Starhill Global Reit

CIMB RESEARCH, March 19

STARHILL Global Reit (SGReit) just announced that it has successfully divested the Holon L property in Tokyo for 1.026 billion yen (S$12.8 million). The selling price represents a 6 per cent premium over book value, translating into a yield of 4.03 per cent. SGReit's management revealed that the proceeds from the divestment will be used to repay its yen loans as well as for working capital purposes. As a result, its gearing will drop marginally by 0.3 per cent to 28.7 per cent.

In our estimation, Holon is one of the smaller assets that SGReit owns in Japan, accounting for about 9.3 per cent of the NLA (net lettable area) of its Japan portfolio and 0.4 per cent of the Reit's total NLA. In addition, in our estimation, $500,000 of income is lost as a result of this divestment, leading to DPU declines of about 0.2 per cent for FY14 and FY15, respectively. Moreover, as the proceeds from the divestment are used to pay down SGReit's yen loans, the impact of the yen's devaluation on this transaction is minimal. Looking back, this is the second sale of its assets in Japan. We believe that SGReit's management is committed to focusing its strength on a few key markets. There could thus be more portfolio divestments in the offing.

Given that the impact of this sale on SGReit's earnings is minimal, we keep our "hold" rating with an unchanged dividend discount model-based target price of 80 cents.

HOLD