL REIT 79 ANNUAL REPORT 2008
9 Cash and cash equivalents Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Cash at bank and in hand (1) 29,592 28,267 4,131 4,638 Fixed deposits with a financial institution (2) 3,112 14,419 – 14,419
32,704 42,686 4,131 19,057
The weighted average effective interest rates per annum relating to fixed deposits with a financial institution at the balance sheet date for the Group and the Trust are 3.3% (2007: 1.9%) and nil (2007:1.9%) respectively. Interest rates reprice at intervals of three months (2007: two months).
(1) Includes cash at bank of approximately $4.8 million (2007: $3.7 million), being working capital and debt service reserves held in respect of the Japan Properties as at 31 December 2008.
(2) Balance as at 31 December 2007 includes fixed deposits of approximately $13.7 million held for the retention sum payable (Note 10) which has been settled during the year ended 31 December 2008.
10 Trade and other payables Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Trade payables and accrued operating expenses 12,451 12,770 3,806 4,766 Amounts due to: – the Manager (trade) (1) 465 1,263 465 1,263 – the Property Manager (trade) (1) 871 405 871 405 – the Trustee (non–trade) (1) 87 112 87 112 Interest payable 999 693 902 615 Deferred income 931 1,179 931 1,179 Retention sum payable (2) – 13,700 – 13,700 Security deposits (3) 25,889 22,678 21,495 19,167 Other payables 5,440 4,763 4,270 3,383
47,133 57,563 32,827 44,590 (1) The amounts due to the Manager, Property Manager and Trustee are unsecured, interest free and repayable on demand.
(2) Balance as at 31 December 2007 includes the retention sum held by the Trustee to indemnify the Trust against any losses, costs, expenses, claimed or incurred on the strata redevelopment of the Wisma Atria Property and for any additional property tax payable on the Singapore Properties. The amount has been fully repaid during the year ended 31 December 2008.
(3) Except for security deposits, all trade and other payables are expected to be settled within 12 months. Security deposits represent cash deposits received in advance from tenants to secure leases of the Group’s investment properties. The weighted average lease term expiry for the Group and the Trust is approximately 2.8 years and 2.6 years respectively as at 31 December 2008 (2007: 3.3 years and 3.1 years respectively).
11 Deferred tax liabilities Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Deferred tax liabilities(1) 16,585 16,598 – – (1) The deferred tax liability is mainly in respect of the Renhe Spring Zongbei Property in China, and has been estimated on the basis of an asset sale at the current book value. The amount will not be payable if the investment property were sold through a sale of shares in the holding company in Hong Kong. 80
11 Deferred tax liabilities (cont’d)
Movements in deferred tax liabilities of the Group (prior to offsetting of balances) during the year are as follows:
Recognised Acquisition in statement of At of total return subsidiary Translation At 1 Jan (Note 20) (Note 26) differences 31 Dec 2008 $’000 $’000 $’000 $’000 $’000
Group Deferred tax liabilities Plant and equipment 108 (96) – (12) – Investment properties 16,126 (1,084) – 1,237 16,279 Borrowings 364 (81) – 23 306
Total 16,598 (1,261) – 1,248 16,585
2007
Group Deferred tax liabilities Plant and equipment – 108 – – 108 Investment properties – 2,335 14,141 (350) 16,126 Borrowings – (28) 402 (10) 364
Total – 2,415 14,543 (360) 16,598
12 Borrowings Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Secured borrowings Amount repayable within one year – – – – Amount repayable after one year 600,000 380,000 600,000 380,000
600,000 380,000 600,000 380,000 unsecured borrowings Amount repayable within one year 16,995 235,833 16,067 235,000 Amount repayable after one year 54,256 45,067 – –
Total borrowings 671,251 660,900 616,067 615,000 Unamortised loan acquisition expenses (5,260) (3,369) (4,222) (2,259)
Total borrowings (net of borrowing costs) 665,991 657,531 611,845 612,741
Terms and debt repayment schedule Terms and conditions of the outstanding borrowings are as follows: STARHILL GLOBAL REIT 81 ANNUAL REPORT 2008
Nominal interest Year of Face Carrying rate per annum maturity value amount 2008 % $’000 $’000 $’000
Group Term loan facility (1) 3.18% 2010 380,000 380,000 Term loan facility (2) 2.59–2.75% 2010 190,000 190,000 Revolving credit facility (2) 2.59–2.75% 2010 30,000 30,000 Revolving credit facility (3) 1.32–3.56% 2009 16,067 16,067 Japan bond (4) 1.68–1.71% 2012 49,386 49,386 Chinese loan (5) – 2014 7,233(5) 5,798
672,686 671,251
2008
Trust Term loan facility (1) 3.18% 2010 380,000 380,000 Term loan facility (2) 2.59–2.75% 2010 190,000 190,000 Revolving credit facility (2) 2.59–2.75% 2010 30,000 30,000 Revolving credit facility (3) 1.32–3.56% 2009 16,067 16,067
616,067 616,067
2007
Group Term loan facility (1) 3.18% 2010 380,000 380,000 Bridging loan (6) 2.77–2.94% 2008 160,000 160,000 Revolving credit facilities (7) 2.37–3.15% 2008 75,000 75,000 Japan bond (4) 1.57–1.71% 2012 39,798 39,798 Chinese loan (5) – 2014 7,873(5) 6,102
662,671 660,900
2007
Trust Term loan facility (1) 3.18% 2010 380,000 380,000 Bridging loan (6) 2.77–2.94% 2008 160,000 160,000 Revolving credit facilities (7) 2.37–3.15% 2008 75,000 75,000
615,000 615,000 (1) The $380 million term loan facility (2007: $380 million), with a tenure of five years (maturing in September 2010), was granted by a special purpose company, Orion Prime Ltd (“Orion Prime”), and was funded from proceeds received from a Euro note issuance programme in 2005. The $380 million term loan has a fixed rate interest of 3.18% per annum up to its maturity and is secured on the following:
i) A first legal mortgage on the Trust’s Singapore Properties; ii) A first fixed charge over the Trust’s rental collection, current and fixed deposit accounts; iii) A first assignment of the Trust’s rights, title and interest in the property management agreement, tenancy documents and proceeds and insurance policies in relation to the Singapore Properties; and iv) A first fixed and floating charge over the assets of the Trust in relation to the Singapore Properties, agreements and collateral, as required by the financial institution granting the facilities.
(2) The facility comprise a two-year $190 million term loan facility (maturing in September 2010) and a two-year $30 million revolving credit facility (repayable in September 2010) granted by three banks. Proceeds were used to refinance the full repayment of $160 million bridging loan and $60 million revolving credit facility during the year ended 31 December 2008. The interest rate on $162 million of the term loan has been fixed at an average rate of 2.95% per annum, using a combination of interest rate swaps and cross currency swaps, and the 82
12 Borrowings (cont’d)
remaining portion have not been hedged for interest rate. The $190 million term loan facility and $30 million revolving credit facility are secured on the following:
i) A second legal mortgage on the Trust’s Singapore Properties; ii) A second fixed charge over the Trust’s rental collection, current and fixed deposit accounts; iii) A second assignment of the Trust’s rights, title and interest in the property management agreement, tenancy documents and proceeds and insurance policies in relation to the Singapore Properties; and iv) A second fixed and floating charge over the assets of the Trust in relation to the Singapore Properties, agreements and collateral, as required by the financial institution granting the facilities.
(3) The $16.1 million (2007: $15.0 million) drawn from a $35 million revolving credit facility used for working capital, matures in March 2009 and has not been hedged for interest rate exposures. Subsequent to the year ended 31 December 2008, the $35 million revolving credit facility was extended to March 2010 (Note 27).
(4) The JPY3.1 billion (approximately $49 million) (2007: JPY3.1 billion or $40 million equivalent) five-year Japan bond was used to part finance the acquisition of the Japan Properties and has been hedged via an interest rate cap (capped at 1.2% per annum) until May 2012, the final maturity of the Japan bond. Whilst no security has been pledged, the bondholders have a statutory preferred right, under the Japan Asset Liquidation Law, to receive payment of all obligations under the Japan bond prior to other creditors out of the assets of the issuer (Starhill Global REIT One TMK).
(5) The carrying amount of $5.8 million (2007: $6.1 million) represents the discounted value of a RMB34.3 million (approximately $7.2 million) (2007: RMB40.0 million or $7.9 million equivalent) loan payable to a third party and was assumed as part of the acquisition of the Renhe Spring Zongbei Property in China in August 2007. The amount is interest-free and repayable in equal and annual instalments, with the final instalment being due in August 2014. RMB5.7 million (approximately $1.2 million), representing the first instalment, was repaid during the year ended 31 December 2008.
(6) The $160 million bridging loan, which was used to finance the acquisition of the Japan Properties, was fully repaid using the proceeds from the $190 million term loan facility during the year ended 31 December 2008.
(7) The $60 million of the $75 million due under revolving credit facilities as at 31 December 2007, which was fully drawn to finance the acquisition of the Renhe Spring Zongbei Property, was fully repaid using the part proceeds from the $190 million term loan facility and $30 million revolving credit facility during the year ended 31 December 2008.
The following table shows the expected contractual undiscounted cash outflows of interest-bearing borrowings including interest payments and excluding the impact of netting agreements:
Cash flows Carrying Contractual Within Within After 5 amount cash flows 1 year 1 to 5 years years 2008 $’000 $’000 $’000 $’000 $’000
Group Term loan facility 380,000 (401,155) (12,084) (389,071) – Term loan facility 190,000 (198,816) (4,920) (193,896) – Revolving credit facility 30,000 (31,392) (777) (30,615) – Revolving credit facility 16,067 (16,137) (16,137) – – Japan bond 49,386 (52,319) (838) (51,481) – Chinese loan 5,798 (7,233) (1,206) (4,821) (1,206) 671,251 (707,052) (35,962) (669,884) (1,206)
2007
Group Term loan facility 380,000 (412,908) (12,117) (400,791) – Bridging loan 160,000 (161,587) (161,587) – – Revolving credit facilities 75,000 (76,103) (76,103) – – Japan bond 39,798 (42,977) (682) (42,295) – Chinese loan 6,102 (7,873) (1,124) (4,500) (2,249) 660,900 (701,448) (251,613) (447,586) (2,249) STARHILL GLOBAL REIT 83 ANNUAL REPORT 2008
Cash flows Carrying Contractual Within Within After 5 amount cash flows 1 year 1 to 5 years years 2008 $’000 $’000 $’000 $’000 $’000
Trust Term loan facility 380,000 (401,155) (12,084) (389,071) – Term loan facility 190,000 (198,816) (4,920) (193,896) – Revolving credit facility 30,000 (31,392) (777) (30,615) – Revolving credit facility 16,067 (16,137) (16,137) – – 616,067 (647,500) (33,918) (613,582) –
2007
Trust Term loan facility 380,000 (412,908) (12,117) (400,791) – Bridging loan 160,000 (161,587) (161,587) – – Revolving credit facilities 75,000 (76,103) (76,103) – – 615,000 (650,598) (249,807) (400,791) –
13 uNITS in issue Trust
2008 2007 No. of units No. of units ’000 ’000
At 1 January 951,329 947,375 Issue of units: – Management fees issued in units (base fee) 6,605 3,873 – Management fees issued in units (performance fee) (1) – 81
At 31 December 957,934 951,329 Units to be issued: – Management fees payable in units (base fee) 2,746 1,188
Total issued and issuable units at 31 December 960,680 952,517 (1) During the year ended 31 December 2007, the Trust issued 80,961 new units at an issue price of $1.4335 per unit as satisfaction of the Manager’s performance fee entitlement in respect of the period from 8 August 2005 to 31 December 2005.
Each unit in the Trust represents an undivided interest in the Trust. The rights and interests of unitholders are contained in the Trust Deed and include the right to:
• Attend all unitholder meetings. The Trustee or the Manager may (and the Manager shall at the request in writing of not less than 50 unitholders or one-tenth in number of the unitholders, whichever is the lesser) at any time convene a meeting of unitholders in accordance with the provisions of the Trust Deed; • Receive income and other distributions attributable to the units held; and • Participate in the termination of the Trust by receiving a share of all net cash proceeds derived from the realisation of the assets of the Trust less any liabilities, in accordance with their proportionate interests in the Trust. However, a unitholder does not have the right to require that any assets (or part thereof) of the Trust be transferred to him.
The restrictions of a unitholder include the following: 84
13 uNITS in issue (cont’d)
• A unitholder’s right is limited to the right to require due administration of the Trust in accordance with the provisions of the Trust Deed; and • A unitholder has no right to request the Trust to redeem his units while the units are listed on SGX-ST.
A unitholder’s liability is limited to the amount paid or payable for any units in the Trust. The Trust Deed provides that no unitholders will be personally liable to indemnify the Trustee or any creditor of the Trustee in the event that liabilities of the Trust exceed its assets.
14 Gross revenue Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Property rental income 112,323 96,962 101,792 92,669 Turnover rental income 14,175 5,742 1,921 1,446 Other income 544 255 339 199
127,042 102,959 104,052 94,314
15 Property operating expenses Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Maintenance and sinking fund contributions 5,677 5,459 5,472 5,348 Property management fees 4,200 3,286 3,136 2,829 Property tax 10,378 9,052 9,909 8,834 Depreciation expense 1,606 1,708 1,562 1,700 Leasing and upkeep expenses 4,053 3,418 2,100 2,918 Staff costs (1) 921 209 – – Marketing expenses 2,639 1,897 1,644 1,605 Administrative expenses 1,684 1,116 1,301 913
31,158 26,145 25,124 24,147 (1) Relates solely to the staff costs of the Group’s wholly-owned subsidiary, Renhe Spring Department Store Co., Ltd, which operates a retail property in Chengdu, China.
16 Dividend income from subsidiary
Represents dividend income from its wholly-owned subsidiary (Note 5), Top Sure, for the year ended 31 December 2008.
17 Management fees and performance fees
Management fees include base fees payable to the Manager, and asset management fees payable to the asset manager of the Japan Properties. Base fees paid and payable to the Manager for the year ended 31 December 2008 amounted to approximately $11,201,000 (2007: $8,751,000). Approximately $203,000 (2007: $92,000) was paid to the asset manager of the Japan Properties for the year ended 31 December 2008.
The Manager has opted to receive, for the years ended 31 December 2008 and 31 December 2007, 60.0% of the Base Fee in respect of the Singapore Properties in the form of units with the balance in cash. For the overseas properties, the Manager has opted to receive, for the years ended 31 December 2008 and 31 December 2007, 100.0% of the Base Fee in cash. STARHILL GLOBAL REIT 85 ANNUAL REPORT 2008
No performance fee was earned by the Manager for the years ended 31 December 2008 and 31 December 2007.
18 Trust expenses Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Auditor’s remuneration 358 266 185 167 Trustee’s fees 368 303 368 303 Strategic review fees 921 – 921 – MTN establishment costs (1) 327 – 327 – Professional fees (2) 824 497 699 414 Other trust expenses 623 394 504 352
3,421 1,460 3,004 1,236 (1) Represent the establishment costs relating to the Group’s multi-currency medium term note programme (the “MTN Programme”) set up on 8 January 2008. At the date of this report, there are no notes issued under the MTN Programme.
(2) Included in professional fees are non-audit fees of approximately $48,000 (2007: $64,000) paid to the auditor and a member firm of KPMG International.
19 Finance income and expense Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Interest income 87 222 60 222
Finance income 87 222 60 222 Interest on borrowings 18,111 16,011 13,400 13,851 Interest on derivatives (net) 1,118 (497) 935 (596) Amortisation of borrowing costs 2,917 934 2,623 781
Finance expense 22,146 16,448 16,958 14,036
20 Income tax expense Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Current tax expense 2,196 773 – – Deferred tax (1,261) 2,415 – –
935 3,188 – –
Reconciliation of effective tax rate Total return before tax and distribution (136,343) 490,297 (87,299) 474,746
Income tax using Singapore tax rate of 18% (2007: 18%) (24,542) 88,253 (15,714) 85,454 Effect of different tax rates in other countries 2,851 (283) – – Effect of income not subject to tax – (78,057) (1,052) (78,057) Non-tax deductible items 34,070 3,445 28,210 2,773 Tax transparency (11,444) (10,170) (11,444) (10,170)
935 3,188 – – 86
21 Earnings per unit
Basic earnings per unit is based on:
Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Total return for the year after tax, before distribution (1) (137,278) 487,109 (87,299) 474,746
Earnings (loss) per unit (cents) (14.38) 51.30 (9.15) 50.00 (1) Included in the Group’s total return for the year ended 31 December 2008 is a revaluation loss on investment properties of $160.9 million (2007: gain of $448.9 million) and an unrealised loss on derivatives of $34.4 million (2007: loss of $8.0 million).
Trust 2008 2007 No. of units No. of units ’000 ’000
Weighted average number of units Issued units at the beginning of the year 951,329 947,375 Effect of units issued during the year as payment of management fees 3,052 2,161 Effect of units issuable as payment of management fees 7 3
954,388 949,539
Diluted earnings per unit is the same as the basic earnings per unit as there are no dilutive instruments in issue during the year.
22 Commitments
(a) Capital commitment The Group has capital commitments of approximately $1.4 million (2007: $2.7 million) authorised but not contracted for as at 31 December 2008, for renovation works and space reconfiguration of its Singapore Properties and Renhe Spring Zongbei Property.
(b) Lease commitment The Group leases out its investment properties. Non-cancellable operating lease rentals are receivable as follows:
Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Receivable: – Within 1 year 113,013 106,139 102,976 97,672 – After 1 year but within 5 years 210,269 222,048 183,631 194,916 – After 5 years 830 21,927 – 13,092
324,112 350,114 286,607 305,680 STARHILL GLOBAL REIT 87 ANNUAL REPORT 2008
Except for one lease in Ngee Ann City Property (expiring in 2013) and various master leases pertaining to the Japan Properties (expiring between 2014 to 2016), the Group’s leases generally contain an initial non- cancellable period ranging from one to five years. Subsequent renewals are negotiated with the lessees.
23 Significant related party transactions
For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common significant influence. Related parties may be individuals or other entities.
Other than related party information shown elsewhere in the financial statements, the following were significant related party transactions carried out in the normal course of business:
Group and Trust
2008 2007 $’000 $’000
Property rental income from related parties of the Manager – 2,350 Property rental income from the Manager and Property Manager 1,087 707 Lease commission fees paid to the Property Manager (866) (798) Property management fees paid to the Property Manager (3,136) (2,829) Acquisition fees paid to the Manager – (1,806) Management fees paid to the Manager (11,201) (8,751) Trustee fees paid to the Trustee (368) (303) Reimbursements paid to the Property Manager (1,134) (872) Debt advisory fees and reimbursements paid to a related party of the Manager (773) – Strategic review advisory reimbursements paid to a related party of the Manager (390) –
24 Financial risk management
Capital management The Group’s objectives when managing capital is to optimise unitholders’ return through a mix of available capital sources. The Group monitors capital on the basis of both the gearing ratio and interest service coverage ratios and maintains them within the approved limits. The Group assesses its capital management approach as a key part of the Group’s overall strategy, and this is continuously reviewed by the Manager. The Group had a relatively low gearing level of 31.0% (2007: 29.0%) as at 31 December 2008 and the Manager intends to continue with its prudent capital management and maintains a long term optimal gearing level of 40% for the Group.
The Property Fund Guidelines stipulates that the total borrowings and deferred payments (together the “Aggregate Leverage”) of a property fund should not exceed 35.0% of the fund’s deposited property. The aggregate leverage of a property fund may exceed 35.0% of the fund’s deposited property (up to a maximum of 60.0%) only if a credit rating of the property fund from Fitch Inc., Moody’s or Standard and Poor’s is obtained and disclosed to the public. The property fund should continue to maintain and disclose a credit rating so long as its aggregate leverage exceeds 35.0% of the fund’s deposited property.
The Group and the Trust has a corporate rating of Baa2 as at 31 December 2008 and complied with the Aggregate Leverage limit of 60.0% during the financial year. 88
24 Financial risk management (cont’d)
Overview of financial risk management objectives and policies The Group’s returns are primarily from net operating income and capital appreciation of its assets. However, these returns are exposed to financial risks including credit, liquidity, interest rate and foreign currency risks. Where appropriate, the Manager may hedge against volatility of interest costs, foreign currency net income and foreign currency investments.
The Group has a system of controls in place to create an acceptable balance between the cost of the financial risks occurring and the cost of managing these risks. The Manager continually monitors the Group’s financial risk management process to ensure that an appropriate balance between risk and control is achieved. Financial risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The current financial risk management policies are described in greater detail below.
Credit risk Credit risk is the potential financial loss resulting from the failure of a tenant or a counterparty to settle its financial and contractual obligations to the Group, as and when they fall due.
The Group has established credit limits for its tenants and monitors their balances on an ongoing basis. Credit evaluations are performed by the Group before lease agreements are entered into with tenants. Cash and fixed deposits are placed with financial institutions which are regulated. The maximum exposure to credit risk is represented by the carrying value of each financial asset on the balance sheet. Concentration of credit risk is limited and insignificant due to the Group’s varied mix of tenants and credit policy of obtaining security deposits from tenants for leasing the Group’s investment properties. Please also refer to Note 8 to the financial statements.
Liquidity risk The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate to finance its operations and to mitigate the effects of fluctuations in cash flows. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a reasonable period, including the servicing of financial obligations.
The Group maintains an unsecured and short term revolving credit facility of $35 million (2007: $35 million) (the “facility”) with one major bank in Singapore. As at 31 December 2008, the Group has drawn down $16.1 million (2007: $15.0 million) from the facility, with a remaining $18.9 million (2007: $20.0 million) available for working capital purposes.
In addition, the Group also monitors and observes the Property Funds Guidelines issued by MAS concerning limits on total borrowings.
Interest rate risk The Group’s exposure to changes in interest rates relates primarily to its interest-earning financial assets and interest-bearing financial liabilities. In order to protect the Group’s earnings from the volatility in interest rates and provide stability to unitholders’ returns, the Group may hedge a portion of its interest rate exposure in the short to medium term by using fixed rate debt and interest rate derivatives.
The Group has fixed approximately 89.4% (2007: 89.0%) of its debt up to September 2010 using a combination of derivative financial instruments and fixed rate debt. The weighted average interest rate on borrowings including hedges was 3.0% (2007: 2.7%) per annum for the year ended 31 December 2008. STARHILL GLOBAL REIT 89 ANNUAL REPORT 2008
At 31 December 2008, the Group has hedged its exposure to changes in interest rates on its variable rate borrowings by entering into the following contracts;
(i) Interest rate swaps whereby it receives a variable rate equal to the SOR on the notional contract amount of $80 million until September 2013, and pays a fixed rate interest of 3.12% per annum up to September 2012, and 3.60% per annum one year thereafter.
(ii) Interest rate caps, with a notional contract amount of $85 million and JPY3.1 billion, whereby the benchmark interest rates are capped at between 3.50% to 4.00% per annum until September 2012 and 1.20% per annum until May 2012 respectively.
(iii) Cross currency swaps with a notional contract amount of $162 million, equivalent to approximately JPY13 billion. These cross currency swaps are denominated in Japanese Yen. The swaps mature within one to four years and have fixed interest rates ranging from 1.54% to 1.93% per annum.
Sensitivity analysis For the interest rate swaps, interest rate caps, cross currency swaps and variable rate instruments, a change of 1% in interest rate at the reporting date would increase/(decrease) total return by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
Total return 1% 1% increase decrease Group $’000 $’000
2008 Variable rate instruments (2,770) 2,686 Derivative financial instruments 7,482 (8,080)
4,712 (5,394)
2007 Variable rate instruments (1,403) 1,403 Derivative financial instruments 8,824 (8,169)
7,421 (6,766)
Trust
2008 Variable rate instruments (2,340) 2,302 Derivative financial instruments 6,421 (5,850)
4,081 (3,548)
2007 Variable rate instruments (1,171) 1,171 Derivative financial instruments 7,534 (6,870)
6,363 (5,699) 90
24 Financial risk management (cont’d)
Foreign currency risk The Group is exposed to foreign currency risk arising from its investments in Japan and China. The income generated from these investments and net assets are denominated in foreign currencies, mainly Japanese Yen (“JPY”) and Chinese Renminbi (“RMB”).
The Group’s and the Trust’s exposures to foreign currency as at 31 December are as follows:
JPY RMB Total Group $’000 $’000 $’000
2008 Investment properties 226,411 80,166 306,577 Plant and equipment – 77 77 Intangible asset – 12,613 12,613 Trade and other receivables 1,241 1,446 2,687 Cash and cash equivalents 11,225 17,348 28,573 Trade and other payables (5,115) (9,192) (14,307) Income tax payable (213) (443) (656) Deferred tax liabilities 539 (17,124) (16,585) Borrowings (49,386) (5,798) (55,184)
184,702 79,093 263,795
2007 Investment properties 199,464 76,760 276,224 Plant and equipment – 103 103 Intangible asset – 12,613 12,613 Trade and other receivables 3,331 4,614 7,945 Cash and cash equivalents 14,837 8,792 23,629 Trade and other payables (4,411) (8,975) (13,386) Income tax payable (271) (385) (656) Deferred tax liabilities (386) (16,212) (16,598) Borrowings (39,798) (6,102) (45,900)
172,766 71,208 243,974
Trust
2008 Trade and other payables (915) – (915)
(915) – (915)
2007 Cash and cash equivalents 8 – 8 Trade and other payables (1,384) – (1,384)
(1,376) – (1,376) STARHILL GLOBAL REIT 91 ANNUAL REPORT 2008
Sensitivity analysis A 10% strengthening of the Singapore dollar against the following currencies at the reporting date would increase/(decrease) net assets attributable to unitholders and the statement of total return by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and is stated before the impact of hedging instruments.
Group Trust
Net assets Statement Net assets Statement attributable to of total attributable to of total unitholders return unitholders return 2008 $’000 $’000 $’000 $’000
JPY (18,470) 2,291 91 91 RMB (7,909) (361) – –
2007
JPY (17,277) (921) 138 138 RMB (7,121) (831) – –
A 10% weakening of the Singapore dollar against the above currencies would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
Income hedging In order to reduce the impact of exchange rate fluctuations on the distributions to unitholders, the Group has hedged a portion of its forecast foreign currency net income receivable from its overseas investments back into Singapore dollars. As at 31 December 2008, the Group has entered into a combination of foreign exchange forwards and cross currency swaps such that approximately 96% and 83% of the Group’s net income is fixed in Singapore dollars in the next 12 months and the following 12 months respectively.
Capital hedging The Group intends to maximise the use of local currency denominated borrowings, whenever possible, to match the currency of the asset investment as a natural currency hedge. The Group may use other suitable financial derivatives, to hedge a portion of its capital invested in foreign currency assets to reduce the impact of exchange rate fluctuations on the net asset value of the Group, where appropriate. As at 31 December 2008, the Group has entered into a combination of foreign currency denominated loans, cross currency swaps and foreign currency option such that substantially all of the Group’s net assets is fixed in Singapore dollars.
For its investments in Japan, the Group has a five-year Japan bond of JPY3.1 billion (equivalent to $49 million), which provides a natural hedge on the investment. For the remaining foreign currency exposure, the Group has entered into JPY-denominated cross currency swaps of approximately JPY13.0 billion (equivalent to $162 million), maturing within one to four years.
For its investment in China, the Group has entered into a foreign currency option, whereby the Group has the option to sell RMB342.7 million for $63 million at an exchange rate of RMB5.44:$1.00 up to September 2012. 92
24 Financial risk management (cont’d)
Sensitivity analysis For the foreign exchange forwards, foreign currency option and cross currency swaps, a 10% strengthening/ (weakening) of the Singapore dollar at the reporting date would increase/(decrease) net assets attributable to unitholders and the statement of total return by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
Net assets attributable Statement to unitholders of total return 10% 10% 10% 10% strengthening weakening strengthening weakening Group $’000 $’000 $’000 $’000
2008 Derivative financial instruments 22,393 (22,393) 22,393 (22,393)
2007 Derivative financial instruments 17,939 (17,939) 17,939 (17,939)
Trust
2008 Derivative financial instruments 22,413 (22,413) 22,413 (22,413)
2007 Derivative financial instruments 17,991 (17,991) 17,991 (17,991)
Estimation of fair value The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments of the Group and the Trust.
Financial derivatives The fair value of foreign exchange forwards is based on their listed market price, if available. If a listed market price is not available, fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual period to maturity of the contract using a risk-free interest rate (based on government bonds).
The fair values of interest rate swaps, cross currency swaps and interest rate caps are based on broker quotes. These quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date. STARHILL GLOBAL REIT 93 ANNUAL REPORT 2008
The Group’s foreign exchange forwards, interest rate swaps, cross currency swaps and interest rate caps have been recognised as derivative financial instruments in the balance sheet and are stated at their fair values, disclosed in Note 7 to the financial statements.
Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
Other financial assets and liabilities The carrying amounts of financial assets and liabilities with a maturity of less than one year (including trade and other receivables, cash and cash equivalents, and trade and other payables) are assumed to approximate their fair values because of the short period to maturity. All other financial assets and liabilities are discounted to determine their fair values.
The fair value of the $380 million fixed rate term loan (Note 12), which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows discounted at the market rate of interest at the reporting date.
Interest rates used in determining fair values Interest rates used to discount estimated cash flows, where applicable, is computed from Singapore dollar swap offer rates as follows:
2008 2007 % %
Term loan 1.50 2.66
The aggregate net fair values of recognised financial assets and liabilities which are not carried at fair value in the balance sheet at 31 December are represented in the following table:
Carrying Fair Carrying Fair amount value amount value Note 2008 2008 2007 2007 $’000 $’000 $’000 $’000
Group and Trust Term loan 12 380,000 390,681 380,000 385,149
Unrecognised loss (10,681) (5,149) 94
25 Segment reporting
Segment information is presented in respect of the Group’s business segments and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly interest-earning assets and revenue, interest-bearing borrowings and expenses, and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the period to acquire plant and equipment, and additions to investment properties.
Business segments The business segments of the Group comprises the following segments, Wisma Atria Property, Ngee Ann City Property, Japan Properties and Renhe Spring Zongbei Property.
Geographical segments The Group’s operations and its identifiable assets are located in Singapore (consisting of Wisma Atria Property and Ngee Ann City Property), Tokyo-Japan (consisting of seven Japan Properties) and Chengdu- China (consisting of Renhe Spring Zongbei Property). Accordingly, no geographical segmental analysis is separately presented. STARHILL GLOBAL REIT 95 ANNUAL REPORT 2008
Business segments
Wisma Atria Ngee Ann Japan Renhe Spring Property City Property Properties Zongbei Property (Singapore) (Singapore) (Japan) (China) Total 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 Group $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Revenue and expenses Total revenue from external customers 53,316 51,370 50,736 42,944 9,157 3,987 13,833 4,658 127,042 102,959 Inter–segment revenue – – – – – – – – – –
Total revenue 53,316 51,370 50,736 42,944 9,157 3,987 13,833 4,658 127,042 102,959
Property operating expenses (14,825) (15,143) (10,300) (9,004) (1,438) (557) (4,595) (1,441) (31,158) (26,145)
Net property income 38,491 36,227 40,436 33,940 7,719 3,430 9,238 3,217 95,884 76,814 Finance income 87 222 Fair value adjustment on security deposit and retention sum (28) 42 Non–property expenses (14,825) (11,220) Finance expense (22,146) (16,448)
Net income before tax 58,972 49,410 Income tax expense (935) (3,188) Change in fair value of unrealised derivative instruments (34,431) (7,983) Change in fair value of investment properties (160,884) 448,870
Total return for the year (137,278) 487,109
Business segments
Wisma Atria Ngee Ann Japan Renhe Spring Property City Property Properties Zongbei Property (Singapore) (Singapore) (Japan) (China) Total 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 Group $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Assets and liabilities Segment assets 853,354 906,825 947,603 1,030,582 226,486 201,213 94,302 94,090 2,121,745 2,232,710 Unallocated assets 41,625 44,841
Total consolidated assets 2,163,370 2,277,551 Segment liabilities (18,844) (31,369) (10,274) (9,370) (5,115) (3,920) (9,191) (8,975) (43,424) (53,634) Unallocated liabilities (736,408) (686,750)
Total consolidated liabilities (779,832) (740,384)
Other segmental information Capital expenditure 1,015 1,121 791 – 171 – 11 55 1,988 1,176
Depreciation of plant and equipment 1,562 1,700 – – – – 44 8 1,606 1,708
Change in fair value of investment properties (52,665) 150,755 (84,791) 282,897 (21,318) 7,345 (2,110) 7,873 (160,884) 448,870 96
26 Acquisition of subsidiary
There were no acquisition of subsidiaries during the year ended 31 December 2008.
On 28 August 2007, the Group acquired all the shares in Top Sure Investment Limited (the “company”) for a purchase price of RMB350 million (approximately $70.6 million(1)), comprising RMB310 million payable in cash and remaining RMB40 million as a loan payable to a third party, assumed as part of the acquisition. The loan is interest-free and repayable in equal and annual instalments, with the final instalment being due in August 2014. The company owns through its wholly-owned subsidiary, Renhe Spring Department Store Co., Ltd, a retail property, Renhe Spring Zongbei Property, in Chengdu, China. In the four months to 31 December 2007, the company contributed a net property income of approximately RMB16.4 million (equivalent to $3.2 million) to the consolidated total return for the year ended 31 December 2007.
The allocation of the purchase price to the identifiable assets, liabilities and contingent liabilities acquired in this business combination has been determined and the goodwill that results from the difference between the purchase price and the adjusted carrying amounts of the assets and liabilities acquired amounts to $12.6 million and was reported as an intangible asset in the balance sheet.
The effect of the acquisition of subsidiary for the year ended 31 December 2007 is set out below:
Carrying Fair value Recognised amounts adjustments values $’000 $’000 $’000
Investment properties 14,070 56,566 70,636 Plant and equipment 56 – 56 Trade and other receivables 2,874 – 2,874 Cash and cash equivalents 4,184 – 4,184 Trade and other payables (5,681) – (5,681) Borrowings (8,073) 1,977 (6,096) Deferred tax liabilities – (14,543) (14,543)
Net identifiable assets acquired 7,430 44,000 51,430 Goodwill on consolidation 12,613
Purchase consideration paid, satisfied in cash 64,043 Cash acquired (4,184)
Net cash outflows on acquisition of subsidiary (net of cash and cash equivalents acquired) 59,859 (1) Based on exchange rate of RMB4.96:$1.00 at acquisition date. STARHILL GLOBAL REIT 97 ANNUAL REPORT 2008
27 Subsequent events
Subsequent to the year ended 31 December 2008;
(a) the Trust issued 2,870,243 new units on 30 January 2009, at the issue price of $0.5038 per unit as partial satisfaction of the Manager’s base fee for the three months ended 31 December 2008.
(b) the Manager declared a distribution of 1.85 cents per unit in respect of the period from 1 October 2008 to 31 December 2008, which was paid on 27 February 2009.
(c) the $35 million revolving credit facility of the Trust, which is used for working capital purposes and matures in March 2009, was extended to March 2010.
28 Financial ratios Group
2008 2007 % %
Ratio of expenses to weighted average net assets (1) 0.97 0.92 Portfolio turnover rate (2) – – (1) The ratios are computed in accordance with guidelines of the Investment Management Association of Singapore. The expenses used in the computation relate to expenses of the Group and exclude property related expenses, finance expense and the performance component of the Manager’s fees.
(2) The ratio is computed based on the lesser of purchases or sales of underlying investment properties of the Group expressed as a percentage of weighted average net asset value.
29 CHANGE OF NAME
Macquarie Prime Real Estate Investment Trust has been renamed as Starhill Global Real Estate Investment Trust with effect from 31 December 2008.
30 New accounting standards and interpretations not yet adopted
The Group has not applied the following accounting standards (including their consequential amendments) and interpretations that have been issued as of the balance sheet date but will only become effective for the Group’s financial statements for the year ending 31 December 2009:
• FRS 1 (revised 2008) Presentation of Financial Statements • FRS 23 (revised 2007) Borrowing Costs • Amendments to FRS 32 Financial Instruments: Presentation and FRS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation • Amendments to FRS 101 First-time Adoption of Financial Reporting Standards and FRS 27 Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate • Amendments to FRS 102 Share-based Payment – Vesting Conditions and Cancellations • FRS 108 Operating Segments • Improvements to FRSs 2008 • INT FRS 113 Customer Loyalty Programmes • INT FRS 116 Hedges of a Net Investment in a Foreign Operation
Other than the changes in disclosures relating to FRS 1, the amendments to FRS 32 and FRS 108, the initial application of these standards (including their consequential amendments) and interpretations is not expected to have any material impact on the Group’s financial statements. The Group has not considered the impact of accounting standards issued after the balance sheet date. 98 Statistics Of Unitholders As at 27 February 2009
Distribution of unitholdings
Size of Holdings No. of Unitholders % No. of Units %
1–999 17 0.20 2,844 – 1,000–10,000 6,560 78.30 27,131,949 2.82 10,001–1,000,000 1,777 21.21 109,038,765 11.35 1,000,001 and above 24 0.29 824,630,296 85.83
Total 8,378 100.00 960,803,854 100.00
location of unitholdings
Country No. of Unitholders % No. of Units %
Singapore 8,181 97.65 952,970,854 99.18 Malaysia 107 1.28 4,581,000 0.48 Others 90 1.07 3,252,000 0.34
Total 8,378 100.00 960,803,854 100.00
Twenty largest unitholders
Name No. of Units %
1 HSBC (Singapore) Nominees Pte Ltd 306,147,500 31.86 2 Citibank Nominees Singapore Pte Ltd 160,216,774 16.68 3 DBS Nominees Pte Ltd 129,066,200 13.43 4 United Overseas Bank Nominees Pte Ltd 93,888,200 9.77 5 DBSN Services Pte Ltd 46,366,100 4.83 6 Merrill Lynch (Singapore) Pte Ltd 11,436,775 1.19 7 OCBC Securities Private Ltd 11,416,900 1.19 8 Raffles Nominees Pte Ltd 10,352,847 1.08 9 DBS Vickers Securities (S) Pte Ltd 9,048,000 0.94 10 Royal Bank of Canada (Asia) Ltd 8,403,000 0.87 11 UOB Kay Hian Pte Ltd 6,851,000 0.71 12 DB Nominees (S) Pte Ltd 6,446,800 0.67 13 Liew Chee Kong 3,888,000 0.40 14 Asdew Acquisitions Pte Ltd 3,414,000 0.36 15 BMT A/C Estate of Mse Angullia 3,410,000 0.36 (Wakaff) Clause 7 Trust 16 Phillip Securities Pte Ltd 2,691,000 0.28 17 Chin Kiam Hsung 2,358,000 0.25 18 Nomura Singapore Limited 1,625,000 0.17 19 Goh Khoon Lim 1,450,000 0.15 20 OCBC Nominees Singapore Pte Ltd 1,450,000 0.15
Total 819,926,096 85.34
STARHILL GLOBAL REIT 99 ANNUAL REPORT 2008
Substantial unitholdings As at 27 February 2009 Direct interest Deemed interest No. of No. of Unitholders U units % Units %
Starhill Global REIT Investments Limited(1) – – 247,101,000 25.72 YTL Cayman Limited(2) 9,000,000 0.94 247,101,000 25.72 YTL Corporation Berhad(3) – – 256,101,000 26.65 Yeoh Tiong Lay & Sons Holdings Sdn Bhd(3) – – 256,101,000 26.65 Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay(3) – – 256,101,000 26.65 Morgan Stanley Entities(4) – – 105,430,744 10.97 American International Assurance Company, Limited and related entities (5) 94,516,000 9.84 109,016,000 11.35
Notes:
(1) Deemed interest held through nominee, HSBC (Singapore) Nominees Pte Ltd.
(2) Deemed interest by virtue of 247,101,000 units held by Starhill Global REIT Investments Limited (SGRIL).
(3) Deemed interest by virtue of 247,101,000 units held by SGRIL and 9,000,000 units held by YTL Cayman Limited (YTL Cayman). SGRIL is wholly-owned by YTL Cayman, which is in turn wholly-owned by YTL Corporation Berhad (YTL). YTL is majority owned by Yeoh Tiong Lay & Sons Holdings Sdn Bhd (YTLS), and Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay owns approximately 20.18% of YTLS.
(4) Morgan Stanley Investment Management Company, Morgan Stanley (Singapore) Holdings Pte. Ltd., Morgan Stanley Asia Regional (Holdings) III LLC, Morgan Stanley Asia Pacific (Holdings) Limited, Morgan Stanley International Holdings Inc., Morgan Stanley Investment Management Inc., Morgan Stanley & Co. Incorporated, Morgan Stanley (collectively referred to as “Morgan Stanley Entities”).
(5) AIG Global Investment Corporation (Singapore) Ltd, American International Group, Inc., AIG Life Holdings (International) LLC, American International Reinsurance Company, Ltd., and American International Assurance Company (Bermuda) Ltd.
Unitholdings of the directors of the Manager As at 21 January 2009 Direct interest Deemed interest No. of No. of Directors U units %(1) Units %(1)
Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping – – – – Dato’ Yeoh Seok Kian – – – – Franklin Heng Ang Tee(2) – – 500,000 0.05 Hong Hai 200,000 0.02 – – Michael Hwang(3) – – 15,000 –(4) Keith Tay Ah Kee 100,000 0.01 – –
Notes:
(1) The percentage interest is based on total issued units of 957,933,611 as at 21 January 2009.
(2) Deemed interest held through nominee, Hong Leong Finance Limited.
(3) Deemed interest held through nominee, UBS AG.
(4) Less than 0.01%.
Free Float Under Rule 723 of the listing manual of the SGX-ST, a listed issuer must ensure that at least 10% of its listed securities are at all times held by the public. Based on information made available to the Manager as at 27 February 2009, no less than 60% were held in the hands of the public. 100 Additional Information
Related party transactions between starhill global REIT and related parties
Name of Related Party Aggregate value of all related party transactions during the financial year under review (excluding transactions less than $100,000)
2008 $’000
YTL Pacific Star REIT Management Limited Management fees(1) (11,201) Rental income 512
(10,689)
YTL Pacific Star Property Management Pte Ltd Property management fees and reimbursements (4,270) Lease commission fees (866) Rental income 575
(4,561)
HSBC Institutional Trust Services (Singapore) Limited Trustee fees (368)
Macquarie Capital (Singapore) Pte Ltd Debt advisory fees and reimbursements (773) Strategic review advisory reimbursements (390)
(1,163)
(1) The Manager has opted to receive, for the years ended 31 December 2008 and 31 December 2007, 60% of the Base Fee in respect of its Singapore Properties in the form of units with the balance in cash. In respect of the period from 1 January 2008 to 31 March 2008, a total of 1,169,093 units of Starhill Global REIT at $1.2391* were issued to the Manager on 30 April 2008. In respect of the period from 1 April 2008 to 30 June 2008, a total of 1,410,412 units at $1.0392* were issued to the Manager on 31 July 2008. In respect of the period from 1 July 2008 to 30 September 2008, a total of 2,711,568 units at $0.5468* were issued to the Manager on 30 October 2008. In respect of 1 October 2008 to 31 December 2008, a total of 2,870,243 units at $0.5038* were issued to the Manager on 30 January 2009.
* Based on the volume weighted average price for a Starhill Global REIT unit for all trades on the SGX-ST in the ordinary course of trading on the SGX-ST for the last ten trading days immediately preceding the date of issue of units. STARHILL GLOBAL REIT 101 ANNUAL REPORT 2008 Corporate Directory
Manager Trustee YTL Pacific Star REIT HSBC Institutional Trust Services Management Limited (Singapore) Limited 391B Orchard Road 21 Collyer Quay #21-08 Ngee Ann City Tower B #14-01 HSBC Building Singapore 238874 Singapore 049320 Phone: +65 6835 8633 Phone: +65 6534 1900 Fax: +65 6835 8644 Fax: +65 6533 1077 Email: [email protected] Unit Registrar Directors Boardroom Corporate & Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping Advisory Services Pte. Ltd. (Executive Chairman) 3 Church Street Mr Franklin Heng (Executive Director and CEO) #08-01 Samsung Hub Dato’ Yeoh Seok Kian (Non-Executive Director) Singapore 049483 Dr Hong Hai (Lead Independent Director) Phone: +65 6536 5355 Mr Michael Hwang (Independent Director) Fax: +65 6536 1360 Mr Keith Tay Ah Kee (Independent Director) Auditors of Starhill Global REIT Audit Committee KPMG LLP Dr Hong Hai (Chairman) 16 Raffles Quay Mr Michael Hwang (Member) #22-00 Hong Leong Building Mr Keith Tay Ah Kee (Member) Singapore 048581 Phone: +65 6213 3388 Joint Company Secretaries Fax: +65 6225 4142 Ms Patricia Ong (Partner in charge since period ended Mr Abdul Jabbar bin Karam Din 31 December 2005: Ms Eng Chin Chin) Ms Chan Hooi Tze SGX Code Starhill Gbl
Website www.starhillglobalreit.com www.ytlpacificstar.com 102 Glossary
1Q, 2Q, 3Q, 4Q Period for 1 January to 31 March, 1 April to 30 June, 1 July to 30 September, and 1 October to 31 December, respectively
Benchmark Index Provided by FTSE. Comprises all the REITs contained in the FTSE Allcap Singapore universe
CMBS Commercial Mortgage Backed Securities
CPF Central Provident Fund
DPU Distribution Per Unit
F&B Food and beverage
FTSE FTSE International Limited
Future Future Revolution K.K. is the property manager of all seven Japanese assets; the company Revolution K.K. is also the fixed rent master lessee of the Ebisu Fort, Roppongi Terzo, Hajrajyuku Secondo and Nakameguro, and the pass-through master lessee of the Holon L, Roppongi Primo and Daikanyama properties. The company is wholly owned by Hexagon Capital Partners
FY Financial year for the period from 1 January to 31 December
GST Goods and Services Tax
GTO Gross turnover
Manager YTL Pacific Star REIT Management Limited
MAS Monetary Authority of Singapore
Starhill Global REIT Starhill Global Real Estate Investment Trust
MRT Mass Rapid Transit
n.a. not applicable
Ngee Ann City The building known as ‘Ngee Ann City’ comprising a commercial complex with 18 levels of office space in each of the twin office tower blocks (Tower A and B) and a seven-storey podium with three basement levels comprising retail and carpark space STARHILL GLOBAL REIT 103 ANNUAL REPORT 2008
Ngee Ann City Four strata lots in Ngee Ann City located on: Property or NAC a) Part of Basement 1, Basement 2 and Level 1 to Level 5 of the retail podium block; b) Part of Level 13 and the whole of Level 14 to Level 19 of Tower B (office); and c) Whole of Level 21 to Level 24 of Tower B (office)
NLA Net Lettable Area pa per annum pm per month
Property Manager YTL Pacific Star Property Management Pte. Ltd. psf per square foot psm per square metre
SGX-ST Singapore Exchange Securities Trading Limited
STB Singapore Tourism Board sq ft square feet sq m square metres
Toshin Toshin Development Co., Ltd
Wisma Atria The building known as ‘Wisma Atria’ comprising a podium block with four levels and one basement level of retail space, three levels of carpark and 13 levels of office space in the office block
Wisma Atria 257 strata lots in Wisma Atria Property or WA yoy year-on-year
YTL YTL Corporation Berhad
All values are expressed in Singapore currency unless otherwise stated. 104
Starhill Global REIT This Annual Report for the year ended 31 December 2008 has been prepared by YTL Pacific Star REIT Management Limited (Company Registration No. 200502123C) as the Manager of Starhill Global REIT. This report does not contain investment advice nor is it an offer to invest in units of Starhill Global REIT.
Whilst every care has been taken in relation to the accuracy of this report, no warranty is given or implied. This report has been prepared without taking into account the personal objectives, financial situation or needs of particular individuals. Before acting, we recommend that potential investors speak with financial and/or other professional advisers.
The value of Starhill Global REIT units (“Units”) and the income derived from them may fall as well as rise. The Units are not obligations of, deposits in, or guaranteed by, the Manager or any of its affiliates. An investment in Units is subject to investment risks, including possible delays in repayment, or loss of income or the principal amount invested. The Manager and its affiliates do not guarantee the performance of Starhill Global REIT or the repayment of capital from Starhill Global REIT or any particular rate of return. Investors have no right to request the Manager to redeem their Units while the Units are listed. It is intended that unitholders of Starhill Global REIT may only deal in their Units through trading on the SGX-ST. Listing of the Units on the SGX-ST does not guarantee a liquid market for the Units.
This document is for information only and does not constitute an invitation or offer to acquire, purchase or subscribe for the Units. The past performance of Starhill Global REIT is not necessarily indicative of the future performance of Starhill Global REIT.
This document may contain forward-looking statements that involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions, interest rate trends, cost of capital and capital availability, competition from similar developments, shifts in expected levels of property rental income, changes in operating expenses (including employee wages, benefits and training costs), property expenses and governmental and public policy changes. Investors are cautioned not to place undue reliance on these forward-looking statements, which are based on the Manager’s view of future events. Starhill Global REIT (formerly known as Macquarie Prime REIT) is a Singapore-based real estate investment trust investing primarily in real estate used for retail and office purposes, both in Singapore and overseas. Listed on the Mainboard of the Singapore Exchange Securities Trading Limited (“SGX-ST”) since 20 September 2005, Starhill Global REIT owns two landmark properties on Orchard Road, Singapore’s premier shopping and tourist street. Its initial portfolio included a 74.23% strata title interest in Wisma Atria and a 27.23% strata title interest in Ngee Ann City.
In 2007, Starhill Global REIT enlarged its asset base and geographical footprint with the acquisition of seven properties in the prime areas of Aoyama, Roppongi, Harajyuku, Meguro and Ebisu in Tokyo, Japan and a premier retail property in Chengdu, China. Starhill Global REIT’s portfolio now comprises 10 properties in the three countries, valued at about $2.1 billion. Starhill Global REIT remains focused on sourcing attractive property assets in Singapore and overseas, while driving organic growth from its existing portfolio, through proactive leasing efforts and creative asset enhancements.
Starhill Global REIT is managed by an external manager, YTL Pacific Star REIT Management Limited. The Manager is a wholly owned subsidiary of YTL Pacific Star REIT Management Holdings Pte Ltd, a 50:50 joint venture between Starhill Global REIT Management Limited (an indirect wholly owned subsidiary of YTL Corporation Berhad) and Pacific Star REIT Management Holdings Limited.
CONTENTS
01 Vision / Mission / Corporate Values / 36 Singapore Properties Portfolio Overview 42 China Property 02 Shape a Better Future 43 Japan Properties 04 Create New Experiences 44 Market Overview 06 Plan for Change 45 Capital Management 08 Message from the Executive Chairman 47 Risk Management Framework 11 Message from the Chief Executive Officer 48 Our People 13 Financial Highlights 49 Investor Relations & Communications 14 Significant Events 50 Corporate Social Responsibility 15 Awards & Accolades 2008 51 Financial Review 16 Board of Directors 53 Financial Statements 18 Management 98 Statistics of Unitholders 22 Organisation Chart 100 Additional Information 23 Corporate Governance 101 Corporate Directory 31 Property Portfolio Summary 102 Glossary 34 Property Profile
Concept and Design by Equus THE JOURNEY BEGINS
THE JOURNEY Starhill Global REIT Annual Report 2008 BEGINS Starhill Global Reit Annual Report 2008
YTL Pacific Star REIT Management Limited Company Registration No.: 200502123C www.starhillglobalreit.com