Starhill Global REIT Decides Not To Increase Toshin New Base Rent

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This is one piece of news that disappoints investors of Starhill Global REIT. As highlighted in my previous post (Starhill Global REIT High Dividend Yield Can Buy?), Ngee Ann City Property Retail (Singapore) expires 2025 with a 5.5% increase in base rent from 8 June 2016. The rent review is this month June 2019. Toshin is the master tenant occupying all the retail areas except level five of the Ngee Ann City Property (as hereinafter defined) for the period of 12 years from 8 June 2013.

The manager of Starhill Global REIT has announced that the new base rent will remain the same as the current rent. This will remain 3 years from 8 June 2019. As at 31 March 2019, the Toshin Master Lease contributed to approximately 21.9% of Starhill Global REIT’s portfolio gross rent. Perhaps due to the weak retail sentiments, my opinion is that Starhill Global REIT is afraid Toshin might pull out of its Ngee Ann City Property if Starhill Global REIT increases the new base rent.

Below are Starhill Global REIT’s 3rd Quarter FY18/19 Financial Results.

Third Quarter FY 2018/19 Financial Results

3QFY18/19 3QFY17/18 Change
Gross Revenue $51.3 mil $51.7 mil (0.9%)
Net Property Income $39.6 mil $40.3 mil (1.8%)
Distributable Income $25.0 mil $25.4 mil (1.4%)
Income to be Distributed to Unitholders $24.0 mil $23.8 mil 0.9%
Distribution Per Unit (“DPU”) (cents) 1.10 1.09 0.9%
  • Higher contributions y-o-y from Myer Centre Adelaide, Plaza Arcade and Ngee Ann City Property (Office) were offset by lower contributions from the retail portfolio in Singapore and the depreciation of the Australian dollar against the Singapore dollar.
  • DPU for 3Q FY18/19 was higher by 0.9% y-o-y mainly due to lower tax expenses and distributable income retained, partially offset by lower NPI and higher interest costs.
  • Annualised 3Q FY18/19 yield is 6.11%, based on closing unit price of S$0.73 as at 31 March 2019.

Debt

Gearing stood at 35.7% and about 91% of its borrowings are fixed/hedged as at 31 March 2019.

Conclusion

My opinion is that Starhill Global REIT is afraid Toshin might pull out of its Ngee Ann City Property if Starhill Global REIT increases the new base rent. The Toshin Master Lease contributed to approximately 21.9% of Starhill Global REIT’s portfolio gross rent and it will be disastrous if Toshin pulls out.

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