StarHill Gbl – DBS

Going Global

• Deploying its cash
• Potential issue of convertible equity could cap share price performance
• Maintain HOLD, TP S$0.65

Deploying cash. Starhill Global REIT (SGREIT) has finally announced the deployment of its war-chest : (i) acquisition of David Jones Building (DJB) in Perth for S$148m; and (ii) signing of heads of agreements to purchase Lot 10 and Starhill Gallery for S$423.3m from Starhill REIT. The combined injection yield is estimated to be c7.2%, which compares favorably to the current yield on book (5.5%).

Australian acquisition raises DPU by 6%. We have included the DJB acquisition in our numbers; raising FY10F-11F DPU by c6%.

Still assessing funding options for Malaysian purchases. The manager intends to utilize an asset backed securitisation structure (“ABS”) to acquire the Malaysian assets given tax benefits. This structure is awaiting further regulatory approvals. SGREIT intends to use a combination of its cash from the rights issue (completed back in 2Q09) and to issue new convertible preference units (CPS) but has yet to decide on the terms and size. We have not included earnings from the Malaysian assets in our forecast.

Maintain HOLD, TP S$0.65. While size of the acquisition is big (26% of portfolio), the uncertainty of the funding for the larger-sized Malaysian assets could cap share price performance in the near term till further clarity is obtained. As such, maintain HOLD.