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ECM Libra: Keeps target price unchanged at RM8 for YTL Corp

Buys remaining 50% of Starhill Global’s manager

Wholly-owned subsidiary, Starhill Global REIT Management Ltd (SGRM) has entered into an agreement with Pacific Star REIT Management Holdings Ltd for the acquisition of 1.5 million ordinary shares and two Class ‘C’ Redeemable Preference Share in YTL Pacific Star REIT Management Holdings Pte Ltd (YPSRMH), representing the remaining 50% of YPSRMH for S$40 million (RM93.31 million).

The first tranche of 750,000 ordinary shares and 1 Class ‘C’ Redeemable Preference Share will be transferred upon settlement of a sum of S$17.5 million. The transfer of the first tranche would take place on the third business day after obtaining the necessary approvals.

The second tranche of a similar 750,000 ordinary shares and 1 Class ‘C’ Redeemable Preference Share will be transferred upon settlement of a sum of S$22.5 million on a date falling 24 months from the date of the agreement.

Comments

The fees receivable by YPSRMH are based on the properties belonging to Starhill Global REIT, a 28.8% associate of YTL Corp listed in Singapore. YPSRMH is entitled to receive:

* Base fee of 0.5% p.a. on the value of trust property

* Performance fee (total returns exceed a certain benchmark)

* Acquisition fee of 1% on purchase price of any real estate acquired

* Divestment fee of 0.5% on sale price of any real estate divested

YPSRMH is entitled to receive SGD4.5m from Starhill Global REIT’s S$450.1 million acquisition of Starhill Gallery and Lot 10 and S$12.5 million from Starhill Global REIT’s trust property value of S$2.5 billion. Starhill Global REIT’s relative total returns in 2009 were in negative territory, hence no performance fees are receivable.

On a recurring basis, our back of the envelope calculations indicate that YPSRMH will earn at least S$10.4 million (S$12.5 million less 17% tax). As the earnings accretion of RM11.9 million (S$10.4 million x RM2.30 S$ RM exchange rate – 50% existing shareholding) is less than 2% of our 2010F earnings estimates, we leave them unchanged. We keep our TP unchanged at RM8 (25% discount to SOP of RM10.50).


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