Starhill Global – DBSV

Bonus from Toshin

Positive rent review outcome for Toshin. Starhill Global Reit (SG Reit) announced that the Toshin rent review process has been completed with a 10% increase in rent compared to our expectation of no increase in rentals.

Expect a bumper payout in 1Q13. Based on the new rent review, the base rent for Toshin will be adjusted upward by 10% from 8 June 2011 and will serve as the base rent until the next lease renewal in June 2013. Upon the adjustment, SG Reit will reap accumulated rental arrears of an estimated S$5m over the 18 month period (8 June 2011 to 31 Dec 2012). Subject to the receipts, the manager intends to distribute S$3.8m of the rental arrears after netting off expenses including leasing commissions to the unitholders in 1Q13. The higher rental will have a positive impact on earnings as the Toshin lease contributed 18.8% to SG Reit’s FY12 topline.

Positive impact on earnings. With the upward rental adjustment, FY13/14F DPU will increase 6% and 2% respectively, while TP will rise to S$0.92. We are maintaining our BUY Call.

We continue to like SG Reit for its pro-active efforts in restructuring its portfolio including its recent divestment of one of its non- core assets in Japan. We expect positive rental reversions, step-up rents in Malaysia and its acquisition of the Perth property to drive earnings growth. Re-rating catalysts could come from potential acquisitions supported by healthy gearing of 32% and further upside from rent negotiations for Toshin’s lease, which will expire in Jun13. We expect that there will be no downward rental reversion and have assumed zero growth.