Starhill Global REIT: BUY; S$0.595; Bloomberg Code: SGREIT SP
A landmark transaction

Price Target : 12-Month S$ 0.73 (Prev S$ 0.66)


     	Asset portfolio to grow to S$2.6bn post acquisition of 2 Malaysian
        malls

     	Partially funded through new issuance of convertible preference
        units (“CPUs”)

     	Accretion to earnings estimated at 6-13% in FY10-11F

     	Maintain BUY, TP revised to S$0.73.


Adding Malaysia exposure in its portfolio. Starhill Global REIT (SGREIT)
has signed an agreement to purchase Lot 10 and Starhill Gallery (located in
central Kuala Lumpur, Malaysia) from Bursa-listed Starhill REIT at a cost
of RM 1.03 b (S$450.1m). Upon completion of the transaction, SGREIT’s
portfolio of assets will increase by 20% to S$2.6bn.

Issuing new convertible units.  The transaction will be funded through an
asset-backed securitisation structure, involving cash (31% of purchase
price), debt (32%) and the issuance of new convertible preference units
(“CPUs”) (39%) . The CPUs, amounting to RM405 m (est. S$177m) will be paid
an annual coupon of 5.65%, and convertible into new SGREIT units at a 30%
premium to the last vwap upon listing of the CPUs. There is a moratorium of
3 years before the conversion, which will turn mandatory after 7 years.

6-13% accretion to FY10-11F distributions.  Upon completion, we estimate
distribution income accretion of c6-13% in FY10-11F. We have also accounted
for the conversion of all of the CPUs in year 3 into new SGREIT units.

BUY, TP adjusted S$0.73.  Maintain our BUY call, with adjusted target price
of S$0.73 assuming the full conversion of the CPUs from FY13 after
moratorium period. Further price catalyst in our view may come from: (i)
stronger than expected 1Q10 results, and (ii) clarity of its refinancing
plans for majority of its loans due in Sept 2010.