Starhill Global REIT (SGREIT) announced that the rent review for the Toshin master lease has been concluded, and that a renewal rent at 6.7% higher than the prevailing rate has been secured. This is consistent with our 29 Apr report that SGREIT may again benefit from rental upside following the completion of the review process. We now factor in the increased rents in our forecasts but lower our fair value marginally to S$1.00 on higher risk-free rate (S$1.05 previously). However, we continue to like SGREIT for its growth potential, strong financial position and compelling valuations. For FY13, SGREIT looks set to gain from continued strength from its Singapore portfolio, incremental income from its newly-acquired Plaza Arcade and a 7.2% rental escalation from its Malaysia master leases in Jun. We maintain BUY on SGREIT. Key risks include weaker JPY/AUD and negative impact from a potential CPU conversion.
Favourable outcome from Toshin rent review
Starhill Global REIT (SGREIT) announced that the rent review for the Toshin master lease has been concluded, and that a renewal rent at 6.7% higher than the prevailing rate has been secured. This is consistent with our 29 Apr report that SGREIT may again benefit from rental upside following the completion of the review process. Recall that SGREIT had on 14 Feb secured a 10% increase in base rent, which was retrospectively applied for the term starting 8 Jun 2011. The revised rent will serve as the base rent for this Jun renewal.
Further rent review every three years
We understand that the increase in rent was determined based on the average of three market valuations, undertaken by independent licensed valuers in accordance with the terms of the Toshin lease. While the renewed lease is for a period of another 12 years commencing 8 Jun, it provides for a review of the rental rate every three years. All existing provisions of the Toshin lease, we note, will continue to apply. For Mar, the Toshin lease contributed 86.3% of SGREIT’s stake in Ngee Ann City gross rent and 20.0% of SGREIT’s portfolio gross rent. Hence, we believe the rent increase may possibly boost SGREIT’s topline by 1.3% on an annualised basis.
Maintain BUY
We now factor in the increased rents in our forecasts but lower our fair value marginally to S$1.00 on higher risk-free rate (S$1.05 previously). However, we continue to like SGREIT for its growth potential, strong financial position and compelling valuations. For FY13, SGREIT looks set to gain from continued strength from its Singapore portfolio, incremental income from its newly acquired Plaza Arcade and a 7.2% rental escalation from its Malaysia master leases in Jun. SGREIT also has a healthy aggregate leverage of 30.5%, with limited interest rate risks (rates fixed for 81% of borrowings) and no refinancing needs until 2015. In addition, SGREIT looks attractive on the valuation front, given that it is trading at 1.0x P/B vs. 1.2x P/B for its local retail peers. Maintain BUY. Key risks include weaker JPY/AUD and negative impact from a potential CPU conversion.
Starhill Global REIT (SGREIT) announced that the rent review for the Toshin master lease has been concluded, and that a renewal rent at 6.7% higher than the prevailing rate has been secured. This is consistent with our 29 Apr report that SGREIT may again benefit from rental upside following the completion of the review process. Recall that SGREIT had on 14 Feb secured a 10% increase in base rent, which was retrospectively applied for the term starting 8 Jun 2011. The revised rent will serve as the base rent for this Jun renewal.
Further rent review every three years
We understand that the increase in rent was determined based on the average of three market valuations, undertaken by independent licensed valuers in accordance with the terms of the Toshin lease. While the renewed lease is for a period of another 12 years commencing 8 Jun, it provides for a review of the rental rate every three years. All existing provisions of the Toshin lease, we note, will continue to apply. For Mar, the Toshin lease contributed 86.3% of SGREIT’s stake in Ngee Ann City gross rent and 20.0% of SGREIT’s portfolio gross rent. Hence, we believe the rent increase may possibly boost SGREIT’s topline by 1.3% on an annualised basis.
Maintain BUY
We now factor in the increased rents in our forecasts but lower our fair value marginally to S$1.00 on higher risk-free rate (S$1.05 previously). However, we continue to like SGREIT for its growth potential, strong financial position and compelling valuations. For FY13, SGREIT looks set to gain from continued strength from its Singapore portfolio, incremental income from its newly acquired Plaza Arcade and a 7.2% rental escalation from its Malaysia master leases in Jun. SGREIT also has a healthy aggregate leverage of 30.5%, with limited interest rate risks (rates fixed for 81% of borrowings) and no refinancing needs until 2015. In addition, SGREIT looks attractive on the valuation front, given that it is trading at 1.0x P/B vs. 1.2x P/B for its local retail peers. Maintain BUY. Key risks include weaker JPY/AUD and negative impact from a potential CPU conversion.
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