YTL Corp Bhd/Starhill Global REIT ... July 09

YTL Corp Bhd will take up 75% of the total rights units to be issued by Starhill Global Real Estate Investment Trust (REIT) under its proposed one-for-one basis. The rights issue would be at 35 Singapore cents be unit.

As at June 22 2009, it owned 26.6% of Starhill Global REIT.

Starhill Global REIT is an externally managed real estate investment trust established in Singapore as a collective investment scheme. It was listed on the Main Board of the SGX-ST on Sept 20, 2005. As at June 18 2009, Starhill Global REIT has a total of 963.72 million units in issue.

Its core activities relate to the investment in a diverse portfolio of real estate and real estate assets with the prime objective of delivering regular and stable distributions and to achieve long term growth in the net asset value per unit.

YTL Corp had entered into a sub-underwriting agreement with DBS Bank Ltd (DBS), Merrill Lynch (Singapore) Pte Ltd and Credit Suisse (Singapore) Ltd in relation to the issue of 963.72 million new units in Starhill Global REIT.

The subscription was is in line with YTL Corp’s commitment to support Starhill Global REIT by facilitating the underwriting of the rights issue by the joint lead managers and underwriters.

The rights issue would also provide YTL Corp the opportunity to acquire rights units at a discount of approximately 45.3% to the closing market price on June 19, 2009 of 64 cents per unit.

Going forward …

Its official quoted that the rights issue will help strengthen its balance sheet and help them improve financial flexibility. It is part of Starhill Global REIT’s long term proactive capital management strategy. To be sure, to remain conservatively geared as asset prices deflate, REIT’s like Starthill Global are under pressure to boost their equity capital base. And the rebound in the stock market makes this a good time to launch its one for one offer of 960 million new shares at 35 sen each to raise S$337.3 million. But the cash Starhill global REIT is raising will come in handy for another reason.

The REIT owns stakes in Ngee Ann City and Wisma Atria, two of the most prominent properties along Orchard Road, located right next to the much awaited ION Orchard that is due to open on July 21, 2009. An asset enhancement programme is being planned to capitalize on the anticipated upturn in traffic the new mall is likely to attract.

Starhill global says 90% to 100% of the rights proceeds will be used for repayment of debt, acquisition opportunities and asset enhancement initiatives.

The asset enhancement plan for the two malls could potentially add as much as 100,000 sq ft gross floor area, but REIT is more likely to expand the properties by some 40,000 sq ft. They are also thinking of enhancing its façade with more pop up retail space to have the longest linear Orchard Road frontage, so Wisma will be more attractive.

But it could be several months before the REIT gets approval from the co-owners of the two properties for the expansion plans. Starhill Global owns 27% of Ngee Ann City and 74% of Wisma Atria.

The iconic status of the two properties and the 357m of street level frontage along Orchard Road they offer were cited as the key reasons for YTL Corp acquiring control of the REIT.

Besides its stake in Ngee Ann City and Wisma Atri, Starhill global owns seven commercial properties in Tokyo, Japan and a shopping mall in China. The REIt is targeting to grow its portfolio of properties to S$3 billion with in three years.

REIT is scouring around for opportunities to invest in distressed assets in Singapore, Malaysia, China, Japan and Australia.


The rights issue announced could be the portent of an acquisition spree. After the rights issue, Starhill Global’s debt to asset gearing will fall to 20.7% It currently has some S$670 million in debt as at March 31, 2009, of which S$380 million are commercial mortgage backed securities.

Its cost of debt is currently 2.95%.

YTL has given an undertaking to subscribe to its entitlement of 26.6% and an additional 48.4% or a total of 75% of the rights offering. If YTL subscribes for its entire undertaking, it would end up owning as much as 50.8% of the REIT. YTL is seeking a whitewash waiver not to make an offer for the company from shareholders.

Related:-
YTL ... Jan 2009
YTL Corp Bhd ... Nov 2008