Starhill Global REIT

OCBC on 3 Sep 2012

Starhill Global REIT (SGREIT) recently entered into an agreement with its lender ANZ Bank for a A$63m term loan maturing in June 2017. The new facility will be used to refinance its existing A$63m loan taken up by SGREIT in Jan 2010 to partially fund the acquisition of David Jones Building. Based on our estimates, SGREIT’s weighted average debt maturity will likely be extended from 1.8 years to ~2.0 years as at end Sep. In a separate announcement, SGREIT also updated the outcome of its appeal relating to the master lease with Toshin Development Singapore. According to management, the Court of Appeal did not find that the rent review mechanism had been rendered inoperable, as SGREIT had previously declared. Nevertheless, the Court ordered SGREIT and Toshin to jointly request the President of Singapore Institute of Surveyors and Valuers to appoint three valuation firms to determine the prevailing market rental rates. Our take on this development is neutral, as we have not factored in any rental upside resulting from a favourable outcome. We are adjusting our forecasts to reflect the refinancing activity. Our fair value stays unchanged at S$0.79. Maintain BUY.

Refinancing of loan facility
Starhill Global REIT (SGREIT) recently entered into an agreement with its lender ANZ Bank for a A$63m term loan maturing in June 2017. We understand that the new facility will be used to refinance its existing A$63m loan (due to mature in Jan 2013) taken up by SGREIT in Jan 2010 to partially fund the acquisition of David Jones Building. The new facility will be secured under similar arrangements as its existing facility. Based on our estimates, SGREIT’s weighted average debt maturity will likely be extended from 1.8 years to ~2.0 years as at end Sep.

Toshin dispute to be resolved through mediation
In a separate announcement, SGREIT also updated the outcome of its appeal relating to the master lease with Toshin Development Singapore. According to management, the Court of Appeal did not find that the rent review mechanism had been rendered inoperable, as SGREIT had previously declared. However, the Court acknowledged that Toshin did not act in good faith in agreeing on the prevailing market rental values during the early stages of the review exercise. Hence, the Court ordered both parties to jointly request the President of Singapore Institute of Surveyors and Valuers to appoint three valuation firms to determine the prevailing market rental rates. Our take on this development is neutral, as we have not factored in any rental upside resulting from a favourable outcome. But we note that SGREIT has achieved its motive of sending a strong signal to the valuers to exercise independence on the review process.

Retain BUY with unchanged fair value of $0.79
We continue to like SGREIT for its healthy financial position (aggregate leverage of 30.5%), compelling P/B of 0.85x, and growth potential. In our view, SGREIT has yet to reap the full impact of its asset enhancement initiative on Wisma Atria, which is expected to be realized in the upcoming quarters. We now adjust our forecasts to reflect the refinancing activity. Our fair value stays unchanged at S$0.79. Maintain BUY.