Company AGMs: Dos and don'ts

[FFNow]

Starhill did a rights issue in Apr 2009 which was totally unnecessary as their debt was not due for refinancing until Sep 2010, one and a half years later. They then sat around and waited ONE YEAR for the market to recover before buying assets... from their own Starhill REIT in Malaysia. It was a massive misuse of shareholder funds as they could have waited one year before raising money. Instead they took money at the bottom of the market, when that capital was most precious, and sat on it. In that one year shareholders could have bought a multitude of other stocks that doubled.

That one exercise demonstrated very clearly that the Yeoh family has little or no understanding of shareholder value. IMHO it is no accident that Starhill Global trades at a discount to CMT and FCT.

Maybe the Yeoh family decided against purchasing assets immediately after collecting the money for some reason?

[Coattails]

Eventually, it is still a benefit-cost analysis. I am certain when the time arrives for the rights issue, people will question as well. The fact is given the structure of a REIT, where they are almost 'mandated' to distribute back 90% of its net profit, the only way they can acquire assets is either through share placements, rights, or taking on more debts.

Probably the better financing is to use a perpetual bond - in which case, they can choose never to pay back the full nominal debt sum. But I am certain it has its cons too.

Anyway, for Starhill, during the post-AGM discussion, Francis Yeoh did state that chances are very slim for them to win the Toshin appeal. The bottom line is the court thinks Starhill is trying to get the best of both world by securing Toshin as an anchor tenant and thereafter, complaining that their rent is too low.

I agree with you about the cost-benefit analysis part and debt financing being the best option.

However, I am still of the opinion that all else equal, rights issue is a better option than private placement because existing shareholders are given the option to put more funds into the REIT so as to maintain proportionate ownership of the REIT and of future distributed dividends. Private placement robs existing shareholders of this right. In some cases, the rights issued are tradable, and existing shareholders who do not wish to subscribe to more shares can sell their rights to get something back in return for being diluted.

As for the Toshin issue, I came away with a different understanding. My impression is that come Jun 2013, Toshin will be starting a new 12-year lease with Starhill, and the rental rate at that time will be reset closer to prevailing market rate WITHOUT there being any cap on the rate increase.

[swakoo]

The best suggestion I heard was the last uncle who told management to do a rights issue to existing shareholders instead of a private placement if they wanna raise cash to buy another mall. This is because the share is currently undervalued, so private placements are not beneficial for existing shareholders. That uncle knows his corporate finance well!

Starhill did a rights issue in Apr 2009 which was totally unnecessary as their debt was not due for refinancing until Sep 2010, one and a half years later. They then sat around and waited ONE YEAR for the market to recover before buying assets... from their own Starhill REIT in Malaysia. It was a massive misuse of shareholder funds as they could have waited one year before raising money. Instead they took money at the bottom of the market, when that capital was most precious, and sat on it. In that one year shareholders could have bought a multitude of other stocks that doubled.

That one exercise demonstrated very clearly that the Yeoh family has little or no understanding of shareholder value. IMHO it is no accident that Starhill Global trades at a discount to CMT and FCT.

Absolutely. Not only was Starhill's debt not due for refinancing in Apr 2009, their gearing was also very very low and probably well within comfort level for refinancing even during that period of credit crunch.

Not only did the rights issue result in opportunity loss for unitholders, most people hold reits for income and that rights issue (without accompanying acquisition to make it yield accretive) massively diluted the distribution yields immediately for unitholders, even if they had sold their renounceable rights (at big discount due to the sudden oversupply).

My cynical view is that that rights issue wiped out gearing so low that Starhill Global could later use a lot more debt to acquire at much higher prices the properties from the sponsor's own stable, since cost of debt is much lower than cost of equity.

FCT (green) and SuntecReit (red) clearly outperforming Starhill (blue) ever since that rights issue in Apr 2009 which must have shattered the trust of a lot of unitholders:

[Image: z?s=P40U.SI&t=5y&q=l&l=on&z=l&c=J69U.SI,...&region=US]

[Stocker]

"" As for the Toshin issue, I came away with a different understanding. My impression is that come Jun 2013, Toshin will be starting a new 12-year lease with Starhill, and the rental rate at that time will be reset closer to prevailing market rate WITHOUT there being any cap on the rate increase. ""



Not true, otherwise they will not be in court case with Toshin.

[KopiKat]

"" As for the Toshin issue, I came away with a different understanding. My impression is that come Jun 2013, Toshin will be starting a new 12-year lease with Starhill, and the rental rate at that time will be reset closer to prevailing market rate WITHOUT there being any cap on the rate increase. ""



Not true, otherwise they will not be in court case with Toshin.

There was an SGX Announcement on 19-Apr. Some extracts,

YTL Starhill Global REIT Management Limited (the “Manager”), the manager of Starhill Global Real Estate Investment Trust (“Starhill Global REIT”) wishes to announce that the Manager has received a written notice from Toshin of its intention to exercise the option to renew the term of the lease between HSBC Institutional Trust Services (Singapore) Limited, as trustee of Starhill Global REIT and Toshin (the “Toshin Lease”) pursuant to Clause 12.2 of the Toshin Lease for a further term of 12 years commencing 8 June 2013 (the “Option Period”).
.
.
The Toshin Lease provides for the parties to agree on the renewal rent for the Option Period (the Renewal Rent”), failing which the Renewal Rent shall be the average of three market rental values of the premises as determined by three separate licensed valuers in accordance with the Toshin Lease. However, if such average prevailing market rental value is less than the rent payable immediately prior to the commencement of the Option Period, the Renewal Rent shall be the annual rent then payable. The Toshin Lease also provides for a review of the rental rate every three years during the Option Period, and the existing provisions of the Toshin Lease regarding rent review shall continue to apply.

[Coattails]

Starhill did a rights issue in Apr 2009 which was totally unnecessary as their debt was not due for refinancing until Sep 2010, one and a half years later. They then sat around and waited ONE YEAR for the market to recover before buying assets... from their own Starhill REIT in Malaysia. It was a massive misuse of shareholder funds as they could have waited one year before raising money. Instead they took money at the bottom of the market, when that capital was most precious, and sat on it. In that one year shareholders could have bought a multitude of other stocks that doubled.

That one exercise demonstrated very clearly that the Yeoh family has little or no understanding of shareholder value. IMHO it is no accident that Starhill Global trades at a discount to CMT and FCT.

Absolutely. Not only was Starhill's debt not due for refinancing in Apr 2009, their gearing was also very very low and probably well within comfort level for refinancing even during that period of credit crunch.

Not only did the rights issue result in opportunity loss for unitholders, most people hold reits for income and that rights issue (without accompanying acquisition to make it yield accretive) massively diluted the distribution yields immediately for unitholders, even if they had sold their renounceable rights (at big discount due to the sudden oversupply).

My cynical view is that that rights issue wiped out gearing so low that Starhill Global could later use a lot more debt to acquire at much higher prices the properties from the sponsor's own stable, since cost of debt is much lower than cost of equity.

Your arguments are indeed compelling. I just wished more of the shareholders voted down the resolution to empower the manager to issue units or convertible securities today.

But on the positive side, Starhill's dividend yield still looks very decent at 6+% and is well-supported by solid retail assets in prime shopping areas where new retail space is scarce.

FCT looks good as well, but Suntec is highly geared, going into major AEI for Suntec City for next three years, and facing negative rental reversion for their One RQ and MBFC acquisitions.

---

Not true, otherwise they will not be in court case with Toshin.

I believe they are in court for the rent from period 2011 to 2013 only.

[FFNow]

I believe they are in court for the rent from period 2011 to 2013 only.

Yes, this is right.
http://www.starhillglobalreit.com/DataFi...130511.pdf

"Under the terms of the Toshin Lease, the Rent Review Mechanism determines whether the rental rate for the next rental term of two years commencing on 8 June 2011 is to increase (not exceeding a 25%
increase from current rates) or remain at the current rates. Starhill Global REIT’s position is that the Rent Review Mechanism is no longer operable whereas Toshin takes the opposing view, hence necessitating the application to the Singapore High Court."

[KopiKat]

Starhill did a rights issue in Apr 2009 which was totally unnecessary as their debt was not due for refinancing until Sep 2010, one and a half years later. They then sat around and waited ONE YEAR for the market to recover before buying assets... from their own Starhill REIT in Malaysia. It was a massive misuse of shareholder funds as they could have waited one year before raising money. Instead they took money at the bottom of the market, when that capital was most precious, and sat on it. In that one year shareholders could have bought a multitude of other stocks that doubled.

That one exercise demonstrated very clearly that the Yeoh family has little or no understanding of shareholder value. IMHO it is no accident that Starhill Global trades at a discount to CMT and FCT.

I went to do some internet searches and came up with the following timeline (dates may be out a couple of days),

23 Jun 09 : Annc 1-for-1 Rights @ $0.35 to raise $337.3M

13 Jul 09 : Book Closure for Rights Allotment

18 Nov 09 : Annc Acquisition Plan - A$115M (~S$148M) for Aussie assets (Expected Completion Jan-10) + RM1030M (~S$423.3M) for Malaysia assets

19 Apr 10 : Agreement signed between both Starhill. Funding by Cash (31%) + Debts (32%) + CPU (39%)

2 Jun 10 : Shareholder gave approval for assets sale (Malaysia Starhill)

My comments
1. It does look like it took them >1 year from announcement of rights issue to the acquisition of the Malaysia assets
2. But, to be fair, from the date of actual funds raised to their acqusition plan was ~4mths with the Aussie assets acquisition completed in ~6mths
3. For whatever reasons, it took ~5mths from announcement of Malaysia assets to signing of agreements + 1mth+ to get shareholders' approval from Malaysia side
4. The balance of funds from the rights issue was insufficient for the Malaysia assets and they had to raise additional funds from debts and issuance of CPUs
5. YTL holds ~63% of Starhill (Malaysia) + ~26% of Starhill Global (Singapore) prior to the rights issue and in terms of S$ value at that point in time, their Malaysia assets (Strahill REIT) was ~ double that of Singapore assets (Starhill Global)
6. Post rights, the above % holdings is still about the same but in S$ value, the Singapore assets holdings is now slightly higher

<Not Vested> but kind of remembered making some $$ when the market punished Starhill Global share price when they announced the rights issue during bearish times ie. Lessons learnt and applied was that there're always such market opportunities around (too bad I missed the recent KREIT one)

[d.o.g.]

I went to do some internet searches and came up with the following timeline (dates may be out a couple of days)

Thanks. I stand corrected on the date of the rights issue. I looked it up again, the rights announcement is dated 22 June 2009. Don't know why I wrote Apr 2009.

[valueinvestor]

I was at the Starhill Global agm yesterday also. Some unitholders really waste time by asking the obvious question again and again. One of them by the name of Vincent Tan ( Believe he was not the same VT of Berjaya Bhd. )asked why the rentals of NAC and WA almost the same but NAC is having a bigger space, and he knew fully that the rental paid by Toshin was below market price ,because he had been following the court case between STG and Toshin. He tried to act smart but not knowing that he was indeed exposed his stupidity.When management gave him the subtle answer he still asked again, IQ seemed not high.