Starhill Global – CIMB

Non-material sale

SGREIT just announced that it has successfully divested the Holon L property in Tokyo at a 6.0% premium over book. Given that this asset is one of the smallest in SGREIT’s portfolio, we view this event as non-material though we speculate that there could be more divestments in the coming months, given that management is committed to reshuffling its portfolio. It plans to focus on a few key markets where its strength lies, which in our view include Singapore, Malaysia and Australia. We maintain our Hold rating with an unchanged DDM-based (discount rate: 8.4%) target price of S$0.80.

What Happened

Starhill Global REIT (SGREIT) just announced that it has successfully divested the Holon L property located in Tokyo for ¥1,026m (c.S$12.8m). The selling price represents a 6.0% premium over book value, translating into a yield of 4.03%. 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% to 28.7%.

What We Think

In our estimation, Holon is one of the smaller assets that SGREIT owns in Japan, accounting for c.9.3% of the NLA of its Japan’s portfolio and 0.4% of the REIT’s total NLA. In addition, in our estimation, c.S$0.5m of income is lost as a result of this divestment, leading to DPU declines of c.0.2% 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 inJapan. We believe that SGREIT’s management is committed to focusing its strength on a few key markets such as Singapore, Malaysia and Australia. As such, there could be more portfolio divestments in the offing, including the mall in Chengdu China.

What You Should Do

Given that the impact of this sale on SGREIT’s earnings is minimal, we keep our Hold rating with an unchanged DDM-based target price of S$0.80.